The model of transition in Russia, Central Asia, and East Europe that was influenced by the World Bank and IMF came to be known as ‘shock therapy’. Shock therapy varied in intensity and speed amongst former second-world countries, but its direction and features were quite similar. Each of these countries was required to make a total shift to a capitalist economy, which meant rooting out completely any structures that evolved during the Soviet period.

Schock Therapy and Russia

Meaning: Shock therapy is a quick and complete shift from a state-controlled economy to a free-market economy. This method includes quick actions like extensive privatization, deregulation, and elimination of government subsidies, to stabilize the economy and foster growth. 

• Shock therapy was prominently introduced in the early 1990s in Eastern European countries and the former Soviet Union.
• Shift from Collective to Private Farming: Collective farms were to be replaced by private farming and capitalism in agriculture.
• Shift towards Free Trade: Shock therapy also involved a drastic change in external orientation of these economies. 
  • Development was now envisaged through more trade, and thus a sudden and complete switch to free trade was considered essential.
• Dissolution of Trade Alliances: The transition also involved a break up of the existing trade alliances among the countries of the Soviet bloc.

Consequences of Shock Therapy

Socio-economic Disaster: Shock therapy brought ruin to economies and disaster to people of the entire region. In Russia, a large state-controlled industrial complex almost collapsed, as about 90%  of its industries were put up for sale to private individuals and companies.

• Currency Depreciation: The value of Ruble,  Russian currency, declined dramatically and the rate of inflation was so high that people lost all their savings.
• Agricultural Crisis: The collective farm system disintegrated leaving people without food security, and Russia started to import food. 
  • The real GDP of Russia in 1999 was below what it was in 1989. The old trading structure broke down with no alternative in its place.
•  Collapse of Social Safety Net: The old system of social welfare was systematically destroyed. The withdrawal of government subsidies pushed large sections of the people into poverty. 
  • The construction of democratic institutions was not given same attention and priority as the demands of economic transformation.

• Hastily Drafted Constitutions and Weak Parliaments: The constitutions of all these countries were drafted in a hurry and most, including Russia, had a strong executive president with widest possible powers that rendered elected parliaments relatively weak.
• Economic Revival: Most of these economies, especially Russia, started reviving in 2000, ten years after their independence. The reason for the revival of most of their economies was export of natural resources like oil, natural gas, and minerals. 
  • Azerbaijan, Kazakhstan, Russia, Turkmenistan, and Uzbekistan are major oil and gas producers.

Creation of New Countries: Tensions and Conflicts

Most of former Soviet Republics are prone to conflicts, and many have had civil wars and insurgencies. In Russia, two republics, Chechnya and Dagestan, have had violent secessionist movements.

• Tajikistan witnessed a civil war that went on for ten years till 2001. The region as a whole has many sectarian conflicts.
• In Azerbaijan’s province of Nagorno-Karabakh, some local Armenians want to secede and join Armenia.
• In Georgia, the demand for independence came from two provinces, resulting in a civil war.
• Central Asia has also become a zone of competition between outside powers and oil companies.
  • In Eastern Europe, Czechoslovakia split peacefully into two, with the Czechs and the Slovaks forming independent countries.
• Yugoslavia broke apart with several provinces like Croatia, Slovenia, and Bosnia and Herzegovina declaring independence.

Conclusion

Shock therapy, implemented in the 1990s, aimed to rapidly transition Russia, Central Asia, and Eastern Europe from state-controlled to capitalist economies. This approach led to significant privatization, deregulation, and the dissolution of Soviet-era structures. However, it resulted in economic collapse, currency depreciation, agricultural crisis, and weakened social safety nets. Despite initial hardships, some economies, especially resource-rich ones, began to recover by 2000. The transition also sparked regional tensions and conflicts, highlighting the complex legacy of shock therapy.

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