TRENDS IN OFFICIAL PARTY TOWARD PRIVATE ACTIVITY IN THE USSR

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP08S01350R000602100002-7
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 38
• Document Creation Date: December 27, 2016
• Document Release Date: March 28, 2012
• Sequence Number: 2
• Publication Date: March 1, 1970
• Content Type: REPORT

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CbnfidentiaF
DIRECTORATE OF
INTELLIGENCE
Intelligence Report
Trends In Official Policy Toward Private Activity
In The USSR
ER IR 70-9
March 1970
Copy No.
8 5-
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Page
Introduction . . . . . . . . . . . . . . 1
Background ... . . . . . . . . . . . . . 3
Output of the Private Sector as a Share
of GNP and Its Components . . . . . . 3
Agriculture . . . . . . . . . . . . . . 4
Housing . . . . . . . . . . . . . . . . 9
Services . . . . . . . . . . . . . . . 11
Policy Trends, 1953 to the End of the
Khrushchev Era in 1964 . . . . . . . . . 12
Agriculture . . . . . . . . . . . . . . 12
Housing . . . . . . . . . . . . . . . 15
Services . . . . . . . . . . . . . . . 16
Policy Trends From the End of the
Khrushchev Era to the Present . .
Agriculture . . ... . . . . . . . . . . 18
Relaxation, 1965-66 . . . . . . . . . 18
Ambivalence, 1967-69 . . . . . . . . 19
Housing . . . . . . . . . . . . . . . . 23
Services . . . . . . . . . . . . . . . 24
Conclusions . . . . . . . . . . . . . . . 25
Appendix
Methodology . . . . . . . . . . . . . . . 33
Tables
1. USSR: Shares of Output of Selected
Farm Commodities Produced by the
Private and Socialized Sectors,
1968 . . . . . . . . . . . . . . . . 7
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Page
2. USSR: Indexes of Private Production
in Agriculture and Housing . . . . . 30
3. USSR: Indexes of Private Holdings
of Livestock and Acreage 31
Figure 1. USSR: Share of Private Sector
in Selected Activities,
1968 . . . . . . . . . . . .
Figure 2. USSR: Contribution of Agri-
culture, Housing, and Services
in Gross National Product
Originating in the Private
Sector, 1968 . . . . . . . . 5
Figure 3. USSR: Changes in Private
Herds Relative to official
Policy, 1950-69 . . . . . . . 27
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
March 1970
Trends In Official Policy Toward Private Activity
In The USSR
Official attitudes toward private economic activity
in the USSR have fluctuated since the earliest days
of Soviet power. Periodic campaigns to suppress
private activity alternate with periods of relaxation.
The turning points in official policy appear to be
related to changes in rates of economic progress and
to the intensity of the regime's concern about prog-
ress in the socialized sector. For example, in the
post-Stalin era, periods of relatively rapid growth
of output in socialized agriculture have been closely
followed by official efforts to suppress private
agricultural activity. Conversely, periods of flagging
rates of growth in the socialized sector seem to be
associated with an easing of constraints in the private
sector. In this context, vacillations in official
policy apparently reflect a conflict between the
ideology of central planning and the pragmatic desire
for more output.
The Soviet government permits private economic
activity in three areas, all strictly controlled: (1)
the production and marketing of agricultural products,
(2) the construction of privately owned family resi-
dences, and (3) the provision of some professional,
repair, and personal services. Illegal forms of
private activity do exist, moreover. Some types, such
as black market sale of clothing or use of private
Note: This report was produced solely by CIA. It was
prepared by the Office of Economic Research.
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automobiles as taxis, have little or no impact on the
economy. Other types of illegal activity, particularly
thefts of building materials and of agricultural
products, reportedly are widespread and may have a
substantial economic impact. But lack of data pre-
cludes meaningful discussion of illegal activity in
quantitative economic terms.
This report deals only with private activity
sanctioned by the government. Subject to this limi-
tation, it (1) estimates the contribution of private
activity to gross national product (GNP) and to-several
of its components over time, (2) reviews trends in
official policy toward private activity since Stalin's
death in early 1953, and (3) defines the current
policies toward this sector.
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Background
Output of the Private Sector as a Share of GNP
and Its Components
1. The share of Soviet gross national product
generated by the private sector has been declining
since 1950. In that year, private activity con-
tributed about 22% of GNP. The share had dropped to
about 12%'by 1965 and approximated 10% in 1968,
measured in constant prices (see Figure 1 and the
Appendix). The.decline between 1950 and the late 1960's
USSR: Share of Private Sector
in Selected Activities, 1968
Percent of Total
Agricultural Output
Housing Completions
O
Services
5 95
* In terms of value added (see appendix).
77866 2-70 CIA
Socialized Sector
in the proportion of GNP attributable to the private
sector, however, reflects the relatively more rapid
rate of advancement in socialized activity, not an
absolute drop in output in the private sector.
2. On the other hand, the proportion of GNP
generated by the private sector understates the
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importance of this range of activities, which
directly affect the quality of life in the Soviet
Union. Although private activity in agriculture
currently generates only about 8% of GNP, it
accounts for 31% of net agricultural production. But
its importance cannot be measured by share of pro-
duction alone. Because of the antiquated and re-
markably inefficient state-operated system for process-
ing and marketing perishable foodstuffs, the state-
provided supplies of foodstuffs are noteworthy for
their low quality and spotty availability. Soviet
consumers, therefore, rely either on their own plots
or on direct purchases from private producers for a
major share of their consumption of quality vegetables,
meat, dairy products, and other highly perishable
produce. Private activity in housing generates about
2% of GNP yet provides about one-third of the new
housing constructed each year. It is particularly
important in smaller cities, towns, and rural areas.
