Chapter Three:
Soviet Counter–Economics

A major premise of counter-economic theory is this: the more government intervention in the economy, the larger the Counter-Economy. Indeed, as we have moved from the “limited governments” of North America to the “mixed economies” of the rest of the world, counter-economic activity has certainly not receded. Counter-Economics, moreover, predicts that totalitarian states should conduct nearly all economic activity — in fact, all non-political and even much political human action — outside the area sanctioned by the State. So a positive test of our theory would be to check out a totalitarian State in some detail and observe the degree of counter-economic activity.

A minor qualification is in order, though we shall see it is scarcely needed for our test. The economic theory which forms the most basic level of our understanding predicts that no state can achieve totalitarian control. In fact, Counter-Economics was discovered by this author when I followed that idea to further conclusions. But all the so-called totalitarian states — Third Reich, Soviet Russia, People’s Republic of China, even Cambodia — actually allowed and continue to allow some “private” property and some freedom of trade.

Nonetheless, most observers will grant there is considerably more state intervention in, say, the Union of Soviet Socialist Republics than in the United States. Therefore, there should be more Counter-Economics, as well.

Let this point be belabored a little more. American conservatism predicts that entrepreneurialism should be almost snuffed out under a totalitarian communist state, except for a few Bible-smugglers. Liberalism and democratic socialism might predict some resistance to communism but that it would take the form of intellectual dissenters and underground unions surfacing into “Charter 77” and “Solidarity” organizations. Even what passes for libertarianism these days predicts less, rather than more, “free market” activity in endarkened U.S.S.R. than in relatively enlightened U.S.A. So if Counter-Economics contradicts all these ideologies’ predictions — and it does — one has a quick scientific decision in respect to their respective validity.

What does reality say? We’ve seen a strong indication in our last chapter looking at Eastern Europe, China, and Indo-China, but we need a much longer, more detailed look at one such country. And if the Counter-Economy is booming in the Soviet Union, the “hardest case” for our theory, then where are the millionaires? Save for a corrupt Commissar or two — even the Communist Party line will allow for such imperfection — who has heard of Russian capitalist pig millionaires in the 1980s?

Consider this: “A few weeks ago the Manchester Guardian Weekly reported that several counter-economic millionaires were arrested in their Black Sea resorts and dachas. Nearly all the government officials in Armenia were also pulled in and broken by the Communist Party and denounced by the press. The Armenian bureaucrats had been involved in a major black and grey market ‘ring.’ (Armenia had somewhat looser regulations and more private ownership allowed than in Russia.)”1

Armenia, it may be argued, is not Russia proper, though a “Soviet Socialist Republic.” Then again, the Armenian counter-economists were arrested. How about neighbouring Georgia?

“The parallel market represents a huge economic structure, simultaneously independent from and associated with, the official Soviet economy. This private sector penetrates every segment of Soviet society. People active in the parallel market vary, from petty speculators selling fashionable clothes to people of real influence and wealth, such as the famous Georgian underground capitalist Laziashvily, whose connections include quite a few top officials.”2

What about Russia itself? “I particularly recall one such spirited client, Abram Aizenberg — a massive man whose every movement expressed self-assurance. He was about 70, and he owned two factories manufacturing hosiery and underwear that brought him an annual income of several hundred thousand rubles. Over the years he had amassed capital that the investigators estimated at three million rubles.”3

“After World War II, the three Glazenberg brothers were demobilized, returned to Moscow, and soon realized that they could not bank on their being veterans to help them find a good job; they were Jews — banned from all prominent posts in the party and state apparats. Even Jewish engineers had a hard time finding employment in industry.” While some may question the ethnic purity of the entrepreneurs in question, this is Moscow our Russian reporter is talking about.

“The Glazenberg brothers went into underground business. Upon discharge from the army they each received the large sum awarded to demobilized officers — about 5,000 in today’s rubles — and acquired a single workshop in a factory to produce artificial-leather shopping bags.

“They turned out to be talented businessmen, and in a few years their company owned at least ten factories manufacturing artificial leather, artificial-leather goods, and all sorts of synthetic-fiber products.”

Of course, knowledge of their activities comes from their public exposure, arrest and prosecution. “A firm operating on such a large scale could not escape the notice of the Moscow DCMSP (Department for Combatting Misappropriation of Socialist Property, the arm of the Soviet police charged with fighting economic crimes). Indeed, the DCMSP with its well-developed network of secret informers, kept a special dossier on the Glazenbergs’ company.”4

How did these Russian entrepreneurs last so long as to get successful in the first place? “For some while, this in no way inhibited the busy entrepreneurs — for they were paying off the top people in the DCMSP, offering a monthly balm of between 5,000 and 10,000 rubles.” And how did they get caught? “One day, however, a lower DCMSP officer leaked the story to a well-known journalist at Izvestia, who began sifting through the material on the brothers’ company. In these circumstances the DCMSP chiefs were powerless to save the Glazenbergs — beyond warning them immediately of the danger impending, so they might have time to secrete their money and valuables.”

