During the first part of perestroika, the Soviets developed cooperatives, which "only strengthened the destructive model of the 'shadow' market economy, Khokhriakov explains on page 14. But the Soviets' transition was short of capital so because they needed loans, they turned to the West (in particular, the U.S., which was thrilled of course to witness the demise of communism). Instead of cash, the West provided the Soviets with goods, and right away Soviet merchants knew how to "dispose" of the goods; many new cooperatives sprang up and sold goods "at market prices" and that "shadow" sector became quite "lively" (Khokhriakov, 14).
The "new hero" came from "the underground," Khokhriakov reports; the biggest portion of the Russian intelligentsia tended to see the shadow as "…a forerunner and failed to take not of the techniques he had brought out of hiding." Banks sprang up like weeds, and "credits obtained through fraud exceeded by one thousand times or more the economic potential of banks," Khokhriakov continued (20). This of course was an open door for crime, and organized crime (the ubiquitous "shadow" market people) jumped right in; in fact the amount of stolen credit and money in 1992-94 "totaled about three trillion rubles" and the prosecutor-general at the time reported "thirteen thousand crimes in the banking community" in 1995-96 (Khokhriakov, 20).
What happened with some of the goods produced in Russia was not fair to peasants. They went to big city markets and tried to sell "their own products" but they were forced to give them to "the resellers, who dictated pricing" (Khokhriakov, 21). Those shuttle traders that took the products away from the peasants then "fell under the influence of the 'shadow' sector and its brand of 'justice'"…and the racket became a common situation while in the meantime organized crime established "monopoly prices" (Khokhriakov, 21).
Trade that was controlled by organized crime fueled inflation and inflation forced the banks to raise interest rates on their loans. In this way, the shadow market folks became those involved in organized crime and indeed, "the world of organized crime was expanding steadily" and society was "rapidly becoming corrupted" (Khokhriakov, 22). Granted, this article is ten years old, but the author asserts that the "whole economy" of the Russian Federation has "gone into the shadows" and a great deal of income is "concealed from taxation"; to wit, an estimated $1-2 billion is taken out of Russia "every month" (Khokhriakov, 27).
The bottom line in terms of organized crime is that "a huge number of citizens who are involved in trade and services are acting as witting or unwitting handmaidens of organized crime" (Khokhriakov, 27).
All of this information about how the shadowy individuals profited enormously when perestroika became part of official policy does not necessarily explain the influence of organized crime in terms the political transition from communism to a market economy. Certainly the influence of organized crime did penetrate the political structure, but it would seem that organized crime had enormous influence over the economic structure of Russia. Organized crime took advantage of every slipshod new policy that was introduced while the country was in the midst of the flux from one embedded system into a new, more capitalistic structure.
Meanwhile professor Steven Barkan (University of Maine) goes a little deeper into Soviet history to explain the emergence of organized crime. The Russian Revolution of 1917 offered glowing promises of "a workers' paradise" but in fact what the people got was a "dictatorship" founded by elitists in the Communist Party (Barkan, 2011, p. 110). During the revolution, Barkan explains, everyday services were very hard to come by. And again in 1941, when the Nazis invaded the Soviet Union, there was a terrible shortage of food and services. And after the brutal bloody second world war, the Soviets engaged in a massive expenditure of resources to "gain military superiority over the United States and its allies" (Barkan, 110).
Because of the amount of spending that went into the production of military hardware, the Soviet Union "…drastically cut back on the production of everything from food and clothing to automobiles and apartments" (Barkan, 110). Hence, a black market emerged, Barkan writes, that profited from stolen and illegally imported or smuggled goods; some of the stolen goods were ripped off from the government, Barkan continues. It is part of economic history and logic that when a government cuts back on products or services that the citizens...
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