Question

Explain the meaning and purpose of Shock Therapy.

Hint:

Shock Therapy is the sudden shift of the post-Soviet economies to capitalism, aimed at ending state control and building a free market.

Answer 1

Step 1: Understand the term:
Shock Therapy is the name given to the economic model that Russia, the Central Asian republics and the East European countries followed after the Soviet Union broke up.
It was a sudden and drastic move from a state-controlled socialist economy to a capitalist market economy.
The World Bank and the International Monetary Fund guided this model, so it is also linked to their advice.

Step 2: Meaning in practice:
The state gave up control over the economy in a very short time.
State-owned industries and assets were handed over to private owners.
Collective farms were replaced by private farming, and trade with foreign countries was thrown open.

Step 3: Purpose 1: Create a free market:
The first aim was to end the command economy of the Soviet type.
Prices, production and trade were to be decided by the market and not by the state, so a capitalist system could take root fast.

Step 4: Purpose 2: Join the global economy:
The second aim was to link these countries with the world economy through free trade, foreign investment and currency convertibility.
The leaders believed that a quick break from the old system would give faster growth.

Step 5: Result in brief:
The outcome was not as hoped. Large industries collapsed, the value of the currency fell and many people lost jobs and savings.
The economies took years to recover, and inequality rose sharply.

Final Answer:
Shock Therapy was a sudden, complete shift of the former socialist countries to a capitalist economy, meant to end state control and join the world market.