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Regular version of the site

Ugly but Necessary

How street trading spread in post-Soviet Russia

In 1992 in post-Soviet Russia, retail trade was allowed to flow out of stores to the streets where people were now able to sell things hand-to-hand, from stands and kiosks. Immediately, street vendors flooded the country and open-air markets expanded and multiplied. After a few years, according to some estimates, more than 30 million people, or nearly half of Russia's economically active population, were engaged in trading. This phenomenon was examined in detail for the first time by HSE professor Oleg Khlevniuk.

January Revolutions

As Russia approached 1992, it faced a looming hunger crisis, had a card rationing system in place, and was experiencing severe shortages of all basic goods. Under these circumstances, on January 2, 1992, the government made a decision which was nothing short of revolutionary — itlifted price control  almost entirely. It was expected that a free market would saturate consumer demand and make endless queues a thing of the past, while prices would stabilise over time.

But this did not happen.

The cost of food soared 3 to 3.5 times compared to December 1991, but shortages continued. Blame was assigned to 'monopoly in a non-privatised economy', and the decision was taken to step up privatisation.

The January 29, 1992, Presidential Decree on Freedom of Trade followed. The change, once again, was revolutionary, as the decree permitted:

 everyone, entities and individuals alike, to sell things without applying for a license;

 the sale of anything, except certain items covered by legal restrictions, such as weapons, ammunition, drugs, transport passes, and some others;
 
 trading anywhere within 'areas designated by the executive authorities ... including hand-to-hand, from stands and vehicles'.

Compensation for People

Sellers and buyers poured into streets. Private trade spread like a virus and before long, the authorities had to impose some controls. The following numbers give some idea of the scale:

 in the first six months of 1992, 112.1 billion roubles worth of goods, or about 13% of the entire retail turnover, was sold by private vendors;

 in the first ten months of 1992, street vendor turnover reached 329 billion roubles, or triple that of private retail stores.

By adopting the new policy, the government aimed to encourage the development of the consumer market, support competition, and counter monopoly. The reason why Russians crowded spontaneous bazaars was pragmatic, since goods were always available there and were much cheaper than in official stores.

However, it was not only a matter of economics and consumer benefit. According to Khlevnyuk, 'The [trade liberalisation] decree was driven by important political and social motives. Denied adequate compensation for rising prices and unemployment, people were at least allowed some freedom to try and solve their own ever-growing problems'.

Who Traded

While it is impossible to describe the exact profile of private vendors in the 1990s Russia, as no one monitored the situation at the time, one can assume that they included:

 small resellers with relevant experience;

 people with no relevant experience who traded to survive the 'shock transition to a free market';

 people from neighbouring post-Soviet republics (Ukraine, Belarus);

 'shuttle traders' importing cheap goods from other countries.

Some foreigners visiting Russia also benefitted from the situation. The head of Krasnoyarsk Region’s administration reported in June 1992, “Crowds of up to 3,000-5,000 people gather on platforms waiting for international trains to buy goods [from passengers] which are in short supply. According to our data, just one such train travelling through our region sells 4-5 million roubles worth of goods and the same amount of cash is removed from circulation.'

How They Traded

The suppliers of goods to street vendors included industrial manufacturers, employees of official retail stores, speculators, and private individuals.

In the first six months of 1992, consumer goods officially purchased by the public directly from manufacturers accounted for 2.6% of the country's retail turnover; in addition to this, some goods were purchased informally, i.e. stolen from manufacturing enterprises.

Employees of state-run retail stores often teamed up with private resellers; as a result, outdoor markets were bursting with goods which were not available in stores. Acute shortages of basic necessities—some of which were subsidised by the state — made this illegal practice quite lucrative.

The card rationing system turned literally everyone into a trader: having redeemed their ration cards, many people resold what they did not need.

Good but Bad

In May 1992, prices were rising more slowly on street stalls than in state-run stores: four times as slowly for clothes and footwear and twice as slowly for food. In 1997 in St. Petersburg, 'foodstuffs in small-scale wholesale markets were 20% cheaper than in official stores, and on street stalls, they sold for 15% cheaper than in kiosks'.

This would be fine, except that crime, not limited to illegal speculation, and insanitary conditions often accompanied this bounty of goods at low prices.

Short-weight by street vendors could sometimes reach 25%. Contamination due to improper food preparation and storage led to mass poisoning on a number of occasions; e.g. in 1993, a total of 89 outbreaks of acute intestinal infection were reported in Russia, affecting eight thousand people.

According to Khlevnyuk, 'The spread of street trade did not necessarily mean that the entire Russian public accepted it as something positive.'

Members of political opposition, food industry and business CEOs were outraged by the consequences of the Freedom of Trade Decree; sanitary workers pressed for more controls, railway station managers asked for measures to rid the platforms of  'a chaotic crowd of traders selling mostly alcohol', and municipal authorities launched a campaign against 'blatantly cynical traders'.

Defenders and Attackers

Moscow was the first to put up barriers to street trade. As early as in April 1992, it was barred from the city centre, and selling most foodstuffs on the streets was prohibited.

Regional officials followed suit, and the federal government started making amendments to its January decree step by step, from introducing a licensing system to banning hand-to-hand sale of certain goods (e.g. alcohol) to toughening criminal sanctions for non-compliance with trading rules.

It was impossible to get rid of spontaneous street bazaars in one fell swoop and trying to ban street trade altogether would have been outright dangerous. Economist Nikolai Shmelev described street trade in the 1990s Russia as ugly but absolutely necessary. In addition to the declared purpose of countering monopoly, it performed two other important functions: helping a huge number of low-income people to make a living, and absorbing some of the growing unemployment, according to Khlevniuk.

It is no accident that in the fight between municipal authorities and street traders, the  public often sided with the latter. According to some reports, in 1997, the total number of people involved in street trading (including sellers, security, shuttle traders and administrators) exceeded 30 million. This number is particularly impressive given that Russia's entire active population then stood at 68 million, of whom 60 million were engaged in the economy, according to official statistics.

More Control

The new restrictions caused hand-to-hand trade and street stalls to migrate to markets selling clothes, food or both. Between 1990 and 1999, their share in retail trade turnover increased from 7.5% to nearly 30%, almost equal (24% in 2000) to the share of small retail business, including shops and kiosks.

Some vendors chose not to pay for a market stall and continued to trade illegally, but their numbers declined over time, and street trade, according to the study author, followed the course of other reforms, where 'soon after granting [people] unlimited and unrestrained freedom, the state re-established control and began changing the rules of the game'.
IQ

 

Study author:
Oleg Khlevniuk, Professor, HSE Faculty of Humanities, Chief Research Fellow, HSE International Centre for the History and Sociology of World War II and Its Consequences
Author: Svetlana Saltanova, February 15