Funding Loyalty: The Economics of the Communist Party 9780300165906

Table of contents :
Contents
Preface
Introduction
1. The Bud Get Of The Soviet Communist Party
2. Trends In Party Finance, 1939– 1965
3. The Special Bud Get Of 1948
4. “Impossible Structures”: Resource Allocation And Party Donors
5. Funding Loyalty With Promises
6. The Party And Its Overseers
7. Selective Justice: Party Control Under Stalin
8. How Much? The Cost Of Party And The Determinants Of Party Expenditures
Conclusions
Appendix Of Figures And Tables
Notes
Index

Citation preview

The Yale-Hoover Series on Stalin, Stalinism, and the Cold War

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FUNDING LOYALTY THE ECONOMICS OF THE C O M M U N I S T PA R T Y

E U G E N I A B E L OVA VA L E RY L A Z A R E V

Hoover Institution Stanford University Stanford, California

New Haven and London

Published with assistance from the foundation established in memory of Philip Hamilton McMillan of the Class of 1894, Yale College. Copyright © 2012 by Yale University and the Board of Trustees of the Leland Stanford Jr. University. All rights reserved. This book may not be reproduced, in whole or in part, including illustrations, in any form (beyond that copying permitted by Sections 107 and 108 of the U.S. Copyright Law and except by reviewers for the public press), without written permission from the publishers. Yale University Press books may be purchased in quantity for educational, business, or promotional use. For information, please e-mail [email protected] (U.S. office) or [email protected] (U.K. office). Set in Sabon Roman type by Westchester Book Group. Printed in the United States of America. Library of Congress Cataloging-in-Publication Data Belova, E. B. (Evgeniia Borisovna) Funding loyalty : the economics of the Communist Party / Eugenia Belova, Valery Lazarev. pages ; cm.— (Yale-Hoover series on Stalin, Stalinism, and the Cold War) Includes bibliographical references and index. ISBN 978-0-300-16436-7 (paperback : alkaline paper) 1. Kommunisticheskaia partiia Sovetskogo Soiuza—Finance. 2. Soviet Union—Politics and government— Economic aspects. I. Lazarev, V. V. (Valerii Vasil’evich) II. Title. III. Series: Yale-Hoover series on Stalin, Stalinism, and the Cold War. JN6598.K7B3735 2012 324.247'045—dc23 2012012198 A catalogue record for this book is available from the British Library. This paper meets the requirements of ANSI/NISO Z39.48–1992 (Permanence of Paper). 10 9 8 7 6 5 4 3 2 1

To our daughters, Alexandra and Keira

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Contents

Preface ix Introduction 1 1. The Budget of the Soviet Communist Party 2. Trends in Party Finance, 1939–1965 3. The Special Budget of 1948

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4. “Impossible Structures”: Resource Allocation and Party Donors 56 5. Funding Loyalty with Promises 6. The Party and Its Overseers

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7. Selective Justice: Party Control under Stalin

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8. How Much? The Cost of Party and the Determinants of Party Expenditures 130 Conclusions

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Appendix of Figures and Tables Notes 185 Index

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Preface

This study of the economics of the Communist Party of the Soviet Union (CPSU) is interdisciplinary by nature. It belongs to the area of political science but also relies heavily on the conceptual framework and research methods of modern economics. It is also a historical study that draws on primary sources—archival records. Not unlike many other historical studies, this project can be traced back to an archival discovery or, in this case, rediscovery. The existence of the CPSU financial records was not a secret, as the Hoover-Chadwick project microfilmed millions of documents of the Soviet ruling party during a relatively short period in the early 1990s, when Moscow archives were at the peak of their openness. By the time we first came across those documents in 2002, they had been carefully cataloged but left largely unattended by researchers. There seemed to be nothing sensational about those documents: no mentions of the “party gold,” no revelations of ghastly Kremlin secrets. And we were not impressed by volumes of spreadsheets, mostly filled in by handwriting—thousands of numbers repeating themselves in variations over years and across the vast administrative domain of the CPSU—but we made some copies anyway. Several years passed before we got back to those documents. Initially, there was no plan on how to approach them, so we began by organizing the numbers. The first data series that we plotted did not look right. The data showed that the CPSU was only in part funded by the Soviet state and that dependence on its own revenues, primarily

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from membership dues, had a pronounced increasing trend. A further investigation produced more questions than answers, and the most pressing question was why the party, the stem of the Soviet political system, had to finance itself. In 2006, we returned to the archives intending to find the devil in the details. In the two years that followed, we dug into the layers of the party archives, fascinated by the complexity of the party machine and the scope of the data that it left behind. Surprisingly, the directors of the system—the same system that disparaged money circulation and favored material planning instead—paid serious attention to money matters. Little by little, an institution designed to “fund” the loyalty of rational supporters of the regime began to emerge from the spreadsheets and scant narratives. The workings of this institution were difficult to understand, let alone explain to others. At the same time, the patterns in the numbers yielded a picture of an organization with its own corporate rationale driven by its own interests. The party seemed to have been turning into an instrument of the self-interested party bureaucracy rather than one of the dictatorial leadership. Could it be that the same features of the institutional design that were the regime’s assets in its earlier days had turned eventually into liabilities, perhaps contributing to the unexpectedly rapid undoing of the system under Mikhail Gorbachev? The consistent flow of data dries up by the late 1960s, and in a sense, this book ends at the most interesting point. We were fortunate, however, to locate some relevant later evidence. This evidence, including the last two annual budgets of the CPSU, which surfaced in the course of preparations for the trial of the CPSU, planned by Boris Yeltsin but never started, provided some reassurance that the final destination lay on the path set in the earlier decades. Eventually, new evidence will become available on the Stalin and Khrushchev periods through the long and seemingly uneventful reign of Brezhnev to the last day of Gorbachev’s Soviet Union, connecting the dots with a bolder line. This study has had a long journey through time and space. Crucial to it was the time we spent at the Hoover Institution, both as visitors to the archives and, most important, as Campbell National Fellows in 2007– 2008. This study would not have been possible—or at least would have taken indefinitely long to complete—without the financial and

Preface

administrative support of the Hoover Institution. We are especially grateful to its associate director, Richard Sousa, for his interest in and support of this project and cannot say enough good things about the staff of the Hoover Institution Archives. Proximity to Stanford University’s political science, economics, and history departments was crucial for our research, interdisciplinary by nature. From scholars in all three disciplines, we received inputs that ranged from short but stimulating discussions to a workshop to thorough readings of an early draft of the manuscript. This project owes the most to Paul Gregory, Steven Craig, and Gavin Wright, our mentors, whose work and advice shaped our thinking as researchers. We are eternally grateful for Paul’s encouragement, support, and occasional light nudging. Steven was the first to suggest that it was necessary and possible to develop empirical tests of our theoretical models, and the suggestion prompted us to start turning the numbers in fading ink into a dataset to be used for econometric analysis. Gavin, a wonderful host at Stanford, watched our initial efforts grow from a vague idea to a full-scale research project. For fruitful and stimulating discussions we are also deeply in debt to Golfo Alexopoulos, Bruce Bueno de Mesquita, Gerald Dorfman, Yoram Gorlizki, Avner Greif, Mark Harrison, James Heinzen, Beatrice Magaloni, Michael McFaul, Gabriela Montinola, and Robert Service, as well as to dozens of participants of seminars and summer workshops.

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Introduction

“Follow the money.” This saying in its modern sense applies to untangling criminal conspiracies or to understanding the dynamics of elections. The same principle can be applied to understanding the workings of the Communist Party of the Soviet Union, although theoretically actors in the Soviet system were supposed to be largely indifferent to money. Goods, services, and privileges were supposed to go to the system’s directors and their loyal subjects, not to the highest bidder. A party driven by ideological motives as the “guiding force” should have been least of all interested in cash or anything associated with monetary transactions. The CPSU, as well as other Communist parties, was traditionally studied from the perspective of politics, ideology, and governance, primarily from narrative sources. By following the money of the Soviet Communist Party system, we present, for the first time, a systematic analysis of the financial records of the central and regional party organizations between 1938 and 1965.1 The flow of party money to national, regional, and local party organizations; the manner in which party money was collected; and the way party financial discipline was enforced yield deep insights into the role of the party in the Soviet institutional design. Following the party’s money allows us to explain the priorities of this vast organization, as well as the motivation of its members. Tens of thousands of pages have been written describing the organization and functions of the CPSU, but those pages were written without

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Introduction

access to the official documents of the CPSU, whose most innocuous records bore the obligatory stamp of “top secret.”2 The CPSU remains a black box even a decade after the release of hundreds of thousands of documents of the Soviet state and party archives that still await a thorough analysis. Moreover, many key party documents still remain behind the closed doors of the archive of the president of the Russian Federation. Official writings, public speeches, and published decrees of the CPSU during the Soviet era illustrate how its leaders wanted it to be presented to outsiders while at the same time concealing its true function. Those documents not only shed light on the workings of the CPSU but also tell us a great deal about how the Soviet system actually worked, about its goals, its governance, and its formal and informal organization. At first glance, the financial records of the CPSU do not appear to be relevant for a study of such fundamental issues. After all, these are revenue and expenditure statements prepared at the national level from financial reports of republican and regional party organizations. They consist almost exclusively of accounting figures, with little narrative. As such, they have been overlooked as trivial, particularly in an economic and political system that was supposedly uninterested in money and budgets. Yet it is these financial records that form the backbone of this study. They begin in the late 1930s, during the period of “high Stalinism,” and end in the mid-1960s. Also available are some scattered records from the late 1990s, as the end of the system approached and CPSU officials began to contemplate a world without the party and to worry about the preservation of its assets in a post-Communist world. Contrary to the stereotypes, the documents show that the party system operated in an unexpected way. Money and finance were extremely important at all levels of the party hierarchy, so much so that the CPSU operated much more as a business, covering its costs and aiming for a profit, than any of the Soviet economic enterprises. We found that the CPSU did not deny itself the business reforms it denied everyone else. We found that the incentive system for party members, particularly those seeking advancement, was much more complex and differentiated than the one used in the civilian economy. Moreover, the party designed complex monitoring and punishment mechanisms to fight

Introduction

corruption within its ranks and deal with the misuse of party money and the abuse of offices for personal gain. Our study has a broader context as well. It is a study in the political economy of dictatorship. Dictatorial power and regime survival are a function of repression and loyalty.3 Dictatorship is a costly and risky venture. By excluding the majority of the population from political participation, dictators or ruling elites expose themselves to forceful removal, assassination, or execution. To assure regime survival, dictatorial governments must combine coercion and persuasion, and they must maintain both an extensive repressive apparatus and a propaganda machine. The repressive nature of the Soviet regime has long attracted the attention of researchers, historians, political scientists, and economists alike. Works on this theme illustrate that repression was one of the pillars of the Soviet system. We focus on another pillar of the Soviet system, one that has received less attention—loyalty. A successful ideology-based totalitarian system should be able to attract true believers.4 In fact, if the message of the CPSU had been so appealing that the entire population were true believers, there would have been little need of repression. In reality, only a fraction of the population embraced the ideology wholeheartedly, and “loyalists” were not necessarily true believers. Loyalists made sure their neighbors cast their obligatory votes for the CPSU slate of candidates. Loyalists gave lectures on shop floors about the glories of communism to largely indifferent workers and made sure that their coworkers did not neglect their duties. Loyalists could head party cells—low-level party organizations—for little or no compensation. How did the CPSU maintain loyalty? What types of incentives and payoffs were used to create its membership base? Was the supply of true believers sufficient for the stability of the regime? Inventive twentieth-century dictatorships expanded the set of political survival strategies by engaging in the mobilization of voluntary supporters organized in mass parties. The Soviet Union was the first and, so far, the longest lasting regime of this kind. A single political party—the Communist Party of the Soviet Union—dominated the political landscape from the first to the last day of the regime’s existence, and for most of the time it was the only legal entity of its kind. Its “leading-role monopoly” was certified in the Soviet constitution.

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One-party dictatorial regimes are not unique, but they also are not inevitable under totalitarian regimes. Many twentieth-century dictatorships emerged as one-party regimes, using a revolutionary party as an organizational device to seize power. There is no requirement, however, that the winning party remain an active political agent after the dictatorship has secured control over the country. Many regimes that owed their existence to mass mobilization eventually downgraded their mass parties, relying more heavily on support by the military, security forces, and/or state bureaucracy.5 By contrast, the Soviet regime did not become a military dictatorship. In fact, the leaders of the CPSU were very careful to retain firm party control over the military. Few military leaders were allowed into the inner sanctum of CPSU power. The CPSU remained a key governing institution of the Soviet system from its birth as the revolutionary Bolshevik party. The CPSU, therefore, was an institution that appeared to earn its keep. As far as its leaders were concerned, it yielded benefits in excess of its costs. The chronological focus of this study, the period from the late 1930s to the mid-1960s, allows us to study the Soviet regime at its peak, both economically and geopolitically. This period starts with the consolidation of the “classic” totalitarian Stalinist system, in which the ruling party and the state were tightly intertwined. Together, they formed a symbiotic government that controlled most economic activity and virtually every aspect of public life. The political geography of the Soviet Union took its final shape in the late 1930s, in terms of both its borders and its territorial administrative structures. This period also coincides with the rapid growth of its cornerstone institution, the CPSU. We follow the development of the party through the subsequent relative liberalization in the Khrushchev period, including some data from the period up to 1991. Studying the workings of a stable one-party regime at its peak allows us to identify the sources of its stability as well as the seeds of its future degeneration. By looking inside the CPSU, into the way its finances were conducted, we contribute to the rich literature on the decline and fall of the Soviet system.6 We learn a great deal about the intended role of the party system and about what was going on within the regime’s inner core.

Introduction

PA RTY A N D STATE I N TH E S OV I E T INSTITU T IO N AL SYS TE M

Soviet institutional design is often viewed as “mono-organizational.” This term, introduced by Thomas Rigby, implies a single monolithic hierarchy where the party plays the pivotal role and directs the operation of other “sub-trees,” such as the ministerial hierarchy of economic management or regional administration.7 The mono-organizational nature of the Soviet system is a major feature that distinguishes Soviettype systems from non-Communist one-party or dominant-party regimes, where the impact of the ruling party on the government and economy is more limited. While the party’s role in the Soviet system was undoubtedly quintessential, there were organizational boundaries within the political system. One key boundary lay between the state and the party; another separated the party’s center and the “outer party” of regional and local organizations. These boundaries were often blurred, sometimes for propagandistic purposes. Although it appears that the party’s decisions were made by the country’s top leadership, the party machinery operated through the channels of the outer party, working through subordinated territorial party organizations ranging from regional committees to party cells. Later chapters will discuss the complex relationships between the layers in the party hierarchy and the system of incentives designed to keep the complex party system together. Normally, one would expect to see a boundary between the government proper and the superior political authority, such as the Politburo of the CPSU Central Committee in the Soviet case. In a dictatorial system, it is reasonable to expect that the dictator and his inner circle—or the “winning coalition” in an oligarchic regime—will occupy positions across the institutional spectrum in order to ensure as complete a control over economic and political decision making as possible.8 This assumption is consistent with the existence of a Politburo-like body of top party leaders dealing with the most important decisions, but it does not imply a blending of all governing institutions. In the Soviet system, the state (government) and the party leadership (Politburo) formed an interlocking directorate that misled observers, both within and outside the country, into assuming a unity of the organizational structure for the whole government. There has always been

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an organizational separation between the Communist Party and the Soviet state. After the Bolsheviks took over in November 1917, personal ties between the party and the state leadership were created, with Bolshevik leaders, including Vladimir Lenin, Leon Trotsky, and Joseph Stalin, becoming “commissars” (ministers) in the new government. Yet the party did not become a branch of government but retained some elements of democracy. As the tandem of party cells and revolutionary troops (the Red Guards, later the Red Army) extended Bolshevist government control beyond the urban centers and industrial areas in European Russia, regional party organizations were increasingly given the tasks of local and regional government. Although Lenin headed the national government (the Council of People’s Commissars), there was never a doubt as to the supremacy of the party, which exercised its power through the Politburo.9 The Bolshevist leadership used the party to seize power in 1917. A decade later, Stalin used the party to take over the government from his “rightist” rivals, Nikolai Bukharin and Alexei Rykov. Using his position as the party general secretary—essentially the head of the party’s human resources department—Stalin created a support base among regional party officials.10 After his acquisition of supreme power in the early 1930s, the state and the party were ruled by the interlocking directorate of the Politburo and government. But Stalin himself resisted efforts to tear down the wall between the party and the state in the 1930s by refusing to assume the chairmanship of the Council of People’s Commissars. Instead, he relied on a trusted deputy, Viacheslav Molotov, to run the state administration. The Politburo, under Stalin’s direction, remained the center of high-level decision making on major issues of civil administration and economic management. The border between the party and the state was, however, becoming more diffuse in the 1930s. The party-state merger was officially completed when Stalin took over from Molotov as the head of government in May 1941. During World War II, the degree of institutional overlap was such that the participants in meetings headed by Stalin had problems understanding what body they were really attending: the Council of People’s Commissars, the Politburo, or the State Defense Committee (GKO).11 In a parallel development, the political administrations in the army and security organs were simultaneously made party bodies. After World War II, the center of decision making remained with the Council

Introduction

of Ministers (as the Council of People’s Commissars had been renamed in 1946) and Stalin’s informal circle, while increasingly infrequent Politburo meetings came to a halt in 1947. The broader ruling body of the CPSU, the Central Committee (whose apparatus Stalin headed as well), had lost importance even earlier; its last noteworthy meeting under Stalin was the ominous February–March Plenum of 1937 at the outset of the Great Terror. As the war ended, the party could have become an integral branch of the mono-organizational state, a sort of ministry of propaganda and social control of the economy. That never happened. On the contrary, the distinction between the party and the state, with the party reasserting its central role, was gradually reestablished. The merger of the government and the Politburo, which came to be perceived as the archetypical feature of the Soviet model, existed only during World War II and its immediate aftermath.12 INSID E T H E PA RTY B U R E AU C R ACY

The existing literature tells us a great deal about the leaders of the Soviet state and party. They have been the subjects of biographies; their letters have been published.13 Stalin has commanded as much attention as any other major political figure of the twentieth century. The Stalins, Molotovs, and Khrushchevs, however, at the most, set general policies and monitored major initiatives.14 The actual work of the administrativecommand system was carried out by a massive apparat of faceless officials within planning agencies, the finance ministry, and the industrial ministries. Whereas party/state leaders set general policies for party finance, the actual implementation was delegated to back office bureaucrats. The story of party finance is told largely by an organization buried deeply within the Central Committee (CC) of the CPSU headed by the party general secretary. The Central Committee itself was broken down into the dominant Politburo, the Orgburo (Organizational Bureau), and the Secretariat. This apparat of the Central Committee employed more than one thousand people in the 1940s–1950s. These three closely interrelated bodies represented the “inner” party, or the party section of the interlocking national directorate, and they were charged with managing internal party affairs.15

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One of the most important agencies within the Central Committee was the Administration of Affairs (Upravlenie Delami, hereafter UD). Initially, its tasks were to feed, dress, house, and drive party leaders. Eventually, however, the UD took over party finance—first the finances of the Central Committee and then of the party as a whole. This agency, therefore, will be the focus of our study. Despite numerous formal and informal links with the state and overlapping jurisdictions, the party retained its autonomy as an organization. From the financial standpoint, the CPSU represents an intermediate case between a budget organization and an economic-accounting organization. The exact way in which the party’s financial issues were resolved reveals the leadership’s attitude toward the party and its role. The various ministries of state, such as foreign affairs or defense, were budget financed, receiving their funds from the state budget with little effort to construct a balance of revenues and expenditures. State enterprises, on the other hand, were economic-accounting entities. They were obliged to report their revenues, expenditures, and profits or losses. They were separate from the state budget, although they might have had to transfer their profits to the budget or be subsidized from the state budget. Our analysis of these budgets, discussed primarily in chapters 1 and 2, reinforces the notion of the party as an autonomous and self-interested actor in the Soviet system and shows the relevance of this autonomy to understanding regime dynamics. By definition, budgets—both financial plans and records of actual revenues and expenditures—show what individuals, households, firms, organizations, or nations can or cannot afford and how they allocate their scarce resources. Budgets are not responsible for preference formations but reveal them by forcing the agents to prioritize within certain boundaries using monetary units. Otherwise unobservable information surfaces revealing patterns of consumption, investment priorities, and income sources. The notion of a budget—unlike simple ex post records of expenditures—implies commitment over certain periods of time, which is enforced using a set of institutionalized procedures. As individual or national incomes change, the boundaries for dos and don’ts expand or shrink, whereas changes in preferences or terms of trade alter the allocation of funds. Analyzing such changes over a long period allows changes in the objectives of the budgeting entity to be tracked, as well as in the economic environment in which it operates.

Introduction

Budgets—or more broadly financial statements—do not immediately come to mind when a political institution such as the Communist Party of the Soviet Union is considered. Nevertheless, each year the CPSU had a budget—a carefully planned top-secret document—that allocated well-defined amounts across a specific range of expenditure items. Just as any other organizational entity, the CPSU as a whole and every single party organization faced a budget constraint and expressed its spending priorities and revenue expectations in the form of budget plans. The UD reviewed those spending priorities and collected and verified financial reports from its constituent bodies to obtain feedback. To be binding, budgets must be enforced. In market economies, outside auditors examine the revenues and expenditures of corporations. Congressional or parliamentary commissions examine compliance with state budgets. The CPSU largely followed this practice. The party leadership created two networks that were in charge of enforcing the compliance of lower-level party bodies with budgetary targets: party control (partiinyi kontrol’) and audit (revizionnye komissii). Party control was essentially the party’s internal police, equipped to investigate and prosecute wrongdoing by party members, especially in industry and the civil administration. Audit had a narrower mandate, being in charge of verifying financial statements, investigating cases of embezzlement of party funds, and the like. Both types of controllers curbed encroachment by the party bureaucracy on other branches of power and its own self-enrichment. Audit dealt with the party’s formal economy, embodied in its budgets, and was instrumental in guarding the border between the inner party and outer party, while party control was largely dispatched to the border between the outer party and the state. M ETHO D O L O G Y

The subject of the present study is in many ways a “parallel universe” with respect to the Sovietological literature of the past. Up until the 1980s, scholars were studying a living and stable regime from the outside, trying to rationalize its existence and explain its political and economic success. The fact that the Soviet regime and most of its institutions and organizations no longer exist influences the way we approach and think about them today. Moreover, access to rich archival data adds new dimensions to our studies of the Soviet regime. At the same time, unlike

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the scholars in the early 1990s, we now know that the CPSU outlived the regime and can see the transition paths of former Soviet republics who chose to replace their administrative-command economies with markets but, for the most part, have made less progress in creating democracy. From the perspective of ideological determinism, it was MarxistLeninist ideology rather than the pursuit of personal advancement that was to underlie individual behavior. The Soviet people were to become Homo sovieticus, a special type of human that allegedly did not follow the conventional norms of rationality. The party was to consist of “true believers” in communism. From this perspective, the party owed its existence to Lenin’s What Is to Be Done?, published in 1901, in which he stated the need for a party and outlined its organizational basics. It would not have occurred to any true believer thereafter that the Soviet Union could have fared better without the party. This view reflects the Soviet propaganda aimed to a large extent at outside observers and suggests an unquestionably superior role for the party organization. Alternatively, the continued existence of the Communist Party after Stalin secured his dictatorial power by the late 1930s could be justified as a tribute to Bolshevist tradition, adding to the legitimacy of the regime. This explanation certainly has its merits. After all, Stalin and other Soviet leaders were actively rewriting history to accentuate their personal involvement with, if not joint authorship of, Lenin’s ideas to validate their own positions of power. This perspective, however, suggests a marginal role for the party that is not consistent with the variety of functions assigned to and performed by the party system in the course of Soviet history. Neither would a ritual party of this kind require incessant attention to the growth of its ranks. On the contrary, it was the soviets (workers’ councils), the institutions of direct democracy that appeared independently of the Bolsheviks before the October Revolution, that were marginalized in the system (despite giving the country its name) and became largely ritual in the 1920s. In our study, we try to avoid imposing overly strong assumptions on findings and their interpretations implied by each of the paradigms described above. The positive political theory that we have chosen as a framework for studying the economics of the Communist Party offers a number of flexible analytical tools. In line with the rational choice

Introduction

perspective, we assume that Soviet state and party leaders, as well as ordinary Soviet citizens and rank-and-file party members, chose among a variety of strategies, seeking to maximize their individual objective functions rather than blindly following predetermined ideological dogmas. Within this framework, Communist ideology can coexist with private beliefs; dictators’ preferences do not crowd out individual preferences; political and economic organizations compete for power and resources and change their positions in the hierarchy depending on their current relative strength. The leaders’ objectives and policies affect the lives of individuals and also the choices made by ordinary people. These choices influence the course of events, thereby constraining the leaders’ discretion. We assume that party leaders and rank-and-file members, therefore, made rational decisions based on incentives and costs. Moreover, the focus on party finance—party budgets, their execution and monitoring, and punishment of party members for financial transgressions—allows us to get at much larger issues such as the intended role of the party versus its actual role in creating and maintaining loyalty. For the Soviet Communist Party to be a regime-stabilizing factor the following conditions had to be met. First, since the party was a distinctive agent within the Soviet system, its short-term goals and long-term objectives had to be aligned with the goals and objectives of the national leadership. Second, the party had to be established as an utterly legitimate and incontestable political organization. By the late 1930s, both conditions had been met. The lower levels of the party hierarchy—regional party secretaries and their deputies, as well as the armies of instructors and propagandists, that is, the people who were supposed to deliver the socialist ideology to the masses— had to have strong incentives, first to choose to work for the party system and, second, to stay with the party, as opposed to seeking lucrative careers outside of it. In the 1920s, a quasi-market economy was growing rapidly, industry received the lion’s share of state investment, and party ranks were fluctuating without an apparent growth trend. To be viable, the party system had to have enough resources to “compete” with the economic bureaucracy. Unlike industrial managers, party bureaucrats were not resource holders and, at least initially, were unable to provide for themselves. The resources for them, therefore, had to come from the state. True believers—party workers who

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had to have such deep faith in the Communist idea that they would work for free, literally starving themselves and their families to fulfill the party’s goals—certainly existed.16 Most party members of this type, however, existed in the 1920s.17 The 1930s saw the advent of a command economy and the party’s establishing control over all appointments. The first five-year plans bred career-seeking pragmatists— vydvizhentsy—who came to dominate during and especially after Khrushchev. In 1938, when the present study begins, nearly 85 percent of the party’s revenues came from federal sources. The rest were covered by party membership dues and other sources, such as paid lectures and publishing revenues. Within ten years, however, federal subsidies began to fade away. In order to survive, the party as an organization had to introduce significant changes to its economics, which ultimately altered all aspects of its existence, both within and outside the party system. RA ISIN G L OYALTY A S A PO L I TI CA L S U RVI VAL S T R AT E G Y

During its long and eventful life, the Soviet regime—not unlike other dictatorships—used a “diversified portfolio” of strategies for political survival. Some of them were implemented as political and economic institutions, while others had the character of ad hoc campaigns. Some strategies were deliberately copied by or forcefully imposed upon other Soviet-type regimes in Eastern Europe and East Asia after World War II. Others found close parallels in polities that had no obvious genetic links to the USSR—for example, non-Communist totalitarian regimes in Europe (Germany, Italy, and Spain), Mexico under the PRI, and nationalist regimes in the Islamic world (from Algeria to Indonesia). While voluntary or involuntary followers of the Soviet model could observe earlier outcomes, Soviet leaders had to move forward by trial and error. “War Communism” in 1918–1920, the collectivization of the early 1930s, and the Great Terror of 1937–1938 allowed the dictatorship to quickly accumulate resources for sudden attacks on its enemies and produced immediate results at a minimal cost to the rulers. Those, however, were risky “one-shot games” of an extreme nature and could not be used continuously without casting a dark shadow over the regime’s future.

Introduction

The dictator’s portfolio also included less risky long-term survival strategies, both repressive and productive. Although maintaining the system of labor camps and the provision of public goods such as free health care, education, and housing required investment, such strategies arguably helped to undermine opposition and increase compliance to the regime in the long run. Unlike repressive power, the stock of loyalty in a society cannot be increased quickly, and funding loyalty was therefore an important background task for the regime. Having a single mass party closely integrated with both the civil administration and the military and performing multiple functions ranging from the screening of individuals for administrative jobs to mass propaganda and supervision on the shop floor qualifies as yet another low-risk long-term regime-stabilizing strategy. The party brought Lenin’s and then Stalin’s leadership to state power, and the state made the party organization—its lower-rank regional and local bodies—a key participant in the decision-making process and a channel for policy implementation. The prefect analogy put forward by Jerry Hough emphasizes the party’s role as regional coordinator.18 Peter Rutland compares the party system to a fireman dispatched by the state to fulfill important tasks such as mobilizing and enhancing production in certain sectors of the economy.19 Mikhail Voslenskii equates the party to nomenklatura—the system of appointment controls.20 Such useful and operational analogies, taken together, suggest that the party was a multifunctional organization. Some of its functions, such as the selection of loyal cadres and the provision of ideology, naturally arise from its origins as a political organization in the competitive—although limitedly democratic—polity of imperial Russia. Other functions, such as monitoring the economic performance of state enterprises, were considered institutional innovations—from the perspective of both party politics and the theory of planning. In many cases, the party duplicated the Soviet ministerial hierarchy and territorial administration by implementing its own top-down line of command. Are all those separate functions sufficient to rationalize the continued existence of a mass party under a dictatorship? We assume that the party’s ultimate goal was to produce loyalty—a major substitute for repression. In this capacity, it could play a role similar to one that political

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Introduction

parties play under democracy—that of a “disciplining device” for politicians/bureaucracy by helping to mitigate principal-agent problems between the sovereign and “public servants.”21 In a democracy, the population-electorate is the sovereign, whereas under a dictatorship the government is the principal seeking loyal service and credible commitment to political support from public administrators, economic managers, and political activists (inasmuch as political activism is allowed). Governmental control over the distribution of political rents helps solve the problem of credible commitment. In a collectivist regime, where the ruling elite is the collective owner of the economy’s productive assets, the government, as a monopsonist (single employer) in the market for administrative and managerial jobs (or generally all high-paying jobs in the economy) can raise support by admitting volunteers to the lowest ranks of its power hierarchy with the possibility of subsequent promotion to higher-paid positions. The prospect of promotion creates an incentive for aspirants to rent-paying positions to expend extra effort in their capacities as informants, voluntary supervisors in the workplace, or members of the paramilitary. These types of services both stabilize the regime politically and increase political rents, which constitute the returns to power for the rulers. A mass party is then a central institution of such a political labor market, and its multifunctionality stems directly from its ultimate goal. On the one hand, it needs the power of appointment control and operations supervision to be effective. On the other hand, it is natural to use its pool of rank-and-file members for propaganda work among the population (more generally for interventions into spheres of life, such as family, religion, and culture, that are off-limits for a normal government), and as firemen whenever an unanticipated problem momentarily raises the demand for volunteers. Mobilizing voluntary supporters in a large country requires investment to build a territorially inclusive party system with a developed and penetrating political infrastructure. Thus an additional function of the party was to serve as a redistributive network, directing resources to the regions with a perceived deficient supply of loyalty. Although the party system was intertwined with the hierarchy of territorial economic administrations, the logic of political investment could require a different pattern of resource allocation, inconsistent with the needs of

Introduction

local economies and therefore not to be entrusted to “normal” local government. Paul Gregory, in a study published in this series, shows how the Soviet regime created and maintained the institutions that facilitated rapidly adjustable repression.22 The present study focuses on a long-term alterative—the mechanisms of raising loyalty through a mass party. Whether or not the party was used to indoctrinate and attract true believers, it was a large-scale political enterprise that required management, oversight, and ultimately funding. Was it efficient? Did it produce useful services for the regime at a reasonable cost? These questions can only be answered through studying party economics and state investment in the party system that are reflected in party financial statements— the party budgets. The nature of the party as an institution and organization is reflected in its relationships with key societal elements: the state, its constituents (regional and lower-level organizations and the party bureaucracy), and people (including actual or potential voluntary supporters). Those relationships translate naturally into three layers of analysis. First, we study the changing relationship between the party and state to describe the party as an institutional element of the Soviet system. By providing detailed information on revenues, expenditures, and state subsidies to the party system, the party finances reflect the swings of the Soviet institutional pendulum. The party’s consolidated financial statements serve as a valuable empirical basis for this layer of analysis. Second, to better understand the party’s role as an institution guiding individual behavior we study incentives to join the party, to seek party careers, or to be a loyal bureaucrat or a corrupt local boss. Both legal and illegal strategies were available to party leaders and rank-andfile members. The empirical base for this layer of analysis comes from the files of the Party Control Commission of the CPSU Central Committee, an immensely rich data source portraying the everyday life of the party and its members from many different angles. Third, as the party system was a complex network of territorial and ex-territorial bodies, we study the interactions between the Politburo and the party’s Central Committee apparatus, on the one hand, and regional party organizations, on the other hand. Financial statements of regional party organizations, a wealth of anecdotal evidence, and

15

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Introduction

investigative reports from the files of the Party Control Commission reveal donors and beneficiaries within the party system, where the money came from and where it went, and what exactly the regional party bureaucracy was allowed and/or prohibited to do. Annual financial statements of the CPSU and the records of supervisory agencies (party control and audit), as well as statistics of party membership and economic data from published and archival sources, form the source base of this study. Each data source is extremely informative and even taken alone generates a fair share of curious findings. Party financial documents, for example, help answer such questions as Where did the party money come from? How was it spent? Which regions received more funds? How much did it cost to maintain the party organization? The Party Control Commission files taken alone tell fascinating stories of the deviant behavior of Soviet managers and party officials. Records created by party auditors show how internal party rules were met and enforced. Party statistics show the composition and dynamics of the party membership. All these data sources taken together permit us to set and pursue more ambitious research tasks, such as a study of the Soviet Communist Party as an institution and organization. They also allow studying the operation of the Soviet system behind the façade of official ideology and beyond the stereotypes of the leading role of the monolith Communist Party. Although some party statistical records and documents of party control have been used by scholars for at least a decade, we put CPSU financial statements under the microscope for the first time.23 The financial arrangements revealed in party budgets—top-secret documents showing the party’s revenues and expenditures, which have never been published or reported to the Soviet people—reflect implicit contractual relationships between the party and the state and between the central government and the regions. This material allows us to assess the extent to which using the party to provide propaganda and raise loyalty contributed to the regime’s stability. Analyses of those relationships add to our understanding of the evolution of the Soviet regime and its eventual collapse, arguably prompted by the tensions between regions and the central government, among regions, and within the party bureaucracy and other groups of administrative elites.

