Created: 11/1/1991

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Winners and Losers: Increasing Social Stratification in the Former Soviet Union

Am iHlelligtnce Aistttment




Winners and Losers: Increasing Social Stratification in the Former Soviet Union

An Intelligence Assessmenl


Wiruiers and Loserc Increasing Social Stratification In Ibe Former Soviet Union

Economic policies introduced under the banner of peretlroyka resultedeneral slide In Soviet living standaidirowing inequality between scckiceonomic groups. In tbe pre-Gorbachev era tbe privileges of the elite bad been largely bidden and income differences within tbe rest of society had been held down by state-set wages. Glasnoii increased publicof social differences, even asconomic policies increased the gap between the rich nnd the poor,

Government measures introduced in the months before the coup to mitigate these drcurnslances were largely ineffectual. The lowest incomeelderly, single mothers, and couples with more than twoit increasingly difficult to find and pay for basic neccssi-ties, MiddlrMncome groups^ncompasslng the traditionally favored blue-collar workers, professionals, and worken in the serviceto maintain their accustomed standard of living. Both groups have watched with dismay the growing economic poweridely condemned nouveau riche;

lo some Soviei estimates, before the coup morehird of the populace lived in poverty, and (he high inflation this year coulduch wider segment into this category. Government can no longerinimum standard of living and traditional social benefits such as free health care, job security, low-cost liousing. and low. stable prices,

Tbe middle class finds its ruble earnings steadily losing value. Low-priority industries offer meager pay. poor working conditions, and few arnenilics. and even workers in high-priority heavy industries such as machine building and defense claim their lot has wtsiserreej,

did provide some the opportunity lo becornc wealthy; the severe imbalance between supply aod demand in the consumer sector has made ccwperalivc enterprises, as well as bsack-rrtarket activity, more lucrative than ever. At the same time, weak law enforcement and greater access to foreign travel and hard currency have increased rjpportunitics for acquiring wealth.




Income dlfferericea anrang the republics have increased because of ptrestroyka'i unequal impact ongroups. The Caucasus aad Central Asian re publics, with Urge rural aad youthful popuUfjoeis. slipped even further behind other republics in terms of living lUndards. The income gap within republics has also widened, with the soulbern republics registeringmuch higher degree of inequality than their Slavic and Baltic counterparts.

The economic disarray left in the wake of the coup will rnagnify these irertds In the short term. Republic economies will undergo severewith the accelerated introduction of market reforms, growingbarriers to trade, and localized disruptions from continued ethnic strife. Intuit ion 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 toeterioration in living standardsarge segment of tbe popu'a tiun. particularly lower- and mid die-income groups. Moreover, the implemenlalioo of reforms to cut costs and stimulate com petition will not only significantly reduce the social services! that enterprises have traditionally provided to workers, but will also lead to large-scale layolTs and the problem of furiding unemployment benefils. Cotaditions for the entrepreneurialo the other hand, are likely to improve to the Baltic states, Russia, god probably atew other republics as bureaucratic barriers to entrepreneurial activity are removed.

Irrcreasing social stratification will contribute to greater social andinstability. particularly at the number of homeless and unemployedoreover, theingering egalitarian ethic and desire to avoid tbe social costs of crranemic reform will greatly complicateefforts to stabilize and radically reform the economy Trade unions and other groups, for example, are likelv to oppose measures that wouldjob security and Increase prices.

Nonetheless while social stratification it likely to increase in the near term, prospects for economic reform over the long term have greatly improved, and reformers hope that the institutionarket economy will eventually change the equation of winners and loseri, Under the best of conditions, the black market would give way to more legitimate forms of

entrcfirertcarshjp Those with energy and initiative would be rewardedigher standard of living,tronger ecrjnomy woaid provide Use meanspport 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 terras of trade between urban workers and rural farms would shift dramatically. Before accomplishingrartsfoTrnatioa. however, the republics willong and difficult transitiooal pc riod in which they will have to change the attitudes and work ethic of the population and ovejcotrtc the corruption that hats bexxene pervasive. '



Winnerssers: Increasing Social Stratiflcalion In ihe Former Soviet Union

Loac Wore tbe abortive August putsch, mini social inequality badocal point for criticism ofcDoocnic refcrrrts from traditionalists, trade unions, and ethers. Pewtroyka producedand losers, provokini iharp crilidsmopulace inculcated wiib Ibe belief that Soviet society should beinthat genrerntneni shouldertain level of crccoeooiic security to its dlixea*.

