shock therapy

economics

Written by

The Information Architects of Encyclopaedia Britannica

Last updated

July 13, 2026

Quick Summary

"Shock therapy" in economics refers to rapid, radical reforms aimed at transitioning a centrally planned economy to a market-based one. This often involves drastic measures like immediate price liberalization, privatization of state-owned enterprises, and fiscal austerity. The goal is to quickly establish market mechanisms and reduce government intervention.

However, this approach can lead to significant short-term disruptions, including hyperinflation, increased unemployment, and social unrest, as seen in some post-Soviet countries. The effectiveness and consequences of shock therapy are debated among economists, with some arguing it's necessary for rapid transformation, while others advocate for more gradual reforms to mitigate negative impacts. The term "shock therapy" is also used in psychiatry to describe treatments involving induced shock, such as insulin or electroconvulsive therapy, but this is distinct from the economic concept.1234

Summary created from Britannica articles using AI. AI can make mistakes, so verify using Britannica articles.

4 Britannica Sources

Ask Britannica AI about this topic

Britannica doesn't have a full article on this topic, so we've curated a list of our relevant coverage.

Poland
Economy of Poland
…an approach known as “shock therapy,” which sought both to control inflation and to expedite Poland’s transition to a market economy. As part of that plan, the government froze wages, removed price controls, phased out subsidies to state-owned enterprises, and permitted large-scale private enterprise.
Read More
…an approach known as “shock therapy,” which sought both to control inflation and to expedite Poland’s transition to a market economy. As part of that plan, the government froze wages, removed price controls, phased out subsidies to state-owned enterprises, and permitted large-scale private enterprise.
Read More