- Characteristics of the concept
- Previous events
- The first steps
- Changes in foreign trade
- Gaidar government
- The main steps of the government
- The resignation of the government Gaidar
- Results of shock therapy
- Reasons for failure
One of the most famous phenomena in the domestic economy of the last decade of the last century was the so-called shock therapy in Russia (1992). In short, this term means a complex of radical measures aimed at improving the economy. In different countries, this tool had a different success. How did shock therapy manifest itself in Russia (1992), what is it, what consequences did the use of this method have for the state? These and other questions will be the subject of our research.
Characteristics of the concept
Before turning to the details accompanying such a phenomenon as shock therapy in Russia in 1992, let's find out in more detail what the term means.
The basis of shock therapy is a set of comprehensive measures that are designed to facilitate the rapid exit of the state from the crisis. But, unfortunately, these measures are far from always giving the effect that is expected of them, and in some cases, if they are applied incorrectly, can even aggravate the situation.
A typical set of measures for shock therapy include:
- reducing the amount of money in circulation;
- instant application of free pricing;
- the adoption of a deficit-free budget;
- a significant reduction in inflation;
- privatization of some state enterprises.
Shock therapy in Russia (1992) was far from the only example of the implementation of such a tool in world history. This set of measures was applied in various countries of the world both earlier and later.
Postwar Germany and modern Poland are one of the most famous examples of successful application of the method. But in the countries of the former Soviet Union and Latin America (Bolivia, Chile, Peru, Argentina, Venezuela) shock therapy did not have such an unambiguous success, although, no doubt, in most cases contributed to the emergence of positive economic processes. Quite successfully, measures similar to the ones we are considering were taken at one time in the United Kingdom, New Zealand, Israel and other countries.
The main advantages of the method of shock therapy is its universalism and the relatively high rate of obtaining the desired result. First of all, negative risks include rather high risks and a decline in the standard of living of the population in the short term.
Now let's find out which events in economic and political life forced the government to use a tool such as shock therapy in Russia (1992).
The end of the 80s - the beginning of the 90s was marked by such a global event as the collapse of the Soviet Union. This phenomenon was triggered by a number of factors, both political and economic in nature.
One of the main prerequisites for the collapse of the USSR was the inefficiency of the existing economic model, which was based on command and administrative control. The Soviet authorities realized the need for change in the mid-80s. To this end, a complex of economic and political reforms, known as perestroika, was carried out, which was aimed at democratizing society and introducing elements of market mechanisms in the economy. But these reforms were half-hearted and could not solve the accumulated problems, but only aggravated the situation.
After the collapse of the USSR, the economic situation in Russia began to deteriorate even more, which was also facilitated by the breakdown of ties between the former Soviet republics. Some experts, such as the Deputy Chairman for Economic Policy Egor Gaidar, for example, believed that Russia was on the verge of starvation due to interruptions in food supplies.
In the government headed by Boris Yeltsin, they understood that the country needed immediate economic reforms, and half-measures would not help in the present state of affairs. Only by taking drastic measures will the economy be able to recover. Shock therapy in Russia in 1992 just became the tool that was designed to bring the state out of crisis.
The first steps
The first step from which shock therapy began to be implemented in Russia (1992) was price liberalization. This implied the formation of the value of goods and services through market mechanisms. The complexity of the situation was that until then government regulation was applied in setting prices for the overwhelming majority of products, therefore the abrupt transition to free pricing turned out to be quite a strong shock to the economy of the whole country.
Conversations about the possibility of introducing free prices began at the sunset of the existence of the USSR, at the end of the 80s, but it never came to serious steps in this direction. The situation was complicated by the fact that the question arose about the very possibility of forming free prices in the economic model that existed in Russia at that time.
Nevertheless, in December 1991, a resolution of the Government of the RSFSR on price liberalization was adopted, which came into effect in early January 1992. This was largely a forced step, since the introduction of this measure was originally planned to be held in mid-1992. But problems with food supplies threatened by hunger forced us to hurry to make a decision. Thus, a start was given to a complex of measures that became known as shock therapy in Russia (1992).
The problem with the shortage of food and other goods was overcome, but the introduction of free pricing gave rise to hyperinflation, which led to a significant reduction in real incomes of the population and even to the impoverishment of certain sectors of society.
Changes in foreign trade
Price liberalization was far from the only innovation of the time. At the same time, foreign trade was liberalized. The imbalance of prices in the domestic and foreign markets has led to the fact that organizations engaged in foreign trade, began to receive super-profits. It was beneficial not to invest in production, but to resell raw materials. This led to an increase in corruption and the concentration of significant capital in the hands of certain people, who were later called oligarchs.
