Consequences and shock therapy

The end of the Soviet Union changed the world.

• The Cold War ended. The arms race and the struggle between two camps were over.
• The world became unipolar: the United States was the only superpower left.
• Capitalism and liberal democracy became the dominant ideas. The World Bank and IMF became powerful advisers.
• Many new countries appeared. Some, like the Baltic states, later joined the European Union and NATO.

Shock therapy: how should the former communist countries become capitalist? Advised by the World Bank and IMF, they chose a sudden, all-at-once change:

• state property sold to private owners (privatisation);
• free trade and an open door to foreign investment (FDI);
• removal of state controls, and of the collective farms;
• links with the West instead of with each other.

The result in Russia was disastrous:

• About 90 per cent of industries were sold to private companies, often at throwaway prices. It was called 'the largest garage sale in history'.
• The currency, the ruble, collapsed; inflation wiped out people's savings.
• The old welfare system was destroyed; many fell into poverty, while a few became very rich. A mafia emerged.
• Russia's real GDP in 1999 was below what it had been in 1989.

Politically, the new democracies were weak: the constitutions gave strong presidents and weak parliaments, and some leaders became authoritarian.

Recovery came only after 2000, mainly from exports of oil, natural gas and minerals. Shock therapy shows the danger of changing an entire economy overnight.