WINNERS AND LOSERS: INCREASING SOCIAL STRATIFICATION IN THE FORMER SOVIET UNION (U)

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• Original Classification: U
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• Document Creation Date: March 8, 2023
• Document Release Date: August 13, 2019
• Case Number: F-2018-00127
• Publication Date: November 1, 1991

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Winners and Losers: Increasing
Social Stratification in the
Former Soviet Union (u)
An Intelligence Assessment
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Directorate of
Intelligence
Winners and Losers: Increasing
Social Stratification in the
Former Soviet Union (u)
An Intelligence Assessment
This paper was prepared by Susan Hasler, Office
of Soviet Analysis. Comments and queries are
welcome and may be addressed to the Chief,
SOYA,
Z('WfftdmtiaL
SOV 91-10049
November 1991
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Key Judgments
Information available
as of 11 November 1991
was used in this report.
Winners and Losers: Increasing
Social Stratification in the
Former Soviet Union (v)
Economic policies introduced under the banner of perestroyka resulted in a
general slide in Soviet living standards and a growing inequality between
socioeconomic groups. In the pre-Gorbachev era the privileges of the elite
had been largely hidden and income differences within the rest of society
had been held down by state-set wages. Glasnost increased public aware-
ness of social differences, even as Gorbachev's economic Dolicies increased
the gap between the rich and the poor.
Government measures introduced in the months before the coup to
mitigate these circumstances were largely ineffectual. The lowest income
groups�the elderly, single mothers, and couples with more than two
children�found it increasingly difficult to find and pay for basic necessi-
ties. Middle-income groups�encompassing the traditionally favored blue-
collar workers, professionals, and workers in the service sectors�struggled
to maintain their accustomed standard of living. Both groups have watched
with dismay the growing economic power of a widely condemned nouveau
riche:
� According to some Soviet estimates, before the coup more than a third of
the populace lived in poverty, and the high inflation this year could push
a much wider segment into this category. Government can no longer
guarantee a minimum standard of living and traditional social benefits
such as free health care, job security, low-cost housing, and low, stable
prices.
� The middle class finds its ruble earnings steadily losing value. Low-
priority industries offer meager pay, poor working conditions, and few
amenities, and even workers in high-priority heavy industries such as
machine building and defense claim their lot has worsened.
� Perestroyka did provide some the opportunity to become wealthy; the
severe imbalance between supply and demand in the consumer sector has
made cooperative enterprises, as well as black-market activity, more
lucrative than ever. At the same time, weak law enforcement and greater
access to foreign travel and hard currency have increased opportunities
for acquiring wealth.
�05ifftdential__
SOV 91-10049
November 1991
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� Income differences among the republics have increased because of
perestroyka's unequal impact on socioeconomic groups. The Caucasus
and Central Asian republics, with large rural and youthful populations,
slipped even further behind other republics in terms of living standards.
The income gap within republics has also widened, with the southern
republics registering a much higher degree of inequality than their Slavic
and Baltic counterparts.
The economic disarray left in the wake of the coup will magnify these
trends in the short term. Republic economies will undergo severe disloca-
tions with the accelerated introduction of market reforms, growing interre-
gional barriers to trade, and localized disruptions from continued ethnic
strife. Inflation is likely to increase dramatically in coming months under
pressure from rising budget deficits and excessive growth in the money
supply. Government efforts to institute new forms of social guarantees will
not be sufficient to prevent a deterioration in living standards for a large
segment of the population, particularly lower- and middle-income groups.
Moreover, the implementation of reforms to cut costs and stimulate
competition will not only significantly reduce the social services that
enterprises have traditionally provided to workers, but will also lead to
large-scale layoffs and the problem of funding unemployment benefits.
Conditions for the entrepreneurial class, on the other hand, are likely to
improve in the Baltic states, Russia, and probably at least a few other
republics as bureaucratic barriers to entrepreneurial activity are removed.
Increasing social stratification will contribute to greater social and eco-
nomic instability, particularly as the number of homeless and unemployed
increases. Moreover, the public's lingering egalitarian ethic and desire to
avoid the social costs of economic reform will greatly complicate govern-
ment efforts to stabilize and radically reform the economy. Trade unions
and other groups, for example, are likely to oppose measures that would re-
duce job security and increase prices.
Nonetheless, while social stratification is likely to increase in the near
term, prospects for economic reform over the long term have greatly
improved, and reformers hope that the institution of a market economy will
eventually change the equation of winners and losers. Under the best of
conditions, the black market would give way to more legitimate forms of
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entrepreneurship. Those with energy and initiative would be rewarded by a
higher standard of living, while a stronger economy would provide the
means to support those least able to take care of themselves. With the
privatization of land and decontrol of food prices, conditions in rural
regions would also improve, and the terms of trade between urban workers
and rural farms would shift dramatically. Before accomplishing such a
transformation, however, the republics will face a long and difficult
transitional period in which they will have to change the attitudes and work
ethic of the population and overcome the corruption that has become
pervasive.
