I think that Jeffery Sachs’shock therapy that was administered to several was successful for the improvements it made on the nations that undertook it. It helped manage price controls and reduce on unemployment. It was even more of a success because the process liberated the markets and eradicated hyperinflation.
Sachs Jeffery an economist saw the falling economies of communist states and took it upon him to find means taking the economies back on their feet. Was Jeffery Sachs successful in his quest to heal nation’s economies through the shock therapy? Did the program bring good or harm to the nations that undertook the programs? As an economics professor at Harvard, he got to be an economic adviser to many countries whose economy he termed as ill. He created a program to approach the problem means of giving a spontaneous change to the state’s economy. It was later on commonly known as a shock therapy or the shock doctrine. Shock therapy is intended to address economic downfalls such as market control over inflation and shortages (Stieglitz 1996). Shock therapy focuses on the liberation of trade and privatization of the government’s asset. The shock therapy can be done in two ways: one way can be gradual and steady while other is fast and may lead to a state of unrest in a countries politics. This paper seeks to find the result of the shock therapy Jeffery Sachs imposed on several countries including Chile, Bolivia, Russia and Poland. In Russia, the shock therapy is considered as a big fail (Adam 1999 p 12). The program did not work for Russia due to the lack of the western aid (Jeffers 2012 p 45). The other main factor was the hurry in which the shock therapy program was undertaken. Marsh (142) says that Russia was criticized heavily for its attempt to make its transition overnight. Unemployment rose, and many people lost their jobs (Sachs 2012) according to Sachs he says that prior to the implementation of the project the rates of unemployment were low because most of the people did informal jobs. Western nations denied grants to Russia saying they would have adopted the gradual process of economic reforms. Privatization was marred by corruption and inconsistency (Joseph 2012). Jeffery Sachs in his article what I did in Russia says, “The arrangements were blatantly corrupt from the start.” The privatization of companies caused many of them to shut down without notice thus leaving many citizen unemployed and making a high-rise to 7% of unemployment (Polish statistics 2012). Initial inflation rates we so high that when privatization come along most people had no money to buy the offered enterprises (Joseph 2002 p 7). Most of the working populations become unemployed, and a difference in class among the people in Russia was visible (Chenoy 199). The GDP reduced to a very small number a thing that was to be avoided by the project. The plan of the shock program in Russia was to put up most reforms before the people lost their patience (marsh 2005 p 141). Marsh affirmatively says “likewise, once the support for shock therapy diminished in Russia and the Yeltsin administration began to pursue, more gradual reforms.” The process was considered as successful, on the other hand, due to a number of factors. The process reduced the rate of hyperinflation bringing much needed relief to the people (11) to some point unemployment was reduced by 0.5% and food shortages were cut down (12) as much as the shock therapy brought about more unemployment it is not known how much worse it would have gotten without the implementation of the project (13). In Bolivia, the program was considered as a significant success. Having been led by series of coups upon coups the country found itself in a state of hyperinflation. Hyperinflation crippled the country to a point that the military chose to elect Hernan as president. During his term inflation rose even more. He started to lose support from political parties and the congress. Most of the congress men wanted to take the seat after long years of monopoly ruling. He refused to take advice and consequentially was removed from office. A decree was passed that covered all aspects of the economy. People could not believe that the rate of inflation could be stopped by a democratic government. They thought that such tough steps were to be taken by an authoritarian government that is stern in its decisions. In a surprising turn of events Bolivia was the only democratic nation to curb inflation without the violation of human rights and depriving people of their civil rights. Discussions were held on whether inflation or hyperinflation would be stopped by slow and gradual process or by fast immediate action. Most of the people agreed with the step to take the process gradually. Shock therapy meant that the country’s economy was very sick and needed immediate attention. Sanchez say it in his way that to stop cancer, you must get rid of the infection. The president equated inflation to a tiger that you only have one shot at it or it will get you. “If you keep to gradualism, people will not believe you and the rate of inflation will keep going upwards.” Sanchez stated this when convincing the cabinet to undertake the shock doctrine. The Bolivian prime minister decided to take on the shock therapy saying the economy should be built as growth is achieved. Sanchez noted that Bolivia is young nation that needs fast action. He made sure that most of the reform strategies were undertaken within the fast one hundred days of him as president in office. Price controls were ended, and import tariffs were t giving it a 20% constant rate. The rate of inflation was cut down to 10% from the initial 30% and unemployment reduced to 11% (Bolivian diplomatic handbook 2005). In most of the state-owned companies 49% of the shares were given to private investors, and the remaining was given to the government. The profits realized from the 51% of the states share was aide to the citizens as pension and also in the construction of infrastructure such as: schools, hospitals