The “shock therapy” entailed which of the following?

a. opening up of free trade and foreign investment
b. private ownership and privatisation
c. integration of the third world countries into one economic unit
d. Institutions like the World Bank and IMF became irrelevant

a and b

The correct answer is Option 3 - a and b

a. opening up of free trade and foreign investment (Correct)
b. private ownership and privatisation (Correct)
c. integration of the third world countries into one economic unit
d. Institutions like the World Bank and IMF became irrelevant

The collapse of communism was followed in most of these countries by a painful process of transition from an authoritarian socialist system to a democratic capitalist system. The model of transition in Russia, Central Asia and east Europe that was influenced by the World Bank and the IMF came to be known as ‘shock therapy’. Shock therapy varied in intensity and speed amongst the former second world countries, but its direction and features were quite similar. Each of these countries was required to make a total shift to a capitalist economy, which meant rooting out completely any structures evolved during the Soviet period. Above all, it meant that private ownership was to be the dominant pattern of ownership of property. Privatisation of state assets and corporate ownership patterns were to be immediately brought in. Collective farms were to be replaced by private farming and capitalism in agriculture. This transition ruled out any alternate or ‘third way’, other than state-controlled socialism or capitalism.

Shock therapy also involved a drastic change in the external orientation of these economies. Development was now envisaged through more trade, and thus a sudden and complete switch to free trade was considered essential. The free trade regime and foreign direct investment (FDI) were to be the main engines of change. This also involved openness to foreign investment, financial opening up or deregulation, and currency convertibility. Finally, the transition also involved a break up of the existing trade alliances among the countries of the Soviet bloc. Each state from this bloc was now linked directly to the West and not to each other in the region. These states were thus to be gradually absorbed into the Western economic system. The Western capitalist states now became the leaders and thus guided and controlled the development of the region through various agencies and organisations.