Con
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Contents
Page
Key Judgments iii
Scope Note ix
� Introduction 1
Factors Affecting Social Stratification Under Gorbachev 1
Loss of Fiscal-Monetary Control 1
Wage Reforms 1
Unleashing the Private Sector 2
Economic Restructuring 2
Regional Autonomy 2
Social Guarantees Disintegrate 3
Status of Selected Socioeconomic Groups 4
The Lowest Income Groups 5
The Shrinking Middle-Income Groups 8
The Elite, the Enterprising, and the Unscrupulous 10
Outlook for Social Stratification After the Coup 11
Implications for Social and Economic Stability 13
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vii
-MIMI estial_
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Scope Note
This Intelligence Assessment describes the impact of perestroyka on
selected socioeconomic groups in the Soviet Union, providing a profile of
the country inherited by republic leaders after the August coup attempt.
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Winners and Losers: Increasing
Social Stratification in the
Former Soviet Union (u)
Introduction
Long before the abortive August putsch, rising social
inequality had become a focal point for criticism of
Gorbachev's economic reforms from traditionalists,
trade unions, and others. Perestroyka produced win-
ners and losers, provoking sharp criticism from a
populace inculcated with the belief that Soviet society
should be egalitarian�even in poverty�and that
government should provide a certain level of cradle-
to-grave economic security to its citizens.
Before Gorbachev, social stratification was less obvi-
ous to the population. The nomenklatura�Commu-
nist Party members holding prestigious positions�
enjoyed a highly developed system of privileges closed
to and largely hidden from the general population.
These perquisites included special stores, schools,
recreational facilities, and hospitals, as well as foreign
travel. Wealth was measured more in influence and
access than in rubles, and the nomenklatura augment-
ed their lifestyles through the use of contacts, influ-
ence, and bribery.
Below this stratum of society, income differences were
held down by state-set wages that allowed much less
differentiation between occupations than exists in
market economies. High-priority industries such as
machine building generally offered better pay and
benefits than traditionally low-priority consumer in-
dustries or the services sector, but white-collar profes-
sionals were paid little more than blue-collar workers.
Some people earned high incomes illegally in the
unofficial "shadow" economy, but they were propor-
tionately few and kept their wealth carefully hidden
to avoid detection by the authorities. Under Gorba-
chev, however, glasnost increased public awareness of
social differences, even as his economic policies great-
ly increased the gap between the rich and the poor.
1
Factors Affecting Social Stratification Under
Gorbachev
Loss of Fiscal-Monetary Control
During the Gorbachev era, a rising budget deficit and
irresponsible fiscal and monetary policies generated
inflation and severe shortages. The government print-
ed rubles to cover the costs of expensive investment
programs, loss-making enterprises, revenue losses
from the antialcohol campaign, and more generous
social programs. Because this increase in the money
supply was not backed by a corresponding increase in
the production of consumer goods and services, it
increased inflationary pressures. Price decontrol�
which could have restored equilibrium to consumer
markets�was delayed, and consumers emptied the
shelves in state stores, where prices were artificially
low. Meanwhile, largely unregulated prices in the
consumer farm markets (CFMs) and cooperative
stores shot up rapidly, and black-market prices sky-
rocketed. In the year preceding the coup attempt,
retail prices had roughly doubled. Rising prices and
shortages had the heaviest impact on low-income
workers, who were already spending the bulk of their
income on basics, and on non-wage-earners with no
access to most of the special distribution systems that
proliferated as deficits worsened
Wage Reforms
Wage reforms that went into effect in January 1987
reversed a longstanding trend of wage leveling. Gor-
bachev hoped that increased wage differentiation and
a closer link between pay and productivity would spur
greater work effort. New pay scales were designed to
reward more skilled and productive workers, particu-
larly top engineering and technical workers in ma-
chine building. In addition, the 1987 Law on State
Enterprises gave managers more discretion in setting
wages and bonuses.
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The reforms failed to give managers incentives to
economize on labor costs, however, or to insist on
higher standards of productivity. In practice, enter-
prises used their new wage-setting authority to attract
and retain workers regardless of performance. The
growth of labor activism reinforced this trend, as
workers used strikes and the threat of strikes to gain
improved wages and benefits. White-collar workers
got the highest increases, but the wages and salaries
of all categories of workers rose rapidly; in the first
half of 1991 money incomes were 44 percent higher
than in the same period a year earlier.
Unleashing the Private Sector
During 1986-88 the Soviet Government passed legis-
lation legalizing a wider range of individual private
enterprise and encouraging the formation of cooper -
fives,' particularly in the area of consumer goods d
services. The intent was to achieve a rapid increa e in
the amount of goods and services available and ere-
by raise living standards for the entire populat n.
These measures allowed the emer ence of a
group of high-income earners.