Introduction

OUT L IN E O F T H E B O O K

Chapter 1 introduces the participants in the budgeting process and describes the procedure. The UD, the Administrative Department of the party’s Central Committee, dealt with the party economy. It was the third largest department within the party apparatus. Its finance department was in charge of party budgets for the nearly one hundred lower-level party bodies. The consolidated CPSU budget was formed annually as a combination of the several dozen territorial party budgets. This budgeting procedure resembled the planning routine used in the Soviet economic ministries. Party financial statements, which provide new data on party and state affairs and on the changing preferences of party and state leaders, offer some major surprises. First, the top party leadership took party money seriously in a world in which money and prices were not supposed to matter. The second surprise is the increasing degree to which the party was financed by the dues of party members, who had to sacrifice their limited cash resources for the privilege of being party members. We find that pressure was placed on regional and local parties to meet their budgets with discipline. Member dues were collected according to the budgets; excuses were not tolerated. Deviations from budgeted expenditures were monitored and even punished. Chapter 2 presents trends in party finance from the late 1930s until the mid-1960s. For almost a decade party membership remained relatively stable, with slight ups during the war years and downs in the immediate aftermath of World War II, but the situation changed in the late 1940s, when state subsidies began to fade. By the mid-1950s, the party moved toward financial self-sufficiency by significantly raising its revenues from membership dues and the party’s publishing business. In the 1960s, the party was running an increasing financial surplus and by 1990 had accumulated a substantial “emergency fund” (strakhovoi fond). Party budgets not only reveal priorities but also reveal changes in priorities. Conventionally, the party’s most significant expenditure item was for ideology. One of the major surprises revealed by the long-term trends and patterns in party revenue and expenditure is that when World War II broke out, party spending on ideology collapsed as other activities became more important. At the end of the war, expenditures on ideology experienced a revival but then began an

17

18

Introduction

inexorable decline. The numbers provide an outsider’s view, a retrospective that was unavailable to the participants in the budget process, as no attempt to go beyond totals and year-on-year changes is visible in the records. It is clear from the data that the turning point in party economics came in 1947–1948, when state subsidies were deliberately reduced to cover no more than 25 percent of expenditures. The party leadership decided that the party should no longer rely on the national government to foot its bills, which led to reforming party finances in several ways. By the mid-1960s, the party appeared as a small and declining charge on the official Soviet budget. The burden of subsidizing the party system shifted from the center to local governments. Despite growing party membership, membership dues as a part of overall revenue declined, whereas profits from publishing constituted a steadily increasing share of revenue. Chapter 3 focuses on the turning point in party economics—the “special” budget of 1948 and the consequent changes in the party’s modus operandi. The transcripts of a meeting at the UD in late April 1948 do not indicate the precise reasons for the abrupt change in federal subsidies. The use of the word “special,” however, seems to suggest that it was meant to be a temporary measure. The restructuring plan for the party economy presented by the UD chairman, Dmitrii Krupin, had several long-term provisions such as hardening the party’s budget constraint, raising more revenues locally, creating emergency reserves, taking over the publishing houses from local governments, and expanding the party ranks. Ultimately, two important goals were achieved: the party learned to create financial reserves and modernized its publishing enterprises, turning them into one of the main sources of revenue. Chapter 4 studies the financial statements of regional organizations to reconstruct the mechanism of resource allocation within the regional party system and to evaluate the system of incentives for the Soviet bureaucracy. It focuses on a specific incentive problem—motivating the party members who were to assist the top party leaders in carrying out the party’s leading role. The party had to use incentives to attract citizens to its ranks and had to create a reward system that would elicit the necessary effort from them to advance the party’s cause. We show that the problem of incentivizing played a significant role in the system’s eventual collapse. Soviet leaders created the illusion of upward

Introduction

mobility, a system where, in an Escher-type “impossible structure,” the lower ranks see themselves moving upward but never reach the top. The preparatory materials for regional party budgets show that the Soviet leadership used an elaborate system of rankings and compensation differentials that determined the number of positions and average salaries for each party organization, as well as spending limits on practically all budgetary items. This chapter also discusses patterns of intraparty resource allocation, their determinants, and their contribution to the unity of the regime’s power base. We place special focus on the two largest cities—Moscow and Leningrad—and their roles as party donors and the origins of the party’s growing “mercantilism.” Prior to the 1960s, only the two largest territorial organizations, in Moscow and Leningrad (and the army), were transferring a portion of their revenues to the CC, whereas the rest of the party system was subsidized from the consolidated party budget. Our data on subsidies suggest that resource allocation within the party system was consistent with a promotion incentives model. The leadership sought the support of a relatively small but important group of people—the activists—instead of buying the loyalty of the masses. Thus regional subsidies were directed to the areas with low levels of support for the regime and relatively high income per capita. In the regions with low support for the regime—measured by the party participation rates in each region—more promotion opportunities needed to be created and the party payroll needed to be more heavily subsidized. At the same time, in high-income regions, to create adequate incentives for citizens to seek party careers (as opposed to earning an income in politically neutral occupations), a higher investment was required, ceteris paribus. Chapter 5 approaches the major question of party economics— “why the party?” We apply the instruments of economic analysis to the empirical material introduced in the preceding chapters. We focus here on the CPSU as a regime-stabilizing institution that offered incentives both for ordinary people to join its ranks and lend their support (as well as time and money) to the regime and for incumbents to keep the door open for new entrants. What drove ordinary working men and women, typically but not necessarily young, to join the party, pay dues, and attend cell meetings while being unable to influence the political process? Some of the party’s administrative capacity had to be used to

19

20

Introduction

manage ordinary members. What services did it perform to justify the cost? Our model of an implicit promotion contract between the incumbent party bureaucracy and party activists seeking promotion suggests that the party was in a sense a channel for “borrowing loyalty” whose operation was determined largely by economic factors. Analyses of the general trends in party dynamics and data from a panel of Soviet republics in the 1950s–1960s support the proposition that contracts were determined by economic factors and that the inherent problems of party promotion contracts led to the eventual collapse of the regime. Chapter 6 describes the enforcement mechanisms used to ensure compliance within the party system. The promotion machine could function only when proper incentives were created for mid- and lowerlevel party bureaucrats. The party bureaucracy had to comply with the terms of the party “promotion contract” rather than subvert it by converting its power into private income. All aspects of party operations— from the accuracy of paperwork by regional party finance departments to the everyday behavior of rank-and-file members—were subject to scrutiny by local or central supervisory agencies. Two official institutions dealt with such agency problems within the party system—audit and party control. These institutions raise the question: Why oversee the party? While the party itself was the ultimate supervisor, the necessity to delegate important functions to the regional party system while controlling its resources from the center created conflicts between party members and their leadership. Although the supervisory bodies failed to fully eradicate abuses of state and party resources by party bureaucrats, they did fulfill certain deterrent goals. They made free riding on state and party resources much costlier, which depressed the expected gains from illegal acts against the party and the state. Perhaps the regime’s ultimate goal in creating and maintaining these institutions was to keep party bureaucrats within certain boundaries, not to eliminate misdeeds entirely. Chapter 7 discusses how the party administered justice to its members who committed crimes against the party and/or state and sometimes against other individuals. In addition to discussing the official enforcement mechanisms implemented through the party control commissions, we discuss the system that aimed at mobilizing voluntary rank-and-file Communists to operate as informers, or whistle-blowers, creating a “second front” against the dictator’s disloyal agents. Data

Introduction

on appeal cases yield a number of surprising facts about “merciful” party justice that can be explained from the perspective of investment in loyalty and promotion incentives. We find that the party’s treatment of whistle-blowers too often victimized them and ultimately suppressed their efforts to fight the illegal behavior of party members. Along with different degrees of disciplinary punishment, the party used an elaborate institution of pardons, which undoubtedly contributed to the system of incentives used to raise loyalty. Why would the party punish its members and why would it forgive them? What determined the severity of punishment? Why would the party grant some appeals while rejecting others? Why did the Soviet regime, infamous for its brutality toward its own subjects, set up an extremely elaborate appeals procedure that gave the abusers a “get out of jail free” card? We find that the regime sought optimal justice for its loyalists, which was not necessarily true with respect to the general population. The main objective of party justice was to enforce a system of negative and positive incentives that caused party members—the loyalty base of the regime—to remain loyal. Too severe a punishment would dissuade potential loyalists from serving the regime, whereas too lenient a punishment would create a perception of impunity and promote abuse, thus undermining the incentives designed to enhance loyalty. Chapter 8 estimates the costs of maintaining the Communist Party over time. Party budgets provide systematic data on the official side of CPSU finance, showing how much its top leadership spent on salaries, investment, and operating expenditures. The unofficial side—the unauthorized expenditures and illegal methods of collecting revenue—reveals itself through investigations by auditors and party control commissions. The total official cost of maintaining the party can be measured as the ratio of CPSU total expenditure to gross national product. We find that expenditures on the CPSU are substantial compared to expenditures on government administration as recorded in the state budget. The ratio was about one to four in the late 1930s and rose to more than one to three in the 1960s. Party expenditures accounted for a large and increasing percentage of total government expenditures, assuming that the party was effectively a part of the bigger government. The party was not only a smaller but also a better-funded part of the bigger government, spending more per employee than the government. The burden of financing the party was clearly borne to a large and, with the

21

22

Introduction

decline in budget subsidies, increasing extent by individual party members. The actual costs associated with the party were augmented by the extortion of funds by party officials from local government, which increased collective consumption by the party bureaucracy and enriched individual party officials. We find that the party bureaucracy had an incentive to expand the party’s self-financing and consequently to accept new members merely for revenue purposes. As soon as Stalin’s highly centralized control disappeared, both party membership and membership dues increased quickly. The concluding chapter summarizes our findings and puts them in a broader perspective by discussing their impact on further developments in the USSR and the reasons for its collapse. Our findings and the archival documents from the years immediately preceding the collapse of the Soviet Union leave no doubt that the party leadership recognized the necessity for reforms but failed to recognize the magnitude of the impending events that were to put an end to the regime.

1 The Budget of the Soviet

Communist Party

Budgets tend to be regarded as tedious documents that show how a business, nonprofit organization, or government intends to use its income over a period of time. Yet behind the bland numbers themselves, budgets tell us a great deal about an organization by revealing its sources of revenue and priorities, as it will inevitably allocate more resources to the tasks considered more important. In this chapter we describe the budgets of the Soviet Communist Party by showing how the CPSU raised its revenues, spent the proceeds, and whether it had to rely on others to cover its shortfalls. The top party leadership took party money seriously. The Central Committee of the CPSU constantly pressed regional and local parties to meet their budgets. The party increasingly was financed by the dues of party members. In April 1948, the party leadership decided that the party should no longer rely on the national government to foot its bills. Not unlike many industrial enterprises, the party was for a long time a loss maker, as its revenue fell short of its expenditures. However, its budgets begin showing profits in the early 1950s. These findings are intriguing. Why would the party leadership pay so much attention to money? If the party exercised the leading role in Soviet society and was inseparable from the state, why did the center cut the subsidies to the party system? Why did the Central Committee just not request the needed funds from the State Bank?

24

The Budget of the Soviet Communist Party

In April 1948, the Central Committee’s financier, Dmitrii Krupin, summoned regional party officials to deliver some bad news: the wartime easy life was over; the center would no longer foot the bills of regional party committees or supply them with materiel; party committees must provide for themselves from membership dues and proceeds from party publishing houses. From now on “we shall primarily count on our own revenues. State subsidies in the following year will be significantly reduced; they will cover no more than 25 percent of our expenditures.” This announcement verges on the surreal, given the widely propagated image of the CPSU from both its own official self-descriptions and scholarly research. Why should the party—the “guiding force” of the Soviet Union—experience financial problems or be concerned with financial constraints? Even more puzzling was the decision to run the party as a business. The meeting in 1948 was in many ways special and marked an important turning point in the history of the CPSU. T H E B U D G E T O FFI C E : TH E PA RTY ’ S A D M I N I S T R AT I O N OF A F FAIRS

The order to run the party as a business was found in the verbatim records of the finance department of the UD, the administrative department of the Central Committee. The UD was the part of the Central Committee apparatus that planned and monitored the party economy, just as the State Planning Committee (Gosplan) did for the national economy. The UD was the third (at times the second) largest department within the party apparatus. It dealt with the distribution of goods and services, with a primary focus on budgeting party resources. Its finance department was in charge of balancing party budgets by putting together sources of funds and matching financial requirements for the nearly one hundred lower-level party bodies. The UD was created in 1919 and first headed by Elena Stasova, who at that time was a member of both the Politburo and the Orgburo.2 Subsequent heads were less visible. The most prominent was Alexander Poskrebyshev, later a member of Stalin’s Politburo and secretary of the presidium of the Central Committee. Dmitrii Krupin, whose name appears in many key documents discussed in this book, was a longtime chair of the UD. His tenure lasted at least from 1940 to 1958,

The Budget of the Soviet Communist Party

when he was replaced by Valentin Pivovarov, a former guard and personal assistant to Nikita Khrushchev.3 The UD concentrated on the technical aspects of the party economy and was overseen by the Orgburo and later the Secretariat of the Central Committee. Compared to the betterdocumented party institutions, such as the Central Committee and Politburo, both the Orgburo and Secretariat are elements of the party structure about which we still know relatively little. In the Stalin period, especially from 1939 to 1953, the Secretariat was essentially the center of the party’s “back office,” which included members of the official top leadership and apparatchiki. Despite its modest title, it made trendsetting decisions. Not included in the party leadership per se and unknown to the general public, the heads of the UD still belonged to the group of most influential apparatchiks that ran the Soviet Union on a day-to-day basis. Key orders, such as the policy to eliminate state subsidies to the party, must have originated in the Politburo and were passed on to Central Committee apparatchiki such as Krupin to execute. A Central Committee apparatchik was essentially a bureaucrat whose career depended on the well-being of his organization, the Communist Party. Presumably, he acted in the best interests of his organization to overcome problems arising from changing circumstances. Similar to the role of Gosplan, his department’s role was to make sure that the party budget was consistent with regional policies and did not contradict the demands raised by the center. Regional party officials also understood the chain of command. In the last years of Stalin’s rule (late 1940s–early 1950s), nearly one hundred regional party organizations submitted annual financial reports, including detailed information on revenue, expenditures, and assets of all subordinate organizations, down to the level of the rural district. The voluminous reports were addressed not to the Central Committee but personally to Comrade Krupin, whose name was never mentioned publicly. For example, in 1951, Krupin received a report by the party organization of Moldova, signed by Leonid Brezhnev, who later rose from party secretary in the obscure borderland to the top, replacing Nikita Khrushchev as the party leader in 1964.4

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The Budget of the Soviet Communist Party

P LA N N IN G PA RTY B U D GE TS

Like other organizational entities, the CPSU faced budget constraints, which required careful prioritizing. Financial planning for the party resembled the top-down-and-back-up routine used in industrial planning: the top authority delivered benchmarks to the lower levels, which produced detailed plans and sent them back up, where they were checked for consistency and modified as needed. Each financial statement listed sources of revenue, such as membership fees and proceeds from publishing, as well as expenditures, such as those for the party Central Committee, local party organizations, administrative expenditures, and ideology. In the case of party finance, party membership played a role equivalent to that of production capacity in industrial planning. There seems to have been less iteration, probably because of the relative homogeneity of tasks and agents. Not unlike production enterprises, regional party organizations based their drafts on the previous year’s actual revenues and expenditures and adjusted them following certain rules and specific new instructions. The UD financial sector closely inspected draft budgets prepared by the regional committees. It then added subsidies from the CPSU budget and specified expected contributions by local governments to cover the deficit. Usually, the UD did all the work, which was then evaluated and signed by one of the Central Committee secretaries.5 Several top party leaders—such as Politburo members Viacheslav Molotov or Andrei Zhdanov—also received the accompanying memos, in which the UD highlighted the most important budgetary figures, such as the totals of expected revenues and expenditures, the amounts of subsidies, and changes from the previous year. Direct interventions by party leaders or other party bodies (such as the Orgburo) are not recorded anywhere in the documents. On occasion, however, an ad hoc commission could be summoned to decide on a particular policy change affecting the party economy; the commission included the head of the UD, other apparatchiki, and one or two members of the top leadership. Regional annual draft budgets were comprehensive documents. Up to two hundred pages of tables covered all aspects of regional party finance and included supplements with basic statistical data on the regional party organizations and the regional economy. For example, regional party finance included the number and salaries of technical staff

The Budget of the Soviet Communist Party

and typewriters in the regional and district/rural party organizations, transportation costs, the financial plans of local newspapers, and revenues from auxiliary enterprises (podsobnye khoziaistva, mostly farms). Basic statistical data on the regional party organizations and the regional economy included party membership and employment in industrial enterprises and state farms. Regional chief accountants typically attended meetings at the UD, but their role was mostly limited to explaining their draft budgets. Direct requests at the UD meetings were rare and quite risky since face-to-face communications could reveal certain latent aspects of regional finances. Ranking representatives from the central committees of union republics or important oblasts of Russia sometimes participated in the discussions of the final versions of the annual budgets and could propose changes to the original drafts.6 Strict rules guided the UD’s calculations to define the norms of expenses for a particular organization and its apparatus. Archives are replete with examples of the center’s obsessive control over spending by low-level party bodies. The task of compliance and monitoring was delegated to yet another organizationally independent body—the Central Audit Commission of the CPSU (Tsentralnaia Revizionnaia Komissia), which reported directly to the Central Committee. S T RU C T U R E O F PA RTY FI N A N C E

Party finance was broken down into three major blocks: Russian regions, union republics (other than Russia), and nonterritorial party organizations—primarily the army and the KGB. Until 1943, the Young Communists League (YCL) was effectively an additional nonterritorial member organization contributing to the party budget. The federal and local governments also contributed to the party system, but their support was conditional and was listed as a subsidy rather than as the party’s own revenue.7 Russian regions were represented by three types of constituent units: krai, oblast, and autonomous republic. The top party organization in a krai was termed a kraikom, and it was termed an obkom in all other units. Kraikoms and obkoms supervised lower-level party committees of rural districts (raikom) and cities (gorkom). Large cities had separate party committees in city subdivisions (gorraikom). The basic microunit of the CPSU was the party cell, officially termed “primary party

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The Budget of the Soviet Communist Party

organization” (PPO), which was a feature in all state enterprises, government offices, schools, and collective farms. A krai included one or more ethnic territorial units: autonomous oblasts and/or okrugs. The party committee in such a unit was called an “embedded obkom” (vhodiashchii obkom). Information on these subregional units, as well as on subdivisions within republics (other than Russia), was sometimes provided in the CPSU budget planning documents, but typically territorial breakdowns were limited to the level of the region directly subordinated to the CC—that is, kraikom or obkom in Russia or a union republic. The number of regional party organizations varied over the period from 60 before World War II to 80 after the war. The party system grew slowly but steadily until 1963, when Nikita Khrushchev introduced industrial-rural regional divisions, instantly increasing the number of regional party organizations to 120. Each Soviet republic except the Russian Federation—the largest of the Soviet republics—had its own central party committee. The Russian Federation had no separate party organization, just as it had no separate governing bodies in many other areas of the administration, but was governed directly from the Kremlin. Nevertheless, the combined Russian party organization—60–80 regional branches—constituted the most important contributor to the consolidated party budget, followed by Ukraine, Kazakhstan, Belarus, Georgia, and Uzbekistan. From the late 1930s, the structure of the annual CPSU financial statements at the union level remained relatively stable and included three explicit sources of revenue: membership fees, proceeds from lectures and speeches, and proceeds from the publication of party periodicals. Expenditures included those for the Central Committee and Party Control Commission, propaganda, party schools, construction projects, and operating expenses of the local party organizations. Subsidies from the USSR state budget (hereafter the federal government), local governments, and—prior to 1947—the off-budget reserve of the Council of People’s Commissars completed the picture.8 The data on subsidies are invaluable for this research. They offer new information on the relationship between the party and the state, as well as between the party system and regional governments. Each subsidy had a well-defined purpose in the party budget. The federal government primarily subsidized ideology, which included expenditures

The Budget of the Soviet Communist Party

on propaganda, such as party rooms at state enterprises, party schools, meetings of regional party bosses, literature, the Lenin Museums, and elections to the Supreme Council of the USSR. By the 1960s, this type of subsidy had shrunk to one narrow category—payments for the training of administrative cadres in party schools. Local governments primarily subsidized the so-called operational expenses of regional party organizations. In addition to utilities, operational expenses included the acquisition and maintenance of all means of transportation, including cars and horses. Subsidies coming from the Council of Ministers Reserve were used exclusively on administrative expenses, which included salaries of officeholders and staff, conferences, communications, business trips, health care and benefits, and lump-sum payments. The structure of regional budgets mirrored the union-level budgets, except federal subsidies were allocated among regional organizations from the consolidated party budget. Both federal and local subsidies flowed into the all-union budget. Subsidies to regional organizations, however, can only be traced back to consolidated budgets and corresponding regional governments, as the federal government did not finance territorial party organizations directly. Until 1962 only the Moscow and Leningrad party organizations produced surpluses, which were transferred to the CPSU budget. In 1950, Leningrad transferred 24.8 million rubles and Moscow, 132.3 million rubles, enough to finance half a dozen smaller party organizations. For comparison, the average annual budget of a republican organization was 83 million rubles, while the average party organization within the Russian Federation required some 26 million rubles. M EMB E RSH IP DU E S

Membership dues constituted one of the most important sources of party revenue. Being the most important political organization in the Soviet Union, ubiquitous to the extent that it was perceived as the regime itself, the CPSU had to work hard to raise enough funds from its members. Party budgets clearly indicate that its bureaucracy could not fully enjoy the fruits of its powerful position to have all it desired. The documents also show how the party system raised funds from the bottom up and distributed them from the top down.

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The Budget of the Soviet Communist Party

The provision that members must support the party financially appeared in the first edition of party rules adopted in the early twentieth century. Membership dues had not played an important role in party finance before 1917 since the party was not a mass party and since party members were required to participate actively in the underground activities of party cells, which limited their earning ability. The first party rules (Ustav), adopted at the party’s VIIIth Congress in March 1919, lists membership dues as one of four requirements of party membership, along with sharing its programmatic principles, participating in party activities, and obeying the party’s decisions. The 1919 rules are also very specific regarding the rates of membership dues, the distribution of revenue among party committees of various hierarchical levels, and auditing. The party grew most concerned about money when the country’s economy was in complete disarray, at which time the party congress extolled the goal of creating a largely naturalized economy in which the role of money would be downgraded to a unit of account. The party’s earliest available financial statement, from March 1919, shows that the major share of party revenue came from the state, contributions by trade unions, and “other donations,” which could be simply confiscations. At that time, membership dues played a marginal role in party finance.9 Party rules, however, never mention the UD, which was created at about the time the first postrevolutionary party rules were adopted. There are also no extant records regulating the operations of the UD, which was at the center of the process of dues collections. The version of the rules introduced in 1934 by the XVIIth Congress has only three short paragraphs on party finance. The first stipulated that party funds were made up of membership dues, revenues of party enterprises, and other revenues; the second linked dues rates to monthly salaries; and the third introduced an admission fee (2 percent of a candidate’s salary). These rules remained largely unchanged through the end of the Soviet era; only dues rates were subject to adjustment. One such adjustment was made in 1947 by a Central Committee internal decree; other changes were nominally adopted by party congresses.10 Usually, dues rates were capped at 3 percent of one’s salary for the highest income earners, and lower brackets were set at a constant rate of five or ten kopeks, under 1 percent. Variations that mostly concerned the steepness of the fee rate curve and the boundaries of

The Budget of the Soviet Communist Party

the brackets primarily affected the net contribution of rank-and-file members in the lowest brackets and therefore affected average “party tax” rates and the distribution of dues collection among party members. The dues schedule remained practically unchanged after 1966, but in earlier periods intramarginal rates changed frequently. The task of keeping track of the physical location and earnings of party members, essential for collecting dues and forecasting revenues, fell to the secretaries of party cells. Party members moved frequently, changed jobs, and received extra remuneration or bonuses, whereas the registration system was rather primitive. It was important, therefore, to collect dues on a monthly basis and promptly deposit the money at a local branch of the State Bank (Gosbank), thus maintaining the cash flow. Although the dues rates may look trivial, the party still had to deal with evasion. Membership dues were linked to nominal salaries, which in turn were subject to payroll taxes, de facto compulsory trade union dues, and other dues. For example, before 1948, the nominal cost of food rations was also subtracted from salaries, and until the 1950s there was a requirement to purchase government bonds regularly. The 2 percent party dues taken from a gross salary might then be a substantial proportion of the remaining cash received at the payroll window. Moreover, bonuses and other forms of remuneration and extra income became targets of dues collectors when the party was experiencing financial strain. Generally, expectations with respect to membership dues were formed in the following way. Using the current membership dues rate, actual figures for membership dues in the previous year, and the average number of party members, the UD calculated expected monthly and annual membership dues for the following year. The resulting figure was then adjusted based on the expected annual increase in membership, wages, and salaries, as well as a number of ad hoc measures. To illustrate the routine, let us follow the calculations made by the UD for the 1948 and 1962 financial statements. First drafts of the 1948 budget were produced in October 1947.11 The UD began by analyzing the structure of party membership, which was dominated by salaried white- and blue-collar workers but also included farmers (14 percent), members not in the labor force, such as retirees and housewives (6 percent), and members of the military (16 percent) (table 1.1). Table 1.2 sums up the algorithm underlying the

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The Budget of the Soviet Communist Party

1948 calculations. Using the actual 1947 numbers for membership dues (1,671.8 million rubles), party membership (6,051,900 people), and projected membership for 1948 (6,390,300 people), the UD calculated the expected monthly (22.4 rubles) and annual (268.7 rubles) dues per member. As a first approximation, a 6 percent increase in party membership should have resulted in a 3 percent increase in membership dues in 1948; several measures were factored in to raise this amount. First, an expected 6 percent increase in wages would result in an additional 105,000,000 rubles. Second, a 3 percent “tax” on fiscal bonuses received by top officials—estimated at 400,000,000 rubles—starting January 1, 1948, would add another 12,000,000 rubles. Third, the membership dues rate for farmers was planned to increase sixfold on May 1, 1948—from 0.5 ruble to 3 rubles—resulting in an additional 18,000,000 rubles in revenue. Fourth, party members in the military whose monthly salaries exceeded 100 rubles would now have to pay membership dues at the standard rate, a measure that was projected to raise another 700,000 rubles in revenue. May 1, 1948, also brought about a fifteenfold increase in membership dues for party members who were housewives. The CC estimated that there were approximately sixty thousand housewives in the party and that increasing their dues from 20 kopeks to 3 rubles (1 ruble is 100 kopeks) would bring in 1,300,000 rubles. The process of establishing new measures ended when the party accountants concluded that the cumulative effect of all those measures should be a 10.5 percent increase in membership revenue in 1948.12 The new party rules of 1962 reintroduced the 3 percent monthly flat rate for salaries in excess of 300 rubles and significantly reduced rates for low-income earners (table 1.3).13 To have a party membership card (partiinyi bilet), students and housewives paid a miniscule amount, only 2 kopeks (0.02 ruble) a month. Blue-collar and white-collar workers with salaries below 50 rubles were to pay 10 kopeks and farmers 5 kopeks. Progressive rates for wages between 50 and 300 rubles, which varied between 1 and 3 percent of monthly wages, clearly were intended to stimulate the demand for party membership. An accompanying memo to the 1962 consolidated draft budget suggests that the decline in the aggregate income of party members and, therefore, in the inflow of membership dues was expected and included

The Budget of the Soviet Communist Party

in the calculations.14 Although the membership revenue increased in 1961, the plan for 1962 reflected the lower rate by cutting the expected revenue by nearly 25 percent.15 The described measures should have eased the burden for low-income members. Given that the average national monthly wage at that time was approximately 86 rubles, the 15 percent of party members whose monthly wages were 150 rubles or higher were contributing almost 60 percent of the party membership dues.16 The 1948 budget marked a new era in party financing. Federal subsidies fell dramatically, to just one-quarter of party expenditures, as opposed to slightly over one-half in the previous years.17 By swiftly adjusting dues rates and setting a more flexible schedule, the party sought out every marginal members’ income. Indeed, the outcome exceeded expectations. In 1948, membership revenue increased by nearly one-fifth, and a continuing rise in party membership also played a positive role. Higher dues rates, however, should have lowered the demand for party memberships, eventually leading to lower rates of growth in the membership. Several changes in the party fiscal policy in 1948, 1953, and 1962 show that the party leaders understood the importance of the rate-membership trade-off: rising dues rates produced an immediate increase in inflow of dues, whereas lower rates encouraged growth in the party membership. Membership dues plunged in 1962, just as they had in 1953, but in response to the lower dues rates, there was a healthy growth in party membership. P RO B L E MS O F PA RTY FI N A N C E

Transcripts of the meetings at the CC administrative department, usually called and headed by the UD secretary, shed light on problems of party finance from the perspectives of the CC and regional party organizations. The center’s main concern was enforcing spending limits, or preventing overspending, in the regions. Local party leaders struggled with insufficient funding from the center. And the welfare of the entire party bureaucracy depended on successfully collecting dues and raising cash, unconditional on state grants, as fiscal problems could jeopardize the salaries of party officers at all levels. In 1948, Krupin suggested that the problem of the revenue shortfall was largely technical, caused by inexpedient dues collection: “I do not

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The Budget of the Soviet Communist Party

understand . . . why in January and in the first quarter of 1948 we received 30 percent less in membership dues. The number of party members did not decrease; it even increased; there are more members coming from the army; we did not reduce the rate, but we collected less in membership dues than in any other quarter of 1947. I propose the following: clear January accounts in January and February accounts in February. Otherwise it will be tough for you to pay salaries. . . . Membership dues are not so high that a party member could not pay for January in January.”18 Soon, however, it was recognized that the delays in dues from local party organizations and widespread evasion were persistent and systemic problems that were being experienced by party organizations regardless of their size and status. Auditors’ reports showed that the main cause of delays was a general lack of enthusiasm among the secretaries of party cells to deposit the collected amounts at local branches of the State Bank. The secretaries often acted as if the collected cash actually belonged to them. For example, one secretary at a small industrial enterprise spent half of the monthly revenue to purchase stationery and lent the rest to a coworker.19 Party auditors frequently reported cases of party members hiding their actual incomes in order to reduce their dues.20 A representative from the Kazakh party organization noted in 1948 that “the Party audit is my right hand . . . but our CC lacks efficiency regarding revenue from membership dues. We dispatch instructors to assist the obkoms, to show them how to conduct a thorough audit. Still in many primary party organizations, Communists do not pay membership dues based on their actual incomes [reporting only salaries and leaving out bonuses]. For example, at a local machine-building plant the director himself owes 247 rubles, and his deputy, 156 rubles.” The representative suggested that in part the problem was rooted in the extremely low literacy of local party secretaries and in particular their poor command of the Russian language.21 However, delays and evasion were reported in most regions, including those with dominant ethnic Russian populations and relatively high levels of literacy. For example, the Rostov obkom noted in 1950 that its subordinate district party committees “violate the central committees’ rules for the accounting and reporting of membership dues, and the delinquency has been growing recently.” The debt varied from 5 to 12 percent of revenue across district party organizations.22 The obkom demanded that the secretaries of the dis-

The Budget of the Soviet Communist Party

trict committees find ways to increase the “Communists’ sense of personal responsibility” and compliance with the rules. Financial relations between the CC and regional party organizations were, in a sense, symmetrical as they carefully watched each other so as not to miss any mistake or deviation. The center closely monitored the regions, punishing unauthorized spending by disciplinary sanctions and denying requests for additional funds. The regional party bureaucracy enthusiastically interpreted each instance of delayed or insufficient funding as a legitimate justification for unauthorized spending. For example, the 1952 financial report of the Cheliabinsk obkom claimed that the transfer of funds from the local government was received only at the end of the year, including funds for health-care expenses.23 The 1953 financial reports from the Kabardino-Balkarskaia and Kaliningrad party organizations stated that their budget deficit was a direct result of insufficient funds transferred by the CC: “The UD retained 9 percent of the allotted funds and the Ministry of Finance delayed the transfer of an additional 15,000 rubles.”24 In the mid-1950s, the growing party membership and revenues from party publishing enterprises eased the strain of the financing situation. The issue of dues collection faded into the background, and the average dues rate declined. Krupin proposed to run the party as a business, and indeed, at least from the late 1940s, there were important similarities between the party and a business enterprise. Still the analogy must be used with caution, as officially the party’s main objective was to perform ideological services rather than produce goods. The party bureaucracy, unlike Soviet industrial managers, could not explicitly cite insufficient supplies as a main cause of output shortfalls but had to find alternative ways to obtain resources, especially cash to pay its officers.

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2 Trends in Party Finance,

1939–1965

Party leaders announced priorities of the state—“the party line”—in frequent speeches and newspaper articles. Party budgets, although less eloquent than speeches, also reveal priorities. Moreover, they expose changes in priorities that the leaders chose not to broadcast. Clearly, in the late 1930s, as reflected in the most significant single expenditure item, the party’s focus was on ideology. Some three years later, when World War II broke out, other activities had become more important, and party spending on ideology shrank. At the end of the war, spending on ideology increased briefly but soon began declining again. Party budgets provide continuous series of statistical data of party financial records from 1938 to 1965 and isolated data points for the later period (1974, 1990, and 1991) that reveal long-term trends in revenues and expenditures. This chapter’s analysis of these trends and patterns allows us a rare opportunity to see whether the party was “putting its money where its mouth was.” DATA QUA L IT Y

Party financial data mostly come from the files of the CPSU Central Committee finance department for the period between 1939 and 1965.1 Additional materials, including several CPSU annual budgets for 1974, 1990, and 1991, come from documentary collections prepared for the trial of the CPSU and confirm the trends observed in the earlier data.2

Trends in Party Finance

Usually, there are two concerns regarding the quality of data produced by the Soviet bureaucracy. The first concern is a high probability that the data could have been distorted before publication to present the regime in the most favorable light. The second concern has to do with the genesis of information in administrative hierarchies. In hierarchical systems, information is not distributed evenly, and agents who have informational advantages can use it for their own benefit and not in the interest of their principal. Such behavior is referred to as the “fundamental problem of command” or the “economics of illusion” in the context of Soviet economic planning.3 Similarly, lower-level party organizations could submit biased information about their revenues to obtain larger subsidies from the Central Committee. The first concern about information distortion can be easily dispelled in the case of CPSU financial documentation because party budgets were never intended for public view. Matters of party finance thus present a peculiar combination of secrecy and openness. On the one hand, the preparation of financial plans and reports involved a large number of staff in the regional party organizations, the party’s Central Committee, and the Central Audit Commission. Moreover, following the party charter, party auditors presented their reports at party congresses. On the other hand, no more than a dozen people at the party’s Central Committee saw the full picture of the flow of funds from and to the regional party organizations. Reports at party congresses never gave any specific figures. The documentation exchanged between regional party secretaries and the center dealt exclusively with the region in question. Thus it is unlikely that regional secretaries had any understanding of party finance beyond their immediate scope of responsibilities. Moreover, all documents related to party finance—the budgets themselves and any accompanying memos—were labeled top secret and were never published. Therefore, there should not be any deliberate distortions of data prepared by the CC financial planners. To address the second concern, another look at the budgeting procedure will reveal what means were available to control the quality of information coming from lower-level agencies. Annual financial reports and plans in the UD finance department files contain two main types of data: actual revenues and expenditures and expected revenues and expenditures for the current year. Plans were typically drawn up in the fall. For example, first drafts of the 1948

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Trends in Party Finance

budget date back to October–November 1947. Therefore, expected revenue and expenditure figures were extrapolated based on the data for the first ten months of the current year. There is no information about the adjustment procedure, as budget proposals refer to adjustments in a manner that lacks specificity. The multistage process of planning, however, allows a comparison of the figures drafted by local organizations with the figures finalized by the UD. Not surprisingly, drafts by local organizations show lower revenue figures, especially membership dues, and higher expenditures than the UD’s drafts.4 The UD, well aware of this persistent discrepancy, kept track of the party membership dynamics and the membership dues coming from the regions and the army. There is no evidence, however, that the UD conducted a thorough longitudinal analysis of budgetary data. Additional assurance of the accuracy of revenue data comes from the fact that all information on the changes in party membership could be independently verified by the CC’s Secretariat, which was functionally and organizationally separate from the UD financial department. The cross-checks and parallel information channels, as well as the relative homogeneity of financial data, should have produced reliable figures. The confidentiality of the budgeting process was another way to secure the quality of information coming from below, as secrecy was one way of limiting lobbying and thus preserving the integrity of the principal’s decision making.5 Assuming party resources were allocated among regions in a certain way for a reason, letting regional secretaries lobby for more subsidies could lead to a suboptimal outcome from the Central Committee’s perspective. It was significantly harder to lobby for more funds without knowing where and when a decision was to be made. At the same time, the system was “transparent from above,” with hundreds of party auditors and party control inspectors watching the lower-level bodies and keeping track of organizations where embezzlement or misappropriations were revealed.6 Despite the “shadow budgets” of party committees resulting from outright corruption, the annual figures in the official party budgets were internally consistent and sufficiently accurate.

Trends in Party Finance

T REN D S IN PA RTY R E V E N U E

During the entire period of observation, from the late 1930s to the mid-1960s, party expenditures were planned in excess of expected revenue, and the deficit was covered by both the federal budget and local budgets. One would expect an important instrument of political power such as the CPSU to be fully funded by the state. Indeed the CPSU relied heavily on donations from the state in the first decades, but it did not become fully funded even in the heyday of the Stalinist totalitarian model. Even then, when the party merged most closely with the official government, it was partially funded from its own revenues, mostly membership dues. Abundant in the late 1930s, state subsidies to the party had faded by the mid-1960s, and self-generated revenue increased more than twofold, from some 40 percent to nearly 90 percent. The turning point in party economics came in 1947–1948. The decline in the share of subsidies in the late 1940s observed in the reports is not an accounting trick. Transcripts of a meeting at the UD in late April 1948, presided over by its head, Dmitrii Krupin, make clear that state subsidies were deliberately reduced to cover no more than 25 percent of expenditures. This major change called for reforming party finance in several ways. By the mid-1960s, the party appeared as a small and declining charge on the official Soviet budget. The burden of subsidizing the party system shifted from the center to local governments. Despite growing party membership, membership dues as part of overall revenue declined, whereas profits from the party’s publishing business constituted a steadily increasing share of revenue. According to Atsushi Ogushi, publishing was the party’s major commercial activity until the 1980s, when the party began leasing its property and became involved in investment and banking.7 As early as 1948, however, regional party organizations were encouraged to raise additional funds by selling excess inventories, offering paid public lectures, and engaging in other money-making activities.8 In the late 1950s, the party moved to financial autonomy, with its budget often showing an accounting surplus. By 1990, it had accumulated a substantial “emergency fund” (figure 2.1). The main source of party revenue was membership dues, followed by proceeds from the sales of newspapers (such as Pravda), books, and magazines. Membership dues came from two sources: territorial

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Trends in Party Finance

(civilian) and nonterritorial party organizations, primarily the army and the KGB. Both party membership and membership dues grew for most years in the period.9 In the 1940s and early 1950s, however, changes in contributions from these two sources did not necessarily follow changes in party membership. This discrepancy is most apparent in 1953: party membership declined by 4 percent, but dues plunged disproportionally by 10 percent. From the mid-1950s, revenue from both dues and party membership grew steadily by 4 percent each year. Unsurprisingly, contributions from party members in the military reached some 60 percent of total dues revenue in 1943. However, despite the postwar demobilization and the subsequent relative decline in military party membership between 1945 and 1965, military dues never fell below 20 percent of total party revenue. In absolute terms, after the war, the annual revenue from the military was relatively stable, around 0.5 million rubles. By comparison, the combined contributions by territorial party organizations varied between 600,000 and 1,700,000 rubles in this period. In the late 1940s, 16 percent of the party members who were in the military provided over 30 percent of the total dues revenue, or one-fifth of the total.10 Such a remarkable level of contributions from military organizations can be explained by a combination of such factors as higher than average incomes in the army and KGB and a high compliance with the rules of dues collection. On the one hand, party secretaries in the army could easily keep track of members. On the other hand, officers and soldiers had no effective way to conceal their actual income. Another salient feature of party finance is the downward trend in the share of membership dues in total revenue. Fluctuating sharply in the 1940s and early 1950s, this share declined from some 90 percent to about 60 percent in the 1960s, replaced primarily by proceeds from the party’s publishing activities. In the late 1930s and early 1940s, an additional source of income was the Young Communists League (YCL). In 1943, however, its contributions declined sharply, from some 5 percent of party revenue to under 1 percent, and by 1945, they had disappeared completely. Allegedly, the growing importance of the YCL in the “liberated” regions and a consequent increase in the number of positions of responsibility in the organization allowed young Communists to gain financial independence

Trends in Party Finance

from their older comrades.11 Instead of pooling its resources with the CPSU, the YCL got permission to have its own budget.12 T REN D S IN G OV E R N ME N T S U B S I DI E S

As the Stalinist state absorbed all semi-independent institutions, the separate financing of the party from trade unions or any other entity became redundant.13 The disbursement of subsidies was typically executed according to the plan rather than on an ad hoc basis to cover breakdowns of dues collection or unexpected expenditures. Party accountants interpreted subsidies as part of party revenue. Explicit subsidies originated either in the federal budget or in local budgets. In most years of the period, both types of subsidies were present. In the late 1930s, federal subsidies dominated; the relatively small subsidies from local governments were to cover the operating expenditures of regional and local party committees. Beginning in 1949, however, the scope of subsidies from local governments broadened to finance the renovation of party buildings, health benefits for party staff, and maintenance of the party archives.14 The share of local government financing steadily increased, suggesting that the burden of subsidizing the party shifted from the top down, although declining overall (figure 2.2).15 The share of total party expenditures funded by state subsidies declined steadily. Reaching a maximum of 84 percent in 1939, it fluctuated during the period, never exceeding 50 percent and declining to 10 percent by the mid-1960s. It is not clear whether subsidies completely disappeared after 1965 because the fragmentary available data do not allow us to calculate implicit subsidies, but the general downward trend is apparent (figure 2.3). In 1974, the CPSU ran a massive surplus and received only a very small subsidy from the federal government, technically a payment for training “Soviet cadres” (public administrators) in party schools.16 The last two available financial statements, from 1990 and 1991, mention no federal subsidies. T REN D S IN PA RTY E XPE N DI TU R E S

Party expenditures fall into two main categories, which can be labeled “party consumption” and “party investment.” The first category

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Trends in Party Finance

included current expenditures and covered such costs of party administration as party meetings and conferences and payments from the Central Committee to lower-level party committees for salaries to party secretaries and their assistants and staff.17 The second category included predominantly expenditures on ideology and construction. A remaining “special” expenditure, the purpose of which was seldom disclosed, accounted for less than 1 percent of total expenditure. Party organizations in territories with relatively low party participation rates tended to have a greater administrative expenditure per party member. In the late 1940s, the average party participation rate across the Soviet republics was around 25 party members per 1,000 population (figure 2.4).18 In 1946–1947, the highest expenditure per party member was in the Baltic republics, which had the lowest party participation rates—between 6 and 13 party members per 1,000 population (figure 2.5). Although these regions also generated relatively high revenues per member, in part due to higher average incomes in that part of the USSR, other regions with higher-than-average expenditures per member (the Central Asian republics) were among the poorest and were characterized by participation rates below average. By contrast, expenditures in the Transcaucasian republics (Azerbaijan, Georgia, and Armenia) were two to four times below the nationwide average. At the same time, the Transcaucasian republics had the highest party participation rates, 35–45 party members per 1,000 population. Party accountants included the end-of-year balance in revenue (literally “rollover”—perekhodiashchii ostatok sredstv) and the beginningof-year balance in expenditures. These figures allow us to calculate party savings (or dissavings), showing that the CPSU devoted, on average, 0.4 percent of its budget to accumulation. The growth of CPSU savings (measured as account balances) outpaced the growth of the official state budget by a factor of four beginning in the early 1960s. What had started as a peculiar accounting practice became institutionalized as the party’s “emergency fund.” A rough estimate suggests that, by 1991, the party emergency fund amounted to some 2 billion rubles.19 The costs of producing ideological services included expenditures on propaganda, party education, and the training of party and Soviet managers. In 1938, ideology took over one-third of total party expenditure (figure 2.6). In 1941–1942 (the first two years of World War II), it dropped to below 10 percent but reached 20 percent in 1948. In the

Trends in Party Finance

late 1950s, when the party set out on the course to self-sufficiency, ideology gradually fell to under 10 percent of the total expenditure. The drastic reduction in expenditures on propaganda during the war had an immediate and negative effect on the quality of ideological services, especially in the countryside. Reports from regional representatives and party control investigators pointed to declining morale and loyalty in the regions during the war years. A 1943 report from the Penza region, for example, mentions that “most important government edicts fall through the cracks and get stuck in the departments of local governments or are not being delivered to the executives at all. . . . The lack of discipline in the [local government]leads to slack at the lower levels. The district-level leaders got used to all sorts of threats and intimidation; the threats in telegrams from the center are considered cheap talk because failures to comply generally go unpunished.”20 As a result of this memo, this particular case was investigated, the secretary of Penza obkom was dismissed, and the regional party leaders were required to establish firm control over the execution of governmental decrees. Nevertheless, hundreds of reports from regional party control representatives, especially from the periphery of Russia and in Central Asia, repeat the one from Penza almost word for word: district party committees do not send propagandists to rural areas; they do not supply such areas with newspapers; they deliver party decisions and news over the phone or radio; they do not check whether party cells hold regular meetings; regional authorities do little to lead district committees in “the right direction.”21 A report by a representative in the Cheliabinsk region in the Urals—one of the most important centers of industrial production during the war—added colorful details to a general picture of decay: newspapers and magazines never left the district centers. Those few copies that were delivered were “used as cigarette paper rather than for public reading. . . . Rumors are circulating that collective farms are going to be disbanded and farmers are discussing who will get which cow.”22 The party’s sources of revenue were affected by World War II; membership dues from military party organizations virtually supplanted those from the civilian organizations. Thus expenditures needed to be restructured. For example, more resources went to support the dependents of party officers and finance the reconstruction of party property,

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Trends in Party Finance

as well as for purchasing horses to replace the party’s fleet of automobiles, which were sequestered by the army.23 In the immediate aftermath of World War II, ideology expenditure went up, almost to the prewar level. The work of propagandists improved, wage arrears to propaganda officers were eliminated, and radio transmission networks were repaired.24 Investment in ideology was greater in the regions with lower party participation rates (figure 2.7). It was particularly high in the newly annexed western regions of the country, which required a greater than average propagandistic effort. Investment in ideology started declining again in the late 1940s and early 1950s as the steady growth in party ranks began. After World War II, there were no mass purges or excessive deaths of party members, and leaving the party ranks was costly because a voluntary exit, just like an expulsion, would stigmatize the individual and negatively affect his or her future career. All these factors made relatively small investments in retention and recruiting sufficient to produce the observed growth in party membership. Between 1958 and 1965, investment in propaganda was cut by 30 percent (from 90 million to 60 million rubles), largely the result of a decline in federal subsidies. Eventually, in the 1970s and 1980s, high “barriers to exit” combined with growing life expectancy inflated the party membership, even though admissions of new members were declining.25 The ultimate failure of the Communist ideology cannot be explained by a single event and had, of course, deeper roots than the insufficient funding of the propagandistic effort. The underfunding of ideology was a choice made within the party organization, and even before propaganda spending took a dive, party overseers reported the unwillingness of lower-level party bodies to spend the amounts allotted for propaganda.

