Running Head: GRADUALIST VERSUS SHOCK THERAPY APPROACHES

Gradualist versus Shock Therapy Approaches

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GRADUALIST VERSUS SHOCK THERAPY APPROACHES

Introduction
Although both shock therapy and gradualist approach have a noticeable difference when
a country is attempting transition from a planned economy to market economy, the gradualist
approach is the better method to be adopted by a given country compared to shock therapy on the
basis of the relative strengths and weaknesses. In consonance with Barma & Vogel (2008)
[economic sociology], market can be considered as institutions profoundly affiliated to the
politics and the society. The authors utilize the conceptual and the theoretical frameworks to aid
the comprehension of the capitalism with the systemic analysis in relation to the real world
market.
The gradualism is a particular approach that advocates for the reduced pace of the
implementation process of the various reforms in the transition from the planned economy to the
market economy. It usually gives room for the highest anticipation for the significant percentage
of people and in the extreme the delay in the much-needed reforms may have the adverse effects
on the people. The final tally of the improvements under the gradualism system in unpredictable
in the realm of either success or fail as the process is systemic. Unequal distribution of
information under the gradualism makes it more luring and appealing to an individual who is not
sure about the outcome and the consequences of the approach. In gradualism technique, the
economy is usually not ready to tackle, remunerating all the employees and incorporating them
into other vital sectors of the economy (Barma & Vogel, 2008 [The Classics]). Arguably, the
revamping of the various sectors of the economy comes along with the hike in the incidences
unpredictability concerning the final results of the reform pursued under gradualism approach.
On the contrary, to mitigate the uncertainty impacts, the gradualism technique could be a critical
pillar that gives room for changes of reforms if suspected that they are going to be ineffective

GRADUALIST VERSUS SHOCK THERAPY APPROACHES

and characterized with the fashionable adverse effects. Gradualism is also a tool for the
participatory approach since the public is also involved.
Before the gradualism reforms are implemented or restructured, they undergo the public
scrutiny that either accept or reject the changes prior to government implementation. If the public
does not agree with the reforms proposed by the gradualism approach, the government is
compiled with the option to either leave or revamp the reform so that the loss of the monetary
venture portfolios is declined. The fabrication of the financial institution under the gradualism
approach is believed to be subject to absolute survival values because of the ability, unbalanced
and the moral hazard issue.
On the other hand, shock therapy is perhaps one of the quick techniques that foster the
implementation of the renovations of fiscal policy, privatization and other pivotal sectors of the
economy. Therefore, the protagonists of shock therapy muse that the processes of the
implementation of the various reforms of a given country usually share a unique commonality.
The shock therapy is associated with unique benefits that attempt to give the economy of the
given a country a new look during the economic transition from the planned to market
economies. Historically, communism and the planned economies are associated with certain
principles that were the principal agent attempting to enhance the benefits to the significant
percentage of the population (Barma & Vogel, 2008 [Stages of the economic growth]).
Additionally, one of the most basic outcomes of the planned economy is the suffocating crisis
that is usually brought about by the government as a vital factor in determining the kind of
services to be provided. This is always antagonistic to the market forces. The planned economy
usually paves a way for the incentive systems that function opposite to the economy growth and
efficient. The stimulus system typically emanates from the federal or state governments barring

