THE SECOND ECONOMY OF THE USSR by Gregory Grossman* PROBLEMS OF COMMUNISM, Vol. XXVI, # 5, September-October, 1977 The standard Western image of the Soviet " command economy" is one of a state-owned, hierarchically organized, centrally planned and managed, price-controlled and otherwise regimented system, rigidly geared to the goals and priorities of the Soviet leadership, and operating in compliance with a myriad of state- imposed laws, regulations, and directives. However valid this image might be-and, while greatly oversimplified, it is not entirely incorrect-there is another, very significant side to Soviet economic reality, where production and exchange often take place for direct private gain and just as often violate state law in some non-trivial respect. This is the so-called "second economy," also referred to by Western observers as "counter- economy," "unofficial economy," "parallel market," and "private enterprise." It comprehends a vast and varied set of activities that is attracting ever greater attention from Western scholars. Closely tied to it is widespread corruption of officialdom. Both exist on a large scale in the Soviet Union and in Eastern Europe, and, of course, have many analogies in non-Communist countries, both developed and underdeveloped. "Second Economy" Defined As some scholars define it, the second economy comprises all production and exchange activity that fulfills at least one of the two following tests: (a) being directly for private gain; (b) being in some significant respect in knowing contravention of existing law. So defined, the second economy includes much of the perfectly legal private activity which is possible in the USSR. To explain this paradox, it is important to note that legal private activity, though formally sanctioned and ideologically tolerated, is nevertheless ideologically alien to the Soviet system. Its operating principles are sharply different from those of the "first" economy. Furthermore, in many cases one cannot practically draw a line between legal and illegal private activity, since the former often serves as a front for the latter and both support one another. In light of this last consideration, and since this article will deal primarily with the illegal and "semilegal" aspects of the second economy, it may be useful at the outset to describe precisely that private economic activity in the USSR which is legal. By far the most extensive and best studied part of Soviet legal private economic activity is the "private plot"-if smaller, the "garden plot"-in agriculture.' The private plot can be cultivated by a peasant household that belongs to a collective farm, by a household with primary employment at a state farm, or, as is often the case, even by one with primary employment outside of agriculture altogether. It has been estimated that in 1974 private agriculture accounted for almost one third of all man-hours expended in agriculture and almost one tenth of all man-hours expended in the whole economy.' The land making up the private plots invariably belongs to the state, and the cultivator pays no rent as such. For kolkhozniki, or members of collective farms, the plot has lately averaged about three tenths of a hectare (three fourths of an acre), on which not only field crops are grown, but some fowl, smaller livestock, and a strictly limited number of large livestock are usually kept as well. Urban "garden plots" tend to be even smaller. Still, the approximately 50 mil- lion such tiny "farms," whose area represents only about 3 percent of the national total of cultivated land, have a gross output which is more than one fourth the gross output of Soviet agriculture. Their contribution to production is especially significant in potatoes, vegetables, fruit, and animal products. Their logical adjuncts are the so-called collective farm markets, marketplaces where producers sell directly to final consumers and where demand- and supply relations reign almost supreme. Although in principle the private plot and the kolkhoz market are legal, they are quite frequently associated with illegalities. For example, limitations on plot area and on livestock holdings may be surreptitiously exceeded; various inputs-particularly fodder, but also fertilizer, water, implements, means of transport, etc.- may be illegally obtained from the "socialized" sector; and produce may be marketed with the help of middlemen. The collective farm markets invite violations of the law as well, most notably, the disposal of stolen goods. Considerable private activity is to be found in the housing sector of the Soviet economy also. By law, the private ownership of housing is allowed only for the owner's occupancy, with some exceptions. And although owner occupancy of houses is not a productive activity in the common sense of the phrase, it is worthy of note that even 60 years after the Russian revolution approximately one half of the Soviet total population, and about one quarter of the urban population, still resides in privately owned housing.' What is more, as late as 1975 some 30 percent of all new housing space (measured in square meters) was completed by non-state entities: housing cooperatives, collective farms, and individuals, with the last accounting for the greatest share.' Again, while in principle such construction may be legal, there is little doubt that much of it involves the acquisition of materials on the black market, illegal hiring of construction help, unauthorized use of state-owned vehicles, bribery of officials, and other violations of the law. To complete our list, the law also permits private activity in certain professions, such as those of physician, dentist, teacher, and tutor; in the provision of certain household and repair and personal services, in rural areas only; in a very few (and quite unimportant) crafts and trades; in the prospecting and extraction of some valuable metals, such as gold, by so-called starateli (prospectors); in the hunting of some fur-bearing wild animals; and in some other rather exceptional instances.7 Private prospectors and hunters must surrender the fruits of their efforts exclusively to the state at posted prices. Finally, the sale of used personal objects to other persons is permitted. This, however, opens a loophole for illegal trading. Other forms of private activity in production or exchange are proscribed. The employment of one individual by another is prohibited, except in the case of household help (which, incidentally, is rather hard to find these days). Any purchase and resale with intent to profit-so-called "speculation"-is illegal regardless of difference in time or place of purchase and sale. Private possession of foreign currency or of monetary metals is illegal also, such prohibition being common to all countries practicing stringent foreign exchange control. Except for au- thorized persons, moreover, all transactions with foreigners are against the law. As already mentioned, the plying of nearly all crafts and trades for private gain is prohibited. And, needless to say, the law forbids turning socialist property to private lucrative use; theft from the state and cooperatives, as well as from private persons; bribe-taking by official persons; and bribe- giving, in money or natura.8 Within the state sector itself, the violation of the innumerable laws, rules, regulations, norms, directives, plans, etc., pertaining to the everyday activity of managers, technicians, workers, clerks, functionaries, administrators, and everyone else, is punishable either by law or by administrative sanction. Nevertheless, despite far-reaching and rigorous prohibitions-and in some measure precisely because of them-and despite the often severe penalties threatening transgressors, the breaking of economic laws and regulations and the passing of bribes are commonplace, everyday phenomena in which virtually the whole population of the USSR is continuously enmeshed, and in which some individuals are involved on a large and at times gigantic scale. How can this be determined? Readers not conversant with the topic may wonder where one obtains information on "economic crime" in the USSR. (This Soviet term embraces theft from the state and from cooperatives, bribery, and the whole range of illegal activities involving production and exchange.) Generally speaking, the accumulation of data is no problem whatever in regard to sheer volume. The Soviet press is replete with articles on the theme, mostly in the form of case descriptions of theft, bribery, illegal production and trade, and the like, going into remarkable detail, and often with seeming candor. Similar descriptive information can be found in Soviet juridical literature and in books on such sub- jects as public order, auditing, "people's control," and party activity. How accurate and representative information filtered through Soviet censorship