3 The Special Budget

of 1948

The transcripts of a UD meeting that took place in late April 1948 capture the turning point in party finance—the abrupt decline in federal subsidies—observed in the data. After a discussion of the previous year’s financial reports, the Central Committee’s financier, UD chairman Dmitrii Krupin, broke the bad news to the regional participants: the 1948 budget was going to be “special,” with the party having to depend on its own revenues. Federal funding in the current and following years was to be significantly reduced—no more than 25 percent of expenditures. The propaganda and training of party cadres (partiinoe prosveshchenie) and party organizations would get “not a kopeck from the government for [the party] economy.”1 To continue to pay salaries and cover operational expenditures, the party would have to find a way to raise its own revenues. The transcripts of the April meeting, available memos, and verbatim reports provide the invaluable pieces of information needed to interpret the observed trends in party revenues and expenditures that we have presented. We first observed the turning point in party economics in 1947–1948 from our analysis of the time series data. Our subsequent serendipitous discovery of minutes of the April 1948 meeting not only confirmed the previous findings but also revealed the details of the Krupin Plan and the party’s changing modus operandi in the decade that followed the cuts in indirect government subsidies to the party.

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The Special Budget of 1948

RUN T H E PA RTY A S A B U S I N E S S !

The transcripts do not indicate the precise reasons for such an abrupt change in the federal subsidies. The use of the word “special” may suggest that it was meant to be a temporary measure. The precedent in fact was set in 1947, when regional party organizations “received less help in this year, no more than one-fourth of our expenditures, and for the following year it will be reduced as well.”2 What Krupin described to his audience was a fait accompli his bosses had made earlier, but he only vaguely mentioned the CC Secretariat as the originator of the new order. Financial data from subsequent years show that the order was indeed executed; federal subsidies never returned to the high levels of 1939–1946. Krupin’s plan to restructure the party economy had several important long-term provisions, such as hardening of the party’s (implicitly soft) budget constraint. The party budget was to become a more binding document than ever before: “The party has to earn money if it wants to use it, not live off a credit line.” Here is how Krupin described the situation: Say we received membership dues on February 1. It takes up to two months while they are transferred from a local bank to the center and while they go back to the regions. In the meantime, we have to live somehow and cover this deficit. We have a similar situation with respect to our publishing houses. . . . We used to live unreservedly. . . . You used to get lots of money; we [the Central Committee] got used to this as well. We gave you [the regional committees] a lot, and you gave to the raikoms. We did not bother to make sure that publishing houses gave us their monthly profits specified in our budgets. . . . The year is over, they procrastinate for three months, you study the reports for two months, and it is already May 1948 when we actually receive profits from 1947. Because of this we had to borrow in order to maintain a cash flow.3

Krupin emphasized that the party should expect delays in funding by local governments. “We are in an unfavorable position because regional governments do not transfer funds to you on a monthly basis. For example, in order for teachers to be paid on the 14th, the government transfers funds on the 7th. But in your case, there is no such practice. For example, you were allotted 500,000 rubles for operational expenses. The year ends, but you have not received those funds. How

The Special Budget of 1948

do you cover the deficit? How could the chief accountant sign invoices if he never received deposits? It means that the accountant used another budget category, as, for example, was commonly practiced in the city of Cheliabinsk. On paper, however, everything looks good: debit, credit, salaries paid, bills paid. But from what sources exactly?”4 Krupin shared his vision of how to overcome the problem of declining federal subsidies and make regional party organizations raise more revenues locally. The centerpiece of his short-term plan of action was the creation of reserves to cover the beginning-of-the-year fiscal deficit—an idea that eventually resulted in the creation of the party’s long-term savings, the “emergency fund”: What shall we do to avoid the situation when there is not one kopek in a party committee’s cash register because of one to two month-long delays in membership dues and delayed payments from the publishing houses, while you are trying not to bother the local government too much? We should create some reserves. We must save 1/12 of our expenses for the following year and defer certain payments until September or October, when there is no threat of deficit and we can pay salaries. If we fail to create cash reserves, it is going to be tough, and I must tell you that your complaints in this respect will not be accepted. Such complaints can only be answered with additional funds, but since there will be no subsidies, we must deal with the situation ourselves. We must create cash reserves in the obkoms (but God forbid, not in the raikoms!)

Krupin argued that the long-run focus had to be placed on the enforcement of the rules of membership dues collection, liquidation of excess inventories at the regional organizations’ warehouses, and taking over publishing houses. The problems associated with the collection of membership dues were endemic, and Krupin had little to offer except his standard recommendation to increase discipline and improve the calculation of taxable income. By contrast, he was very specific about financial discipline and the liquidation of inventories. To make the party budget a binding document, Krupin required that every transaction be backed with actual funds: “We shall not take anyone’s word in exchange for supplies any longer. Nor shall we advance deliveries ahead of payments. We shall trade on the spot. If you want to buy carpets—pay for them. If you want a car, buy it, as soon as you

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have money. . . . When there is no money in the register, the accountant must have a firm hand and not authorize the purchase.”5 In 1948, rationing by the central government was to be replaced by “open trade.” Krupin found it necessary to remind his fellows about the long forgotten caveat emptor principle: “If you see a desk with a 600 ruble price tag, do not take it right away. Find out how many illegitimate surcharges producers have added, and only then make the purchase. Don’t be afraid. The state and party leadership are completely on your side by making sure that industrial enterprises do not overcharge you.”6 This piece of advice is truly remarkable in the Soviet context. A senior official in the land of central planning and administered prices is advising his audience to bargain for lower prices. Leaving aside the party-state rhetoric, this means that party organizations were permitted to force producers to sell at a lower price. Krupin’s advice clearly applies only to direct purchases from producers. It would not work for retail stores, which were bound by their own accounting requirements. It would also be resisted by industry captains or party leaders with a vested interest in industry. This part of the Krupin Plan underscores the self-interest of the party as an organization and the potential for conflict with other agents of the dictator—and even the dictator himself. The conflict-prone character of Krupin’s recommendations is reinforced by the lack of reference to a particular party or state leader or to approved instructions from the center. The party had its own property and resources, although not as substantial as industrial enterprises. In addition to auxiliary farms supplying groceries to the party committee canteens, virtually all party organizations had warehouses filled with material stocks. In the aftermath of World War II, the party was itself an asset holder due to the accumulation of materiel supplied directly by the government and the appropriation of “trophy” goods plundered mostly from East Germany. Unloading inventories “sitting idle” in party warehouses presented another source of cash reserves: Krupin stated that warehouses should cease to exist and that the party should learn to earn money and use it to buy supplies from producers as necessary. Party audits revealed that regional party organizations had indeed accumulated huge stocks, including office supplies, acquired in an “apparent excess over their immediate needs.” Between 1947 and 1948,

The Special Budget of 1948

the value of material stocks in Latvia increased from 384,000 rubles to 882,000 rubles. The Georgian CC’s material stocks rose from 485,000 rubles to 679,000 rubles. The Altai kraikom had half a million rubles’ worth of material stocks.7 Auditors discovered that the Cheliabinsk obkom had six years’ worth of office pens, eight years’ worth of toothpaste, and forty years’ worth of dry glue. The Cheliabinsk obkom, however, as did many other party organizations, refused to confirm these facts. The Lithuanian Central Committee, for example, claimed that its stocks were legitimate and that over 30,000 rubles’ worth of watches had’ been given to it from the liquidated headquarters of the “partisan movement” that had operated in the rear of German troops and had been coordinated by the Red Army command. Krupin required regional organizations to convert such goods into cash: “Why do you hold all these huge stocks? Obkoms do not need them. We will calculate your actual revenues and will revise how much you should receive from the party budget; we will cut your expenditures to eliminate any slack. Then, in order to pay salaries to the party workers, you will have to use your stocks of goods.”8 Although this administrative rhetoric sounded particularly harsh in the late 1940s—the years tightening the budget constraint—it underscores that the party always had constraints. The party was not a “residual claimant” on the revenues of the Soviet state. Rather it was funded partly from the state budget, partly from its own sources, and it was supposed to produce certain services. While tough times called for tighter financing policies, the institutional machinery that allowed cutting the party off from state financing was already there, reflecting the existing boundaries between the state and the party organization. The hoarding of material goods by party organizations was never eliminated completely and continued to draw the attention of the center. In 1959, for example, in the midst of Khrushchev’s decentralization reforms, a report by party auditors virtually repeated what had been said in 1948 about warehouses of regional party committees with supplies far in excess of their operational needs. The Briansk obkom in 1959 had nearly 250,000 rubles’ worth of perishable supplies at its warehouse. The Stalingrad obkom stocked 4,700 rubles’ worth of empty bottles, 3,500 rubles’ worth of mineral water, 130,000 rubles’ worth of office supplies, and so on.

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Persistent hoarding within the party system had essentially the same origin as the “business strategies” adopted by Soviet production managers in response to the persistent uncertainty of supply. Those strategies were the logical consequences of enduring barter, or in-kind transactions involving a direct exchange of goods and services. Standard economic theory predicts that monetary transactions are more efficient than barter. However, when money supply is insufficient or high inflation rates devalue the official currency, the demand for commodity money increases and barter becomes increasingly widespread. Nonperishable commodities such as office supplies or manufactured goods could easily become a medium of exchange, as they were desired by virtually everyone and were unlikely to lose their value. Barter in the Soviet economy resulted not from a lack of market prices but from the economic agents’ uncertainty or inability to get hold of enough cash, let alone resort to credit, to buy what they needed. The party system, facing the prospect of rapidly shrinking budgets, was unlikely to abandon the hoarding of goods that constituted their only insurance against another financial shock. Ultimately, the Krupin Plan led to two revenue-generating strategies that dominated party economics in the 1950s and afterward: (1) the expansion of party “business”—primarily revenue-generating publishing enterprises, which we will discuss in the following section, and (2) the expansion of party ranks, discussed in chapter 5. T H E PA RTY A N D TH E PU B L I S H I N G B U S I N E S S

The most radical proposal advanced by Krupin had to do with measures to make party publishing profitable. The party system always received a certain share of its revenue from publishing, especially from proceeds of the central newspaper, Pravda, and its book publishing arm, Gospolitizdat. In fact, as mentioned in chapter 2, contributions from the party’s printing shops were growing steadily. Between the 1940s and the 1960s, Pravda’s contribution to party revenue increased from 2–5 percent of the total revenue to 17 percent. In the 1950s, Pravda contributed 12–17 percent, while 8–12 percent of party revenue came from local publications. The contribution of Gospolitizdat never exceeded 3 percent. Other sources of revenue, such as payments

The Special Budget of 1948

for public lectures or revenues from the Lenin Museums, rarely exceeded 1 percent of total revenue. Using Pravda as a role model, Krupin shared his plan for the party to take over (stat’ khoziaevami) the publishing business. He noted that Pravda accountants would not “make a single step unless the CC made it good.” The ultimate goal of becoming “masters” of the publishing houses was to ensure that “the money would not go anywhere” without the party’s knowledge.9 Most important, the business had to become profitable. These goals could not be achieved automatically, though. First, while Pravda operated under the auspices of the CC, local publishing houses belonged to the Council of Ministers—that is, the central government. Second, local publishers were often subsidized by local governments; therefore, the whole production process, as well as the cost structure of the publishing business, had to be modified.10 To overcome the obstacle of official affiliation, Krupin suggested utilizing the party’s powerful position, and his response shows him to be an experienced politician. “It seems to me you underestimate the role of the party organization,” he said to those who doubted that this idea could be implemented at all. He compared local publishing houses to the public education system, where “although not an owner, the party controls all aspects of its activities.” The party’s power should reach beyond party organizations to “all Communists in local governments,” which would be the key to becoming the de facto proprietor of the publishing houses. “If the head of a local government does not like your bossing, let us talk to him at the obkom meeting, and probably he will find the obkom’s decision acceptable. Then you will establish a legal relationship with the accountants, making them report exclusively to you.”11 Controlling the accountants implied controlling all the expenditures made by publishing house managers. Krupin warned the meeting participants: “You may choose not to do that. It is your decision. But when the time comes and you cannot pay salaries, you’ll be responsible. Then you will understand the necessity of becoming owners. Let’s drop all those details: ‘Soviet or not Soviet.’ Everyone is Soviet and must understand the meaning of the party’s leadership.”12 To become profitable, publishers had to increase revenues and cut costs (primarily salaries and honorariums). Increased circulation and

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revenue-generating projects, such as the publication of posters, postcards, fiction, and other popular literature, became important sources of additional revenue. Some newspapers were ordered to increase circulation by as much as 50 percent. In 1951, for example, the newspaper of the city of Chita increased its circulation from 50,000 to 75,000 copies.13 A representative from Kazakhstan admitted at the 1948 UD meeting that his republic’s publishing house, Kazakhstankaia Pravda, could have done much better had it published more newspaper ads and posters.14 As early as 1947–1948, mass layoffs hit all major newspapers such as Pravda and Komsomolskaia Pravda and publishing houses such as Gospolitizdat, as well as regional newspapers. Layoffs were rare in the Soviet full-employment economy. Mass layoffs were virtually unheard of. Nevertheless, Pravda’s editorial board was reduced by about onefourth (from 589 to 429 employees), and Pravda’s publishing house staff was reduced by one-fifth (from 724 to 579 employees). The editorial board of Komsomolskaia Pravda also lost some of its staff (62 out of 309 employees).15 Gospolitizdat and Inoizdat lost 190 employees. Regional newspapers saw the greatest reductions in staff positions, primarily those of local reporters. The remaining reporters had to cover three districts instead of one. The quality of coverage declined as reporters began to place telephone calls to local officials instead of taking trips to newsworthy sites. The party’s financial gains were virtually immediate, however. According to a memo sent from the UD to the CC (to Secretary Andrei Zhdanov), a 10 percent layoff resulted on average in a 13.5 percent increase in the party’s profits from publishing.16 Another avenue for cost reduction was cutting wages. In the 1948 meeting, Krupin engaged in a lengthy tirade against the obscenely high honorariums of journalists.17 “We must forbid huge honorariums. Even the editorial board members who do the publishing should not receive 40 percent honorariums. If he is a truly valuable worker, add two base salaries to his paycheck, but in most cases one base salary would be enough. Even in the party apparatus we have only one base salary, and it is virtually impossible for us to get two. If you do so, there will be no 15,000 ruble salaries for the members of the editorial boards. The chief accountant should not sign off on a 15,000 ruble payment for his boss out of flattery. You should wage the fight, openly criticize those people who seek 15,000 ruble honorariums. What do they think they are doing

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asking for 15,000 rubles while everyone else is paid only 1,500 rubles?” The people Krupin referred to as “everyone else” must have included regional-level party officials whose salaries were in the range of 1,000–2,000 rubles at that time. However, the comparison was not entirely accurate because party officials’ remuneration had a large nonmonetary component. Nevertheless, the CC issued an order capping the payments to the staff members of editorial boards at 40 percent of their base salaries.18 The Moscow obkom financial report in 1950 reveals several sources of profitability of such important regional newspapers as Moskovskaia Pravda and Moskovskii Rabochii, both of which exceeded planned transfers to the party budget by more than 60 percent. Their success was mainly due to the difference between production costs and retail prices, which allowed them to accumulate 15,700,000 rubles instead of the planned 10,400,000 rubles. In 1950, Moskovskaia Pravda enjoyed a nearly 10 percent increase in profits; the profits of Moskovskii Rabochii rose by as much as 14 percent.19 Obviously lower production costs combined with the permission to charge higher retail prices for the final product raised profits. Also the party’s unique position, allowing a targeted lobbying of Gosplan for lower-priced inputs (primarily paper), proved exceptionally fruitful. More interestingly, however, the necessity to turn a profit awoke certain entrepreneurial instincts among the party bureaucracy, which at best had used the strategy of free riding on state and party resources. In addition to increasing circulation and cutting production costs, both Moskovskaia Pravda and Moskovskii Rabochii added more expensive advertisements and increased the circulation of general-purpose items such as The Motorist’s Handbook, which was not initially included in the production plan. Owing to the two profitable newspapers and the successful collection of membership dues, the Moscow regional organization exceeded its planned revenue target by over 2 percent, which resulted in a 9 percent increase in its transfers to the Central Committee.20 Already in the early 1950s, the main source of newspaper revenue was from retail sales. Commercial ads constituted 5–7 percent of newspaper revenues, while subscriptions contributed another 15 percent on average.21 The summer of 1951 saw a mandatory increase in subscriptions to virtually all newspapers and magazines.

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Most publishing houses and newspapers, however, were not born profitable, let alone as successful as the ones in Moscow. For example, while drafting the 1950 budget, the Smolensk obkom complained that hardly any transfers should be expected from its newspaper, Rabochii Put, which had a 150,000 ruble deficit and lacked the production capacity needed to increase circulation. According to the financial report, however, the obkom managed to transfer over 140,000 rubles to the party budget in just one year. How was this accomplished? In order to meet the CC requirement of increased circulation, the newspaper started coming out six instead of five times a week and increased the workload of the existing staff, resulting in a 20 percent increase in revenues. Rabochii Put not only hired no additional workers but also slashed extra payments. This simple cost-reducing, productivity-increasing technique, which would certainly have been portrayed by party propaganda as outrageous exploitation had it occurred in the West, can also be traced back to the Krupin Plan. Some reports from regional party organizations in the early 1950s reveal difficult relations between publishers and their party “masters.” The Khabarovsk obkom, for example, reported that it planned to “extract” all regional newspaper revenues.22 In 1951, the newspaper Cheliabinskii Rabochii transferred more funds to the party organization than was assumed by the financial plan, but the party organization wanted still more. After making sure it had the UD’s support, the Cheliabinsk party forced Cheliabinskii Rabochii to turn over its “above-plan accumulation” (over a half million rubles) and “excess cash” (nearly 300,000 rubles), stripping the newspaper of all its liquid assets. But even this was not the end: ultimately the newspaper was required to liquidate its director’s discretionary fund (34,500 rubles).23 The main goal was achieved: the publishing business began to generate profits. In the 1940s, its contribution fluctuated at around 10 percent of total party revenue. Between 1949 and 1956, revenues from Gospolitizdat and party periodicals also show a steady upward trend in contributions (see figure 3.1).24 From the late 1950s onward, nearly one-third of the CPSU revenue came from publishing. By that time, the party had gained a relatively firm control over the returns from publishing and began investing extensively in the printing industry and building new publishing facilities.25 Not only did transfers from central and local party publishing

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houses exceed the planned amounts, but industrial capacity, as measured by the number of printing enterprises, grew by one-fifth. Party organizations in Belarus, Georgia, Lithuania, Ukraine, and Uzbekistan then built their own printing and publications complexes. The restructuring of the party economy proposed by Dmitrii Krupin had such long-term provisions as making the party budget a binding document, hardening the budget constraint, and strictly enforcing fiscal discipline. For many reasons, some of which we discuss in chapters 5 and 6, these requirements could not be fulfilled because the party had failed to get rid of corruption and the violation of fiscal rules. The centerpiece of the Krupin Plan, however, was for the party to learn how to make money and accumulate savings rather than live off a credit line. And here, as surprising as it may seem in an economy that defied the market rationale, the party achieved remarkable success. First, the party became a major player in the Soviet printing industry and, using such methods as layoffs, aggressive cost reduction, and product diversification, turned it into a reliable source of revenue. Second, the party learned to save for a rainy day, creating reserves that amounted to some 2 billion rubles by 1991.26 Until the very end of the Soviet period, managing the publishing business remained one of the party’s top priorities. In April 1990, for example, the Politburo discussed measures to further increase the profitability of local party presses. A resolution drafted by UD head Nikolai Kruchina and signed by Mikhail Gorbachev recommended that local newspapers devote no less than half of their space to advertising and that a high percentage of the profits go to the discretionary funds of local party organizations.27 Although continuous budgetary data run only until 1965, the materials for 1974 and 1990 suggest that publishing contributed 30–40 percent of total party revenue. A comprehensive inventory of the party’s assets conducted in 1990 revealed that by investing over 1.7 billion rubles over the course of thirty years, the party “essentially created a new printing industry.” In the end, the party’s publishing enterprises, including Pravda, Gospolitizdat, Panorama, and Krasnyi Proletarii, constituted over 30 percent of the party’s assets.28

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4 “Impossible Structures” Resource Allocation and Party Donors

Maurice Escher, one of the world’s most acclaimed graphic artists, owes his fame to his images of impossible structures, which break the laws of perspective. They combine graphic elements such as staircases or flowing water that cannot coexist in a real 3-D world. Escher chose graphic art over architecture to engage in “irrational” modeling. If we found ourselves in an Escher structure, we would be ascending and descending simultaneously or ascending all the time, only to find that we have remained at the same level. In the 1920s and 1930s, when Maurice Escher began his explorations in graphics, Soviet leaders were themselves working on an unprecedented design of their own—a system of pervasive centralized control over the economy and society. Like Escher’s structures, such a system was deemed “impossible” by many, such as Ludwig von Mises and Friedrich Hayek, who predicted that the absence of competitive markets and lack of incentives would severely limit the life span of a socialist economy.1 Also deemed irrational was the cumbersome system of bureaucratic controls, which would lead to pervasive shortages and perhaps to complete chaos, such as happened at the end of the first five-year plan, or the brutal repressions, resulting in millions of meaningless deaths. Yet despite its “faulty foundations,” the system started by Lenin and completed by Stalin by the late 1930s proved to be fairly stable, existing for more than half a century with only relatively minor changes.2 The system’s designers must have found a way to prevent the structure

“Impossible Structures”

from collapsing despite its apparent inconsistencies. The party’s financial documents reveal some of the structural elements that kept the system intact. In this chapter, we will see exactly how resources were allocated inside the party system by looking at regional financial statements and draft budgets from territorial organizations reporting directly to the party Central Committee: republics and regions of the Russian Federation. We will follow the movement of funds along both the vertical and horizontal dimensions of the party structure to pin down and evaluate the complex system of incentives embodied in the allocation patterns within the party bureaucracy. IM PO SSIB L E ST RU C TU R E S

Escher’s drawings are visually stable and are not a product of insanity. However, they violate the laws of perspective, making possible in two dimensions what cannot exist in three dimensions. Escher wanted to make his hand connect the dots where his eye protested against seeing a line, understanding that the result required far more effort on the part of the viewer. The challenge for the leaders of the Soviet state and party was to find a way to connect the dots—agents in the economic management and administration—in a way that defied the common sense of foreign observers and yet served the goals of the system’s architects. The central design element was an incentive structure that would replace competition and the profit motive in markets. The classic critique of socialism by Ludwig von Mises and Friedrich Hayek can be interpreted as predicting that informational, computational, and motivational problems would overwhelm the system sooner or later.3 Studies of Soviet economic growth, pioneered by Abram Bergson, show that growth declined steadily throughout the prolonged “period of stagnation” under Brezhnev4 and that a variety of explanations were offered, including the difficulty of managing an increasingly complex economy, incentive problems associated with guaranteed job tenure (David Granick), and inadequate rewards for innovation (Joseph Berliner).5 In this chapter, we focus on a specific incentive problem—that of motivating rank-and-file party members and attracting citizens to its ranks. The party needed a reward system that would elicit from its members an effort sufficient to advance its cause. The prospect of upward movement within the party system—promotion—could create such

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incentives. For promotion to be real, however, leaders would have to relinquish control and resign from their positions to make way for newcomers, which would be inconsistent with the leaders’ objectives. The leaders could, perhaps, sacrifice a mid-level bureaucrat to promote an apt and zealous young supporter, but they would never voluntarily release their hold on power. Thus the system of promotion incentives for party members should have perpetuated the power of incumbents to be graduated so as to leave room for further career advancement after each successive step up the career ladder. In the resulting system, the lower ranks could see themselves moving upward but would never reach the top, resembling an Escher structure where the stairs lead upward only to arrive at the beginning. The astoundingly meticulous system of rankings and compensation differentials in the party system, which we can see in the preparatory materials for regional party budgets, shows that the Soviet leadership indeed was drawing solid lines in the impossible structure it was designing. LE V E L S A N D R AN K S : TH E TWO - DI ME NS I O N AL S T RU C TU R E O F PA RTY B U R E AU C R ACY AN D PA RT Y F IN A N C E

Funds were distributed among regional party organizations based on an organization’s rank and its level within the party hierarchy. These two characteristics were the main factors that entered into the UD’s calculations of the spending limits (normy raskhodov) for each organization. Although available archival documents do not reveal the precise algorithm underlying the party accountants’ calculations, clearly all participants in the process understood it quite well. Levels and ranks determined not only the number of positions and average salaries in a given party organization but also the spending limits on practically all budgetary items, including business trips, health care, office supplies, and the purchase and maintenance of vehicles. A study of the allocation of cars by the Soviet government in the 1930s undertaken by Valery Lazarev and Paul Gregory found that the outcome depended on only a handful of explicit attributes, such as the petitioner’s proximity to the government, political support (an endorsement from a ranking official), geography (a Moscow address), or celebrity status.6 The allocation of party funds was, however, driven

“Impossible Structures”

by explicit rules, with a detailed system of levels and ranks governing the distribution of all resources. In allocating cars, the government had to deal with diverse clients whose claims were excessively costly to verify. By contrast, the pool of claimants within the party system—the party organizations—was relatively stable, and its qualities were well known as a result of this elaborate and explicit system of rankings. This streamlined the allocation of resources, enabling a handful of staffers in the UD finance sector to handle the job. The key variable determining the status of a party organization and its officials was its position in the hierarchy. The obkom was naturally larger than a gorkom, a city committee, which in turn was larger than a gorraikom, a district committee within a city. Average salaries also decreased from the top down (table 4.1). Higher-level party bodies were entitled to larger official benefits, and they spent more per employee on all items. For example, being a member of the obkom meant being able to spend up to ten times more per employee on specific “operational expenses” (such as business trips) than a member of a district committee. A higher level also meant greater privileges, such as entitlement to a car with a personal driver, a larger dacha, or more frequent “resort treatment.” Unlike benefits associated with particular positions within the party bureaucracy that were publicly acknowledged, privileges were largely unknown and even secret.7 Still, certain privileges constituted a desired component of remuneration and entered into the expected returns on promotion.8 What were the “technical parameters” of the party structure that could explain its hierarchical design? The hierarchy of territories was largely fixed and constituted the stem of the system. The pyramid of republic-region-district, once established by the late 1930s after almost two decades of administrative experimentation, remained unchanged thereafter. The system clearly needed some sort of constant that would add certainty to expectations and credibility to the unwritten “promotion contract” on the whole. At the same time, the height of the hierarchy could be an important variable, as by adding or removing intermediate levels, system designers could fine-tune the career ladder. In extreme cases the leadership did resort to this sort of modification. The most telling case is that of the Baltic republics after World War II. Building a party structure there from scratch presented a challenge exacerbated by a guerrilla war that made party activism particularly risky. To offset the higher cost of joining the

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party for prospective Soviet loyalists, the party system was expanded by one level downward with the introduction of paid positions at the level of volost—a subdivision of a rural district. Eventually, “Sovietization” succeeded, the new republics were absorbed into the normal administrative structures, and volost committees were eliminated in 1950. At the same time, the republic of Moldova presents a counterexample. Reincorporation there did not lead to violent resistance, so a standard territorial hierarchy was built, free of peculiarities such as the Baltic volost. A subtler way to adjust the hierarchy relied upon party cells funded from the party budget, in particular the position of secretary of such a cell (“exempt secretary”—osvobozhdennyi). Most party cells had no professional staff, and their secretaries were nominally regular employees performing party functions, supposedly at their leisure. In reality, the activities of such “volunteer” party cells were financed by host economic or administrative units, and the larger the cell, the closer a secretary was closer to being a full-time party functionary. The secretaries of a small percentage of party cells—mostly those in large industrial enterprises and research institutes—were on the party payroll. Being on a party payroll gave secretaries the advantage of independence from the director of the enterprise or institute and bestowed access to specific benefits and privileges of the party bureaucracy. Exempt secretaries were very well paid (as shown in the rightmost column in table 4.1). They also had a better chance of further promotion and reported directly to a higher level committee (typically regional). The partyfunded cells were therefore on the same level as district committees. An important distinction was that the number of districts, and correspondingly the number of district committees, was changing slowly, while the number of funded cells varied widely over time: nearly 17,000 in 1947, fewer than 9,000 two years later, 13,000 in 1953, 24,000–27,000 in the late 1950s, and around 21,000 in the mid-1960s. The average annual change in the number of district and city committees was around 5 percent, while the number of funded cells fluctuated by 15 percent from year to year on average. In addition, changes in the number of district committees largely followed demographic trends, with the number of rural districts declining and the number of urban districts, and correspondingly urban committees, going up. Funded cells were, therefore, a

“Impossible Structures”

flexible instrument with which to adjust the size of the lower tier of the party bureaucratic pyramid. Hierarchical differentiations among organizations were augmented by hierarchal distinctions within a particular organization. For example, a first secretary of a regional obkom had at least a 5 percent higher salary than a second secretary, whose salary in turn was higher than a third secretary and so on. These distinctions were possibly less important because lateral moves—from one committee to another or to another branch of government—seem to have been more characteristic of a successful career than vertical moves within one party committee. Horizontal rankings—the relative importance of territorial units on the same hierarchical level—were even more complex than vertical differentiation, and the rules for rank assignment are not immediately clear. Generally, larger and more industrialized territories had a higher status, but the algorithm of intraparty resource distribution across territories clearly goes beyond size and economic output considerations. Presumably, the rankings began with a relatively simple three-tier scale, but by 1940, at least eight different status categories had emerged. The top row in the table of ranks was occupied by a three-member group— “Moscow, Leningrad, and CC Ukraine”—followed by a two-member group: “CC Kazakhstan and CC Belorussia.” Most regional committees belonged to one of the five groups, denoted by Roman numerals—I through V. Finally, several Russian regions were assigned to the “singledout group” (vydelennaia gruppa), which belonged apparently somewhere between the two elite groups and Group I.9 Belonging to one group, however, did not guarantee exactly the same level of pay and benefits. Table 4.2 demonstrates that within the group of the smaller union republics, salary differentiation was pronounced at all levels—from the central committee to the district committee. The reasons behind these differences are not apparent. Armenia, for example, had higher salaries across the board than its larger and more developed neighbors, Georgia and Azerbaijan. The rankings design did not end with pay differentiations. Regional and local party organizations were also sorted according to their authorized staff numbers. Each committee was therefore generally given two different ranks: one related to the number of paid staff positions

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(staff group) and the other related to salaries (salary group). Staff, as reported in the documents, included the positions of responsibility, such as party secretary and propagandists, and instructors and technical personnel, such as accountants and secretaries. In 1951, for example, the Kaliningrad regional party committee was assigned the highest rank with respect to the salaries of its party officials and technical personnel (Salary Group I) but to a second rank with respect to the number of staff (Staff Group II). This difference is probably due to the importance of the region—a part of German East Prussia annexed by the Soviet Union in 1945—and its relatively small size. In general, however, the situation with the salary/staff status of district party bodies was more complicated. The size of the region was not the ultimate predictor of the relationship between staff and salary rankings. Although larger territorial units had a greater weight, which could be responsible for correlations between staff and salary group numbers, this was not necessarily the rule. In particular, we found all sorts of combinations of salary and staff rankings at the district level within larger regions. T H E PRO M OT ION I N C E N TI V E S L A DDER

Considering all the rank and level variations, nearly every organization and, in fact, every position had a unique place in the hierarchy. Such an elaborate multidimensional schedule created a nearly infinite promotion ladder. Each move within the system would mean some change in status and benefits. Promotions in this system were not exactly illusory, as were Escher’s impossible structures, but they certainly achieved an impossible goal: creating endless promotion incentives for an individual without the need to promote anyone to the top. Instead of real promotion, the party directorate could simply invent new salary and/ or staff statuses, adding a new flight of stairs in the middle of the pyramid. During certain periods, a career move for some party employees would not even add to real wages, as a fine-grade promotion would merely offset an increased cost of living. Party leaders could not create a structure based solely on illusory promotion expectations, but they certainly learned to adjust both variables—the height of the stairs and the size of the floor—to provide incentives for its supporters. Whereas promotions in the first two de-

“Impossible Structures”

cades of the regime were driven by recurring purges culminating in the Great Terror of 1937–1938, the subsequent history saw no such upheavals. With the exception of the four years after Stalin’s death, when substantial turnover occurred in the higher ranks, unexpected dismissals did not contribute noticeably to the promotion patterns. Party bureaucrats understood the established rules of the game very well: some party organizations were better places to work and offered higher chances for promotion. Knowing that they were actively seeking advantageous appointments, some simply refused to report for duty when their job assignments did not meet their expectations. More often than not, they rejected assignments to the countryside, even if these were technically promotions to a leadership position, such as that of director of a large state farm. Such violations of party discipline implied a disciplinary punishment. Those who rebuffed job assignments could be punished by a reprimand or even expulsion. Many later sought pardons and reinstatement through the appeals procedure; for them the value of a party career track must have outweighed the short-term disutility of an inferior appointment. Once they faced a credible threat of punishment, they chose to get back on track. It may seem that inadequate incentives within the party system were fairly efficiently complemented by disciplinary punishment. However, available appeals cases reveal only those instances when individuals chose to play by the party rules and are void of those who chose different life trajectories. One important feature of the complex structure of the party system was that an organization’s level within the hierarchy was fixed, whereas the salary/staff group could change. In addition to upward promotion or transfer to a similar position in a higher-ranking organization, an ambitious local party leader could apply for an upgrade of his home organization, thus not only increasing his personal income but also getting a career boost by increasing the organization’s status and, last but not least, getting pay raises for his coworkers. A petition from the Mariiskii obkom (the party committee of the Mari autonomous republic, one of Russia’s regions) illustrates how such upgrades were requested and substantiated. In 1949, the first secretary of the Mari obkom petitioned Krupin to review the committee’s staff limits and salary grid. He asked for two additional party officer positions and one technical personnel position

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and requested a salary increase for typists, arguing that due to the low salaries of typists, the committee “is unable to hire skilled and literate typists [and] the high workload in combination with low salaries creates turnover, which negatively affects the obkom’s operations.” Moreover, he petitioned on behalf of the subordinate Yoshkar-Ola district committee, arguing that, as one of the largest party organizations in the region (3,470 party members), it “deserves an additional position of a statistician with a monthly salary of 800 rubles.”10 The petition was apparently sent to auditors for evaluation. They noted in their response that the regional committee actually did not spend all available funds, especially those allocated for propaganda purposes—a widespread problem that we previously discussed. Even though this seemed to undermine the petition, the obkom’s request was eventually granted. It appears that this particular request did not go outside the UD for approval, probably because the secretary did not request a full upgrade. The UD records do not contain any petitions to change committees’ ranks (groups), as decisions of such import would have to be made at a higher level, probably the Secretariat. A LL O CATIO N S TR ATE GI E S

The mix-and-match in salary/staff group rankings was the primary source of variation in lower-level party budgets and ultimately was responsible for the variation in expenditures per party member across regions. While status (a combination of level and rank indicators) determined total expenditures, revenue was determined by the party’s local “tax base”—the size of the party organization and the average income of party members. The deficit was covered by subsidies from either the CC or local governments. The CC as a rule subsidized a regional organization’s payroll. Almost all regional party organizations were subsidized from the consolidated party budget, or as Comrade Krupin would have put it, they were getting money from the UD—both before and after the federal subsidies were cut in 1948. Before the 1960s, only the two largest territorial organizations, Moscow and Leningrad, as well as the nonterritorial organizations (most notably the army), were transferring a portion of their revenues to the CC. Although we did not see a paper

