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Concerning Transition Economies

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Submitted By contesse
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Concerning transition economies, what do the advocates of shock therapy propose? Cite an example of how shock therapy has been used and explain the result.
As professed by advocates of shock therapy, they believe success can only be achieved by creating a clean slate. Colossal disasters—such as weather disasters, civil uprisings, or economic disasters are opportunities to create a new economy. Advocates of shock therapy uphold the thought that economies in transition should advance without delay with all economic policies. They should privatize and dispose of any price controls, free up trade by getting rid of any barriers and develop market institutions as rapidly as possible. This will cause preliminary economic woes that could be very brutal, but proponents feel that they will subside and as the changeover proceeds ahead to a market economy it will lead to a higher standard of living for its citizens.
Most recently shock therapy was implemented in Iraq. The war gave a chance for the US and its allies to introduce shock therapy. This was a chance to rebuild the country, introduce democracy and create a competitive economy. There would be a smaller state government, a flexible and trained workforce, open borders, lower taxes, no tariffs, and ownership restrictions would be eradicated (Klein, 2004). In the short run the citizens of Iraq would endure some short-term shock: possessions, formerly owned by the government, would have to be given up to generate fresh opportunities for expansion and investment. Jobs were lost to the foreign products that came into the country then local businesses could not compete on that large scale. The hopes were that the shock therapy would be so powerful the country would rebuild itself. To this date it looks as if it did not happen.
L. Paul Bremer, who led the U.S. occupation of Iraq from May 2, 2003 “ tenure was set with his first major act on the job: he fired 500,000 state workers, most of them soldiers, but also doctors, nurses, teachers, publishers, and printers. Next, he flung open the country's borders to absolutely unrestricted imports: no tariffs, no duties, no inspections, lower taxes. Iraq, Bremer declared two weeks after he arrived, was open for business” (Klein, 2004). The plan seemed to work for a while, until the same Iraqis Bremer fired started to retaliate. The same money that the US allocated to the restructuring of Iraq went right back into Western companies hands. The Iraqis were not for privatization or selling off of their factories and plants, so it became an internal war within itself. Violence pushed out investors and put a halt to the very economic shock therapy that L. Paul Bremer was attempting to implement. This was in 2004; the current state of the Iraqi economy is no better to this date.
Six years has passed since the downfall of the Saddam regime and the standard of living in Iraq today is half what it was when Saddam was in power and unemployment is about 20 percent (Mesai, 2009).They are still trying to get foreign investment into the country but investors and businesses do not feel confident in the current state of Iraqi affairs. In conclusion, shock therapy did not work in the case of the economy of Iraq.

Works Cited
Klein, N. (2004, September). Baghdad Year Zero. Retrieved November 23, 2010, from Harpers: http://www.harpers.org/archive/2004/09/0080197
Mesai, R. D. (2009, October 23). Iraq's Economy Needs More Than Security. Retrieved November 23, 2010, from Brookings: http://www.brookings.edu/opinions/2009/1023_iraq_economy_desai.aspx

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