Name(s):
Abrupt policy changes
Inappropriate structural shock therapy
Nature
Economic shock therapy has become the preferred treatment advocated by those who believe that rapid change is less wasteful, less vulnerable to sabotage, and therefore more likely to succeed, than gradual change. While policy shock therapy can prove effective for fighting inflation, shocks are not a reliable recipe for introducing the new thinking, behaviour and norms required. A market economy consists not simply of a predominance of private ownership and a minimum of government control, combined with appropriate laws; it is also a complex multitude of organizations, traditions and understandings that have usually evolved organically over time.
Claim
The shock therapy approach to institutional and structural change causes more shock than therapy. Dismantling one pattern of institutions, such as those based on socialism, does not ensure that the vacuum will be filled by the spontaneous appearance of appropriate market mechanisms and institutions. The smooth withdrawal of subsidies and other forms of protection is vital in any transition process. A market economy consists not simply of a predominance of private ownership and a minimum of government control. It is also a complex multitude of organizations, traditions and understandings that have usually evolved organically over time.
Counter-claim
Examples of successful application of shock therapy include the overnight end to hyperinflation in Germany after World War I and the mass privatization of industry in the Czech Republic in 1993. In most cases where negative effects of "too much shock and too little therapy " are claimed, it can be shown that there was in fact very little shock.