Russia's 1990s Shock Therapy: Economic Collapse and Oligarchs

After the Soviet Union dissolved in December 1991, Russia inherited a broken command economy. President Boris Yeltsin and his allies implemented 'shock therapy'—rapid price liberalization, trade liberalization, and privatization—to transition to a market economy. The policy was designed by acting Prime Minister Yegor Gaidar, with advice from American economist Jeffrey Sachs. Inflation soared to over 2,500% in 1991-1992, wiping out savings. GDP shrank by about 40% between 1991 and 1996. Privatization, led by Anatoly Chubais, distributed vouchers to citizens, but most sold them cheaply, concentrating wealth. The 1995 loans-for-shares program auctioned state firms at below-market prices to banks, creating a class of oligarchs controlling oil, gas, and resources. Social consequences were dire: mass poverty (40% below poverty line by mid-1990s), declining life expectancy, and underfunded healthcare and education. The legacy is a divided economy—a vibrant private sector but heavy dependence on natural resource exports, extreme inequality, and political influence by oligarchs.