Before Gorbachev, social stratification was lessto tbe population. TheParty members holdingighly developed system of privilege* closed to aad largely bidden from the general population These perquisites included special stores, scboots, recreational faculties, and hospitals, as well as foreign travel. Wealth was measured more in influence and access than ia rubles, andomenklaturatheir lifestyles thrauvh the use of contact*,and bribery

Below this stratum of society, income differences were held down by it*to-set wages ihat allowed much less differentiation between occupations than citat* in market economics High-priority ind juries such as machine building generally offered better pay and benefits than traditionally low-priority consumeror the services sector, but wruU-collarwere paid little more than blue-collar workers. Some people earned high Incomes illegally In the rinofheial "shadow" economy, but they were propor-tidnalely few and kept their wealth carefully hidden to as-cud detection by the authorities. Underhowever, glasnou increased public awareness of social differences, even as his economic policiesine-eaied the gap between the rich and the poor.

Factors Affecting Social Stratification Under Csebadser

Laa*al Monetary Caaeral During the Gorbachevisiag budget deficit aad iResponsible fiscal and monetary policies generated inflation and severehe governmentrubles to cover the costs of capensive investment programs, loss-ma king enterprises, revenue leases from the eatialcohol campaign, and more generous social programs Because this increase in the moaey supply was not backedorre*ponding increase in the production of consumer goods and services, it increased inflationary pressures. Pricewhich could have restored equilibrium to consumerdelayed, and consumers emptied the shelves in stale stores, where prices were artificially low. Meanwhile, largely unregulated prices in the consumer farm markets (CFMt) and cooperative store* shot up rapidly, and blaea-martet pricesIn the year preceding the coup attempt, retail prices had roughly doubled. Rising price* and shortages bad the heaviest impact on low-income worken, who were already spending the bulk of ihear iacome oa basics, aad on non-wage-careers with no access lo most of the special distsystems that proliferaled as deficits svorsened

Wage Ref*rn*s

Wage reforms tbat went into effect in Jatwary IM7ongstanding trend of wage leveling.hoped that Increased wage ditTcreatiatioaloser link between pay and productivity svouUl spur greater work effort. New pay scales were designedeward more skilled aad productive workers,top engineering and technical workers inbuilding. In addition,7 taw on State Enterprises gave manaeers more discretion in setting wage* and bonuses


I inliiJf'Hlwt--

reforms Toiled lo give managers inccniives io economize on labor coils, however, ornsist on hither sussdards of productivity. In practice,used their new wage-setting authority to attract and retain workers regardless or 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 half1 money incomes wereerceni higher than in (he sameear earlier

Unleashing the Private Sector

he Soviet Governmentider range of individual private enterprise and encouraging the formation ofparticularly in the area cf consumer goods and services. The intent was toapid increase in the amount of goods and services available andraise living standards for the entire population. These measures allowed the emergenceew group of highearners.

Although cooperatives did provide someand services, this boost was smaller thanbecauseeries of restrictive amendmentsLaw on Cooperatives, changing tax laws,obstruction from local officials, andpopular reaction to private activity. Manysimply bought or stole cheap state goodsihcrn at much higher prices. Otherharassment by tying themselves closelyI rolled firms and producing goods andfor Ihese enterprises rather than directly

onlyerceni of what the coorxmives 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 stale stores. High prices and high profits transferred money from workers to entrepreneurs, black-marketeers, andPrivate incomes began to dwarf state wages.

Even with more rapid wage increases, the average stale worker's wage still trailed thai of the average cooperative member. Moreover, much private and shadcrw-economy business transferredardbasis, promoting tbe developmente facto parallel currency that further devalued the rubles earned by state workers and pensioners.

Economic Restrine

Gorbachev's shifting investment policies alsoto growing differentiation in living standards. His strategy initially calkd for sharp increases in investment, especially for heavy industry, toequipment and introduce new technology. Funding was to be focused on the renovation and reiooling of existing industrial capacity, particularly in machine building and mctalworking. This policy channeled more resources into the central manufacturingwhere iheie industries were already established, and left fewer resources for the underdevelopedrepublics. This was reflected in slower job creaiion and slow growth in wages.egion that desperately needed new industry to absorb rapid populaiion growth, hw investment led lo rising unempJc^ment and poverty.

7 the leadership began lo scale backin heavy industry and refocuj it towardof food and consumer goods. Thealso called for expanding defense industryof consumer goods. These shifts inalong with cuu in defense spendingroded the traditionally privileged positionin these industries. Many defenseexample, openly complained tha' conversiongoods production downgraded their pay

Regions! Autonomy

The devolution of more economic authority toand local governments and the economic decline ledalkanization of lhe union market lhat helped to increase regional disparilies in lhe supply of food and consumer goods. To protect their own consume: markets, local officials erected barriers to trade.

