The conspicuous failure of “shock therapy” in diagnosing and prescribing post-socialist system transformation is a well-recognized but insufficiently understood phenomenon. Seeking to replenish the gap this paper offers a critique from the viewpoint of methodology. It is argued that neither the conceptual roots from which it descends nor the means employed have survived the tests of the market. Creative destruction à la Schumpeter is therefore a misnomer; whereas a uniquely forward-looking bias aggravates the transformation crisis. To circumvent this bias and the incalculable output loss that ensues a more plausible “loss-minimizing” approach is put forward in this essay. An integrated macroeconomic system linking fiscal deficits with growth and other variables being monitored is capable of showing the objective limitations of policy maneuverability. The aberration of possible negative value-added in the post-socialist setting, whatsoever, is not an excuse for dispensing with cautious and coordinated advance in market oriented reform.
