Question:
Why is ‘Shock Therapy’ considered a painful process of transition from an authoritarian socialist system to a democratic capitalist system ? Explain any three reasons.
Why is ‘Shock Therapy’ considered a painful process of transition from an authoritarian socialist system to a democratic capitalist system ? Explain any three reasons.
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To explain why Shock Therapy was painful, focus on: Privatization/Garage Sale of industries, Hyperinflation/Currency devaluation, and Collapse of state welfare subsidies.
Updated On: Aug 11, 2026
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Solution and Explanation
Concept:
'Shock Therapy' refers to the rapid, free-market economic model prescribed by international financial institutions (IMF and World Bank) for post-communist states after the fall of the USSR. Detailed Explanation of Three Reasons for Painful Transition:
• Colossal Economic Destruction ("The Largest Garage Sale in History"): The abrupt privatization of state assets led to the systematic dismantling of the industrial sector. Valuable state enterprises, factories, and natural resource industries were sold off at fractions of their real worth to private buyers and foreign investors, leading to a major drop in economic output.
• Hyperinflation, Currency Collapse, and Devaluation of Savings: The sudden removal of state price controls caused severe hyperinflation. The Russian Ruble lost value rapidly, wiping out life savings for millions of citizens, while real wages fell significantly.
• Dismantling of the Social Safety Net and Rise of Economic Inequality: The withdrawal of government subsidies on food, medicine, and basic public utilities pushed large segments of the population into poverty. Meanwhile, rapid privatization concentrated economic wealth in the hands of a few oligarchs and organized criminal networks.
'Shock Therapy' refers to the rapid, free-market economic model prescribed by international financial institutions (IMF and World Bank) for post-communist states after the fall of the USSR. Detailed Explanation of Three Reasons for Painful Transition:
• Colossal Economic Destruction ("The Largest Garage Sale in History"): The abrupt privatization of state assets led to the systematic dismantling of the industrial sector. Valuable state enterprises, factories, and natural resource industries were sold off at fractions of their real worth to private buyers and foreign investors, leading to a major drop in economic output.
• Hyperinflation, Currency Collapse, and Devaluation of Savings: The sudden removal of state price controls caused severe hyperinflation. The Russian Ruble lost value rapidly, wiping out life savings for millions of citizens, while real wages fell significantly.
• Dismantling of the Social Safety Net and Rise of Economic Inequality: The withdrawal of government subsidies on food, medicine, and basic public utilities pushed large segments of the population into poverty. Meanwhile, rapid privatization concentrated economic wealth in the hands of a few oligarchs and organized criminal networks.
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