Defined as voluntary, self-financed, self-managed, profit-sliarinr Croups of at lent three citirent. refiHered with local authorities

fort-Ming ibt export ol certain cWncit roods or limiting tbe purchase of tortM ile/ns lo local resident* only. Agricultural regions increasingly preferred lo use Ibeir output locally or barter it for tcarcefoods rather lhan sell it to the state for devalued rubies. Tho Soviet Union's former 'showcase" cities, Mrjacow and Leningrad (Si. Pdersburgk and centers of heavy Ind as try In the Urals suffered roost.eakagricultural bete, few attractive good* to barter, and panic buying by tbe population,ies became the man poorly stocked of urban ceo-ters.

Social Ctauaaawes Dtstartesrsle

Prod acts and larvices offered to ciliiem were never abundant or of good eruality, but in tba pastwen able to count on the state sailsfying at least minimal requirements at little or no cost During lhe years preceding lhe coup, however, many of tbe rnach-vauotcd benefitslannedfree rrsediealuaranteedow-tiled rent government apartment, and low prices became irvcrcaaingly problematic

Many former free or low-cost geeds and services are either no longer available or must be boughtuch higher price. Decent medkat care must be paid for dearly with bribes, and many medicines can be bought only on the black iriarket. at dghi tomes tbe state price.eparate apartment is harder lhanecline in Ibe production of building materials, in part due to the breakdown ia tradiiiooal supply octwecta. has resultedubsun

already long waiting lists forre,ram--which setof providing every familyeparateapartment by ihe end of theeven before the coup. Even before IbeIncrease in retail prices, contumer* couldcount on state stores io provide necessitiesstable ralces. Many goods lhat were oncela state stores were available only at high costblack market or la cooperative* or consanser

A survey published in Ibe Series business journal Kotnmniani that tricked eottsomcr buying habits found that few could regularly afford alieraaiavet to tutehe survey, which came owl before retail price* were increased Inound lhai only one person inad the means lo regularly shop in cooperatives or on Ihe black market. Anotherercent of the population tiscd it*to-run ttores aod shopped in coraperativc stores only when unavoidable The bitch market or farrners' markets were beyond their means Anotherfercest of the poptilalioa bought only the cheapest goods, would endure songnd weal vrtthoat if they could not And what they needed at fate-run outlets. With the1 rise in retail ranees la state wares, this liuer category of consumers had to struggle even harder to make ends meet.

GewMmt'i Rfip+njt. In panesponse topressure, both central aod republic governments took mraiures in the months preceding tbe coup lo try to reduceDccd in an attempt i




pensions, rncre financial lid for families with maiy children, and an attempt lo crack down on the lucrative black market. These measures were largdy ineffectual, aod they accelerated inflation andin consumer markets

Statu* of

The eccecsmic dukxatioo* thai resulted la part from Gcrbachev't economic policiesispreport.mte-ly heavy impact oo lower utcome groups, whilelooaenlng of controls on privatemall segment of the populallon lo become relatively wealthy. The changing fortune* of these socioeconomic groups also had an impact on regional dllTerenUaU In Irving standards. Republicsarge rural eornpoocntigh percentage of

USSR: Average Monthly State Wage* by$9

Under Gorbachev, income differences among thebehind. In addition to relative differences

publics increased. The change in averagerepublics In wage compensation, income dif-

wages5 shows thai the Slavic andwithin republics also widened. Differentials

republics were clear winners, while the Caucasusto be the widest in Central Asia and the

Central Asian republics, whose wanes werewhere the mean wage is low and the

below the country average, slippedeccmonn' is particularly active

(Mil dm lilt

children in theiror example.

sank even lower compared with other republics,tbe already wide tap between the have* toad have-nots utherited by the Gorbachev leadership (tee Inset I

The Lowest income Croups

Soviet estimates of the exact number living la or near poverty have varied ircatly. The official poverty line ofabies per mrjcrth artuneroughlyiUion people orereenl of thela poverty that year, la0 reform cconoiniit Staniila* Shatalinoverty line of SOfantasy" andigureonthore realisticonth later tbe official trade uniononth as the povertyigure that would put close toercent of the population In poverty Despite compensation paid by the government, the price hikes put into effect in1 probably raised tbe poverty line loubles,because the population was paid only partial mmpen-tattoo for Ihe pricean even wider segment of the population Into poverty. Indeed, tbe Soviet newspaperxSa reported ia May that the average Soviet citizen sprat justubles monthly buying essential food, with an equal amount needed to buy other necessities.

