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26 Probs. Communism 25 (1977)
The Second Economy of the USSR

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The Second

of the USSR

By Gregory Grossman

T he standard Western image of the Soviet
      cornmmand economy is one of a state-owned,
      !ierarchically orga ized, centrally planned
and maraged, price-controlled and otherwse regi-
mnted system, rigidly gearcd to the goals and pri
orities of the Soviet ,eadership, and operating in
compliance with a myriad of state-mposed laws,
regu ations, and directives. However valid this image
might be-and, while greatly oversimplified, it is
not ent rely incorrect-there is another, very sig-
nificant side to Soviet economic reality, where pro-
duction and exchange often take place for direct
private gain and just as often violate state law in
some non-trivial respect. This s the so-ca led sec-
ond economy, also referred to by Western observ-
ers as counter-economy, unofficial economy,
para I market, and private enterprise. t com-
prehends a vast and varied set of activities that is
attracting ever greater attention from Western schol-
ars. Closely tied to it is widespread corrupt on of
officialdom. Both exist on a arge scale in the Soviet
Union and in Eastern Europe and, of course, have
many analogies in non-Communist countries, both
developed and underdeveloped.

Second Economy Defined

  As some scholars define it, the second ecoonoy
coprses all production and exchange activ  that
fulfills at least one of the two following tests: (a)

Mr. Grossman is Professor of Economics at the
University of California (Berkeley, CA) and author
of books on the Soviet economy. His articles have
appeared in a number of compendia and scholarly

being directly for private gain; (b) being in some sig-
nificant respect in knowing contravention of existing
law. So defned the second economy includes much
of the perfectly legal private activity which is pos-
sible in the USSR. To explain this paradox, it is
important to note that legal private activity, though
formally sanctioned and ideologically tolerated, is
nevertheless ideologically alien to the Soviet system.
Its operating principles are sharply different from
those of the first economy. Furthermore, in many
cases one cannot practically draw a line between
legal and illegal private activity, since the former
often serves as a front for the latter and both support
one another. n    ight of this last consideration, and
since this artic e wiI deal primarily with the illegal
and semi egal' aspects of the second economy, it
may be useful at the outset to describe precisely
that private economic activity in the USSR which is
   By far the most extensive and best studied part of
Soviet legal private economic activity is the private
plot-if smaller, the garden plot-in agriculture.2
The private plot can be cultivated by a peasant
household that belongs to a collective farm, by a
household w Ith primary employment at a state farm,
or, as is often the case, even by one with primary
employment outside of agriculture altogether. It has
been estimated that in 1974 private agriculture ac-
counted for almost one third of all man hours ex-
pended in agriculture and almost one tenth of all

  The terms second enomy and parallel market seem to
have b'en coned by K. S. Karol, in Conversatons n RussI a,
The New Statesman ILondon), Jan. 1, 1971, pp. 8-0 in the ar tie
Karol also speak f the thi rd economy, the network of restricted
and well- tockd shops in the USSR available only to the privileged.
  2 See, especiay, the defnitive work by Karl-Eugen W5dekin,
The Private Sector in Sovet Agriculture, Berkeley, CA, University
of California Pres  973

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