Including legal and illegal activity in the definition does not imply, however, that they were equally dangerous. Because the socialized sector could not realistically assume responsibility for every small repair, service, and petty exchange of goods, private economic activity occurred in every socialist country. Kept within bounds, private activity occupied a natural and unthreatening place. This was the case with most legal economic activity in the Soviet Union. Between 1950 and 1985, legal private economic activity actually diminished in size relative to the socialized sector. The opposite was true of illegal activity. As we shall discuss, it corroded socialism in a number of ways, not least of which was the way it often compromised legal activity. Moreover, in the period from 1950 to 1980, illegal, private economic activity expanded greatly.
The illegal aspect of the second economy, or black market activity, did not, of course, occur only in socialist societies. Under capitalism, illegal economic activity took such forms as prostitution, working off the books to avoid taxes, and selling outlawed drugs and bootleg liquor. During Prohibition, American black market activity assumed large dimensions in the sale of illegal alcohol and during World War II in the sale of tires, sugar and other rationed products. Because socialism prohibited a greater range of private economic activity than did capitalism, black market activity represented a greater potential problem. Moreover, since socialist revolutions have occurred in economically developing societies where the needs of capital investment and national security required limiting the investment in consumer goods, the demand for some consumer goods invariably exceeded the supply. This in turn led to a system of distribution that required lines and/or ration coupons. The greater the number of proscribed economic activities and the greater the shortage of consumer goods, the greater was the temptation to circumvent the law. To counter this temptation, socialist societies have used vigorous educational campaigns and rigorous law enforcement.
Even though black markets have been endemic to undeveloped socialism, the existence and growth of a second economy in the Soviet Union may come as a surprise to Marxists and others. If so, the surprise may be due to the failure of economists to give the second economy proper recognition. Popular Marxist treatments of the Soviet economy contained virtually no discussion of the second economy. In Soviet Economic Development Since 1917, published in 1948 and enlarged and revised in 1966, the British Marxist, Maurice Dobb, said nothing about legal or illegal, private enterprise, aside from two references to the black market in the 1920s.157 Until 1980, with the exception of the Soviet economist, T. I. Koriagina, most Soviet economists ignored the second economy.158 No discussion of it occurred in such standard Soviet texts as L. Leontyev, Political Economy: A Condensed Course; G. A. Kozlov, editor, Political Economy: Socialism; G. S. Sarkisyants, editor, Soviet Economy: Results and Prospects; P. I. Nikitin, The Fundamentals of Political Economy and Yuri Popov, Essays in Political Economy.159 In his last discussion of the economic problems of the Soviet Union published in 1952, Joseph Stalin referred to the persistence of private commodity production in the countryside but made no mention of the danger of illegal, private enterprise (probably because of its negligible size at that time).160 Similarly, in a pamphlet on the Soviet economy published in 1961, the American Marxist economist, Victor Perlo, devoted a short section to the black market in foreign currency but clearly saw this as a temporary and limited phenomenon. Perlo quoted Anastas Mikoyan, the First Deputy Premier, who called the black market “a handful of scum on the surface or our society,” that represented “no trend among our people.”161 Even as late as 1980, in a book on the Soviet economy with a frank and informative discussion of its problems, Victor and Ellen Perlo had no discussion of a second economy.162
Though most Marxist economists, and for that matter most bourgeois economists, ignored private economic activity within socialism, some American, Western European, and Soviet scholars, as well as the CIA, became alert to this phenomenon in the 1970s and studied it thereafter. Indeed, the Soviet second economy spawned a cottage industry of academic work in the United States. In 1985, Gregory Grossman of the University of California—Berkeley and Vladimir Treml of Duke University began publishing the Berkeley-Duke Occasional Papers on the Second Economy in the USSR. Between 1985 and 1993, the Berkeley-Duke project published fifty-one papers by twenty-six authors on this topic. Over half of these papers dealt with the Brezhnev era and many were based on surveys administered to 1,061 households that had left the Soviet Union between 1971 and 1982.163 In addition, the Berkeley-Duke project compiled a bibliography of 269 studies in major Western languages on the second economy in the USSR and Eastern Europe.164 For a number of scholars, the second economy loomed large.
In terms of the law, Soviet socialism prohibited most private economic activity. The law proscribed the employment of others (except for household help), the selling or reselling of goods for profit, trading with foreigners, possessing foreign currency, and plying most crafts and trade for private gain. Consequently, the legal exploitation of labor did not exist. Nevertheless, within strict legal boundaries, Soviet socialism permitted certain kinds of private economic activity. A substantial amount of private gainful work remained legal, even though it sometimes shaded into illegal activity. Soviet law permitted private agricultural plots limited to three-quarters of an acre for those employed on collective or state farms and even for some people not so employed. In 1974, according to some estimates, private plots accounted for almost a third of all hours expended on agriculture and almost a tenth of total man-hours in the whole economy. The private plots also accounted for more than a fourth of Soviet agricultural output. To sell the products of private plots, so-called collective farm markets developed. Though legal, this growing and selling invited illegal abuses such as the diversion of socialized property (seeds, fertilizer, water, fodder, equipment, and transportation) to support the private plots and bring the produce to market.165
Soviet law also permitted private housing. According to Grossman, in the mid-1970s half of the Soviet population, and a quarter of the urban population, still lived in private housing. Legal, private housing often involved some illegality—subletting for illegal rent, the hiring of illegal construction or repair help, the diversion of building materials from the socialized sector, the bribery of officials and so forth. In other sectors, such professionals as doctors, dentists, teachers, and tutors could legally sell their services. Craftsmen could engage in home repair in rural areas, and certain craftsmen could work at a few limited and unimportant trades. Private prospectors could mine, providing they sold their ore to the state. The law also permitted the sale of used personal items.166 By itself, legal private activity did not present a big problem. It steadily declined as a percentage of GNP until Gorbachev. Grossman estimated that it represented 22 percent of GNP in 1950 and 10 percent in 1977. Of course, Soviet GNP had grown greatly between 1950 and 1977, so legal private economic activity remained significant.167