Privately supplied services are the least important
in a quantitative sense, generating less than one-
half of 1% of GNP and probably supplying less than
5% of all services. Nevertheless, privately supplied
services are uniquely capable of fulfilling specific
needs in the economy -- especially in small towns and
rural areas -- in the same way as private activity in
agriculture and housing. In this sense, private
activity in each sector provides goods and services
that might otherwise be unavailable. The relative
contribution of each of the three components to the
total output of goods and services generated in the
private sector is shown in Figure 2. As suggested
by the data above, agriculture dominates, contributing
more than three-fourths of the value added to GNP by
private activity.
Agriculture
3. There are two aspects to private activity
in agriculture: (a) production of farm products from
individually allocated plots of land and privately
owned livestock and (b) marketing of agricultural
products received from personal production or in-kind
distribution as payment for work in the socialized
sector.
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USSR: Contribution of Agriculture, Housing,
and Services to Gross National Product
Originating in the Private Sector, 1968
Percent of Total
4. 'Private, agricultural production as practiced
in the USSR is almost exclusively made up of small
holdings of land -- "victory garden size up to
0.5 hectares -- frequently combined with one or two head
of livestock and a small flock of poultry. The maximum
size and allocation of such holdings is strictly
controlled by statutes. In rural areas a holding is
allocated to a household whose head is principally
engaged either in work on a collective or state farm
or in some nonfarming pursuit such as teaching. In
urban areas, small garden plots are assigned to
households by various administrative means and are,
for the most part, maintained in clusters in the out-
lying suburbs. In the past, a small and declining
share of land was held by individual peasants (that
is, peasants who were not connected with any type of
socialized enterprise). This element had almost
disappeared by 1950. According to the 1959 census,
individual peasants comprised only 0.3% of the total
population, and by 1965, as a social class, individual
peasants were virtually nonexistent.
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5. As would be expected from the small size of
holdings allocated to households, production activity
in the private sector concentrates on those crops and
livestock products that provide a relatively high value
of output per unit of land. Such high-value, labor-
intensive crops and livestock products as potatoes,
vegetables, fruit, meat, milk, and eggs dominate the
list (see Table 1). The relatively large share of
total crop output accounted for by the private sector --
about one-fourth -- is grown on an area of 8.1 million
hectares, or less than 4% of the area under crops for
the country as a whole. Accordingly, the value of
output per unit of land is nearly 9 times the
value of output per unit of land in the socialized
sector. More than half of this differential in out-
put per hectare reflects the difference in composition
of crops grown by the two sectors, while the remaining
portion of the difference reflects the higher yields
obtained by the private sector compared with those
obtained by collective and state farms. In the most
recent three-year period for which data are available
(1966-68), yields in the private sector for potatoes
and fruit were about 50% above average yields in the
socialized sector and those of vegetables were about
one-third greater. Much of the difference in yields
between the two sectors is attributable to the ap-
plication of a larger quantity and higher quality of
labor by private producers in carrying out such
agronomic practices as weeding, watering, and pest
control. In addition, the private operators apply
relatively more fertilizer and other soil additives
in comparison with the large socialized enterprises
and, in the case of potatoes and vegetables, sow a
higher density of plants per unit of land.
6. The private sector also has access to other
acreage. Besides the 8.6 million hectares directly
under the control of households,* the private sector
The area under direct control comprises the sown
area previously mentioned, 8.1 million hectares, plus
wild haylands directly allocated to the private sector.
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USSR: Shares of Output of Selected Farm
Commodities Produced by the Private and
Socialized Sectors
1968
Commodity
Crops
Potatoes
Vegetables
Fruit
Grain
Technical crops
Livestock products
Milk
Meat
Eggs
Wool
Net farm output
Private
Socialized
24
76
62
38
41
59
34
66
2
98
1
99
38
62
38
62
38
62
60
40
20
80
31
69
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is able to obtain access to certain land that is
controlled by the socialized sector, for purposes of
pasturing privately owned livestock and harvesting
hay -- roughly 10.3 million hectares of pasture and
29 million hectares of?hayland.* If all of the area
in the socialized sector that directly or indirectly
produces feedstuffs for the private sector is added
to the relatively small area directly held by house-
holds, the total area given Iover to supporting private
farming comes to roughly 140 million hectares, or
about 23% of all the arable land in the USSR. In
addition, feedstuffs (grain, straw, silage, hay) may
be received as payment-in-kind for participating in
work on collective or state farms. Theft or "mis-
appropriation" of feedstuffs is also practiced. Over-
all, about 70% of total feed (in terms of feed units)
used by the private sector for feeding livestock is
supplied by the socialized sector.
7. According to the annual census of 1 January
1970, private holdings of livestock represent about
one-fourth of the total livestock inventory. of the
country. But the relative importance of privately
held herds is not adequately reflected by the pro-
portion of animals held at the beginning of a
calendar year. In contrast to socialized farms --
where the success indicator from year to year is to
record a higher number of animals regardless of. age
or condition -- the prudent private owner deliberately
minimizes the number of livestock carried through the
winter. In other words, the private producer typically
gears his livestock breeding program to minimize
holdings during the winter when maintenance costs are
relatively high. He then seeks to maximize holdings
during the spring-summer-early fall period, when
pasture and other types of fodder are accessible and
when production costs per unit of milk and meat are
* An unknown proportion of the hay crop used by the
private sector for feeding livestock is obtained as
partial payment for participating in the hay harvest
on collective and state farms. For example, many
socialized agricultural enterprises permit the work
force participating in the annual hay harvest to
retain 10% of the hay cut; the balance goes to feeding
herds on collective and state farms.
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relatively low. In addition to expanding their
holdings in_midyear as the result of offspring from
their own livestock, households in the private sector
supplement their holdings by purchases of young
stock from collective and state farms (for example,
pigs from the spring farrowing). Thus, if a complete
census of livestock holdings were taken during the
summer, private holdings of livestock expressed as
a share of total holdings would be considerably larger.