Although cooperatives did provide some c sumer
goods and services, this boost was smalle than hoped
for because of a series of restrictive am dments to
the Law on Cooperatives, changing ta laws, supply
difficulties, obstruction from local offi ials, and nega-
tive popular reaction to private activ y. Many cooper-
atives simply bought or stole cheap tate goods and
resold them at much higher prices Other cooperatives
avoided harassment by tying thee selves closely to
state-controlled firms and prod ing goods and ser-
vices for these enterprises rathr than directly for the
public. According to in early 1991,
only 15 percent of what the cooperatives produced
was sold directly to the public.
Growing shortages and higher incomes encouraged
growth of legal and illegal private economic activity,
which diverted more goods away from state stores.
High prices and high profits transferred money from
workers to entrepreneurs, black-marketeers, and rack-
eteers. Private incomes began to dwarf state wages.
Defined as voluntary, self-financed, self-managed, profit-sharing
groups of at least three citizens, registered with local authorities. (u)
Even with m e rapid wage increases, the average
state worker wage still trailed that of the average
cooperativ member. Moreover, much private and
shadow-e �nomy business transferred to a hard cur-
rency ba s, promoting the development of a de facto
parallel urrency that further devalued the rubles
earne y state workers and pensioners.
Eco omic Restructuring
Go achev's shifting investment policies also contrib-
u d to growing differentiation in living standards.
is strategy initially called for sharp increases in
nvestment, especially for heavy industry, to modern-
ize equipment and introduce new technology. Funding
was to be focused on the renovation and retooling of
existing industrial capacity, particularly in machine
building and metalworking. This policy channeled
more resources into the central manufacturing re-
gions, where these industries were already established,
and left fewer resources for the underdeveloped south-
ern republics. This was reflected in slower job creation
and slow growth in wages. In a region that desperately
needed new industry to absorb rapid population
growth, low investment led to rising unemployment
and poverty.
In 1987 the leadership began to scale back investment
growth in heavy industry and refocus it toward the
production of food and consumer goods. The leader-
ship also called for expanding defense industry pro-
duction of consumer goods. These shifts in invest-
ment, along with cuts in defense spending that began
in 1989, eroded the traditionally privileged position of
workers in these industries. Many defense workers,
for example, openly complained that conversion to
consumer goods production downgraded their pay and
status.
Regional Autonomy
The devolution of more economic authority to repub-
lic and local governments and the economic decline
led to a Balkanization of the union market that helped
to increase regional disparities in the supply of food
and consumer goods. To protect their own consumer
markets, local officials erected barriers to trade,
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forbidding the export of certain deficit goods or
limiting the purchase of some items to local residents
only. Agricultural regions increasingly preferred to
use their output locally or barter it for scarce consum-
er goods rather than sell it to the state for devalued
rubles. The Soviet Union's former "showcase" cities,
Moscow and Leningrad (St. Petersburg), and centers
of heavy industry in the Urals suffered most. With a
weak local agricultural base, few attractive goods to
barter, and panic buying by the population, these
cities became the most poorly stocked of urban cen-
ters.
Social Guarantees Disintegrate
Products and services offered to citizens were never
abundant or of good quality, but in the past consum-
ers were able to count on the state satisfying at least
minimal requirements at little or no cost. During the
years preceding the coup, however, many of the
much-vaunted benefits of a planned economy�in-
cluding free medical care, a guaranteed job, a low-
fixed-rent government apartment and lowprices�
became increasingly problematic
Many former free or low-cost goods and services are
either no longer available or must be bought at a
much higher price. Decent medical care must be paid
for dearly with bribes, and many medicines can be
bought only on the black market, at eight to 10 times
the state price. Obtaining a separate apartment is
harder than ever. A decline in the production of
building materials, in part due to the breakdown in
traditional supply networks, has resulted in a substan-
tial fall in housing completions and an increase in
already long waiting lists for apartments. Indeed,
Gorbachev's "Housing 2000" program�which set the
goal of providing every family with a separate house
or apartment by the end of the century�was aban-
doned even before the coup. Even before the April
1991 increase in retail prices, consumers could no
longer count on state stores to provide necessities at
low, stable prices. Many goods that were once avail-
able in state stores were available only at high cost on
the black market or in cooperatives or consumer farm
markets.
3
A survey published in the Soviet business journal
Kommersant that tracked consumer buying habits
found that few could regularly afford alternatives to
state stores. The survey, which came out before retail
prices were increased in April 1991, found that only
one person in 10 had the means to regularly shop in
cooperatives or on the black market. Another 60
percent of the population used state-run stores and
shopped in cooperative stores only when unavoidable.
The black market or farmers' markets were beyond
their means. Another 30 percent of the population
bought only the cheapest goods, would endure long (b)(3)
lines, and went without if they could not find what
they needed at state-run outlets. With the April 1991
rise in retail prices in state stores, this latter category
of consumers had to struggle even harder to make
ends meet.