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trail of the rank-setting decisions, the available data on the allocated subsidies allow us to see the logic behind intraparty resource allocation. Theoretically, a rational dictator could use two types of strategies for allocation: rewarding loyalty or raising support by creating promotion incentives. Although both rewards and incentives required centrally allocated transfers, these two strategies would result in different patterns of allocation. As long as party participation rates measure population loyalty, the rewards strategy implies higher subsidies to the regions with higher party participation rates.11 Moreover, it would be rational to allocate subsidies primarily to low-income regions sympathizing with the current regime. This would maximize returns on political investment, as in a low-income region a unit of resources transferred would yield more loyalty, ceteris paribus. Wealthier regions would be more difficult to impress with transfers. Directing resources preferentially to regions with high rates of party membership and low incomes would be consistent with models proposed in the literature on the economics of dictatorship, which suggests that the major source of support for a nondemocratic regime is transfers or investment in public goods.12 The transfers-for-loyalty exchange also resembles a strategy used by a votebuying politician in a democracy.13 While the target of such transfers is the population as a whole, the same logic could apply to resource allocation (and redistribution) within the party. This would be especially appropriate if the party was considered a branch of government and as such served as another redistributive channel in a nondemocratic federal system. An alternative strategy is suggested in which support is raised by means of promotion incentives. A rational dictator could use such a system to attract and retain activists (rank-and-file party members and candidates) who voluntarily perform various political functions and pay dues without getting the extra benefits accruing to senior party bureaucrats. It is the support (and credible commitment) of this relatively small but important group of people that is of import rather than the loyalty of the masses.14 In the promotion incentives model, the dictator funds positions within the party bureaucracy (nomenklatura) to maintain a certain probability of promotion for activists and thus ensure a sufficient stock of loyalty. Positions into which certain activists will be promoted may

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be sinecures, but they must come with higher salaries and greater benefits than would be possible in a career track outside of the nomenklatura. Only then will expectations of future promotion make a party career attractive to activists. Under this scenario, the country’s leadership targets a threshold level of support—as measured in party participation rates—in each region; the targets may vary, depending on the degree of political affinity of the local population to the ruling group. In a high-income region, higher investment will be required to create incentives for citizens to seek party careers, as opposed to earning an income in other, politically neutral occupations. In regions with low party participation rates, then, more promotion opportunities would need to be created and the party payroll more heavily subsidized. In addition, creating adequate incentives will require higher investment in a high-income region, ceteris paribus. The promotion incentives strategy, therefore, yields a result that is opposite to the one produced by the transfer-for-loyalty model: regional subsidies should increase in the income levels and decrease in party participation rates. Empirical testing of this model is problematic because of the implied endogeneity of the party participation rate: it both determines the size of the subsidy and is affected by the subsidy. The income level may be endogenous in the long run too, since the national leaders may be unwilling to make long-term economic investments in politically insecure regions. Fortunately, party participation rates can be considered as exogenous in the immediate aftermath of World War II. This period is marked by an intensive population reshuffling due to wartime evacuations, postwar migrations, and a significant destruction of the party system in the territories occupied in 1941–1944. Income variation by region was also largely determined as a consequence of the war, both by deliberate decisions about industry relocation and by the destruction of productive assets in the theaters of war. Available empirical evidence supports the second strategy: investment in political support through promotion incentives in the party. We use data on fifty-five organizations (republics [excluding Ukraine] and regions of the Russian Federation)—about two-thirds of the total number of organizations reporting to the CC. The data come from the preparatory materials for the 1947 consolidated party budget; therefore subsidies are planned amounts rather than actual al-

“Impossible Structures”

locations. Membership and population data were reported as of October 1, 1946. While there are no direct data on the incomes of party members, average membership dues can be used as a proxy for the average wages of party members as long as the party fees were proportional to members’ incomes and the rates were only moderately progressive. Distortions can be substantial only at the lower end of the range, where a large proportion of members paid a fixed low fee.15 The 1947 pattern of the allocation of subsidies to the regional party organizations from the state budget is characterized by a negative effect of the participation rate and a positive effect of average income on the size of the subsidy (figure 4.1).16 This suggests that the leadership was inclined to direct resources to high-income and low-participation regions. In the following sections an analysis of party organizations with high participation rates that were donors to the party financial system provides additional support in favor of the promotion incentives hypothesis. A TA L E O F TWO C I TI E S : TH E CA S E O F T HE M O S C OW A N D L E N IN G R AD PA RTY O R GA N I Z ATI O N S

The CPSU charters treated the party’s budget as a single, consolidated entity. The Central Committee appropriated the entire revenue collected by the regional party organizations, received subsidies from the state budget, and then redistributed those resources among the regional party organizations. In actuality, locally raised funds usually remained in the region. The requirement to turn over an organization’s entire revenue to the CC was in effect a requirement to disclose the state of local party finances. For most party organizations, however, expenditures were planned in excess of the locally raised funds, and therefore most party organizations were net recipients of subsidies, from both federal and local state budgets. Until 1962, there were only two exceptions among the territorial organizations. The two largest regional party organizations—Moscow and Leningrad (that is, the political center of the country)—made significant transfers to the party budget and thus indirectly to other regions in almost every year for which data are available. Another major donor was the army, whose finances were handled separately from those of the territorial organizations. We have no direct

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documentation on the military party organizations (UD records contain only the total dues collections in the army), so we focus in the following on the party’s civilian donors. From the accounting perspective reflected in the financial statements, the Moscow and Leningrad organizations were the main contributors to the consolidated party budget among the civil organizations. This means that their revenues should have exceeded their expenditures. The reality behind the numbers is a bit more complicated. In 1950, the Moscow committee raised 2 percent more revenue than in the preceding year (265,000,000 rubles vs. 259,000,000 rubles), and its expenditures fell by 4 percent (119,500,000 rubles vs. 124,400,000 rubles). The increase in revenue resulted from 1.8 percent more in membership dues (217,300,000 rubles vs. 221,300,000 rubles) and 34 percent higher-thanexpected transfers from publishing (15,700,000 rubles vs. 10,400,000 rubles). This enabled the Moscow committee to transfer 9 percent more funds to the consolidated party budget than planned.17 Although both the Moscow and Leningrad organizations transferred their entire accounting surplus, they often received subsidies from local governments to finance the construction of new facilities and to maintain old buildings, as well as for some miscellaneous expenses. These local subsidies made their net contributions significantly lower. In 1950, for example, the city of Moscow gave its party organization 188,000 rubles for the regular maintenance of administrative buildings and 922,000 rubles for the reconstruction of Ilichovka, one of the local resorts. In addition, the Moscow accounts show over half a million rubles from the local government carrying over from 1947. Although technically those extra funds had to be spent on the improvement of local resorts, the Moscow committee treated them as a sort of reserve to cover ad hoc expenditures. The Moscow and Leningrad party organizations grew in size throughout the period, but the pattern of their growth differed both from that of the party as a whole and from each other. Between 1938 and 1946, the Moscow party organization grew faster than did total party membership (170 percent vs. 140 percent) and much faster than the Leningrad organization (170 percent vs. 50 percent) (table 4.3). Between 1946 and 1961, the party grew some 70 percent, whereas the increase in the size of the Moscow and Leningrad party organizations was 50 and 90 percent, respectively. Throughout the period, both orga-

“Impossible Structures”

nizations had the highest party participation rates in the country, with Leningrad running slightly ahead of Moscow owing to a larger urban population.18 In 1946, Moscow and Leningrad had, respectively, 50 and 70 party members per 1,000 population of the city and region (including rural areas). Within the city, the rate was higher: 72 party members per 1,000 in the city of Moscow. In 1961, while only 5 percent of the population lived in the two cities, the two party organizations combined had 11 percent of the total party membership. Over the 1946–1955 decade, the average revenue of the Moscow committee was twice as large as that of Leningrad’s (163,000,000 vs. 84,000,000 rubles), while the local subsidies were almost identical (9,500,000 and 10,000,000, respectively). The Leningrad organization did not become a net contributor to the consolidated budget until the second half of the 1950s, when local subsidies ceased completely (figures 4.2 and 4.3). For 1946–1962, Leningrad’s cumulative net contribution amounted to 20 percent of its cumulative revenue. The Moscow organization, by contrast, had been a net contributor at least since the late 1930s, with the exception of three years during World War II. In total, Moscow transferred 45 percent of its cumulative revenue to the consolidated party budget between 1946 and 1962, the annual transfers accounting for one-third to two-thirds of its revenue (figure 4.4). Even during the years of austerity in the first half of the 1950s, the Moscow organization continued to make transfers, although relatively small ones. One can easily imagine the power that the first secretary of the Moscow or Leningrad party organization felt, given the enormous resources he commanded. The list of party and state leaders who occupied the prestigious position of the leader of the Moscow organization includes such names as Vyacheslav Molotov, Lazar Kaganovich, Nikita Khrushchev, and Boris Yeltsin. Georgii Popov, the first secretary of the Moscow organization in the 1940s, was dismissed from his post and demoted to less prestigious although still well-paid positions because he allegedly assumed too much power and mused about becoming the leader of the nation.19 Soon thereafter, Nikita Khrushchev—the future general secretary of the CPSU—was appointed to the position. The Leningrad party organization was headed by major politicians such as Grigorii Zinoviev, Sergei Kirov, and Andrei Zhdanov. The power of the party leaders of Leningrad was carefully monitored

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as well. In 1949, in the infamous event known as the Leningrad Affair, which started on a trivial pretext, a number of the regional and city party leaders were charged with organizing an antiparty group and executed.20 A TA L E O F M A N Y C I TI E S

In 1957, the rapidly growing city of Moscow was singled out from the Moscow region; the party organization was consequently split into the city of Moscow party organization (gorkom) and the Moscow obkom, which supervised the “donut” within the preexisting regional boundaries but excluded the city itself. At this point, it is clear that it was the city, not the region as a whole, that had been the CC’s major donor. In 1957–1960, the Moscow gorkom transferred 65 percent of its revenue; no transfers came from the obkom. In 1960, other organizations began making transfers to the consolidated party budget, including the Moscow obkom. Their contributions, however, were irregular, and the list kept changing every year thereafter. The first to join was the Kemerovo regional organization (southern Siberia), which transferred its entire surplus in 1960: 1.3 percent of revenue (416,200 rubles). In 1961, the relatively small Murmansk region in the far north transferred a meager amount, some 0.4 percent of its total revenue. The year 1963 brought substantial changes to the party structure and the pattern of interregional transfers. Khrushchev decided to single out exterritorial industrial obkoms to supervise the party cells of production enterprises in some parts of the country. This directive resulted in an increased number of party organizations directly reporting to the CC: from 87 to 120. The Moscow region had three party branches: the city gorkom, the industrial regional obkom, and the rural regional obkom. Although all three continued to make transfers, the Moscow city branch led the list, transferring 65 percent of its revenue, whereas the industrial and rural obkoms contributed 15 and 10 percent of their revenue, respectively (table 4.4). The other major donor, the Leningrad organization, was split along the same lines. Transfers from its industrial part went from 14 percent of revenue in 1962 to 33 percent in 1963. The rural organization made no transfers; on the contrary, the consolidated party budget sub-

“Impossible Structures”

sidized 70 percent of its total expenditures. The Leningrad case is representative in that the new donors were party organizations in industrial centers (Krasnoyarsk, Primorye, Voronezh, Gorky, Kemerovo, Kuibyshev, Rostov, Saratov, Sverdlovsk, and Cheliabinsk). Their rural siblings received subsidies covering from 65 to 85 percent of their expenditures in 1963. The tale of the two cities therefore became the tale of many industrial areas. The creation of industrial obkoms was instrumental in singling out potential donors and making their funds available for redistribution on a national scale rather than within a region. However, it made the party’s organization much more complex and expensive. This experiment was abandoned two years later, after Khrushchev was removed from power. Transfers from Moscow and Leningrad—and later from other industrial areas—seem consistent with our preceding explanations of the allocation of subsidies. Party participation rates in Moscow and Leningrad by far exceeded those in many other regions of the country. In 1946, Moscow and Leningrad had about 70 party members per 1,000 people, while the newly acquired territories, such as the Baltic republics, had 5–10 party members per 1,000. Participation rates in the city of Murmansk, which later reached those of Moscow and Leningrad, were also higher than average, and the three cities were also highincome regions. Therefore, if CC transfers are negatively related to the participation rate, then high participation rates in those cities outweighed the income effect, making these organizations net contributors to the party budget. The army fits the same pattern because of its high party participation rates and the high salaries of military party members (mostly ranking officers). The case of Moscow—and to a lesser extent Leningrad—however, contradicts the received notion of dictatorships. It is often argued—in line with the transfers-for-loyalty argument—that a dictator siphons resources into the capital(s) to create as safe an environment for himself as possible. Ancient Rome, with its bread and circuses and rebellious mobs, is an oft-cited example. The tendency of dictatorships generally to accumulate resources in capital cities is reflected in the cities’ above-normal rates of growth.21 Moscow and Leningrad—the most important centers in the Soviet state, both economically and politically— apparently belong to the same category. Thus we would expect to see

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that they not only raised funds but also attracted resources from the periphery, at least in part offsetting the income effect on transfers. However, we observe the opposite—the two capitals contributed much more than expected, which can be attributed to their special occupational structure. Moscow and Leningrad had disproportionately large shares of professionals—high-skill, high-income workers who did not seek bureaucratic careers but joined the party for security purposes. Party membership was of little value to a mathematician, except that it provided some protection against unfounded political accusations by unscrupulous academic rivals who could ruin her or his career. Highly skilled workers, professionals in particular, therefore joined the party to secure their positions and apolitical incomes and lifestyles in exchange for monthly “insurance premiums” (membership dues). From the party’s perspective, these “precautionary” members were a highly productive minority, an elite labor force that the party could simply tax if it was successful in attracting them to the party. Indeed, the new donors that emerged in the 1960s were from highly industrialized areas with a large share of defense enterprises, which implies that average salaries were higher there than elsewhere. As in the two largest cities, this should have allowed collecting revenue without investing in loyalty. The seemingly impossible structure of incentives within the party system worked because it presented a cost-effective solution for the regime designers. Centrally allocated subsidies indirectly targeted a relatively small but important group of supporters rather than the entire population. In the formative decade of the 1930s, the Soviet leaders faced a great challenge as they pursued an ambitious political-economic agenda under very unfavorable conditions. Ensuring the lasting stability of the political power, let alone expanding it beyond the borders of the USSR, required not only creating a sound industry capable of equipping a modern army but also creating the army itself. The high investment requirements met with resistance by the population of such a low-income country, thus requiring an investment in repression, monitoring the governing apparatus, and mobilizing loyal supporters. Political investment further raised the price tag of power. The Soviet Union had very limited access to foreign credit, little to offer to world markets, and no access to foreign aid.22 The Soviet regime therefore had to make its way through a dense grid of political and economic con-

“Impossible Structures”

straints.23 In such a situation, it could not pay its supporters on the spot but had to offer promotion incentives in all sectors of the economy and administration.24 In the postwar period, the party had an additional powerful stimulus to use promotion incentives as it moved toward self-financing: attracting members and their membership money in exchange for the possibility of future promotion to positions within the bureaucracy or better-paid jobs elsewhere. While growing productivity and skill differentiation in industry led to the increased use of bonuses and performance pay, the political system retained promotion incentives and a hierarchical structure. From a financial standpoint, the party was a conglomerate of organizations involved in exchanges mediated by the Central Committee apparatus. Moscow and Leningrad—the heart of the regime—had been longtime benefactors of the regional party organizations. The major urban centers and the army owed their high revenues to the high-income professionals who populated their party organizations. Although expenditures per member were certainly higher there than elsewhere, the total expenditures of those organizations were capped, making them important donors to the party system. The party increasingly “taxed” high-income members in the urban centers to supply resources to the peripheral areas, as is often observed in democratic settings and is suggested by some models of dictatorship. The general pattern, however, seems to be different from what is typical for a federal government in a democracy: grants flowed to areas with high incomes and low party participation rates, consistent with the notion of the party as a promotion machine.

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5 Funding Loyalty with

Promises

A single mass party as a central element of the political system is a characteristic feature of the Soviet Union and many other similar regimes. The party ranks consisted overwhelmingly of ordinary members who did not hold any official paid positions. This was true throughout the history of the Soviet Union: in the years of the civil war, when party membership was only a few hundred thousand people; in the Stalin period, when a much larger party still comprised no more than 3 percent of the total population; and at the peak of the party’s numeric strength in 1989, when the CPSU had nearly 19 million members, more than one-tenth of the country’s adult population. Professional party bureaucrats, however, constituted no more than 3 percent of party membership in the 1940s and less than 2 percent in the 1950s.1 Lenin’s original vision was that of a professional party. Indeed, professional party officers, the career bureaucrats, could perform virtually all administrative and ideological functions that are typically considered as essential party tasks. Actually, only the party nomenklatura— the staff of governing bodies above the level of the primary cell—was on the party payroll. So why was the CPSU a mass party? What were the functions of this mass, and what were the incentives for the members to join and stay? What were the perceived costs and benefits, from the perspective of the dictatorial government, of having a permanent mass membership as opposed to a relatively small organization of “professional revolutionaries”? What drove ordinary workers,

Funding Loyalty with Promises

men and women, typically but not necessarily young, to join the party? We must expand on the preceding chapter, which focused on the “inner party” of the party bureaucracy, to analyze the mass “outer party” of rank-and-file members. Here we focus on decisions by the party bureaucracy and that of the rank-and-file members from the perspective of the implicit promotion contract that connected the dynamic of party membership with party finance, economic indicators, and policy goals. W HY A M A SS PARTY ? AC TI V I S TS , B U R EAU C R AT S , A N D THE “P RO MOTI O N C O N TR AC T”

To answer the questions posed above, our focus moves from the structure of the party hierarchy and the role of promotion contracts to promotion incentives for the rank and file and their implications for party dynamics. We put aside the complexity of the party bureaucratic hierarchy by viewing it as a homogenous ruling elite, the party bosses, and take the perspective of an ordinary worker considering joining the party as the first step to a party/administrative career. This simplification enables us to focus on the political-economic exchange between the professional inner party and the outer party of the rank and file. Whereas fine distinctions between the higher strata in the ruling group are hardly visible from below, what matters is the salient gap—in terms of both monetary income and fringe benefits—between the ruling elite and the ordinary people. Let us call activists those people who voluntarily choose to become active regime supporters and to seek a nomenklatura career path but who have not yet become professional paid administrators on the party payroll. The exact borders between bosses and activists and between activists and the rest of the population are difficult to identify as they changed over time. Generally, the stratum of bosses can be defined as coinciding with the nomenklatura—that is, comprising all the positions that required a party committee stamp to be filled. However, the size of the nomenklatura grew over time, pushing the border between the activists and the rest outward. In the 1920s, and especially in the early and mid-1930s, becoming a party candidate, a new member on probation, was often a challenge,

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with the ranks of activists included groups of “sympathizers,” members of the Young Communists League (Komsomol), and other loosely organized individuals who volunteered their time for the benefit of party cells. At that time, being a full party member was perceived as an entitlement to an elite position. Mikhail Shkiriatov, secretary of the Party Control Commission, stated in 1936: “Having a party membership card provides admission everywhere and at anytime. [A party member] can enter any office.”2 The existence of a black market for party membership cards in the 1930s also indicates of the value of party membership. In 1934, a Party Control representative in Kazakhstan reported that some twenty thousand party membership cards had been lost or stolen in that party organization: “We have enough evidence of trade in and sale of membership cards, and . . . the ‘loss’ of a card is actually not a loss but a sale.”3 The buyers apparently valued party cards, intending to use the party system for their immediate benefit, and chose to obtain them for money rather than through the less expensive but more costly legitimate admission procedure. In later decades, the notion of sympathizers became obsolete, and membership in the Komsomol was nearly automatic for people between fourteen and twenty-eight years of age. The corpus of activists then included party candidates, Komsomol functionaries, and rank-and-file full party members actively pursuing political careers.4 Despite those notable changes, the relative socioeconomic positions of the bosses and the activists as distinct groups remained largely the same throughout the life cycle of the Soviet regime. The bosses enjoyed salaries and benefits well in excess of those of ordinary blue-collar or whitecollar workers, while the activists held ordinary jobs and were required to pay dues and perform services that benefited the party and the regime as a whole. Once admitted to the party as candidates, they paid membership dues at the same rate as full party members. Even before joining the party, an activist might have to start spending more. As a token of loyalty, a party candidate would have to buy government bonds (state obligations) distributed by party secretaries at their enterprises. Party committee balance sheets sometimes show state obligations in their treasuries; such statements suggest that activists could donate to the local organization’s obligations, which they were required to purchase. Generally, becoming an activist was costly because it implied certain disutility. The individual cost of becoming an activist was not limited

Funding Loyalty with Promises

to paying membership dues. In fact, activists could be paid less per unit of effort, as they were expected to exert extra effort without an increase in income; activists were not paid more just because they pledged their support for the regime. From an economic perspective, they were offered a contract that implied a donation of money, time, and effort today to receive, with some probability, promotion to a position of privilege tomorrow. Activists accepted the terms of such a contract and therefore had to have personal characteristics that were consistent with the contract. A B ROAD E R PERS PE C TI V E

What exactly did the party bureaucracy get from the promotion contract? As always, there were costs and benefits. Before we look in detail at the arrangements under the Soviet regime, let us outline a broader comparative framework. Nondemocratic societies are often modeled as consisting of a ruling elite of private owners of land and/or capital, on the one pole, and the working population, who owns little beyond its labor, on the other. Public goods and repression ensure that the system is stable, which implies that there is little or no migration between the two divisions.5 The Soviet Union, as well as other Communist regimes and, in fact, other historical nondemocracies, however, deviated from this model in two important ways. First, the Soviet ruling elite was the collective owner of the most important productive assets. Second, elite positions were not hereditary, and the elite ranks were open for entry. These two features expand the choice space for the rulers, allowing for “borrowing” support from a large mass of activists in exchange for the prospect of promotion to the ruling stratum in the future—a prospect that only a select few would realize. These two features also impose additional costs on the rulers. From the perspective of an incumbent, promotions are costly since each new promotion either decreases per capita rents if all incumbents stay or requires the dismissal of an incumbent to keep rents constant. In either case, a fraction of expected residual lifetime income is lost, although the distribution of the burden of the cost differs between the two scenarios.6 However, expectations of promotion create incentives for activists to expend extra effort in their capacity as informants, voluntary supervisors in the workplace, or members of the paramilitary. These

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services benefit the regime by increasing the leadership’s control over the economy and/or eliciting more effort from ordinary workers and therefore increasing state revenues. The nature of activist services changed over time, as did the composition of this stratum. In the first fifteen years of the Soviet regime, before the Stalinist model was established, activists typically worked as “tax collectors,” in a broad sense ensuring that returns to economic activity were captured by the dictatorial state. During the years of “war communism,” assembled in “food brigades,” they collected taxes in the form of forced collections of agricultural products. During collectivization, activists were instrumental in facilitating grain deliveries, setting up collective farms, and monitoring their output. Activists were also called whenever an emergency—from a heavy snowfall to a peasant uprising—required the extra input of unskilled labor. The regime also valued their supervisory services on the shop floor, especially in the periods of rapid expansion of industry in the 1930s and 1950s–1960s. A typical activist in this setting increased the effective labor input of coworkers by promoting initiatives such as giving the homeland one hour or one day of free labor, going after slackers and “wreckers,” or just by assuming a low-level leadership position that did not offer adequate compensation, if any at all, for the level of responsibility it required. A quasi-sociological text of the postwar era proclaims that “once you become a Communist, you assume voluntarily an additional heavy duty to lead others.” A typical career path for a new working-class party recruit would resemble the following: foreman in a production enterprise, then student in an engineering school, then head of the planning department in a large enterprise.7 In the capacity of either tax collector or supervisor, an activist augmented the resources available to the state. The political aspect of the promotion contract was as important as its revenue-generating function. It generated loyalty for the regime. An activist on such a career track had a stake in perpetuating the current regime because a regime change would mean a lost investment of time and money. The promotion contract, therefore, created a nexus between economic incentives and the political stability of the regime. In contrast, simple cash transfers or an on-the-spot purchase of an activist’s services do not assume any investment in future stability. This pragmatic interpretation of membership in the mass party does not exclude

Funding Loyalty with Promises

ideology from consideration. On the contrary, an ideology, such as a shared belief in “a better Communist future,” which party members helped to promote, can be instrumental in maintaining the implicit contract between the bosses and the activists. However, ideology per se is not the primary motivation for either party to the contract. In sum, in the stylized model of political exchange between the rank and file (the activists) and the party bureaucracy (the bosses), the costs are distributed between the parties to the contract over time. Activist pay today, after formal admittance to the bottom tier of the party hierarchy, does not immediately make them better off. The bosses pay tomorrow, with limits imposed on their ability to accumulate and transfer wealth. Without the contract, a would-be activist would not bear the disutility of activist service but would forgo the opportunity for vertical mobility. The bosses who chose not to offer the promotion contract to the population would be hereditary autocrats or private proprietors who, as a family, would receive rents indefinitely. However, under this arrangement, activists would have no incentive to produce extra rents. Technically, we should expect no activists under such an arrangement. An individualistic ruling elite based on private property rights and/or hereditary political power is an implicit outside option for the bosses, a benchmark against which the terms of a promotion contract can be evaluated. If the bosses, in weighing costs and benefits, choose this outside option, the regime itself changes from one based on public ownership to one based on private ownership, where the former bosses become the new private owners. Incentives for the incumbent bureaucracy to enter the promotion contract, therefore, are determined by the balance of costs and benefits of the activists’ services: the extra rents produced by the activists in the short term versus the income lost by the bosses in the long term due to a departure from the elite position in compliance with the contract. Similarly, incentives for activists to enter the promotion contract are based on a comparison between the cost (disutility) of activist service and the benefits of future promotion to the rent-paying boss position, discounted by the perceived time of service and the probability of promotion.

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T H E PRO M OT ION C O N TR AC T A N D THE DY N AM I C S OF PA RTY M E MB E RS H I P

From the perspective of our rational-choice model, a worker’s decision to become an activist is based on a comparison of the present value of expected lifetime income (or more generally utility) that can be attained under each of the alternative career paths. An activist path implies a cost in the short run (the disutility of activist service) and in the long run promises a gain, with some probability, associated with promotion to the ranks of the bosses. The ordinary-worker path means the choice of a stable wage with neither extra costs now nor extra gains in the future. What conditions should affect the choice of potential activists? When a regime is expected to be stable, the promotion contract is a more likely choice. When the income gap between the bosses and ordinary workers is large, the promotion contract is the more likely choice, as it is when the number of boss positions is high. The first variable determines the stakes in the game; the second affects the probability of winning the promotion ticket. Consequently, the supply of activists is positively affected by the income gap and the size of the ruling bureaucracy.8 Demand for admission to the party is, however, only one side of the equation. Actual new admissions are also affected by the bosses’ demand for activist services, which depends on the value of the services activists provide. The productivity of activists depends on their functions, such as supervision or volunteering. The value of their supervisory activities should be positively related to the capital stock and also, albeit more weakly, to the labor force. To understand this, consider an illustration that reflects the realities of the early 1930s. Suppose the government has a goal of rapidly increasing industrial production, a strategy that implies, among other things, a greater volume of transportation by truck (say, from smaller factories to river ports and railroad stations).9 To this end, it buys a large number of new trucks abroad. This transaction increases the capital-labor ratio in the economy. Let us assume that every truck can be used at full capacity for twenty-two hours a day and that there are two drivers per truck. They can work in two shifts, but they are accustomed to working for eight hours a day. The government can issue a decree requiring

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drivers to work overtime, but there are no resources to enforce it or pay enough to create an incentive to do the extra work. The government also cannot rely on unemployment as the labor-disciplining device because of the scarcity of trained truck drivers. Without proper monitoring and/or adequate pay (which is costly in resources), the drivers will go home early, shirk working during the day, or even use the trucks in their possession to earn some cash on the side, a situation that would be even more damaging to the interests of the state. Trucking is a technology with perfect complementarity between labor (drivers) and capital (trucks): trucks function as productive assets only as long as there is a driver at the wheel. Every hour of labor lost equals one hour of capital services. Activists, however, can come to the rescue. A party cell can be established in a trucking company. Some drivers choose to join the party as candidates. Competing for promotion, driver-activists work more themselves and monitor their nonactivist coworkers so that trucks (the capital) are used more intensively, increasing the return on capital investment (new trucks). Bringing the demand and supply sides of the activist recruitment process together, we can formulate that higher inequality (lower wages and/or higher rents for the bosses), a larger number of boss positions, and higher capital investment will result, other things being equal, in greater increases in party membership. But are not high inequality, an oversized bureaucracy, and greater investment (meaning unpopular sacrifices in consumption) the ingredients for unrest that can bring down a government? Such is most likely to be true in a society where an elite minority applies brutal force to rule the disfranchised majority. A hierarchical organization and promotion contracts let a Soviet-type regime thrive under conditions where a “simple” dictatorship would be in peril. In the appendix at the end of this chapter, we present an empirical test of the promotion contract model. Empirical analysis produces results that are consistent with the theoretical predictions of the model. The supply of activists, measured as the number of party candidates, is positively affected by the size of the income gap between the party bureaucracy and workers. Investment in physical capital, which increases the return on activists’ services, also positively affects the equilibrium number of activists and therefore increases the regime’s stability. Indicators of the provision of public goods have either no effect or a negative

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effect on support for the regime. These results are in line with earlier empirical studies of conventional dictatorships, suggesting that our model could be applicable to a broader class of nondemocratic regimes.10 A distinctive feature of the results is the higher significance of variables that correspond to the negative stimuli (“push”) to becoming an activist—retail sales, enrollment in higher education, and so on—versus the low significance of positive ones (“pull”)—the number of bosses and their average salaries. The contribution of the pull to the explained variation is one order of magnitude lower than that of the push. Although the proxy for boss rents used here—salaries—accounts for only a portion of the total remuneration of bureaucrats, there might be a more general explanation for the relative strength of the push of low wages versus the pull of expected rents. The variables that determine the pull are far from perfectly observable by a worker considering becoming an activist. Information on the number of positions in the bureaucracy and bosses’ salaries and benefits is hardly public domain. It can be acquired only indirectly and is easily distorted in transmission. It is not surprising, therefore, that the supply of activists is more elastic with respect to workers’ consumption than boss rents. This implies that future empirical research on hierarchical regimes is unlikely to be significantly hampered by a lack of access to data that pertain to the opaque higher tiers of the ruling bureaucracies, as long as relevant economic variables can be observed.11 The analysis indicates that both sides of the political labor market influence observed outcomes significantly. Economic incentives for both incumbent bureaucrats and activists determine the equilibrium number of party activists. LIMITATIO N S O F TH E PRO MOTI O N C ON T R AC T A ND R E G IME C H A N GE

Expectations of regime durability, expected rents, and the productivity of activists affect whether both bosses and activists will participate in the promotion contract. Under certain conditions, bosses can grow indifferent toward maintaining the contract and regime change. Those conditions are determined by the productivity of the activists and the bosses perceptions of regime durability, which we denote as Tmax. An insecure geopolitical environment and/or internal instability, by decreasing Tmax,

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expands the region of acceptable contracts for the bosses, adding flexibility to the regime. Conversely, a declining threat of instability makes it more likely that the bosses will choose not to enter promotion contracts and abandon the one-party regime.12 It is not only changes in the bosses’ expectations but also a reduction in the supply of activists that can cause regime change. An increase in wages is of particular importance in this context. Wage setting is a matter of economic decision making. This is a process institutionally separated from the design of optimal contracts for the political labor market. The industrial bureaucracy may find it beneficial to increase wages to stimulate a higher productive effort on the part of ordinary workers, especially when the productivity of activist supervisors does not yield the desirable results. Paul Gregory argues that efficiency wage considerations were not foreign to the Soviet leadership and that their influence on economic policy was notable.13 Therefore, economic efficiency and political support are generally contradictory objectives. While pursuing the former, bureaucrat-managers can lower relative boss premiums. This will depress the supply of activists to the point where the bosses will lose interest in participating in the promotion contract because its cost outweighs the gains from services provided by the activists. At the same time, the presence of an outside option such as a shadow economy or emigration may divert potential activists from the political labor market. The effectiveness of the loyal-service-for-promotion exchange depends, therefore, on the extent to which the rulers are capable of controlling the sources of income and, by the same token, the paths to upward job mobility. Finally, the ability of the ruling bureaucracy to raise support in the political labor market depends on its ability to control the path of upward income mobility. Absolute control is never possible. Two major avenues for upward income mobility that are not subject to total bureaucratic control are higher education and the shadow economy. In a primitive economy, this problem can be contained, whereas a more complex economy requires more human capital. On the one hand, this brings about opportunities for higher incomes for apolitical professionals. On the other hand, it creates a niche for illicit economic activity. Both venues for apolitical incomes undermine the regime by diverting potential activists who respond to economic incentives outside the state-controlled economy. In the Soviet Union

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until the 1950s, a party career path was practically the only way up. Starting in the 1950s, requirements of a modern economy led to the expansion of higher education and created more opportunities for higher incomes outside the nomenklatura. The main precondition for the workability of the promotion contract—the control of income paths and therefore the ability to maintain a significant boss premium— gradually eroded. This process alone, if unchecked, would lead to regime change—technically, by lowering an activist’s participation constraint and pushing the point of optimal contracts outside the space for possible contracts without ever disrupting the equilibrium. In reality, this was not the only movement that could and did occur, and as we shall argue below, much of the dynamic is explained by inevitable deviations from the equilibrium (optimal) promotion contract. I NSTITU T IO N S A N D TH E E N FO RC E A B I LI T Y O F T HE P ROM OT IO N CO N TR AC T

The major problem with the implicit contract between the incumbent bosses and activists is its time inconsistency. The contract benefits both parties at the time of signing as long as the participation constraint is met. However, the bosses have an incentive to renegotiate the contract at the time it “reaches maturity”: if the expected regime stability, reflected in Tmax, is high, the bosses expect a significant loss of rents due to retirement. A contract “signed” during hard times (uprisings, wars, etc.), when the expectation of Tmax is low and the demand for activists shifts up, is most likely to be renegotiated. As soon as the threat to power diminishes, normal Tmax rebounds, and a downward revision of the promotion rate can take the form of a purge of excess activists. This could have happened after the end of the forced collectivization of the peasantry (1929–1933) and after World War II. A breach of contract can take one of two forms. First, the bosses can promote a lower share of activists than expected. Second, the bosses can stay in office longer and increase the activists’ term of service correspondingly. In either case, the promotion rate falls and boss tenure increases. The bosses are strictly better off in the short run. The immediate effect of these changes on the supply of activists is positive if the effect of longer tenure exceeds that of decreasing turnover. However, repeated breaches of contract make prospective activists under-

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stand that the tenure of the incumbents is growing at the expense of the future cohort of bosses. Moreover, the activists, once denied timely promotions, tend to extend their tenures after they eventually get the promotions. In addition, the real bureaucracy is a multilayered hierarchy. Its higher-ranking officials have a better chance of overstaying in office because they are protected from pressures from below by the intermediate levels, and the smaller size of the upper layers makes it easier to establish mutual-protection networks. The formation of cliques causes promotion channels to clog. Therefore, hierarchy effects an additional deceleration of job mobility. This chain of contract violations results in a nonstationary drift away from equilibrium. Restoration of the status quo calls for either a forceful turnover in the bosses’ ranks or a sort of Ponzi scheme. The former strategy leads to a gradual contraction both in the number of activists and in the number of bosses. In the Ponzi case, new boss positions, created for activists whose contracts have reached maturity, are paid for by hiring yet larger numbers of new activists. P RO MOT IO N CO N TR AC TS , PO L I TI CA L I N S T I T U T I O N S , A ND R E G IME C H A N GE

Contract violations and, consequently, the regime’s evolutionary path are a function of the political institutions that the ruling bureaucracy creates. Various types of nondemocratic institutional arrangements can be grouped into major categories: dictatorship and oligarchy. The problem of collective action within the ruling bureaucracy motivates the choice between the two. On the one hand, it is beneficial for the bureaucracy as a whole to maintain the equilibrium terms of the promotion contract. On the other hand, it does not pay for any particular boss to keep a promise to retire, especially one near the end of his tenure. The benefit of staying one more year is greater than the immediate loss that ensues from the shrinking number of activists. Therefore, the key factor that prompts contract violation is free riding in the bureaucracy, among its senior members in particular. The free-rider problem can be mitigated by entrusting dictatorial power to a member of the bureaucracy with an encompassing interest. The dictator will be able to force the bosses into retirement as they reach the announced terminus of tenure. In this context, dictatorship can

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be regarded as a political institution that serves the primary goal of enforcing contract compliance. Dictatorship also coordinates the bureaucracy more effectively than a looser oligarchic rule, thus increasing total revenue and per capita rents. Finally, the dictator with secure power and a long time horizon will have the means for and incentives to maintain a system of orderly distribution of benefits that will prevent wasteful, competitive rent seeking within the bureaucracy (such a dictator has been dubbed a “stationary bandit” by Mancur Olson).14 Absolute dictatorship, however beneficial it may be for the stability of a hierarchical regime, imposes additional costs on the bosses. Dictators by definition cannot be controlled, and one can become a “disloyal patron” to the bureaucracy, as Joseph Stalin did in the late 1930s.15 In his purges of 1936–1938, all but two regional party secretaries were eliminated. Oligarchy, with its distribution of power within the ruling bureaucracy, involves no costs of this type and creates an environment that is more suitable for a risk-averse boss. For these reasons, a dictatorial solution is more likely to emerge when a high level of coordination is a vital necessity for the survival of a regime and when it depends crucially on activist services—for example, during or on the eve of a war or uprising or in poorer societies, where inequality is high and/or when developmental challenges call for massive investment. To the contrary, the lower the threat to the bureaucratic rule and the more productive the economy, the more readily the bosses will choose an oligarchic regime with less coordination and less rigorous contract enforcement. T H E L IF E CYC LE O F A H I E R A RC H I CA L R E G I M E : T H E SOV IE T E X PE R I E N C E

The model that we have developed and tested using detailed data for a  short period can be applied to interpret party dynamics in the long run—from the start to the end of the Soviet regime, limitations imposed by the availability of consistent data notwithstanding (see appendix). Available data on administrative employment and the salaries of administrative employees in conjunction with total employment and average wages give some idea of trends in factors influencing the supply of activists. Although employees in the administrative sector are not synonymous with bosses in terms of our model, data on this occupational group likely reflect general trends in the size of the bureaucracy and

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bureaucratic rents. Data for 1940–1965 show that party premiums and administrative premiums followed a similar path (figure 5.1). These variables can be used to construct a single indicator that captures both positive and negative incentives for a potential party entrant. This indicator, expected rent, Re, is the product of administrative wage premiums (the ratio of the average salary in administration, Wa, to the average wage in the economy, W) and the a priori probability of promotion. As there is no direct measure of the probability of promotion, the only suitable indicator in the longitudinal national data is the ratio of administrative sector employment, Ea, to full party membership, P.16 Figure 5.2 displays the dynamics of candidate recruitment against major indicators of the supply and demand for activists—expected rent and the investment rate, respectively. Movements in the candidate/labor, ratio are similar to the investment index. The major exception is during World War II and its aftermath, when activists were needed primarily in the army, not in the economy.17 The variation in the expected rent is lower and its relationship to activist recruitment is less apparent, but the large increase in expected rent in 1930–1933 coincides with the fast increase in the candidate/labor ratio.18 The remaining five decades of bureaucratic rule are characterized by downward trends in both candidate recruitment and expected rents. The last five years of the regime—Gorbachev’s period—are a notable exception because candidates and expected rents had diverging trajectories. During that period the declining investment rates depressed the demand for activists, and retirement protraction should have outweighed the increase in expected rents. This development can be interpreted as the regime’s having approached the participation constraint. Although no systematic data on tenures and turnover rates are available, we know that the upper tiers of the bureaucracy were purged three times in the first forty years of the regime: in 1929–1930, when Stalin came to power; in 1937–1938 (the Great Terror); and in the mid1950s, after Stalin’s death. Each of these episodes was preceded by 3–7 years of dramatically declining rates of promotion to full party membership, signaling a breach of contract by the party bureaucracy (figure 5.3). In all three cases, the dictatorship was able to enforce promotion contracts and reinvigorate candidate recruitment. On the average, bureaucratic tenures in this period rarely exceeded two decades and often ended with demotion, imprisonment, or even death (until 1953). The

