Underground Economy

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Subject essay: James von Geldern

Construction of a cooperative car park has drawn the exemplary Soviet citizens of Eldar Riazanov’s 1979 film Garage into the shadow regions of the Soviet economy. How to get the materials; whether to hire labor through official exchanges, or on the side; who should have the privilege of cooperative membership; how to steer paperwork through a corrupt bureaucracy? Each issue poses the dilemma of either obeying the law, which promises failure, or skirting the law and enabling completion of the project. Making necessary decisions robs the cooperative members of their sense of civic integrity.

Involvement in the underground economy had become a fact of Soviet existence by 1980. Economic activities regarded as normal in market economies not only were prohibited under Soviet law, but also carried heavy penalties. The acquisition of consumer services (repairs of appliances and autos, medical services) and residential housing, the resale of scarce consumer goods, trade in western consumer goods such as blue jeans or cigarettes were on a par with criminal activities such as the narcotics trade and moonshine liqueur. Virtually every citizen became a de facto criminal in the quest for a more comfortable life. The command economy was strangled the growing consumer society and created ideal conditions for a black market. At fault were several factors: an economy of shortages with state-controlled prices set well below demand, and the gap between artificial domestic and free-market world prices. Malleable property rights and unaccounted state assets coupled with low administrative salaries gave birth to bribery and corruption. Central players in the second economy were criminal structures and the party bureaucrats who controlled the system.

The underground economy both aided and impeded the growth of the Soviet economy. The system was more efficient when independent agents circumvented artificial price and production controls, thus buffering average citizens from the inefficient allocation of resources by central planners. Growth in the unofficial sector far outstripped growth in the stagnant official economy. Yet obligatory law-breaking had a corrosive effect on society, and undermined the legitimacy of the state. Although authorities periodically attempted crackdowns, their ultimate targets were themselves highly placed party officials. Brezhnev’s own family was deeply involved in the black market. Many observers mistook black marketeers for proto-capitalists. However, when the fall of the Soviet Union in 1991 took with it the state-planning system, they evolved not into entrepreneurs, but into large-scale criminal racketeers who throttle the economy today no less than state planners once did.

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