(b)(3)
Government Response. In part as a response to popu-
lar pressure, both central and republic governments
took measures in the months preceding the coup to try
to reduce growing inequities. Measures were intro-
duced in an attempt to cushion lower- and middle- (b)(3)
income groups from the impact of inflation and to
ease popular discontent. These included increased
pensions, more financial aid for families with many
children, and an attempt to crack down on the
lucrative black market. These measures were largely
ineffectual, and they accelerated inflation and disar-
ray in consumer markets.
Status of Selected Socioeconomic Groups
The economic dislocations that resulted in part from
Gorbachev's economic policies had a disproportionate-
ly heavy impact on lower income groups, while Gorba-
chev's loosening of controls on private economic activ-
ity allowed a small segment of the population to
become relatively wealthy. The changing fortunes of
these socioeconomic groups also had an impact on
regional differentials in living standards. Republics
with a large rural component and a high percentage of
�ermfifloadaL
(b)(3)
(b)(3)
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USSR: Average Monthly State Wages by Republic,
1985 and 1989
Percent above or below USSR average
1985
1989
=
Russia
I
I
Ukraine
Byelorussia
V
Moldova
Estonia
Latvia
I
I
Lithuania
=
D
Georgia
I
Armenia
I
Azerbaijan
I
Kazakhstan
I
I
Uzbekistan
I
Turkmeniya
I
Kyrgyzstan
1
I
,
Tajilcistan
I
I
-30
1
-20
1
-10
1
0
t
10
t
20
333279 11-91
Under Gorbachev, income differences among the re-
publics increased. The change in average monthly
wages since 1985 shows that the Slavic and Baltic
republics were clear winners, while the Caucasus and
Central Asian republics, whose wages were already
below the country average, slipped even
further behind. In addition to relative differences
among republics in wage compensation, income dif-
ferences within republics also widened. Differentials
tend to be the widest in Central Asia and the
Caucasus, where the mean wage is low and the
shadow economy is particularly active.
tial
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ntfide
dependent children in their populations, for example,
sank even lower compared with other republics, ex-
panding the already wide gap between the haves and
have-nots inherited by the Gorbachev leadership (see
inset).
The Lowest Income Groups
Soviet estimates of the exact number living in or near
poverty have varied greatly. The official poverty line
of 78 rubles per month�set in June 1989�put
roughly 40 million people or 14 percent of the popula-
tion in poverty that year. In August 1990 reform
economist Stanislav Shatalin called a poverty line of
80 rubles a month a "fantasy" and gave a figure of
120 to 130 rubles a month as a more realistic level. A
month later the official trade union cited 140 rubles a
month as the poverty line, a figure that would put
close to 40 percent of the population in poverty.
Despite compensation paid by the government, the
price hikes put into effect in April 1991 probably
raised the poverty line to over 200 rubles, and�
because the population was paid only partial compen-
sation for the price increases�pushed an even wider
segment of the population into poverty. Indeed, the
Soviet newspaper Komsomorskaya pravda reported
in May that the average Soviet citizen spent just
under 200 rubles monthly buying essential food, with
an equal amount needed to buy other necessities.
Families With Many Children. According to Soviet
studies, of those living at or below the official Soviet
poverty line, half are families with three or more
children, and another 30 percent are single-parent
families and young families with fewer than three
children. Before the coup, 75 percent of all families
with more than three children were living at the
poverty level, according to one Soviet economist. A
large share of the poor are in the rural regions of
Central Asia, where the average family size is approx-
imately six, twice that of the Slavic republics and
Baltic states. Poverty in the southern republics has
been exacerbated by low investment in health, educa-
tion, housing, and other social services.
5
Food shortages have prompted high-level concern over
child nutrition. The RSFSR Supreme Soviet has
issued a decree attempting to bolster baby food
production, declaring that poor diet is leaving children
susceptible to deficiency diseases such as anemia and (b)(3)
rickets, told in (b)(1)
early 1991 that infant formula and powdered milk are (b)(3)
priority items on the wish list for food aid. (b)(3)
Other shortages pose problems as well. Children's
clothing and shoes, which are unprofitable to produce,
all but disappeared as enterprises began to make more
of their own decisions. The Soviet newspaper Rabo-
chaya tribuna reported in January that, because of
this severe shortage, prices for children's clothing on
the black market had risen to three or four times the
state price. There are also shortages of school note-
books, pencils, toys, and candy
The Soviet system had traditionally guaranteed chil-
dren free health care, day-care, and schooling, but the
infrastructure for these services is weak and deterio-
rating rapidly. Child day-care facilities are over-
crowded, and one-fourth of all schoolchildren must
study on a second shift or even a third shift. Medical
facilities are poorly equipped and often unsanitary.
Moreover, in the last two years completions of general
education schools and vocational technical schools fell
substantially, and completions of hospitals and pre-
schools also declined. According to official Soviet
statistics, unsatisfied demand for places in preschools
has increased 130 percent since 1985.
