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Russia's Black Market Bulwark: How Economic Crime Prods Market Reform
| Article
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11191 |
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Section : |
MODERN THOUGHT
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| Issue
Date : |
10 / 1993 |
6,188 Words |
| Author
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Michael Alexeev, Clifford Gaddy, and Jim Leitzel
Michael Alexeev is an associate professor of economics at
Indiana University. Clifford Gaddy is a research associate in
the Foreign Policy Studies Program at the Brookings
Institution. Jim Leitzel is an associate professor of public
policy studies at Duke University. The authors traveled to
Russia to conduct firsthand research for this article at the
beginning of 1993. |
To many observers, last December's replacement of the aggressive young reformer Yegor Gaidar by old-style bureaucrat Victor Chernomyrdin as Russian prime minister appeared to be the death knell for Russian market-oriented reforms.
The conclusion seemed inescapable, given the reported extent of collapse that the Russian economy had endured during Gaidar's year at the helm. Not only had prices skyrocketed, real earnings dropped, and unemployment risen substantially, but economic crime and even organized criminal activity increased dramatically in 1992.
As the new year began, Chernomyrdin announced his first concrete action to roll back reform by reinstituting price controls on many everyday consumer goods such as milk and bread. One might have expected a collective sigh of relief from the battered Russian population.
But the sequel did not follow this script. Within a few days, other members of the government began criticizing the price control decision, and on January 18 Chernomyrdin signed a new decree rescinding his original edict. Meanwhile, the faces of his fellow cabinet members bore an unmistakable resemblance to the Gaidar team--they were largely the same people. In a referendum on April 25, the Russian electorate gave majority support not only to President Yeltsin but also to his economic reforms. Somehow, market-oriented reform keeps its hold, however tenuously, as Moscow's policy of choice.
How can Russian economic reform continue as a credible policy after the deprivations of the Gaidar era? An important part of the answer appears to lie in that most discredited of Russian institutions, the black market. Combined with many other quasi-legal, informal economic activities, black markets obscured the true state of the Russian economy before market-oriented reforms, and they continue to conceal the effects of reform today. Reform remains a viable policy option in Russia because much of the collapse often attributed (both in Russia and the West) to reform never took place.
THE PREREFORM SITUATION
In theory, in the old Soviet economy, goods were allocated by a central plan, which had the force of law. The outputs of an enterprise, and the inputs (such as raw materials or machines) deemed necessary to produce those outputs, were supposed to be channeled to their "correct" uses by planners in Moscow. This form of allocation applied not only to
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