Subject essay: Lewis Siegelbaum
In 1985, the cooperative sector of the Soviet economy was comprised of some 26,000 collective farms with 12.7 million workers, housing cooperatives that accounted for about eight percent of all housing construction, and assorted garden, dacha-construction, consumer, and handicraft cooperatives. The expansion of the cooperative sector to include retail outlets, commercial enterprises and those providing services of various kinds had been mooted by economists for several years before Gorbachev assumed office. They argued that since the state was incapable of doing it all, it was better to legalize these semi-private institutions rather than to concede the functions they performed to the underground or “gray” economy.
Gorbachev initially took a hard line on this question. On May 28, 1986 the Council of Ministers issued decrees that tightened restrictions on individuals who used their access to state supplies of fuel, transport, and the like for private gain, who derived income from private renting of housing space, or who engaged in embezzlement, speculation, and bribery. But these prohibitions turned out to be preliminary to the Law on Individual Labor Activity, issued on November 19, 1986, which sought to encourage private entrepreneurship “based exclusively on the personal labor of citizens and members of their families.” This law was followed in early 1987 by a series of decrees (consolidated eventually in the Law on Cooperatives of May 26, 1988) that put self-financing, self-managed, and profit-and-market oriented cooperatives on the same basis as state enterprises with their members enjoying the same social rights as state employees. By the end of 1987, approximately 150,000 people worked in some 13,921 cooperatives of the new type. As reported by Izvestiia, their productivity was several times higher than in equivalent state enterprises and the resulting earnings were impressive too. Particularly in the larger cities, cooperative restaurants, hairdresser salons, fruit and vegetable stands, shoe repair booths and the like were flourishing and providing a quality of service superior to state enterprises.
But the success of the cooperatives engendered a good deal of resentment. Soviet citizens deluged the press with letters complaining about the generally higher prices charged by cooperatives, their siphoning off of the best workers from state enterprises, and their reliance on state supplies which exacerbated shortage in the state sector. Many cooperatives were vulnerable to exorbitant taxation by local officials, high interest rates on loans, and protection rackets run by criminals, the cost of which inevitably were passed onto consumers in the form of mark-ups. “Kooperativshchiki” (cooperative owners) thus became a term of abuse in ordinary Soviet speech.