So how did the ruthless, inhuman, infamous, Soviet secret police deal with these bloated capitalists? “Buffeted by the contrary pressures, a top DCMSP official decided in Soviet Solomonic style that 1.) the incriminating dossier would disappear from the DCMSP files and 2.) the youngest Glazenberg brother, Lazar, would have to be sacrificed, at least partly because of his playboy lifestyle — reflected in his two dozen suits and the wardrobe of his wife, a ballerina in the Bolshoi theater.”

One supposes, at this point, whether the proletarian masses would revile or just ignore this exposed bourgeois. “On the first day of Lazar’s trial, the courtroom was packed with curious onlookers, dying to glimpse a millionaire. What they saw was a tall man of about 40 with handsome features and a mane of completely gray hair. Lazar Glazenberg walked, as prisoners are meant to walk, between two escorts, with his hands folded behind his back hobbling along on the artificial leg that replaced the limb he had lost in the war. But he affably greeted friends and relations among the crowd.”

Nonetheless, as all have agreed, the U.S.S.R. is a particularly interventionist and repressive society. Our Horatio Alger-ov was sentenced and shot, no? “Three months later he walked out of the courtroom just as calmly, having heard his sentence: 15 years in strict-regime camps.” This is the home of the Stalin purge trials, where the top communist officials — the new Russian aristocracy — are regularly rounded up and shot.

A hardier entrepreneur might have survived and considered himself ahead. Alas, Lazar Glazenberg had “served his country” one limb defending the Motherland. “It is almost impossible for a person with one leg to survive 15 years in such a camp. He died seven years after his trial.”5 Before one reaches for the handkerchief over this typically ironic Russian tragedy, remember the rest of the family got away with their wealth and obviously enough capital to keep going.

So were the Glazenbergs an isolated example? Even if one assumes most are not caught and not reported, there still are plenty who were. That is, there are plenty more where they came from.

“Among other important underground family companies, the Bach clan ranked high in Moscow, because of both the scale of its activities and the amount of its assets. The eldest member and head of the clan was Isaak Bach.”6

All the proletariat’s representatives have to do is liquidate the exploiting class to be free of them, says Marxism. “Here was a businessman of the old generation: before the Revolution, he had savored the joys of legal commerce in his father’s company. During the New Economic Policy after the Revolution, when private enterprise was permitted for a short while, his commercial abilities were fully developed. The notions and ladies’ underwear shops of Bach & Sons were then located on Moscow’s Kuznetsky Most street, amid the city’s most expensive and fashionable stores. But the New Economic Policy soon liquidated the company, confiscating its merchandise and sending its head to the camps on the Solovetsky Islands.”

That’s the end of Bach’s incentives and capital, right? “When Bach returned from the camps in the mid-1930s, he set about creating a new family company — this time, illegal. By the late 1940s, Isaak Bach, nominally a humble workshop supervisor in a zipper and safety-pin factory at 160 rubles a month, was head of a company owning at least a dozen factories manufacturing underwear, souvenirs, and notions, and operating a network of stores in all the republics of the Soviet Union. He held assets assessed by the prosecution expert at approximately 87 million rubles.”7

No shortage of Russian millionaires seems to be evident. In fact, like poker players, we can “see the 87 million” and “raise to 200 million,” topping example with example.

“In the 1960s, two of the younger generation of that clan — Boris Roifman and his cousin Peter Order — were seized by the KGB. Both had been in underground business for about ten years. One turned over about 200 million rubles’ worth of valuables to the authorities, and the other about three-quarters that amount.” See and raise the 200 millions? “If three comparatively young members of the Roifman clan had amassed 350 million rubles, what might the whole family’s fortune amount to, after decades in business?”8

Nor did these robber barons of the Russian 1960s lack any style or panache compared to their 1880s U.S. forebears. “The chief investigator of the KGB Central Office asked the wealthier of the two, ‘What did you need 200 million rubles for?’ Peter Order replied, with a show of bravado, ‘Only 200 million! I had wanted to make 220 million — one ruble from each Soviet Citizen.’”9

Returning to Russian millionaires later, and how they manage to dispose of their income, the real question for an economist — counter or otherwise — is where do they find their market?

The Russian Real Market

The Counter-Economy thrives in North America mostly in “forbidden fruit” areas and those taxed to death. In Europe and Asia we can also add the overcoming of restraint of trade of otherwise legitimate foreign goods — protectionism and its complement, smuggling. But in the Second World of Communist states, two other sources arise: consumer black-ward goods’ quality and reliability and their availability, something most North Americans take for granted.

“The parallel market offers not only better, usually foreign-made, clothing or rare editions of popular authors, but also provides Soviet citizens in a position to pay with better medical care, better education and training, better vacations, better interior decorating for their apartments, better babysitting facilities, better transportation, even identification papers, diplomas, and other documents. More than that, not only private individuals but governmental firms, agencies, and collective farms frequently use services of the parallel market in their efforts to obtain equipment, spare parts, manpower, and professional expertise.”10

Consider the problem — as it is in the U.S.S.R. — of driving an automobile. Remember, while reading the following portrayal, that cars are in short supply to begin with and probably require a bribe to obtain. Now try driving it — without the Counter-Economy.