and roads (Kate et al 2010 p 27). Other sources claim that it was not fully a success because most people were left unemployed after the freeze on was implemented on all oil and tin companies. Carter (77) the political stability of the nation was at risk as the process come with a wave of violence and riots. Carter continues to say that the demonstration that led to the loss of lives caused the president Goni Sanchez to resign and go into hiding in the United States. Since 2006 there have been a series of violent clashes that have led to the death of many people as a because of the reforms that were undertaken (Kate et al. 2010 p 31). Darrow (2003 p 84) says, “shock therapy recipe is one that inevitably generates a high degree of political upheaval and social unrest.” The project needed funding to help the country have start-up funds for the project. The country found in an enormous debt with the IMF. The term the lost decade come along when the country found itself in a worse shape than the previous years. The private industries and government owed found themselves to be inefficient with lack of technological innovations and competency (Daniel 1998 p 102). Inflation was on the rise, and family savings were devastated. Driven by deficits the monetary policy was lost and international trade was cut off from the domestic investors. Social inequality was high as the gaps increased between the rich and poor. Supporters of the shock therapy viewed its implementation in Poland as a success story. When the communist government failed in 1989, democratic government was ushered in peacefully. Most companies that were state owned at the time were out of operation and lagged behind in technology. The country was experiencing hyperinflation at a 700% rate. Unlike other nations, Poland did not suffer from unemployment so much but only from shortage of primary commodities. With inflation on a high rise the implementers of the projected made it their priority to curb the menace (Poznanski 1996 p 16-17). The government’s deficit was to be cut down by through small subsidies, eliminating tax evasion and tax exemptions (Belka 1995 p 14). Belka continues to say that price controls were removed, and international trade was made liberal by lifting bans. Two years into the plan the nationals GDP rose by 20% compared to the initial government (Jackson 2005 p 3). Jackson (2005 p 3) continues to say “The growth of private businesses provided jobs in Poland and improved international ties.” Shock therapy introduced the privatization of government’s assets, a stable currency and management of inflation. The nation was successful in getting foreign investment and a steady market for its products on the global market (Kolodko 2014 p 45). Van Brabant (1993 p 118) states that Poland knew if it could manage to pull itself together through the economic quagmire it would have gained the trust of western European wealthy organizations. Critics of the shock doctrine argue that the project was not a success at all. To support this Poznanski (1996 p 180) says “Rising unemployment was the most devastating effect of the program because the rate of unemployment rose to eleven percent. Most people lost their job from the privatization of state companies because private firms could not absorb all the labor. The people who lost their employment formed a class of the middle-aged unemployed who do not possess the skills to fit the changing economy (Sachs 2005 p 123). The architects of the shock therapy did not anticipate such a hike in the rates of unemployment t(Kolodko 2014 p 47. The move taken by Poland to absorb the shock doctrine further lowered the living standards more than it was during the communist era (Tymwoska 1993 p 224). Poznanski (1996 p 194-195) states that the states output took a deep drop to a point that the GDP was at eleven percent. Other factors including agriculture also declined. He continues to say inflation got to five hundred and forty-three percent.
Naomi Klein sees that there are no accidents in the world. She claims that the dictatorship in Chile and the hurricanes that hit Japan were for a good cause. Naomi says that all this were ways leading to the opening of the free market. She says that the instability after the end of communism and the encroachment of hyperinflation pushed nation to take on the shock therapy to heal their economy. Naomi says that this was the plan Washington had for Iraq. To destroy the country’s infrastructure and when they are in need import cheap household goods and other things from them. This clearly shows that Sachs recipe in the shock therapy program works to open up markets. She looks at the shock therapy as a violent process that relies on terror to do its work. Naomi takes a wider look at this theory put forward by Sachs. She takes the global effect the doctrine has. Klein takes a look at the Asian crisis in and how the international monetary fund took it as a chance to sell state owned organizations to western investors. She further looks at how the Sri Lankan government took advantage of the tsunami to chase of fishermen in order to sell the land to hotel developers.
Germany having made its way out of hard economic barriers served as an example to other states. The country changed its currency by replacing it and suddenly ending price controls. Germany was the first country to go through with the shock therapy. After Germany proved to be successful with the plan other economies followed suit. Sachs (2012 p 2) says “the goal of Poland is to be the united states of European countries.”
In conclusion the shock therapy was a success since most of the economies were brought back on their feet. Russia managed to improve its GDP and reduce the rate of unemployment. Bolivia which was considered as a success gave a record of smooth transitioning without mayhem. Poland also made it through the economic quagmire to a point that Jeffery says it wants to be the united states of the European countries.
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