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Soviet bureaucracy chose to end the dictatorial regime in the Khrushchev period (after his removal in 1964). The gain was security from the excesses of dictatorship, but the new oligarchic regime was unable to enforce promotion contracts. Upward mobility, especially into the bureaucratic elite, became notoriously low in the 1970s.19 In the early 1980s, the top bureaucratic positions were occupied by people who had reached their first boss positions in the late 1930s and 1940s. Thus boss tenures had increased up to approximately four decades. The reverse side of this process was expectations of increasing duration of service for activists who either joined the party in the 1970s or considered joining the party in the 1980s. Given the long and growing queue of activists, chances for promotion became negligible. Attempts to solve the problem of the shortage of new activists by offering potential candidates more relaxed service requirements led only to a further accumulation of the “overdue debt” to activists, represented by a steadily increasing full party membership against the backdrop of a decreasing rate of new admissions (number of candidates), as figure 5.3 shows. There were apparently concerns within the bureaucratic elite by the mid-1980s about the regime’s unsustainable trajectory. Two of the last three party general secretaries, Yuri Andropov in 1982–1984 and Mikhail Gorbachev from 1985, restarted the practice of forcing high-ranking party bureaucrats into retirement. Such efforts had reached their highest point by the late 1980s. The main beneficiaries of the acceleration of bureaucratic mobility under Gorbachev were “young cadres” in their forties and fifties who had been stuck in mid-rank positions for a decade or more. In the oversized party, this moderate increase in mobility had little impact on new recruits. At the same time, the introduction of freedom of small enterprise and the removal of salary ceilings in state enterprises opened new and potentially lucrative outside options for activists. The supply of activists fell to the point where the incumbent bosses were no longer interested in maintaining the contract. Although the reduction in the number of activists in 1987–1990 was moderate in comparison to some earlier periods, it was sufficient for the system to quickly reach its lower boundary—the bosses’ participation constraint. At the same time, the bureaucracy itself had an outside option. The end of the Cold War gave it new sources of rents, associated with international trade and foreign investment. It also reduced

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the burden of military spending. Therefore, the bureaucracy experienced a positive shock in expected rents, even though the rates of economic growth were low and falling. Given the proximity of the participation constraint, the new sources of rents, even if minor and transitory, were sufficient to put an end to the promotion contract. It would be an exaggeration to say that the end of the Soviet regime was absolutely smooth and welcome. Yet the relative ease of radical institutional change in a country with an enormous army and secret police and a tradition of ruthless political repression suggests that no significant economic interests remained in favor of a renewed contract. In a sense, the subsequent political democratization and privatization offered a chance of promotion (into positions of entrepreneurs and democratic politicians) to the part of the population most actively seeking opportunities for upward mobility. Although the last cohort of the Soviet leadership was removed in the course of the transition, the old bureaucracy on the whole won the “privatization competition.” After the end of mass privatization in mid-1990s, former nomenklatura appointees accounted for about two-thirds of the top positions in Russian business and government.20 Even later, in 1999, for instance, former membership in the Communist Party was still associated with a significant wage premium.21 Despite its common origin in the Soviet monolithic system, the new Russian elite is no longer a collective owner of the country and has neither the ability nor the need to pay for activist services with promotion contracts. However, the remaining power of the state and the de facto reconstruction of a one-party regime suggest that the promotion contract remains in principle a viable political technology. The promotion contract increased the regime’s stability, as reliance on repression alone would have required at least marginal payments to millions in the army and police and a sophisticated system of checks and balances to deal with the “praetorian problem”—that is, the need to ensure the loyalty of this base of armed support.22 Long-term costs for the bosses are a limitation of the contract that makes it desirable when the regime is weak and its prospects are uncertain. In that case the future returns to being in the ruling elite are discounted at a high rate. The low present value of expected returns in the remote future sways the elite toward offering a generous promotion

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contract to young workers. High rates of admission of new members during the years of the civil war and World War II are consistent with this feature. For activists in an impoverished country, the cost of service was relatively low. By contrast, high admission rates in the period of the First Five-Year Plan and in the Khrushchev period can be explained by the high demand for the services of activist supervisors, which complemented investment in industry and expectations of high economic growth rates that could allow for an expansion of the elite’s payroll. An economic slowdown and perceptions of a decreasing external threat, such as in the mid-1930s and in the aftermath of World War II, led to attempts to close the elite ranks, renege on the promotion contract, and reduce party admission rates to negative numbers. The promotion contract allows us to look at the role of the party bureaucracy from a new perspective and explain why there are several plausible interpretations of party functions. The leadership can assign tasks of both activists and bosses—especially bosses—ad hoc. Indeed, why not use those people once they are available for work anyway? In this sense Rutland’s metaphor of the party as a fireman seems to be encompassing.23 Instead of being assigned to specific tasks, an activist or boss could be used for any purpose at any moment. And most of the “fire department” was voluntary. For the same reason, it may be difficult to identify a precise moment when the party bureaucracy began to change its institutional role. Its raison-d’être, as a publicly displayed carrot for activists, masked changes in its modus operandi. At the same time, it would be extremely difficult for a public accountant to infer from the fire department’s records that the firemen have, for quite a while, been putting out only fires started by themselves. A P PE N D IX : AN E MPI R I CA L TE S T O F TH E P RO M OT I O N CONTR AC T M O DE L

What factors affect a worker’s decision to become an activist? From the perspective of the promotion contract model developed above, this decision is based on a comparison of the present value of expected lifetime income (or, more generally, utility) that can be attained from each of the alternative career paths. An activist path implies a cost in the short

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run (the disutility of activist service) and in the long run promises a gain, with some probability, associated with promotion to the ranks of bosses. The path of an ordinary worker implies earning a stable wage with neither extra costs now nor extra gains in the future. When a regime is stable—or at least expected to be stable—the decision to choose the first path over the second is more likely when the income gap between the bosses and the general population (the ordinary workers) is large and the number of boss positions are high. The first variable determines the stakes in the game; the second affects the probability of winning—the larger the space at the top of the hierarchy, the greater the a priori chances, other things being equal, of winning a promotion. Consequently, the demand for admission to the party is positively affected by those two variables: the income gap and the size of the ruling bureaucracy. First, we need to take into account that both components of income inequality—workers’ wages and bosses’ rents—are considered as encompassing measures of real income, including monetary wages proper, transfers, and the consumption of public goods. This is particularly important in the case of the Soviet Union, where the contribution of public funds to real household consumption was very substantial— nearly 100 percent in the case of public health care, education, and subsidized housing. Three indicators of public consumption—enrollment in higher education institutions (ST), new public housing construction in square meters (NH), and physicians per capita (PH)—should therefore be added to wages per se. All three should have a negative effect on the number of activists. Before World War II admission to higher education was often preconditioned on activist status, but in the postwar period, college admission norms were largely depoliticized, so enrollment in institutions of higher education should have a particularly strong negative effect as it becomes an indicator of the availability of an outside option—a professional career that promises significant upward mobility without engaging in the promotion contract with the party. Second, we need to take into account distortions inherent in the monetary measures. Because of pervasive shortages in consumer markets, typical for the Soviet economy, nominal wage data are of little use. A portion of wages could not be used for purchases and ended up as

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involuntary savings. Retail sales (RS) per worker are a relatively accurate measure of real disposable income (consumption expenditure) per wage earner. Although RS is also distorted by administrative prices, comparison of this measure across regions and between adjacent points in time should be fairly consistent. RS as a measure of workers’ incomes should have a negative effect on the number of activists. Similar considerations apply to the remuneration of the bureaucracy. However, we have little reliable data on the nonmonetary remuneration of bosses and have to rely on evidence from party budgets suggesting a significant correlation between salaries of party officials and their fringe benefits. At the same time, there is no doubt that most of the time, bosses were in a position to spend all their earnings as they wished, without being forced to save. Therefore, monetary salaries of party officials, which we denote hereafter as R, seem to be a sufficiently accurate proxy for the bosses’ rents for the purposes of comparison across regions and between adjacent points in time. Finally, the model requires a measure of total capital. Such data, however, are rarely available and would hardly be comparable across time and industries, probably due to the absence of capital markets in Soviet-type economies. By contrast, current-period investment (gross capital formation) data are available and can be used—again for the purposes of comparison across regions and between adjacent points in time. Alternatively we can use two investment measures: investment per worker and change in the investment rate. Both are imperfect but correlate with the changes in total capital and for this reason should have a positive effect on the number of activists if the model is correct. Demand for admission to the party is, however, only one side of the equation. Actual new admissions are also affected by the bosses’ demand for activist services. As long as activists produce valuable services for the incumbent bosses at a certain cost, the trade-off between the benefits and costs determines the party’s willingness to open its doors. The productivity of activists depends on their functions. Let us focus here on activist supervisors, who are arguably prevalent in a mature system. Activist supervisors, whose function is to elicit a higher level of effort from fellow workers, can be modeled as a sort of labor-augmenting technology. Their number (and consequently the amount of services they

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produce) builds into a standard economic production function as a coefficient that multiplies the labor input: f(Na) = F{K, (1 + aNa) L}, where K = capital, L = labor, Na = number of activists, and a = activists’ average productivity.24 In this formulation, if there are no activists (Na = 0) or they are idle (a = 0), the effective labor input is simply equal to the quantity of labor, L. Otherwise the labor input is increased by certain amounts resulting from a combination of longer hours worked, higher quality, and higher labor productivity, all of which are equivalent to greater effective labor input with an unchanged quantity of labor accounted for. If the production function exhibits substantial complementarity between labor and capital (elasticity of substitution between labor and capital, ρ < 1), then the demand for activist services will increase in the capital-labor ratio. The Soviet economy—not unlike other twentieth-century economies at similar levels of development— did exhibit complementarity between labor and capital.25 Therefore, greater numbers of activists would be called for—and party admissions should increase—when the government is pursuing an active investment policy, thus increasing the capital-labor ratio. The empirical test of the model uses data from the Soviet republics for the period 1956–1968. The choice of the period is dictated by the simultaneous availability of political and economic variables; political ones, largely coming from party budgets, are available mostly up to the mid-1960s; economic variables are widely available only from 1956, when publication of statistical yearbooks began. The need to use regional data is determined by the heterogeneity of the USSR, as well as that of its largest republics (Russia, Kazakhstan, and Ukraine) and by the need to have more observations. Variation across territories of the USSR was substantial, which makes subnational analysis necessary and possible. Ideally, we’d use regional (oblast-level) data, but for the most part economic variables are available for republics only. We use only nine republics, omitting Russia, Kazakhstan, and Ukraine for the reason stated above and Lithuania, Moldova, and Turkmenistan because of incomplete data. There is a lot of synchronous correlation in the data resulting from common policy influences. There is also hidden inflation. It is important,

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therefore, to use changes instead of levels. While published levels of data create an impression of a steady increase of everything according to the “main law of socialism,” rates of change exhibit substantial variation and seem to be sufficiently reliable. In particular, the rates of change in the left-hand-side variable, number of activists (party candidates), exhibit substantial variation across republics and over time (see figure 5A.1), making econometric analyses meaningful. Tested empirical specification is given by: Δln(Ait) = β0 + β1 Δ ln(Bit) + β2 Δ ln(Rit) + β3 Δ ln(RSit) + β4 Δ ln(Lit) + β5 Iit + β6 Δ ln(STit) + β7 Δ ln(PHit) + β8 Δ ln(NHit) + εit In the expression above, Ait is the absolute number of activists taken equal to the number of party candidates, and Bit is the absolute number of bosses—party officials (otvetrabotniki). Iit is alternatively the log of investment per worker or the change in the investment rate. In some of the specifications we include a subperiod constant.26 Other variables are as described above.27 The subscript i stands for republic. Predictions of the promotion contract model as they apply to the specified variables are assembled in table 5A.1. Summary statistics for the variables included in the analysis are given in table 5A.2. The results are in table 5A.3. The signs and magnitudes of the parameter estimates are consistent with the promotion contract model. The number of bosses has a positive coefficient, as expected. Boss rent (party officials’ salaries), R, also has a positive effect, although its significance is low. Signs of either investment indicator are consistent with the production technology, with a low elasticity of substitution between labor and capital. The variables that measure public consumption—enrollment in higher education institutions (ST), new public housing construction (NH), and physicians per capita (PH)—also have the expected signs or are insignificant. These effects provide additional support for the theoretical result that the real incomes of the working population (broadly conceived) should reduce the supply of activists. Finally, the significant negative estimates of the After_1961 dummy can be explained by the elevated expectations of promotion on the part of the activists due to the temporary increase in the rate of turnover within the Soviet party bureaucracy in 1956–1961, when Stalin’s cohort of bosses was largely forced to retire. By contrast, turnover rates were back to low at the end of the Khrushchev period, especially after Brezhnev took over in 1964.

6 The Party and Its Overseers

Communism was supposed to breed a “new socialist man” to replace the self-interested Homo economicus. Indeed, would it not be reasonable to expect party members, as the avant-garde of the socialist state, to place the interests of the state above their own narrow interests? If this were the case, however, there would be no need for the party to supervise its members as they could be counted on to serve the higher interests of the party and state. That there were shady characters in the party should come as no surprise, but the fact that the party had to create elaborate oversight and control structures tells us that they were dealing with more than an anomaly. Given the party’s large size, complex structure, and variations in the objectives of the members of its bureaucracy, the relationship between party members in general and the party leadership was not immune to the principal-agent problem. All aspects of party operations—from the accuracy of paperwork by regional party finance departments to the everyday behavior of rank-and-file members—could be the subject of scrutiny by local or central supervisory agencies. Two types of official institutions were created specifically to deal with such agency problems within the party system—audit (revizionnye komissii) and party control (partiinyi kontrol’).1

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WH Y OV E RSE E TH E PA RTY ?

Ideology, although important, was hardly the only factor determining individuals’ choice to join the party. Such factors as self-selection and government policy also influenced it. On the one hand, party membership could indicate a degree of devotion to Communist ideals and loyalty to the country’s leadership. On the other hand, the party system provided an attractive career by offering a competitive income and future benefits. Party membership, however, was not meant to be instantly converted into rewards for current or prospective members. Only a small and declining share of those who had chosen to become party members reached positions in the nomenklatura that offered salaries and benefits far in excess of the average. Inequality within the carefully selected nomenklatura ranks was even more pronounced and probably easier to fathom for insiders than the gap between the rank and file and the bureaucracy for an outsider. Benefits associated with a nomenklatura position were conditional on hierarchical level, region, and industry (for party organizations in the production enterprises) and included both salaries and various nonpecuniary benefits, as well as privileged access to scarce resources and valuable services. The party used promotion incentives to provide legal opportunities for career growth and consequently upward income mobility in an attempt to offset the incentive to use political power for personal enrichment. Ideally, incentives would be aligned so that a typical bureaucrat would choose the first option—loyal service in the expectation of further promotion—over informal means of personal enrichment. In the real world of imperfect incentives, however, corruption and abuse of office will occur. For example, depending on preferences and individual situations, promotion may or may not be sufficient to blunt corruption. The promise of promotion could be sufficient for a young rank-and-file party member whose power was minimal and whose perceived gains from promotion were substantial. A bureaucrat, however— especially a mid-level administrator who was already vested with substantial power but still not at the top of the power pyramid—was more likely to face a dilemma with no obvious solution: work in the best interests of party principals or use the already attained level of control to reap the benefits of the current position? The very existence

The Party and Its Overseers

of control agencies to “oversee the overseers” testifies to the fact that incentives for party bureaucrats were not aligned optimally and that often the second option was chosen. Conflicts between party members and their leadership were exacerbated by the necessity to delegate important functions to the lower levels in the hierarchy while controlling its resources from the center. On the one hand, the party leadership, despite its power to vet candidates for all significant appointments in the country, did not control appointments to all primary resource-holding positions at production enterprises and in local government bodies. These appointments were often handled by nonparty organizations, like the Council of Ministers, individual industrial ministries, or regional party organizations. On the other hand, local party organizations, whose importance in raising party revenues was well understood, enjoyed considerable autonomy on the revenue side, while their expenditures were under strict regulation by the party Central Committee. Broad control rights of local party organizations coupled with limited cash flow rights created fertile grounds for corruption. Thus the party, the ultimate overseer endowed with the right to supervise and direct every economic or administrative agency through its members, had to be supervised itself. The supervising agencies and control organizations were supposed to identify cases of misuse of political capital as well as material and financial resources. But did they have an efficient-enough stick to force the party bureaucrats to remain within certain boundaries? PA RTY AU D ITORS A N D TH E PA RTY C ON T RO L

The party system had various overseers, each serving different purposes and providing different layers of information. The party financial audit—an internal organ ranging from the Central Audit Commission to the regional auditors—enforced the fiscal boundaries approved by the center to ensure that the local party bureaucracy did not abuse its privileges and benefits. Focusing on financial statements and the actual execution of budgets, the auditors revealed the party bureaucracy’s attitude toward its own resources. The party audit had no centralized apparatus. The Central Audit Commission consisted only of the chairman, employed by the CC apparatus and often listed among the

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administrative department employees. The party audit, therefore, relied on individuals employed by regional party organizations.2 The purpose of the party control was to discipline party members involved in misconduct, including the illegal use of state resources and violation of government decrees.3 In other words, the party control identified, investigated, and punished cases of infringement against state property. Its work was predominantly organized as campaigns’ monitoring the implementation of specific government decrees, but many cases it investigated were triggered by letters from rank-and-file party members signaling the abuse of office by local party officers or production managers. Investigations of production managers could uncover a whole chain of people and organizations involved in misconduct, including local party secretaries. The audit and the party control were independent from each other and differed significantly with respect to their actual power and independence from the local party organizations. Financial auditors enforced adherence to the rules of membership dues collection by party cells to identify suspicious expenditures authorized by party secretaries and/or their accountants. Auditors’ statements also shed light on types, scale, and frequency of violations of the party’s internal fiscal rules. The party Central Committee used the auditors’ statements to verify financial reports submitted by regional organizations and could, therefore, compare information from two supposedly unrelated sources. The main objective of the party control was to enforce party/state decrees and to protect “purity” and discipline in the party ranks.4 Party control took its final shape in 1934, when the party Control Commission was set up, formally, as an independent body of the same rank as the Central Committee and effectively a department within the CC apparatus. Its bureau was in charge of making decisions on the most important investigations—the party’s “supreme court”—while its Collegium (Partkollegiia) was vested with the power to punish and pardon individual party members. A CC secretary, Lazar Kaganovich, was appointed as the first chairman of the Party Control Commission, and Nikolai Ezhov, who later became the main force behind the Great Terror, was the deputy chairman; the two secretaries of the Collegium were Mikhail Shkiriatov and Emelian Yaroslavskii, both prominent party officials.

The Party and Its Overseers

Unlike party auditors and state controllers, party control was independent of regional party leaders. From 1939 to the late 1950s, it was persistently the third largest department within the CC apparatus, rising to second by the 1960s. The Party Control Commission included several industrial groups, with two or three members each, and regional representatives, who were called “plenipotentiaries” to reflect their exceptional individual status and power. Each plenipotentiary had several dozen assistants and staff members.5 The Commission’s industrial groups corresponded to the industrial ministries such as the Ministries of Heavy Industry, Light Industry, and Railroad Transport. In addition, the Party Control Commission had administrative units monitoring local government, finance, housing, and municipal services. It, therefore, was in a position to supply the CC with relatively high-quality information unobstructed by local party leaders.6 FRE E R ID IN G T H E PA RTY: FI N DI N GS OF T HE PART Y FI N A N C IAL AUDI TO RS

The party system had a broad network of financial auditors enforcing budget discipline at the level of regional and territorial party organizations. However, local audit commissions often lacked staff, and reports from party cells were not delivered on time. For example, a representative from Kazakhstan complained at the above-mentioned April 1948 UD meeting that he had to telephone every obkom to request their audit statements: “On the day we had to leave [for a UD meeting in Moscow], only three territorial audit commissions had submitted their statements.”7 What kinds of violations did the party auditors uncover? The auditors’ focus was on cases of avoidance and evasion at all levels of command, as well as the embezzlement of party funds by secretaries of party cells. In 1949, for example, the Smolensk regional party organization had numerous cases of secretaries of party cells embezzling membership dues. One such case was of a party cell secretary in Gzhatsk, a Comrade Trufanov, who paid dues at the standard rate without including his other income, thus owing the party 212 rubles and 20 kopeks. The auditors reported that the money was returned in full by all offending party cells; embezzlers were held responsible; and the Bureau of Smolensk

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obkom issued an order imposing personal responsibility on the party cell secretaries for the collection, deposit, and timely submission of reports on membership dues.8 The embezzlement of large amounts could lead to serious consequences. In 1949, an audit of a party cell in Stavropol resulted in the arrest of its accountant, who had allegedly embezzled 19,000 rubles by adding a couple of fictional people to the payroll (so-called pripiski). The Stavropol obkom, based on the auditors’ information, issued a stern reprimand to its first secretary, who had illegally paid 3,500 rubles to his chauffeur; the chauffeur was required to return the money. The second secretary of the party cell, who was deeply involved in this case, was expelled from the party.9 Thirteen cases of embezzlement were uncovered in a number of Ukrainian party organizations, amounting to almost 54,000 rubles. The leader in the amount of party money embezzled (although not in the number of cases) was Uzbekistan, with some 100,000 rubles. Smaller regional party organizations tended to have more cases of embezzlement in smaller amounts. For example, the Karelia party organization had eleven cases (5,500 rubles), and Novosibirsk, Western Siberia, had sixty-two cases (4,300 rubles).10 A 1953 audit of the Azerbaijan party organization revealed fortyfour cases of embezzlement and fraud totaling 81,400 rubles.11 Those involved faced criminal prosecution and were sent to prison. Nearly 10 percent of the embezzled amount stayed missing and was reported as “unrecoverable”—a relatively good outcome, as sometimes only 5 percent could be recovered. In a Pavlodar party organization in 1952, for example, 16,200 rubles were missing, of which only 900 rubles were recovered. As a result, an accountant was sentenced to ten years in prison, and his entire property was confiscated. Long prison sentences—ten to fifteen years—were not rare in cases involving the embezzlement of large amounts. A 1952 audit of the Crimean party organization found that a secretary of a military party organization had stolen 26,500 rubles of membership dues and that a secretary of the Saki district party organization, Gromov, had stolen 1,700 rubles. Despite the considerable difference in the stolen amounts, both secretaries were expelled from the party and faced criminal prosecution. Gromov received a fifteen-year prison term.12

The Party and Its Overseers

E NFO RC E M E N T O F S PE N DI N G L I MI TS

The enforcement of spending limits complemented controls on revenue flows in the auditing process. Both overdrafts and underspending were equally reproachable, and any unnecessary purchases could lead to tightening regional budgets and cuts in spending limits in the following year. Regional party organizations had a dependent financial status and thus little room to maneuver. The CC not only earmarked all funds to local organizations but also prohibited a shift of funds between categories without special permission. The degree of meddling is puzzling. Why did the CC simply not allocate specific amounts to the regions, and specify expected revenues, and let them do their own prioritizing? Why was it so deeply involved in controlling local expenses? UD records and memos to the CC, as well as the party auditor reports, provide valuable insights into such questions. Regional party organizations worked hard to maintain tight links with their subordinate organizations to ensure that party money was being spent as prescribed by the CC. In the above-mentioned 1948 meeting, for example, a regional representative noted that the regional organization had initiated financial audits of subordinate committees on a regular basis, at least once a year. It had also improved the skills of party accountants at the district level. As a result, lower-level accountants had started informing regional party officials about the financial requests and decisions of local secretaries: “Accountants have started consulting with the obkom. They will call and say that a raikom secretary has requested such-and such-expenditures and ask what they should do. It is necessary to work routinely with accountants. It will produce positive results.” The representative clearly picked up on one of the main themes of Krupin’s remarks: accountants can be a parallel supervisory network, effectively enforcing constraints on lowerlevel party officers through the back office rather than through the official chain of command. In his report of the inspections of lowerlevel party bodies, aimed at preventing overspending and unauthorized expenditures, the representative admitted that despite all the initiatives “there is overspending” in many low-level party organizations. “Did you request CC permission to allow these overdrafts?” asked Krupin. The representative had no choice but to be honest since such information was perfectly verifiable: “In some cases we did request

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CC permission, specifically with respect to health expenditures, but in some cases we did not.”13 The UD was not so much preoccupied with the reasons for overspending as with its right to control expenditures. An exchange between Krupin and Pushnin, a representative from the Voronezh obkom, testifies to this fact: Pushnin: “We overspent 4,000 rubles on the obkom building.” Krupin: “Where did you get the money? Did the CC authorize this?” Pushnin: “I must admit it did not. . . . Circumstances called for this. The building was in critical condition.” Krupin: “You broke the rules and have no guilty conscience”

In many cases, local party authorities had to move funds around to meet unexpected demands. In doing so, they faced a sort of Soviet “honest manger’s dilemma”: break the rules in order to meet the production target or go by the book and risk plan failure.14 Unlike production managers (khoziaistvenniki), however, party administrators had control rights but no cash flow rights. Having relatively few resources of their own, party administrators either withdrew funds from their local bank accounts—a practice that was easy to detect and, as we can see in the examples above, hard to defend—or maneuvered within the limits set by their financial plans. Expenditures on health care, financial aid to party officials, and certain administrative expenses were recurrent themes in meetings at the UD and in exchanges between the UD and regional party financial departments. Krupin explicitly instructed that health benefits be given only to those who really required treatment rather than to all who requested them: “Ask for a doctor’s referral. If [someone] is seriously ill, he should be hospitalized; in this case we will pay for this.”15 The trivial nature of this advice underscores that health care benefits and other irregular payments were perceived as quasi-legal additions to party officials’ remuneration; it was only in a time of financial crunch that the allocation of funds became a subject of scrutiny. In the years following the 1948 meeting, the reports of regional finance departments frequently cite ad hoc authorizations to spend additional funds on health care. For example, the 1953 financial report from the Mari obkom shows that it received permission to spend an additional six thousand rubles on health care and financial aid, which was telegraphed from the UD.16

The Party and Its Overseers

Transportation expenses (mainly on automobiles) were a matter of particular concern in the 1940s and 1950s. At that time the purchase and maintenance of vehicles constituted the single largest item on the list of local party operating expenses (about 50 percent), but its weight declined over time.17 After 1955, when the amount of paperwork submitted to the CC was significantly reduced, we find little mention of spending on transportation items. Instead, the focus of UD control shifted to capital expenditures, the construction of apartment houses for party officials in particular. The exact procedural rules for transfers from banks to party organizations are unclear, suggesting that banks simply could not deny the party short-term loans backed by a financial plan. Local party bosses also could order a bank to pay them bonuses for “financial achievements.” It was the party CC, therefore, not the banking system, that had to enforce spending limits. The CC did not issue orders directly to the banks, though; it controlled only the budgets of party committees. Overdrafts, however, represented only one side of the problem. Financial reports from the late 1940s and 1950s also reveal numerous cases of underspending, which was associated primarily with propagandarelated categories and construction projects. In fact, the phenomenon of underspending coexisted with overspending on such categories as health subsidies, office supplies, communication and transportation, and business trips. Party bureaucrats did their best to move funds between different budget categories to maximize the benefits expenditures. Ideology, however, was a protected budgetary item. Just as an enterprise normally would not pay wages from its capital account, “ideological cash” could not be converted into anything else, let alone salaries. Underspending on construction projects had different origins from underspending on propaganda. It appears that, just like the rest of the country, the party turned out to be a hostage of the limitations of the administratively planned economy. In 1954, for example, auditors found that the Novgorod obkom had underspent the funds allotted for the planned construction of the obkom’s buildings because construction was delayed due to the lack of a workforce and failures in the supply chain.18 The Orel obkom fell victim to notorious delays—only three out of eight planned buildings were finished; the obkom cited the breach of contract by its contractors and problems with supplies.19 The 1954

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financial report by the Pskov obkom also revealed delays in construction of the local party buildings, blaming “incompetent” contractors as well the lack of control by the very raikoms for which those buildings were to be constructed.20 Obviously, the abilities of party bureaucrats were limited. How could they induce efforts in industry if they failed to oversee their own construction projects?21 Although it may seem illogical to hold people responsible for spending less than authorized, there is a rational explanation. By no means would the UD mind if local party organizations spent less on supplies or transportation. In fact, it would welcome this kind of underspending and even call it savings. Ironically, however, the cases of underspending reported in annual financial statements in the late 1940s and 1950s were concentrated in the ideological sphere, and such underspending was unacceptable. Ideology was directly funded from the federal budget, and the CC had to ensure that the money was spent on propaganda. The CC therefore interpreted cases of “the underspending of funds allotted for propaganda” as “evidence of a lack of control at the local level.”22 The auditors’ statement accompanying the 1953 financial report of the Kaliningrad party organization notes that auditors “on numerous occasions have pointed out the significant underspending on party propaganda; the party cell still has over 30 percent of the 1953 annual credits. Specifically, almost 98 percent of the funds on ‘courses and workshops for party workers’ was left unspent. From 30,000 rubles allotted for lectures only 17,000 rubles (57 percent) were spent, which means that a whole range of propaganda events did not take place.” At the same time, the report showed a significant overspending on salaries.23 Ten years later, the situation with underspending on propaganda looked even worse. According to the semiannual 1963 reports from local party organizations, only slightly more than one-third of the direct federal subsidies allocated to ideology and propaganda were spent. Spending on seminars for propagandists and party workers, lectures, and mass political work was found to be “particularly unsatisfactory.” Only 26 percent of the allocated amounts was actually spent by local party organizations. Some republics and regional organizations (for example, Kirgizia, Tadjikistan, Kalmykia, Kaluga, Kursk, Omsk, Rostov, and Tambov) spent less than 10 percent of their annual propaganda

The Party and Its Overseers

grants. Many others—from Moscow to Georgia to Uzbekistan—spent between 10 and 20 percent of their annual propaganda grants.24 What are the origins of such underspending on ideology? Unlike other budget expenditures, financing propaganda was conditional on a verifiable effort. In actuality delivering propaganda meant going to remote villages and lecturing kolkhoz farmers about the ultimate goals of party policy in the region. Party propaganda certainly served the interests of the principal sitting in Moscow but evidently was not in the immediate interests of local agents. Underspending on ideology, therefore, provides yet another source of evidence of the principalagent problem. It fits well with the decline in ideology spending (chapter 2) as the party turned to self-financing. Relations between the regional party system and the center seemed to follow the ubiquitous pattern reflected in a famous joke from the Brezhnev period: “They pretend they pay; we pretend we work.” FRE E R ID IN G T H E S TATE : FI N DI N GS O F T HE PART Y CON T RO L C O MMI S S I O N

In the 1930s, party control became increasingly involved in investigating cases of economic wrongdoing. Most production managers and heads of state enterprises and farms were party members and could be disciplined only by the party itself. A popular party slogan of the time—“Cadres decide all”—indicates that economic problems became personnel matters and vice versa. A member’s conviction by a court implied immediate expulsion from the party ranks, but the decision to turn a case over to the court was at the discretion of the party. In their capacity as industrial managers, party members had to produce results and fulfill the state plans, but more important, they were resource holders, khoziaistvenniki. They could grant or withhold favors; they controlled local materials, housing, and vacation privileges. As resource holders, they had the means and opportunity to engage in unplanned exchanges. Local party bureaucrats and production managers could influence each others’ careers. A local party boss could be held responsible if a local enterprise director failed to meet production targets. If the local industry flourished, however, regional party bosses could argue that they were entitled to more resources from the center, higher salaries, or richer benefits.

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On the one hand, regional party organizations could operate in the interests of the central power by overseeing the production process, acting as “labor augmenting technology,” and exposing illegal practices at the local plants. On the other hand, they could harbor wrongdoers and lobby for additional resources. Often feeling they were in the same boat, regional party and industrial elites formed loyalty networks, tight-knit cliques.25 Loyalty networks had started forming in the early 1930s and included production managers, bookkeepers, commercial directors, and shop stewards, as well as local party organizations and state authorities, whose support and protection were essential. If uncovered, all levels of a loyalty network could be punished—from the local party leaders who had accepted gifts and bribes to the low-level managers who had embezzled. Death sentences could be applied in such cases as well.26 Illegal transactions were possible only if a whole production unit and its supervisors were involved. The threat of a whistle-blower would have been devastating.27 Party control investigations uncovered many cases of collaboration in which heads of trusts, branch administrations, and even ministries had not deterred their subordinates from illegal activities. On the contrary, they fought for lower planned targets and low norms of production quality and allowed trusts and enterprises to have special “reserve funds” to serve buyers who applied directly to them. Customers in illegal transactions included local administrative and party bodies. A report on the illegal product exchange undertaken by the Yaroslavskii tire plant reported that “the array of unplanned customers includes local organizations from enterprises to the city party committee and secret police [OGPU] commandant’s office.”28 The following case from 1945–1946 reveals the extent to which local bonds could limit the party control’s ability to investigate and punish top party bureaucrats.29 In April 1945, the head of the Party Control Commission, Shkiriatov, dispatched an inspector to the Kemerovo region in response to an anonymous letter describing the abuse of office at a trust of the Ministry of Defense in the city of Yurga, Western Siberia. The inspector confirmed that in 1944, the head of the trust, a Comrade Kart, had repeatedly submitted false reports stating the overfulfillment of construction plans—103 percent in July, 110 percent in September, and 123 percent in December—while ac-

The Party and Its Overseers

tually the plan had been underfulfilled—by 86 percent, 92 percent, and 49 percent, respectively. Based on the overstated reports, the trust received 650,000 rubles in bonuses, from which Kart and the chief engineer received 15,000 rubles. In 1944, 20,000 rubles of the bonus funds were spent on sixteen rifles, which were then given to Kemerovo obkom members. Kart and his immediate circle enjoyed support from high-level friends, as the bribes and corruption spilled over the borders of the trust management. Although a deputy minister of armaments, Kostygov, and the main administration (Glavk) head, Mukhin, visited the trust quite often, they had little incentive to stop the illegal practices. During business trips to Yurga city in 1944 and 1945, Kostygov, along with his colleagues, exceeded the official budget by spending his 41,400 rubles on banquets; Mukhin covered three-quarters of those expenses. When this information surfaced, Mukhin tried to fix the situation by legalizing the bonuses. He altered the trust’s initial plan targets, lowering them first from 40,000,000 rubles to 38,500,000 rubles, then to 34,200,000 rubles, and finally to 1,500,000 rubles. As a token of appreciation, Kart gave Mukhin a china cabinet and two armchairs that had been made at the trust workshop and shipped to his apartment in Moscow. The Kemerovo obkom issued Kart a strict reprimand (on record) and required him to return the illegally obtained bonuses. Kostygov and Mukhin also received strict reprimands from the Party Control Commission for illegally spending of state resources and abusing their office. In April 1946, Shkiriatov wrote to Georgii Malenkov, the CC secretary: “After exchanging opinions with other members of the Bureau [of the Party Control Commission], I feel we must affirm the previous decision regarding Kostygov—a strict reprimand on record. His guilt is too great.” The party provided benefits for its high-ranking officials according to their positions in the hierarchy. Although relatively high, those benefits failed to prevent bribery and self-provisioning. An example from the Kharkov obkom, Ukraine, illustrates the mismatch between the official and desired levels of benefits. In 1946, a party control investigation discovered that since 1944, the military counsel of the Kharkov region had been illegally trading in trophy vehicles priced between 1,000 and 4,000 rubles. Regional industrial managers (sixty-six cars) and party secretaries and state officers (eighteen cars) had purchased cars through this network. The obkom secretaries themselves were involved in the

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illegal purchases of six cars. The Party Control Commission ruled that the secretaries be placed “on notice” (postavit na vid).30 Party secretaries at all levels could not resist the offers of semilegal extra income. For example, in 1948, the Party Control Commission issued a strict reprimand to the party secretary at the Kuntsevskii plant. A party member since 1930, the secretary covered up illegal activities of his director, who had falsified output and quality data, permitted unplanned deliveries, embezzled large sums of money, and used enterprise resources to purchase and maintain personal vehicles. In addition, he had a private farm that “exceeded the allowed size, which he used to grow and sell potatoes to the workers at market [that is, unregulated] prices.” The director received a strict reprimand for the abuse of office and was required to return the money he had spent on the cars. According to the investigation, the secretary had received illegal bonuses from the workers’ rewards funds.31 Good performance by local enterprises positively correlated with the incomes of local party officials. Still, harboring illegal activities could be risky if the practice was caught by an independent investigator. The party control’s independence from the local bureaucracy—even if it was not absolute—enabled it to conduct investigations that produced relatively unbiased evaluations of the local situation. Such investigations could break up local cliques. Party control had access to information at all levels in the management chain and thus could detect a broader range of illegal economic activities than a conventional justice system, which almost exclusively relies on signals from disgruntled parties. The party financial audit records and party control files portray a nomenklatura infested with corruption, abuse of office, and misuse of state and party resources. High salaries, benefits, and privileges within the Communist Party system were substantial enough to attract people seeking careers in the party-state bureaucracy, but they were not sufficient to prevent corruption or the abuse of office, leaving plenty of opportunities for self-enrichment. In an attempt to keep the party bureaucrats within certain boundaries, the regime mounted a hierarchy of supervisory agencies, including the powerful and supposedly independent party control, which monitored economic managers and party officers of all ranks. But were those institutions effective? On

The Party and Its Overseers

the one hand, they failed to completely eradicate the abuse of state and party resources by the party bureaucrats. On the other hand, they made free riding on state and party resources much costlier for the offenders and thus reduced the expected gains from illegal acts against the party and the state.

