The concept of shock therapy is based on ideas. Method of "shock therapy. The main features of the shock therapy method

unprofitable state enterprises.

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  The foundation of the proponents of the theory is rooted in the liberalization of the economy undertaken by post-war Germany in the late 1940s. During and in 1948, price controls and state support for enterprises were abolished in a very short time. These reforms gave a kick-start effect, resulting in the German economic miracle (Wirtschaftswunder). Until then, Germany had had a deeply authoritarian and interventionist government, and by shedding these administrative barriers "overnight" it had become an emerging market economy.

  One of the founders and main ideologists of the theory is the famous economist Jeffrey Sachs.

  Examples

  • Great Britain - Thatcherism (since 1979)
  • Germany (see above)
  • New Zealand - Rogernomics (since 1984)

  Arguments of opponents

  The main arguments of the opponents:

  • High inflation, hyperinflation;
  • A landslide decline in production, mainly in high-tech areas;
  • High unemployment;
  • Property stratification and a sharp decline in the standard of living;
  • Growing social tension;
  • The crisis of the social sphere, the decline in the birth rate and a sharp increase in the death rate of the population.
  • A sharp increase in crime and the criminalization of the economy
  • Growth of state debt in the absence of financial resources for reforms of this magnitude;
  • Increased political instability;
  • High dependence of the economy on foreign investment;
  • Foreign trade imbalance.

  Examples

  • Russia (see below)

  Shock therapy in different countries

  Based on past successful experience, at the dawn of the 1990s, D. Sachs recommended that new macroeconomists in transition (the countries of Eastern Europe, the former USSR and Latin America) also completely release all prices, abolish subsidies, sell state property and introduce a free, floating exchange rate currencies to shake up the economic lethargy of the communist era. The shock took the form of sudden and radical changes in the structure and incentives of these macroeconomics. As a result, Poland and other states of Eastern Europe have reached a level of economic development that meets the requirements for entry into the European Union. The macroeconomics of the former USSR and Latin America had mixed success.

  Bolivia

  Israel (1985-1999)

  Poland

  Russia (1992-1998)

  Radical economic reforms in Russia were launched on January 2, 1992. They were carried out by a team, the shock therapy implemented in Russia (maximum liberalization of economic activity, arbitrary distribution of state property, financial stabilization due to severe limitation of aggregate demand) led to the creation of a miserable quasi-market system which features were:

  unprecedented naturalization of economic activity, a steady significant excess of the interest rate on the level of return on capital in the real sector and the inevitable orientation of the entire economy under these conditions to financial and trade speculation and the pilfering of previously created wealth, a chronic fiscal crisis caused by the emergence of a “bad sequence”: “budget deficit - reduction in public spending - a decline in production and the growth of non-payments - a reduction in tax revenues - a budget deficit.

  "Shock therapy" and its historical consequences. discussion around this phenomenon.

  "Shock therapy" - propagandistic (newspaper) name, with the light hand of some publicists, stuck to the policy that the reformist government of Yeltsin-Gaidar began to pursue after coming to power politicseconomic stabilization. (Russia's attempt to move to a Market Economy)

  Usually they say that the content of the reform: liberalization, price releases, but it was of a complex nature:

  • Price release(however, not all it, unfortunately, did not apply to fuel and energy resources)
  • enterprises were granted the right to independently market their products and purchase raw materials and components;
  • trade enterprises were allowed to use negotiated prices for all types of goods and services;
  • enterprises and firms received the right to carry out foreign trade operations (subject to certain rules and restrictions);
  • state bodies of material and technical supply began to turn into trade and intermediary organizations interested in providing enterprises with everything necessary;
  • private trade and the activities of non-state trade and procurement organizations were allowed.
  • Decrees of the President were adopted on the abolition of restrictions on wages, on social partnership, on the common economic space and a number of others;
  • financial stabilization by limiting the budget spending and contraction of the money supply.

  Historical implications:

  • collapsed planning and distributioncontrol systemthe economy collapsed.
  • the country has not yet become, of course, a market economy, but has made a decisive step in this direction.
  • All this dramatically changed the life of the country's population, and not for the better, as the decline in production (started back in 1990-91),price releaseled to increased inflation , hundreds of thousands of people lost their jobs due to repeatedreduction in military orders.
  • depletion of investments with the resulting erosion of fixed capital and large-scale "flight" of savings;
  • rising unemployment and massive underemployment along with unpaid wages;
  • little that remains of social security;
  • "shock therapy" destroyed the institutions of the socialist economy, but did not create the institutions of a market economy;
  • "Shock therapy" caused fierce resistance in the parliament elected back in Soviet times and among the Soviet institutional nomenclature, most of which remained in their seats;
  • on the contrary, the masses of working people showed long-suffering and faith in the success of the reforms: only a few sparsely populated rallies were observed on the territory of Russia, the promised popular unrest did not occur;
  • After the VI Congress of People's Deputies, held in early April 1992, "shock therapy" was curtailed. As a result, Russia moved into the category of those post-socialist countries that carried out market reforms in a gradual, gradualist way (see. Gradualism
  • Some point out the advantage of such an economy: the rejection of the state. price regulation.