(b)(3)
The USSR's high rates of infant mortality have been
on a downward trend in recent years, according to
official statistics. But child health has suffered from
medicine shortages, declining quality and variety of
diet, and contamination of food, air, and water by
pollutants. Indeed, signs of backsliding are apparent.
have reported that some regions have experi- (b)(1)
enced sharp increases in the incidence of diseases such (b)(3)
"roar; ttly_tla.1
(b)(3)
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as jaundice, acute diarrhea, salmonella, acute influen-
za, and leukemia among children in the last two years.
Youth: An Uncertain Future. Young adults have
found it increasingly difficult to establish themselves
in society. The under-30 age group makes low wages
and is particularly vulnerable to inflation. Moreover,
young workers are often the last to receive goods
distributed at work and the first to be laid off during
production stoppages.
One of the most immediate problems for the young is
housing. The search for a place to live may occupy
nearly a decade, and there is little hope that the wait
will be shortened. Housing completions have been
declining for more than two years and fell precipitous-
ly last year. According to an economist at the former
State Planning Committee (Gosplan), at the beginning
of 1989 there were 14 million families-46 million
people�on the waiting list for improved housing.
Another million people were added to that list in
1990.
Those who will not or cannot live with parents often
wind up in workers' dormitories or youth hostels
where living conditions are usually miserable. Soviet
experts estimate that 12.5 million young people live in
crowded workers' dormitories�loss of a job would
cause them to lose their space�and another 6 million
working young people live in youth hostels. Some
married couples, who cannot stay in dormitories or
hostels, rent private rooms. Such renters have no legal
rights or protection and, according to the Soviet press,
the premises they must rent are sometimes unfit for
habitation and include "barns, bathhouses, and even
slightly upgraded chicken coops." Moreover, young
families, particularly those with children, are forced
to move frequently by private landlords and must
often wander from place to place in search of housing.
According to the Soviet press, half of all divorced
young couples broke up because there was nowhere
for them to live. In the most extreme cases, a young
person may become homeless. According to Soviet
press reports, it is no longer a rarity to see a homeless
person under the age of 30�every third person now
picked up for vagrancy is in that age bracket.
�Z7nrfideatiaL,
The Homeless. Officially, there were 169,000 home-
less in the Soviet Union in 1989, but one Soviet study
estimated the number to be 2 million and rising. The
homeless live in city dumps, basements, attics, aban-
doned buildings, buses, and railcars. Their plight has
often resulted from the loss of a residence permit. The
Soviet residence control system inherited from Stalin-
ist times is soon to be scrapped, but local governments
in major cities are still imposing restrictions on the
number of newcomers. One Soviet press article de-
scribes the unfortunate consequences of being an
unregistered, officially "unaccounted for" citizen:
The loss of registration in our day is almost the
same kind of catastrophe as it is to lose a ration
card during wartime . . . a person is deprived of
all his rights�the right to work, the right to
receive housing, medical service, or an educa-
tion. And also, recently, the right to receive food
products, since the coupons are issued only at
the place of registry.
Among those who have not had residence permits are
refugees from ethnic violence, school dropouts, young
people released from the military who do not return to
their hometowns, people evicted from condemned
buildings, ex-criminals, and young workers in enter-
prises that ignore the need for documentation in order
to hire more labor. In large cities there has been a
category of workers called limitchiki who have not
been allowed to register for housing until they work a
set number of years. In practice, most of the limit-
chiki have worked for many years without obtaining
housing and have been considered to be virtually slave
labor by their employers. According to
press reports, they live in squalid factory barracks or
communal quarters, where several families share a
kitchen and bathroom.
The Unemployed. The former Soviet Union had no
systematic way to calculate the number of unem-
ployed, and estimates varied greatly. The State Com-
mittee on Labor and Social Questions says that there
were 2 million unemployed before the coup. Gosplan
economist Vladimir Kostakov put the number of
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unemployed, both real and disguised, at about 10
million�or about 6 percent of the civilian work force.
Central Asia and the Transcaucasus account for
about half this number. In 1989 alone, 1.3 million
people lost their jobs, according to the State Commit-
tee for Statistics (Goskomstat).
noted that the state was unable "either to defend from
the administration's arbitrariness those laid off, or to
provide them with equivalent work, or to organize
retraining for them." Those hit most frequently were
young, inexperienced workers, women with children,
and people approaching retirement age
Pensioners. Pensioners, the elderly, the handicapped,
and dependents make up about 20 percent of those
under the Soviet poverty line, according to Soviet
studies. There are nearly 60 million pensioners in the
Soviet Union, and 44 million of these are old-age
pensioners. Those living on their own, an estimated 9
million, are in the worst straits, but even those who
live in state care facilities often lead a miserable
existence inspected these facilities
found "dirty mattresses moldy from moisture, half-
collapsed walls, toilet stalls ankle-deep in water, beds
jammed tightly together with bedpans next to them,
and wretched old people or cripples on crutches
wearing some kind of ragged cast-offs instead of
clothing."
