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What is Shock Therapy?
What Did it Do in Poland and Russia?
Abstract: A prominent theorist of Soviet and East European economics critiques the
vision of political and economic processes implicit in shock therapy, defending an
alternative, evolutionary approach. The critique of shock therapy rests on both
theoretical reasoning and examination of evidence from recent cases. An intensive
study of economic change in Poland and Russia since the late-1980s concludes that,
in both countries, shock therapy failed in its goal of implementing top-down reforms
that by-pass existing political and social forces. The evolutionary approach, it is
argued, holds the better prospect of generating economic progress that will be
sustained over the long term, journal o\ Eronomir Literaturr, Clasrification Numbers:
E61, L33, P21, P51.
Apart from considerations of foreign policy, t he at t ent i on of Russian
society was at t hat time directed wi t h special interest t o t he internal
changes taking place in all depart ment s of government. . . . Mean-
while life-real everyday life, wi t h its essential concerns of health
and sickness, labor and rest, and its intellectual preoccupations wi t h
t hought , science, poetry, music, love, friendship, hatred, passion-
went on as usual, independent of and apart from all possible reforms
(Lev Tolstoy, 1978, Volume 2, p. 156).
ust four months after the abortive coup that led to the breakup of the
Soviet Union, a small group of economists began to implement a pro-
ram of radical reforms that aimed at irreversibly changing Russian
I
society. These reforms were condoned, if not endorsed, by the Interna-
tional Monetary Fund; they were strongly encouraged, if only weakly
aided, by Western governments; and they were promoted, if not designed,
by the usual, peripatetic, Western economists. The present paper con-
siders the Russian reforms in the wider context of the ongoing debate in
the West concerning the advisability of these so-called shock therapy
reforms.
'Professor of Economics, University of Maryland, College Park. The research for khis paper received
support from the IRIS Center at the University of Maryland and benefited from the productive
environment of the Woodrow Wilson International Center for Scholars. I would like to thank Josef
Brada, George Breslauer, Norbert Hornstein, Kazimierz Poznanski, and Peter Reddaway for helpful
comments, Michael Svilar provided helpful research assistance.
Post-Sonid Affnirs, 1993,9,2, pp. 111-140.
Copyright (l 1993 by V. H. Winston & Son, Inc. All rights reserved.