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Expansion of the Informal Economy


Of course, one should not idealize the informal economy. Everyday life in Russia is tough and insecure; the continual struggle for survival generates tensions and vexations. The important thing to note is that this is not a negligible phenomenon or something that has appeared only recently. The Soviet economic system would not have been able to function without the lubricant of the informal economy.  

Street traders in post-reform Russia

Under the Soviet system, excessive centralization, bureaucratic blunders, and difficulties involving distribution and exchange in a climate of universal deficit could only be overcome by an intricate web of personalized relations. The operation of major industrial and agricultural trusts was maintained by a vast network of supply agents, who resolved bottlenecks in the flow of goods with the help of barter and bribes.

In agriculture the peasants’ small private allotments significantly augmented their meager income, which they earned on collective farms. In towns personal contacts helped overcome perennial shortages of goods and services and generated intricate networks of exchange benefits. People lived in a complex web of connections based on friendship, kinship, or simply good neighborly relations.

Post-Soviet Russia saw a massive expansion of new forms of informal relations caused by the rapid decline of the official economy. Contrary to the expectations of Russian reformers, the state’s withdrawal from the economy did not result in a wholesale appearance of capitalist economic forms. When the state socialist economy declined and the capitalist economy failed to replace it, the “survival” economy revived to provide self-protection to the masses.

The “survival” represents one part of the shadow economy, the other being crime syndicates organized along capitalist principles. The two parts can sometimes overlap, but it would be erroneous to equate the two. For the “new Russians,” the retreat of the state from its dominant position signified the accumulation of property in their hands by legal or illegal means and rapid self-enrichment. For most Russians, however, it meant falling back on the self-reliant family economy as a vital means of survival.

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