SCENE: A Moscow street.
Fruit vendors sell ripe pears and grapes to grateful Moscovites out of the back of trucks and cars. Suddenly, police officers appear from the Office of the Division for the Struggle Against the Theft of Socialist Property (OBKhSS). The vendors are arrested for selling state property. Their goods are confiscated.
Scene: A boulevard in Santiago, Chile.
Near a cluster of market stalls, vendors lay out their wares on blankets. The air fills with the sound of vendors whistling. Sunglasses, umbrellas, posters and Teenage Mutant Ninja Turtle dolls are hurriedly scooped into the blankets. The side walks empty as the vendors pack up and run enmasse from the pacoa, the military police, who are attempting to round up these unlicensed entrepeneurs or pololos.
BOTH CHILE and the Russian Republic (as well the Moscow City Council and the entire Soviet Union) have been hailed in the popular press as attempting "free market reforms."
Chile's foray into "capitalism" on the neo-liberal model began in 1973, when the democratically-elected left-wing government of Salvador Allende fell at the hand of a supposedly pro-free-market junta. The Soviet Union began its "market reforms" under Gorbachev in the mid-1980s. In the late 1980s, Boris Yeltsin and the mayor of Moscow supposedly endorsed and put into motion more radically free-market reforms.
But the extent to which a real free market exists in Chile and Russia becomes apparent when one looks beyond the free market rhetoric to the giant role of the "black market" or "informal sector" in these two nations' economies.
The informal sector in Chile includes occasional services such as cleaning cars, shining shoes, working as domestic servants and acting as street vendors. In Santi-ago, approximately 30 percent of workers were employed in the informal sector in 1989. In 1982, 37 percent of those entering the workforce found employment in the informal sector.
Yet the government does not recognize these activities as legitimate and especially harasses street vendors. It has long been illegal to sell goods informally. This year a new law made it illegal to buy goods from non-licensed vendors.
On the other hand, Yuri Maltsev, a former economic advisor to Gorbachev and now a fellow of the Ludwig von Mises Institute, estimates that at least 40 percent of the Soviet economy operates in the informal sector.
TO MAKE MATTERS WORSE, members of the OBKhSS and the pacos supplement their incomes through bribes they extort from the entrepeneurs, they harass, not to mention skim free goods off the top of those that they confiscate.
A segment of the Monitor Channel's ongoing Homeland series on Russia recently demonstrated that the OBKhSS is one of the most corrupt state agencies in Russia.
An interview with a member of the OBKhSS showed him with his family in a beautiful Moscow apartment, decrying the terrible "profiteers" he has to bust every day. (Who would otherwise make about 100 rubles a month, enough to buy about 50 pounds of potatoes.) Nobody except government officials who can afford to bribe other government officials with money they've gotten from bribes of their own can afford to live in such apartments.
Such corruption may be terrible, but the abuse of private property which occurs when large segments of the economy are forced underground by mindless laws against entrepreneurship is the real scandal. Those working in the informal sector in Chile and Russia are aften the poorest of the poor.
And the abuses of the market that occur in Santiago and Moscow burt the wealth of the economy as a whole. Faced with uncertainty and the danger of having their capital stock seized at any time and their earnings thus wiped out, those in the informal sector often are unable to build up the capital necessary to actually start a real, formal small business.