Pensioners are supposedly a "protected" category of
citizens, but government decrees have proved a poor
shield against shortages and inflation. Enterprises are
under state orders to produce a certain volume of
goods for the elderly at "socially low" prices and have
been prohibited from raising prices by decree of the
USSR Council of Ministers. Nevertheless, enterprises
have cut production of these unprofitable goods. The
private sector and the shadow economy have not filled
the gap because it is not worth their while to deal in
cheap consumer goods. remarked
that "speculation with socks is futile." According to
figures from Goskomstat, the average prices of com-
modities traditionally purchased by low-income
groups�including potatoes, bread, and flour�have
risen at a particularly fast rate. In some cities even the
city cafeterias, long a source of inexpensive meals for
the poor, often have no food to serve. Moreover, the
daily task of searching for and queueing for goods is
7
especially arduous for the elderly. Often it is the
pensioner who must queue for hours while adult
children work. Some pensioners, however, use this as
an opportunity to supplement their incomes by charg-
ing a fee to stand in line for others. (b)(3)
(b)(1)
(b)(3)
A nearly catastrophic shortage of medicines has also
made life more difficult for the elderly. This shortage
developed when many pharmaceutical factories were
shut down for environmental reasons by republic and
local governments. The situation was exacerbated by
a decline in medicine imports from East European
suppliers who are now seeking hard currency custom-
ers. As a result of the shortage, most medicines are
now available only on the black market, where prices
are far beyond what pensioners can pay, averaging
eight times higher than state prices, according to
surveys conducted by the journal Kommersant.
(b)(3)
(b)(3)
Rural Residents. Rural living standards have tradi-
tionally lagged well behind those of city dwellers. (b)(1 )
According to Soviet statistics on rural and urban
incomes, this gap narrowed substantially in the de- (b)(3)
cades before Gorbachev took power but appears un-
changed since 1985. According to official Soviet
family budget surveys, the average per capita house-
hold income for state farm and collective farm work-
ers was 80 percent of that for all workers and
employees in 1989, compared with 81 percent in 1985.
The countryside also offers far fewer and lower
quality goods and services than the city. Many rural
settlements lack electricity, telephones, stores, banks,
and other consumer services-52 percent of villages,
for example, have no medical facilities. Per capita
retail trade turnover in rural areas is 44 percent that
of urban areas.
The standard of living in rural regions varies substan-
tially from region to region. In the former Baltic
republics, the average earnings of collective farm
workers were well above those of state blue- and
white-collar workers. In contrast, depopulation of
villages in the Russian heartland and overpopulation
in rural Central Asia have contributed to
widespread poverty. The newspaper Sel'skaya zhizn'
(Rural Life) even set up a charity fund in 1991 to
(b)(3)
(b)(3)
(b)(1)
(b)(3)
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alleviate desperate poverty among elderly rural resi-
dents in dying Russian villages, where a steady drain
of youth has left few able-bodied workers. In Central
Asia and the southern part of the Kazakh Republic,
rapid population growth, unemployment, declining
per capita production of food, and the primitive state
of health care have produced widespread poverty in
the region. In 1989, according to Pravda, the average
per capita monthly income in rural parts of the
Fergana Oblast was about half that of state and
collective farm workers in the country as a whole.
Food production in the region has also suffered
because of overcultivation of cotton. Even though a
large proportion of its labor force is in agriculture,
Central Asia is not self-sufficient in food. According
to official statistics, per capita food production in the
region is far below the national average
The breakdown of the centralized distribution system
in the two years preceding the coup has increased
tensions between the city and the countryside, leaving
rural dwellers in the more productive agricultural
regions in a relatively better position while increasing
the misery of the poorer rural regions. Some food-
producing regions refuse to deliver their products to
centralized stocks, and foodstuffs go onto the market
within the region or are used to barter for consumer
goods. On the other hand, while rural dwellers have
traditionally relied on forays to the city to fill many of
their needs for household goods and some foods, a
proliferation of "passport" rationing systems in many
urban areas has limited purchases to city residents.
Moreover, according to the Soviet press, the consumer
cooperative system, a financially autonomous organi-
zation that supplies goods to the countryside, has been
cutting back service in some regions, particularly the
non-black-earth region. Because of shipping charges
and the large number of foodstuffs that must be
purchased at contract prices, prices also rose more
rapidly in the consumer co-ops than in state stores in
urban areas.' Rural areas suffered another blow at the
beginning of 1991, when increases in wholesale prices
raised the cost of inputs such as fertilizers and
'To even out this discrepancy, the April 1991 price increases
administered by the central government did not apply to consumer
cooperatives. (u)
materials and increased the prices of services deliv-
ered to rural areas, reducing profitability of agricul-
tural enterprises and farms.
