Shock Privatization: The Effects of Rapid Large-Scale Privatization on Enterprise Restructuring

Abstract

The neoliberal-inspired “shock therapy” policies were designed to allow efficiency considerations to shape the new capitalist economies. Most experts theorized that these policies would enable postcommunist countries to close the gap with the West. After more than a decade, this prediction has been falsified. Fieldwork in 25 Russian firms demonstrates that the neoliberal prescription of mass privatization creates shocks that make successful enterprise restructuring almost impossible. Instead, most firms lower their technological level of production and retreat to nonmarket activity to survive. The result is a poorer economy with less growth potential and thus increased divergence with the West.