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Radical Economic Reforms


International experience suggested two main types of transition from a command-administrative to a market economy: a slow, step-by-step transition and a “shock therapy” or “big bang” approach. The first, gradualist, approach envisaged that the old institutions of the command system would coexist for some time with the new market structures and would gradually be transformed or replaced. The second, radical, solution envisaged a swift introduction of market mechanisms and a determined dismantling of state-administrative structures. 

Perestroika-time meat counter

In the autumn of 1991, after the apparent failure of Gorbachev’s chaotic reforms, the Russian political establishment favored a radical solution. Even more moderately minded democrats rejected the idea of state regulation of the economy. An absolutely free exchange of goods and services, with economic relations totally freed from state regulation, was seen as a sort of magic wand that would rapidly transform the economy of Russia and propel it to the top of the league of economically advanced countries.

President Boris Yeltsin shared these naive expectations. He hoped that a package of administrative decrees would ensure the country’s speedy transition to a market economy. This blind belief that a market economy could be introduced with the stroke of a pen and that it would resolve Russia’s economic problems as if by magic was not based on any serious analysis of the actual economic, political, and sociocultural circumstances the government had to face in trying to effect such a rapid transformation.

President Yeltsin outlined his proposals for radical economic reforms in October 1991. The chief directions of the government program included (1) economic stabilization based on tight monetary and credit policy, including strengthening of the ruble; (2) price liberalization; (3) privatization and the introduction of a mixed economy, with a growing private sector and accelerated land reform; and (4) reorganization of the financial system, including tight control of budget expenditures, and reform of the tax and banking systems.

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Great Leap to Capitalism

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