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Gaidar's "Shock Therapy"

 

Yeltsin’s program promised quick results in overcoming the crisis and a general improvement in the economy by the autumn of 1992. It was a program of radical changes in both the ownership and the management of the Russian economy, and drew on the prescriptions of the advocates of “shock therapy.”  

 
Yegor Gaidar

The “shock therapy” reforms were launched in January 1992. They became associated with the young economist Yegor Gaidar (b. 1956), who was appointed by Yeltsin to lead the reformist government. The reforms were to begin with price liberalization: 90 percent of wholesale and retail prices were released from state control overnight.

The results were dramatic. Prior to freeing the prices, the government had forecast threefold increase in prices across the board and had planned for increases in wages for budget-sector workers (e.g., civil servants, doctors, teachers, and coal miners), pensioners, and students in accordance with that estimate.

However, the moment the prices were freed, they immediately skyrocketed ten- to twelvefold. Overnight Russian citizens found themselves below the poverty line. In addition, their lifelong ruble savings were made worthless by this manifold increase in prices, and the government was unable to recoup their losses.

In effect, it was an expropriation comparable in scale to the forced collectivization of agriculture in the 1930s. Its economic consequences were no less devastating, though it was conducted without violence and deportations. Whatever the economic arguments behind “shock therapy” may be, it was inexcusable from a moral perspective. From the very start the reform efforts earned the nickname “robber reforms.” The harsh consequences determined the negative attitude of most Russians toward the reforms and made them treat the government’s intentions with deep mistrust.

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