“There is a shortage of service stations in the Soviet Union and those which exist just don’t have spare parts. A friend of mine spent a month in an effort to buy a windshield for his Moskvitch. All in vain.”

Unlike police, there is usually a counter-economist when you need one. “Finally he came to a small street, near an automobile plant in Moscow, where he was approached by somebody who introduced himself as a worker at this plant and promised to deliver the windshield the same day for a reasonable compensation — even less than the official price. Needless to say, the worker kept his promise.”11

One also gets what one pays for in the Counter-Economy, so reliability is important in attracting consumers. (Of course, the governments in all countries spend fortunes on propaganda to convince you of the unreliability of black marketeers — and the unfailing reliability of government services.) Examples abound here. “A car owner in Armavir in southern Russia sent a letter to a driver’s magazine, reporting that he was refused help at a service station. ‘But then, a worker standing nearby chimed in: let him bring it in, he said. I’ll fix it quickly.’ And the ‘sharp-eared’ mechanic carried out the job on the spot, pricing it at six rubles. ‘Five rubles for me, and one for the till.’”12 Six rubles would be cheap at a U.S. garage.

And again: “Another driver, from the Crimean city of Yevpatoria, complained that, although he parked his car first at the service station, attendants did not pay any attention to him and started to inspect other autos, which arrived later, presumably because their drivers had promised good tips. His protests did not help and according to the letter from this customer, the things he saw and heard there made him wonder whether it was a state enterprise or a private concern.”13

Obviously it was the latter. Some may find it encouraging that there’s a paradise where the masses know how to scorn an economic law-abider… though Russia may not have been where they thought to look for it. But an important point in the first example is missed if one ignores the necessity of conducting the business counter-economically.

“Thousands of business executives have been put in jail for alleged violations of the Soviet legislation. Many of these trials would look rather peculiar to a foreigner. The thing is that, in quite a few such cases, even the prosecution did not insist that defendants took a penny for themselves. The accused were stealing, selling at the parallel market, and buying stolen goods, not in order to make a fortune but just to get necessary supplies for their enterprises and collective farms.”14

That last statement, to be sure, is devastating. If true, the reality of the market has smashed the façade of communism, as Marxists like to put it, objectively. And this reality penetrates to the finest details.

“Literaturnya Gazeta tells about two collective farm chairmen, convicted for buying stolen property from thieves. One purchased desperately needed pipes for a crew-shed; the other, boxes to pack apples. Significantly, no personal profit was involved in either case. Both collective farm chairmen, presumably, did not have a chance to get pipes and boxes through normal state supply channels. One of these chairmen later asked in desperation: which is more criminal — to pay thousands of rubles to thieves or to lose a harvest? This was the real alternative he faced.”15

In a showdown between the objective forces of the market and the subjective forces of statist ideology, the former is as inexorable as the “forces of history” are supposed to be to a Marxist. “There was a meat store close to a place where I used to live in Moscow. For many years, this store was known for having an unusually good choice of meat. But, suddenly, steaks, lamb legs, and other rare items disappeared. Salesmen told the story of an old director, a Jew without a high school education but well-adjusted to unofficial rules of the Soviet trade, who was replaced by a Plekhanov’s Economic Institute graduate. The new director declared that he would not tolerate any violations of law in his store. He refused to bribe district warehouse officials and, consequently, supplies of meat were almost cut off. The salesmen could no longer make a living by taking fees from grateful customers for whom they used to save good pieces of meat. Previously, they had shared their underground income with the former director, providing him with much-needed reserves of unregistered cash. Now the practice was stopped. But, without free cash, the director was unable to pay truck drivers for unloading their trucks and the drivers refused to do it free.”

And so the market responded to the director’s ideological pronouncements. “Both truck drivers and salesmen, angered by the new regulations, began to complain to district party committee. The former director would easily take care of such charges, merely bribing the district committee officials. But the new one found himself in real trouble. More, without supplies of good meat, his store was failing to fulfill the plan. Everyone was sure that, soon, the director would be dismissed.” A happy ending to this tale? “But it did not happen. On the contrary, steaks, lambs, partridges reappeared in the store. There was no need to ask how it happened. It was clear that the young economist finally learned the real rules of Soviet trade that he had not been taught at the Plekhanov Institute.”16

How It’s Done

The simplest of economic studies informs us that one needs customers, labor, and capital goods. One can use one’s own labor, take goods available — say, on the factory where one ostensibly works, and find customers in passersby, relatives, and friends. This is done in the Soviet Union, as it is everywhere else. But the more interesting cases, which document the activity of large-scale counter-economic activity, need distribution networks, hired laborers, and trade with others for capital goods (production). How is that done in Russia today?