It is this difference in the composition of herds
belonging to the socialized and private sectors that
enables the private sector in agriculture to provide
such a large share of the meat supply -- nearly 40%
of the total.
8. Private activity in marketing is centered in
the system of so-called collective farm markets.
These markets are maintained and administered by the
local authorities in all towns, and anyone may sell
produce there. The produce sold in the collective
farm markets is generally of a relatively high
quality, and prices, which are largely determined
by supply and demand, are usually higher than the
fixed prices found in state stores. The collective
farm markets are important not only because they pro-
vide a supplemental source of cash income to sellers
but also because they represent an important source of
supply for urban residents. In 1968, although food
sales on these markets only accounted for 5% of total
retail sales of food, they played a significant role in
supplying the population with various items that are
in short supply in state stores -- perishable foods
such as eggs (20% of all retail sales), meat (10%),
and milk (10%). Even larger proportions of retail
sales of fruits and vegetables are sold on the
collective farm markets.
Housing
9. Like private agriculture, the building of homes
by individuals is ideologically unpalatable to the
Soviet leadership because it fosters habits of private
ownership and is often the basis of speculation. From
the point of view of planners, however, the willingness
of individuals to construct their own housing must be
very appealing; the planners would like to relieve
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the strain on state-owned resources by permitting
the building of private housing. From the point of
view of individuals, privately built housing provides
an opportunity to avoid the lengthy waiting periods
associated with access to new state-built housing and
provides a degree of privacy that is impossible to
obtain in state housing.*
10. A large but declining share of the total stock
of housing -- roughly 55% in 1968 -- is privately
owned. Most of this is located in rural areas, where
80% of the total stock is held by individuals. In
urban areas the share is about one-third. Moreover,
the proportion held by individuals is declining more
rapidly in urban areas as substantial numbers of old
privately built houses are slowly being replaced by
state-built housing.** In 1968, investment in pri-
vately built housing amounted to less than 16% of
total investment in housing. In terms of new housing
completions, the private sector in 1968 supplied about
one-third, or 33 million square meters, of all housing
built.
11. Most private housing is built in rural areas
or on the outskirts of smaller towns where there are
few competing needs for land, and the local governing
authorities are permitted to allocate plots for this
purpose. Privately built housing in both urban and
rural locales is characteristically of a crude type
of construction and of a simple, rectangular, single-
story design. The labor used in construction is un-
skilled, much of the materials used are more than
likely rejects from state building projects, and
utilities are generally lacking. This is particularly
* Land is national property, but the Soviet Con-
stitution provides that a citizen may build or buy
a dwelling for purposes of occupancy by himself and
his family. He is, however, expressly forbidden to
use or dispose of the dwelling for monetary gain.
** A number of regulations provide for monetary
compensation to the individual who loses his home this
way. He must also be provided with either new hous-
ing or a place to build a house.
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true in rural areas, where the same designs and
structure types prevail as in prerevolutionary
times.* Limits on size are specified; for single-
family residences, the size must not exceed 60 square
meters.** Nor can size exceed 60 square meters per
family if several families build a multiple-unit
dwelling. The sources of financing a new dwelling
typically include the joint use of private savings
and state loans.
12. Private activity in the services sector covers
a broad and nebulous range of occupations including
(a) professional services such as those of doctors,
dentists, music teachers, and language teachers; (b)
repair services such as repair of shoes, electrical
appliances, musical instruments, and housing; (c)
personal services such as barbering, hairdressing,
and sewing; and (d) handicrafts such as the making of
boots, gold working, and embroidery. In addition,
there is a "grey" area of activity that is without
specific sanction -- not lawful but apparently tolerated
as needed. Included in this area are such activities
as repair and maintenance of bicycles, motorcycles, and
automobiles; house painting; moving furniture; and
delivery of goods.
13. Privately supplied repair services are more
common in rural areas because of the virtual absence
of state-owned repair facilities. In urban areas
such services are gradually being supplied by large
service enterprises. Privately supplied professional
services, on the other hand, are more in demand in
areas of population and income concentration.
* Private housing being built today is described
as "just like grandfather's except that it has
electricity."
** A house this size is equivalent to about 645 square
feet, or a one-story building 20 by 32 feet. Given
an average family size of four, the per capita living
space involved would come to about 121 square feet, or
about 60% above the average per capita living space
for all urban residents.
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14. Lack of data permits only the crudest
estimate of the extent,',the number, and the value of
privately supplied services. But indirect evidence
suggests that this sector's overall economic import-
ance, in a quantitative sense, is negligible. The
importance of these services derives more from their
impact on levels of living and comfort. The private
sector is generally reputed to supply better quality
service than the large state-operated enterprises. -
Policy Trends, 1953 to the End of the Khrushchev
Era in 1964
Agriculture
15. An important element of the agrarian policy
of the immediate post-Stalin leadership was the
adoption of a more tolerant attitude toward private
farming.* In breaking with the repressive policies
of the past, the new regime reduced the money tax
and the forced delivery quotas of commodities levied
against the private plot, encouraged the household
acquisition of livestock by extending credits for
purchase of cows and by directing local authorities
to provide support through the sale of young stock
and feed from the socialized sector, and lowered
barriers to use of public lands for pasturage and
for the acquisition of hay.
16. As a result of these and other measures, sown
acreage in plots expanded by 5% and livestock hold-
ings increased by 21% from 1953 to 1956. In 1956,
total output -- aided by favorable growing conditions
exceeded 1953 by 13% (see Tables 2 and 3).
17. But this new permissive phase did not last
long. Although private output increased from 1956 to
* After the exceptionally good harvest in 1937 and
the major improvement in the collectivized livestock
sector in 1938, Stalin enacted various measures to
curtail private activity. Following a period of
relaxation during World War II, this repressive
attitude toward the private sector was resumed and
continued until his death in 1953.