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7 Selective Justice Party Control under Stalin

The Soviet justice system was clearly biased toward party and state elites, who often enjoyed selective justice, while most jurists were controlled by the Communist Party.1 A number of studies describe how Soviet justice was administered to citizens but shed little light on how it was administered to its members within the Communist Party system. From the literature we know more about periods of sudden and sweeping party purges (the 1932–1933 and 1935–1938 purges, the Great Terror, and the 1948 Leningrad Affair) than about routine mechanisms of party justice.2 Was party justice different from justice for others? Did the mechanisms of justice within the party system imitate the justice process outside it? How and to what effect did the party treat its own members who committed crimes against the party and/or state and against other individuals? Documents from formerly secret party archives allow us to look at routine mechanisms of party justice from different angles and study not only the data on punishment but also the results of appeals filed with the Collegium of the Party Control Commission (Partkollegiia KPK), a special agency that supervised the disciplinary practices of regional party organizations.3 T H E CA SE O F CO MR A DE B R I L E V S K I I

The available archival records, both individual cases and statistical data, are very rich and diverse. To provide some idea as to what kind of

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knowledge can be derived from this material, let us begin with the case of a certain Comrade Brilevskii, which illustrates both the common and specific practices we discuss. In April 1948, the Party Control Commission issued a resolution: “Overruling the Stalingrad obkom decision, [we] expel Comrade Brilevskii from the party ranks and ban his reinstatement in the future.”4 Brilevskii—the director of a food processing trust in Stalingrad, a holding of several state enterprises producing food preserves, and a party member since 1922—was charged with corruption, fraud, and the misuse of state resources. The ruling appears to have been a reasonable and expected reaction to this sort of offense. What makes this case remarkable is that since the early 1930s, Brilevskii had been subject to multiple disciplinary and criminal charges and had already been punished by both his home party organizations and the Party Control Commission. He had received at least five strict reprimands and had been expelled from the party three times.5 Each time, however, he had not only managed to get his reprimands removed and to be reinstated in the party ranks but had also continued to belong to the nomenklatura, occupying top managerial positions in the food industry. We know a lot about purgings in the party apparatus and about the coercion that party members faced. What we did not know is that many coercive measures were not final but, rather, included a mechanism for the appeal and reversal of judgments and fines. Moreover, certain kinds of minor or low-level infractions were apparently tolerated. For at least some people—primarily party members—justice was often negotiable. It appears that the leadership was aware of the fact that neither coercion nor positive incentives were sufficient to ensure that party members would execute orders efficiently. In addition to coercion and persuasion, the regime leaders used forgiveness. The Brilevskii case is not unique in revealing a long record of offenses, sanctions, and pardons. Party control files include thousands of similar cases, where appeals of disciplinary punishments were followed by either pardons and reinstatements or some sort of clemency, such as the replacement of an expulsion with a reprimand.6 Expulsion decisions were often made with special provisions that either permitted appeals to higher authorities or allowed a case to be reopened after a certain period of time, thus adding a temporary component to party disciplinary

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sanctions. The unusual element in the Brilevskii case, however, is that his expulsion was final; he could never appeal again. Why would the party punish its members and then forgive them? What determined the severity of punishment? Why would the party grant some appeals while rejecting others? This chapter seeks to answer those questions and interpret the observed patterns of party justice. T H E PA RTY ’S D I S C I PL I N A RY PU N I S H ME N T S

The unique and in many respects superior position of the Soviet Communist Party dictated that its members could be disciplined only by the party itself. The party system had a special protocol for the enforcement of party rules and the imposition of punishments.7 Punishments were levied either by party committees or by the party’s internal police— the control commissions. The central Party Control Commission and especially its Collegium [Partkollegiia] were charged with oversight of the process. While no criminal prosecution against a party member could proceed without the sanction of a party committee at the appropriate level, the party control itself was predominantly concerned with embezzlement, fraud, and other nonviolent illegal acts such as the abuse of office, corruption, and other offenses of various sorts. The vast document trail of this central party organ’s efforts to administer justice to party members constitutes the primary source for our investigation. The most common forms of disciplinary punishments were reprimands of various degrees of gravity—from a warning to a standard reprimand to a severe reprimand; the last could potentially leave a permanent mark in the party member’s record and impede future career growth. Virtually all Soviet nomenklatura members, in the party and in the industrial bureaucracy alike, faced the possibility of a reprimand or some sort of negative sanction.8 Dismissal from the nomenklatura was not possible without the party imposing its most severe form of disciplinary punishment: expulsion from the party ranks. Even when a case clearly had to be passed over to a criminal court, the offender had to face his party organization and be stripped of his party membership first.9 Disciplinary punishments, reprimands, or expulsions from the party stigmatized offenders, as they remained on a party member’s rec-

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ord unless removed following an appeal or by the act of a higher-level authority. In some cases, the reprimand was accompanied by a ban on the offender’s holding a position of responsibility for a designated period of time. Generally, the severity of punishment increased with the gravity of the offense. In cases of embezzlement, depending on the amount stolen and the ability to return the stolen money, offenders could face criminal charges or lose their jobs. The embezzlement of 6,000 rubles or more led to criminal charges, whereas the embezzlement of 1,000 rubles that was almost immediately repaid by the offender resulted in a firing.10 In the Kuibyshev party organization, for example, a party committee accountant who embezzled 787 rubles from the membership dues but managed to return the money was removed from his position with a reprimand on his record. At the same time, a technical worker who embezzled 19,000 rubles was expelled from the party and sentenced to a fourteen-year prison term.11 Although there was a positive relationship between the severity of an offense and its punishment, we could neither find sentencing guidelines nor infer from the data definite brackets for the amount of harm. It seems that there was considerable room for discretion and that other variables were taken into account, in particular the status of the offender. In cases of embezzlement, clerical workers (tekhnicheskie rabotniki) were more likely to face charges and punishment than members of the party bureaucracy (otvetrabotniki). The Brilevskii case also supplies evidence of how the offender’s position protected him from a more severe punishment. Between 1931 and 1933, while working in the administration for food processing in Moldova, Brilevskii received at least three reprimands for different transgressions.12 For example, in 1931, he refused to accept an appointment in the countryside; his refusal resulted in a reprimand issued by a district party control commission but did not lead to any penalties. In 1933, Brilevskii received a strict reprimand for his questionable purchase of an automobile from an Italian consul.13 Despite the significant amount of money involved and the severity of the offense, this transaction resulted in no more than a reprimand. The disciplinary sanctions remained on his record and ultimately contributed to his permanent expulsion from the party, but at the time they had no immediate effect. The fact that he escaped more severe penalties in 1931–1933 was likely due to his position as an important resource holder, someone whose

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access to the output of the food-processing industry in a starving country allowed him literally to feed his influential connections. In many cases, however, the status of the offender and the gravity of the offense are not enough to predict the outcome. An expulsion could follow the embezzlement of a large amount of money or the violation of government regulations, but there was no uniform standard of punishment. Internal discussions at the Party Control Commission show that such hard-to-measure factors as a particular plenipotentiary’s style and the quality of the work environment may have affected the final decisions. Furthermore, plenipotentiaries were known to change their work style when transferred.14 Party control leaders asserted, however, that it was extremely important to strive for the strict implementation of general decrees irrespective of an inspector’s individual disposition.15 Uniformity of punishment was hard to achieve not only because of different philosophies within the party control organization. The ultimate goal of party control was to ensure the proper execution of the “dictator’s orders”—party-state decrees—rather than to punish particular offenses or set the norms of “party justice.” The decrees rarely specified what kind of punishment should be applied. Moreover, as noted, party control work was often organized as campaigns: immediately after a decree was issued, the party control engaged in frenetic activity to ensure its implementation. Brief but frequent ad hoc campaigns intended to enforce particular government decrees obscured the picture. Campaigns would suddenly boost the rate of expulsions as a particular category of crime was singled out for a particular campaign. In such cases, the violation could be for “nonconformance with the government decree” of such-and-such a date. The intensity of those campaigns decreased, however, as controllers were given new assignments.16 A substantial portion of the variation in the level of punishment for the same offense can therefore be explained by timing. Party control was not the only enforcement agency supervising enterprises and administrative bodies, but its unique function as the party’s police blurred the distinction between the party control and nonparty law enforcement agencies, which included (among others) the courts, the regular police, and the secret police. Confusion about when party control should get involved and how party organs should respond to various sorts of misdemeanors arose frequently, especially in the prewar period. An influential party control official, Emelian Yaroslavskii,

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expressed his worries about the fine line between party disciplinary punishment and court sentences in a Party Control Commission meeting in 1936: “Sometimes [party control] substitutes for the Soviet courts. Sometimes [party] committees discuss every misdeed by an official, and they feel they have to levy disciplinary punishments. We must rigorously distinguish between cases that should be considered offenses against the party versus the state.”17 Given the dual role of party control, such a distinction was unachievable. The lack of legal background of the party control staff complicated the issue even further. Party control investigators rarely referenced what paragraph of the legal code had been violated. If they referred to any laws at all, their references were to joint party-state decrees, although specific provisions of those decrees were not necessarily used to justify their decisions. Often cases were initiated and handled at the discretion of party control officials, who had an imprecise understanding of what was legal and illegal but were largely driven by the party line and a vague sense of what was appropriate. Nevertheless, whenever they chose to pass a case to the state prosecutor’s office, the punishment largely followed the recommendation supplied by the principal party control investigator. After facing a trial, a party member could get a jail sentence, be sent to a labor camp, or even be sentenced to death, but the choice of punishment also depended on the position of the party control plenipotentiary who had recommended it. The divergent views among the party control officials concerning the appropriate standards of enforcement and the understanding of “right” and “wrong” can be summarized as divisions between “hard-liners,” who insisted on a strict adherence to norms and the most severe punishments, and “realists,” who leaned toward rationalizing illegal actions by studying their causes.18 Such divisions were probably conditioned on the political environment and career concerns of the party control officials rather than on personal conviction. It is difficult to identify longtime party control officeholders as consistent puritans or pragmatists, but at any given moment, the divisions were apparent. Minutes of Party Control Commission meetings in the 1930s record frank discussions of differences in approach. Postwar records are less candid, but the divisions probably continued. A bigger issue was that the norms of law, especially during Stalin’s era, were unrealistic and that orders were typically impossible to execute

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accurately. Thus, as noted in chapter 6, even an “honest” manager—a loyal servant of the state intent on faithfully fulfilling his or her tasks— was faced with a dilemma: obey the numerous regulations and fail to deliver or break the rules to ensure that the main goal—the production target—was reached. As a result, every agent of the state—and in fact every citizen—operated in a gray zone, where it was impossible to avoid infractions. Even a major violation could be justified ex post on the grounds that it had served a good purpose. The legal gap created by inconsistent constraints on individual behavior made discretion by the supervisors unavoidable. In a way this matched the dictator’s interests, making it difficult for his agents to “beat the system.” Yet a complex system of punishment was needed to compensate for this legal gap, and it left the enforcers themselves vulnerable to accusations of either a lack of vigilance or excessive harshness. PA RT Y ME RCY: TH E PA RTY C O N TRO L C O M M I S S I O N A S A N AP PE AL S C O U RT

The party’s door was a revolving one. Not only could offenders’ service records be cleared, at least partially, by removing the reprimands against them, but expelled offenders could also be reinstated in the party ranks. Both pardons and clemency were subject to proof of loyalty to the regime and entailed a costly multistage appeals process that required many hours of work by party bureaucrats, including a colossal amount of paperwork. The possibility of future rehabilitation was embedded in many sentences. Catch phrases—such as “Allow reconsideration of the case in one year on a petition from the primary party cell” or “Prohibit the occupying of any position of responsibility for two [or three] years”—appear repeatedly. The party’s disciplinary punishments were temporal and discrete, which means the deviant behavior by the regime’s loyal supporters could be punished without completely shutting them out of the system for good. The idea of instituting a rehabilitation process for party members goes back to the 1930s. A party control official, a certain Beker, for example, suggested to the Third Assembly of the Party Control Commission in 1936: “If a person corrects himself, we should remove the reprimand. This is one of the strong aspects of party control. We remove reprimands after three or four inspections.”19 This idea provoked

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an argument that the party reprimand could lose its deterrent power if offenders knew that the sanction would be routinely reversed either by their local party organization or the commission.20 The deputy chairman of the Party Control Commission, Mikhail Shkiriatov, concerned about the frequent use of reprimands, cited the case of a director of a collective farm who had received eighteen reprimands since becoming a party candidate. Accustomed to this penalty, the manager simply expected a new reprimand when his next offense occurred.21 Some Communists had more than ten reprimands. Yaroslavskii once noted that “often two to four pages need to be added to a member’s dossier to provide space for recording all punishments.”22 Despite such objections, reprimands and appeals procedures were institutionalized. Not only were reprimands becoming accepted as routine by the offenders, but they were also frequently reversed by party secretaries and the Party Control Commission itself, thus becoming a sort of scoring system. One’s “penalty score”—the number of reprimands on record—could increase or decrease depending on one’s performance, deeds and misdeeds, and of course one’s efforts to appeal a reprimand. The party record was a flexible method of screening nomenklatura members. The rankings of bureaucratic positions reflected one’s current status, whereas the party record reflected one’s potential for future career growth or decline. Every entry in the party records, positive or negative, could alter one’s chances of either keeping a current position or getting a promotion. Reprimands, therefore, were a way of documenting observed deviant behavior. Appeals of disciplinary punishments typically were filed with the local party organization that had originally issued them, but appellants could challenge a decision made by their home party organization by petitioning the Partkollegiia or the Party Congress.23 Often, prior to making its decisions, the Partkollegiia required regional party control representatives to collect additional evidence. If it planned to override a sentence, it invited both the appellant and a representative from the local party organization to a meeting.24 In reviewing the appeal, the Partkollegiia considered the nature of the offense, the appellant’s current status and position, and recommendations from peers. Then it either affirmed the sentence or granted the appeal. There were different types of clemency. An “unconditional pardon” did not carry any further punishment and resulted in an immediate

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reinstatement to the party ranks. A “pardon with reprimand” resulted in reinstatement to the party but implied that an additional appeal had to be filed to remove the residual reprimand from one’s record. In expulsion cases, a winning appeal might result in permission to “reenter the party following standard procedures” [vstupit na obshchikh osnovaniiakh] or in the appellant’s status being upgraded from “expelled” to “party candidate.” A “demotion to party candidate” essentially sent appellants back to square one with respect to their eligibility for the privileges and benefits associated with party membership. Although party candidates were allowed to become full party members only after a probationary period, they paid the same membership dues as full party members. A permission to reenter the party was given in cases of more serious offenses if the appellant had “redeemed himself” and his loyalty had “passed the test of time.”25 Unlike demotion to the candidate status, such a decision, while leaving the appellant outside the party ranks, would mean that the party was willing to “forget” one’s previous sins and reconsider his or her candidacy. The share of reentry decisions was relatively stable—around 1 percent—throughout the 1939–1951 period, briefly rising to 4 percent in 1945–1946 (figure 7.1).26 Inconclusive evidence, insufficient documentation, or conflicting policies could send an appeal into a gray zone, where it could be neither affirmed nor reversed. Such an appeal acquired a “postponed” status, and the appellant was allowed to resubmit the petition in a few months. The share of such uncertain cases fluctuated, reaching peaks of 14 percent during World War II, in 1943, and 12 percent in 1948 (see figure 7.1). It is not clear whether there was a definite end, a point after which no more appeals of the same decision could be made, but party control records suggest that the number of resubmissions could be large.27 Between 1939 and 1947, over one-third of the appeals of expulsions considered by the Partkollegiia had been submitted two or more times.28 Out of over 91,500 appeals considered during this period, 32,500 were repeat appeals; nearly four-fifths of those had been filed two times and the remaining one-fifth, three or more times. During the war years, the Party Control Commission received 11,500 repeat appeals concerning expulsions, and over 80 percent of these were granted.29 Nearly 13 percent of the repeat appeals that resulted in reinstatement during the war were justified on the grounds that appellants had redeemed themselves on the battlefield or through exemplary

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labor efforts. In 15 percent of the cases, good recommendations, support by army commanders and military party cell secretaries, and petitions from higher-level party committees (district or regional) played a decisive role; in 4 percent of the cases expulsion was replaced by a reprimand. Only 1 percent of the repeat appeals were granted because new investigations did not confirm the original accusations. The cases of repeat offenses followed by repeat pardons or reduced sentences, as in the Brilevskii case, suggest that the regime was seeking optimal punishments for its loyalists, the party members. As noted, between 1931 and 1933, for example, Brilevskii had received several strict reprimands but managed to retain both his freedom and his job. In 1933, soon after receiving the reprimand for the illegal purchase of a car, Brilevskii was reprimanded by the Moldova obkom and then expelled from the party for exaggerating the fruit harvest, which had resulted in a lower than expected supply of fruit to the industrial centers of the Donbass region and overdrafts on the payroll account. In June 1934, the Party Control Commission reinstated Brilevskii in the party, reducing his punishment to a reprimand. In October 1935, again, the Partkollegiia ruled to expel Brilevskii based on new evidence of bribery and marketing grain stocks meant as bonus payments to workers. In spite of everything, Brilevskii remained in the party nomenklatura and was appointed to a managerial position in Moldova. In July 1936, the Partkollegiia reinstated him in the party based on positive recommendations and “hard work”: he had overfulfilled his production plan in the first half of 1936. At a personal level, people formed expectations with respect to the possibility of rehabilitation and acquired, by means of trial and error, valuable knowledge regarding how to meet the system’s requirements and maximize the probability of success. Appeals usually portrayed the appellants as loyal servants of the regime who had worked hard to correct their involuntary mistakes and were prepared to work even harder in future. Appeals were often supported by recommendations from home party organizations. A verifiable record of success on the economic front, a lack of selfish motives, and sincere penitence could significantly increase one’s chances of a successful appeal.30 But was party justice actually designed to meet people’s expectations? What was the ultimate reason behind the party’s rules of punishment as well as clemency? Often the Partkollegiia’s pardons or clemency decisions were motivated by the need to correct harsh decisions made by local party

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organizations that often stemmed from personal rivalries or conflicts between old members and newly appointed members. By contrast, assuming the party control represented the dictator, every party member was a supporter whose loyalty was paid for from party accounts either by appointments, education in party schools, or benefits. As an overseer of the party system, the party control had to emphasize that party members should be judged not by a single transgression but by their behavior throughout their membership.31 A 1940 Party Control Commission report shows a characteristic criticism of party justice by local party bodies. The large proportion of pardons granted that year was a direct result of regional obkoms misconstruing the notorious labor law of June 26, 1940, which led to expulsions of party members for a single case of tardiness.32 Apparently, the punishment that was routinely meted out to ordinary workers was not meant to pertain to party members. Ordinary workers could be used as scapegoats, but every party member had a unique history and was not supposed to be judged on the basis of a single misdeed. The party control cassation machine, however, worked in both directions. It could override the decision of a local party organization either if it found a punishment too lenient or if it believed that the locals had granted a groundless appeal. The main reason for granting the party control such authority was to offset the influence of local cliques interfering with the party’s incentive structure and promotion mechanisms (discussed in preceding chapters). In 1940, for example, a party control representative found that the Chkalovsk obkom had granted a number of unsupported reinstatements, such as one to a person who had been a party member since 1932 who was expelled in 1939 by a local raikom for abuse of office and embezzlement. In less than a year the obkom had granted his appeal and reduced the sentence to a strict reprimand without any materials substantiating the reversal.33 In another case, a party member since 1924 was expelled in 1938 for evading membership dues and embezzlement, but two years later he was reinstated by the obkom without an additional investigation or new evidence. In June 1945, the director of a state farm in the Voronezh region, a party member since 1919, was expelled by his local party organization for abuse of office, illegal transactions, and embezzling donations to the Red Army made by state farm workers. Just one month later, the Radchinskii raikom— the higher-level party organization—reversed the expulsion decision,

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thereby reducing the sentence to a reprimand.34 Moreover, the secretary of the state farm party organization, who had reported the director’s misconduct, was removed from his position. In the reports from the Voronezh region, the Partkollegiia issued a resolution overturning the pardon by the Radchinskii raikom. It is likely that the party control inspector suspected that the pardons in both cases had resulted from an exchange of favors among local bosses, which appear particularly transparent in the last case, where the whistle-blower was prosecuted. Neither harsh punishment nor excessive leniency was in the dictator’s best interests, as both extremes could upset the incentive structure and thereby reduce the stock of loyalty to the regime. While too harsh a punishment could decrease the number of loyalists, too lenient a punishment or quick mercy could result in a mismatch between an offender’s current position and the benefits attached to it. If left unattended, excessive leniency could undermine the system of promotion incentives and thus threaten the party structure. Another way to throw a monkey wrench into the party promotion machine was a member refusing to accept an appointment; such a refusal was a major disciplinary offense punishable by expulsion. In 1960, for example, the Omsk obkom expelled a party worker for his refusal to work as a manager at a local state farm. Although his reason may sound personal, it was not unusual. His wife, a pharmacist, did not want to join him because she believed it would be hard for her to find a job in the countryside, and he did not want to be separated from his wife. He was reinstated to the party following his appeal to the Party Control Commission.35 Job assignments were refused by tenured party bureaucrats as well as by new party-school graduates, who were typically assigned to local party organizations to start their journey up the bureaucratic ladder. For example, in 1959, Vladimir Navarnov (a party member since 1943), a former secretary of the Borzinskii raikom in the Chita region, was appointed director of the collective farm Put k Kommunizmu. Claiming that “he [was] unfamiliar with the specifics of the countryside and would not be good at that job,” Navarnov refused the appointment and was expelled from the party. However, because his case could be reopened if his appeal was supported by petitions from the primary party organizations, Navarnov took advantage of the stipulation, and in less than two years, in 1961,

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his appeal for reinstatement was granted. Another example involves Alexei Petrov (a party member since 1957), a new graduate of a Tuva party school in Kyzyl city. After four years of studies, Petrov started working as a professional party secretary at the collective farm Mezhgei, while his family remained in Kyzyl. He was doing a good job, but the Tuva obkom interpreted his frequent trips to the city as a sign of low morals, which eventually led to his expulsion from the party. The expulsion, however, was later replaced with a reprimand conditional on Petrov’s unequivocal acceptance of his position at Mezhgei.36 Overall, punishments for such misconduct as rejecting an appointment or a lack of enthusiasm typically were rescinded relatively easily— as long as the offender agreed to accept his lot.37 Such a lenient attitude might seem surprising since, according to Stalin, there were no “irreplaceable people” in the Soviet Union. The party’s readiness to “forgive,” however, is explained not by its determination to impose rigid norms of behavior but by its investment in producing loyal cadres, which were not to be lost. The party had invested substantial resources in people like Alexei Petrov, and it was rational to force him to perform the task that had been assigned to him rather than to let him go. It is entirely plausible that Petrov was not the best person for his assignment, but allowing him the freedom to choose for himself rather than adhere to the party’s plans would wreak havoc in the nomenklatura system. The marginal negative effect from a single renegotiation of an appointment would have been particularly high in the small world of the peripheral party organizations. The general availability of pardons and reduced sentences did not imply that obtaining them was particularly easy. Even appellants with no prior offenses, a clean record, and a relatively high position in the party bureaucracy could face substantial obstacles. In 1946, for example, the Party Control Commission issued a reprimand to the secretary of the Stalingrad obkom for misusing the rewards fund allocated exclusively to exemplary workers and managers.38 The secretary petitioned, expressing deep remorse and admitting his guilt. He asked that his reprimand be replaced with a warning because during his nineteen-year tenure in the party he had an impeccable reputation, and the reprimand was thus “too harsh a sentence.” The plea, however, had no effect. This was not uncommon. In fact, there were cases—like that of the first secretary of the Livenskii raikom—in which neither

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support from local authorities nor legal provisions helped reduce the punishment. In December 1945, the first secretary of the Livenskii raikom received a reprimand from the Orel obkom, a higher-level party organization, for violations in grain procurements in 1943, and his case was passed to the regional procurator. What makes this case interesting is that in May 1946, the procurator’s office in the Orlov region had closed the case on the basis of a permission from the procurator general of the RSFSR. This permission allowed the closing of the case according to Article 8 of the criminal code of the RSFSR, a special provision used by courts to free offenders when either they or their offenses did not pose an immediate danger. At first, the secretary’s case appeared to have good prospects. Based on the materials from the procurator and the secretary’s clean record (he also was a war veteran), a draft resolution by the Party Control Commission recommended limiting the punishment to a strict reprimand. Yet the final ruling resulted in the secretary’s expulsion, along with the director of the local procurement agency, from the party ranks. The text of the final resolution suggests that the April 8, 1943, party-state decree that imposed strict personal liability for any violation of procurement procedures was of greater significance to the party control than the provision in the criminal code implying a lighter sentence.39 T REN D S IN PU NI S H ME N TS A N D PA R DON S , 1 9 3 9 – 1 9 5 1

Each year, about 1 or 2 percent of party members were expelled from the party. In the 1940s, as party membership grew, so too did annual expulsions. By the late 1940s, when the rate of growth of party membership had slowed down (from some 0.2 percent in 1944 to −0.01 percent in 1949) annual growth rates in expulsions also dropped, from some 0.4 percent in 1944 to −0.17 in 1949, and they remained negative at least until 1951, when our data series end. Each year, a portion of those expelled appealed to a higher-level party institution, including the Party Control Commission. The available statistics reveal a downward trend in the percentage of appeals (table 7.1). The number of expulsions that resulted in appeals declined from nearly 60 percent in 1939 to 33 percent of the total in 1943 to less than 20 percent in 1950.

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The probability of successful appeals varied over time. Some appeals were granted within one year; others were either rejected or required several iterations. In the 1940s, the period for which we have detailed statistics, the Party Control Commission processed an average of 9,000 appeals a year from expelled party members, granting fewer than onesixth of them (table 7.2). Although no more than 15 percent of the appeals were granted each year on average, the highest probability of clemency was in the early period. In 1939, some 11,000 appeals were processed, of which 35 percent resulted in some sort of clemency. In 1940, the annual number of processed appeals rose to 14,500. Although the probability of pardons and permissions to reapply for party membership declined to 23 percent, it still was above the average in the decade of the 1940s. The fluctuations in the probability of successful appeals do not seem random. It might be that the high probability of pardons in 1939 and 1940 was a corrective measure to party purges, a natural reaction to the excessive punishments meted out during the Great Terror of 1937–1938. Over 60 percent of the cases processed in 1940 were appeals of sentences imposed prior to the XVIIIth Party Congress in March 1939, which marked the end of the Great Terror. Those cases had a higher percentage of pardons granted by the Partkollegiia than the sentences imposed after the congress.40 Vested with the power to supervise the disciplinary punishments meted out by regional party organizations, the Partkollegiia decided hundreds of cases and collected its own statistics. Between 1939 and 1947, the Partkollegiia processed nearly 10 percent of all appeals submitted to the party system—over 91,500 cases—of which 80 percent were appeals concerning expulsions from the party.41 The majority of those expelled faced political, criminal, or disciplinary charges. In the 1940s, the abuse of office and embezzlement constituted the largest and fastest-growing category, reaching one-third of all cases (table 7.3). It was followed by violations of party discipline (unauthorized relocation, nonparticipation in party activities), which resulted in approximately one-fifth of all expulsion cases processed by the Partkollegiia. Over the decade from 1940 to 1950, violations of workplace discipline, mostly tardiness or unauthorized absences, fell dramatically as a reason for expulsion, from over 20 percent to some 3 percent of the cases. The Partkollegiia granted on average over one-fifth of the appeals from former party members seeking reinstatement to the party ranks.

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Of the successful appeals, nearly three-quarters resulted in unconditional pardons. In nearly one-fourth of them the sentence was reduced to a reprimand. In less than 5 percent of the appeals, appellants were granted party candidate status, which carried no benefits but required payments of standard membership dues and allowed admission to the party after a certain probation period.42 Between 1939 and 1947, the Partkollegiia considered some 2,500 appeals of disciplinary punishments other than expulsions from the party, of which 13 percent resulted in reduced punishments, 12 percent resulted in unconditional reversals, and the remaining cases were affirmed.43 Sometimes the lack of substantial incriminating evidence was cited as the main reason for reduced sentences and pardons. For example, in 1941, the director of an Altai state enterprise—a party member since 1926—was accused of embezzlement and rigging output data and removed from his position. As a result of an additional investigation, his punishment was reduced from a strict reprimand on record to a simple reprimand because many of the accusations did not hold: the director had corrected the 1944 output data and had informed the relevant ministry about the changes. Moreover, the Party Control Commission found that the Altai kraikom had broken the rules by failing to clear the removal of the director with the ministry.44 It is likely that the director had friends within the ministry and enemies within his local party. In any event, the commission interpreted this as a case of a harsh punishment that could reduce the loyalty of a potentially valuable member. The Partkollegiia decisions from the late 1930s to the late 1940s reveal an interesting regularity. The probability of a successful appeal declined, reaching a low of 10 percent by the mid-1940s, but it picked up gradually after 1948. In 1950, the Partkollegiia granted nearly onefifth of the processed appeals. As the success rate of appeals increased, however, it became harder to get an unconditional pardon (table 7.4). The share of reinstatements without reprimand dropped from 64 percent in 1946 to 34 percent in 1947 to 18 percent in 1948, and by 1951 it hardly exceeded 10 percent. The probability of a pardon with reprimand jumped from 33 percent of the total appeals in 1946 to some 60 percent in 1947 and stayed at that level until the end of our period of observation. One’s chances of being granted candidate status, which allowed reentry into the party, also rose from nearly one-tenth of the total appeals in 1947 to nearly one-fifth in 1948 to one-third in 1950.

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The case of the first secretary of the Astrakhan district committee, a certain Golyshev, is consistent with the general dynamics of the probability of pardons. In November 1943, Golyshev took a fall for his deputies, who had received bribes from local businesses and had given permits and vouchers to ineligible persons for the cafeteria serving ranking officials.45 While his deputies received strict reprimands and were demoted, Golyshev received a standard reprimand. As early as June 1944, he appealed to the Party Control Commission, asking that his record be cleared, arguing that in the eight months since his punishment he had corrected the infractions. Although his 1944 appeal was rejected, Golyshev kept submitting appeals until the commission finally ruled in his favor in January 1948.46 The Golyshev case seems to follow the general pattern of pardons rather closely. The success rate of appeals had declined from 18 percent in 1943 to 12 percent in 1944 to 10 percent in 1946 (table 7.2). From 1948, however, it began to pick up, and by 1951, the success rate had nearly doubled, increasing the odds in favor of Golyshev-type appeals. Unlike the Golyshev case, the Brilevskii case is inconsistent with the general dynamics of pardons. Had Brilevskii been testing the party’s patience for too long? What made the party repeatedly forgive Brilevskii against all odds only to shut him out completely when its leniency to other offenders increased? Brilevskii was expelled in 1942, when the share of expulsions (relative to the total party membership) began to decline (see table 7.1) and was restored to the party ranks in 1944, when only one out of a dozen appeals was granted. In March 1947, Brilevskii was discharged and expelled again by the Stalingrad obkom on charges of unauthorized barter and the illegal purchase a private vehicle.47 This time around he was given the right to appeal in six months. Soon after that, however, the criminal case against him was closed and the charges dropped.48 Impressed with the positive recommendations from the secretary of the Stalingrad obkom and the minister of the food industry, the prosecutor general of the USSR decided that expulsion was a sufficient punishment, especially because Brilevskii had already been removed from his post. Brilevskii did not consider this outcome the end of his career. On the contrary, he was certain that his appeal for reinstatement would be granted in no time. Indeed, by 1947, his prior history included five reprimands and four expulsions, but he continued to occupy top managerial positions in the food industry. In December

Selective Justice

1947, six months after his expulsion, he filed an appeal to the Party Control Commission and proactively wrote to the human resource department of his ministry inquiring what kind of a job in the food industry it had to offer as his expulsion was almost over. This time, however, he ran out of luck. Following standard procedures, the Party Control Commission requested additional information to make its ruling on the appeal, but the evidence supplied by an investigator in Stalingrad in 1948 worked against Brilevskii. The positive recommendations that had played a critical role earlier turned out to be unfounded. In fact, the Stalingrad obkom was not in favor of closing the criminal case against Brilevskii, and the investigators from the regional prosecutor’s office had collected over seven hundred documents confirming Brilevskii’s involvement in the illegal distribution of the trust’s output. Moreover, his personnel file at the human resource department of his ministry contained numerous records of his violations and misdemeanors that went back fifteen years. In his 1948 memo the party control investigator wrote: “All those lessons taught Brilevskii nothing; he did not learn to respect Soviet rules. For his multiple offenses, he was arrested and tried several times in the cities of Tiraspol, Derbent, and Astrakhan. . . . All the evidence points to Brilevskii’s offenses and his self-serving attitude. Since the prosecutor’s office and the food ministry hold different opinions and in light of new evidence, I recommend that the case be heard at the Partkollegiia.” As we already know, the Party Control Commission not only affirmed Brilevskii’s expulsion but also denied him the possibility of future appeals.49 This was a definite end to the appeals process for Brilevskii and likely the end of his managerial career. Justice for party members, especially the party elites, differed significantly from Soviet justice for ordinary people. While the regime could literally destroy a citizen for stealing a handful of grain or being late for work by three minutes, party justice was not as focused as law enforcement agencies were on punishing specific crimes or maintaining certain levels of deterrence. The main goal of party justice was to enforce a system of incentives, both negative and positive, so that party members—as the most reliable servants of the regime—would indeed remain loyal. If misuse of party funds by party secretaries resulted from their incorrect perception that membership dues actually belonged to

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them rather than the party, those secretaries had to be taught a lesson but not destroyed. It was not the party’s intention to turn its members into antagonized outcasts. Instead, party membership could be used as a bargaining chip in cases of deviant behavior. At the same time, however, the party also had to prevent free riding on state and party resources. Thus bureaucratic positions and benefits had to be synchronized with members’ history and performance. Party justice was indeed biased toward the elites, and in that it replicated Soviet justice outside the party system. However, unlike on the outside of the party system, the regime party sought “optimal justice” for its loyalists, which was not necessarily true with respect to the general population. Party members could commit the exact same offenses as ordinary workers and yet face very different punishments. The main reason was that too severe a punishment would hinder potential loyalists from serving the regime. Thus often instead of facing criminal courts, offenders were disciplined by reprimands and demotions. Moreover, even expulsion from the party—a most severe form of party punishment—was customarily reversed or reduced through the appeals procedure, which was no less elaborate than the system of incentives used to enhance loyalty. However, it did not give the offenders a “get out of jail free” card, as offenders had to repeatedly prove their loyalty to the party and the regime in order to regain access to the careers, privileges, and benefits associated with party membership. Too lenient a punishment, however, created a perception that infractions could be pursued with impunity and fostered the abuse of state and party resources, which undermined the system of incentives carefully designed to enhance loyalty. Party justice, however, could not be executed from the center alone. To a great extent it was delegated to the level of local party organizations, where conflicts between the party and the state, as well as between the central and local leaderships, could be significant. Special institutions within the party, such as the KPK and its Partkollegiia, were established to monitor the implementation of party justice at the local level in pursuit of the best interests of the regime. The Brilevskii case illustrates that while an offender could be valued and have a lot of friends in the relevant ministry, he may not be so useful to the party. Perhaps as far as the ministry was

Selective Justice

concerned, Brilevskii was just doing his job, but from the party’s perspective, he added little to the stock of loyalty. An interesting fact is that in the 1940s–1950s, contemporary political circumstances influenced the justice process within the party. As of 1947–1948, as discussed above, the party system experienced considerable financial problems due to a sharp and unexpected decline in state subsidies. At the same time, as evident from the increasing rate of successful appeals, the party abolished the quest for “optimal punishment” for its members. Although it became harder for an expelled party member to get an unconditional pardon, which would immediately restore all of the former offender’s benefits and privileges, the probability of receiving pardons with reprimands doubled. On the one hand, this suggests a greater lenience toward offenders who normally would not have been forgiven. On the other hand, although pardons with reprimands implied no benefits or privileges, such reinstatements to the party ranks automatically meant the paying of membership dues, which was one of the main sources of the party’s own revenues. Another piece of evidence that fiscal considerations may have determined the greater predisposition toward more lenient sanctions is that appellants were given the status of party candidate, which implied standard membership dues but no benefits associated with fullmember status.

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8 How Much? The Cost of Party and the Determinants of Party Expenditures

Over its decades in power, the Communist Party accumulated substantial resources that the party leadership considered as party property. According to an inventory of January 1, 1990, the party’s assets were worth nearly 5 billion rubles.1 This included 1.6 billion rubles from the publishing business; almost 2.5 billion rubles in property owned by local party organizations; 133,000,000 rubles in property owned by central party organs; and some 760,000,000 rubles in buildings, resorts, summer houses, and means of transportation owned by the UD itself.2 In 1990, facing reforms of state property and a very credible threat that the party’s resources would be renationalized by the newly emerging Russian leaders, the CPSU leadership wanted to know exactly what assets it had and how efficiently those assets could be used. An appendix to the 1990 inventory claimed that “in the course of the past 25 years, the party had invested over 1.7 billion rubles in the publishing business, which allowed the creation of a modern printing industry.” Moreover, the report maintained that the party budget had invested in nearly 90 percent of the peripheral party system’s buildings, which allowed the party to claim all this property as its own, in addition to various electronic and technological resources along with the funds of libraries and museums.3 The previous chapters have shown to what extent the party was able to raise its own revenue compared to local and federal subsidies and

How Much?

revealed the party’s flexibility in reallocating state resources within its system. This chapter details how much it cost to maintain the Communist Party. Party budgets provide systematic data on the official side of CPSU finances. They show how much its top leadership authorized it to spend on salaries, investment, and operating expenditures. The unofficial side—the unauthorized expenditures and illegal methods of collecting revenue—reveals itself through party control investigations. Although these documents provide only anecdotal evidence, which does not allow estimating total unofficial costs, they do offer a more complete picture of party finance. OFF IC IAL C O ST S

One measure of the total official cost of maintaining the party is the ratio of the CPSU total expenditure to gross national product (GNP). Total official party expenditures did not exceed 1 percent of the GNP (table 8.1). The share remained relatively stable—around 0.4 percent—in the Stalin period and declined thereafter. Expenditures on the CPSU look more substantial, however, when compared to expenditures on government administration recorded in the state budget. The ratio is about one to four in the beginning of the period and rises to above one to three at the end of the period. This implies that party expenditures accounted for a large and increasing percentage of total government expenditures, assuming that the party was effectively a part of the bigger government.4 The party was not only a smaller but also a better-funded part of the larger government. Table 8.2 compares annual expenditures per employee in what was officially referred to as the government administration to the party system. The party clearly spent more per employee, and the “party premium” was apparently increasing: the party spent 53 percent more per employee in 1940 and 127 percent more in 1965. The burden of financing the party was borne to a large and increasing extent by individual party members. Thus the cost of party membership can be measured as the “average fee,” or the ratio of total party revenue to total party membership. Before World War II, the average wage of a party member was somewhat higher than that of an average worker. However, after the war, when the party started its rapid expansion, the difference was not significant.5 Average party members paid

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about 4 percent of their wages in membership dues, and this number was remarkably stable over time. Since party dues were a sort of tax levied on this self-selected part of the population, it is interesting to compare this quasi-tax to the actual income tax. Average membership dues were comparable to average income tax rates. For example, the average income tax rate was 7 percent and the average party fee was 5 percent of income in 1955. It is hard to determine how the burden of “party taxation” was distributed among the income groups within the party. Technically, membership dues were progressive: the lowest bracket paid a flat fee—for example, 0.50 rubles in 1962 for those earning less than 50 rubles per month—while higher earners paid an increasing percentage of their wages. Additionally, all party members paid fixed fees in the form of subscriptions to Pravda and local party newspapers. Calculating the net cost of membership is even more problematic. Party officers received a large part of their remuneration in a form that was not counted as taxable income, from cash in envelopes to health benefits. Health benefits also covered the family members of party workers. In 1958, for example, 27,500 party workers, including 1,400 staff members of the Central Committee, received rehabilitative treatment in Ministry of Health resorts in Russia, Ukraine, and Georgia. In addition, the UD received health-care requests from 1,333 relatives of Central Committee workers; of 7,677 people who received care from the Kremlin’s exclusive Poliklinika No. 1 (Medical Center No. 1), almost 50 percent were family members and children of party workers.6 In the 1940s and 1950s, no more than 1 percent of total party expenditures went to health care (lechebnye meropriiatiia); however, they were almost entirely subsidized by the local governments. H ID D E N C O STS

Enforcing austerity of local party finance and self-restraint in spending among local party officials was a rather difficult mission. The stereotype of the Soviet system is that the value of money was low because it could buy little. According to Anderson and Boettke, with the reward system tightly bound to official positions, liquidity preferences should be very high.7 This view receives profound support from the archival evidence presented in chapter 7 and elsewhere, showing that party

How Much?

bureaucrats were “cashing in” their power through fraud, embezzlement, bribery, and extortion.8 Reports by the party auditors, as well as documents from the Party Control Commission, tell us that local party bodies collected their share of “tribute” from dependent territories in the form of embezzlement of party funds, primarily membership dues, and extortion from local enterprises and government agencies. Embezzlement of party cash is essentially redistribution within the party and does not alter the official cost of the party. Extortion, however, is a direct hidden cost of the party to the society. First, extortion increased collective consumption by the party bureaucracy. A typical scenario was that of local party leaders ordering enterprises to fund a bogus political event—for example, a “conference” that was nothing but a week of entertainment at a local resort or a banquet to honor “exemplary workers.” In 1939, an extravagant banquet concluded each party meeting in Tashkent, Uzbekistan. In the first five months of 1939 alone, the Tashkent regional party organization collected 52,000 rubles (a one-month budget for a regional party committee) from local enterprises and organized four banquets.9 Those banquets occurred in the last months of the Great Terror, when one would expect that a threat of repression would have deterred any wrongdoing. Second, some extortion aimed at enriching individual party officials. Local party leaders illicitly obtained in-kind payments (from meat and alcohol to livestock and plots of land) from local enterprises and state farms. For example, in 1943, an investigation by the party control uncovered embezzlement and illegal land-plot purchases by members of the central party committee in Turkmenistan.10 These illegal transactions amounted to 346,000 rubles, which was approximately equivalent to the half-year budget of the Turkmenistan party committee at that time. The most “civilized” version of extortion was “self-rewarding.” Local party officials could order the local government to “reward” them for “outstanding achievements in governance.” For example, in 1946, an investigator in Stalingrad reported a “violation of the rewards procedure,” which was regulated by a government decree of April 24, 1944. The decree allowed rewards only to exemplary workers and their production supervisors but not to local party leaders. The investigator found that 25 percent of the total of 900,000 rubles of reward money was distributed among 173 party officials, roughly an average

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month’s salary.11 This case suggests that an estimated “marginal tax rate” implicit in the party’s unofficial self-financing could be 25 percent. The party leadership—a dictator with encompassing interests— worked very hard to create a surplus, which required protection from dissipation through rent-seeking by the locals.12 At the same time, the dictator had to take local interests into account. Thus, relentless efforts by the dictator’s immediate aides—party control commissioners and auditors—to monitor spending and prevent unauthorized appropriation of state and party resources can be interpreted as the dictator’s attempt to maintain a certain tax rate. The attempt, however, proved unsuccessful. Restraining the appetites of local party bodies and enforcing financial discipline were the dictator’s instruments to prevent overgrazing on the party’s commons. The petty control over spending on everything from cars to paper clips acquires new meaning, as setting limits to conspicuous consumption is less costly and easier to enforce than tracking every transaction at the local level. The punishment, however, was set relatively low. In fact, for ranking party bureaucrats it was typically limited to warnings and reprimands. In the abovementioned Stalingrad case, all rewards were returned, and the first party secretary received a stern reprimand.13 Sometimes wrongdoers were not even fined, although they were usually required to return the illegally obtained rewards. Rarely, party officials were punished for serious or repeated offenses by demotion. An example of a harsher punishment would be a 1943 case in which two party secretaries of the Astrakhan regional committee got stern reprimands and were demoted for selling the committee’s food ration cards.14 The relatively mild punishment of local officials could have contributed to an excessive taxation that augmented the real cost of the party. Two other hidden costs that do not yield easily to estimation are the cost of maintaining foreign Communist and leftist parties and indirect costs associated with party membership. Party budgets show no trace of expenditures to support foreign parties and, therefore, cannot provide any estimate.15 However, such costs could be categorized as a form of investment in national security, similar to aid to friendly governments. If so, they did not add to the operating costs of the party per se. Implicit costs associated with party membership are essentially opportunity costs of time spent by the rank and file performing party functions.

