Socialism and the Centrally Economy: Private Enterprise in the Soviet Union

Private Enterprise in the Soviet Union Most of the private enterprises that exist in the Soviet Union are in professional and personal services and in farming. The reform that went into effect in 1987 (The Law on Cooperatives) legalized private businesses in many areas, thus encouraging private enterprise in crafts and services and in some manufacturing activities. Most of the people engaged in private enterprise in the Soviet Union also have other jobs in a state enterprise. Physicians, repair people, and free-lance construction workers can trade privately with consumers. As mentioned earlier, farmers who have their own plots of land can farm those plots as they choose and sell the produce in free markets. Private farming accounts for close to 25 percent of agricultural output in the Soviet Union. It's generally agreed that the private farms are much more productive than those owned by the state. There is a vast underground economy in the Soviet Union characterized by black market sales of consumer goods. Exact figures on the size of this sector are hard to come by, but it is a substantial portion of GNP. In many cases goods sold on the black market are stolen or are made using materials and equipment owned by Soviet enterprises. In some cases people with connections profiteer by selling goods they control as managers. Managers might take highquality merchandise produced in their plant and reserve it for sale to the highest bidder in the black market. Highly pressured managers might even purchase scarce materials on the black market to meet their production targets! Those who own private automobiles are tempted to transport black market goods, and there's a thriving black market in gasoline. It's likely that substantial amounts of the harvest on collective farms are diverted to the black market for profit. Penalties for underground profit making are severe, even including the death penalty, but there are many Soviet citizens willing to take the risk. In 1990 the Soviet Parliament approved a property law that gave its citizens the right to own small businesses and factories. The new law also approved stock plans that encouraged worker-owned enterprises and protected the property of these enterprises from state confiscation. The law was considered a milestone because the Soviet Constitution had previously ruled out the right to own the means of production. However, limits on hiring labor prevent private businesses from growing. Unless there are further reforms it is unlikely that private enterprise in the Soviet Union will be anything other than small-scale business. Economic Performance and Problems in the Soviet Economy As you would expect in a socialist state, Soviet citizens enjoy some advantages that are not available in the United States. Medical care is provided at no cost, and rents in government housing are often well below the costs of providing that housing. Most higher education is tuition free, and public transportation is generally of high quality and available at low cost. However, productivity in Soviet agriculture, a sector of the economy that employs about 20 percent of the labor force, is only a fraction of the corresponding level in the United States. Of course, the Soviet Union is not well endowed with fertile soils, and its growing season is much shorter than that in the United States. Climatic conditions are not favorable, and there are often sharp swings in agricultural output because of droughts and other problems. But the low productivity in Soviet agriculture appears to be caused mainly by poor incentives and inefficient operations of large collectivized farms. Prior to collectiviza-tion, peasants were given ownership rights to their land by Lenin in return for their support of the revolution. At the time of the revolution, peasants constituted 80 percent of the population. Stalin, dissatisfied with the agricultural surplus generated by the peasants, decided to collectivize farms in the late 1920s to achieve economies of scale and increase planning control. The resulting struggle and bloodbath represent a grim period in Soviet history that probably still has an impact on agricultural incentives. S The Soviet Union has been in clear decline since the mid-1960s when Leonid Brezhnev came to power. Under Brezhnev there was widespread corruption among members of the entrenched bureaucracy that opposed reform. Economic incentives to produce were impaired by over-administration of the economy. Much of the growth in output was due to growth of inputs during these years when input productivity was declining. Production goals were rarely met. Despite its current problems, the Soviet Union's economy has been a formidable apparatus that has achieved significant economic growth in a relatively short period. During World War Il some 20 million Soviet citizens were killed, and the nation lost nearly 10 percent of its prewar population. From a historical perspective, therefore, Soviet economic performance has been admirable.