I am recently studying finance and welfare. I came up with this question as I am trying to understand more the economic system of the COMECON countries during the Cold War.
Let me be more precise: I am a common worker living in the USSR, after the Second World War. I have recently acquired an amount of disposable income (the source of this income may be salary, inheritance, or whatever shady things you can imagine), and I already have all the things I need in order to live a decent life. I would like to therefore invest my money somewhere. Here's my question(s): What are the different and most common ways I could do this? Could I invest in real estate in a country where private property is not a guarantee? Are there banks, financial institutions or credit unions that I could rely on, and if yes, how? Is there any way in which I could invest in foreign markets, inside or outside the Soviet sphere of influence?
Just got some money, comrade? I won't ask where you got it, but your best options are in the black market.
In the Soviet Union after the 1950s there was a black market known as the Second Economy that operated below the state. By most accounts, it was virtually nonexistent under Stalin, but proliferated after punishments for corruption and actions outside state control were loosened under Khrushchev, and a nomenklatura (new class) started to form in the USSR. By then, it had become obvious to most mid-level party officials that the state had largely failed to provide a comfortable standard of living to most citizens. Worse yet, the Soviet Union was a nation of contradictions. Western observers noted that Moscow and Petrograd were modern cities, while some agricultural communities had not seen significant change in their methods from the middle ages. In this environment, after the excesses of Stalinist punishment had been disbanded, it was impossible for the state to fully control black market activity.
Since the state had failed to provide certain consumer goods, one of your best options might have been to travel to Turkey, Iran, or Finland, if you were willing to go into business for yourself, find some products, and cross the border again. This would necessitate bribes for border guards, especially on your side of the border, but those would not significantly cut into your margins. If you knew which goods were in shortage back home, you could sell them for huge amounts of markup. At certain periods in Soviet history, there were also immense shortages, and people would sometimes wait in line when they heard of special product deliveries to acquire certain goods. A lower risk scheme would have been to arrive at stores right when special goods were delivered, buy them, hoard them, and sell them through your social network.
If you were not interested in this kind of personal time investment, you had other options. The Soviet Union was home to a thriving crime scene.
According to the prevailing mythology of the Russian mafia, the mafia started as Robin Hood like organizations of peasants, robbing aristocrats and distributing food to the peasants. They became "Thieves in Law", usually abbreviated to Vory, with a code of loyalty to one another and opposition to the government. How strong this code was is disputable, but it is certain that there were some codes of "honor" among thieves that bound the underworld together and made its extinguishment difficult. Stalin attempted to destroy the Vory, deporting many to Gulags. When the Second World War broke out, Stalin offered sentencing bargains to gulag workers who agreed to fight. When they came back to the gulags, there were derided as suka, or bitches for cooperating with the government and breaking the code among mafia. They did not accept this lower status peacefully, however, as they had been hardened by years of war, and started collaborating with prison wardens. Applying their combat experience, they started attacking and wiping out the Vory, starting the "Bitch Wars" which lasted in the Soviet prison system from 1945-53. By most accounts of the black market and crime in the Soviet Union, the later period of this war was somewhat of a dark age for the "Vory", who had been badly weakened by the "bitches". However, their fortunes changed with the fall of Stalin, and increasing laxity of black market laws. This laxity increased by the 1970s, when the Brezhnev government largely ignored the second economy. As a result, numerous private businesses that were technically illegal opened around the country.
If you wanted to multiply your funds in any systematic way, instead of just financing lone smuggling trips, you had to work in some way with the resurgent Vory, who dominated the Soviet black market. In most Soviet cities, you had the option of financing and investing in black market operation for some return, or lending money with a guarantee from the local Vory that it would be returned. They had a local reputation to protect, and therefore their odds of betraying you were not large if they were taking investments on a regular basis. The "illegal" nature of Vory operated private businesses was considerably less taboo in the USSR than mafia operations were in the West in the same period, because of the restrictive business environment of the Soviet Union. Many consumer goods were only obtainable through the black market, and use of private trading was commonplace, especially in the 1970s. Black market operations were just another facet of daily life for a large portion of the Soviet population, and were more credible entities than they were in the West.
In a 1990 book called Alternative: Choosing a Path, published in Moscow, the phenomenon of "Soviet millionaires" are noted. Even before Perestroika in the late 80s, the book makes note that the authorities' shift towards a live and let live arrangement with the illegal private sector allowed for party officials and enterprising citizens to make small fortunes. Indeed, in Moscow in 1990, there was a protest demanding the government release an official list of all "Soviet millionaires", a term modern readers might find ironic.
Sources:
Rutgaizer, Valeriy. The Shadow Economy in the USSR.
Grossman, Gregory. The Second Economy in the USSR and Eastern Europe.
Matthews, Mervyn. Poverty and Patterns of Deprivation in the Soviet Union.
Alternative: Choosing a Path: Management reorganization horizons of thought.
Humphrey, Caroline. Russian Protection Rackets and the Appropriation of Law and Order.
Government issued bonds existed in Soviet Union: “облигации госзайма”. In addition to acquiring interest like normal bonds, these bonds had a secondary purpose of a “lottery ticket” of sorts, where a drawing was made annually and a particular serial number would be a winner of some sum of money, or a large ticket items such as automobile or home appliances. Additionally, one could also put money in savings account, where some interest is acquired.