Military and Former Military Personnel. The return
of Soviet troops stationed in Eastern Europe is exacer-
bating the acute shortage of housing for military
personnel and focusing increased attention on low pay
and living standards in the military. Before the coup,
the military housing shortage reached nearly 300,000
units. The complete withdrawal of troops from Ger-
many may increase this figure by up to 50 percent,
according to some military sources. The Soviet-Ger-
man agreement on stationing earmarks 7.8 billion
marks to build approximately 36,000 apartments in
the Soviet Union, but construction has not yet begun
and there may be lengthy bureaucratic delays ahead.
The overall housing situation has been further aggra-
vated by localities' refusals to meet targets set for the
allocation of living space to military personnel, reserv-
ists, and retirees. This problem is a major morale issue
for servicemen. According to
officers spend long periods under difficult conditions,
have no opportunity to acquire housing, and no provi-
sions are made for them at the end of their careers.
Movement toward regional autarky created other
difficulties for military families. Those stationed in
peripheral republics complain of harassment by local
officials and local populations. Wives of servicemen
have difficulty getting jobs, leaving families with one
income, and often there are no places for their
children in local schools and nurseries. In the former
Baltic republics, local inhabitants received a subsidy
when prices rose, but servicemen did not, while in
Armenia officials have refused to issue food coupons
to servicemen and their families. There are persistent
reports of serious, widespread food shortages through-
out all segments of the armed forces. Clothing is also
becoming a problem as enterprises renege on deliver-
ies of uniforms and boots and other items.
The Shrinking Middle-Income Groups
Hard times have shaken the security of the middle-
and lower-middle-income groups�members of the
8
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USSR: Relative Levels of Earnings in Selected
Sectors, 1985 and 1989
1985 =11 1989
Percent above or below USSR average
Blue-collar workers
(industry)
White-collar workers
(industry)
State agriculture
Construction
Education
Health
Trade
Apparat
Railroad workers
-40
-30
-20
-10
0
10
20
30
40
Unclassified
teaching, medical, and cultural professions, and work-
ers in state enterprises. Some subgroups, however,
have fared better than others, not only in ruble
earnings (see chart), but, perhaps more important, in
access to scarce goods, either through special distribu-
tion systems or through the opportunity to steal or
take bribes. Many low-paid shop clerks, for example,
make a good living selling products under the counter.
Soviet press reports indicate that most middle-class
9
333278 11-91
groups, however, have suffered a deterioration in
living standards, and the only clear winners seem to
have been cooperative workers and black-marketeers.
Cultural, Medical, and Educational Workers. Those
who are working for the state but are not attached to
productive enterprises�teachers, medical workers,
and cultural workers�have had less rapid rises in
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income and have less access to deficit goods. Pay
increases approved under Gorbachev for those em-
ployed in health and education have not been enough
to raise the relative standing of these traditionally
poorly paid professions. The introduction of market
reforms is likely to put them in an even more difficult
position. In Estonia, where the government instituted
sharp price increases on foods, these state employees
struggled to make ends meet. According to an observ-
er, while Estonian enterprises distributed goods, meal
coupons, or direct financial aid, "it is much harder
for ... all those people who are paid from the republic
budget. Nobody has any money for them: neither the
government nor the industries."
Workers in Low-Priority Industries. While some
enterprises are distributing goods and building hous-
ing and other facilities for workers, low-priority indus-
tries such as the light and food industries offer low
pay, poor working conditions, and few amenities.
Unfavorable economic conditions have cut the funds
they have traditionally used to build housing and
provide services for workers. Moreover, a lack of hard
currency to buy imported materials has led to supply
shortages that have forced production stoppages and
layoffs in the textile industry since 1990. This situa-
tion led the Russian Republic Trade Union of Textile
and Light Industry Workers to threaten a strike. The
action was called off when the RSFSR government
granted concessions to the industry, including tax
breaks and hard currency for the purchase of raw
materials. Nevertheless, the Soviet press reported in
April that work at more than 400 textile plants had
closed because of the inability to import supplies.
Workers in High-Priority Industries. Despite their
more privileged position relative to other state em-
ployees, even the workers in traditionally high-priority
heavy industries such as machine building complain
that their lot worsened under perestroyka.
stated that workers at the majority of defense plants
have had sharp pay cuts due to reduced production of
costly military equipment. Although workers in key
industries commonly receive additional allocations of
food and consumer goods, they complain that these
distributions are not enough to go around, are admin-
istered unequally, and are often limited to luxury
-ZZB'frdentipl_
items. Moreover, workers see their social status in
jeopardy. According to one, "in general, the prestige
of the working class has fallen.... Now the first-class
workers have left the enterprise for the cooperatives or
who knows where.... And here I am�a two-time
hero of socialist labor�and I cannot buy a suit: none
are being sold."
