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Soviet Shadow Capitalism's Growing Power

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AFTER reviewing the data concerning the agony of the Soviet Union's centralized industry, agriculture, and trade, many analysts believe that the Soviet economy is on the edge of collapse. Gorbachev supporters who seek Western help for the Soviet state economy have made Western governments aware that lack of assistance would force Mr. Gorbachev to resign. Upon his resignation, this scenario goes, Gorbachev would be replaced by a conservative politician who would revitalize Soviet aggressive policy. Discussions of the potential collapse of the Soviet economy, however, generally neglect an important sector of that economy - what the Soviets call the ``shadow economy.'' The ``shadow economy'' is the private sector of the Soviet economy engaged in industry, agriculture, and trade. Though it existed long before perestroika, the sector developed rapidly after receiving legal status and help from Gorbachev's reforms. Conservative evaluations by Soviet economists show the annual turnover in this sector exceeds 100 billion rubles. Economists estimate that one of three rubles in the Soviet market belongs to the shadow economy.

From the shadow economy emerged the shadow capitalists: state officials responsible for state trade of food and consumer goods, and the state ministry officials involved in distribution of short-supply commodities between state and cooperative enterprises. Since demand for their materials and services in the internal market always exceeded the supply from the state sector, the shadow capitalists entered private business. They became rivals to the state officials who made their living from the consumer goods and services deficit and tried to use Soviet law against the private sector. As protection from party apparatchiks was needed, the shadow capitalists paid two-thirds of their profits to the party elite to receive such protection. In exchange for the payments, the party elite granted ``cooperative'' status to the shadow capitalists, which gave them more freedom from state executives.

With ``cooperative'' status and rights for legal economic activities, shadow capitalists rushed into the profitable area of converting state enterprise ``dead'' money into ``alive'' money.


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