is, however, is another question. Such information contains obvious lacunae. For example, Soviet printed sources rarely mention cases of failure of law enforcement. (Naturally, the most successful illegal activities, those that go undetected, are not publicized at all.) They pass by in silence such crucial problems as corruption of the party apparat, of high government officials, and of police and other law enforcement authorities,9 and they fail to mention, to this author's knowledge, the startling phenomenon of the sale, for high capital sums, of governmental and party posts (see below). Faith in the rectitude of the pillars of the political regime must not be undermined by the press, even though the truth must surely be known by a substantial part of the public. Furthermore, the printed media are typically silent about any shenanigans in the vast defense sector and in the armed forces. They may deliberately distort the facts of individual cases. They rarely print generalizing analyses about the second economy or corruption;" and, if the authorities dispose of quantitative estimates of the overall extent and incidence of second economy activities or some parts thereof, as they probably do, such never appear in the press. Nonetheless, a researcher can learn a lot from simply reading the newspapers. Other major sources of data available to the scholar include accounts by foreign correspondents in the USSR," the scholar's own personal contacts and observations in that country, and-of major importance lately-the written and oral testimony of recent emigrants." Of considerable help, too, are similar sources in or from the Communist countries of Eastern Europe, since both the underlying causes of the second economy and its symptoms and mani- festations are essentially the same there as in the USSR, even though general conditions, the extent of permitted private activity, and official policies may vary from country to country. Clearly, then, there are sufficient sources of raw data on the subject to allow the researcher to assert that illegalities exist in all sectors of the Soviet economy. Given this conclusion, it is necessary to examine the forms which these illegal manifestations of the second economy normally assume. Forms of Economic Illegality The enormous variety and occasional complexity of illegal and semilegal activities in production and distribution are ensured by the pervasiveness of controls and the massive number of prohibitions in the state and household sectors of the economy, and appear to be limited only by human ingenuity, though, naturally, the most ingenious schemes, being presumably also the more successful ones, tend to escape identification by Soviet authorities and detached observer alike. A series of classifications and typologies for these activities could be devel- oped. One is perforce provided by Soviet law in terms of its different articles and the acts that they proscribe.13 Another, a typology of markets, is offered by Katsenelinboigen, to whose work we have already adverted.14 But no such classification will be made here in any formal sense. Rather, we will only provide a concise summary of the chief forms of relevant activity. Doubtless the most common economic crime in the USSR is stealing from the state, under which we subsume stealing from all official organizations, including collective farms. All sources agree that it is practiced by virtually everyone, takes all possible forms, and varies in scale from the trivial to the regal. All also agree that the public takes it for granted,15 attaches almost no opprobrium to it-and, on the contrary, disapproves of those who do not engage in it-and sharply distinguishes between stealing from the state and stealing from private individuals. The latter is generally condemned. With some liberty, one might perhaps assert that the right to steal on the job, within certain conventional limits, is an implicit but integral part of the condi- tions of employment in the Soviet Union. It not only furnishes significant additional income in kind and in money to much of the public, conversely representing a major item of expense for the state,16 but also provides an important, often indispensable, basis for the second economy. The peasant steals fodder from the kolkhoz to maintain his animals, the worker steals materials and tools with which to ply his trade "on the side," the physician steals medi- cines, the driver steals gasoline and the use of the official car to operate an unofficial taxi; and to all of them income from private activity on the side may be more important than the wage or salary they earn in their official jobs. An important variant of stealing on the job is the diversion and black-market sale by truck drivers of freight in their custody. This is precisely the source of the apparently considerable amount of building material that enters illegal channels and makes possible much private, kolkhoz, and at times even state-enterprise construction. A more lordly way of stealing, if one is highly placed, is to use the resources of one's own firm or organization to personal advantage. The Soviet press is full of examples: have the firm build you a summer house (dacha) at little or no cost to yourself,17 or have it remodel your apartment in town or provide a company car for your wife. Such illegal perquisites-in addition to the legal ones that important officials and 'managers enjoy-seem often to be taken for granted. Theft from the state does not take place only on the job, however. By all indications, a great deal of it is perpetrated by what might fairly be called professional criminals-the ordinary worker pilfering tools or materials at the factory does not think of himself in these terms-and even by well-organized gangs of criminals capable of pulling off daring and large-scale feats. There is little doubt that the merchandise so stolen in large measure enters the black market as well and partly feeds illegal production in the second economy. There are also less crude forms of stealing from the state. A very common one consists of the diversion of finished goods, supplies, or materials by enterprise managers themselves. The goods might be recorded in the books as legitimately spoiled or lost in transit, for the books must of course show everything to be in order. But the diverted goods in fact are disposed of on the black market, or, in the case of intermediate materials and parts, used to manufacture items that can then be profitably sold. The proceeds are appropriated, though they may have to be shared with those within and outside the firm who are privy to what has happened. The aim of those who divert goods is not always private peculation, however; it may be to promote the success of one's firm in terms of official indicators, which, to be sure, could indirectly benefit the operators of the diversion. The diverted goods may be used to barter against needed supplies when these are not available through legitimate channels, to improve the well- being and raise the morale of the firm's rank and file, and so on.18 An important point which follows from this is that Soviet production statistics may not only be overstated by managers eager to show plan fulfillment in order to earn their bonuses, but may also occasionally be understated, particularly in the light and food-processing industries, where diversion of goods is relatively simple. There is no way, though, for the outside observer to estimate the extent of such understatement by industries and commodities or overall. Generally speaking, in an economy with pervasive goods shortages such as exist in the Soviet Union, physical or administrative control over goods often confers both the power and the opportunity for economic gain to the individual, be he or she ever so humble in the formal hierarchy. It is clear that many take advantage of this fact. Thus, when goods in high demand arrive in state-owned retail stores, it is common for salespeople to lay them aside for favored customers from which they can expect good tips, if not to preempt the goods themselves for profitable resale. The salesperson usually has to split any gains with his or her supervisor, who most likely again splits his share with the next higher supervisor, and so on up the chain of command.19 Nevertheless, over time the additional net income gained may easily exceed-sometimes several fold the salesperson's salary and legal bonuses, which, perhaps for this very reason, are very modest to begin with. The individual, in fact, may have little choice but to fall in with the system of extralegal gain. Functionaries in the administrative bureaucracy who handle the allocation of producer goods-and they are very many-and those who are in charge of waiting lists for automobiles, other major con- sumer durables, and housing also have considerable opportunity for graft and apparently take