Question

Highlight any four consequences for shock therapy.

Hint:

Shock therapy was the fast change from socialism to the market economy in the former Soviet region.
Write four results such as industrial collapse, fall of the rouble, poverty and mafia rise.

Answer 1

Step 1: Understand the term:
Shock therapy was the sudden move from a state-controlled socialist economy to a capitalist market economy in Russia, East Europe and the Central Asian republics after 1990.
It was guided by the World Bank and the IMF. The question asks for four of its consequences.

Step 2: Consequence 1: Collapse of the industrial base:
Nearly 90 per cent of industry was put up for sale to private players.
Many factories were sold at very low prices, so the old industrial structure of Russia broke down.
Output fell and many units shut, since they could not compete in the open market.

Step 3: Consequence 2: Fall in the value of the currency and savings:
The value of the rouble fell sharply and inflation rose very fast.
The savings of ordinary people lost their worth within a short time.
Real GDP of Russia fell between 1989 and 1999.

Step 4: Consequence 3: Collapse of the welfare system and rise of poverty:
The old system of social welfare was destroyed, and the state stopped many subsidies.
Public facilities decayed. A large part of the people fell into poverty.
The middle class was pushed to the margins and many skilled people left the country.

Step 5: Consequence 4: Rise of mafia and economic inequality:
Privatisation was quick and not transparent, so mafia groups took control of many assets.
A small group became very rich, while most people grew poorer.
The gap between rich and poor became very wide.

Step 6: Other result:
The economy began to recover only around 2000, when the export of oil, gas and metals increased.

Final Answer:
Shock therapy brought four main consequences: collapse of industry, a fall in currency value and savings, loss of welfare with more poverty, and the rise of mafia with sharp inequality.