Fumi'iei I'i r* Many CbUdrrt- According to Soviet studies, ofiving at or below the oflVeial Soviet poverty line, half arc families with three or more children, and anotherercent are single-parent families and young families with fewer than three children Before tbe coup,ercent of all families with more than three children acre living at the poverty level, according to one Sovietarge share of tbe poor are in the rural regions of Central Asia, wbere Ihe average family lixa bsix, twice that of the Slavic republics and Baltic sutes. Poverty in the southern republics has been exaceibated by row Investment In heallh.housing, and other social tervice*.

! shortages have prompted high-level coo comnutrition. The RSFSR Supreme Sovieta decree attempting to bolster babydeclaring tbat poorea singlo deficiency diseases such as anemia

1 that infant formula and powdered milk are priori ty items on the wish list for food aid.'

Other shortages poso problems as well. Children's clothing and shoes, which arc unprofitable to produce, all but disappeared as enterprises began lo make asore of tbeir own decatiooa. Tbe Soviet newspaper Rabc-cAayw irtbuma reported la January that, because of this severe shortage, prices for children's eiothJag on the black market had risen to three or four tiroes the state price. There arc also shortages of school noto* bootu. pencils, toys, and candy 4

The Soviet system bad iraditsooally guaranteedfree health care, daycare, and scboofjrta, bat the icf ra struct tut for tbeae services it weak andrapidly. Child day-care facilities arc over-crowded, and one-fourth of all schoolchildren must studyecond sbfft orhird shift. Medicali iln iarc poorly equipped and often unsanitary. Moreover, in tbe last two years coencJctions of general education acboob and vocational technical schools fell substantially, and completionsad pre-scfaools also declined. According to official Soviet statistics, unsatisfied demand for places in prescliools hasercentS.

Tbe USSR's high rales of Infant mortality have beenownward trend La recent years, according to official statistics. But child health has (offered from medicine shortages, declining quality aad variety of diet, and contamination of food, air, and water by pollutants. Indeed, signs of backsliding are apparent. C ire reported that aesroc regions havesharp increases Incideocc of diseases such

jaundice, acute diarrhea, salmonella, acute influcn-za.'and leukemia among children in the last two years.

Youth: Am Uncertain Future. Young adults have found it increasingly difficult to establish themselves in society. Thege group makes low wages and is particularly vulnerable to inflation, Moreover, young workers are often Ihc last to receive goods distributed at work and the first to be laid off during produciion stoppages-One of the most immediate problems for ihe young is housing. The searchlace to live may occupyecide, and there is little hope that the wait will be shortened. Housing completions have been declining for more than two years and felllast year. According to an economist at the forme-Stale Planning Committeet ihe beginning9 (here wereillionmillionthe waiting lisl for improved housing. Another million people were ndded Io ihat list0

Those who will not or cannot live with parents often wind up in workers* dormitories or youth hostels where living conditions arc usually miserable. Soviet experts estimate5 million young people live in crowdedob would cause them lo loseillion working young people live in youth hostels. Some married couples, who cannot stay in dormitories Of hostels, rent private rrxmu. Such renters have no legal rights or protection and, according lo the Soviet press, the premises they musl rem are sometimes unfit for habitation and include "barns, bathhouses, and even slightly upgraded chicken coops" Moreover, young families, particularly those wiih children, are forced io move frequently by private landlords and must often wander from placelace in search of housing. According lo ihe Soviei press, half of all divorced young couples broke up because there was nowhere for them lo live. In ihe mosl citremeoung person may become homeless. According to Soviet press reports, it is noarity toomeless person under the age ofthird person nnw picked up for vagrancy is in that age brackci

The Homeless. Officially, therein the Soviet Unionut one Soviet study estimated the number toillion and rising. The hrxnetcss live in city dumps, basements, attics,buildings, buses, and railcars. Their plight has often rcsulied from Ihe lossesidence permit. The Soviet residence conlrol system inherited fromtimes is soon lo be scrapped, but local governments in major cilics are still imposing resirictions on the number of newcomers. One Soviet press articleihe unfortunate cmscquences of being an unregistered, officially "unaccounted for" citizen:

The loss of rtgitlration in our day is almost ihe same kind of catastrophe as it is toation

card duringperson il deprived of

all his rightt--the right to work, the right to receive housing, medical service, o' anAnd 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 permitsfrom ethnic violence, school dropouts,released from the military who dp not returnhometowns, people evicted from-criminals, and young workers inthat ignore the need for documentation inhire more labor. In large ciiies there has beenof workers called limitchiki who haveallowed io register for housing unlil ihey worknumber of years. In practice, mosl of thehave worked fo: many years withoutand have been considered to be virtuallyby their employers. According to

press reports, they live in squalid factory barracks or communal quarters, where several familiesLichen and bathroom

