Was Shock Therapy Consistent with Democracy?1

Abstract

The transition process in Russia and Eastern Europe was dominated in the literature and in policy making by the shock therapy process. However, shock therapy was short-lived. Governments that implemented shock therapy were not able to sustain the reform program since they lost power after the first term as a result of unfavourable electoral results. The new governments implemented gradualism. While after the first term shock therapy governments were substituted by gradualists, a government in favour of shock therapy never substitute any gradualist governments. The aim of the paper is to demonstrate that shock therapy was inconsistent with a democratic process of decision-making. Actually shock therapy was only consistent with a pluralistic political structure in the tradition of Hayek, Buchanan and Friedman. Foreign aid was inadequate to ensure the continuation of the shock therapy reforms within a democratic environment.