696
Using statistics for the whole Soviet economy, Koriagina estimated that the second economy was growing even faster than in the selected areas above. Moreover, the second economy was growing faster than the first economy. According to Koriagina, official national income and the value of retail goods and services had increased four or five times between early 1960s and late 1980s, while the second economy had grown eighteen times.183
Though the second economy grew, its actual size is difficult to measure. Both American and Soviet economists of all ideological viewpoints admit it is hard to estimate the size of the second economy of the USSR in relation to its total economy. One difficulty involves varying definitions of the “informal economy,” the “shadow economy,” the “second economy,” the “private economy,” the “underground economy,” the “black market economy,” and so forth. For some scholars, the important measure is legal and illegal, private economic activity, for others the measure is only illegal activity. Even if a definition could be agreed upon, all estimates involve assumptions that may be more or less realistic. One economist has compared the measurement of the Soviet second economy to the determination by physicists of Pluto’s orbit by studying the oscillation of its planetary neighbors. All of these caveats aside, the estimates are nonetheless highly revealing.
Based on macroeconomic figures, Koriagina estimated that the annual value of illegal goods and services grew from approximately 5 billion rubles in the early 1960s to 90 billion rubles in the late 1980s. If the value of the Soviet national income (net material product) in current prices was 145 billion rubles in 1960, 422 rubles in 1988, and 701 billion rubles in 1990, then the value of second economy was approximately 3.4 percent of national income in 1960, 20 percent in 1988 and 12.8 percent in 1990.184 (By 1990, some previously illegal activity was now legal.) In 1988, Koriagina estimated that the total accumulated illegally attained personal wealth amounted to 200-240 billion rubles, or 20-25 percent of all personal wealth.185
Koriagina’s figures represented only income from illegal economic activity. To get a sense of the total size of private economic activity, one would have to add to her figures the size of legal private activity. In other words, the size of all private activity would presumably be at least 10 percentage points higher for a total of 30 per cent in 1988 or 30 to 35 percent of accumulated personal wealth in 1988.
If such adjustments to Koriagina’s figures were made, her figures would be comparable to those of the leading American authority, Gregory Grossman, whose estimates came from microeconomic data gleaned from interviews with over a thousand Soviet emigrants. Grossman found that in the late 1970s the urban population (which constituted 62 percent of the total population) earned about 30 percent of its total income from nonofficial sources, that is to say, from either legal or illegal, private activity.186
Research using the Soviet archives after 1991 has reinforced these estimates of the size of the second economy. In 2003, Byung-Yeon Kim, an economist at the University of Warwick, England, estimated the size of the second economy on the basis of official Soviet Family Budget Survey Data (FBSD). Between 1969 and 1990, the Soviet government collected data from a sample of 62,000 to 90,000 families on income and expenditures. Respondents reported both official income and “informal” income and expenditures, that is to say, income (not necessarily illegal) derived from private activity and expenditures in private transactions. Such informal income included income in kind, income from the sale of agricultural animals and products, and income from individuals. Informal expenditures included the consumption of self-produced goods and money paid to individuals for goods. Kim noted that one would naturally expect these respondents to be less willing to reveal income and expenditures involving illegal activity than the émigré respondents used by Grossman. At the same time, it is likely that Grossman’s respondents were more disaffected with socialism and hence more involved in private undertakings and were more apt to exaggerate their importance than Soviet citizens who did not emigrate. In any event, one would expect estimates of the second economy based on Kim’s data to be smaller than Grossman’s. This indeed was the case. Kim estimated total income from the second economy as 16 percent, while Grossman estimated total income from the second economy as 28-33 percent. Correcting for the possible reporting bias on both sides would mean the true figure was probably some where in the middle.187
In another study, Grossman found that the second economy assumed larger dimensions in areas on the periphery of the Soviet Union than in Russia:
Grossman’s Estimates of the
Size of the Soviet Second Economy
Compared to the First Economy
Brezhnev Era (1977)188
Russia (RSFSR)
29.6%
Belorussia, Moldavia, and Ukraine
40.2%
Armenia (ethnic Armenians only)
64.1%
‘Europeans’ residing in Transcaucasia or Central Asia
49.7%
Grossman noted that while 30 percent of urban income derived from the second economy by the late 70s, the second economy had relatively greater strength in the south (the Northern Caucasus regions and the Transcaucasian republics of Georgia, Armenia, and Azerbaijan, and Central Asia) than in the north (central Russia, the Baltics, and Siberia). It was also large in certain border regions like Odessa and in territory joined to the USSR after 1917, such as Moldavia, the Ukraine and Belarus. Because of regional and ethnic variations, in some areas the people averaged as much income from illegal, private activity as from regular, legal employment. In some areas, people averaged twice as much from illegal as legal sources.189 Kim’s study based on Family Budget Survey Data confirmed the conclusions of Grossman and others that the second economy was smallest in Russia, Estonia, and Latvia and largest in Uzbekistan, Georgia, Azerbaijan, Kirghizstan, Tadzhikstan, and Armenia.190
How many people did the second economy involve? Most scholars agreed that by the 1980s the second economy reached into every nook and cranny of the society and touched almost everyone. In a reference to private money-making, Brezhnev himself remarked, “No one lives on wages alone.”191 What was important, however, was not petty pilfering or the purchase of black market goods, but the emergence of a layer of people who depended upon private activity for all or a substantial portion of their income. Some people became exceedingly wealthy and acquired the name, the “Brezhnev new rich. ”192 Such people could rightly be considered a nascent class of petty bourgeoisie.
Some scholars have attempted to assign a number or percentage to those involved in the second economy, particularly to those who derived a substantial income from illegal, private enterprise. According to Vladimir Treml, the underground, or illegal, economy in the late 1970s involved 10 to 12 percent of the labor force.193 Koriagina estimated that the number of people involved in the illegal parts of the second economy grew from less than 8 million people in the early 1960s to 17-20 million (6 to 7.6 percent) in 1974 to about 30 million (roughly 12 percent of the population) in 1989.194 Grossman summed up the extent of the second economy in the mid-1980s:
And so during the last three decades of the Soviet era, illegal economic activity penetrated into every sector and chink of the economy; assumed every conceivable shape and form; and operated on a scale ranging from minimal or modest for the mass to the substantial for the many, to the lavish and gigantic, as well as elaborately organized, for some.195
The large amount of wheeling and dealing that occurred outside the official socialized economy contributed mightily to the Soviet downfall. First, it created or exacerbated the economic and political problems the Soviet Union faced in the 1980s that gave rise to the need for reform. Secondly, it provided an economic basis for the ideas and policies that Gorbachev eventually adopted that doomed Soviet socialism.