The Unemployed. The former Soviet Union had no systematic way to calculate the number ofand estimates varied greatly. The Slateon Labor and Social Questions says that thereillion unemployed before the coup. Gosplan economist Vladimir Kostakov put the number of

unemployed, both real and disguised, aiercent of Ibe civilian workAsia and lhe Tranteatrcasus accounthalf this number.9 alone. IJlost ikearccording to ibe Slate Ifor Stathuk* (Gotkomitail

ranted thai tbe Hate wai unable 'either to defend from tbe adrnlnlslralicn'i arbitrarines* thcae laid off. or io provide them with equivalent week, or to organize retraining forhose hit-nosi frequently were young, inexperieaced workers, women with children, and people araxoaching retfrernent age.

Peauietners, the ehJerly. thedependent* make up aboutercent ofthe Soviet poverty line, according ioThere ire nearlyillion pensioners laUnion, andillion of these areThose living on their own. an estimatedare in (he worst strain, but even thosein state care facilities often lead a

found "dirty mattreste* moldy from nsoisiare. half, collapsed walls, toilet si*JU ankledeep in water, beds ia moved tightly together with bedpans neat to them, and wretched old people or cripples on crutches wearing some kind of ragged cast-offs instead of clothing."

Pensioners areprotected" categorybut governmeni decrees have proved aagainst shortages and inflation. Enterprise*state orders toertain volumefor the elderly al "socially low" prices andprohibited from raising prices by decree ofCoundl ofeverttvelets.cut production of these unprofitable goods.lector and the shadow economy have notgap because it is not worth their while to dealconsumer goodsremarked

that "speculation with socks isccording to figures from Gotkomstst. lhe average price* oftraditionally purchased by low-Incomepotatoes, bread, andrisenanicularly fast rate. In some cities even the city cafeterias,ource of inctpcnslvc tncab for lhe poor, often have no fooderve. Moreover, the daily task of searching for and qoeueiag for goods is

especially arduous for tbe elderly. Often it is tbe pensioner who must queue for hours while adult childieu work. Some pensioners, however, use ibis as an opportunity to supplement their incomes bya fee to stand in line for others

A nearly catastrophic shortage of rnedicines has also made life more difficult for Ihe elderly. This shortage developed when many pharmaceutical factories were shut down for environmental reatont by republic and local governments. The situation was exacerbatededine in mcdidne Imports from East European suppliers who are now seeking hardesult of tbe shortage, snost media net are now available only oa the black market, where prices are far beyond whaican pay, averaging dgh't limes higher lhan state prices, according to surveys conducted by lhe journal Kommeriant.

Rural Rriiinil- Rural Irving standard* have tradi* laonally lagged wdl behind those of dty dwellers. According to Soviet statistics onoceenes. ihb gap snurowed substantial cades before Gorbachev took power bar changedccording to eertctal Soviet family budget surveys, the average per capitaincome for sute farm and collective farmwasercent of thai for all workers and employee*ompared wilhercenta> The countryside abo offers far fewer and lower quality goods and services lhaa the dty. Many rural settlements tack electridty. telephones, stores, banks, and other consumerpercent of villages, for cintpte, have no medical facter capita retail trade turitover in rural areas isercent thai of urban areas.

The standard of living in rural regions varies subsian-ttally from region lo region. In the former Bailie reratbtka. the average earnings of collective farm workers were well above those of state blue- and while-collir workers. In contrail, depopulation of villages in lhe Russian heartland and ovcrpopuUlton in rural Central Asia have contributed to widespread poverty. Tbe newspaper Siliktrta zhlia' (Rural Life) even setharity fund1 to


PfinlHanlinl -

esperate poverty amoni; elderly ruralns in dying Russian villages,teady drain of youth has left few able-bodied worken. In Central Asia and the southern pan 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 Ihe region.ccording to Pravda, the average per capita monthly income in rural parts of the Fergana Oblast was about half ihat of state and collective farm workers in the countryhole. Food produciion in Ihe region has also suffered because of overeuliivarion of cotton. Evenarge 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 Ihc more productive agricultural regionselatively better position while increasing Ihe 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 arc 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 iheir needs for household goods and someroliferation of "passport" rationing systems in many urban areas has limited purchases to city residents.