advantage of it, though how commonly we are unable to say.20 Finally, as has already been mentioned, there is widespread speculation in goods which are hard to come by. Given the invariable maldistribution by the state of goods over time and space, and chronic shortages of many items in the USSR, the oppor- tunities for black-market trading for profit are nearly unlimited. The objects of speculation run the gamut from food, through foreign-made clothes purchased from visitors from abroad or in foreign currency (valuta) stores, to precious metals and foreign currency. The speculators may be relatively innocent individuals who pick up a few things on a visit to Moscow for resale to friends at home, or highly professional large-scale operators.21 In addition to illicit trade there is illicit production.22 Although the private practice of nearly all crafts and trades is forbidden, it is far from suppressed. A large number of household repair and building services, typically provided by people "moonlighting" outside, or even during, working hours; automotive repair- the sewing and tailoring of garments;23 the moving of furniture and other transport services-these and many others are regular illegal or semilegal features of Soviet life. On a larger scale are the operations of seemingly well organized migratory gangs of builders who contract themselves out, chiefly to collective farms, for specific jobs at preagreed and relatively very high prices. Both individual moonlighters and gangs of workers are referred to as shabashniki (literally: free-time workers). Lastly, there are the underground entrepreneurs in the full sense of the word: i.e., individuals who promote and organize production on a substantial scale, employ the labor of others, obtain materials and machinery on the black market, and distribute their output widely. They invest their own capital, for underground firms are privately bought and sold at capitalized values that presumably reflect their expected profitability discounted for risk. The products involved are often consumer goods (garments, footwear, household articles, knickknacks, etc.) but can be producer goods as well. Large-scale private operations such as these commonly take place behind the protective facade of a state-owned factory or a collective farm-naturally, with appropriate payoffs to those who provide the cover-in what might be called crypto-private manner.24 Another variant of crypto-private (or pseudo-socialist) operation is the following: the enterprise is in fact state-owned and produces the output called for by its plan, but is operated virtually as a private firm by the manager, who pays a fixed sum or a proportion of enterprise revenue to the state and pockets the rest. Naturally, this is most practicable in smaller establishments, especially those producing services with a low material component, so that output cannot be easily controlled as a function of material input.25 Widespread Corruption Illegal activities such as those just summarized are hardly the sole cause of corruption of Soviet officialdom and authorities, but they are surely a major contributing factor. Given the plethora of administrative superiors, controllers, inspectors, auditors, law enforcers, party authorities, expediters, and just plain snoopers that beset every economic activity, legal or illegal, in the Soviet Union, anything done out of line requires the buying off of some and often very many people. It should be noted first of all that law enforcement officials in the USSR are apparently frequently bribed. Those involved include the regular police (the militia), the special economic police (OBKHSS - Department for Combating the Theft of Socialist Property), and at times personnel in prosecutors' offices.26 One source even reports the case of an official who actively promoted underground enterprise within his jurisdiction in order to expand his graft base.27 No doubt most bribe taking and giving is rather petty, consisting of generous tips dispensed to salespeople for goods in short supply (such tips may not even be thought of as bribes by either side 28) or of baksheesh extracted from the public by many a clerk wielding an official rubber stamp. But some bribes are far from petty and can add up to substantial sums over the year. Compounding the picture presented here is the Russian tradition of prinosheniye (literally, "bringing to"), the regular bringing of valuable gifts to one's superiors or others in proximate authority, as satirized, for instance, nearly a century and a half ago by Gogol in his immortal comedy The Inspector General. Thus, prinosheniye is not bribery in relation to a particular act or event, but a general and regular way of ingratiating oneself with authority, and one which is expected by both parties. Prinosheniye is given by individuals to their superiors 29; but of course on a large scale it is dispensed by enterprises, collective farms, and, needless to say, underground entrepreneurs to their various "protectors." The major beneficiaries are highly placed authorities, ranging up to the ministerial level; local government chiefs; and, not least, local, provincial, and possibly higher party secretaries and first secre- taries. Rural officials of various kinds apparently regularly take in large amounts of choice food from collective and state farms in their jurisdictions. Nor are higher-ups adverse to simply demanding tribute when their whim so dictates.30 The next logical step in the development of corruption would seem to be the capitalization of expected future streams of graft, and hence the purchase and sale of lucrative official positions. This step, too, seems to have been taken in the USSR. Zemtsov reports the widespread purchase and sale around 1970 of high party and high government positions in Azerbaydzhan for sums ranging from 10,000 rubles for lesser posts to 250,000 rubles for that of Minister of Trade.31 If one assumes his information is correct, some interesting questions and inferences suggest themselves. Who receives such capital sums? Are they appropriated by one person in each case, or are they split among cliques of individuals? How do the buyers of positions raise such huge amounts? What return do they expect? How secure are they in their acquired "property rights"? Indeed, to what extent has an aura of property rights arisen around certain positions? At the very least one can deduce that the purchase and sale of positions for large sums of money signifies the profound institutionalization in the Soviet Union of a whole structure of bribery and graft, from the bottom to the top of the pyramid of power; that considerable stability of the structure of power is expected by all concerned; and that very probably there is a close organic connection between political- administrative authority, on the one hand, and a highly developed world of illegal economic activity,on the other. In sum, the concept of kleptocracy, developed by sociologists with reference to corrupt regimes and bureaucracies in underdeveloped countries, does not seem inapplicable to at least certain portions and regional segments of the Soviet party government hierarchy.32 Soviet Particularities Certain aspects of the second economy and corruption in the USSR appear to play a particularly important role in shaping the special characteristics of the Soviet kleptocracy. Before one tries to estimate the size and ultimate significance of the second economy itself, therefore, some comments about the particularities of the Soviet case seem in order. Quite apart from the significance of the private plot in furthering illegal private economic activity in the USSR, the collective farm itself plays an important role in this regard. The following are some of the reasons. Formally, it is relatively easy to set up subsidiary enterprises at collective farms. While official policy intends such enterprises either to produce materials or services for the farm's own use or to process its agricultural products, they seem readily turned into fronts for illegal private operations. In fact, some enterprises exist on paper only and serve exclusively front purposes. Furthermore, the farm often can provide illegal undertakings with premises, transport, and labor-all of which are hard to obtain in the city. Finally, the collective farm is subject to less stringent controls than are state-owned enterprises and organizations with regard to conversion of bank money (i.e., deposit balances in the State Bank) into cash. This point is crucial for underground operations which derive revenue from the state sector, because state-owned entities, which may find ways of paying for services rendered with bank money, as a rule dispose of very little currency. Bank money must be converted into currency, however, to pay individuals for their productive contributions, to purchase materials on the