One can buy an existing business, but even that is not simple “when the owner-sellers have no rights in law.”17 One actually buys a network of connections and the trust of those counter-economists. But it can be done, with the all-important acceptance of reasonable risk, and is done.

“The prospective purchaser obviously has no way of previously assessing the enterprise’s potential production, sales, or income. Buying and selling underground enterprises thus can succeed only in an atmosphere of complete trust among all parties and respect for the unwritten laws of the milieu. In this atmosphere, the purchaser hands over to the seller, with no receipt and no witnesses, tens — often hundreds — of thousands of rubles. In a case where the parties do not trust one another, the money is transferred to a third party trusted by both principals, and he passes it on to the seller only when all conditions of the sale have been met.”18

Those even superficially acquainted with Western business may note that, save for the increased risk from a hostile State, the method is similar to that practiced in the West. In fact, all economic activities can be practiced counter-economically when the risks are acceptable.

The fascination of Counter-Economics, besides that arising from its freer nature than that of approved, regulated, and controlled business, comes from the modification to standard business practices whatever they are, as they change in time and space. As we have seen and will see, it is quite possible that the modifications to reduce risk or even outright scofflawing may be cheaper — far cheaper — than submission and compliance. The implications of that will be dealt with at the end of the book.

Delving into the inner machinery of large-scale counter-economic business is difficult. Existing ones have little incentive to “blow their cover” even in Western publications, which, after all, are readily available and scanned by the KGB, if not the DCMSP. But the Lazar Glazenberg case did reveal the workings of that medium-size operation which, although finally broken, operated successfully for a long time. The Glazenberg brothers, by the way, even had a board of directors.19

Here, in lengthy detail, since the core of our case is being demonstrated, is how it worked:

“The position of those officially in charge of the factories housing the Glazenbergs’ enterprises was unusual: they exercised no control over the production and economic activities of their enterprises, this control being assumed by the Glazenbergs or their appointed managers. The official directors’ functions were purely decorative and boiled down to liaison with party and state organs. Through trusted agents, the Glazenbergs normally paid them 500 to 1000 rubles a month, depending on the size of the enterprise and the usefulness of the director. One of their operations was run under the cover of the Fisherman-Sportsman Sporting Goods Co. in Moscow, and they paid its director 1,500 rubles a month because he held the important title of Hero of the Soviet Union.”20

So much for the “bosses.” How about the working class? “Obviously, the complicity of many blue-collar workers is also required in the manufacture of left-hand goods. It is almost impossible to recruit an entire labor force on the basis of total trust, but the Glazenberg system contrived its own incentives. The laborers knew full well that goods were being produced off the books, but they were interested in the extra money paid for left-hand production — higher than the official rates and not subject to taxation.”21

And how about the capital goods needed? “The Glazenberg brothers cooperated with other underground businesses: clasps for handbags, buttons for leather jackets, and labels were all manufactured to their specifications by underground enterprises in Moscow, Vilnius, and Riga. But the main source of materials — and here the Glazenbergs were no different from other underground enterprises — was the factory itself: materials saved from what the factory received for its official production — that is, materials stolen from the state.”22

The Soviet State was particularly interested in this alleged theft; after all, it uses remarkably similar means, morally speaking, in acquiring those goods in the first place (as do all states). We may thank the diligent prosecutor for the rest of our information.

“The quantity of off-the-books merchandise produced from these ‘saved’ materials provoked the major arguments between prosecution and defense during the trial. The point was vital to the defendants, for the quantity of materials saved for left-hand production would determine the gravity of the judgments against them — from 15 years in prison to death.

“The prosecution was able to prove that reserves were prepared in advance to yield secret surpluses. In the planning stages for production of a new product, the Glazenbergs would negotiate with the people in laboratories or institutes responsible for setting the factory’s norms for new materials needed as well as for allowable wastage. In return for large bribes, these technicians deliberately inflated the usage and waste norms, thus allowing the creation of huge surpluses for manufacture of merchandise off the books.

“Other sorts of secret economies were made during the manufacturing process. Expert witnesses testified in court that they had measured coats and jackets legally manufactured at the factory, and the measurements did not tally with the sizes on the labels, because the factory’s cutters had reduced the size of each pattern piece. Chemists testified that they had analyzed the artificial leather legally produced by the Glazenberg factory: the quantities of dyes and other ingredients fell short of the official specifications.”23

Finally, let us stick with the Glazenbergs a little longer and solve the last and crucial problem: distribution.

“One would think that in a country like the Soviet Union, where trade and both the wholesale and retail levels is a state monopoly, the large-scale marketing of left-hand merchandise would simply not be feasible. The Glazenbergs proved otherwise. When the brothers were beginning in business and their only product was shopping bags, it was easy to solve the problem of how to sell the left-hand bags. Employers of shops selling the factory’s output were quite willing to accept for sale a certain quantity of illegally produced bags as well. Of the proceeds, one-third went to the shop employees, two-thirds to the Glazenbergs.

