The End of Bipolarity | Part 5 | CONSEQUENCES OF SHOCKTHERAPY

CONSEQUENCES OF SHOCK THERAPY

The shock therapy administered in the 1990s did not lead the people into the promised utopia of mass consumption. Generally, it brought ruin to the economies and disaster upon the people of the entire region. In Russia, the large state-controlled industrial complex almost collapsed, as about 90 per cent of its industries were put up for sale to private individuals and companies. Since the restructuring was carried out through market forces and not by government-directed industrial policies, it led to the virtual disappearance of entire industries. This was called the largest garage sale in history, as valuable industries were undervalued and sold at throwaway prices. Though all citizens were given vouchers to participate in the sales, most citizens sold their vouchers in the black market because they needed the money.

The value of the ruble, the Russian currency, declined dramatically. The rate of inflation was so high that people lost all their savings. 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.

The old system of social welfare was systematically destroyed. The withdrawal of government subsidies pushed large sections of the people into poverty. The middle classes were pushed to the periphery of society, and the academic and intellectual manpower disintegrated or migrated. A mafia emerged in most of these countries and started controlling many economic activities. Privatisation led to new disparities. Post-Soviet states, especially Russia, were divided between rich and poor regions. Unlike the earlier system, there was now great economic inequality between people.

The construction of democratic institutions was not given the same attention and priority as the demands of economic transformation. The constitutions of all these countries were drafted in a hurry and most, including Russia, had a strong executive president with the widest possible powers that rendered elected parliaments relatively weak. In Central Asia, the presidents had great powers, and several of them became very authoritarian. For example, the presidents of Turkmenistan and Uzbekistan appointed themselves to power first for ten years and then extended it for another ten years.

They allowed no dissent or opposition. A judicial culture and independence of the judiciary was yet to be established in most of these countries.

Most of these economies, especially Russia, started reviving in 2000, ten years after their independence. The reason for the revival for most of their economies was the export of natural resources like oil, natural gas and minerals. Azerbaijan, Kazakhstan, Russia, Turkmenistan and Uzbekistan are major oil and gas producers. Other countries have gained because of the oil pipelines that cross their territories for which they get rent. Some amount of manufacturing has restarted.