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1958, several measures were adopted which suggested
another turning point in official attitudes toward
private agricultural activity:
(a) A March 1956 decree gave collective
farms the right to regulate the size of plots and
the number of livestock permitted a member according
to his participation in the work of the collective
farm. Furthermore, the collective farmer was
threatened with forfeiture of his plot if he failed
to work a minimum number of days on the collective
farm.
(b) An August 1956 decree prohibited the use
of food products purchased in state and cooperative
shops for feeding livestock. The expansion in in-
ventories of privately owned livestock after 1952 had
led to the increased use of relatively inexpensive
food products such as bread for feed.
(c) Also in August 1956 a decree was passed
which reinstituted a monetary tax and compulsory
delivery quotas of meat and milk on urban owners of
livestock. In addition, if the owner, or able-bodied
members of his family, were not employed in the
socialized sector, a 50% surcharge was levied on both
the tax and delivery quota.*
18. In retrospect, the striking success in in-
creasing farm output in the socialized sector between
1953 and 1958 must have led Khrushchev to base future
commitments on the assumption that output would con-
tinue to grow rapidly. Moreover, the record high in
Contravening these restrictive actions in part,
however, was a decree passed in July 1957 which
abolished the compulsory delivery quotas levied on
privately produced agricultural commodities. The
decree may have been politically motivated. Its
timing coincided with the ouster of the "anti-Party
group" and hence probably was an obvious Khrushchevian
ploy in the short run to curry public favor.
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farm output in the socialized sector in 1958 apparently
gave further impetus to an official policy of con-
straint on the private sector. By late 1958,
Khrushchev was euphoric, questioning the need for any
private activity in agriculture, and at the December
plenum he indicated that:
Now that state farms have grown
stronger, . the existence of large
private gardens and of privately owned
livestock has become a serious hin-
drance. . . . [The] able-bodied popu-
lation is obliged to engage in un-
profitable work on its private holdings.
Collective farmers',private plots have
been losing their importance. . . . [Soon]
collective farmers will relinquish their
private gardens of their own free will.
In an effort to restrict the number of,privately
owned livestock, provision was made for individuals
to sell their livestock to state and collective farms
at favorable prices.
19. This restrictive policy continued into the
early 1960's, when several republics passed decrees
forbidding private ownership of cattle in selected
urban areas. It was officially claimed that state
and collective farms were now capable of supplying
the urban population with animal products and that
livestock keeping,in urban areas diverted useful
labor from the socialized sector and was "insanitary."
20. Although official decisions. were not publicly
announced, a simultaneous reduction in the size of
herds and sown area held by private owners in both
urban and rural areas clearly indicated that de facto
restrictions were also being applied to peasant
households.* Overall output originating from
* Kosygin made a public admission, following the
overthrow of the Khrushchev regime in late 1964, that
previously unannounced restrictions on sale of feed-
stuffs to the private sector had been in effect since
1958.
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individual holdings fell by 2% between 1958 and
1964, reflecting a 15% drop in sown acreage and a
12/% decline in livestock holdings.
Housing
21. In contrast to the major achievement of the
post-Stalin leadership in bringing about a rapid
increase in farm output in both the socialized and
private sectors, and notwithstanding the severe
housing shortage, only modest increases in annual
completions of new housing in both the state and
private sectors were accomplished. The boost in
private housing completions was small in spite of
a strong demand by individuals for private housing,
a large backlog of personal savings, and the non-
utilization of bank funds set aside for loans to
builders of private houses. Apparently, the main
constraint was the failure of the planners in the
1953-56 period to significantly increase the availa-
bility of construction materials for. individual
builders above the earlier low levels.
22. But finally in 1956 and 1957 a campaign was
launched to "eliminate the housing shortage within
10 to 12 years." The first phase (1957-60) included
a key provision for a rapid increase in the annual
volume of new private housing. Measures taken to
encourage private builders included (a) provision of
a greatly increased supply of building materials,
such as brick and lumber, through retail outlets;
(b) instructions to city and other municipal organs
to provide building plots; and (c) pressure on
industrial ministries and other state organs to
assist their workers in acquiring blueprints and
drawings and to provide technical assistance in build-
ing, in transportation of materials, and in provision
of utilities and services.
23. As the result of this marked change in
official attitude, there was a surge in private build-
ing activity in the period 1957-60. By 1959, investment
in new private houses was double that of 1956, and
for the four-year period as a whole, the quantity of
housing constructed by individuals more than doubled
in comparison with the first four years of the post-
Stalin era (1953-56).
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24. But as in, the case of agriculture, in 1960 a
decision was made to actively discourage private
builders. The official attitude grew increasingly
antagonistic, and in the fall of 1960 the press
launched bitter attacks on private housing, claiming
that the development of "a private property psychology
[is] deeply hostile to socialism." Reflecting this new
attitude, a number of measures were adopted in the
early 1960's which, in turn, brought a series of
absolute annual declines in the volume of private
housing completions: (a) Loans for private builders
were terminated. (b) Local authorities refused to
take action on land applications or responded very
slowly.* (c) Many illegally built, privately owned
houses were confiscated. (d) Utilities,, such as
electricity, often were not supplied to the areas
where land had been authorized. (e) Availability of
building materials in retail outlets, decreased. (f)
In 1962 an all-union decree prohibited construction
of private houses in republic capitals. (g) Finally,
in 1964 the restrictive features of the 1962 decree
were extended to cover all cities with a population
of 100,000 or more. By 1964 the volume of completions
in the private sector was close to one-half that of
1959, and its annual share of total housing comple-
tions had fallen to 36%.