Moreover, according to the Soviet press, the consumer cooperativeinancially autonomousthai supplies goods to ihe countryside, hat been culling back service in seme regions, particularly the non-black-earth region. Because ofharges and the large number of foodstuff's that must be purchased at contract prices, prices also rose more rapidly in ihc consumer coops than in Stale stores in urbanural areas sufTercd another blow at ihe beginninghen increases in wholesale prices raised the cost of inputs such as fertilizers and

' Totfcis1 poor latrtssrs idmm iirKd by ihc centraldid not applyensvnmt>*s ,

materials and increased the prices of scivicesto rural areas, reducing profitability ofenterprises and farms. '

Former Mililary Perioaatl. TheSoviet troops stationed io Eastern Europe isthe acute shortage of housing forand focusing increased attention on lowliving standards in tbe military. Before Ihemilitary housing shortage reached nearlyThe complete withdrawal of troops frommay increase this figure by up to SOto some miliury soc.-ces. Theagreement on stationingo build0 apartmentsSoviet Union, but construction has not yetthere may be lengthy bureaucratic delaysoverall housing situation, has been furtherby localities' refusals lo meet (argeis set forof living space to military personnel,and retirees. This problemajor moraleservicemen. According io J

Officers spend long periods under difficult conditions, have no opportunity to acquire housing, and noare made for ihem ai the end of their careers.

Mcvemenl toward regional autarky created other difficulties for military families Those stationed in peripheral republics complain of harassment by local officials and local prspu la lions. 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 inhabitantsubsidy when prices rose, but servicemen did not. while in Armenia officials have refusedssue food coupons to servicemen and Iheir families. There arc persistent reports of serious, widespread frsod shortagesall segments of the armed forces. Clothing is alsoroblem at enterprises renege onof uniforms and boots and other items

The Shrinking Middle-Income Croups

Hard limes have shaken the security of ihc mtddle-

and lowcr-middle-incomcof the

USSR; Relative leveli of Earnings In SelectedW

medical, ind cultural professions, and *Ofk-era in idle enterprises Sonic subgroups, however, have fared belter than oiheit. noi only in ruble earning! (tec charth but. perhaps mote important, in iccett to tea roc goods, either through tpecal dittiibw-lion lyitcmi or through the opporto steal o. take bribes. Many to-paid thopmi-te.cod living idling products under the cornier Soviet presi rcpoett indicate lhat mcnt middle clan

groups, however, haveeterioration in living tiandirdt. and the only clear winners teem lo have been cooperative workers and black-marketeers.


-ho arefur ihe Mate bul are not attached to produciivr enierpritet -teachers, medical workers, and culturalhad less rapid rises in

Confittn nttiri*

and have less access lo deficit goods. Pay increases approved under Gorbachev Tor thosein 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 anwhile Estonian enterprises distributed goods, meal coupons, or direct financial aid, "il is much harderll 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 arc distributing goods and buildingand other facilities for workers, tow-prioritysuch as the light and food industries offer low pay. poor working conditions, and few amenities. Unfavorable economic conditions have cul the funds they have traditionally used to build housing and provide services for workers.ack of bard currency to boy imported materials has led to supply shortages that have forced production stoppages and iayoffs in the textile industryhisled the Russian Republic Trade Union of Textile and Light Industry Workers totrike. The action was called off when the RSFSR government granted concessions to the industry, including lax breaks and hard currency for the purchase of raw materials, Ncveiiheiets. the Soviet press reported in April that work at moicextile plants had closed because of the inability to import supplies.

Workers in lligh'Priority Industries. Despite their more privileged position relative to other stateeven the workers in traditionally high-priority heavy industries such as machine building complain that their lot worsened under perestroyka.C


stated that workers at the majorily 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 ate not enough to go around, areunequally, and arc often limited to luxury

items. Moreover, workers see their social status in jeopardy. According to one. "in general, the prestige of the working class hasow the first-class workers have left the enterprise for the cooperatives or who knowsAnd here Itwo-'ime hero of socialistI cannotuit: none are being sold."

The Elite, tbe Fnlerpeising. and (he Unscrupulous Old Elite. As ihe privileges of the nomenklatura came under attack in the eraumber of requisites were olrscially abolished:

An9 resolution of the USSR Council of Ministers abolished the Fourth Chiefof the USSR Ministry of Health, whichtbe elite, and ordered iu facilities converted to serve children, veterans, and (he disabled.

Inesolution of the CPSU Central Committee cut back on (he allocation of state dachas and reduced privileges for retired party and slate leaders.

Trade Association, which furnishesto the upper echelons of power, was directed to supply health facilities and children's homes.

In practice, however, the nomenklatura retained most of iu privileges up to the time of the coup. In July the USSR Supreme Soviet Committee on Privilegesthe resultsine-month study thai found abuses were still pervasive. For example, in theof Defense, expensive dachas were still being built for top personnel who paid only nominal rents. The report also complained (hat dachas and other state property arc increasingly being sold to officials at bargainractice dubbed "wild

Tke Nouveau Richt, Wiih the relaxation ofagainst private activity and Ihe boom in the shadowew variety of wealth had begun to emerge during the period of Goskomslai, by0 thereooperativesillion people.

