The Underground Economy

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Subject essay: James von Geldern

Through the Brezhnev years, the Soviet state pursued an implicit compact with its citizens: steadily improving material welfare in exchange for political acquiescence. For much of the 1970s, the bargain appeared substantially honored. Between 1965 and 1980, urban households equipped themselves at unprecedented rates: refrigerators reached 86 percent of families, televisions 85 percent, washing machines 70 percent, and private automobile ownership more than tripled. The Twenty-Fifth Party Congress in 1976 reaffirmed the priority of the consumer sector, projecting growth in sales of meat, knitwear, and durable goods through the Tenth Five-Year Plan. Yet these gains also raised expectations the planned economy could not reliably satisfy. By 1980, Eldar Riazanov’s Garage captured the resulting moral atmosphere with comic precision: a Moscow scientific-institute cooperative fought bitterly over twenty parking spaces, turning scarcity into intrigue, denunciation, and bureaucratic combat.

In its own self-description, the Soviet economy was free of speculation. Socialist trade distributed goods according to plan rather than profit, and Soviet law treated private commerce as a danger to the moral order of socialism. Yet daily life depended on practices that the law could not fully acknowledge. Chronic shortages produced the perpetual ochered’ (queue), the favor-exchange network of blat (connections), and the diversion of state goods for sale nalevo (on the side). The command economy promised rational distribution, but it generated a parallel economy with its own brokers, specialists, and supply chains.

Some of these figures became fixtures of late Soviet urban life. The fartsovshchiki, traders who worked the edges of foreign contact, haunted Intourist hotels, Beriozka entrances, and tourist routes, exchanging caviar, military insignia, lacquer boxes, or rubles for Levi’s jeans, vinyl records, ballpoint pens, and other desirable imports. The tsekhoviki, underground producers, ran clandestine workshops, sometimes inside state factories, turning out clothing, footwear, accessories, and household goods that the official assortment failed to provide. Networks in the South Caucasus, Uzbekistan, and Moldavia supplied Moscow and Leningrad through sympathetic store directors, wholesale managers, and railway couriers. The system implicated officials at every level, from warehouse employees and shop clerks to district party secretaries. Enforcement remained selective rather than systematic, because the regime could not suppress the second economy without worsening the shortages that made it necessary.

The contradiction registered in Soviet culture as sharply as in any economic report. Yurii Trifonov’s Moscow novellas, above all Dom na naberezhnoi (The House on the Embankment, 1976), located the moral drama of Soviet life inside the geography of privileged consumption: closed distributors, dachas, special stores, and rare-book shops that marked the boundary between elite access and the ordinary queue. Aleksandr Galich, in his samizdat-circulated Ballada o pribavochnoi stoimosti (Ballad of Surplus Value), followed a doctrinaire Soviet anti-capitalist who inherited a Belgian factory and disgraced himself in private bourgeois pleasure. Such works did not simply mock hypocrisy. They showed how Soviet ideology had lost control over the meanings of property, privilege, and desire.

By 1980, the second economy was substantial in scale and structural in form. Soviet émigré economist Gregory Grossman, writing in Problems of Communism in 1977, gave the phenomenon its most influential name, defining the “second economy” as production and exchange for private gain, often in knowing violation of law. He treated it not as a marginal aberration but as an integral feature of Soviet life, estimating that unofficial exchanges supplied roughly a quarter of urban household services. Later calculations by Vladimir Treml placed private and semi-legal labor at roughly 10 to 12 percent of gross domestic product. These numbers were necessarily imprecise, but the larger conclusion was unmistakable: the Soviet economy did not consist of a planned sector occasionally corrupted by illegal trade. It consisted of a planned sector that increasingly relied on illegal and semi-legal practices to function.

The Moscow Summer Olympics made this dual world unusually visible. The capital was cleaned, stocked, and provisioned for foreign athletes, journalists, and tourists, while ordinary Soviet consumers continued to navigate shortages and favors. Imported goods entered official channels, hard-currency stores, diplomatic circuits, and private exchange; much of that bounty soon leached into the fartsovshchik trade. Beriozka stores, accepting only Vneshposyltorg certificates, made the caste structure of consumption plain: meat, Marlboros, perfume, and imported electronics for one stratum, queues and substitutions for another. By the end of the Brezhnev era, the second economy was no longer a shadow cast by socialism’s failures. It had become one of the operating systems of Soviet society, binding together shortage, privilege, corruption, and aspiration in ways no decree could easily undo.

17 Moments in Soviet History - The Underground Economy, by James von Geldern is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.