  Opinions and discussions:

  • According to the academician of the Russian Academy of Sciences A. D. Nekipelova , shock therapy implemented in Russia led to the creation of a miserablequasi-market systemwhich features were:

  unprecedented naturalization of economic activity, a steady significant excess of the interest rate on the level of return on capital in the real sector and the inevitable orientation of the entire economy under these conditions to financial and trade speculation and the pilfering of previously created wealth, a chronic fiscal crisis caused by the emergence of a “bad sequence”: “ budget deficit reduction in public spending decline in production and growth of non-payments reduction in tax revenues budget deficit”.

  • Why was liberalization successful in Poland, but not in Russia? (opinion of Yavlinsky G.)

  In Poland, price liberalization worked because there was no collectivization. There were large state-owned agricultural enterprises, but there were also private farms and, to a large extent, private ownership of land. And after the release of prices, many private farms immediately entered the market directly, without any intermediaries. And that is why liberalization only initially led to a large surge in prices, and then inflation began to gradually decline.

  • According to the West in Russia, noun. the following obstacles:corruption, prohibitive level of taxation, unproductive work of workers, communication problems, lack of financial and other institutions of market infrastructure, stable "environment" for entrepreneurial activity.
  Shock therapy is a radical approach to reform during the transition from an administrative-command to a free market economy.
  Assumes:
  1) rising prices, inflation;
  2) and at the same time - an anti-inflationary stabilization program by the government;
  3) transformation of property relations - accelerated privatization of enterprises and other objects of state property;
  4) change in the usual course of economic relations;
  5) growth of unemployment;
  6) non-fixed floating exchange rate;
  7) the abolition of subsidies.
  All these processes are taking place at an accelerated pace, which for citizens and business entities looks unexpected, unpredictable, like a “blow”, hence the name of this economic theory.
  The Purpose of Shock Therapy- to create market conditions under which enterprises, for the sake of their own economic interests, will ensure the effective growth of the national economy.
  Proponents of this theory believe that the faster reforms take place in countries with economies in transition, the faster the result can be achieved - to become a country with a developing market economy. But in practice, these experiments did not look so optimistic, primarily for citizens.

  Shock Therapy in Russia and in the world

  Methods of market reforms in different countries had different consequences, although they followed the same scenario.
  In Latin American countries (Argentina, Bolivia, Venezuela, Peru), reforms were accompanied by hyperinflation. This happened in the 1980s of the twentieth century.
  In Russia, macroeconomic stabilization took place in the early 1990s of the twentieth century. Then the mass privatization of state property became the reason that the place of absent economic entities was taken by criminal elements. In addition, the issues of savings and investment were in the background, which had a negative impact on the state of the economy.
  Only in Poland and Germany, the use of "Shock Therapy" brought the country out of the crisis, improved the national economy, and improved production growth.
  

  The Russian scenario for conducting "shock therapy"

  In 1991, the government assumed that a set of radical measures aimed at improving the economy would take a few weeks, no more. However, in practice, the process dragged on until 1993.

  Socio-economic effect of "shock therapy"

  As a result, the reforms in Russia resulted in the following consequences:
  1) The elimination of restrictions on wages led to its rapid increase in all sectors of the economy.
  2) Artificial increase in the money supply (money was "printed" without collateral).
  3) The growth of consumer activity has led to a rapid rise in prices. As a result, the money supply began to depreciate.
  4) Instead of overcoming the economic crisis, "shock therapy" was aimed at solving political problems: the establishment of a new regime and the final elimination of the administrative-command system of the national economy.
  5) Restriction

  SHOCK THERAPY CONSEQUENCE FOR ECONOMY OF RUSSIA

  Subkhonberdiev A.Sh. Candidate of Economics, Associate Professor Orazgulyeva A.A. st-ka gr. ME2-123-OB., Saiyan T.S. st-ka gr.ME2-123-OB., FGBOU VPO "Voronezh State Forest Engineering Academy"

  DOI: 10.12737/2338

  Resume: Shock therapy is an economic theory, as well as a set of radical economic reforms based on this theory. These reforms, as the postulates of "shock therapy" declare, "... are aimed at improving the state's economy and bringing it out of the crisis.

