In the USSR, conditions for private underground activity have been highly propitious, given the barring, until recently, of nearly all lawful private business, chronic excess demand with fixed prices, high excise taxes, and both pervasive bureaucratic regulation and widespread corruption. State property is vastly misappropriated and exploited, particularly by camouflaged cryptoprivate firms. The underground, generally employing money as the main medium of exchange and functioning through markets, touches very many and on average provides large supplements of goods and - together with bribes, theft, and fraud - income to the public. In the larger operations, illicit money flows up informal structures, often to very high officials. Underground money and aboveground political and administrative power tend to fuse and to spawn, or exploit, organized crime. Vested interests so created are a significant aspect of conservative opposition to perestroika. Under Gorbachev, the underground economy has increased markedly, despite measures both to suppress and to legalize it.
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References
1.
Sergio Alessandrini and Bruno Dallago, eds., The Unofficial Economy: Consequences and Perspectives in Different Economic Systems (Aldershot, England: Gower, 1987).
2.
2. Given the nature of the subject matter and the elusiveness and opaqueness of the underlying data, a few words about our sources and information are in order. Official statistics give some, though mostly indirect, indication of the nature and dimensions of sub-rosa activity. Even before glasnost, the media and other published Soviet sources carried a great deal of anecdotal information, especially of a criminal kind, that has been informative in regard to many details and suggestive at large, although of uncertain validity or representativeness. Journalists and other Western visitors to the Soviet Union have been bringing out similar information. Serious scholarly work estimating the magnitude and analyzing the causes and consequences of the “shadow economy,” as the phenomenon is now termed in the USSR, is only beginning there, however. In contrast, in Hungary and Poland, scholarly work on the respective second economies has been going on much longer and is often of high quality.
3.
3. Clearly, there is a very major barrier to serious study of the underground economy within any given country: the reluctance of the criminally implicated actors to reveal themselves and their acts while within the reach of the law. In this regard the emigration of hundreds of thousands of persons from the USSR in the past twenty years has made a crucial difference, permitting scholars in the West to tap this rich source of information by means of questionnaire surveys and in other ways, outside the reach of Soviet authorities. For some years now, I have been engaged in such an endeavor-the Berkeley-Duke Project on the Second Economy in the USSR-with Professors V. G. Treml of Duke University and Michael Alexeev of George Mason University. We have drawn on personal interviews with emigrants, questionnaire surveys, published and unpublished émigré literature, and a broad range of Soviet-published information. The preliminary results of this project underlie the present article.
4.
Merle Fainsod , Smolensk under Soviet Rule (New York: Random House, 1958), pp. 200-206.
5.
5. It should come as no surprise that defrauding the state can be particularly lucrative. The largest such scheme yet to surface is the cotton affair, in which during the late 1970s and early 1980s enormous quantities of nonexistent cotton were sold from Central Asia - mainly Uzbekistan - for a take of billions of rubles - the exact amount is still unclear - with the help of massive bribery extending up to Brezhnev's son-in-law Iurii Churbanov, deputy minister of internal affairs, that is, of the police. Nearly all the Party and government leadership of Uzbekistan was implicated.
6.
6. In the Berkeley-Duke project, mentioned in fn. 3, informal - including illegal - income is a much broader concept than income from the underground economy; it also includes income from legal gainful private activities, transfers from private individuals, and gain from ordinary crime such as fraud, bribes, and theft. Any very large incomes, and especially very large wealth, almost always derive from illegal sources, however. The cited ratio, 0.5:1.0, varies very greatly between regions - the further south the higher - and, of course, between persons within a region. But note also that the levels and distribution of legitimate incomes would be quite different in the absence of a significant underground economy. The Soviet figure was estimated by T. I. Koriagina of the Economic Research Institute of the USSR State Planning Commission, as cited in Financial Times (London), 13 Aug. 1988. Some Soviet observers, however, deem it to be low. Dr. Koriagina estimates also that illicitly obtained personal wealth currently amounts to R200-240 billion. For the report of the round-table discussion at which Koriagina presented this figure, see Moskovskie novosti, 20 Aug. 1989. The figure may represent 20-25 percent of all personal wealth, including money holdings.
7.
7. The term comes from Kenneth Jowitt, “Soviet Neotraditionalism: The Political Corruption of a Leninist Regime,”Soviet Studies, 35(3):275 (July 1983), a political scientist's trenchant analysis that anticipated the post-Brezhnev revelations of spectacular corruption.
8.
8. The problems of organized crime and the Soviet Mafia, and their links with the formal power structure, especially at very high levels, have been the objects of grave and rising concern in the Soviet media and from the public at large in the last few years. These problems were also addressed from the podium of the newly formed Congres of People's Deputies in May and June 1989.
9.
9. For more extensive discussion, see Gregory Grossman, “The Second Economy: Boon or Bane for the Reform of the First Economy?” in Economic Reforms in the Socialist World, ed. C. O. Kim and S. Gomulka (New York: Macmillan, 1989).
10.
idem , “Alcohol Underground in the USSR,”Berkeley-Duke Occasional Papers on the Second Economy in the USSR, 5 (Dec. 1985).
