Question

Explain, what do you understand by shock therapy.

Answer 1

Step 1: Meaning:
'Shock therapy' refers to the abrupt, sweeping transition from a Soviet-style command economy to a market-based capitalist economy that Russia and other former Soviet republics undertook after the USSR's collapse in 1991, rather than a slow, gradual reform.

Step 2: Key features:
It involved rapid privatisation of state-owned enterprises, sudden removal of price controls, opening up to foreign trade, and withdrawal of state subsidies, all implemented in a very short span of time on the advice of Western economic institutions.

Step 3: Consequences:
The abruptness caused severe short-term hardship — collapse of the rouble, hyperinflation, mass unemployment, and a sharp fall in living standards — even though it aimed to integrate these economies with global capitalism faster.