In defense of shock therapy: Post-socialist transition of the Czech Republic

Popov (2007, 2000), Kolodko (2000), and Stiglitz (1999) argue that a shock therapy approach has a negative effect on post-socialist transition. Their benchmark for shock therapy, however, refers to the debate on the speed of market reforms. We propose that a more meaningful benchmark is the experience of the Czech Republic, Russia, and other transition economies which share similar approach to the market reforms, but have solved political economy problems of credibility and commitment differently. We compare the Czech Republic’s economic, political, and social performance to these benchmarks in all other post-socialist countries since they began their transitions. We find that the Czech transition is a consistent success because the Havel shock therapy has solved the political economy problems of reform’s credibility and state’s commitment to reform.