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Shock Therapy vs. State Capitalism

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Page 1: Shock Therapy vs. State Capitalism
Page 2: Shock Therapy vs. State Capitalism

Shock Therapy Vs. State Capitalism

Page 3: 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

Page 4: Shock Therapy vs. State Capitalism

• 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

Page 5: Shock Therapy vs. State Capitalism

• 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

Page 6: Shock Therapy vs. State Capitalism

• 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

Page 7: Shock Therapy vs. State Capitalism

• 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

Page 8: Shock Therapy vs. State Capitalism

• 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?

Page 9: Shock Therapy vs. 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

Page 10: Shock Therapy vs. State Capitalism

• 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

Page 11: Shock Therapy vs. 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.

Page 12: Shock Therapy vs. State Capitalism

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

Page 13: Shock Therapy vs. State Capitalism