Rising inflation, rampant banditry and corruption created the feeling that shock therapy in Russia (1992) was the way to the abyss.
The main driving force behind the reforms was the young politician Yegor Gaidar, who alternately served as deputy prime minister for economic issues, minister of finance and first deputy prime minister. Since June 1992, due to the fact that the President of Russia could not even combine the post of head of government, Yegor Gaidar was appointed acting officer. The Cabinet included such reformers as Vladimir Shumeiko, Alexander Shokhin, Andrei Nechaev, Grigory Khizhha, Anatoly Chubais, Peter Aven, and others.
It was a government whose task was to carry out the most important economic reforms for Russia.
The main steps of the government
Let's look at the main steps that the Russian government took at that time to carry out reforms. In addition to the liberalization of prices and foreign trade, this includes the transition from a planned economy to a state order, the introduction of market principles of economic relations, the formation of the tax service, ensuring the convertibility of the ruble, a guarantee of free trade, reduction of budget expenditures, the introduction of a tax system and much more.
It can be said that at this time the main starting points for the development of the modern economy were formed.
One of the main principles of the method of shock therapy is the privatization of state-owned enterprises. Although it unfolded en masse only in 1993, after the resignation of Yegor Gaidar, it was his cabinet that laid the foundations for this important event and outlined the main steps to achieve the goal.
The law on privatization was adopted as early as the summer of 1991, but only from the beginning of the next year the methodology for implementing this process began to be developed. The first cases of privatization of state property belong to the summer of 1992. It gained the broadest turnovers in 1993-1995. At that time, Anatoly Chubais was the head of the State Property Committee, therefore privatization is associated with his name, and first of all its negative consequences. Why?
A feature of Russian privatization was that all citizens of the country could take part in it, which were given a special type of securities - privatization checks, or vouchers. It was assumed that any citizen will be able to redeem part of the enterprise, which was subject to removal from state ownership.
Privatization of state property was an integral part of the mechanism by which shock therapy was carried out in Russia (1992). The result of it turned out quite ambiguous. On the one hand, the state managed to get rid of the majority of unprofitable enterprises, thereby freeing budget money for other purposes, but at the same time they sold a number of organizations for a pittance, which, with skillful leadership, could bring considerable profit. Most of these enterprises were concentrated in the hands of a small group of oligarchs.
The resignation of the government Gaidar
As reforms were carried out, inflation did not slow down, and the real standard of living of citizens invariably fell. This led to the fact that the government Gaidar increasingly lost popularity among the population.
There were many opponents of the policy of Gaidar and among the political elite. This led to the fact that in December 1992, the Congress of People's Deputies actually expressed distrust of the head of government. President B. Yeltsin was forced to dismiss him from all his posts, and Viktor Chernomyrdin was appointed chairman of the Council of Ministers.
I would like to note the following: although E. Gaidar managed to realize far from all his plans, but he set the general course for the development of a market economy in the state.
Results of shock therapy
The results of such an economic mechanism as shock therapy in Russia (1992) were rather ambiguous for the country. The pros and cons in the short term clearly indicated a predominance of negative consequences.
Among the main negative phenomena, it is necessary to single out a significant increase in inflationary processes bordering on hyperinflation, a rapid reduction in real incomes of citizens and impoverishment of the population, an increase in the gap between different sectors of society, a fall in investment, a decrease in GDP and industrial production.
At the same time, many experts believe that it was thanks to the use of the shock therapy method that Russia managed to avoid a terrible humanitarian catastrophe and famine.
Reasons for failure
The relative failure of the use of shock therapy in Russia is explained by the fact that not all elements of the classical scheme were exactly observed. For example, the method of shock therapy implies a reduction in the level of inflation, and in the Russian Federation, on the contrary, it has reached unprecedented levels.
A significant role in the failure was played by the fact that, due to the resignation of the Gaidar government, many reforms were not completed as soon as possible, as required by the shock therapy strategy.
But did shock therapy completely fail in Russia (1992)? The consequences in the long run of these reforms still had a number of positive points. The foundation of the market mechanism was laid, which, although it did not begin to function as efficiently as possible, but allowed it to break with the old command-and-control management methods that had long outlived themselves.
In addition, such a negative phenomenon as the shortage of goods was almost completely overcome, and by the beginning of 1998 the level of inflation had significantly decreased, which made it possible to denominate the ruble.
Many experts believe that the timely conduct of shock therapy, even if not in its classical form, allowed to preserve the country's economy and created the prerequisites for its growth at the beginning of the XXI century.