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Unit Two: Overview | Poland & Bolivia | Shock Therapy & Economic Indicators | Russia
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Use information contained in Country Reports data graphs (supplemented by Country Report text) to describe the consequences of "shock therapy" in Bolivia and Poland as reflected in the economic indicators. Use the table below to organize your findings.
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| Indicator | Bolivia
Start in 1985 | Poland
Start in 1990 |
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| Growth | Initial decline, then a steady rise by the second year | Initial decline, then a steady rise by the second year |
| Income | Initial decline, then a steady rise by the second year | Initial decline, then a steady rise by the second year |
| Inflation | Return to low inflation by the second year | Return to double-digit inflation (40%) by the second year, and a slow decline over the ensuing decade |
| Spending | Gradual rise, paralleling growth | Sharp rise with reform and gradual decline |
| Trade Volume | Initial rise falters in years two and three, then a steady rise | Initial rise falters in second year, then a steady rise |
| Unemployment | Decline after the third year (no data for the first two years) | Sharp long-term rise |
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Now try the same exercise for Peru (starting in 1990) and Brazil (starting in 1994). Use the table below to organize your findings.
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| Indicator | Peru
Start in 1990 | Brazil
Start in 1994 |
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| Growth | Increased | Declined |
| Income | Declined at first, then rose steadily after | Declined in first year, but returned in second year |
| Inflation | Declined from 7,500% to 350% in the first year, and to 72% in the second | Declined dramatically from 2,050% to 65% and then 15% |
| Spending | Declined slightly before moving up again | Increased |
| Trade Volume | Dramatic rise in first year, steady rise thereafter | Recovered from 1993 low |
| Unemployment | Incomplete data; rose between first and second year | Continued to decline |
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- Do you see trends that are consistent with the expected impacts of "shock therapy?" What are they? Do you see patterns that you would not expect? What are they?
The most consistent performance is found in the inflation indicators. Trade volume also appears to behave as expected, rising in immediate response to reforms.
The biggest surprise is government spending. In several cases that increased, going against one of the primary tenets of "shock therapy." Unemployment remains the area of greatest suffering for economies instituting "shock therapy" except for the case of Brazil.
- Review the historical narratives in the country reports, and see if you can identify factors that might account for your unexpected findings.
Shock Therapy seems to have not been applied in its complete form in any of the countries. (Look at government spending in particular.) Other political, historical, or social factors come into play in each case. Economic performance was also affected by the trends and events occurring in other countries; consider, for example, the effect on Brazil of the events in Mexico in 1994.
- What were the significant successes and problems attendant on shock therapy as implemented in Bolivia and in Poland?
In Bolivia, inflation was controlled and there was a return to steady economic growth. Problems included rising unemployment, falling wages and widespread social unrest.
In Poland, 700,000 new companies formed and thousands of new jobs were created. Citizens could own shares in these companies. Wages increased seven fold, yet inflation was controlled. Existing heavy industries were hard-hit, however; jobs were lost and wages decreased.
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Back to the Exercise
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Unit Two: Overview | Poland & Bolivia | Shock Therapy & Economic Indicators | Russia
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