Question

Explain any four consequences of Shock Therapy.

Hint:

Shock Therapy was the quick shift from state control to a market economy under World Bank and IMF advice. It caused economic collapse, loss of savings, loss of food security, and a rich-poor divide.

Answer 1

Step 1: What Shock Therapy was:
After 1989, the post-communist countries, especially Russia, moved to capitalism in a very sudden way. This model was shaped by the World Bank and the IMF and is called Shock Therapy.
Its main steps were quick privatisation and ending state control over trade and prices.

Step 2: Consequence 1 - Collapse of the economy:
The old trade links among the former Soviet republics broke down and the value of the ruble fell sharply.
Prices rose so fast that people lost their savings. By 1999 the output of Russia was lower than it had been in 1989.

Step 3: Consequence 2 - Wrong privatisation and the mafia:
State industries were sold to private buyers at very low prices. Insiders and a small group bought them cheaply.
This created a new class of very rich people and strong mafia groups in the economy.

Step 4: Consequence 3 - Loss of food security:
The collective farm system broke down and nothing equal replaced it.
Many people lost their steady food supply, and the country had to import food.

Step 5: Consequence 4 - Poverty and inequality:
Most people became poorer while a few became very rich, so the gap between rich and poor grew wide.
The old middle class was pushed into poverty and government institutions turned weak.

Final Answer:
Shock Therapy brought economic collapse, a fall in the ruble, loss of savings, an unjust sale of state property, a food crisis, and a wide rich-poor divide.