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Book Review: Russia’s Secret Rulers

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Russia’s Secret Rulers: How the Government and the Criminal Mafia Exercise Their Power
by Lev Timofeyev (New York: Alfred A. Knopf, 1992); 177 pages; $21.00.

The Soviet Union was a harsh taskmaster for those who were interested in truth and were daring enough to convey the truths they had learned. Lev Timofeyev graduated as an economist from the Moscow Institute of Foreign Trade in 1958 and came, over time, to see through the illusions upon which the Soviet system was constructed. He began to write for Western publications that circulated widely in intellectual and dissident circles in the U.S.S.R. For publishing in underground form his book, The Technology of the Black Market, or The Peasant’s Art for Starving, Timofeyev was arrested by the KGB in 1985 and sentenced to six years of hard labor in the Gulag and five years of internal exile. In 1987, he was released. He immediately helped found “The Press Club Glasnost” which monitored Soviet compliance with the Helsinki Accords on Human Rights, and began publishing The Referendum, A Magazine of Independent Opinion. In 1990, Timofeyev served as the editor of The Anti-Communist Manifesto, a collection of essays by radical Russian economists who argued that only total privatization and a completely free market could solve the problems socialism had created in the Soviet Union. In his recent book, Russia’s Secret Rulers, Timofeyev extends the analysis of the nature and workings of the black market to an understanding of how and why market reform has taken the peculiar form it has in Russia. The pervasiveness of the black market in the former Soviet Union has long been appreciated. But Timofeyev helps us to understand what, ultimately, has been for sale on the black market in the Soviet Union and now in Russia.

Since under socialism, private ownership of productive property was prohibited and distribution of what was produced was in the hands of the state distribution network, what was ultimately for sale on the black market was power. Having a high ministerial or bureaucratic position gave an individual ranges of discretion over the use and disposal of those means of production over which that governmental department was responsible. The black market’s ultimate asset up for auction was occupancy of Party positions, bureaucratic slots and managerial authority. And huge sums were paid for access and promotion to higher levels of political and economic power within the Party and the bureaucracy in every part of the U.S.S.R.

A factory manager of a state enterprise could buy a reduction in his firm’s required production quota through gifts and bribes to those farther up the planning hierarchy. A young man or woman could buy his or her way into a university admission, and, once accepted, purchase their grades all the way to graduation. A collective farm manager could purchase a higher fixed sales-price from an agricultural ministry, while delivering a smaller amount of produce than required by the plan — and then pocketing the difference. A bribe could assure the delivery of a larger quantity of some resources to a state enterprise, and that surplus allocation would then be used to manufacture commodities to be sold on the black market.

Indeed, as Timofeyev demonstrates, it was the black market that kept the Soviet economy functioning: “No centralized distribution system can take the place of buying and selling. The entire Soviet economy, from top to bottom, is permeated by black-market relationships, which are in fact the living blood circulating in this dead organism.”

Finally, there was increasingly no distinction between the state and its bureaucratic apparatus and the black-market organizations through which resources and commodities illegally flowed. They either became literally the same or so interdependent that they fused into an inseparable “joint venture” for political and economic plunder. This was — and is — the origin and structure for the Russian mafia. The resistance to total and radical economic reform in Russia, Timofeyev explains, is precisely the fact that once all productive resources are privatized, the bureaucratic authority over the economy will be ended and all production and trade will be free and competitive. The special power of the bureaucrats and the black marketeers will be gone.

What the bureaucrats and the state-enterprise managers are, therefore, attempting to do is slow down the privatization process so they can continue to reap their state subsidies and black-market profits — and then, ultimately, to use their power and the time gained to become the new owners of the privatized enterprises. That is, they wish to launder their power and illegal wealth by ultimately going “legit.”

Timofeyev subtly argues that their becoming private owners, even with their ill-gotten gains, is acceptable. In the long run, the market will test their entrepreneurial ability, and if they fail to pass the test, ownership will pass, competitively, to more competent hands. The problem is this: these new private owners of the means of production might fail to give up their evil ways and instead manipulate Russian economic policy so as to continue subsidies, tariff protection, and domestic barriers to free competition. That is, the old system of privilege and power might simply continue — albeit covered over with an outer garment of privatized clothing.

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    Richard M. Ebeling is a professor of economics at Northwood University. He was formerly president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).