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

Return and discuss Asst The first round of reforms in Soviet Union focused in three areas. What were those areas? –Implemented by Nikita Khrushchev ( ) 1. Agriculture 2. Administrative decentralization 3. Use foreign trade and military to aid regimes sympathetic to USSR 2

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

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

Glasnost Glasnost –Openness Honesty Honesty Openly talking about the deficiencies of the Soviet Union Openly talking about the deficiencies of the Soviet Union Open debate over transition to market economy Open debate over transition to market economy W4JJHa2U-gorbachev-glasnost- perestroika-arms-agreement.aspx W4JJHa2U-gorbachev-glasnost- perestroika-arms-agreement.aspx W4JJHa2U-gorbachev-glasnost- perestroika-arms-agreement.aspx W4JJHa2U-gorbachev-glasnost- perestroika-arms-agreement.aspx 5

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

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

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

After Soviet Union collapsed in 1991 President Yeltsin implemented shock therapy in 1992 President Yeltsin implemented shock therapy in 1992 Reason? 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 It was done in 3 phases

Phase I ( ): Mass Privatization October 1992: Voucher privatization began 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 Jan. 1992: Price Controls Lifted December 1993: New Constitution Ratified December 1993: New Constitution Ratified

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

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

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

–Economy recovered due to high oil prices (Russia exports oil), and high oil prices (Russia exports oil), and cheap ruble cheap ruble – Investment increased 15

Asst Rank Poland, Hungary & Slovenia on their –Gini Index –Economic Freedom Index 2. Which of the 3 nations’ economy seems to be more open to international trade? How do you know this? 17