“As the business grew and the range of their wares broadened, the Glazenbergs’ sales outlets had to grow too. Through friends and family connections, they added to their network stores that had not been supplied with their factory’s official merchandise. In time, even this network of retailers proved too small for the Glazenberg empire. So a special marketing group was established — to travel the country and in short order to organize sales outlets in 64 towns and regions.”24

Counter Reaction to Counter-Economics

“The Soviet regime scarcely can feel comfortable with the huge scale of the parallel market activities. First of all, a totalitarian state, by its very nature, cannot appreciate any initiative coming from outside the institutional system. It sees such initiatives as a threat to its control over the economy and the people. A totalitarian state does not like it when some of its citizens become, at least partly, financially independent from the regime — when their fortunes do not totally depend on the State.”25

Dropping the words “Soviet” and “totalitarian” in the above paragraph changes nothing. No State appreciates initiative by its citizens outside its control. See chapters one and two to begin with. What is significant here is the helplessness of the State toward counter-economic activity and the potency of the individuals. This is not just “power to the people” but power to the individual person.

And the most totalitarian expression of collectivism cannot crush it. Worse, the Counter-Economy corrodes, corrupts, splinters, and ultimately smashes the State. Besides winning away its citizens and restoring “public goods” (tax plunder) to the “private sector,” “The black market also causes serious economic distortions and interferes with official economic plans. From the point of view of governmental economic agencies, equipment and supplies, which are obtained at the parallel market by some energetic managers, could be needed more and could be used more effectively by other firms and enterprises.”26 But that “need” is in the judgment of the State’s planners; the people have spoken, counter-economically, that the need — demand — is otherwise and overruled the entire Soviet State.

“Moral considerations are also a factor here. Underground activities with their secret operations create far-reaching psychological consequences for large sectors of the Soviet populace. And private enterprise is absolutely inconsistent with an official communist ideology.”28 The mighty Soviet State must not only put up with the Counter-Economy but put up with its encroachment on its territory and people.

Far worse. The Soviet leadership itself is not free of counter-economic taint. “It is fair to say, while authorities are basically opposed to the parallel market, they are forced to live with it and, sometimes, do not hesitate to use it.”27 Both Pravda and Literaturnya Gazeta report authorities ordering underlings to seek out face-saving (and other-saving) parts and other capital goods in the Counter-Economy. “Literaturnya Gazeta tells about officials, pressuring collective farm chairmen to go to the parallel market. According to the paper, these officials suggest to the chairmen whose farms are short of spare parts for agricultural machinery to fish for parts ‘at the bottom of the sea’ but to fulfill plans. They even promise chairmen their sponsorship in case of any trouble with the police. The story carried by Literaturnya Gazeta also tells about construction managers who did not get nails but were advised by their superiors to fulfill plans at any cost.”28

It should be stressed here that it is not only the segment of the Counter-Economy that the U.S.S.R. considers illegal, or, segments that, say, the U.S. allows that is involved, but all the Counter-Economy. A lurid example is provided by Simes that could apply to U.S.’s CIA, France’s Deuxieme Bureau or SDECE, and Britain’ss MI6.

“Prostitution is illegal in the Soviet Union. But the KGB co-opt many prostitutes dealing with foreigners, and prostitutes paid in foreign currency surrender part of their earnings to the KGB cashier.”29 The official people’s pimp?

And it should be stressed that the free market does not grow because government gets more liberal (or libertarian); rather, the counter-economic defiance of the people forces the State’s retreat in order to hang on to what power it can. “Generally speaking, during recent years some kind of tolerance, if not approval, has developed in the Soviet Union regarding certain kinds of parallel market activities.”30 Next thing you know, we’ll hear Izvestia will give counter-economists a sympathetic hearing and Leonid Brezhnev will call for repeal of economic laws.

“In an editorial introduction written by Izvestiya to an article about two engineers who get in trouble with authorities for precisely such actions, editorial writers have clear sympathy with the people who were forced to break the law in order to do ‘their important job’ properly. Both article and editorial as well as numerous other statements made by Soviet journalists and officials, including General-Secretary Brezhnev, call to eliminate ‘unjustified limitations and small-minded regulation’ imposed on the economic management.”31 What more can one say?

The One Failure of the Counter-Economy

There is a problem and a question yet left to be answered about the massive Soviet Counter-Economy, and the answers will bear strongly on the analysis and study of the rest of the world’s Counter-Economy. Before answering, one should point out that only a narrow definition of economics has been dealt with so far and much of the Soviet Counter-Economy, the underground intellectuals, the famous “dissidents” in all the arts and humanities, have been shortchanged here. Still, they have much more coverage in the Western media than strictly-business activities, which have only the pitifully few sources footnoted here. Nonetheless, all appropriate human action will be covered by Counter-Economics, and the Eastern dissidents will be covered near the end of the book in “Intellectual Counter-Economics.”

Smuggling and refugees also have a chapter to themselves. Other references to the rich — counter-economically speaking — material and example source of Communist-controlled countries will be found sprinkled in the remaining chapters, which are categorical rather than geographical. Geographical divisions are, counter-economically at least, largely irrelevant. At least politically, counter-economists are determinedly, defiantly, even scornfully, international.