GRADUALIST VERSUS SHOCK THERAPY APPROACHES

the manufacturers from surplus production instead of the market forces. Further, the planned
economy usually contributes to the suppressive reforms that eventually collapse. Shock therapy
technique is made up of combination micro economic and macro -economic renovations that
take place at the accelerated pace that guarantees faster transition from the planned to market
economy. Macroeconomic reforms simulate three major aspects that include legal frameworks
of fiscal and monetary policies, remunerations regulations and the immobile exchange rate that
are the agent to steer the quick transition (Barma & Vogel, 2008 [The economic institutions of
the capitalism]).
On the other hand, macroeconomic factors broadly look at price liberalization and a
pivotal mechanism in opening ways for the corridors of the international trade. Dramatic
transition into the international trade accords the countries transforming from the planned to the
market economy an efficient approach in the resource allocations driven by the worldwide
market prices and significantly assists in bringing about the market economies. Barma & Vogel
(2008) [The market system] asserts that the macro and micro reforms are enhanced by the
provision of the favorable environment that is further underpinned by the countries legal
frameworks, regulation and the institution. Moreover, it accompanied with the privatization of
the companies and the banking sectors. Notably, the banking sector plays a crucial element in the
transition from the planned to the market economy in shock therapy jurisdictions. Further, the
shock therapy forces the government to institute infrastructural changes in various areas like
labor regulation, unemployment malaise, and retirement platforms.
Poland is one of the countries that implemented the shock therapy approach in the
transition from the planned to the market reforms after the collapse of the Soviet Union. Poland
went for the shock therapy of actualizing the reforms. It is perceived as far-reaching transitional

GRADUALIST VERSUS SHOCK THERAPY APPROACHES

country in the corridors of the European countries. Generally, the shock therapy is a success
story in Poland. However, it is faced with a myriad of challenges that attempts to hamper it. The
two central factors that assisted in attaining the shock therapy include the social turmoil that
induces the economic reforms and the Balcerowicz Plan.
Russia is another country that embraced the shock therapy approach during the transition
from the planned economy to the market forces economy. Although, some studies indicate that it
is a gradual approach that draws a lot of controversies. According to Barma & Vogel (2008)
[ Market development in developing countries], after the disintegrations of the Soviet Union, it
ushered the new upheaval in Russia in the realm of the political, social and economic that
triggered the need for the transition. The factor that hinders the smooth transition from the
planned to the market economies includes extensive communism looming corruption and crimes,
a vast country and the feeble presidential powers. With all these obstacles, the shock therapy has
been a success story in Russia as opposed to the gradualism.
Germany also incorporated the decision of integrating the shock therapy to aid the
economic transition. This decision was politically motivated and the demands to create a
universal unity among the people. The political leaders in Germany frictionally pushed for the
reforms in the economic dimensions. Germany is one of the powerful houses of the European
community, and all the reforms were monitored at the narrow range. Conclusively, the economic
and political factors were the key drivers of the shock therapy approach [Barma & Vogel, 2008
[Market reforms in the advanced industrialized nations].
Hungary is the best model of the gradualist approach, and the implementation process
was successful. The gradualism approach helped the nation to abscond the severe economic

GRADUALIST VERSUS SHOCK THERAPY APPROACHES

inflation that had plagued other countries in the economic transition that is usually faced with
multiple challenges. It is argued that the foundation started from the communism period.
Agricultural sector and companies privatized as well as the market driven by tax structures. The
freedom allowed propelling in the market prices. The gradualist approach reforms in Hungary
explain that instead of alleviating an existing structure and commence without background, it is
essential to focus on the current system and revamp it [Barma & Vogel, 2008 [Market
development in developing countries].
Looking the strengths and weaknesses of shock therapy and gradualism approach, the
gradualism approach appears to be a logical framework that can be incorporated when a country
is attempting transition from a planned to market economies. Gradualism offers the country
ability to build from the existing structures while at the same time giving it a new look.
Outcomes of the gradualism are predictable. On the hand, shock therapy attempts to erode the
current system coupled with uncertainty can be detrimental to the economy. Also, shock therapy
has received criticism from politicians, sociologist, and economists around the world.
Conclusion
From the above analysis, it is evident that both shock therapy and gradualist approach
have unique strengths and weaknesses. The evidence is drawn from four nations that include
Germany, Russia, Hungary and Poland. The strengths of the gradualism however overshadow
shock therapy hence a better method.

GRADUALIST VERSUS SHOCK THERAPY APPROACHES

Reference
Barma, N. H., & Vogel, S. K. (2008). The political economy reader: : markets as institutions.
New York: Routledge.

GRADUALIST VERSUS SHOCK THERAPY APPROACHES