  Summary: Shock Therapy - economic theory, as well as a set of radical economic reforms based on this theory. These reforms, as declared by the postulates of the

  "shock therapy", "... aimed at reviving the economy of the state and its withdrawal from the crisis.

  Key words: shock therapy, inflation, unemployment, economic crisis.

  Keywords: shock therapy, inflation, unemployment and economic crisis.

  A crisis situation developed in the sphere of the consumer market and finance (including in connection with the decline in world oil prices by the beginning of the 1980s). The economic stagnation was accompanied by a large proportion of military spending in the budget (45% of the funds were spent on the military-industrial complex), and a low standard of living.

  The formation of the private sector in the economy was facilitated by the 1988 Law on Cooperation and the Law on Individual Labor Activity.

  In the summer of 1990, instead of accelerating, a course was proclaimed for the transition to a market economy, scheduled for 1991, at the end of the 12th five-year plan (1985-1990). At the center of scientific discussions were radical reform options, one of which is known as the "500 Days Program", developed by the group of G. Yavlinsky, M. Zadornov following the example of the Polish "shock therapy". It was planned in stages: the transfer of enterprises to forced lease, large-scale privatization and decentralization of the economy, the introduction of anti-monopoly legislation, the removal of state control over prices, the assumption of a decline in the basic sectors of the economy, regulated unemployment and inflation in order to drastically restructure the economy. It should be noted that this project has not received official support. In December 1990, the government of N. I. Ryzhkov was dismissed. The Council of Ministers of the USSR was transformed into the Cabinet of Ministers of the USSR, headed by Prime Minister V. S. Pavlov. The activity of the Cabinet of Ministers in 1991 was expressed in a twofold increase in prices, as well as in the exchange of 50 and 100-ruble banknotes for banknotes of a new type (Pavlov's Monetary Reform). The exchange was carried out for only 3 days on January 23-25, 1991 and with serious restrictions.

  This was explained by the fact that shadow businessmen allegedly accumulated huge sums in large banknotes. The economy of the USSR in 1991 was going through a deep crisis, which was expressed in an 11% decline in production, a 20-30% budget deficit, and a huge external debt of 103.9 billion dollars. On January 1, 1992, the model of "shock therapy" was practically implemented in the new Russian economy. The government, headed by E.T. Gaidar, followed the example of the Polish reformers, who carried out radical economic reforms from January 1990. The attractiveness of “shock therapy” was seen in the ability to quickly form market relations, completely destroy the remnants of the planned economy and create conditions for economic growth. Completion of all stages of the reform was planned by the end of 1995. In fact, everything turned out to be far from what was expected.

  The “shock therapy” model included three main components: one-time price liberalization, tight monetary policy, and mass privatization of state-owned enterprises. It resulted in a sharp rise in prices, a deep decline in production, a partial destruction of scientific potential, a decrease in investment activity, inflation, unemployment, a reduction in social guarantees for the population, etc. The negative trends in the economy caused by the reforms have not been overcome to this day. The consumer price index from 1992 to 1995 increased by 1187 times, and nominal wages by 616 times. Tariffs for freight transportation have increased over those years by 9.3 thousand times, and the price index for the sale of agricultural products by producers increased only 780 times, 4.5 times less than in industry. Foreign loans received by Russia for the transformation and stabilization of the economy were an important means of balancing the budget.

  The privatization carried out brought a significant part of property objects out of control of the state, and at the same time the financing of public expenditures was reduced. In developed countries, on average, state-owned enterprises account for less than 7% of GDP, in developing countries, about 11% of GDP. What is important is not the formal transfer of the title of ownership, but a real change in economic behavior, which depends on macroeconomic stability, the creation of a legal system, and compliance with budget restrictions for all economic agents. The structure of industrial production has changed over the years of transformation. There has been a decline in knowledge-intensive industries, the technical degradation of the economy, and the curtailment of modern technologies. The decline in production in Russia in terms of its scale and duration significantly exceeded all peacetime crises known in history. In mechanical engineering, industrial construction, light industry, food industry and in many other important industries, production has decreased by 4-5 times, the cost of scientific research and design development - by 10 times. Raw materials were the main source of export earnings.