How Much?

Estimating these costs runs into the unavoidable conceptual problem of valuation of leisure time—as long as party activities encroach on the members’ leisure time, for it is also difficult to establish how much total time was spent by rank-and-file members performing party functions. In the early days of the Soviet regime, party membership required a substantial time commitment.16 In the post–World War II years, however, the time cost of party membership may have been trivial, limited to occasional sittings through brief party cell meetings. One component of costs associated with party membership could be estimated, though. Party budgets include salaries of the lower-level party staff in large industrial enterprises, while party secretaries in smaller ones worked on a voluntary basis. Often such nominal “volunteers” actually worked as full-time party functionaries, while they were on the enterprise payroll as workers or engineers. Therefore, the party received additional implicit subsidies from production enterprises, which we can estimate as follows. Every Soviet enterprise was supposed to have a party cell. A proxy for the total number of enterprises is the total number of directors of enterprises and organizations. Population censuses of 1959 and 1970 show these to be approximately 1.2 percent of the total labor force, which means that there were approximately three-quarters of a million economic units in the late 1950s and 1960s. An insignificant share of those units—fewer than 29,000—had party officials on the party payroll. Assuming that one party member per economic unit spent all his or her time performing party duties, we add their wages—about 1.4 percent of the total wage bill—to party expenditures as an implicit subsidy from production enterprises. In 1960, this yields around 700,000,000 rubles, or approximately 16 percent of the total recorded party expenditure at the time.17 DETE R M IN AN T S O F PA RTY E XPE N DI TUR E S

One of the most intriguing facts about CPSU finances is that the party had apparently evolved into a financially independent organization by the mid-1960s, when it started turning out a surplus. If the party was the “owner” of the Soviet state, then it should have been the residual claimant on state budget revenues. Our data show, however, that party budgets were carefully planned a year ahead and were often quite tight. If, alternatively, the party was an instrument of the Soviet leadership,

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one of the institutional agents of the command economy, albeit the most important one, then it should have been on the dictator’s payroll instead of self-financing like a public organization or club. An analysis of party finance clarifies the institutional role of the CPSU and leads to a better understanding of the evolution of the Soviet system as a whole. In this section we summarize the earlier findings in three stylized models of the party’s institutional role and use the aggregate statistics of party expenditures to test these models empirically. First, if the party is viewed as a political club whose expenditures depend primarily on the membership, then the more members, the higher the expenditures. Second, if the party is a collective ruler and a residual claimant on the national income, then its expenditures should be positively correlated with the indicators of macroeconomic performance such as, for example, the Soviet GNP.18 Third, the party in its instrumental capacity can be viewed as an economic agent, or managerial input, into the macroeconomic production function. In this case, the optimal quantity of the input can be expected to be correlated with both labor and capital inputs in the national economy. These models imply that expenditure is a function of party membership, economy output, capital, and labor, but they differ in their predictions about the effects of each of these covariates. We estimate several versions of a single nested model, which is discussed in some detail in the appendix to this chapter. Table 8.3 presents the results of regression analyses. The coefficients in the table reflect the elasticity (or responsiveness) of total party expenditures with respect to changes in the right-hand-side variables such as party membership, economy output (real GNP), capital, and labor. The two types of specifications—with a single breakpoint in the trend and with time-varying coefficients—produce essentially similar results. Party expenditure is nearly unit elastic with respect to GNP, which means that changes in revenues translate into proportional changes in the ruler’s income flow. Party expenditure is positively correlated with party membership but is less responsive to the changes in it; elasticity is approximately 0.4. The combination of the unit elastic effect of GNP with a significant positive effect of party membership seems to be consistent with the view of the party bureaucracy discussed above. It is a member of the ruling elite but seeks to ensure itself against the

How Much?

dictator’s change of heart by creating an independent source of revenue. The labor coefficient is insignificant over the entire period. GNP and party membership exhibit no significant time variance in these specifications (not reported in table 8.3). The responsiveness of party expenditure to the changes in the economy’s capital stock does vary significantly over time. In the beginning of the period, it is positive and comparable to or larger than the effects of the two other covariates, 0.52 to 1.77, depending on the model specification. After 1953, it is either insignificant or significantly negative. This dynamic suggests that the party ceased being a productive input into the economy or at least was no longer a complement to capital. In other words, the party’s role as an economic agent of the government diminished. Neither of the two remaining components of the mixed model supplants the degrading party–economic agent role. This suggests that the party was becoming less well defined in terms of our models by the end of the period. A special technique called nonparametric coefficient-function estimation, which takes timing into account, allows us to investigate further and clarify the last observation. Figure 8.1 demonstrates the changes in the effects of the covariates over time.19 All estimated coefficients diminish over time. Moreover, the standard errors (represented by dotted lines in the figure) increase monotonically over time. The last year when the coefficient of the party membership is significant at the 10 percent level is 1956. The last year when the coefficient of GNP is significant at the 10 percent level is 1960. The capital coefficient is the first to lose significance (in 1947) and becomes significantly negative by the end of the period. All three determinants weaken by the end of the period, and the explanatory power of the econometric model gradually diminishes. The most robust result is the dramatic decline in the significance of the capital coefficient. If it is associated, as we have assumed, primarily with the party–economic agent model, then this decline indicates that the role of the party as economic manager waned soon after World War II. The behavior of the time-varying coefficients suggests that after 1953, in the Khrushchev period, the party was increasingly becoming “detached” from the state. This finding is supported by two observations made in the preceding chapters. First, the weight of the membership

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dues began to decline rapidly in the 1950s, replaced by other sources of revenue, such as proceeds from party periodicals and other publications. Second, the accumulation of party funds began to increase rapidly around 1960 (figure 8.2). These two facts taken together explain why party expenditures become uncorrelated with the exogenous variables in the short run. The availability of substantial party savings (the “emergency fund”) could dampen the effects of changes in the flow of membership dues and subsidies. This does not mean, however, that party finance became fully independent from the state, let alone from its membership base. The revealed tendencies in conjunction with the fragmentary data on party budgets from later periods do suggest, however, that the party was evolving into a more autonomous entity, an organization that used its facilities and membership dues as its source of revenue, which it was free to accumulate and spend. Self-financing through membership dues is adequate only in the framework of the party–political club model. However, the CPSU clearly had attributes of the other two models as well. It provided certain administrative services to the government, and party officers were members of the ruling elite. The party’s role was not only to serve in the capacity of the dictator’s agent but also to select those who would eventually join the ruling elite. In this context, allowing for the financial autonomy of the party would not serve the best interests of a rational dictator due to the threat of adverse selection, but partial funding from membership dues could provide a reasonable compromise. Membership dues could serve, from the dictator’s perspective, as an indicator of the overall level of loyalty to the regime. At the same time, party bureaucrats could support the idea since self-financing provided some safeguards against unpredictable policy changes. Membership dues therefore constituted part of the optimal contract between the dictator and the party bureaucracy. This, however, gave the party bureaucracy an incentive to expand its self-financing by accepting new members merely for revenue purposes. The membership statistics demonstrate exactly this dynamic. Since 1953, soon after Stalin’s highly centralized control disappeared, both party membership and membership dues started increasing rapidly.

How Much?

A P P E N D IX : A N E C O N O ME TR I C MO DE L OF PA RTY E X PEN DI TU R E

In explaining the pattern of the evolution of the party budget, we choose an estimation strategy that permits detecting certain changes in the impact of the three determinants of the expenditure over time. Estimating the model that includes the party membership, production inputs (capital and labor), and output (GNP) could be problematic because of common trends and potential endogeneity of party membership. However, log annual changes in these variables exhibit no significant trends and are not correlated. We therefore estimate the following econometric model: n

¨

⌬ ln Et = G0 (t) + G1(t)

n

¨

⌬ ln Mt  i + G2 (t)

i =0

i =0

n

¨ ⌬ ln K

⌬ ln Yt  i + G3 (t)

t i

i =0

n

¨ ⌬ ln L

+ G3 (t)

t i

+ Jt

i =0

where E is party expenditure, M is party membership, Y is economy output (real GNP), K and L are capital and labor in the economy respectively. Modeling the party as managerial input, we assume that the optimal quantity of the input is correlated with both labor and capital inputs in the national economy. However, a more significant relationship is expected with capital than with labor. The reason is that capital expansion was achieved in the Soviet Union primarily through new construction rather than the modernization of existing production facilities.20 Building a new plant required a new administration and a party cell. In large plants, additional salaried party positions had to be created. Therefore, increases in capital, especially industrial capital, should be positively correlated with party expenditure. On the contrary, the full employment policy in the post–World War II period was responsible for an exogenous increase of the Soviet labor force. Technically, this increase was independent from production decisions or investment in administration. Intuitively, more labor should require more supervision, but labor is monitored primarily on the shop floor, and expenditures on such supervision should depend on the number of production units rather than on the number of workers. This again implies a link

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to capital. Therefore, we expect a more significant relationship between the party and productive capital. The following three specifications differ in the way the time variation in the coefficients is modeled: 1) Linearly changing coefficients: G j = G ej + G eej i t. ¯G j = Gej , t < t * . 2) Single breakpoints: G j = ° ²±G j = Gej + Geej , t v t * 3) Nonparametric coefficient function βj(t calculated using locally weighted linear regression.

In the first two specifications we assume the possibility of serial correlation in the error term. In the last specification, we restrict the error term to normally distributed disturbances because in this context testing for complex error structure is problematic, and an incorrect assumption can significantly lower the quality of a model.21 As the model expression suggests, we allow for the distributed lags of the right-handside variables. We find, however, that only contemporaneous values of GNP and capital and one-year lagged values of the party membership are significant. In the breakpoint specification, we consider three usual suspects in the interior of our period: 1945, 1953, and 1956. Unsurprisingly, we find that 1953—the year of Stalin’s death—is the most likely breakpoint in the data.

Conclusions

In the spring of 1990, one year before the demise of the Soviet Union, the Communist Party Department of International Affairs prepared a memo for a Politburo discussion of the party’s future relationship with communist parties in Eastern Europe.1 The memo summarized the political mistakes made by the leaders of the Soviet East European satellites— primarily their attempts to extend the existence of political structures based on the “Stalinist matrix,” which undermined the reputation of communist parties among the masses. The East European comrades had failed to foresee that state subsidies would dry up quickly and had not made the necessary arrangements to secure their parties’ financial independence, such as obtaining legal titles to the buildings, publishing houses, media, and enterprises they owned. Moreover, succumbing to opposition forces, they had turned over their property to national treasuries and had soon found themselves in a strained financial situation. In the early 1990s, as new states, new institutions, and new leaders began emerging from the debris of the Soviet empire, the CPSU was ousted and briefly outlawed but survived. It appears that the party avoided (or perhaps learned from) the critical mistakes of its East European counterparts. During the first year after the fall of communism, there was an intense interest in the whereabouts of the “party gold”—the assets of the Communist Party of the Soviet Union. President Yeltsin’s investigators and journalists found almost nothing, and today the issue has practically been forgotten. Party budgets do not say how

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many millions of rubles the party had accumulated by 1991 or where that money went. CPSU financial statements do, however, shed light on a side of the Communist Party that has never been fully understood and thus add to our knowledge of the Soviet regime and, by proxy, other one-party regimes. The findings presented here not only penetrate the black box of the Communist Party but also explain the survival of this organization after the collapse of the Soviet regime. CPSU financial records, as well as reports by party auditors and the party’s internal police—party control—portray the Soviet ruling party from a new perspective, illuminating the complex and changing relationship between the party and the Soviet state. Lacking full financial support from the state, party finances became heavily dependent on membership dues—especially from the army—and on proceeds from party publishing operations. From its ledgers we learn the surprising fact that the Communist Party was run as a serious business, with attention to both revenues and expenditures. Political parties are multifunctional institutions. They emerge and exist for a reason. Most important, political parties serve as a vehicle delivering leaders to power, which is a major objective of political entrepreneurs. Maintaining a political party, as any other institution, is costly to its members, and its leaders and its operations are subject to budget constraints. The lifetime of a political party as an institution is determined by the net costs and benefits it brings to its individual and collective agents, as long as both types of agents are driven by rational considerations. Similarly, institutions and organizations driven by special interests of privileged core members may choose to adapt by finding new niches and new sources of revenue. In democracies, power is continuously contested, and political parties are a permanent feature of the political landscape due to the benefits they provide.2 One-party regimes of the twentieth century, however, have also emerged in competitive political settings. With the subsequent consolidation of dictatorship, however, the apparent benefits of political parties dwindled. Some dictatorial regimes, such as Nazi Germany or Baathist Iraq and Syria, shifted their reliance from parties to security and/or military institutions. Other regimes, most notably the Soviet Union, retained mass parties as the core of their political systems. If institutions exist for a reason, then the benefits of having an institution such as a mass party in the Soviet Union should have exceeded its maintenance costs.

Conclusions

We offer a material analysis of the cost side, while the earlier literature has extensively addressed the benefits of the Soviet Communist Party to the regime, intangible as they were. Party financial records and party control reports allow us to literally “follow the money” of the CPSU and calculate the party’s cost, accentuating the fact that the central government tried to keep those costs at bay. From an economic perspective, the finding that money mattered to the omnipotent Soviet Communist Party is actually to be expected: no entity can be set free of budget constraints regardless of its claims of unlimited power. No entity, therefore, can be free from identifying and setting priorities, which of course may change as the budget relaxes or tightens. However, changes in the party budget constraint, reflected in the decadal trends in party finance, are intriguing. The party’s portfolio included government (federal) subsidies, membership dues, and revenues from auxiliary enterprises. Party budgetary data from the pre–World War II period show that party money indeed came from state sources and was spent largely on propaganda. The earliest available financial statement is from 1919, a time of civil war and peasant uprisings. At that time, the party, along with the Red Army and trade unions, was still at the service of the Bolshevik leadership in its initial power-taking capacity. While the central process of that period was naturalization of the economy, the party statute carefully crafted the details of membership fees. Two decades later, in the late 1930s, the party’s financial situation was roughly the same, with three-quarters of its expenditures covered by government subsidies. In the “land of victorious socialism,” the party was no longer an assault weapon but was charged primarily with propaganda and cadre selection, which is reflected in both its budgets and the structure of its apparatus. Since its early days, the Soviet regime had relied on the Communist Party to provide ideology and strengthen ties between the center and the regions. And party finance mirrors the productive cooperation between the party and the state. The party’s “tax base” consisted of regional party organizations, party members in the military, and to a certain extent the Young Communists’ League. Federal and local governments subsidized the party by funding ideological expenses and covering local maintenance costs. Financial records from the postwar years, however, suggest that the state-party unity did not last. In April 1948, Dmitrii Krupin, the Central

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Committee’s treasurer, summoned regional party officials to deliver the bad news: the easy life was over, the Central Committee would no longer foot the bills of the regional party committees, and party committees would have to provide for themselves out of membership dues and proceeds from the party publishing houses. What caused the new stance? One plausible explanation is the financial strain under which the Soviet government found itself in 1947– 1948 because of inflationary policies during World War II, a poor harvest in 1946–1947, and the challenge of postwar reconstruction undertaken with the stress of the newly begun Cold War. The fiscal crisis manifested itself in the so-called monetary reform enacted in December 1947, which was tantamount to confiscating a large portion of the savings held by the population and was accompanied by a default on state obligations and the invention of new taxes. Meanwhile, there was also a trend toward monetization, marked by the abolition of rationing in consumer markets (in 1947) and the state budget’s growing reliance on income and profit taxes (as opposed to the excise taxes favored in the 1930s). Moreover, in 1949, Soviet planning authorities announced a fundamental price reform, which was intended to replace the fixed prices of 1926–1927 with a more flexible price mechanism.3 Finally, the state-party split might have been a sign of the new global ambitions of victorious Stalinism, which may have deemed party organizations inside the country to be of secondary importance. In any event, party finances became heavily dependent on membership dues and proceeds from party publishing enterprises. Membership dues had always been an essential source of the party’s revenue, and the dues rate was an important instrument of the party’s fiscal policy. Several adjustments of the dues rate in 1948, 1953, and 1962 demonstrate that the party leaders fully understood the value of the trade-off between dues rates and party membership. Trends in party finance reflect changes in the party-state relationship and declining federal subsidies and the rising importance of the party’s independent sources of revenue. At the same time, the share of local subsidies increased as the party demanded that local governments pay their bills. The regional party organizations largely had a dependent financial status. The administrative department of the party’s Central Committee, the UD, allocated subsidies from the consolidated party budget and sent party auditors to check on cases of overdrafts within predefined

Conclusions

budget categories. Overdrafts, however, were not the only problem. The CC discovered that federal grants for ideology and propagandarelated activities were increasingly underused by regional party organizations, who defied the center by spending propaganda grants according to their own goals. The center and regional leaders agreed, however, that their mutual goal was to maximize the party’s revenue, which had a direct effect on the income of party bureaucrats. In collecting membership dues, party leaders had to overcome the two major obstacles of financial deficiency and dues evasion. The former was a product of massive delays in the UD’s receipt of dues from local party organizations, while the latter resulted from party members’ hiding their actual incomes. The turning point in party economics came in 1948 with the decision to cap federal subsidies at 25 percent. In practical terms, this meant that the party had to find a way to extract more membership dues and more revenue from the party’s printing presses. The party sought additional resources to maintain incomes at the pre-1948 levels, as well as to cover operational expenditures. Party administrators showed remarkable entrepreneurial skills, radically reforming party finances in just a few years. Dues collection was improved to minimize evasion and delinquency, and party publishing was restructured to allow greater profitability. By the early 1960s the party had achieved selfsufficiency and eventually generated accounting surpluses. By 1990, the party had accumulated a substantial “emergency fund.” The immediate consequences of the 1948 decision to cut federal subsidies to the party are apparent in the data. New goals created new strategies. The party took full advantage of its privileged position by privatizing numerous publishing facilities and turning them into profitable businesses. Profits from party publishing could be viewed as indirect state subsidies, which, instead of ceasing completely, simply took a different form. Even if this was the original intent, this move surely produced undesirable consequences for the regime. The party had reneged on its primary purpose as a producer of ideology to elicit extra effort from the working population. In any case, party economics experienced significant changes. First, from 1950 onward, party membership, which had fluctuated wildly in the past, started growing monotonically. The new budget constraint forced the party’s administration to rethink its priorities in favor of

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achieving financial independence. The party’s growing fiscal needs created an incentive to retain even those members who would normally have been disciplined or shut out completely for political reasons. Gradually, the party began to emerge as an organization with its own interests, distinct from those of the central government. Given that the party organs could not control wages—even those of their own employees—but were free to accept new members, the quest for revenue seems a likely cause of this steady growth in party membership. Membership doubled between the late 1940s and the late 1960s— from 6 million to 13 million—and by 1989 had reached nearly 19 million. Second, the weight of propaganda declined sharply in total expenditures. Arguably, as membership dues replaced subsidies as the main source of revenue, the propaganda sector became less important. In fact, it became a burden, as is evident from the underspending of propaganda funds reported by party auditors. The party became a major player in the publishing industry. This is not at all surprising in the framework of Soviet business organization, as virtually all Soviet industrial ministries were state-granted monopolies, which allowed for a certain leverage and minimized competition. Publishing was no exception, only the ministry in that case was the Central Committee, and the territorial party organizations served as its branches. Unlike most subsidized industrial sectors, the party managed to achieve remarkable commercial success. High investment rates; increased circulation of and mandatory subscriptions to central newspapers; and diversified menus that included, in addition to ideological literature, fiction, illustrated magazines, postcards, posters, and expensive commercial ads resulted in an exceptionally profitable business. The involvement of party cadres in publishing, however, produced a substitution effect, as participation in more profitable activities replaced ideological lectures. In the 1960s, some regional party organizations spent less than 10 percent of their annual propaganda grants. Ultimately, shrinking federal subsidies resulted in the party abandoning propaganda duties in favor of profitable activities, regardless of what such a strategy meant for the regime in the long run.4 The CPSU was a multifunctional element in the Soviet institutional design. It shaped not only the patterns of government decision making but also individual career paths. Being a branch of government, the party served as a redistributive channel, an alternative to the ministe-

Conclusions

rial hierarchy that directed the flow of economic investments. To raise party participation rates, the party network routed federal and local resources to low-income, high-loyalty regions, where marginal returns on such investments would be highest. That the party was set on a course of financial self-sufficiency raises more questions: Was the 1948 decision to reduce federal subsidies dictated by short-term fiscal considerations or long-term institutional trends? What were the long-term consequences of the decision to cut these subsidies? The available archival documents say nothing about who ordered the cuts or when. The decision was likely made in one of the informal meetings of the Politburo, which was typical of that period. The broader context of contemporary political and economic considerations, however, allows us to grasp the underlying reasons. The postwar period was probably the lowest point in the formal history of the CPSU. Party congresses had not met since 1941 and had been of limited importance since the early 1930s. More important, meetings of the Central Committee and the Politburo—the narrow circle of top party leaders that formed Stalin’s cabinet in 1929—were also rarely held. By contrast, the role of the official government—the Council of Ministers—was growing, as was its staff. Unlike the top party leadership, it held meetings regularly. Although this shift of power was just one swing of the “institutional pendulum” rather than a permanent change, it might have facilitated the decision to harden the party’s budget constraint. The end of World War II saw years of fiscal crisis resulting from inflationary budget financing during World War II and a sluggish economic recovery immediately after the war. In addition to dealing with the problems of recovery, the leadership made trend-setting decisions to abandon relatively liberal wartime policies and return to the prewar regime of coercion and centralization. The crisis response included a resumed pressure on farmers, causing famine in 1946–1947, a default on state obligations in 1947, and a reorganization of the government to strengthen the industrial bureaucracy.5 The decision to cut subsidies to the Communist Party may have been another response— possibly the most important one—to the fiscal crunch of the late 1940s. More broadly, the late 1940s appear to have been an inflection point in long-term institutional dynamics. The adolescent regime, between the 1917 revolution and World War II, had required a mass party to

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mobilize loyal support. The party ensured, in conjunction with repression, a reluctant population’s compliance with the policies of hyperinvestment and collectivization. In the relatively capital-intensive postwar economy, maintaining the expensive party machine became an unjustified fiscal burden. Our econometric analysis of party expenditures suggests that the party gradually moved from being an agent of the dictatorial government to becoming a self-sufficient “club.” This transition was determined by the endogenous dynamic of a developmental dictatorship since the mid-1950s was a period of rapid liberalization as Stalin’s personal dictatorship was replaced with an oligarchic regime and a welfare state replaced coercion. The changing role and objectives of the party as organization can only be interpreted correctly by determining who was joining the party and why the CPSU became a mass organization as opposed to an elite club of “entitled” leaders. In the formative decade of the 1930s, Soviet leaders faced a great challenge as the ambitious political-economic agenda was pursued under very unfavorable conditions. Thus the party had to motivate its members to assist the top party leaders in carrying out the party’s leading role. Using an elaborate incentives and rewards system, the party attracted citizens to its ranks and elicited the effort from them necessary to advance the party’s cause. The Soviet system of promotion incentives for party members, discussed in chapters 4 and 5, had to perpetuate the power of the incumbents and to leave room for further career advancement after each successive step up the career ladder. Soviet leaders had to create an illusion of upward mobility, reminiscent of Escher’s famous “impossible structures,” in which the lower ranks could see themselves moving upward but would never reach the top. In the absence of such incentives, even illusory ones, workers would increasingly discount future career returns under the given regime and choose to lend their support to a challenger or seek outside options. As a result, a remarkable system of rankings and compensation differentials in the party system was created, showing that the Soviet leadership indeed was drawing solid lines on the impossible structure they were designing. In the long run, as the country developed, the promotion contract outlived itself. First, technology changed in such a way that activist supervisors nudging their fellow workers contributed less to productivity. Second, the growing size of the army of activists inevitably led to

Conclusions

diminishing marginal returns to their effort. Third, the growing complexity of the economy undermined the major necessary condition of the promotion contract: full control over income mobility and the distribution of rents by the rulers. By creating an impression of incommutability, eventually the perceived cost of the contract to incumbents increased sufficiently to create incentives to discontinue it. At this point, the elite opted out of the contract and the regime ceased to exist. Although the benefits offered by the Communist Party system attracted people seeking careers in the party-state bureaucracy, they failed to prevent corruption and abuse of office. Based on party financial audit records and the Party Control Commission files, it appears that the nomenklatura was infested with corruption, abuse of office, and misuse of state and party resources (chapter 6). The regime’s response was a mounting hierarchy of supervising agencies to restrain the corruption of party bureaucrats. The party’s treatment of whistle-blowers made them vulnerable to their bosses’ repercussions, which ultimately suppressed the whistleblowers’ efforts to fight illegal behavior by party members. While punishments of party members may seem inconsistent and even random, pardons and clemency followed a more regular pattern. Appeals cases yield surprising facts about “merciful” party justice that can be explained from the same perspectives of investment in loyalty and promotion incentives that were used above to explain the party structure. This rationale behind party punishments and pardons is further supported by the statistics on decisions made by the Collegium of the Party Control Commission—the special agency supervising the disciplinary practices of regional party organizations. The regime sought optimal justice for its loyalists; party justice differed significantly from the justice meted out to the common people (chapter 7). The regime could literally destroy a citizen for stealing a handful of grain or being late for work by a few minutes, but party justice was not about punishing specific crimes and maintaining levels of deterrence but enforcing positive and negative incentives to keep party members, the base of the regime, loyal. If party secretaries misused party funds out of their misperception that membership dues belonged to them, they had to be taught a lesson, not destroyed. It was not the party’s intention to turn its members into antagonized outcasts. On the contrary, party membership could be used as a bargaining

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chip in cases of deviant behavior. Too severe a punishment would divert potential loyalists from serving the regime; too lenient a punishment would create a perception of impunity, promote abuse, and undermine the incentives carefully designed to enhance loyalty. The institution of pardons was no less elaborate than the system of incentives used to ensure loyalty. Offenders had to repeatedly prove their loyalty to the regime to regain access to the privileges and benefits associated with party membership. Appeals statistics reconfirm the importance of fiscal motives in explaining the diverging paths of party and state in the late 1940s. The probability of a pardon nearly doubled in 1947–1951, suggesting that the party grew more lenient toward offenders who normally would not have been forgiven. The changes in party economics did not immediately transform the party into a political organization having its own objectives and threatening the regime’s stability. Although the necessary conditions for the separation between the party and the state were created by (or were reflected in) the decisions made in the late 1940s, they were not sufficient for an actual breakup. Neither the party bureaucracy nor the leaders of the state recognized the party’s shifting objectives for several decades. In the 1980s, however, the disparities began to surface. Complaints about podmena—that is, the substitution of supervising party officials and committees for state officials in decision making—became ubiquitous.6 Party interference was actually endemic to a system where the constitution assigned the party a poorly defined “guiding role.” As the party ceased to be an integral element of the system of governance and turned into a rent-seeking organization, however, the growing frequency of references to podmena clearly reflects a growing vexation with the counterproductive interference of the party. With Gorbachev coming to power, the separation became apparent. Underlying Gorbachev’s policies was an understanding that the party was no longer a stabilizing element. Gorbachev’s political maneuvering aimed, therefore, at finding a new support base and limiting the government by excluding the party bureaucracy. It is remarkable that the party as organization was not caught completely unprepared by the state of emergency created by the leader’s desire to find a less expensive and more reliable support base to ensure his own political survival. While in public debates the old guard defended the old ways, behind-the-scenes pragmatists used all available

Conclusions

means—both legal and illegal—to convert the party’s political capital into tangible assets. We know now that the CPSU had gained some level of financial independence long before the party’s political and financial problems emerged during the turbulent perestroika years of the late 1980s. Like a cautious head of household, the Central Committee put away some savings, accumulating what later became part of the sought-after “party gold.” The idea can be traced back to 1948: creating cash reserves to cover deficits was the final part of the Krupin Plan. In the mid-1960s, many party organizations ended their financial years in the black, generating more revenue than the Central Committee allowed them to spend. That surplus was routed to the off-budget “emergency fund” of the Central Committee, which outpaced the growth rate of official state budget revenues by a factor of four. That fund, as well as assets from official and unofficial sources, laid the foundations for the wealth of many “new Russians” with past party connections, through paths that have yet been brought to light. In this context, the notion of the “Stalinist matrix” refers to the merger of state and party when the party was fully funded from the state budget. The Central Committee’s Department of International Affairs in 1990 recommended “stretching out a helping hand to our East European friends” to make sure that the transformed successor parties reestablished themselves in the political arena: The transition to market will without doubt call for the creation of an alliance of the leftist forces as political counterbalance. . . . The formation of a broad alliance of left democratic forces would be necessitated if a threat from extremist nationalistic right forces were to grow. Signs of such a threat are already visible. . . . We cannot leave the parties that followed us for so many years alone; we [should] provide them with ideological, political, and in special cases material assistance. Actually, this work has already started. . . . Material support [should include] providing jobs in the USSR, creation of joint ventures, [and] granting certain specific requests.7

The fast recovery of Polish ex-Communists and the success of the Polish party’s entrepreneurship in the 1980s may imply that the CPSU had had enough time to help them.8 This support, however, was hardly a lasting factor, as the USSR leadership was mostly concerned with threats to its Western borders, not the support of its previous clients.

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Although focused primarily on the situation in Eastern Europe, the 1990 memo reveals a strikingly clear vision of the direction of future transformation: the party had to make sure that its assets—most notably real estate and the publishing businesses—became the legal property of the organization so as to secure its future income and institutional survival. The most remarkable feature of the 1990 memo—and other similar documents—is that their authors were concerned with the survival of the organization, not the state. This finalized the trend toward divergence that had started in the late 1940s. The late 1980s and 1990 were years of great uncertainty and contradictions, but the party system remained linked to the state, even if only on paper. Documents dating to 1989 and 1991, such as the agenda of the party Politburo meetings, continued discussing the salaries of party bureaucrats, compensation of state-sector employees, and provision of party literature to the new party bureau of the KGB, as if the changes in the outside world did not influence how the party was to run its business.9 As late as 1990, the chairman of the Council of Ministers, Nikolai Ryzhkov, still needed approval from the Politburo to lend 10,000 tons of meat and 50 million cans of processed meat from state reserves to the Russian Federation.10 On the other hand, other documents seem to bear a strong imprint of new market realities. In March 1991, the Politburo discussed sending at least ten party workers to private firms in West Germany to learn the managerial skills needed to succeed in the production and economic activities initiated by the party system.11 In April 1991, the party lent 50 million rubles from its emergency fund to the Leningrad committee for two years to deposit at the Russia commercial bank in the expectation of a 6 percent annual interest rate.12 Even as late as October 1991, the party considered an “anti-crisis program” to shield the general population during the transition to market prices.13 These and other documents reveal a paradoxical state of mind among the state and party leaders on the eve of the collapse. They foresaw many a change and did their best to get ahead of others to accumulate assets, establish and manage business contacts, and seize the opportunities offered by the liberalizing economy to turn the party’s property and connections into the capital of cooperatives and joint ventures. Nonetheless, they failed to realize that their entire surroundings were about to change radically.

Conclusions

CPSU financial records exhibit the extent to which the party bureaucracy possessed an entrepreneurial spirit and literally turned the lossmaking publishing sector into a profitable business by reinventing the strategies of competitive business. The party used a system of motivating party members, particularly those seeking advancement, that was much more complex and differentiated than the rules governing the civilian economy. A complex monitoring and punishment system was designed to fight corruption within the party system. The party system was thus responsible for shaping the Soviet political and economic landscape and stood as the pillar of the Soviet system imperative for the regime survival. Eventually, however, as the party grew more concerned with its own well-being than with regime stability, raising loyalty became a marginal task, inevitably destabilizing the regime.

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Appendix

Figures

Figure 2.1. CPSU revenue as share of consolidated CPSU budget, 1938–1965 (percent) Source: ASCP, fond 17, opis 75, dd. 1–25; fond 89, opis 16, delo 8:84–96.

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Appendix

Figure 2.2. Subsidies to CPSU from local governments as percentage of total CPSU subsidies, 1938–1965 Source: ASCP, fond 17, opis 75, dd. 1–25; fond 89, opis 16, delo 8:84–96.

Figure 2.3. State subsidies to CPSU as percentage of total CPSU expenditures, 1938–1991 Source: ASCP, fond 17, opis 75, dd. 1–25; fond 89, opis 16, delo 8:84–96.

Appendix

Figure 2.4. Party participation rates: party members per 1,000 population by republic, 1946–1947 Source: ASCP, fond 17, opis 75, delo 5; opis 77, dd. 21–24.

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Figure 2.5. Administrative and operational CPSU expenditures by republic, 1946–1947 (rubles per member) Source: ASCP, fond 17, opis 75, delo 5; opis 77, dd. 21–24.

Figure 2.6. Expenditures on ideology as share of total CPSU expenditures, 1938–1964 (percent) Source: ASCP, fond 17, opis 75, delo 5; opis 77, dd. 21–24.

Appendix

Figure 2.7. CPSU expenditures on ideology per party member versus party participation rates, 1946–1947 Source: ASCP, fond 17, opis 75, delo 5; opis 77, dd. 21–24.

Figure 3.1. Combined revenue from Pravda, Gospolitizdat, and regional publishers, share of total CPSU revenues, 1938–1965 (percent) Source: ASCP, fond 17, opis 75, dd. 1–25.

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Figure 4.1. Effects of income and participation rates on subsidies to regional party organizations, 1947 Source: ASCP, fond 17, opis 75, delo 14; opis 77, delo 24. Notes: 1. Vertical axis: Subsidy per party member in thousands of rubles per year. 2. Transfers from Moscow and Leningrad are counted as negative subsidy (points under the horizontal axis).

Appendix

Figure 4.2. Revenues, subsidies, and transfers of the Leningrad party organization, 1938–1962 (thousands of rubles) Source: ASCP, fond 17, opis 77, dd. 5, 11, 25, 59, 75, 95.

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Figure 4.3. Revenues, subsidies, and transfers of the city of Moscow party organization, 1938–1962 (thousands of rubles) Source: ASCP, fond 17, opis 77, dd. 5, 11, 25, 62, 76, 96.

Figure 4.4. Net contributions to the consolidated party budget by the Moscow and Leningrad party organizations, 1938–1962 (percent of revenue) Source: See figures 4.2 and 4.3.

Appendix

Figure 5.1. Average salaries of party bureaucrats versus average wages in industry, 1940–1965 (rubles per month) Sources: For wages: Narodnoe khoziaistvo SSSR, various issues; for party salaries: ASCP, fond 17, opis 75, dd.1–25. Note: Figures for party salaries are based on the salaries of regional officials (republic, krai, or oblast) and lower-level party officials (otvetrabotniki). Excluded are salaries in the central apparatus, party enterprises, schools, and support staff.

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Figure 5.2. Factors affecting party membership, 1930–1990 (indices; 1928=1) Sources: Thomas Rigby, Communist Party Membership in the USSR, 1917–1967 (Princeton, NJ: Princeton University Press, 1968); Ezhegodnik bolshoi sovetskoi entsiklopedii, 1971–1990, Sovetskaia entsikopediia [Great Soviet Encyclopedia: Annual Appendices] (Moscow); William Easterly and Stanley Fischer, “The Soviet Economic Decline,” World Bank Economic Review 9:341–371.

Appendix

Figure 5.3. Party membership in the USSR, 1920–1990, total and candidates Sources: Thomas Rigby, Communist Party Membership in the USSR, 1917–1967 (Princeton, NJ: Princeton University Press, 1968); Ezhegodnik bolshoi sovetskoi entsiklopedii, 1971–1990, Sovetskaia entsikopediia [Great Soviet Encyclopedia: Annual Appendices] (Moscow).

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Figure 5A.1. Party candidates as percentage of labor force by republic, 1957–1968 Sources: Narodnoe khoziaistvo SSSR, various issues; John Scherer, ed., USSR Facts and Figures Annual (Gulf Breeze, FL: Academic International Press), various issues, 1977–1980.

