Second economy in the Soviet Union

The second economy in the Soviet Union was the informal sector in the economy of the Soviet Union. The term was suggested by Gregory Grossman in his seminal article, "The Second Economy of the USSR" (1977). Economist Gerard Roland noted that as Grossman anticipated, "the logic of the second economy tended over time to undermine the logic of the command system and to lead to expanding black markets." This prediction was corroborated by the long-term analysis of the economies of Russia and Ukraine, 1965-89 by Treml and Alexeev. To a varying degree, second economy influenced all Eastern Bloc economies.

Grossman defines the concept of second economy with a two-prong test: it is the set of economic activities which satisfy at least one of the two conditions: "(a) being directly for private gain (b) being in some significant respect in knowing contravention of existing law ."

Studies of second, shadow, gray, etc. economies are difficult because, unlike official economies, there is no direct statistics, therefore indirect methods are required.

Treml and Alexeev studied the relationships between per capita legal money income and such income-dependent variables as per capita savings, and purchases of various goods and services. The study indicated that the disparity between legal income and legal spending gradually grew during 1965-1989, and by the end of the period the correlation between the two almost disappeared, indicating the rapid growth of the second economy.

The proliferation of the second economy in a state which was supposed to be totalitarian was impossible without widespread corruption.

A significant impact on the economy of the Soviet Union was the system of blat, a network of favors, which allowed people to procure all kinds of goods and services, operating within both official and second Soviet economies, and continued to operate in post-Soviet Russia.

Since the early days of the Soviet Union, there has been a tradition to exaggerate the blame of the "black market" for consumer goods shortages, thus effectively shifting the blame off state bureaucrats with their inadequate planning.

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