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.
As any sane economist will tell you, small businesses are much more important to a nation's economy than big businesses. In the United States, small businesses account for over two thirds of our economic activity. In still-repressive Romanina, 100,000 small businesses have started since privatization and market reform began in early 1990.
Russia and Chile are thus depriving their lower classes a freedom essential to their own well-being and the well-being of their nations' economies as a whole. While Chile's corporatist capitalism allowed a flood of consumers goods to enter the country, putting all its eggs in the big business basket made Chile extremely vulnerable to the recession of the early 1980s.
Russia seems to be taking a similar corporatist tack in its free market reforms. As it ignores the needs of small businesses and entrepeneurs, the government is concentrating on converting large military industries to consumer production. Like Chile, Russia will ultimately find this corporatist strategy increases the wealth of its citizens only marginally. The most wealthy members of society will benefit, and some industrial workers will retain their jobs. But the economy as a whole will gain little if the entrepeneurial base remains marginalized.
TO CALL CHILE and Russia "capitalist" or "free market" in their reforms ignores the market that really matters. If Russia wants to emulate the economic successes of the United States (or even of Rumania) it should move away from the Chilean corporatist model. The free market, to function well, must be free for all, not just for a select few big businesses chosen at random by bribed bureaucrats.
If Boris Yeltsin recognizes this essential fact of capitalism, his country will begin the real move to a market so desperately needed by the Russian people. Maltsev recommends that Russia simply legalize the black market, making it the white market. If Yeltsin fails to smash such bureaucracies as the OBKhSS and legalize the black market, he will condemn his people to decades more of poverty and discontent.
Need a Rolex? A necklace? A clean windshield? Just call Crimson staff writer Liam T.A. Ford'92.