black market, to grease the palms of officials where necessary, and to retain a profit for the entrepreneur himself. The collective farm accomplishes this conversion. Also important to the success of illegal economic activity is the role of persons in direct charge of small means of transport, i.e., truck drivers, taxi drivers, and, lately, owners of private automobiles. The reasons are of course obvious. A good deal of the demand for private automobiles-at high official prices, and even at much higher black-market prices 33 -is generated by the desire to provide transport to the second economy, which at once generates the need for nonofficial vehicles and provides the purchasing power necessary to acquire them. A further aspect of the Soviet case which one can hardly fail to make note of is that alcohol suffuses and penetrates much of the second economy. Vodka-both the illegal "home brew" (samogon) and the state-produced variety, the latter especially since 1972 when restrictions on conditions and hours of sale were tightened "-is a major object of black-market trading. It seems likely that a dis- proportionate fraction of the moderate amounts earned in the second economy or from bribe taking is spent on alcohol (high incomes so earned are more likely to be spent on tangible valuables or to be hoarded), thus, incidentally, swelling the coffers of the state treasury. Furthermore, vodka itself occasionally serves as the means of payment of illegal wages or petty bribes. It also functions as a standard of value, in that the price of the shabashnik's services is sometimes specified beforehand as so many halfliter bottles of standard vodka, even though the ultimate payment may be the current ruble equivalent thereof." Last among the special characteristics to be referred to here is that the Soviet second economy has a geographic and regional pattern. Since a significant component of supply on the black- market consists of foreign goods smuggled into the country by mer- chant-marine crews, port cities such as Leningrad, Riga, and Odessa are obviously major funnels that feed the second economy. The Odessa black market enjoys high renown. In fact, illegal private activity and corruption seem especially highly developed in the southern regions of the country, in Transcaucasia, and in Central Asia. Some aspects of venality and illegality in Azerbaydzhan have already been cited. However, Georgia has a reputation second to none in this respect. The Georgian unofficial economy seems to have at least two distinct, if not unrelated, parts. The first rests on the fact that for climatic reasons Georgia has a monopoly on citrus fruit production in the USSR and shares with only a few other regions considerable advantage in growing out-of-season fruit and flowers. The state attempts to obtain these goods for distribution throughout the country (one wonders if it could handle the latter task) at prices that are a fraction of what the products bring growers in the open markets of the Soviet Union's northern popu- lation centers. Naturally, Georgian peasants prefer the open markets. In effect, there has been for some time now an undeclared war going on between state authorities and the peasants, a contest in which the peasants have shown enormous determination and remarkable ingenuity in overcoming the formidable obstacles which the state has placed in the way of their pocketing the large economic rent offered by the open market. The second part of the Georgian unofficial economy consists of private activity in industry, trade, and other areas. In form this activity may not differ greatly from what takes place in other regions, but in Georgia it seems to have been carried out on an unparalleled scale and with unrivaled scope and daring. Eyewitnesses report significant control by the largest underground entrepreneurs over major party appointments within the republic 36. Or at least such was the situation until the issuance of the now well-known resolution of the Central Committee of the Communist Party of the Soviet Union, dated February 22, 1972, regarding the work of the Communist Party Committee of Tbilisi, which triggered a massive purge in the Georgian party leadership and in the republic as a whole, aimed at rooting out corruption, illegal private economic activity, and other economic crimes and violations. Even today, however, it does not seem that the purification has fully achieved its aims.37 Because of the greater density of economic crimes in the southern republics, any attempt on the part of central authorities to enforce the law inevitably carries with it significant implications for the general pattern of relations between Moscow and the periphery and between the Slavic majority of the USSR and the respective minority nationalities. These relations are already complicated enough. Large and Growing? How large is the Soviet second economy? So far as its lawful component alone is concerned, one can refer to estimates for 1968 prepared by the US Central Intelligence Agency,38 which show that 10 percent of Soviet GNP (in the sense of value added) originated in the legal private sector, and that of this, 76 percent originated in agriculture, 22 percent in housing construction (completions), and 2 percent in services. Viewed in another way, legal private activity contributed 31 percent of value added in Soviet agricultural production and marketing, 32 percent of value added in housing completions, and 5 percent of value added in services. Before 1968 however, the share of the legal private sector had been declining steadily-in 1950 it had been 22 percent of GNP-though owing not so much to an absolute diminution of the private sector as to the rapid expansion of the socialist sector. Today the legal private sector is probably rather less than 10 percent of Soviet GNP. Now, 10 percent of GNP may not be much, but considering the country, it is noteworthy. What is more, the legal private sector produces almost nothing aside from consumer goods (including hous- ing services) and new residential construction. Since household consumption in 1968 claimed only about one half of GNP (at factor cost), the contribution of private value added to household consumption must have been at least 15 percent, and, in regard to household food consumption, perhaps around 25 percent.39 It is probably still something similar today. To turn from the legal to the illegal private sector (for the moment excluding from consideration illegal activities on socialist account), not even an educated guess of size can be attempted by an outside observer. Perhaps estimates are compiled by one or another institute in the USSR; but even without these one can assert with considerable confidence that illegal private economic activities are a major and extremely widespread phenomenon that for a very large part of the population is, in one form or another, a regular, almost daily, experience. This holds especially if one includes consideration of such common practices as the paying and taking of large tips (really black-market surcharges), petty bribes, and gifts (prinosheniye) that are in fact bribes. Moreover, whatever its opinion of large underground operations or more exotic dealings, the public seems to accept petty illegalities as a normal and even inevitable part of making one's way in a refractory and shortage-ridden environment. Little condemnation is leveled at those who benefit from the illegalities (so many do, after all!), and less yet at those who pass money to them.40 Eyewitnesses have frequently been of the opinion that both illegal economic activities and corruption have been markedly on the increase during the Khrushchev and Brezhnev administration 41 though it is not always clear whether they mean in terms of absolute growth of the phenomena or of their relative growth in relation to the "first" economy, which, of course, has been growing at a good rate itself. Thus, while absolute levels cannot be estimated by the outside observer, a significant increase of the illegal economy over the last 20 years can plausibly be assumed. The diminution of terror after Stalin's death; the spread of cynicism in regard to the official economic system and party rule, reported by many observers; the boost in consumer expectations cre- ated by successes of the economy in many fields, not least in the achievement of a sharp improvement in per-capita consumption, and by greatly expanded foreign contacts-all of these trends should have been expected to contribute both to mounting demand for consumer goods and services on the black market and to greater responsiveness of market supply. In addition, growth of the second economy and of corruption tends to feed on itself. People learn what they can get away with, success elicits imitation, and many are caught in a web from which they cannot escape even if they so desire. Events like the