The problem cited is this: What do the wealthy counter-economists do with their wealth? There are two answers to that, and the second bears on the question yet to be asked, which is “Why doesn’t the Counter-Economy become the Economy?”

First, the wealthier Eastern counter-economists may sometimes be able to leave with their money and enjoy the pleasure spots of the rest of the world. Even Russia has Riviera-like areas on the Black Sea, but ostentation in the latter requires explanation to officials.

True, and more often than many would think, making the wealth, reinvesting it, and making more is a prized end in itself. James Garner’s character in the 1963 film The Wheeler Dealers expressed it as “making money is just a way of keeping score” and that’s in relatively free, wide-open Texas. Even so, millionaires in the West are legendary for concealing their wealth — Getty, Hughes, Koch, and other reticents are as common as the ostentations of Hearst, Hunt, and Hammer. The Western official confiscator has only a slightly shorter leash than his Eastern colleague.

Still, blowing a wad in Brezhnevland is the pits. “The Soviet underground millionaire’s principal aim it not to spend money, but to conceal it.”32 Georgia, homeland of Stalin and privileged, is not too bad: II But the range is enormous: the underground millionaire’s lifestyle in Moscow or Odessa, for example, is very different from his counterpart’s life-style in Georgia.

“One Georgian client of mine, Golidze, who was tried by the Georgia Supreme Court, openly and legally owned two magnificent houses. Both were luxuriously furnished with antiques bought from dealers in Moscow and Leningrad. During a search, authorities confiscated his wife’s jewelry, and 45,000 rubles in cash — which Golidze explained to me was just lying around at home to cover day-to-day expenses.”33

So things are tighter in other Red lands? “The Georgian life-style is not remotely appreciated by underground millionaires in Moscow, the Ukraine, and the Baltic Republics. Forsaking the communal apartment bought under his own name, where he can enjoy expensive foods without having to hide them from the neighbors … buying a modest dacha under a relative’s name … or taking a trip to a Bulgarian resort on the Black Sea … all this is about the extent of pleasures that a millionaire of the older generation dare allow himself. His principal entertainment is getting together with male colleagues in private, and the eternal male need for a bit of fun outside the family circle is satisfied by several salons maintained by women with social or business connections with the underground milieu. The attraction of these salons is gambling rather than sex.”34

One can readily see that providing entertainment for the fun-loving, wealthier counter-economists is itself logically, a counter-economic enterprise. “During the 1960s and 1970s, the salon of one Elizabeth Mirkien enjoyed great popularity in Moscow. Her husband had been in the employ of one of the large underground companies and was at the time serving a prison sentence. In the spirit of the unwritten laws of the milieu, the husband’s partners were providing Elizabeth with a decent sum of money each month, but she also had an income from the salon of her small two-room apartment. Middle-aged businessmen liked to assemble there. Everything was to their liking: the head of the house herself, a handsome and affable lady; excellent meals; and, above all, the card tables and roulette wheel. The stakes were very high, for games of chance occupy a very important place in the life of a wealthy underground Soviet businessman. Only at the card table or the roulette wheel in some house such as Elizabeth’s are they able to risk huge losses, feel the euphoria of spending recklessly, feel rich.”35 And yet, save quantitatively, is that a different attitude from that found in Monte Carlo or Las Vegas?

Why does the Counter-Economy not become the economy? The one failure of the Counter-Economy so far, is on the mental-spiritual-psychological level — the abstract level. As we shall see, the scientists and engineers of abstraction, the intellectuals, have failed so far to analyze and justify the Counter-Economy. Thus Counter-Economists operate under the dead weight of unearned guilt. The effort to change this around, to provide the Counter-Economy with a full-blown, self-justifying philosophy — agorism — has just begun.36 We shall see what form it must take in the final chapter of this book.

Nonetheless, the guilt and self-inhibition is evident in Russia as in the West. “The older-generation millionaires, beyond indulging in such pleasures, try to shield their children from the risks of the underground world and make them into academics, doctors or lawyers.”37 That is to say, the children are to be made respectable and above-ground. This thinking and the failure to generate, so far, a supply of pro-market ideology, is the failure of the Counter-Economy.

The Hope of the Future

But the children, the second generation counter-economists, are showing signs of appreciating the innovation and courage of their forebears — more than the forebears did — and may themselves conclude the liberation. Their parents try to get them out and into Communist acceptability. “Despite this, many children — after university degrees, even doctorates — reaffirm the family tradition and enter underground business. These second- and third-generation underground businessmen are not content with the lives of their fathers. They become habitués of expensive restaurants, whose waiters and managers know them by name, treat them as honored guests — and report their binges to the DCMSP. They are not afraid to make large bets at the races, watched by DCMSP agents, or too timid to buy cars and dachas at prices equivalent to 20 to 30 years of their official salaries. They openly visit fashionable resorts, spending five years’ official salary on a month’s vacation.”38

Nor is their defiance and “coming out” folly or self-destructive bravado. From their parents’ knees, these New Counter-Economists know what they are doing, and their ingenuity surpasses their teachers.

