Question

Was Shock therapy necessary for making a transition from Socialist economy to Capitalist economy ? Support your answer with two arguments.

Hint:

Take the stand that the sudden shift was not needed. Give two arguments: fall of the economy and rising inequality and hardship.

Answer 1

Step 1: State the position:
Shock therapy was the sudden shift from the socialist economy to a capitalist economy in Russia and the East European states, advised by the World Bank and the IMF in the 1990s.
In this answer the view taken is that it was not necessary in its abrupt form. A gradual and planned shift would have caused less harm. Two arguments support this.

Step 2: Argument 1: It damaged the economy:
The state controlled industries were sold off very quickly. About 90 percent of Russian industry was put up for sale, often at very low prices.
The Russian currency, the ruble, fell sharply. Inflation rose, people lost savings, and by 1999 the national output was lower than in 1989.

Step 3: Argument 2: It increased hardship and inequality:
The old system of public distribution and welfare broke down. Food shortages and unemployment spread.
A few people, including mafia groups, grabbed valuable assets and became very rich while most people became poorer. The gap between rich and poor became wide.

Step 4: Conclusion:
The sudden change did not give time to build new institutions. Countries like China moved step by step and did better, which shows the sudden path was not the only way.

Final Answer:
No, shock therapy was not necessary. It caused economic collapse and wide inequality, and a gradual transition was possible.