The average monthly income of these workers it the beginning1 wasubles per mooth, while the avenge state wageubles. Accord, iag to unofficial Sovki estimates, there arc now moreeople in tbe country who earn moreonth. 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.

Some of theentertainen and successful cooperative managers, forlegal millionaires, but others have earned their wealth in the looming 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 toSoviet statistics, the number of crimes for gain in the economic sector rose byercent0 over the previous year. Organized crime has also made it difficult for private entrepreneurs to acquire wealth without paying dues to the criminal world. Racketeen prey on the new cooperatives, shaking down owners for protection money. Cooperatives have also been used as fronts for scams and illegal activities,to tbe Soviet press.

As the ruble loses value, black-marketeers andarc converting their operations toew and exclusive system ofLegislation liberalizing the use ofby ordinary citirens has facilitatedAccording toSt.

ide range of stores has sprung up. such as ice cream parlors, beer hatts, and even beauty shops, which accept only hard currency. These eslab-Ibhmenis are heavily frequentedlientele thai earns its money through Mack marketing and

The new rich are feared and despised by lower-income groups. Ethnic tensions and racial prejudice feed resentment of weU-tci-do privatefrom the Caucasus are particular targets. In ihc Russian city of Krasnoyarsk, for example, citirens demanded

expulsion of all Azerbaijani* because of highfarm market prices for fruit and vegetables. One Soviet commentator, writing in Moscow News, notes that, while the nouveau riebe ate not outrageously rich by Western standards, tbe contrast with the rest of thealling:

The Soviet rich spend their millions on what Is widely available to ordinary people In ihecountriesan upsiari is an upstart anywhere, whether in ihe wild West at the turn of the century, oroscow farm marketlas. Ike general prosperity always begins with this tasteless and obnoxious luxury for Ihe few against the background of poverty and even destitution of ihe many. Theof golddiggers, adventurers, and brawlers are today's Harvard graduates, computerand ideologists of social and ecological nutvements. One can only hopeur capitalist sharks will notundred years to turn Into posiindusiriat entrepreneurs.

The oldapparatchiks, and plantinto this new wealth by collecting bribes for various services for boih shadow economy operators and cooperatives. Some head dual Jobs. Forooperative member might work during the dayigh official in an enterprise that provides supplies to Ibe cooperative. According to C

ower aseconomic, legal, andbeing sold off."

Outlook, for Social Stratification After the Coup

nitial impact of the economic dbarray left in the wake of Ihe coup will be lo magnify some of the trends already evident in income distribution. Tbe economies of the republics will undergo severe dislocations with Ihe accelerated introduction of market reforms in some areas, growing interregional barrier* to trade, and localtred disruptions from continued ethnic strife. Those in ihc lowest income groups, particularly those on fixed incomes, will surfer most from thesedisruption!



is likely Io increase even more dramatically in coming months ai prices arc fired. The breakdown of (he center's authority will probably increase the budget deficit because republics have shown little inclination to keep spending in check. The loss of central control will also throw monetary policy into disarray, particularly if republics introduce their own currencies.'

In the face of rampant inflation, government efforts to institute new forms of social guarantees will probably not be sufficient toeterioration in living standardsarge segment of the population, especially those on fiied incomes. Indeed, the issue of who pays for pensions and other welfare measures has yet to be decided. Many enterprises and republics have refused to contribute lo the USSR pension fund this year, making it likely lhat funding willcome from republics already sutTering budget deficits of their own. The differing ability of republics lo pay for these benefits wilt add to regionalin living standards.

Lower- and middle-income groups will also suffer from economic belt-lightening ai the workplace. The im piemen ia tion of reforms to cut costs and stimulate competition will significantly reduce the socialthai enterprises have traditionally provided to workers and will leadarge-scalethe government with the problem of fundingbenefits. Accordingn opinion polllasl July amongeople nationwide, respondents fell that ihose mosl likely to lose jobs would be those already in the lowest income groups: women with children, young people, persons ncarjng retirement age. and unskilled workers. Layoffs that occurred before Ihe coup affected these groupsaccording to Soviei press reports. The poll respondents believed thai specialists and members of cooperatives would be least likely to face

The economic position of miliiary personnel is also likely lo continue to deicr iorate over ihe near term. As deep cuts in defense spending occur, the discharge of thousands of miliiary personnel, along with aloss of jobs in lhe military industrial complex, will further complicate the economic situation. Thewithdrawal of Iroops from the Baltic stales, along with the continued pulloui from Eastern Europe,exacerbate acute housing shortages forIndeed, ihe Sovieis will probably seekwithdrawal of troops. Baltic statesas possible because of the problemsbringing-miliury personnel back whenbe prryvided wiih decent housing. Actaxdirtg"lhe army has become lhe six-

tecnth republic, hungry and unsettled, but well armed and trained."