highly publicized introduction of the death penalty for graver economic crimes in 1961-62, or the aforementioned crackdown on corruption in Georgia in 1972, do not seem to have seriously retarded the historical trend toward ex- pansion of both phenomena, at least not insofar as an outsider can judge. In contrast, major crop failures or years when the economy seems to grind down across the board, as happened in 1969 and 1977, may-we don't really know-give an added boost to the illegal economy over the short term. Other factors favoring the long-term trend of expansion can be mentioned. The considerable rise in private car ownership which has taken place since 1970 appears to have given a strong push to the second economy activities and corruption connected with nearly every aspect of the acquisition, operation, maintenance, and repair of automobiles.42 And a similar effect on the second economy generally can be attributed to the opening of the Soviet Union to foreign travel in both directions at the end of the 1950's and to the rapid expansion of the Soviet merchant marine (and of Aeroflot operations, perhaps), with the consequent inflow and resale of smuggled foreign goods and currency. Lastly, the impact of a sharp increase in the liquidity of the Soviet household sector should be noted. Taking total savings deposit balances at the end of the year as percent, first, of produced national income (current prices, Soviet concept) and, second, of total sales in state and cooperative stores during the year, we obtain for 1958, 6.8 and 12.9, percent; for 1965, 9.6 and 17.9 percent, for 1970, 16.1 and 30.0 percent; and for 1975, 25.0 and 36.4 percent.43 The only other major liquid asset held by the Soviet public is currency, which might perhaps be assumed by way of first approximation, to have grown in the aggregate proportionately with savings deposits. It is difficult to dismiss the possibility that the extraordinary rise evidenced above of the Soviet public's liquidity in relation to two major relevant aggregates in the "first" economy has tended to favor the development of the second economy-and perhaps, con- versely, has in itself been conditioned by the second economy.44 Significance of the Second Economy Does it matter that the illegal economy and corruption are large and growing phenomena in the USSR? Cannot the same be said of many non-Communist countries as well, developed and underde- veloped? Hasn't the United States recently passed through a period of extraordinary revelations of corruption ?45 The answer to these questions is twofold. It is true that the illegalities of non-Communist countries are bad enough, and in certain underdeveloped countries are extremely serious, though expert opin- ion holds varied views on the subject. But, in Soviet society economic illegalities raise some peculiar and difficult problems for the system's directors. The prevalence of illegal production and trade and of bribe- taking for private gain and enrichment -together with other negative features of the system-controverts such philosophical bases of Soviet society as the solidarity of the various population groups with one another and with the party and its leadership, the moral transformation of Soviet man since the revolution, and inevitable progress toward a society of full communism. It erodes the authority of the Communist Party and the legitimacy of the Soviet dictatorship. It raises questions, as had the Chinese earlier, concerning the USSR's moral right to lead the Communist world and to stand as a beacon to the world's revolutionary forces and as a model to the less developed world. It aggravates cynicism and lawlessness inside the Soviet Union, and even within the party itself. Furthermore, the prevalence of economic illegalities and corruption casts doubt on the ability of the Soviet system to provide minimal material benefits to its population or to administer its own socialist economy according to its own principles and rules. In a sense, as shown earlier, it elevates the power of money in society to rival that of the dictatorship itself, rendering the regime's implements of rule less effective and less certain. And it redistributes income between social groups and regions and seriously complicates the conduct of regional and nationality policy. Yet the regime's attitude toward "economic crimes" may well be ambivalent, and the subject of what to do about them controversial within the leadership, since economic crimes in the USSR have their positive as well as negative features in terms of economic performance indicators as defined by the authorities themselves. Hence, violations such as those within the state and collective farm sectors and the illegal and semilegal provision of household services by private individuals seem to encounter a relatively more tolerant attitude from the authorities than do "speculation," the use of socialist firms for private gain, or foreign currency violations. In any case, the ability of the authorities to effectively enforce the law on all counts seems to be severely limited-more so on some counts than on others. By the same token, their ability to allot lucrative positions within the hierarchy and to threaten citizens with individual prosecution (since nearly everyone is guilty) may add significantly to their control of subordinate hierarchies and thus strengthen the regime as a whole. But would Lenin recognize his party and his state in these conditions? To turn to the more strictly economic implications of the second economy, a few selected observations can be made, though it should be added that much in this area remains unresearched and poorly understood. As stressed throughout this article, the Soviet economy is in fact significantly different in its mode of functioning and in some of its dimensions than one would gather from a study of its legal and official portion alone. Much of our quantitative data calls for revision, although even considerable effort may not produce satisfactory results in this regard, owing to the nature of the subject matter involved. As is frequently asserted, the illegal side of the Soviet second economy adds considerably to the consumer's well-being, both by enhancing the flow of goods and services available to him, qualitatively as much as quantitatively, and by providing him with extra income (the two are really opposite sides of the same coin in national accounting terms). And while in the aggregate the addition provided is not a net one, for at least some of the resources now going into the illegal-as well as legal-channels of the second economy are doubtless diverted from the socialist sector, it is still highly likely that much of the effort, energy, and enterprise invested in the functioning of the second economy would find little application in working for the state. Furthermore, the state would not necessarily devote the relevant resources fully to the cause of personal consumption; hence, the gain from the second economy in this regard is correspondingly larger. There is, however, a serious complication in such reasoning. The state depends heavily on monetary incentives-promotions, bonuses, premia, prizes, piece-rate pay, etc.-to elicit performance from its workers and employees. Paradoxically, the effectiveness of such incentives is simultaneously strengthened and weakened by the presence of the second economy. It is weakened insofar as the pursuit of illicit gain on the job, gain which can be much larger than that provided by local incentives, deflects people's attention and efforts from approved activities. But at the same time the existence of a parallel, second-economy market greatly enhances the attraction of money, including money legitimately earned on the job, and accordingly validates with the public the worth of official monetary incentives. A further word on the last point. There has been some discussion of late among sovietological economists as to whether repressed inflation exists in the household sector of the Soviet- type economy.46 Based on the analysis presented here, it would seem that the very presence of a large second economy, and particularly of a black market, in a sense does away with repressed inflation, despite fairly rigid control of official retail prices. In the second economy, prices tend to be high enough to eliminate any overall "monetary overhang" (i.e., excess of purchasing power over the total supply of goods and services at effective prices) and to forestall a repressed inflationary situation in relation to the controlled and noncontrolled sectors taken together. However, there still remains disequilibrium of relative prices, both between controlled and noncontrolled prices and among the controlled prices themselves. This condition inevitably creates many problems for the authorities, inconvenience for consumers, and invitation for private gain. Thus, a