Poland and Russia One Decade after Shock Therapy

Abstract

Poland and Russia present puzzles for both adherents and detractors of rapid economic reform. Shock therapy advocates cite the former's successful economic performance as a vindication of the big bang approach; critics cite the latter's economic quagmire as proof that a more gradual economic transformation would have been preferable. This paper presents these opposing viewpoints and assesses the speed of reform debate as the first decade of transition policy in Poland and Russia comes to a close. The two perspectives differ in several important ways. On a theoretical level, each school contends that transformation is viable only under its policy prescriptions and is unlikely if the other policy is followed. On an empirical level, disagreement exists concerning which countries enacted shock therapy and what the results actually were. The objective of this paper is to reconcile some empirical issues and to determine what lessons can be drawn from the theoretical dispute in order to inform the larger research program concerning economic policy reform more generally. Both political and economic considerations are important in shaping policy; therefore, the paper considers aspects of the debate from a political economy perspective.