In contrast, conditions for lhe entrepreneurial class are likely to improve. In the Bailie states, Russia, and probably atew other republics, manybarriers to entrepreneurial activity are likely to be eliminated. Russian lenders, for example, wanl lo encourage cntreprencurship by repealing legislation rcstriciing middleman activity and through laxMaximum income tax rates have been reduced fromerceni loerceni Continued shortages and disarray in Ihe state sector will keep profits in the private sector high. The grea:rst threat toprobably will come from ihe well-established criminal networks, which will flourish in ihe confusion following the coup.

While many members of (he former party elite face loss of jobs and perquisites, some have probably also positioned themselves well to profit from theof market reforms. They have stashed away assets that can be invested in new ventures and may also still be able to draw on influence and contacts built up over the years.

Regional variation in living standards may increase substantially. Areas thai have traditionally beenCentral Asia and (he Caucasus, will suffer from ihe lacktrong central government to make resource transfers. Wiih practically all regionseconomic decline, republics such as lhe RSFSR are increasingly reluctant lo subsidize the sooth. Economic conditions in Central Asia will be exacerbated by lapid population growth thai isio continue into the nctl century, by shortages of walcr and arable land, and by severe environmental pollution and an accompanying deterioration in public

health. Morrover, (he leaderships of the four Central Asian republic* will be flow to irnplcmcni economic reform. Tbey may avoid tome of the Collocation Inherent in introducing market reforms in the abort rut, but in tbe long run this delay will lead to continued economic deterioration and will make tbe region lei* attractive for foreign investment. Recovery will be faster in regions tbat can attract investment and foreign technical assistance and move forward roost effectively on economic reform

As republic govemmenu take on tecreasing power, ethnic minorities in many regions may suffer, andikely to prompt increased migration, particularly the migration of Russians from peripheral republics back to Russia. Ethnic strife will hurt economies in regions such as tbe Dnestr area of Moldova, tbe Nagorno-Karabakh region of Azerbaijan, and the Chechen-Ingush Autonomous Republic in Russia. Work stoppages, sabotage, and disruption oflinks twill delay economic recovery and probablyew wave of refugees. Foreign companies, moreover, will shy away from investing in areas of social instability.

Implications for Social a'ad Economic Stability

Reformers liope that the Institutionarket economy will eventually change 'he equation ofand losers. The black market would give way to more legitimate forms of entrepreneurship. Those with energy and initiative would be rewardedigher standard of living,tronger economy would provide the means to support those least able to lake care of themselves. Pay and living conditionsmaller, more professional, and at least partially voluntary military would probably improve. Wiih 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 .

In the interim, however, increased social stratification will exacerbate tensions between toeideconomicand ethnic groups. More violent demonstrations

could come from groups pushed to the fringes of society as layoffs, ethnic violence, increasing regional variation in tbe supply of food and consumer goods, and acute housing shortages increase interregional migration, swelling the ranks of homeless and "unregistered" citizens. Moscow mayor GavriJl Popov warned last year that the capitals large population of temporary workers "will be the first to take to the streets" should food supplies diminish

Expanding poverty will have long-term implications for work effort, public health, and demographic trends in the former Soviet republics. Increasing mortality coupledeclining birthrate hasreduced tbe rate of natural population increase in the Soviet Union. The number of educated and skilled people leaving the Sovietlso rbittg. The paucity of goods in the stores will continue to depress stork effort. These trends will have an adverse impact on the size and quality of the regions Sctviet labor force for years to come

Public attitudes about wealthesire to avoid the sccial costs of economic transition will greatlyand probably further ddsy government efforts to stabiliie and radically reform republic economies. Indexation of wages and pensions and other expensive sccial programs could sbort-drcuit efforts to bring budgets under control. Republic governments will be under heavy pressure from the population,the trade unions, to grant even larger increases in wages, benefits, pensions, and other social welfare programs. To date the republics have shown ato buck down lo labor movements and grant costly concessions. Trade unions will alto lobby against reforms that initially increase unemployment and prices. Tbe public may abo put pressure onto rrinipose restrictions on entrepreneurs,if they continue to flourish in tbe face of growing poverty for tbe average citizen. The republicsong and difficult transitional period in which they will have to change the attitudes and work ethk of the population in order to significantly raise living standards

Original document.

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