fundamental characteristic of the present day Soviet economy is, broadly speaking, a two-tiered (or many-tiered) structure of prices and personal incomes, a structure common in countries with widespread black markets for goods and labor. On the lower tier are controlled wholesale as well as retail prices; on the upper tier, corresponding free prices, relevant in the legal collective-farm market and in the black market, the latter of which covers a much wider range of goods and services than the former.47 The situation is similar with respect to labor incomes, which can be much higher in the second economy than in the "first," 48 to say nothing of the financial gains of underground traders and entrepreneurs or of the graft-swollen incomes of officialdom. The two-tiered structure of prices and incomes which exists in the USSR and the productive contribution of the second economy lead one to question the accuracy of some Western quantitative notions about the Soviet economy. Consider international comparisons either of individual prices or of general price levels, retail and wholesale, of the sort that are frequently undertaken for various purposes and which result in statements of the following kind: "American prices (at a given time, for a given category of goods) are x times higher than Soviet prices," or "The purchasing power of the ruble is y times that of the dollar." Even after all necessary adjustments for differences in quality, servicing, and conditions of sale, the stated ratio may be quite inaccurate if only official (or list) prices in the two countries have been consulted. In the USSR the acquisition cost of a good to the buyer often may be substantially higher than the official price, owing to black-market differentials, bribes, bribe-like gifts, and the like. In the United States, on the other hand, the average actual acquisition cost is likely to be below list, thanks to sales, giveaways, dis- counts, under-the-counter rebates, and so forth. Thus, ratio x may be typically overstated, and sometimes probably greatly overstated, while ratio y may be typically understated. Also in need of possibly appreciable correction are our notions of levels of personal money income in the Soviet Union. Sovietological economists generally obtain these notions from published data on individual wages and salaries, average wages and salaries for various categories of labor, and consumer budget surveys. But surely all such data and most privately communicated figures as well refer only to legal incomes. Therefore, they may fall significantly short of true total incomes, which include illegal or semilegal earnings and thefts on the job. Even legal incomes from private activity are probably seriously underreported, owing to the heavy special tax rates applying to them. Accordingly, serious doubt is thrown, for instance, on the recent attempts in the West to reconstruct and interpret the size distribution of personal incomes in the USSR. Quite apart from the very scanty data base available for such exercises, and despite the truly ingenious methods used to circumvent this handicap, the attempts can hardly give us an accurate picture of income distribution unless unreported personal earnings are insignificant- which we doubt -or are distributed in relation to legal incomes so as not to affect the chief measures of inequality which remains to be demonstrated. Two specific examples may be adduced in illustration. First, the Soviets publish data on average wages/salaries and kolkhoznik incomes by republic and by region of the RSFSR, which might be taken as indicators of relative material well-being in different parts of the country. Yet, because of the unequal significance of illegal incomes regionally, such statistics may distort the picture. And second, two occupations on which there is a fair amount of information regarding official rates of remuneration are those of physicians and of retail-trade employees. The rates are relatively low, those of physicians being especially low in international terms. But physicians collect large "tips" and conduct a certain amount of private practice which earns them sub- stantial fees; and retail-trade employees collect large "tips" also, and are reputed to be heavily involved in "speculation." Under these circumstances, what is the significance of official data? Mention has already been made in passing of the fact that production data for some individual commodities, especially consumer goods, may require significant upward revision to account for unreported, mostly illegal, production. Similarly, some output data call for downward adjustment, owing to the deliberate overreporting characteristic of the Soviet economy. As for data on the national income or product as a whole and its major components, the exclusion of illegal activities in the Soviet instance follows standard world practice. Nevertheless, a strong case can be made for the inclusion of illegal activities in the data of those countries (at least for the most relevant sectors of the economy) where illegalities are so widespread and significant as to appreciably affect some portions of the national accounts, as in the USSR. If this were done, possibly with some adjustment for the two-tiered nature of prices and incomes, it might require notable revisions in our breakdown of Soviet national income by sector of origin, and of the national product by end use. It might even alter our estimates of Soviet rates of growth, overall and by sector and end product. But the recomputation suggested will be very difficult to do with any accuracy in the foreseeable future. Finally, one might ask about relationships between the second economy (and corruption) and prospects for institutional change in the Soviet economy. An adequate response, in this author's view, must take three factors into consideration. (1) Soviet authorities may find it necessary to increase rates of remuneration and incentive pay in a selective manner, in order to compete with the pecuniary attraction of illicit side incomes on the job. Even so, in many cases it will probably be rather futile for them to try to compete. (2) They may expand the scope of legal private activities, i.e., may legalize some activity that is now proscribed (thus recognizing an inability to eradicate it), forcing down its prices, and diminishing both the burden of law enforcement a nd the extent of corruption. In this case, they would be following the example of several East European countries, where the scope of legal private activity is considerably wider than in the USSR (but where much economic illegality nonetheless persists). In fact, the draft of the new Soviet constitution made public on June 4, 1977, contains some open-ended wording that may be interpreted to indicate a trend in this direction. It provides for lawful "individual labor activity" based exclusively on the individual labor of citizens and members of their families in the areas of crafts and trades, agriculture, services to the public, and "other forms of labor activity." 49 (3) As for the likelihood of another try at economic reform (decentralization, liberalization, etc.) in the state sector, it must be borne in mind that the second economy, grafted onto the present institutional setup in the USSR, is a kind of spontaneous surrogate economic reform that imparts a necessary modicum of flexibility, adaptability, and responsiveness to a formal setup that is too often paralyzing in its rigidity, slowness, and inefficiency. It represents a de facto decentralization, with overtones of the market. It keeps the wheels of production turn- ing. At the same time, the second economy in the state sector is a source of considerable illicit income, in high places as well as low. There must be very many persons of power and influence who have a strong vested interest in the present situation and who may well resist and sabotage any important steps toward formal liberalization of the economy or, especially, toward the elimination of the now ubiquitous administrative management of scarcity. Such considerations need not be decisive in determining prospects for economic reform, but they may well be more than minor. In any case, it seems clear that the Soviet second economy and the phenomena associated with it are here to stay for some time, and with them the social institutions and public mentality that have helped make them what they are today. ENDNOTES 1 The terms "second economy" and "parallel market" seem to have been coined by K. S. Karol, in "Conversations in Russia," The New Statesman (London), Jan. 1, 1971, pp. 8-10. In the article Karol also speaks of the "third economy," the network of restricted and well-stocked shops in the USSR available only to the privileged. 2 See, especially, the definitive work by Karl-Eugen Wadekin, The Private Sector in Soviet Agriculture, Berkeley, CA, University of California Press, 1973. 