Russia’s ‘shadow market’

by Andrey Borodaevskiy

We should keep in mind that Russia is a country that has spent 70 years in an inhuman experiment aimed at arranging all sides of socioeconomic life within a giant centrally planned system. Even if this time is over, many features of today’s life go on reminding us of this heavy and in many ways onerous heritage.

Under the so-called Socialism, each family lived on its own, striving to survive at any price. It was especially hard in the God-forsaken countryside and in small towns around the widely spread great country. Almost everything was forbidden. People sat in jail for a handful of grain collected at the borders of a collective field. Taxes for keeping cattle, pigs and even chicken sometimes made keeping them practically impossible. People paid for every apple tree or currant bush in their garden (or preferred not to have them at all).

In this tragicomic situation it was only natural for families to try and invent occupations that, remaining hidden, could add at least something to their incomes — in order to survive (in the crudest and direct sense of this word). In the cities, clandestine “capitalists” emerged and started manufacturing consumer goods (garments, cutlery, cosmetics and the like) and rendering services essential to normal urban life but absent in legal supply (from taxi to tape-recording modern Western music). Thus the “shadow economy” and “black market” (or vice versa — exact terms are not so important) appeared and blossomed — in the depths and on the outskirts of the officially existing and loudly praised “Socialist economy.”

In 1985, my friend Lev Timofeyev wrote a book on the subject, titled “The Technology of Black Market or the Peasant Art of Starving,” which was published in the West and broadcast into Russia. For this, he landed in jail and was freed only two years later, in Mikhail Gorbachev’s time. This civil and intellectual act brought him worldwide eminence and recognition within international academic communities.

What was so ubiquitous at that time not so long ago has not fully gone away. Illegal and quasi-legal activities still remain, and laws and administrative rules remain in many ways unchanged since the days of Stalin and Khrushchev. However, something essential was added.

Nowadays, corruption in all spheres and on all levels of socioeconomic life reigns supreme and does not show any signs of diminishing in any considerable way. Here is an ugly example: After a short period of relative freedom, practically all kinds of gambling (including mostly harmless ones like those all over Japan) were roughly pushed back into the shadow zone.

So, we must take into consideration this controversial side of modern Russian life. The shadow market is something that is difficult to advocate. However, the real situation of families’ incomes and their survival potential is, thanks to the shadow market, somehow better than is represented by official figures.

The overall size of the shadow market in Russia is estimated at between one-tenth and one-fifth of the legal and statistically registered market transactions of consumer goods and services.

Some of the activities of this type are even recognized and counted by statistical organs (like the production of potatoes, vegetables and even meat by individual households and on the “summer house lots” of urban dwellers). Others are ignored and surrounded with silence. Among them many are quite normal and should be encouraged. Families produce flowers, canned and preserved vegetables, fruits and berries, traditional local souvenirs, then sell them privately in the nearest towns and cities. In the absence of sufficient stands for “legal” taxis, many car owners (nicknamed bombillas) go around ferrying passengers practically on a daily basis.

Many kinds of shadow incomes are not only illegal but also immoral — such as bribes taken by legions of state officials including police, traffic inspectors, environmental officials and the sanitation and health services. All are “milking” individuals as well as small and midsize businesses and taking kickbacks that private firms have to regard as everyday “production costs” when fulfilling government orders at all levels. There is also organized prostitution and brothels; underground casinos and the production of counterfeit alcoholic beverages of both famous and bootleggers’ own brands — in many cases not only of low quality but also dangerous to one’s health.

A special category of illegal and quasi-legal activities is directly connected with social services so essential in the life of ordinary families.

Physicians and dentists, including those working in established clinics and health centers (which nowadays usually render both free and legally recognized “commercial” services), arrange a big part of their professional activities on the basis of mutually profitable private collusion with clients who pay cash for their services (avoiding official channels).

In many ways, a similar system exists in the field of school education and sports for children and adults where services are also quite often rendered on private payable basis. Many times, children are given bad grades from teachers who later either recommend a “commercial” coach or offer to tutor the students themselves.

One-time payments for admission and regular illegal fees for taking prolonged courses is also practiced at some sport clubs that are in fashion nowadays (sports like aikido, karate, basketball, table tennis, etc.). Though sport facilities at schools are ostensibly free of charge, parents have to bear, in some cases, considerable expenses for equipment, uniforms and the like (and often sold by their coaches).

We must not ignore such controversial heterogeneous manifestations of the chronic imperfection of Russia’s socio-economic system. Nowadays, the Internet makes the sphere of individual activities even more heterogeneous and controversial because, in it, one can find almost anything — from valuable medical and culinary advice, to services in compiling one’s horoscope, to vile pornography.

To better understand the grotesque way we currently live, our society has to contemplate the widely spread of illegal and quasi-legal activities and then sort them out.

Having done that, the public should demand from the state further legalization and certain official backing for “normal” and “healthy” individual and family activities (at the moment an attempt is under way to legalize private taxis).

The borders of traditionally restricted economic freedom should be expanded, so that the shadow zone in the economy would shrink.

Simultaneously civil society must demand that state organs undertake effective measures against corruption and the various clandestine and obviously immoral practices that remain ignored and hushed up.

Andrey Borodaevskiy (annabo36@mail.ru), an expert on world economy and international economic relations, was a professor at Seinan Gakuin University, Fukuoka, from 1994 to 2007.