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Presentation on Shock Therapy vs. State Capitalism
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Shock Therapy Vs. State Capitalism
Qaiser Ayub
L1F11MCOM2158
Okasha Safdar
L1F11BCMH2023 H. M. Umer
L1F11MCOM0149
Arslan Nawaz L1F11MCOM2165
M. Umer
L1F11BCMH2022
Mohsin Khan
L1F11MCOM0156
Group Members
• The term shock therapy originates from Bolivia in 1985.
• Economist Jeffrey Sachs is widely associated with shock therapy
• Shock therapy refers to the phenomenon that takes place when actions are taken that generate immediate and rather drastic reforms in the economy. It changed national economic policy from state-controlled economy into a free-market one.
• Cure of hyperinflation, shortages and other effects of market controls in order to jump-start economic production, reduce unemployment and improve living standards.
• Potential to drive the economy downward as it does to move it upward.
What is Shock Therapy
• 1952 to 1989 Soviet Union had
much influenced polish state.
• By the mid-1960s, Poland
began experiencing increasing
economic, as well as political,
difficulties.
• Early August 1980, founding of
the independent trade union
"Solidarity" by electrician Lech
Wałęsa.
• 1989 Poland became
democratic state.
Poland and Shock Therapy
• Shock therapy plan was adopted.
• 1.1 million workers at state-owned firms lost
their jobs.
• Although inflation seemed to be out of
control, the Polish economy gradually
started to get back on track.
• By 1992, more than 600,000 private
companies had been set up, providing jobs
for approximately 1.5 million people.
• Most economists agree that without this
shock therapy, which sacrificed short-term
gains for long-term growth, modern Poland
would be a much poorer country.
Balcerowicz Plan and Poland
• Soviet Union was communist state that
existed between 1922 and 1991.
• On 12 June 1991 Yeltsin was elected by
popular vote as a President of the Russian
Soviet Federative Socialist Republic (SFSR)
• On 25 December 1991, the USSR was
dissolved into 15 post-Soviet states.
• On 26 December 1991, Russia was
internationally recognized. Yeltsin remained
in office as the President of the Russian
• 2 January 1992, Yeltsin ordered to
implement shock therapy.
• Through the 1990s, Russia's GDP fell by 50
percent, vast sectors of the economy were
wiped out, inequality and unemployment
grew dramatically, while incomes fell.
Russia and Shock Therapy
• State capitalism is the ownership and control of corporations by a sovereign government.
• It occurs frequently in energy, natural resource, and military technology markets.
• Advocates of state capitalism sometimes argue it is necessary in developing countries, where profits from national assets like oil reserves must be directed toward domestic growth and employment, and only the government can ensure this.
• Critics have called these arrangements monopolistic and "crony capitalism," noting how often authoritarian regimes have such firms, and the ease with which friends of rulers and members of the governing class profit from and direct these businesses.
What is State Capitalism?
• State-owned companies dominate the
global hydrocarbons sector. National oil
companies (NOCs), as they are referred to,
hold a staggering 77% of the world’s oil
reserves.
• The biggest oil company in the world is
Saudi Arabia’s Saudi Aramco.
• China as a country has very significant
mineral and metal reserves.
• Chinese State capitalism is characterized
by State-owned central holding agency
• The State-Owned Assets Supervision and
Administration Commission
• State-owned companies have accounted
for 80% of Chinese foreign direct
investment.
China The Capitalist State
• South Africa is a long-standing
State capitalism.
• State is the biggest shareholder
in national telecommunications
and insurance sector.
• Petroleum, Oil and Gas
Corporation of South Africa
(PetroSA)
• African Exploration, Mining &
Finance Corporation (AEMFC),
under the Central Energy Fund
(CEF), as a first step in the
creation of a State-owned mining
company.
South Africa and State Capitalism
The transfer of ownership of property or businesses from a government
to a privately owned entity.
What to Privatize and What to Not?
Reasons for Privatize
• Raise revenues from privatization process
• Improved quality of product/ services.
• To reduce nepotism.
• To reduce political influence.
• Improvements in the level of efficiency in the production processes.
• Reduction in the debt burden of the government and fiscal deficit.
• Encourage competition, specially by abolishing the monopolies and
promote integration of the domestic economy into the world
economy
• Decrease the opportunities for misuse and corruption of public
property by government officials and public sector managers.
We are considering two SOE of Pakistan and take a rationale decision to
privatize them or not. In case of Pakistan 51% to 70% share should be held by
Government of Pakistan.
What to Privatize and What to Not?
Pakistan Railway Pakistan Ordnance Factories
Approximately 65 million passengers annually travel through Pakistan Railways, Losses more than Rs 52 billion in the last three years, Only 140 locomotives out of the 528 are functional, 70 locomotives are awaiting spares at Pakistan Locomotive Factory, Risalpur since 2004.
Pakistan Ordnance Factories is the largest defense industrial complex under the ministry of defense production, producing conventional arms & ammo to international standards. POF Board headquarter is at Wah Cantt. Presently POF comprises of 14 ordnance factories and three commercial subsidiaries. In addition to meeting the demands of Pakistan Defense Forces, POF products are in service with over 40 countries, in Europe, Asia, the Middle East and the Americas.
Should Privatize No Privatization