3 Murray Feshbach and Stephen Rapawy,"Soviet Population and Manpower Trends and Policies," in US Congres, JEC, Soviet Economy in a New Perspective, Washington, DC 1976, p. 138 4 On the kolkhoz market, see Wadekin, op. cit., Ch. 6. 5 See Henry W. Morton, "What Have the Soviet Leaders Done about the Housing Crisis?" in Henry W. Morton and Rudolf L. Tokes, Eds., Soviet Politics and Society in the 1970's, New York, NY, Free Press, 1974, p. 175. Information on the private housing sector in the USSR and Eastern Europe, in its illegal as well as legal aspects, is conveniently brought together in Laszlo Revesz, Mieter und Wohnung im Ostblock (Tenants and Housing in the Eastern Bloc), Bern, Schweitzerisches Ost-institut, 1963. See also fn. 17 below. 6 The exact amount built by private individuals cannot be ascertained because housing built by collective farms as such is lumped with it in available statistics. It is not unlikely that some private construction escapes identification in official statistics. 7 An up-to-date review of which private activity is legal and which is not, together with a lively commentary, can be found in Valeriy Chalidze, Ugolovnaya Rossiya (Criminal Russia), New York, Y, Khronika Publishers, 1977, pp. 246-90. I am indebted to Professor V. G. Treml for bringing this source to my attention. 8 On the law pertaining to bribery, see ibid., pp. 230-45; and to he theft of socialist property, ibid., pp. 291-303. Chalidze points out the curious fact that the granting of sexual favors by a woman to an official is not now regarded in Soviet law as a bribe, though at one time it was; see ibid., p. 238. 9 Nonetheless, allusions to the corruption of law-enforcement authorities occasionally sneak through. See the hint in an article on an anti-speculator raid at a provincial collective-farm market that all the speculators had been forewarned by someone inside the police force; Pravda (Moscow), May 13, 1977. 10 A notable exception is the concise but informative article by A. Kirpichnikov, "A Criminological Study of Bribery", Sotsialisti- cheskaya zakonnost' (Moscow), No. 12, 1975, pp. 41-43. It is important to note in connection with Soviet press overage that the periodical Soviet Analyst (London) frequently prints and comments upon information on economic crime in the USSR, culled mostly from the Soviet press, and that the Central Research Service of Radio Liberty (Munich) maintains a file on what it calls the unofficial economy, with material from both Soviet and non Soviet sources. I would like to express my thanks to Keith Bush of Radio Liberty for sharing parts of the Radio Liberty file with me. 11 Of these, the most informative is in Hedrick Smith's best- selling book, The Russians, New York, NY, Quadrangle, 1976, Ch. 3, entitled "Corruption: Living Na Levo." Na levo literally means "to (or on) the left," and is the idiomatic Russian expression for doing things illegally or not quite legally. Other useful recent accounts by journalists in English are Robert J. Kaiser, Russia: The People and The Power, New York, NY, Atheneum, 1976; and James N. Wallace, "How Private Enterprise Helps the Russians Survive," U.S. News and World Report (Washington, DC), Dec. 22, 1975, pp. 52- 54. The accounts of foreign correspondents are themselves in large measure based on material in the Soviet press, as well as on personal contacts and observations. 12 The only published summary of the results of interviews with emigrants seems to be Zev Katz, "Insights from Emigres and Sociological Studies on the Soviet Economy," US Congress, Joint Economic Committee, Soviet Economic Prospects for the Seventies, Washington, DC, US Government Printing Office, 1973, pp. 87-94. On the other hand, recollections published by the emigrants themselves are getting to be quite numerous. Notable among these is A(ron) Katsenelinboigen, "Coloured Markets in the Soviet Union," Soviet Studies (Glasgow), January 1977, pp. 62-85, an attempt at a typology of legal, semilegal (or "grey"), and illegal markets, with much interesting incidental information. Of particular interest, too, is the book by Illya Zemstov, Partiya ili Mafiya: Razvorovannaya respublika (A Party or a Mafia: The Plundered Republic), Paris, Les Editeurs Reunis, 1976. Azerbaydzhan is the republic in question, and Zemtsov claims to have had access to secret information on internal conditions, partly on the basis of which he paints an especially dark picture of venality, corruption, crime, and hopelessness. An informative concise account, also in Russian, is L. Shpiller, "Soviet Everyday Life," Novyy zhurnal (New York), June 1977, pp. 180-200. A more generalizing essay is Dimitri K. Simes, "The Soviet Parallel Market," Survey (London), Summer 1975, pp. 42-52. Also in English is Yuri Brokhin, Hustling on Gorky Street: Sex and Crime in Russia Today, New York, NY, Dial Press, 1975. As the title indicates, this book leans heavily in the direction of sensationalism, which tends to diminish its value for serious research, although much of its supposedly factual material is in line with what is now generally known. 13 Chalidze, op. cit. 14 See fn. 12. 15 "Nobody can subsist on his wage or salary; everyone has to steal and moonlight in order to live" is the standard view. 16 This applies on a ceteris paribus premise. Of course, if no one stole from the state, the state could afford to pay higher wages and salaries and would probably have to do so to some extent. In other words, the state compensates for its loss through theft by paying lower wages, at least on the average if not in every case. This in turn provides implicit justification for the individual to steal from the state, and the circle closes. 17 The whole dacha business - renting, owning, building, main- taining-is shot through with illegalities, as vividly described by Christopher S. Wren in The New York Times, Aug. 17, 1977, p. 2. 18 The "informal" side of Soviet enterprise operation is by now long and well known to Western observers. See Joseph S. Berliner, "The Informal Organization of the Soviet Firm," Quarterly Journal of Economics (New York, NY), August 1952, pp. 342-65; also his Factory and Manager in the USSR, Cambridge, MA, Harvard University Press, 1957. 19 See Katsenelinboigen, loc. cit., p. 76; and Smith, op. cit., p. 87. 20 Mention of corruption of such functionaries is fairly frequent in the press. For a vivid account of parasitism in the textile trade, see K. Andreyev, "A Moth in the Yarn," Sotsialisticheskaya industriya (Moscow), Feb. 4, 5, and 6, 1976. Regarding housing, see Shpiller, loc. cit., pp. 184-85. 21 A Moscow resident once told the present author: "In this city you can get anything for money, though sometimes it takes a lot." 22 Not all of the activities enumerated in this paragraph are equally illegal, or equally illegal in all localities and under all conditions. 23 Those who can afford to do so shun ready-made garments of Soviet manufacture, for reasons evident to any visitor to a Soviet department store, and either seek out foreign-made clothes or have clothes made to order by what must be a large number of tailors and seamstresses, who work either privately at home or, if in state- owned tailor shops (atel'ye), usually with the benefit of a tip or bribe. A striking story of a whole village in the Caucasus privately knitting warm woolen outerwear and marketing it by mail- order catalog is in an article by V. Pankratov and V. Prokhorov in Pravda, Aug. 13, 1976. 24 Such crypto-private operation is revealingly described in detail in "The 'Black' Millions," Radio Liberty Research (Munich), RL 179/77, July 27, 1977. Interestingly, crypto-private activities described in the report go back to 1952, i.e., to Stalin's time. 25 See, for instance, the case of the hairdresser cited by Katz, loc. cit., P. 91. 26 See Zemtsov, op. cit., pp. 26 and 80; "The 'Black' Millions," loc. cit., p. 3; Smith, op. cit., p. 87 27 "The 'Black' Millions," loc. cit., p. 7. 28 Where the gift ends and the bribe begins is a question that is occasionally debated in the pages of Soviet newspapers. See, for example, "Gift or Bribe," Literaturnaya gazeta (Moscow), Aug. 27, 1975, p. 12. Excerpts from this and similar articles are to be found in German translation in Osteuropa (Aachen), October 1976, pp. A548 ff. See also an article by V. Kotenko in Pravda, June 28, 1976. An important area of large tipping and gift-giving is that of medical care. In effect, the nominally free services of surgeons, physicians, nurses, and other medical personnel command blackmarket fees. There is also an active black market in medicines. See David K. Shipler, "Soviet Medicine Mixes Inconsistency with Diversity," The New York Times, June 26, 1977, p. 1; and Shpiller, loc. cit., passim. 29 Even research institute directors benefit from prinosheniye (author's private information). 