  During the transition to a market economy, a labor market appeared, and unemployment increased. In 1992, prices soared 26 times, and in 1993 - 10 times. The ratio between the expenditure of the population and its income fell from 87.4% to 79.2%. The first impetus to inflation was received from the release of prices from administrative regulation in January 1992, when enterprises sharply increased prices by 5 times. The rise in wages was twice as fast as the rise in prices, and the money supply grew even more slowly. Demand for goods fell sharply, which caused a reduction in production. About 80% of wholesale prices and 90% of retail prices have been exempted from government regulation. But the state has left control over prices for milk, bread, public transport. At the same time, the liberalization of wages begins and the freedom of retail trade is introduced. Reforms were initiated at the federal level, and price controls were exercised at the local level. Therefore, local authorities wanted to maintain this control, despite the government's refusal to subsidize such regions.

  Inflation can be stopped in 1996-1997. And in January 1998, the Central Bank and the Russian government carried out the denomination of the ruble. One new ruble became equal to 1000 old rubles. Boris Yeltsin said that replacing old banknotes with new ones would make people's lives easier, "without extra zeros it would be easier for them." He expressed confidence that the Russian ruble would be no less respected currency than the Russian gold ruble was at the end of the 19th century. On August 17, 1998, the financial system collapsed in Russia. Prime Minister S. Kiriyenko announces a default on foreign debts and devaluation of the ruble. The exchange rate of the ruble against the dollar falls by 4 times. The default forces the Russian authorities to work in an emergency mode and try to improve their image by all available means.

  The basis for the use of "shock therapy" was the decision to dissolve the Soviet Union. The change in the geopolitical nature has been superimposed on the total breakdown of the economic system, plunging the country into an unprecedented crisis. How long did the "shock therapy" last? The years of her "reign" - from 1992 to 1998. During the entire period of application, her adherents made significant efforts to establish in society the idea of ​​​​the correctness and the need for its use.

  Transition to "shock therapy"

  The state of the Russian economy, when the country's leadership decided to proceed with the implementation of the approved plans, was not easy. The complication of the situation was largely due to the actions of the radical democrats who came to power. They contributed to the provocation of separatist actions, undermined the economic functions of the union center, and encouraged strikes. The team of President B. N. Yeltsin and his colleague G. E. Burbulis began a search for radical ideas and people capable of destroying the political and socio-economic structure of the Soviet Union. As a result, E. T. Gaidar joined them, who, together with E. G. Yasin, V. A. Mau and others, put forward an idea that was called “shock therapy”. This theory is not new, it was previously used to restore the economy of other countries.

  The basis of the idea

  The essence of "shock therapy" in our country was the rapid elimination of socialism. Its theoretical justification was expressed in the extremely liberal mood of Western economic thought, represented by M. Friedman, F. Hayek and L. Mises. The theory implies the successful conduct of economic activity in the presence of an environment in the state that is associated with the provisions of a free market economy. The creation of the latter is the result of financial stability and price freedom, an open domestic market and accelerated privatization.

  

  These conditions are "shock therapy" reforms, the simultaneous implementation of which will ensure effective economic growth and the realization of the national interest.

  The team of B. N. Yeltsin developed a scenario for applying the theory. It included two stages. In the first period, you had to do the following:

  1. Set price freedom.
  2. Growth of income of organizations from price increases free from control.
  3. Remove restrictions on salary increases in production branches, banking and trade.
  4. Reduce control over state property and the transfer of money savings to the consumption fund.
  5. Limit and destroy investment demand.
  6. Increase business profits.
  7. Make purchases in currency signs.
  8. Switch investment resources to the consumer market.
  9. Create a payment crisis that will cause a sharp drop in production and suspend the receipt of payments to the budget.
  10. Issue 1.5 trillion money substitutes in the form of vouchers.
  11. To open access to the Russian market and the internal monetary circulation of the ruble intervention of other countries.
  12. Release the flow of debt capital abroad, etc.

  The “shock therapy” of the second stage of the scenario included cuts in budget spending, a wage freeze for public sector employees, a “compression” of the money supply, a significant increase in interest rates, and so on. Attempts to artificially speed up the processes turned out to be unrealistic and disastrous for society. "Shock therapy" sought to solve political problems, namely, the approval of a new regime and the destruction of the administrative-command system of the national economy.

  Price liberalization

  

  The Fifth Congress of People's Deputies of the RSFSR approved the plan for the implementation of reforms, and the president was given broad powers to resolve these issues. Price liberalization came into effect in January 1992. It was assumed that this reform would eliminate the shortage of goods and create real competition for producers. Trade liberalization was also carried out jointly. This area was now controlled by commercial organizations and individuals. The government predicted a doubling of prices based on the principles of competition and the balance of supply and demand. In reality, the average increase in prices was 400 percent. In order for people to be able to buy goods, wages were raised for public sector employees, but this did not help alleviate the situation. As part of this “shock therapy” reform, the temporary lifting of restrictions on the import of goods was introduced and a zero tariff was established on imports.

