Shock therapy (economics)

Shock therapy is a rapid economic transition strategy that removes price controls and restructures state enterprises over a short period, often alongside privatization and fiscal stabilization.

Price liberalization: The removal or relaxation of government controls on prices, allowing them to respond more directly to supply and demand. Ending controlled prices is a defining first step in shock therapy.
Polish economic transformation: Poland's shift from a centrally planned economy toward a market economy beginning in 1989. Poland's Balcerowicz Plan became a prominent example of rapid reform.
Washington Consensus: A set of policy recommendations for economic reform associated with Latin American debt crises and international financial institutions. Its policy agenda overlapped with reforms later grouped under shock therapy.
Gradualism: A strategy of introducing economic reforms incrementally over an extended period. Gradualism differs most directly in the pace and sequencing of transition.
Transition recession: A sharp decline in output associated with the shift from a planned economy to a market system. Many post-socialist economies suffered deep output losses during rapid restructuring.
Privatization: The transfer of ownership or control of assets and enterprises from government to private actors. Selling state enterprises can rapidly shift production into private ownership.
Russian economic reform: The market transition reforms undertaken in Russia after the dissolution of the Soviet Union in 1991. Russia's rapid liberalization and privatization exposed risks of weak institutions.
Jeffrey Sachs: An American economist known for advising governments on stabilization and market-oriented economic reform. Sachs advocated rapid reforms in several post-communist economies.
Big bang (economics): A rapid, broad package of economic reforms introduced together rather than through gradual sequencing. The phrase often names the abrupt implementation style associated with shock therapy.
Unemployment: The condition in which people seeking work cannot find employment. Enterprise restructuring often eliminated jobs faster than new firms created them.

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