25. Unlike the fluctuating policies toward private
activity in agriculture and housing, official policy
toward the provision of services by the private sector
has been, for the most part, consistently repressive
since the 1920's. It severely limits the number of
activities that can be engaged in by individuals and
discourages participation by heavily taxing the in-
come so derived. Measures to maintain such a policy,
initiated in the late 1920's, codified in the 1936
Constitution, and subsequently modified slightly, are
still in effect. Among the measures to maintain
control are the following:
Since 1948, plots of land, ranging from 300 to
600.square meters, could .be leased by city soviets to
individuals in perpetuity. The individual was assessed
an annual property tax.
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(a) Prohibition -- many activities common to
Western countries, such as individual shops selling
food or consumer goods, are forbidden by law.
(b) Registration -- all persons supplying
legally permitted services individually must register
each year.
(c) Taxation -- all income received from sup-
plying services must be reported and is heavily taxed.
26. Compared with a maximum rate of 13% on income
earned in the socialized sector, tax rates applied
to income earned in the private sector range up to
81% on income exceeding 7,000 rubles per year. A
private doctor pays three times as much tax on
1,000 rubles as a wage and salary worker in a state-
operated enterprise; an independent artisan pays
four times as much.* A strong incentive to report all
such income is provided by the "parasite laws", which
subject individuals to severe punishment if they are
found to be living on unreported income. Pensioners
may supplement their pensions through supplying
privately produced services, but the income is subject
to tax. In addition, if such income exceeds a certain
level (determined by size of pension), the pension is
reduced correspondingly. For example, a pensioned
doctor choosing to continue the practice of medicine
on a private basis will have his state-paid pension
reduced if his earnings rise above the relatively low
level of 200 rubles per year.
27. Occasionally a new constraint is placed on
private activity in the services sector. In 1962,
for example, a ukase was promulgated by the RSFSR
Council of Ministers which specifically forbade regis-
tration of individuals to practice several previously
acceptable trades such as watch repair and hat making.
* A worker pays income tax of 13% on all income
exceeding 100 rubles per month, although the rate is
lower if he has more than three dependents. Income
of less than 60 rubles a month is tax free; from
60 to 100 rubles the rate is graduated from 7% to 13%.
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Invalids were exempted and could be registered by
local councils. Again, beginning in 1963 the Moscow
City Soviet prohibited certain handicraft activities
in the city such as gold and jewelry working and
repair of television sets and radios.
Policy Trends From the End of the Khrushchev Era
to the Present
Agriculture
Relaxation, 1965-66
28. Almost immediately after the political demise
of Khrushchev in October 1964, there was a marked
improvement in the climate for private farming activity.
In late October the Party Central Committee ordered
the various republics to prepare new directives that
would in effect relax restrictions enacted under
Khrushchev. And before the end of the year, both
Brezhnev and Kosygin, in statements reminiscent of
those of Malenkov and Khrushchev in 1953, emphasized
the shift. In November 1964, in his first major
address, Brezhnev said:
It would be incorrect to ignore the
opportunities for private farming by
collective farm members, workers, and
employees as a means of satisfying their
own requirements. In recent years, unjusti-
fied restrictions were committed in this
field although economic conditions had not
yet matured enough for such a step. Those
restrictions have now been removed.
29. In December 1964, Kosygin gave a few ad-
ditional details in his discussion of the economic
plan for 1965. Provided the number was kept within
decreed limits,* privately owned livestock would no
longer be subject to taxation. In addition, re-
strictions on the sale of feed and fodder for
* Presumably the limits authorized in the 1935
collective farm charter as modified by the 1956
decree.
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privately owned livestock, in effect since 1958,*
would be removed. Decrees promptly followed which
(a) restored the right of livestock possession to
citizens living in towns and urban settlements, (b)
permitted collective farm members to increase plot
size to that specified in the 1935 charter, (c)
called for local authorities to encourage livestock
holdings through sales of feed and fodder and through
loans for livestock purchase, and (d) required that
"baseless confiscation" of plots stop.
30. Khrushchev's successors, like Stalin's
successors in 1953, were confronted with near stag-
nation of overall agricultural production in the
face of steadily rising demand for farm products.
And as in the past, the new leadership turned to
the private sector to meet initial goals for a
rapid advance in output of selected farm products.
In 1965 -- the first year in which the more lenient
policy was operative -- there was a spurt of 13/%
in private livestock holdings. By 1966, total
acreage and livestock holdings in the private sector
were 7/% and 15%, respectively, above 1964; output
was up 7%.
Ambivalence, 1967-69
31. The frequent and encouraging mention of the
private sector in public utterances of various leaders
and in the press during the period 1965-66 was
followed by silence during 1967. Apparently the marked
improvement in the performance of the socialized
sector of agriculture in 1966 dampened the new regime's
initial enthusiasm for encouraging production in the
private sector. The attainment of record levels of
production boosted overall farm output to 14/% above
the average level attained in the three-year period
1963-65, with a notable 18/% boost in output in the
socialized sector contributing roughly 70% of the
total gain. And, as in the years that immediately
* Although there were some restrictions on sales
of grain and fodder to the population in 1956, sales
to individuals were apparently not completely
stopped until 1958.
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followed the striking success in increasing farm
output.in the socialized sector during 1956-58,
the regime apparently was led to base output plans
on the assumption that the rate of growth of output
from the collective and state farms would continue.
32. In any case, the forward momentum achieved
in 1965-66 in expanding the resource base and production
in the private sector was not maintained in 1967-68.
Although output in the private sector in both years
was slightly above the 1966 level, total sown acreage
in private plots leveled off and, more ominously,
there was a marked downturn in the size of privately
held herds. By the end of 1968, livestock holdings
in the private sector were 9% below the level at the
end of 19 6 6 .