  Price liberalization helped to reduce the state budget deficit, as a result, the domestic market of the state was filled with goods. But at the same time, there was a significant decline in living standards, a fall in gross domestic product, criminalization of the economy and an increase in tax revenues.

  Privatization

  This reform was the next moment of economic changes in the country. During privatization, all citizens received vouchers that gave them the right to a certain part of state property. These checks could be sold, bought or invested. As a result, individuals who managed to acquire a large number of vouchers were able to become owners of large state-owned enterprises. The second stage of privatization was expressed in the possibility of acquiring enterprises or blocks of shares for money.

  

  As a result of this reform, large business owners appeared, as well as financiers who became rich through transactions with securities. Apartments became real property of citizens.

  Reducing the money supply

  As a result of the release of prices in the framework of "shock therapy", inflation began to gain momentum. To defeat it, the government decided to take the following measures:

  1. Compression of the money supply.

  2. Reducing the state budget deficit.

  3. Expensive loan policy.

  4. Currency regulation.

  

  As a result of using the first measure, the population lost their savings, and organizations lost their money in their accounts. Thus began a long process of demonetization of the economy, which took the form of a strict limitation of emissions. The result of the reform was a sharp lag in the growth of the money supply from the increase in the value of GDP in current prices.

  Proponents of the theory

  "Shock therapy" has its idols, one of its main ideologists is the economist Jeffrey Sachs. After studying his theory, she had a number of supporters, first in Germany and then in other countries. The government of the German state in one year abolished price controls and state support for enterprises. The actions taken gave the effect of a starting push, which resulted in the German economic miracle. The country has become a state with a developing economy.

  The authors of "shock therapy" in Russia believed that the country's economy was similar to that of other states. But it was not taken into account that most of the institutions were destroyed, the market ecosystem was destroyed, and the mandatory norms of entrepreneurial behavior were suppressed. Supporters of the theory in Russia were E. T. Gaidar, A. N. Shokhin, A. B. Chubais, A. A. Nechaev. American consultants frequently visited the government to assist in the implementation of the program.

  Opponents

  There were quite a lot of opponents of "shock therapy" in our country. These are the people who were in power, who were not part of Yegor Gaidar's team, as well as the citizens themselves. The main arguments were considered: a high level of inflation, unemployment, a decline in production, an increase in social tension, political instability, the dependence of the economy on foreign investment, and so on. Developed macroeconomics rely on a ready-made legal framework, a well-honed law enforcement practice, its regulation, which did not exist in our country at that time.

  "Shock therapy" - the history of application in different countries

  

  According to the recommendations of D. Sachs, the countries of Eastern Europe, Latin America, the former USSR at the time of the economic crisis had to release all prices and eliminate subsidies. It was also necessary to sell state property and introduce a free exchange rate. Thus, the economic shock takes the form of a radical change in the structure of the macroeconomy. As a result, the countries of Eastern Europe and Poland were able to achieve the required level of economic development, when the macroeconomics of other countries had mixed success. And Bolivia, Argentina, Chile, Venezuela, Peru went through a serious decline before the economies of these countries could recover.

  Conclusion

  As a result of the application of "shock therapy", the shortage of goods was overcome to some extent, inflation decreased, and GDP in 1997 showed its first growth. Many economists justify the application of the theory, since Russia was threatened with famine, food stocks were rapidly declining. Opponents, on the contrary, are of the opinion that problems with a lack of production began after the use of "shock therapy". Following the Free Trade Decree, citizens, like businesses, were allowed to trade without special permits. Since then, many clothing markets have emerged. Organized groups seized control of market structures.

  

  As a result of privatization, Russian enterprises were left without working capital. This situation led to a crisis of mutual non-payments, an increase in wage arrears, and a threat to stop such industries as water supply, transport, and others. "Shock therapy" in Russia manifested itself in the form of the following economic and social effects:

  Curtailment of investment processes;

  Destruction of construction and scientific and technical complexes;

  Financial collapse of many enterprises;

  The emergence of a stable shortage of ruble cash;

  A decrease in the production of goods together with an increase in prices for them, and so on.

  The relevance of the application of economic theory in our country is still considered a controversial issue. Were the problems that arose as a result of its use? Or did they already exist, and without "shock therapy" the state's economy would have collapsed completely? Who knows...