The Elite, the Enterprising, and the Unscrupulous
Old Elite. As the privileges of the nomenklatura
came under attack in the era of glasnost, a number of
perquisites were officially abolished:
� An October 1989 resolution of the USSR Council of
Ministers abolished the Fourth Chief Administra-
tion of the USSR Ministry of Health, which ser-
viced the elite, and ordered its facilities converted to
serve children, veterans, and the disabled.
� In February 1990 a resolution of the CPSU Central
Committee cut back on the allocation of state
dachas and reduced privileges for retired party and
state leaders.
� Trade Association No. 208, which furnishes food-
stuffs to the upper echelons of power, was directed
to supply health facilities and children's homes.
In practice, however, the nomenklatura retained most
of its privileges up to the time of the coup. In July the
USSR Supreme Soviet Committee on Privileges pre-
sented the results of a nine-month study that found
abuses were still pervasive. For example, in the Minis-
try of Defense, expensive dachas were still being built
for top personnel who paid only nominal rents. The
report also complained that dachas and other state
property are increasingly being sold to officials at
bargain prices, a practice dubbed "wild privatiza-
tion."
The Nouveau Riche. With the relaxation of restric-
tions against private activity and the boom in the
shadow economy, a new variety of wealth had begun
to emerge during the period of perestroyka. Accord-
ing to Goskomstat, by yearend 1990 there were
260,000 cooperatives employing 6.2 million people.
10
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Confidential
The average monthly income of these workers at the
beginning of 1991 was over 400 rubles per month,
while the average state wage was 270 rubles. Accord-
ing to unofficial Soviet estimates, there are now more
than 500,000 people in the country who earn more
than 3,000 rubles a month. The number of ruble
millionaires, although small, has also been growing
rapidly, according to Soviet press reports. Soviet
experts last year put the number of millionaires at
100,000 to 150,000.
Some of the wealthy�prominent entertainers and
successful cooperative managers, for example�are
legal millionaires, but others have earned their wealth
in the booming shadow economy. Severe imbalance
between supply and demand in the consumer sector
has made black-market activity more lucrative than
ever, while weak law enforcement and new access to
foreign travel and hard currency have opened up
opportunities for acquiring wealth. According to offi-
cial Soviet statistics, the number of crimes for gain in
the economic sector rose by 77 percent in 1990 over
the previous year. Organized crime has also made it
difficult for private entrepreneurs to acquire wealth
without paying dues to the criminal world. Racketeers
prey on the new cooperatives, shaking down owners
for protection money. Cooperatives have also been
used as fronts for scams and illegal activities, accord-
ing to the Soviet press
As the ruble loses value, black-marketeers and coop-
eratives are converting their operations to hard cur-
rency, creating a new and exclusive system of elite
privilege. Legislation liberalizing the use of hard
currency by ordinary citizens has facilitated this
process. According to "in St.
Petersburg a wide range of stores has sprung up, such
as ice cream parlors, beer halls, and even beauty
shops, which accept only hard currency. These estab-
lishments are heavily frequented by a clientele that
earns its money through black marketing and prosti-
tution."
The new rich are feared and despised by lower-income
groups. Ethnic tensions and racial prejudice feed
resentment of well-to-do private traders�those from
the Caucasus are particular targets. In the Russian
city of Krasnoyarsk, for example, citizens demanded
11
expulsion of all Azerbaijanis because of high consum-
er farm market prices for fruit and vegetables. One
Soviet commentator, writing in Moscow News, notes
that, while the nouveau riche are not outrageously
rich by Western standards, the contrast with the rest
of the population is galling:
The Soviet rich spend their millions on what is
widely available to ordinary people in the civi-
lized countries but. . . an upstart is an upstart
anywhere, whether in the wild West at the turn
of the century, or on a Moscow farm market
today.. . . Alas, the general prosperity always
begins with this tasteless and obnoxious luxury
for the few against the background of poverty
and even destitution of the many. The descen-
dants of golddiggers, adventurers, and brawlers
are today's Harvard graduates, computer mag-
nates, and ideologists of social and ecological
movements. One can only hope that . . . our
capitalist sharks will not take a hundred years
to turn into postindustrial entrepreneurs. (c
(b)(3)
The old elite�bureaucrats, apparatchiks, and plant
managers�tapped into this new wealth by collecting
bribes for various services for both shadow economy
b
operators and cooperatives. Some held dual jobs. For ()(1)
example, a cooperative member might work during (b)(3)
the day as a high official in an enterprise that provides
supplies to the cooperative. According to
power as such�administrative, economic, (b)(3)
legal, and other�is being sold off."
Outlook for Social Stratification After the Coup
The initial impact of the economic disarray left in the
wake of the coup will be to magnify some of the trends
already evident in income distribution. The economies
of the republics will undergo severe dislocations with
the accelerated introduction of market reforms in
some areas, growing interregional barriers to trade,
and localized disruptions from continued ethnic strife.
Those in the lowest income groups, particularly those
on fixed incomes, will suffer most from these econom-
ic disruptions.
Confidential
(b)(1)
(b)(3)
(b)(3)
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