“This does not mean that the younger generation of underground businessmen are lunatics prepared to trade one year of high living for many years in the prison camps. They all try to be prepared to justify their expenditures by pointing to some sort of legal income. A common way is to buy a lottery ticket or government loan bond that has had a big win. The biggest of the younger businessmen retain paid agents among bank employees who persuade winners who come to pick up their money to sell the lucky ticket for two to three times the amount of the win. But the main insurance for the younger generation remains the bribing of DCMSP officials — at which they outdo even their parents.”39

When everyone is linked by self-interest to their fellow counter-economists, in whole or part, in Russia or anywhere, and they are fully aware of this, the Counter-Economy will inescapably succeed. The base is there. “According to the Soviet Writers Union weekly, Literaturnya Gazeta, during only year, occupants of new Moscow apartments paid ten million rubles to private tradesmen for ‘additional improvements to their apartment.’”40

Them And Us

Confirmation of this state of affairs in the Union of Soviet Socialist Republics comes from the most Establishment of sources — The New York Times Russian correspondent, Hedrick Smith, observed: “Corruption and illegal private enterprise in Russia, ‘creeping capitalism,’ as some Russians playfully call it, grow out of the very nature of the Soviet economy and its efficiencies — shortages, poor quality goods, terrible delays in service. They constitute more than a black market, as Westerners are accustomed to thinking of it. For parallel to the official economy, there exists an entire, thriving counter-economy which handles an enormous volume of hidden or semi-hidden trade that is indispensable for institutions as well as individuals. Practically any material or service can be arranged nalevo [nalevo means ‘on the left,’ but comes across as ‘on the side’ or ‘under the table’] — from renting a holiday cottage in the country, buying a raincoat or a good pair of shoes in a state store, getting a smart dress made by a good seamstress, transporting a sofa across town, having the plumbing fixed or sound-proofing installed on your apartment door, being treated by a good dentist, sending your children to a private playschool, arranging home consultation with a top-flight surgeon, to erecting buildings and laying pipe in a collective farm.”41

As we have seen in the first two chapters, Westerners are rapidly becoming accustomed to thinking of a far wider counter-economy. All the sources mentioned in this chapter convey this feeling of difference — which is valid — but with an implication of qualitative rather than quantitative difference. “Setting aside such sensational cases of abusing official positions, only a small part of the operations of the Soviet counter-economy would be considered criminal in the West. To be sure, the Soviet Union has embezzlers, car theft rings, prostitutes, narcotics traffickers, armed bank robbers, and an occasional band of extortionists posing as police units complete with uniforms, handcuffs and documents, shaking down the innocent — offenders who would be criminals anywhere.” Including, it must be added, in the Counter-Economy itself. Smith’s list is the red market of violence and coercion, not the peaceful, state-dodging black market. He continues, “But much of the private hustling on the black market would not be illegal if Soviet Communism permitted the kind of small private trade sector that exists legally under Hungarian, Polish, or East German brands of Communism.”42

Such naivete is interesting for the many things it tells us. While it’s true that releasing some of human action as is done in the other East European countries would reduce the counter-economy slightly, Smith seems unaware how vast it is there. Furthermore, he is unaware, it seems, how vast it is in New York City, his home base. Because New York is more highly regulated than the rest of the U.S. in many respects — taxi medallions, higher tax rates, for example — it swarms with gypsy cabs, unlicensed food vendors, non-union carpenters and movers, tobacco bootleggers, or “buttleggers,” and dealers in all illicit substances and prohibited copies (computer programs to records). Perhaps, like the New Class of Communist aristocrats he portrays in their closed-off suburbs away from the suffering Moscow masses, he belongs to a class which avoids such street contact.43

Smith does perceive, at least dimly, the revolutionary possibilities. “But the regime faces a dilemma: As one Russian, echoed by many others, observed to me, ‘Everyone in the Soviet retail trade is a thief and you can’t put them all in jail.’” And yet he confuses reform with revolution near the end. “The Party knows, he reasoned, that people who are chasing after illegal goods in the counter-economy are not worried about reforms. Moreover so long as the public takes the counter-economy as a necessary and desirable fact of life, there is scant hope of collaboration for strict enforcement.”44

The resolution in the Russian — and Western — mind of this dichotomy could well end the statism in favor of a complete Counter-Economy. Of course, it would then be the economy, a free market. Smith has an anecdote which illustrates the confusion of economic efficiency and freedom with anti-social inhumanity.

