When Gorbachev launched perestroika (Gorbachev's policy of social, economic and political restructuring), the above mentioned "shadow" sector of society actually got amnesty and hence were offered a kind of "legitimacy," Khokhriakov writes on page 13. During the first part of perestroika, the Soviets developed cooperatives, which "only strengthened the destructive model of the 'shadow' market economy, Khokhriakov explains on page 14. But the Soviets' transition was short of capital so because they needed loans, they turned to the West (in particular, the U.S., which was thrilled of course to witness the demise of communism). Instead of cash, the West provided the Soviets with goods, and right away Soviet merchants knew how to "dispose" of the goods; many new cooperatives sprang up and sold goods "at market prices" and that "shadow" sector became quite "lively" (Khokhriakov, 14).
The "new hero" came from "the underground," Khokhriakov reports; the biggest portion of the Russian intelligentsia tended to see the shadow as "…a forerunner and failed to take not of the techniques he had brought out of hiding." Banks sprang up like weeds, and "credits obtained through fraud exceeded by one thousand times or more the economic potential of banks," Khokhriakov continued (20). This of course was an open door for crime, and organized crime (the ubiquitous "shadow" market people) jumped right in; in fact the amount of stolen credit and money in 1992-94 "totaled about three trillion rubles" and the prosecutor-general at the time reported "thirteen thousand crimes in the banking community" in 1995-96 (Khokhriakov, 20).
What happened with some of the goods produced in Russia was not fair to peasants. They went to big city markets and tried to sell "their own products" but they were forced to give them to "the resellers, who dictated pricing" (Khokhriakov, 21). Those shuttle traders that took the products away from the peasants then "fell under the influence of the 'shadow' sector and its brand of 'justice'"…and the racket became a common situation while in the meantime organized crime established "monopoly prices" (Khokhriakov, 21).
Trade that was controlled by organized crime fueled inflation and inflation forced the banks to raise interest rates on their loans. In this way, the shadow market folks became those involved in organized crime and indeed, "the world of organized crime was expanding steadily" and society was "rapidly becoming corrupted" (Khokhriakov, 22). Granted, this article is ten years old, but the author asserts that the "whole economy" of the Russian Federation has "gone into the shadows" and a great deal of income is "concealed from taxation"; to wit, an estimated $1-2 billion is taken out of Russia "every month" (Khokhriakov, 27).
The bottom line in terms of organized crime is that "a huge number of citizens who are involved in trade and services are acting as witting or unwitting handmaidens of organized crime" (Khokhriakov, 27).
All of this information about how the shadowy individuals profited enormously when perestroika became part of official policy does not necessarily explain the influence of organized crime in terms the political transition from communism to a market economy. Certainly the influence of organized crime did penetrate the political structure, but it would seem that organized crime had enormous influence over the economic structure of Russia. Organized crime took advantage of every slipshod new policy that was introduced while the country was in the midst of the flux from one embedded system into a new, more capitalistic structure.
Meanwhile professor Steven Barkan (University of Maine) goes a little deeper into Soviet history to explain the emergence of organized crime. The Russian Revolution of 1917 offered glowing promises of "a workers' paradise" but in fact what the people got was a "dictatorship" founded by elitists in the Communist Party (Barkan, 2011, p. 110). During the revolution, Barkan explains, everyday services were very hard to come by. And again in 1941, when the Nazis invaded the Soviet Union, there was a terrible shortage of food and services. And after the brutal bloody second world war, the Soviets engaged in a massive expenditure of resources to "gain military superiority over the United States and its allies" (Barkan, 110).
Because of the amount of spending that went into the production of military hardware, the Soviet Union "…drastically cut back on the production of everything from food and clothing to automobiles and apartments" (Barkan, 110). Hence, a black market emerged, Barkan writes, that profited from stolen and illegally imported or smuggled goods; some of the stolen goods were ripped off from the government, Barkan continues. It is part of economic history and logic that when a government cuts back on products or services that the citizens truly need, criminals step in to fill that gap. That's what happened in the Soviet Union prior to perestroika, according to Barkan (110).
Given that the Cold War was the stimulus for the huge outlay of federal funds for weapons, it made the situation "ripe for wide-scale corruption as well as organized crime activity," Barkan continues (110). It would appear according to this book that the period prior to the fall of communism and the breakup of the old Soviet Union "…became the training and breeding ground for the development of syndicated crime in contemporary Russia" (Barkan, 110).
In 1990, for example, there were an estimated 775 groups of organized criminals, but by the end of 1994, Barkan asserts, there were as many as 5,700 organized crime groups (110). Then president Boris Yeltsin acknowledged in 1994 that his country "…was the biggest mafia in the world…the superpower of crime that is devouring the state from top to bottom" (Barkan, 110).
By the mid-1990s, Barkan continues, organized crime groups in Russia controlled "as much as 40%" of the economy of the nation; the way in which they were able to have such enormous influence is by forcing businesses to pay up to "…60% of their pretax revenue to criminal gangs for protection" (110). Incredibly, by 2000, Barkan asserts, up to 50% of the entire Russian economy was linked to organized crime groups. How did organized crime come to have such enormous power in Russia?
There are three reasons offered by Barkan (which he got from Cameron Hall, 1997): a) the sudden collapse of the communist control over the legislative, executive and judicial components of the country meant that those forces that had in previous years managed to keep organized crime groups somewhat in check were not there anymore; in other words, there was a "power vacuum" and organized crime was quick to fill that vacuum; b) the very fact that the economy quickly transitioned from a socialist to a capitalist system "opened a wide range of previously nonexistent criminal opportunities"; and c) there was no real set of laws dealing with property or the changing economy and this allowed corruption to flourish (Barkan, 110).
An article in the Journal of Contemporary Criminal Justice (Albini, et al., 1995, p. 225) fairly closely follows the path that Barkan took when explaining how the heavy expenditure of arms and other military needs in the Cold War created shortages in goods and services. Soviet citizens "…at all levels began to create their own manner of obtaining the goods and services which often constituted the basic necessities of life," or at least those things that make life not as difficult (Albini, 225).
According to Russian dissident Lev Timofeyev, "…no violence or brainwashing, however intensive, could make man forego the basic relations of supply and demand," and hence the stealing of supplies during the Cold War was very common and understandable, and it opened the door to crime, which in turn opened another door later for the organized crime groups to flourish (Albini, 225). The authors make the point that there really weren't many syndicated crime groups during the Cold War; in fact so many government officials were stealing goods from the state and trading or selling these goods and services, "…it is ludicrous to argue that criminal syndicates were established" (226).
So it wasn't a matter of organized crime groups causing the breakup of the Soviet Union, but rather it was after the breakup of the communist system -- since the crime waves that had gone before in terms of people stealing from the government provided the "breeding and training grounds" for corruption -- that Russia and its republics were "a ripe market for the development of an international market of criminal ventures" (Albini, 226).
Albini also uses the phrase "shadow market" (which he calls the "black market") to explain how organized crime emerged; indeed all goods and services were once owned by the state, and in changing the system to individual entrepreneurs from communism the door was opened to "illegal types of economic activities" (229). And once the door opened, and criminals realized there was great profit in the new market, they got organized and dove in.
Stephen Mallory argues that it is perfectly logical for gangs began to exist (organized crime gangs) right after the breakup of the…