33. But unlike the period 1959-64, when an
erosion in the overall size of the private sector was
signaled by a series of repressive decrees and policy
statements, the stagnation in output and downturn
in livestock holdings in 1968-69 does not appear to
have been the consequence of a conscious policy on
the part of the leadership to suppress private agri-
cultural activity. Rather, the worsening environment
appears to have been due, in part, to indirect --
and possibly unforeseen -- effects of official policies
toward farms in the socialized sector and, in part,
to the proclivities of local rai-on leaders and
managers of collective and state farms. Official
policies with respect to the socialized sector that
may have had detrimental side effects on private
holdings include (a) "specialization" of livestock
production in the socialized sector and (b) an
acceleration in the long-run trend to monetize
collective farmers' earnings from work in the
socialized sector of collective farms.
34. With respect to specialization of livestock
production, the central planning organs directed
collective and state farms with relatively small
holdings of hogs and sheep to abandon such production
altogether. The enforcement of this policy resulted
in a drop of one-fourth in the number of collective
and state farms with any holdings of hogs, sheep, or
goats. This, in turn, resulted in a major reduction
in the source of supply of young stock for households
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35. The step-up in monetization of peasant incomes
by a rapid shift to cash remuneration in place of in-
kind payments of grain also tended to discourage the
private raising of livestock. The depressing effect
of monetization in large measure resulted from the
decline of in-kind payments, which was not offset by
increased sales of grain by collective farms to their
members. As a result, the total amount of grain issued
or sold to collective farm members in 1967 was 28% below
the 1966 level.**
36. Finally, in the absence of specific directives
from the center to permit or encourage private farming
activity, there probably is a tendency for local
authorities to act restrictively. Local Party
officials and collective and state farm managers have
simple success criteria imposed from above -- fulfill
and overfulfill the output and procurement goals set
for the socialized sector. In this context, there
is a natural, if tacit, community of interest between
local Party and farm officials to encourage an in-
crease in the share of labor expended in socialized
agricultural activity, even at the expense of private
production. Indeed, Politburo member and Ukrainian
Party Chief Shelest complained in a recent speech
that the trend toward monetization of peasant incomes
led to suppressive tactics at the local level:
Some short-sighted leaders, intro-
ducing . . . pay by money, "forgot" about
providing livestock of collective farm
members with feed. This led to a decline
in number of livestock and poultry in pri-
vate holdings . . . in a number of oblasts.
Traditionally, many households rely solely on
the collective or state farm to which they are attached
as the source of the "annual pig" -- that is, purchase
by a household of a piglet from the spring farrowing.
The piglet is raised on the private plot, reaching
slaughter weight by October or November of the same
year.
*A This precipitous decline was also due in part to
a drop in grain output in 1967.
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37. Other recent evidence, however, strongly
suggests that the indifference, if not antagonism,
displayed by the leadership and central organs toward
private activity after 1966 may have been replaced
in the latter half of 1969 by an active policy of
encouragement. Two years of stagnation in total
output of meat and other livestock products (1968-69),
coupled with rising consumer demand, may once again
(as in 1953 and 1965) have resulted in an obvious
need to expand the private sector. Statements by Party
leaders have called on local organs as follows:
(a) To accelerate the sale of young pigs for
raising by households.
(b) To expand sales of grain and other feedstuffs
to the private sector. In 1970, for example, some
50% more grain than in 1969 is scheduled for sale.to
individual owners of livestock in the important pork-
producing republic of Belorussia.
(c) To stem if not reverse the trend toward
monetizing peasant income by encouraging households
to accept grain as in-kind payments for work in
collective farms. Toward this end, farms have been_
directed to evaluate in-kind payments (to be deducted
from gross earnings) using prices paid to farms by
state procurement organs instead of using the much
higher retail prices.
(d) To reverse the policy of specialization on
collective and state farms. This will enable these
enterprises to maintain a flow of young stock to
individual collective farmers or state farm workers.
38. In support of these new initiatives, the center
has ordered local Party organizations to check on
their implementation. Although it is too early to
judge the efficacy of the recent measures in promoting
a sizable expansion of the private sector, there is at
least one positive indicator that the new initiatives
will reverse the downward trend. Even though there
was a further drop of 5% in overall value of private
livestock holdings in 1969, hog numbers, after three years
of continual declines, increased by more than 10%.
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Housing
39. Early in 1965 a shift in emphasis, if not in
policy, toward individual house building was dis-
cernible, although the restrictive decrees of 1962
and 1964 were not rescinded. In contrast to the de-
lays characteristic of the period 1960-64, local
authorities promised quick action on applications for
land, supplies of building materials were advertised
for sale to the public, and state enterprises made
building loans available to employees.
40. In retrospect the above actions seem to have
been aimed at halting the decline rather than expanding
construction of private housing. After a decline of
45% between 1959 and 1964, investment by individual
home builders in 1965 and 1966 remained at the 1964
level. In this period, the supply of building materials,
not financing, seems to have been the main constraint
to a turn upward in private housing completions. In
one town less than 10% of the funds set aside for
loans were drawn on:
Last year there were 35 homebuilders;
now there are only two. . . . It's too hard;
one time there is no roofing, another no
bricks . . . people have more money to spend.
They prefer not to take out loans but to make
substantial down payments for cooperative
apartments in order not to burden themselves
with concerns of building.
41. But for reasons that are not entirely clear,
the climate again turned for the worse after 1966.
Through 1966-68, press accounts continued to claim
that it would be wrong to ignore private savings and
the citizen's desire to build his own house. An
attempt was officially made to resolve the conflict
between ideology and practical necessity with semantics,
claiming that houses are not private but personal
property, a form legally recognized by socialist
society. In 1968 the deputy chief of the Gosplan
housing division stated that reserves for housing con-
struction were vast and that Soviet housing "successes"
could be even greater if individuals were encouraged
to build houses. Despite semantic and bureaucratic
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reassurances, the construction of private housing
has consistently slipped and by 1968 was nearly
one-tenth below 1966. Although the downturn in
individual home building may possibly be a reflection
of deliberate restrictive policies, it is more likely
the outcome of an increasingly stringent problem in
providing building materials for the country as a
.whole. In the face of continued expansion in con-
struction activity in the socialized sector, the
overall output of cement, brick, and other construc-
tion materials has slipped from an average annual
growth rate of 9% in 1965-67 to an average of 3z%
in 1968-69.
