Wednesday, April 13

1. Wednesday, April 13 • Team 6 Presentation next Monday • On Monday, be prepared for a question on Team 4 Study Guide • Exam 3: Monday, April 25 , 3:00 – 5:30 pm

2. Return and discuss Asst 14 • The first round of reforms in Soviet Union focused in three areas. What were those areas? • Implemented by Nikita Khrushchev (1953-64) • Agriculture • Administrative decentralization • Use foreign trade and military to aid regimes sympathetic to USSR

3. 2. Briefly describe Gorbachev’s Perestroika and Glasnost • Perestroika • Restructuring • Loosened controls of the Communist Party, allowing group formation in other sectors of society • The idea that USSR must spend less on supporting the loyal regimes and more on internal economic development

4. More on economic restructuring • Modernization from within • Transfer economic power from central government to private hands and market economy • Authorization of privately owned companies • Penalties for under-performing state factories • Price reforms • Encouragement of joint ventures with foreign companies • Leasing of farm land outside the collective farms • Open economy to foreign competition

5. Glasnost • Openness • Honesty • Openly talking about the deficiencies of the Soviet Union • Open debate over transition to market economy • http://www.encyclopedia.com/video/595W4JJHa2U-gorbachev-glasnost-perestroika-arms-agreement.aspx

6. Bryce & Charlotte asked a question on #4, Team 2 • What is the shock therapy (PP 286- 294, also Chapters 3)? • How did it work in the Soviet Union?

7. Shock Therapy • As opposed to gradual transition to market economy • Refers to simultaneous sudden and large scale economic and political transformation to democratic capitalism under Western guidance • Steps • Well defined and protected property rights • Well developed financial system • Accounting procedure • Capital market • Banking • Tax laws • Release of price and currency controls • Trade liberalization

8. Shock therapy was pioneered in Bolivia and was then carried over to Poland and Russia with varying degrees of success.

9. After Soviet Union collapsed in 1991 • President Yeltsin implemented shock therapy in 1992 • Reason? • Political pressure to make changes and make them quickly so that the citizens could see the advantages of Privatization • It was done in 3 phases

10. Phase I (1992-94): Mass Privatization • October 1992: Voucher privatization began • Each Russian citizen received 10,000 rubles worth of vouchers to buy a part of state owned enterprises • Jan. 1992: Price Controls Lifted • December 1993: New Constitution Ratified

11. Phase II (1995-97) • 1995: Sales of larger, high-value enterprises to financial/industrial groups • Loans-for-Shares • Govt. had budget deficit • Banks loan Ruble (Russian currency) to State • Collateral was shares in state-owned companies • Auctions • State owned companies were bought for fraction of worth

12. 1990-1996

13. Was all this successful? • No • Corruption increased • Illegal activities increased • Shadow economy became bigger • Monopolies were created • 1991-96: • GDP - fell by 45% • Industrial output – fell by 49% • Agricultural output – fell by 32%

14. Phase III (1998-2000) • 1998: Govt. tried various measures to make the process more fair • Aug. 1998: Financial Crisis • collapse of Russian markets • currency (Ruble Collapse) • economy collapsed

15. 1999 • Economy recovered due to • high oil prices (Russia exports oil), and • cheap ruble • 2000 • Investment increased

17. Asst 15 • Rank Poland, Hungary & Slovenia on their • Gini Index • Economic Freedom Index • Which of the 3 nations’ economy seems to be more open to international trade? How do you know this?