After 1953, illegal money-making presented a much greater problem than legal activity. Illegal activity eventually assumed an astounding array of forms, eventually penetrated all aspects of Soviet life, and was limited only by the boundaries of human ingenuity. The most common form of criminal economic activity took the form of stealing from the state, that is, from work places and public organizations. Grossman said, “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 medicines, the driver steals gasoline and the use of the official car to operate an unofficial taxi.” Variations on this theme included the diversion of goods into the private market by truck drivers and the use of state resources to build a summerhouse, renovate an apartment, or repair a car.168
At times stealing from the state occurred in wholesale and systematic ways. This included “well-organized gangs of criminals capable of pulling off daring and large-scale feats.” It included the practices of managers reporting the loss or spoilage of goods in order to divert them to the black market. It embraced a common practice in state stores of salespeople and managers laying aside rare goods in order to secure tips from favored customers or to sell them in the black market. Consumer durable goods like automobiles for which waiting lists existed presented “considerable opportunity for graft,” as well as for “speculation,” that is, for resale at higher prices.169
Repairs, services and even production constituted other avenues of illegal gain. This included household repair, automotive repair, sewing and tailoring, moving furniture, and building private dwellings. This work, illegal in itself, often involved material and time stolen from regular employment. Private production even took the form of full-blown, underground capitalists in the full sense of the word—investing capital, organizing production on a large scale, hiring and exploiting workers, and selling commodities in the black market. According to Grossman, the products usually consisted of consumer goods—“garments, footwear, household articles, knickknacks, etc.” Moreover, “large-scale private operations such as these commonly take place behind the protective façade of a state-owned factory or a collective farm—naturally, with appropriate payoffs to those who provide the cover.”170 Konstantin Simis, a prominent Soviet lawyer who represented many underground businessmen in the 1970s, subsequently described his experiences in a book subtitled, The Secret World of Soviet Capitalism. Simis said “a network of private factories is spread across the whole country,” tens of thousands of them, manufacturing “knitwear, shoes, sunglasses, recording of Western popular music, handbags, and many other goods.” The owners ranged from the owners of “a single workshop” to “multimillion-ruble family clans that own dozens of factories.”171
Taken together, a variety of monographs provided a kaleidoscopic view of the second economy during the Brezhnev years. Private food vendors sold goods valued at 35.5 billion rubles a year.172 Soviet barbers in state-owned barbershops customarily collected “very high” tips “in effect transporting the transaction into the SE [second economy].”173 The home production of grape and fruit wine and beer, the illegal resale of state beverages, and the sale of stolen ethanol accounted for as much as 2.2 percent of the Gross Domestic Product in 1979.174 By the late 1970s, the black market sale of gasoline by drivers of state-owned cars and trucks allegedly accounted for between 33 and 65 percent of all gasoline sales in urban areas.175 Privately rented housing brought illegal landlords an estimated 1.5 million rubles in 1977.176 Tips, bribes, and payments for private services (such as religious ceremonies) associated with funerals involved more than four times the amount of money spent on official funerals.177 Prostitution and illegal drug sales constituted another part of the second economy.178
The researcher, Marina Kurkchiyan, provided a detailed description of the way the second economy worked in the transportation system of Soviet Armenia, which she regarded as “typical.” Even though a bus driver made more than average wages, he made more money from his customers than from his state wages. The driver collected fares directly from customers and turned over only part of the receipts to the state. Out of his own pocket, the driver paid for cleaning, parts, maintenance and fuel. In the end, a bus driver’s total income, after expenses, amounted to two to three times the size of his official state salary. Kurkchiyan concluded that by the end of the 1980s, partly as a result of Gorbachev’s policies and economic hardships, “everybody” was engaged in the second economy, and it had become “the dominant force in the allocation of goods and services.”179
How big was the second economy? All kinds of methodological problems bedevil an attempt to measure its size and growth. Experts have challenged each other’s figures, as well as official Soviet figures issued after 1989. Nonetheless, all experts agreed that for over thirty years the second economy grew at an increasing rate. For certain regions of Russia and the Ukraine, Vladimir G. Treml and Michael Alexeev analyzed the relationship between earned, legal income on the one hand and the amounts spent on goods and services or saved on the other hand. They discovered that between 1965 and 1989 the correlation between income and expenditures/savings became weaker and weaker until it disappeared. In other words, the total amount of money spent or saved increasingly exceeded the amount of income earned legally. They surmised that illegal income accounted for the difference. They provided no figures for the size and growth of the second economy, but concluded that “the second economy was growing rapidly between 1965 and 1985.”180 Another researcher, Byung-Yeon Kim, using Soviet statistics that became available after 1991, similarly concluded, “The absolute size of the informal economy had indeed increased from 1969 to 1990.”181
The leading Soviet specialist on the second economy, T. I. Koriagina of the Economic Research Institute of the USSR State Planning Commission (which favored legalizing at least some of the second economy), also attempted to measure the growth of the second economy. In one study, Koriagina used a methodology similar to Treml and Alexeev’s. She compared the amount of legally, earned income per month with the total amount spent and saved. Her figures likewise showed not only a large size for the second economy, but also a steady expansion.
The Growth of the Monthly Salary of Workers
Compared with the Growth of the Total Size
of Money Spent on Goods and Services
and Saved in Savings Banks182
1960
1970
1975
1980
1985
1988
Monthly Salary in Billions of Rubles
80.6
122
145.8
168.9
190.1
219.8
Percentage of 1960
152
180
210
236
273
Total Spent and Saved in Billions of Rubles
103.2
223.2
329.9
464.6
590
718.4
Percentage of 1960
216
320
450
572