Services
42. As the economy grows, there is a more than
proportionate increase in the demand for services
of all kinds. During 1965-66 the inadequate pro-
vision of services by state organizations was discussed
publicly, along with suggestions that some of the
services then forbidden to individual practice be
legalized. As one author put it:
Private services don't grow in the
market, they grow in the area where there
should be a market. . . . It is uneco-
nomical to ignore this energy. Let them
work. They don't have to be dangerous to
socialism. The danger exists in that it
goes on outside "accounting"; it is not
controlled.
Some suggested services were: to provide distinctive
souvenirs, to cook and sell food, to sell flowers
in nonmarket areas, and, of even more importance, to
repair automobiles:
tens of thousands of automobile tourists
stop [along the Black Sea). The
garage with repair facilities in Yalta
is 60 to 80 or even 100 kilometers
away. . . . Where are you Gavrilich?
And there he is. He hides behind the
bushes and waves his wrench until the
militia pounce on him. He pays no taxes
and sticks you for triple the price,
explaining this is not unreasonable
given the risks he takes.
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43. However, despite the less restrictive policies
of the new regime toward private activity in agri-
culture and housing in 1965-66 and despite the more
permissive attitude toward publicizing proposals for
expanding the types and scope of service activities
provided by the private sector, there was little
discernible expansion in the volume and kinds of
individually provided services throughout the period
1965-69.
Conclusions
44. Private activity continues to play an
important role in the Soviet economy despite official
policies that have been generally repressive and have
steadily reduced the private sector's share in the
output of goods and services. The proportion of GNP
attributed to private activity has fallen from about
one-fifth in 1950 to one-tenth at present. In
agriculture -- the traditional problem area of the
economy -- the decline in the share of output
attributable to private activity has been less pre-
cipitous over the same span of time -- from 48% to 31%.
Similarly, the maintenance of a relatively high level
of activity in the construction of privately built
housing resulted in a relatively small decline in the
proportion of total stock of housing owned by
individuals -- from 70% to 55%.
45. Long-run official policy toward private
activity can only be characterized as one of pervasive
antagonism and repression. Common to the Stalin and
post-Stalin regimes, this policy is rooted in the
ideological underpinnings of communism and in the
optimistic assumption that all citizens will sooner
or later voluntarily surrender their rights to private
activity as the supply of goods and services from
the socialized sector is increased. However, each
succeeding regime has shown that this long-run re-
strictive policy is tactically flexible in the short
run. The regimes have differed mainly in the degree
of relaxation they are willing to permit.
46. This short-run flexibility is most dramatically
demonstrated in the policies, both official and un-
stated, toward private activity in agriculture.
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Turning points in policy, reflected by relatively
sharp increases and decreases in production, are
reasonably prominent and appear. to be closely related
to progress, or lack of progress, in the socialized
sector. After a period of relatively rapid growth,
or even following a year.of exceptional performance
by the collective and state farms, restrictions tend
to be imposed. on the private sector: strictures are
placed on the size of private plots and the number
of livestock permitted, taxes are increased, con-
fiscations occur, less feed is made available to
individuals, and the number of days a collective
farm member is required to work in the socialized
sector is increased.
47. Several or all of these restrictive policies
were in evidence after the record harvest in 1937
during, Stalin's reign, following a. period of in-
creased. production in the late 1950's in the Khrushchev
era, and, more recently, after the record harvest of
1966 during the Brezhnev-Kosygin regime. When,
however, socialized production stagnates and food
supplies are unusually limited (as in the periods
immediately after the demise of the Stalin and
Khrushchev regimes), the restrictions on private
activity in agriculture tend to be relaxed. Several
or all of the following measures are then used to
spur output in the private sector: increased
supplies of livestock and feed are made available to
individuals, taxes are reduced or eliminated, barriers
to the use of public lands are lowered, and citizens
living in towns and urban settlements are allowed to
livestock. The effect of these fluctuations in
policy can be most graphically illustrated with
reference to changes over time in the total inventory
of livestock held by private owners (see Figure 3).
48. In late 1969 there were signs that once again
a turning point in official policy might be at hand.
During 1967-68 the leadership's apparently indifferent
attitude toward private activity in agriculture --
probably the result of euphoria induced by the sub-
stantial harvests of 1966 and 1967 -- encouraged
local authorities to pursue a more restrictive policy
toward private activity. These measures, combined
with the side effects of official policies directed
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USSR: Changes in Private Herds Related
to Official Policy, 1950-69
Index of Value of Livestock
in Privately Owned Herds
(1950= 100)
Supression Permissiveness Repression During
at Close Under the Khrushchev's
of Stalin New Regime "Euphoric" Period
Era
1& 10
I& I& 1W
qW 1W we
801 1 1 1 1 1 1 1 1 1 1 1
1950 1955 1960
End of Each Year
mW Indifference
of Regime and
Restraints Hostility of
Relaxed by Local Officials
Brezhnev- Following Good
Kosygin Performance
Regime of Socialized
Sector
1965
Possible
Turning
Point
1970?
J
1970
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at the socialized sector, led to a decline in live-
stock holdings and a standstill in overall output of
both crops and livestock products in the private sector.
During 1968-69, moreover, there was stagnation in output
of meat and other livestock products in the socialized
sector. This stagnation came at a time of particularly
rapid rise in consumer demand for high-quality food-
stuffs, especially animal products.