“A medical scientist who emigrated to America in 1974 after working at one of Moscow’s leading medical institutes praised Russian doctors as ‘more humane’ than profit-oriented private physicians in America and endorsed the concept of socialized medicine. ‘But you cannot imagine how poor is the general quality of medical service,’ he said. ‘In Rejazan (a city of 400,000) where I grew up, they have very bad equipment. They lacked very simple things — medicines for example. The qualification of the doctors is much lower than in Moscow. But the worst problem in the system is poor organization and bad nursing service. The nurses do sterilization very badly. After operations, even in our institute which is one of the very top ones, we had a lot of sepsis, festering wounds, infections, and suppuration. The nurses were not clean enough. They made mistakes in operations. Our institute director became very angry because he would do beautiful operations, and then there were those infections. So often, you know, the middle-level personnel do not receive good pay and they are not reliable, not competent. Once I was in Kharkov and I had to be operated on for appendicitis in an ordinary district hospital. It was so dirty that you cannot imagine it. The sheets were grey from such long use. The clothes of the hospital workers were not clean enough. They took special care of me because I was from this important institute in Moscow. Still I got an infection and so did others. I saw one man die in my presence after an appendicitis operation because of this problem.”45

This is the overground economy in the most statist area in the world. Small wonder people seek cold, profit-seeking marketeers who turn out clean, precise, antiseptic operations in mass production cheaply — or if they are prevented, they will seek out black marketeers who will do it less cheaply but give the customer what he or she wants. Says Dimitri Simes, “The parallel market is a vital part of the Soviet way of life. And only fundamental economic and social reforms can wipe it out of existence.”46 But can they be fundamental enough, that is, will the State abolish itself?

The forces of the market, overwhelming the Marxist-religious Forces of History, may leave no choice. Although Konstantin Simis implies corruption — counter-economizing the statists themselves — is avoidable, his conclusion speaks for itself in reply: “And there appears one final revealing absurdity. Obviously, the Soviet state and the whole structure of underground enterprise are pitted against each other in absolute conflict and contradiction. Yet these adversaries are weirdly allied. They are bound by corruption. There could be no vast labyrinth of lawless enterprise — not for a year, not even a month — without the complicity and the venality of the equally vast Soviet apparatus charged with enforcing the laws against economic crime. This official criminality is all-pervasive, from the lowest officialdom to the highest elite — a cancer plaguing not just the state but all of Soviet society. This is the awesome cost of a system dedicated to stifling the most basic impulses of personal freedom.”47

That system is not Sovietism, or even Communism, but statism. It exists and is growing in North America. In the next few chapters, we shall see how North Americans — and, now and then, the rest of the world, deals with a world of bureaucracy and nalevo — of legal plunder and illegal production. First we’ll look at the biggest network of small entrepreneurs in the Counter-Economy, the drug market in all its aspects and definitions of what drugs are, and then the biggest problem of Counter-Economics in East and West alike: money and its control and the ravages of inflation.

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Chapter Three Footnotes

1. Free market cracks Red regimes. (1976, July 25). New Libertarian Weekly 3(33) p. 1.

2. Simes, D. K. (1975). The Soviet parallel market. Washington, DC: Center for Strategic and International Studies, Georgetown University, p. 25.

3. Simis, K. (1981, June 29). Russia’s underground millionaires. Fortune, p. 37.

4. Ibid., pp. 38-39.

5. Ibid.

6. Ibid.

7. Ibid.

8. Ibid.

9. Ibid.

10. Simes, D. K. op. cit., p. 70.

11. Ibid.

12. Ibid., p. 7.

13. Ibid.

14. Ibid., p. 16.

15. Ibid., p. 17.

16. Ibid., p. 18.

17. Simis, K. op. cit., p. 40.

18. Ibid., p. 41.

19. Ibid.

20. Ibid.

21. Ibid.

22. Ibid.

23. Ibid., pp. 41-42.

24. Ibid., p. 42.

25. Simes, D. K. op. cit., p. 21.

26. Ibid.

27. Ibid.

28. Ibid., p. 22.

29. Ibid., pp. 23-24.

30. Ibid., p. 24.

31. Ibid.

32. Simis, K. op. cit., p. 49.

33. Ibid.

34. Ibid.

35. Ibid.

36. See, for example, J. Neil Schulman’s novel, Alongside Night (Crown hardcover, 1979; Ace paperback August 1982).

37. Simis, K. op. cit., p. 47.

38. Ibid.

39. Ibid.

40. Simes, D. K., op. cit., p. 1, footnote 1.

41. Smith, H. (1977). The Russians. New York: Ballantine Books, pp. 112-113. Chapter Three is entirely devoted to Counter-Economics in Russia, and Smith is the first person after myself I have found to use the term “counter-economy,” although he does not use “Counter-Economics” or “counter-economist.” A communication with him revealed no knowledge of my prior use from February, 1974 (before an audience of the Free Market Forum in California, and subsequently in hundreds of libertarian publications). His book, by the by, is recommended.

42. Ibid., p. 132.

43. While Smith lived in Russia, the author lived in New York’s East Village in a cluster of apartments of hard-core counter-economists and worked counter-economically with New Zealand and Australian illegal aliens, during the period 1972-1975.

44. Smith, op. cit., p. 133.

45. Ibid., pp. 94-95.

46. Simes, D. K., op. cit., p. 25.

47. Simis, K. op. cit., p. 50.

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