3O See Shpiller, loc. cit., p. 183; Zemtsov, op. cit.; and Smith, op. cit., P. 99. On corruption in the USSR generally, there are two recent articles: Steven J. Staats, "Corruption in the Soviet System," Problems of Communism (Washington, DC), January-February 1972, pp. 40-47; and John M. Kramer, "Political Corruption in the USSR," Western Political Quarterly (Salt Lake City, UT), June 1977, pp. 213-24. Both authors interpret "corruption" broadly, to include violation of regulations by factory managers. There is of course a large descriptive and analytical literature on corruption, written mostly by political scientists and pertaining to both developed and underdeveloped countries. Some of it appears to be relevant to Soviet and East European experience. See, for example, Arnold J. Heidenheimer, Ed., Political Corruption: Readings in Comparative Analysis, New York, NY, Holt, Rinehart and Winston, 1970; and James C. Scott, Comparative Political Corruption, Englewood Cliffs, NJ, Prentice-Hall, 1972. 31 Zemtsov, op. cit., pp. 26-35. The average legal wage or salary in the USSR in that year, by comparison, was 122 rubles per month. Similar sales of posts seem to have taken place in Georgia, at least prior to the 1972 republic purge (Smith, op. cit., p. 97). Whether the sale of positions for capital sums took place or is taking place outside of Transcaucasia, we do not know. 32 On kleptocracy, see the contributions by S. Andreski and S. Raiaratnam in Heidenheimer, op. cit. 33 The official retail prices of new cars, high as they are, typically are not the full cost to the buyer, who has to grease many palms before his treasured object is duly acquired, registered, and garaged, and before he receives a driver's license. To maintain and repair his car the owner will have to turn to the second economy for labor, spare parts, and supplies. He will partly recoup if he obtains his gasoline on the black market as well; stolen from the state, it sells for a fraction of the official retail price. See Smith, op. cit., p. 82; "New Assault on the Rights of Soviet Workers," Radio Liberty Research, RL 188/75, May 2, 1975, pp. 2-3; "Pocket Gasoline", Sotsialisticheskaya industriya, March 11, 1977; and "Kings of the Gasoline Pump," Pravda, Aug. 18, 1977. 34 For the 1972 measures, see Pravda, June 16, 1972. In his carefully researched paper, "Production and Consumption of Alcoholic Beverages in the USSR: A Statistical Study," Journal of Studies on Alcohol (New Brunswick, NJ), March 1975, pp. 285-320, Vladimir G. Treml estimates samogon to have accounted for 25-30 percent of all alcohol consumed in the USSR around 1970, with this share gradually declining with urbanization. He also estimates per-capita consumption of distilled spirits in the USSR (despite a large Moslem population) to be the highest in the world, and to have been rising at about 5 percent a year between 1957 and 1972. 35 These statements on the uses of vodka are based on private information in the hands of the author. At present the official price of a half-liter bottle is 3.62 rubles, or about four times the average gross legal hourly wage. 36 See Ia. A. Chianurov, "Georgia and Her Party Leaders," Radio Liberty dispatch, Nov. 27, 1972, p. 3. For brief descriptions of the vigorous underground economic life of Georgia, see Kaiser, op. cit., pp. 110 ff.; and Smith, op. cit., pp. 95 ff. 37 The original CC CPSU resolution was followed up four years later (Pravda, June 27, 1976) by a second one which, though appearing to stress positive changes, clearly indicated that the situation was still far from satisfactory. For additional information, see The New York Times, Jan. 31 and May 11, 1976; Christian Science Monitor (Boston, MA), July 8, 1976; and Elizabeth C. Sheetz, "Criticism of the Administration Organs in Georgia," Radio Liberty Research, RL 60/77, March 14, 1977. 38 US Central Intelligence Agency, Office of Economic Research (Barbara Severin and David Carey), "Trends in Official Policy Toward Private Activity in the USSR," March 1970, processed, pp. 3 ff. and Appendix. GNP in this study presumably encompasses only the legal sectors of the Soviet economy. 39 For comparison, see the 1970 breakdown of GNP at factor cost in terms of value added by sector of origin and end use, in Rush V. Greenslade, "The Real Gross National Product in the USSR, 1959- 1975," in Soviet Economy in a New Perspective, pp. 284-85. Greenslade estimates total GNP (legal sectors only) at 340.219 billion rubles (BR), total household consumption at 164.731 BR, food consumption at 81.982 BR, and value added in agriculture at 69.405 BR. 40 On the public's attitude, see especially Simes, loc. cit.; also Smith, op. cit., p. 87. 41 See Shpiller, loc. cit., pp. 108 ff., who relates the rapid growth of corruption and illegal private activity to the public's "disorientation" after Khrushchev's destalinization campaign began in 1956; and compare Katz, loc. cit., p. 90, who imputes it to the Brezhnev era. The introduction of the death penalty by Khrushchev in 1961-62 for some economic crimes would seem to point in the direction of Shpiller's view. 42 See "The Dawn of the Automobile Era Gives a Boost to the Black Market," Radio Liberty Research, RL 132/75, March 27, 1975; Yu. Kaz'min in Pravda, Dec. 23, 1974, p. 4; Yu. Shpakov in ibid, March 16, 1976, p. 3; and D. Epifanov in ibid., Feb. 9, 1977, p. 3. 43 This information is available in official Soviet statistical yearbooks. 44 The anonymous author of "The 'Black' Millions" reports that in 1970 he was told by a supposedly well-informed friend that some 28 billion rubles had been diverted from normal circulation and were being hoarded "in mattresses," presumably by those who acquired them illegally. An outsider is at a loss as to how to evaluate such information. The problem of "laundering" illicit cash is a major one in the USSR. One way is to purchase lottery tickets or lottery bonds that have already won but have not yet been cashed in; the black-market price (the transaction is illegal) appears to run 1.5 to 2 times the winnings, i.e., one clean ruble equals 1.5 to 2 dirty ones; see "The 'Black' Millions," loc. cit., p. 3; and V. Maksimov in Sotsialisticheskaya industriya, March 25, 1977, p. 4. 45 The extraordinary revelations, such as those of the Lockheed case, are too well known to require listing here, but a few aggregate estimates may be noted. In 1975, "crimes against business"only one kind of "economic crime"-supposedly amounted to between $23 billion and $40 billion in the United States, and such crimes are believed to be growing rapidly in both number and scope; see The New York Times, Sept. 18, 1976, and U.S. News and World Report, Feb. 21, 1977, pp. 47-48. The larger figure includes $7 billion of bribes to corporate purchasing agents (Dun's Review [New York, NY], March 1977, pp. 76 ff., and letters to the editor in the May and June issues), a mirror image in the American buyers' market of bribes to materials allocators in the Soviet sellers' market. Improprieties at a steel mill construction project in Indiana (The Wall Street Journal, June 8, 1976, p. 1) are highly reminiscent of illegalities in the Soviet economy. The American press typically identifies the corruption losses of businesses with losses to the economy. This practice is questionable, however, for many of the crimes involved, as in the Soviet Union, are primarily redistributional and do not necessarily diminish real national wealth or income. 46 Little of this discussion has yet appeared in print; but see Richard Portes, "The Control of Inflation: Lessons from East European Experience," Economica (London), May 1977, pp 109-30. Portes questions the view that repressed inflation is chronic in "centrally planned economies," but gives only passing attention to the black markets. 47 Changes in collective-farm market prices (on which there are official data) may not, therefore, be a sufficiently accurate indicator of changes in the aggregate demand-supply balance, as is sometimes assumed. Ideally, reference should also be made to a sample of black-market prices, but these are very hard for the outside observer to come by. Black-market prices likely to be quoted for their sensational implications (e.g., gold at 12 rubles per gram, as cited in Sotsialisticheskaya industriya, Feb. 25, 1977, p. 4) need not be representative in their movements. 48 Our very casual inquiries indicate that (grosso modo) in Moscow in the early 1970's the remuneration of shabashniki was about three times that for similar labor in the "first" economy, on an hourly basis. While no accuracy is claimed for this figure, it is roughly confirmed, as of 1977, in an article by V. Lipatov in Pravda, Aug. 9, 1977, which speaks of daily earnings of "up to" 30 and 40 "unrighteous" rubles by plumbers servicing private apartments. 49 See Article 17 of the Draft Constitution, Pravda, June 4, 1977. Emphasis added.