49. In consequence, there now seems to be a willing-
ness to encourage the private sector, at least in the
production of livestock products. Recent evidence
strongly suggests that the indifference, if not
antagonism, displayed by the leadership and central
organs toward private activity after 1966 was replaced
in the latter half of 1969 by an active policy of
encouragement. Once again (as in 1953 and 1965), ex-
hortations to aid the households in maintaining or
expanding their holdings of livestock are included in
public utterances of the leadership.
50. In support of the new initiatives, the center
ordered local Party organizations to check on their
implementation. Although it is too early to judge
the efficacy of the recent measures designed to boost
output or the sincerity of the regime in promoting
a sizable expansion of the private sector, there is
at least one positive indicator that the new initia-
tives will reverse the downward trend in private out-
put. Even though there was a further drop of 5% in
overall value of private livestock holdings in 1969,
hog numbers after three years of continual declines
increased by more than 10%.
51. The ideological underpinnings of communism
also have dictated the long-run strategy regarding
privately owned housing. This strategy, however,
seems less flexible in the short run than the policies
applied to private activity in agriculture. Although
periods of expansion and restriction have occurred in
private housing, the efforts of the Brezhnev-Kosygin
regime seem to be aimed at maintaining, not expanding,
the level of privately built housing. It is doubtful
that the leadership will resort to an expansion of
individual house building in spite of great pressure
on the supply of housing. Individually built housing
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can help to ease housing pressures in smaller urban
areas and in rural areas, but it is not a reasonable
solution to the overall shortage. The heaviest pressure
on the housing supply is in urban areas, where the
limited availability of land and the high cost of pro-
viding public utilities have already ruled out further
private building..
52. Short-run policies are even less flexible
concerning the provision of services by individuals.
The removal of the present restrictions on privately
supplied services is not likely; complete elimination
of these services, including the presently tolerated
"grey" area, would require a sharp increase in the
provision of comparable services by the state., If
this is not possible (and history indicates that it
is highly unlikely), then privately supplied services
must be permitted. Another reason why complete.
elimination of these services seems unlikely is the
increased demand for them stimulated by the high
level of savings.
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USSR: Indexes of Private Production
in Agriculture and Housing
Year Private Agriculture a~ Private Housing b/-
1950
100.0
100.0
1951
84.6
92.6
1952
95.1
93.0
1953
103.0
91.3
1954
104.9
101.7
1955
104.4
123.0
1956
116.3
124.3
1957
113.2'
172.2
1958
118.4
208.7
1959
111.6
234.3
1960
112.4
233.9
1961
118.8
200.4
1962
114.9
174.8
1963
110.8
155.2
1964
116.5
147.0
1965
122.5
149.6
1966
124.4
157.4
1967
126.3
155.7
1968
127.8
142.6
1969
122.3
135.2
a. Value of output, net of intra-agricultura
use of crops for feeding livestock and for
seeding crops.
b. Completions of new housing.
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USSR: Indexes of Private Holdings
of Livestock and Acreage
Year
Private Lives ock
Holdings
Acreage in b~
Private Plots
1950
100.0
100.0
1951
94.7
N.A.
1952
91.0
N.A.
1953
108.8
73.9
1954
116.0
N.A.
1955
125.7
79.1
1956
131.2
77.9
1957
129.6
77.9
1958
131.3
78.4
1959
115.6
77.2
1960
111.8
71.9
1961
118.4
71.9
1962
118.2
71.8
1963
110.1
71.6
1964
115.2
66.8
1965
130.9
70.4
1966
132.7
71.8
1967
125.3
72.2
1968
120.9
72.2
1969
114.9
N.A.
a. Based on the value of herds in the private
sector as of the end of each year.
b. Sown acreage directly under the control of
private owners.
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Methodology
The relative share of economic activity in the
Soviet Union that is accounted for by the private
sector can be expressed in several ways. The choice
of a measure will depend upon the purpose at hand.
For an appraisal of the contribution of the private
sector to the total productive activity of the
economy, the appropriate measure is GNP at factor
cost originating in the private sector. This is
equal to total value added (that is, a summation of
the additional values imparted to goods and services
at each stage of production) by the contributions of
privately held capital and land and privately pro-
vided labor. In this context, the share of GNP
attributable to the private sector (see Figure 1
and accompanying text) is the combined value of
these contributions expressed as a percentage of
the total value added by all factors of production
(socialized and private).
A different concept of measurement is used to
identify the private sector's share of the final
output of agricultural products, housing completions,
or provision of services, as shown in Figure 1.
Here, gross measures of output are used. For ex-
ample, when the object is to depict the private
sector's share of agricultural output, it is appro-
priate to compare the summation of the value of the
output (grain, meat, vegetables, and so on) produced
in the private sector with the value of all agricul-
tural output. Similarly, gross measures are used
to gauge the relative shares of the output of
housing and of services that are accounted for by
private activity. The Gross measure then is useful
in answering a question such as, "What is the share
of the country's total meat output produced by the
private sector?"
With respect to the resources embodied in the
final product, however, the gross measure does not
distinguish between the share that originated in
the agricultural sector and the share that originated
in other sectors of the economy. For this reason,
the gross measures are not appropriate for describing
the relative importance of private activity to the
output of the economy as a whole. Here we must be
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concerned with the share of private activity in the
intermediate stages of production as well,as in the
final stage. As noted above, the value-added concept
used in the derivation of the GNP provides such a
measure. To base a comparison of the aggregate out-
put of the private sector with that of the socialized
sector on gross measures would involve double counting
of goods and services and would distort the relative
share of private activity in the overall contribution
of labor, capital, and land to final output. For
example., in the case of agriculture the value of in-
termediate goods and services (such as fertilizer,
fuels, and lubricants). purchased from other sectors
of the economy is not excluded as-it would be in a
value-added measure.
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