Appendix

Figure 7.1. Share of postponed expulsions appeals and reentry decisions in total cases processed by Partkollegiia, 1939–1951 Source: ASCP, fond 6, opis 6, dd. 7–22.

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Figure 8.1. Coefficients in the model with nonparametric time-varying coefficients, 1938–1965 Notes: Solid lines—coefficient estimates; dotted lines—95 percent confidence intervals for coefficients. Variable definitions: see table 8.3. “Capital” in panel C is the total physical capital.

Appendix

Figure 8.1. (continued)

Figure 8.2. CPSU account balance (thousands of rubles) and revenues of USSR budget (millions of rubles), 1940–1990 Sources: ASCP, fond 17, opis 75, dd. 1–25; fond 89, opis 16, delo 8:84–96; Narodnoe khoziaistvo SSSR, various issues.

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Tables Table 1.1. Composition of CPSU membership, 1947 Category Industrial workers Farmers White-collar workers Students Others (retirees, housewives, etc.) Military Total

Membership (thousands)

Percentage of total membership

953.8 906.9 3,008.3 127.7 398.9

15 14 47 2 6

994.7 6,390.3

16

Source: ASCP, fond 17, opis 75, delo 6.

Appendix

Table 1.2. Expected CPSU membership dues, 1948 Membership dues,1947, actual Party membership, 1947 Party membership, 1948 Party membership, average Dues per member, annual Dues per member, monthly Expected membership dues,1948, monthly Expected membership dues, 1948, annual

Measures affecting annual dues in 1948 Annual wage increase January 1: Pecuniary benefits to top party officials May 1: Increase in membership dues for farmers May 1: Increase in membership dues for housewives Junior military dues (salary > 100 rubles) Total

Total expected membership dues, 1948, including Civil dues Military dues Source: ASCP, fond 17, opis 75, delo 6.

1,671.8 million rubles 6,051,900 people 6,390,300 people 6,221,100 people 268.7 rubles 22.4 rubles 143.1 million rubles 1,717.3 million rubles

Rate 0.06 0.03 from 0.5 to 3 rubles from 0.2 to 3 rubles

Increment (million rubles) 105 12 18 1.3 0.7 137.2

Millions of rubles 1,854.5 1,307 547.5

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Table 1.3. Expected CPSU membership dues, 1962 (rubles)a (1)

(2)

Number of party membersb

Monthly wage (rubles) Less than 50 rubles: From 51 101 151 201 251 301 401 501 Students and housewives Wage unknown Monthly total Expected 5% gain due to rising wages and membership Expected year total

c

Workers Farmers To 100 150 200 250 300 400 500

(3)

Average monthly fee

(4)

(5)

Expected monthly totals

(6)

(7)

Average wage

Rate (5)/(3)

Payroll

(8)

(9)

(10)

(11)

Share of membership

Share of dues

Cumulative share of membership

Cumulative share of dues

(percent)

965,048 807,259

0.1 0.05

40 40

40 40

flat fee flat fee

38,601,920 32,290,360

10.87 9.09

0.96 0.40

96.60 85.73

97.81 96.85

3,302,746 2,108,274 826,456 291,266 135,878 95,670 27,985 13,972 172,222

0.4 1.2 2.6 4.4 6.8 10 13.5 16.5 0.02

75 122 173 222 273 332 450 550 3444

75 122 173 222 273 332 450 550

0.005 0.01 0.015 0.02 0.025 0.03 0.03 0.03 flat fee

247,705,950 257,209,428 143,252,373 64,661,052 37,121,869.6 31,762,440 12,593,250 7,684,600

0.00 37.21 23.75 9.31 3.28 1.53 1.08 0.32 0.16

0.00 12.26 25.47 21.27 12.80 9.19 9.43 3.74 2.28

76.63 76.63 39.43 15.67 6.36 3.08 1.55 0.47 0.16

96.45 96.45 84.19 58.72 37.45 24.65 15.46 6.02 2.28

129,472 8,876,248

1.7

217,900 10,100 6,060

127,260

Source: ASCP, fond 17, opis 75, delo 21:37. a Figures in columns (1)–(4) are given in the source. Those in columns (5)–(7) are calculated based on the source data. b Full party members and candidates. c Blue-collar and white-collar workers.

Table 4.1. Average monthly salaries in CPSU organizations by hierarchical level (current rubles)

Year

Obkom/kraikom (within Russia), Central Committee of union republics

Other obkoms (within republics other than Russia and Russian krai)

City (gorkom)

Urban district (gorraikom)

Rural district (raikom)

1946 1956 1960 1965

1,222 1,289 1,790 181b

1,117 1,170 1,722 128

968 1,092 1,239 119

971 1,098 1,187 111

818 997 1,067 143

Source: ASCP, fond 17, opis 75, various files. Calculations by the authors. a Mostly party organizations of large industrial enterprises. b Separate data for the two types of obkoms are unavailable.

Primary cella 933 1,192 1,094

Table 4.2. Monthly CPSU salaries by republic, plan for 1962 Level Central Committee Regional City Urban districts Rural districts Primary cell

Armenia

Azerbaijan

Estonia

Georgia

Latvia

Tadzhikistan

Turkmenistan

202.4

196.3 163.5 122.6 111.2 104.3 131.7

197.4

194.7 166.8 121.3 114.3 105.9 159.5

190.7

187.4 160.5 125.6 106.5 107.9 132.7

194.7 162.9 124.6 110.9 106.3 144.6

126.6 109.7 104.5 131.2

128.4 115.3 105.4 125.1

123.5 110.5 105.8 116.5

Source: ASCP, fond 17, opis 75, delo 22. Note: Only smaller republics with no or only a few internal subdivisions are included.

Appendix

Table 4.3. Membership in Moscow and Leningrad CPSU organizations, selected years (thousands of members)

Moscow Leningrad

1938

1946

1961

155 (9%)a 123 (7%)

414 (10%) 183 (4%)

634 (7%) 344 (4%)

Source: ASCP, fond 17, opis 77, dd. 1–24. a Percent of total party membership (civilian organizations) in parentheses.

Table 4.4. Budgets of the Moscow region CPSU organizations, 1963 (millions of rubles) Industrial obkom

Rural obkom

City

4,425 0 21 4,446

450 2,304 5 2,759

18,810 2,454 30 21,294

399

520

814

2,830 450 100 3,779

1,447 317 190 2,474

5,327 674 555 7,370

Surplus (transfer)

667

285

13,924

Transfer, percent of total revenue

15

10

65

Revenue

Membership dues Publishing Paid lectures Total

Expenditure

Ideology, including propaganda Payroll and benefits Operational Construction Total

Source: ASCP, fond 17, opis 75, delo 23.

175

176

Appendix

Table 5A.1. Expected effects in the empirical model Variable

Expected effect >0 >0 1953}, in models (3) and (4). GNP and total party membership coefficients exhibit no significant time variance; corresponding terms are not reported in the table. Specifications (1) and (3) use the total stock of physical capital and labor, while (2) and (4) use industrial capital and labor only.

Notes

Introduction 1. In an earlier publication we analyzed aggregate CPSU budgets for 1939– 1990 at the national level (Eugenia Belova and Valery Lazarev, “Why Party and How Much? The Soviet State and the Party Finance,” Public Choice 130, 3–4 [2007]: 437–456), while Atsushi Ogushi used 1990 and 1991 CPSU budgetary data to investigate financial aspects of the final crisis of the CPSU (“Money, Property and the Demise of the CPSU,” Journal of Communist Studies and Transition Politics 21, 2 [2005]: 268–295). 2. Jerry F. Hough and Merle Fainsod, How the Soviet Union Is Governed (Cambridge, MA: Harvard University Press, 1979). 3. Ronald Wintrobe, The Political Economy of Dictatorship (Cambridge: Cambridge University Press, 1998). 4. Wintrobe, The Political Economy of Dictatorship. 5. Poland in the 1980s and more recently North Korea (as well as numerous nationalist-socialist regimes ranging from Nazi Germany to Baathist regimes in Egypt, Syria, and Iraq) followed a similar path of political development. 6. See, for example, such excellent studies as John Dunlop’s The Rise of Russia and the Fall of the Soviet Union (Princeton, NJ: Princeton University Press, 1993) and Philip Hanson’s The Rise and Fall of the Soviet Economy: An Economic History of the USSR, 1945–1991 (The Postwar World) (London: Longman, 2003). 7. Thomas H. Rigby, The Changing Soviet System: Mono-Organizational Socialism from Its Origins to Gorbachev’s Restructuring (London: Edward Elgar, 1990). 8. Bruce Bueno de Mesquita, Alastair Smith, Randolph M. Siverson, and James D. Morrow, The Logic of Political Survival (Cambridge, MA: MIT Press, 2003). 9. This point is made in Paul R. Gregory and Norman Naimark, eds., The Lost Transcripts of the Politburo (New Haven: Yale University Press, 2008).

186

Notes to Pages 6–16

10. Stalin was the general secretary of the Communist Party since its inception in 1922. One of the purposes of the party secretariat was to allocate tasks to party functionaries and dispatch them to the localities. 11. Yoram Gorlizki and Oleg Khlevniuk, Cold Peace: Stalin and the Soviet Ruling Circle, 1945–1953 (Oxford: Oxford University Press, 2004). 12. Gorlizki and Khlevniuk (Cold Peace) argue that the reinstitutionalization of power in the post–World War II period was an intrinsic feature of the “neopaternalistic” character of top authority in a Stalinist system. Stalin’s closest allies were only marionettes in the hands of the tyrant. By contrast, Arch Getty sees parallels between the Stalin government and Western cabinets (British in particular), which had to make an increasing number of decisions for complex societies, so many measures were agreed upon by small groups prior to an actual sitting. Getty also argues that Stalin’s lieutenants were powerful statesmen per se who were battling with one another for economic and political influence and used Stalin as an arbiter in their clashes (“Stalin as Prime Minister: Power and the Politburo,” in Stalin: A New History, ed. Sarah Davies and James Harris (Cambridge: Cambridge University Press, 2005). 13. See, for example, Oleg Khlevniuk, Politburo (New Haven: Yale University Press, 2006). 14. See, for example, Robert Service: Lenin: A Biography (London: Basingstoke, 2000), and Stalin: A Biography (Cambridge, MA: Harvard University Press, 2004). 15. The Politburo was established in March 1919, officially to handle matters in the CC domain, while most of its members were dispatched to the fronts of the civil war. Simultaneously, the Secretariat was created to help the CC, especially the Politburo members. Additionally, Orgburo was to handle party matters of a more routine nature—“organizational” (i.e., administrative) rather “political,” as the name suggests. The technical apparatus (formally the CC apparatus—apparat TsK) attached to the Secretariat eventually grew into the party headquarters that employed more than one thousand people. As the Politburo became the de facto government and the CC lost real power, the CC apparatus became the Politburo’s back office. 16. Gregory L. Olekh, “The Remuneration of Communist Party Officials in the Early 1920s,” in Nomenklatura i nomenklaturnaia organizatsia vlasti v Rossii 20 veka, ed. V. P. Mokhov (Perm: Permskii Gosudarstvennyi Universitet, 2004). 17. Moshe Lewin, The Soviet Century, ed. Gregory Elliot (London: Verso, 2005). 18. Jerry Hough, Soviet Prefects (Cambridge, MA: Harvard University Press, 1969). 19. Peter Rutland, The Myth of the Plan: Lessons of Soviet Planning Experience (London: Hutchinson, 1985). 20. Mikhail S. Voslenskii, Nomenklatura: The Soviet Ruling Class (Garden City, NY: Doubleday, 1984). 21. John Aldrich, Why Parties? (New York: Cambridge University Press, 1995). 22. Paul R. Gregory, Terror by Quota: State Security from Lenin to Stalin (An Archival Study) (New Haven: Yale University Press, 2009). 23. Archives of the Soviet Communist Party and Soviet State (hereafter ASCP), Microfilm Collection, Hoover Institution Archives, fond 17, opis 75 and 76. The

Notes to Pages 24–31

description of the collection and finding aids can be accessed online via the California Digital Library at oac.cdlib.org. The original documents are deposited in the Russian State Archives of Social and Political Information (RGASPI) in Moscow. We reference ASCP documents using the original Soviet archival notation: fond (collection), opis (registry), delo (file), and optionally (preceded by a colon) list (page). Crosswalks between ASCP reel numbers and original archival numbers can be found in the above-mentioned finding aids.

Chapter 1. The Budget of the Soviet Communist Party 1. ASCP, fond 17, opis 76, delo 1124. 2. The Orgburo existed from 1919 to 1952, until the XIXth Congress, when  it was abolished and its functions were transferred to the Secretariat of the CC. 3. Vlast 35 (2003). 4. ASCP, fond 17, opis 76, delo 1624:1; delo 1859:1. 5. ASCP, fond 17, opis 75, delo 17:18. 6. Generally, the lack of consistent data does not allow us to measure the outcome of lobbying by the regional party organizations, but supposedly the time variable played some visible role. For example, a 1941 memo shows that regional representatives asked for an additional 14 million rubles for office supplies, postage, and propaganda expenses. This particular request was granted by UD chairman Krupin (ASCP, fond 17, opis 75, delo 1:102). But when at a 1948 UD meeting a regional committee representative put forward a request for additional subsidies to repair one of its buildings and vehicles, it triggered a series of questions from Krupin: “How much is your revenue and how much is your subsidy? How many cars do you have above quota?” The request was ultimately denied (ASCP, fond 17, opis 76, delo 1124). 7. The data on regional party finance are derived from two complementary sources: detailed annual financial statements submitted by regional party organizations to the CC and annual summary statistics compiled by the CC for all local party organizations. 8. The USSR state budgets list an “unidentified expenditures” category (Mark Harrison, “The USSR State Budget under Late Stalinism [1945–55]: Capital Formation, Government Borrowing and Monetary Growth,” Economic Change and Restructuring 20, 3 [1986]: 179–205). Transfers to the party system allow us to identify at least one of the unknown targets. The 1947 draft budget had a “planned” figure for reserve money, but reports on actual revenues and expenditures show no such subsidy. Later drafts and reports cite only amounts originating from the central and local governments. 9. ASCP, fond 17, opis 86, delo 1. 10. By the late 1940s, white-collar workers constituted nearly half of the party membership, while industrial workers, farmers, and military members each represented 15 percent. The rest were students and the unemployed, such as retirees and housewives (see table 1.2). 11. ASCP, fond 17, opis 75, delo 6.

187

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Notes to Pages 32–41

12. Nearly one-third of the 1948 increase in membership dues should be attributed to party organizations in the army: 540 million rubles out of 1854.5 million rubles. 13. ASCP, fond 17, opis 75, delo 21:37. 14. ASCP, fond 17, opis 75, delo 21:31. 15. ASCP, fond 17, opis 75, delo 21:35–36. 16. Narodnoe khoziaistvo SSSR za 70 let (Moscow: Statistika, 1989). 17. ASCP, fond 17, opis 76, delo 1124. 18. ASCP, fond 17, opis 76, delo 1124. 19. ASCP, fond 17, opis 76, delo 1482:3. 20. ASCP, fond 17, opis 76, delo 1238. 21. ASCP, fond 17, opis 76, delo 1124:15. 22. ASCP, fond 17, opis 76, delo 1236:1–2. 23. ASCP, fond 17, opis 76, delo 1932:6. 24. ASCP, fond 17, opis 76, delo 2044.

Chapter 2. Trends in Party Finance, 1939–1965 1. ASCP, fond 17, opis 75 and 76. 2. ASCP, fond 89. This collection of documents, prepared for the trial of the CPSU in 1992, contains excerpts from archival collections that are held in the Russian Presidential Archives and remain largely classified. We do not know why this collection includes the party budgets for these selected years, but we are sure that it does not contain any more similar documents. 3. See Mark Harrison, “The Fundamental Problem of Command: Plan and Compliance in a Partially Centralised Economy,” Comparative Economic Studies 47 (2005): 296–314, and Peter Boettke, Why Perestroika Failed: The Politics and Economics of Socialist Transformation (New York: Routledge, 1993). The issue was also addressed in Eugenia Belova and Paul Gregory, “Dictator, Loyal, and Opportunistic Agents,” Public Choice 113, 3–4 (2002): 265–286. 4. ASCP, fond 17, opis 75, delo 9:67. 5. Mark Harrison suggests that secrecy in the Soviet economy served as a tool to limit opportunistic behavior by agents, such as lobbying to renegotiate the principal’s demands on more favorable terms or misusing the principal’s resources by doing a private deal with someone else (“Why Secrets? The Uses of Secrecy in Stalin’s Command Economy,” PERSA Working Papers, Department of Economics, University of Warwick, 2004). 6. ASCP, fond 17, opis 75, delo 14:377–378; delo 17:311; delo 21:338–342. 7. Atsushi Ogushi, “Money, Property and the Demise of the CPSU,” Journal of Communist Studies and Transition Politics, 21, 2 (2005): 268–295. 8. ASCP, fond 17, opis 76, delo 1124. 9. The CPSU grew from 2 million members in 1938 to 12 million in 1965. 10. ASCP, fond 17, opis 75, delo 6:99. 11. ASCP, fond 17, opis 75, delo 22. 12. After 1945, annual VLKSM budgets still can be found in the files of the Communist Party finance department.

Notes to Pages 41–51

13. The 1919 financial statement indicates that the party received subsidies from the trade unions (ASCP, fond 17, opis 86, delo 1). 14. ASCP, fond 17, opis 75, delo 12:50. 15. In addition to the explicitly reported subsidies, implicit subsidies can be calculated from the excess of expenditure over revenue after accounting for recorded subsidies. The implicit subsidy was relatively minor compared with the explicit subsidy in all years. 16. The report for 1974 shows a significant increase in party revenue (ASCP, fond 89, opis 44, delo 4). 17. Smaller enterprises did not have full-time staff on the party payroll. Such committees may have been indirectly subsidized by the host enterprises. 18. This estimate is based on the party membership data and population data available from the documents accompanying the draft party budgets. 19. An explicit reference to the emergency fund is found only in 1991, in the last draft of the party budget, when it was to cover a projected 1.1 billion ruble deficit (ASCP, fond 89, opis 23, delo 25). Atsushi Ogushi also mentions that the 1990 budget, which expected a surplus of at least half a billion rubles, was implemented with a 0.2 billion ruble deficit, later covered from the party emergency fund (Ogushi, “Money, Property and the Demise of the CPSU”). 20. ASCP, fond 6, opis 6, delo 64:160. 21. ASCP, fond 6, opis 6, delo 65:8 (reverse); delo 67:129; delo 75:18–20. 22. ASCP, fond 6, opis 6, delo 65:131. 23. ASCP, fond 17, opis 75, delo 2:9. 24. ASCP, fond 6, opis 6, delo 100. 25. Acceptance rates started declining in the 1960s, from 4 party candidates per 1,000 population in 1965 to 2.5 in 1967 (Ezhegodnik BSE, 1971–1990; Great Soviet Encyclopedia, Annual Appendices).

Chapter 3. The Special Budget of 1948 1. The exact quote from Krupin’s speech at the 1948 meeting reads as follows: “I turn to the budget now. In the current year, our budget is going to be special [osobennyi], if I may use this word. It is special because now we must rely mainly upon our own resources. Subsidies from the government will be reduced significantly” (ASCP, fond 17, opis 76, delo 1124:88, 103). 2. ASCP, fond 17, opis 76, delo 1124:84. 3. ASCP, fond 17, opis 76, delo 1124. 4. ASCP, fond 17, opis 76, delo 1124:87. 5. ASCP, fond 17, opis 76, delo 1124:88. 6. ASCP, fond 17, opis 76, delo 1124. 7. ASCP, fond 17, opis 76, delo 1124. 8. ASCP, fond 17, opis 76, delo 1124. Chapter 6 focuses on the enforcement of spending limits within specific budget categories and specific cases of overdrafts and underspending. 9. ASCP, fond 17, opis 76, delo 1124:112. 10. ASCP, fond 17, opis 76, delo 1124:95.

189

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Notes to Pages 51–55

11. The word khozianichanie (from khoziain, owner) had a negative connotation in contemporary Russian and usually was used when someone behaved as an owner without being one. For example, this word could be used to refer to the rule of Nazi occupants during World War II. Taking the semantics of the word into account, we should translate khozianichanie as “unauthorized management.” The irony of the situation, therefore, was that Krupin authorized khozianichanie (ASCP, fond 17, opis 76, delo 1124:114). 12. ASCP, fond 17, opis 76, delo 1124:114. 13. ASCP, fond 17, opis 76, delo 1695. 14. ASCP, fond 17, opis 76, delo 1124:13. 15. ASCP, fond 17, opis 75, delo 5:117. 16. ASCP, fond 17, opis 75, delo 5: 8–9; delo 6. 17. ASCP, fond 17, opis 76, delo 1124. 18. ASCP, fond 17, opis 76, delo 1236:1–2. 19. ASCP, fond 17, opis 76, delo 1407:50. 20. ASCP, fond 17, opis 75, delo 1407: 5, 50. 21. ASCP, fond 17, opis 75, dd. 1964–1965. 22. ASCP, fond 17, opis 75, delo 1691. 23. ASCP, fond 17, opis 75, delo 1693. 24. Eventually, the CPSU’s commercial experience and business strategies crossed the borders of the USSR into the Soviet bloc countries. In the 1970s, the Polish Communist Party also built its own “royal domain” by taking over the printing industry. For this purpose, in 1971–1972, the Polish Politburo selected Ruch, the major state-owned publishing and distribution conglomerate, which had a nationwide retail network and large printing facilities. Unlike the CPSU, however, the Polish Communist Party was acquiring a profitable enterprise with a high potential for expansion. Ruch was transformed from a state-owned enterprise into a cooperative with an extraordinary status, equivalent to that of a state ministry. This made the cooperative the only enterprise in the country outside of government control but under the direct control of the top party leadership. Due to preferential treatment from the government, Ruch enjoyed low or zero profit tax rates, no outside audits, and virtually unlimited access to paper; already by the early 1980s, it saw a significant increase in both sales and revenues (Dariusz Stola, “The Golden Years of the Polish United Workers’ Party: Party Finance, 1971–1980” [Złote lata PZPR: Finanse partii w dekadzie gierka] [Warsaw: Institute of Political Studies, Polish Academy of Sciences, 2008, working papers]). 25. ASCP, fond 17, opis 75, delo 22:374; delo 24:12 (the 1962 and 1963 financial reports). 26. ASCP, fond 89, opis 23, delo 25. 27. ASCP, fond 89, opis 9, delo 107 (excerpts from Minutes 184 of a meeting of the CPSU Politburo, April 7, 1990; a proposal prepared by UD head Kruchina). 28. ASCP, fond 89, opis 4, delo 18:3 (October 1990).

Notes to Pages 56–65

Chapter 4. “Impossible Structures” 1. L. von Mises, Socialism: An Economic and Sociological Analysis (London: Jonathyn Cape, 1936; originally published in 1922, trans. J. Kahane); F. A. Hayek, Collectivist Economic Planning (London: Routledge and Kegan Paul, 1935). 2. Holland Hunter and Janusz M. Szyrmer, Faulty Foundations: Soviet Economic Policies, 1928–1940 (Princeton, NJ: Princeton University Press, 1992). 3. The position of free-market critics of planned socialism was by no means dominant among their contemporaries. In the 1930s, many Western observers, both favorable and critical of the Soviet experiment, found it logical that such a “backward” nation as Russia could be modernized only by the strong hand of a powerful central government. On the views of American intellectuals and policymakers in the 1930s, see, for example, David Engerman, Modernization from the Other Shore: American Intellectuals and the Romance of Russian Development (Cambridge, MA: Harvard University Press, 2003). 4. A. Bergson, The Real National Income of Soviet Russia since 1928 (Cambridge, MA: Harvard University Press, 1961). 5. G. Schroeder, “The Slowdown in Soviet Industry, 1976–1982,” Soviet Economy 1 (1985): 42–74; Martin L. Weitzman, “Soviet Postwar Economic Growth and Capital-Labor Substitution,” American Economic Review 60 (1970): 676– 692; D. Granick, Job Rights in the Soviet Union: Their Consequences (Cambridge: Cambridge University Press, 1987); J. S. Berliner, Factory and Manager in the USSR (Cambridge, MA: Harvard University Press, 1957). 6. Valery Lazarev and Paul Gregory, “Commissars and Cars: A Case Study in the Political Economy of Dictatorship,” Journal of Comparative Economics 31, no. 1 (March 2003): 1–19. 7. We follow the useful distinction between benefits and privileges introduced in A. B. Konovalov, ‘The Evolution of Benefits and Privileges in the Soviet Nomenklatura in the Late Stalin Period,” in Nomenklatura i nomenklaturnaia organizatsia vlasti v Rossii 20 veka, ed. V. P. Mokhov (Perm: Permskii Gosudarstvennyi Universitet, 2004). 8. Privileges, benefits, and career-building in the Soviet nomenklatura system and the Communist Party bureaucracy have been described in the literature, most notably in the excellent insider’s narrative by Mikhail S. Voslenskii, Nomenklatura: The Soviet Ruling Class (Garden City, NY: Doubleday, 1984). 9. ASCP, fond 17, opis 75, delo 1:100. 10. ASCP, fond 17, opis 76, delo 1399 :44. 11. A study of the economic determinants of party membership in Communist Yugoslavia found that people “reward” the government for good performance by joining the party and exit from it as a sort of nonconfidence vote (Adi Schnytzer and Janez Sustersic, “Why Join the Party in a One-Party System?: Popularity versus Political Exchange,” Public Choice 94 [1998]: 117–134). 12. See, e.g., Herschel Grossman and Suk Jae Noh, “Proprietary Public Finance and Economic Welfare,” Journal of Public Economics 53 (1993): 187–204; Ronald Wintrobe, The Political Economy of Dictatorship (Cambridge: Cambridge University Press, 1998); Daron Acemoglu and James Robinson, Economic Origins of Dictatorship and Democracy (Cambridge: Cambridge University Press, 2006).

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Notes to Pages 65–73

13. One well-researched example includes the allocation of federal grants by the FDR administration in the 1930s. See, e.g., Gavin Wright, “The Political Economy of New Deal Spending,” Review of Economics and Statistics 56 (1974): 30–38. 14. Bruce Bueno de Mesquita, Alastair Smith, Randolph M. Siverson, and James D. Morrow, The Logic of Political Survival (Cambridge, MA: MIT Press, 2003). 15. The quality of information on incomes contained in party dues is therefore a function of participation rates. Another possible caveat is that incomes of the working population are going to be positively correlated to subsidies when participation rates are low since in the regions with low participation rates, highincome administrators, including party bureaucrats, will make up a large share of regional party organizations. This should not be a major problem since even in the regions with the lowest participation rates in the sample—the Baltic republics— party employees made up about 5 percent of party membership. 16. In both cases, correlation coefficients are statistically significant. 17. ASCP, fond 17, opis 76, delo 1406:135–136; delo 1407:4–18. 18. Party participation rates (party members per 1,000 population) were generally higher in urban areas. 19. Yoram Gorlizki and Oleg Khlevniuk, Cold Peace: Stalin and the Soviet Ruling Circle, 1945–1953 (Oxford: Oxford University Press, 2004), 90. 20. Gorlizki and Khlevniuk, Cold Peace, 82. 21. A. Ades and E. Glaeser, “Trade and Circuses: Explaining Urban Giants,” Quarterly Journal of Economics 110 (1995): 195–227. 22. Even if the ideological chasm between the USSR and the West had not been an obstacle, institutions of foreign aid were in their early stages in the interwar period. There was, however, one occurrence of the Soviet leaders accepting aid from the American Relief Administration in 1921, when the country was struck by a severe famine. In a comprehensive study of this episode, Benjamin Weissman suggested that the leaders’ decision to accept aid from their ideological rivals was largely motivated by a highly unstable situation created by the famine (Benjamin M. Weissman, Herbert Hoover and Famine Relief to Soviet Russia: 1921–1923 [Stanford, CA: Hoover Institution Press, 1974]). 23. The relatively easy consolidation of authoritarian regimes in the early twenty-first century in Russia and Venezuela presents a striking contrast to the Soviet case. Leaders of both countries have used windfall oil revenues to buy popular support and finance pro-government public organizations. 24. The Stakhanovite movement of 1935–1936, with its reliance on high bonuses for star performers on the shop floor—what is known in economics as wagerank tournaments—turned out to be a short-lived experiment because of its economic and social costs. (See R. W. Davies and Oleg Khlevnyuk, “Stakhanovism and the Soviet Economy,” Europe-Asia Studies 54, 6 [2002]: 867–904, and Edward Lazear and Sherwin Rosen, “Rank-Order Tournaments as Optimum Labor Contracts,” Journal of Political Economy 89 [1981]: 841–864).

Notes to Pages 74–80

Chapter 5. Funding Loyalty with Promises 1. Administrative and economic nomenklatura cadre accounted for an additional 10–15 percent. 2. ASCP, fond 6, opis 1, delo 15:37. 3. ASCP, fond 6, opis 1, delo 7:62. 4. Since the 1950s, a growing proportion of rank-and-file full party members had become “sediment” in the party. They were no longer pursuing political careers but were retained in the party, as we argued in chapter 3, for revenue purposes. 5. Recent works on the positive political economy of dictatorship focus on various aspects of this model. Wintrobe, Acemoglu, and Robinson focus on public goods versus repression, where public goods are indistinguishable from cash transfers to the population as a whole (Ronald Wintrobe, The Political Economy of Dictatorship [Cambridge: Cambridge University Press, 1998]; Daron Acemoglu and James Robinson, Economic Origins of Dictatorship and Democracy [Cambridge: Cambridge University Press, 2006]). The provision of pure public goods versus cash transfers to a group of supporters is the focus of Bruce Bueno de Mesquita, Alastair Smith, Randolph M. Siverson, and James D. Morrow, The Logic of Political Survival (Cambridge, MA: MIT Press, 2003). 6. Economic growth can mitigate the problem but does not eliminate it. In a growing economy, the growing “pie” can be used to create new positions in the bureaucracy without reducing the “slices” for the incumbents, but it is still a cost for the incumbents in that in the absence of promotions, the extra income could be divided among them. In any case, the largest share of the cost results from the inability of the incumbents to pass on their positions and/or wealth at will. In fact, there is not even a guarantee of lifelong tenure, as is demonstrated by incidents such as Stalin’s Great Terror, which eliminated a majority of mid- and higher-level party officials in 1937–1938. 7. Rabochii klass SSSR, 1966–1970 [The Working Class of the USSR, 1966– 1970] (Moscow: Nauka, 1979), 225–234. The next career step would be further up the ladder of industrial management or to an entry-level position in the party bureaucracy. A majority of the ranking party bureaucrats of Khrushchev’s and later periods followed this career path, including Khrushchev himself, as well as Brezhnev, Gorbachev, Yeltsin, and a large number of post-Soviet politicians. The cited study claims that as of 1970 around 80 percent of party officials had followed this path. 8. A formal discussion can be found in Valery Lazarev, “Political Labor Market, Government Policy, and Stability of a Non-Democratic Regime,” Journal of Comparative Economics 35, 3 (2007): 546–563. In addition, Lazarev shows that the demand for activist positions is positively affected by the duration of a boss’s tenure relative to the length of his activist service. Although a longer tenure lowers turnover—the probability of promotion—it increases the time during which the lucky activist promoted to a boss position enjoys returns on his service. In equilibrium, the second effect outweighs the first, so that the net effect is positive. 9. This is not a random example, as the issue of automobile transportation was given top priority in that period and was often considered under the auspices

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of the head of the Council of People’s Commissars, Viacheslav Molotov (Valery Lazarev and Paul Gregory, “The Wheels of Command,” Economic History Review 55, 2 [May 2002]). 10. Yi Feng and Paul Zak, “The Determinants of Democratic Transitions,” Journal of Conflict Resolution 43 (1999): 162–177; Robert Barro, “Determinants of Democracy,” Journal of Political Economy 107 (1999): 158–183. 11. In part, these results reconfirm earlier findings by Adi Schnytzer and Janez Sustersic for the former Yugoslavia (“Why Join the Party in a One-Party System?: Popularity versus Political Exchange,” Public Choice 94 (1998): 117–134). The essence of their findings is that the lower the wages and employment, the higher the supply of activists, as revealed in party recruitment rates. The negative treatment effect of the post-1961 period, however, indirectly contradicts the positive effect of repression on the support for the regime identified by these authors since it was the 1956–1961 period that was characterized by more liberal policies in the Soviet Union. These results are also in general agreement with the results of the cross-country studies by Feng and Zak (“The Determinants of Democratic Transitions”) and Barro (“Determinants of Democracy”), although it is hard to compare the findings directly due to the differences in the composition of the data sets. Both studies reveal a positive correlation between low inequality and a high level of education with the probability of democratic transition (Feng and Zak) or propensity for democracy (Barro). 12. A formal discussion can be found in Lazarev, “Political Labor Market, Government Policy, and Stability of a Non-Democratic Regime.” 13. Paul Gregory, The Political Economy of Stalinism: Evidence from the Soviet Secret Archives (Cambridge: Cambridge University Press, 2003). 14. Mancur Olson, “Dictatorship, Democracy, and Development,” American Political Science Review 87, no. 3 (September 1993): 567–576. 15. Thomas H. Rigby, The Changing Soviet System: Mono-Organizational Socialism from Its Origins to Gorbachev’s Restructuring (London: Edward Elgar Publishers, 1990). 16. Thus: Re = (Wa /W)(Ea /P). 17. The correlation between the two series in the postwar period should be higher since the equipment removed from a defeated Germany as reparations is probably not accounted for in the data. 18. Full party membership did not exceed administrative sector employment until the mid-1930s. The probability of promotion was close to unity in that period, and full party membership gave a virtually unconditional right to fill an administrative or managerial position. 19. See William Clark, Soviet Regional Elite Mobility after Khrushchev (New York: Praeger, 1989), and Kenneth Farmer, The Soviet Administrative Elite (New York: Praeger, 1992). 20. For a review of empirical studies, see Lazarev, “Political Labor Market, Government Policy, and Stability of a Non-Democratic Regime.” 21. Ingo Geishecker and John Haisken-DeNew, “Landing on All Fours? Communist Elites in PostSoviet Russia,” Journal of Comparative Economics 32, 4 (2004): 700–719.

Notes to Pages 89–98

21. Ingo Geishecker and John Haisken-DeNew, “Landing on All Fours? Communist Elites in Post-Soviet Russia,” Journal of Comparative Economics 32, 4 (2004): 700–719. 22. Paul Gregory, Terror by Quota: State Security from Lenin to Stalin (An Archival Study) (New Haven: Yale University Press, 2009). 23. Peter Rutland, The Politics of Economic Stagnation in the Soviet Union: The Role of Local Party Organs in Economic Management (Cambridge: Cambridge University Press, 1993). 24. Given the close monitoring of party members by their superiors, it is reasonable to assume that the activists’ productivity is fairly uniform. 25. Martin Weitzman (“Soviet Postwar Economic Growth and Capital-Labor Substitution,” American Economic Review 60, 4 [1970]: 676–692), and William Easterly and Stanley Fischer (“The Soviet Economic Decline,” World Bank Economic Review 9 [1995]: 341–371) show that Soviet economic growth is consistent with a constant elasticity of substitution production function with an elasticity of substitution significantly below one. Numerous empirical studies show that the elasticity of substitution between labor and capital is in fact less than one for most modern economies. 26. Experimentation with various subperiod dummy variables shows that an additional constant for the years after 1961 improves the results most significantly. Only these results are reported. 27. To avoid spurious correlation, the model is estimated in absolute numbers rather than in per capita terms. Labor force, Lit, is present in the model inasmuch as it is used as the denominator for the other variables and has no relevance per se.

Chapter 6. The Party and Its Overseers 1. It is customary to translate kontrol’ as “control,” although this may be misleading because its meaning in Russian is closer to “oversight” than “direction.” 2. In 1947, after evaluating both auditors’ reports and reports from the Yaroslavl obkom, the UD instructor noted in his resolution: “Semi-annual inspections by the regional audit commission do not offer a deep and critical analysis of the obkom’s expenditures. Essentially, its reports are identical to the memos submitted by the obkom’s finance department” (ASCP, fond 17, opis 76, delo 943:86–87.) 3. Between 1940 and 1950, the party’s major function as universal supervisor was nearly stolen by the government with the creation of the powerful Ministry of State Control; its head, Lev Mekhlis, was a prominent party apparatchik, a personal secretary to Stalin in the early 1920s. 4. The Bolsheviks inherited their first control agency from the tsarist government. In May 1918, it became the People’s Commissariat of State Control. From 1923 to 1934, the main control commission was the People’s Commissariat of Worker-Peasant Inspection, or Rabkrin. The XVIIth Party Congress split Rabkrin into two new commissions in 1934: the Commission of Soviet Control (Komissiia Sovetskogo Kontrolia, KSK) and the Party Control Commission (KomissiiaPartiinogo Kontrolia, KPK). The leaders of both the KPK and the KSK were former

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members of the Rabkrin. See more in E. A. Rees, State Control in Soviet Russia: The Rise and Fall of the Workers’ and Peasants’ Inspectorate, 1920–1934 (London: Macmillan, 1987); J. Arch Getty, The Origins of the Great Purges: The Soviet Communist Party Reconsidered, 1933–1938 (Cambridge: Cambridge University Press, 1985). 5. In the early years, the party control officials recruited their assistants from the trusted cadre of the former regional Rabkrin committees (see footnote 4 above). 6. Sometimes selected members of local party collegiums, approved by Kaganovich and Ezhov, served at the Party Control Commission (ASCP, fond 6, opis 1, delo 23:22). 7. ASCP, fond 17, opis 76, delo 1122:14. 8. ASCP, fond 17, opis 76, delo 1248. 9. ASCP, fond 17, opis 76, delo 1250:10. 10. ASCP, fond 17, opis 77, delo 17:323–324. 11. ASCP, fond 17, opis 76, delo 1820:67. 12. ASCP, fond 17, opis 76, delo 1844:40. 13. ASCP, fond 17, opis 76, delo 1124:19–21. 14. See Eugenia Belova, “Legal Contract Enforcement in the Soviet Economy,” Comparative Economic Studies 47 (2005): 387–401, and Eugenia Belova and Paul Gregory, “Dictator, Loyal, and Opportunistic Agents,” Public Choice 113, 3–4 (2002): 265–286. 15. ASCP, fond 17, opis 76, delo 1124:25. 16. ASCP, fond 17, opis 76, delo 2083:93. 17. ASCP, fond 17, opis 76, delo 2:6–27; delo 4:6. 18. ASCP, fond 17, opis 76, delo 2346:34. 19. ASCP, fond 17, opis 76, delo 2352:57. 20. ASCP, fond 17, opis 76, delo 2358:2. 21. Julie Hessler, for example, shows that Soviet bureaucrats took trips to the United States in an attempt to learn about the Western-style retail culture, resulting in Macy’s-like stores in Moscow that only the Soviet elite could afford (A Social History of Soviet Trade: Trade Policy, Retail Practices, and Consumption, 1917–53 (Princeton, NJ: Princeton University Press, 2004). 22. ASCP, fond 17, opis 76, dd. 1146, 1399, and 2004. 23. ASCP, fond 17, opis 76, delo 2047. 24. ASCP, fond 17, opis 75, delo 24:220. 25. On local cliques, see James R. Harris, “The Purging of Local Cliques in the Urals Region,” in Stalinism: New Directions, ed. Sheila Fitzpatrick (London: Routledge 2000), 262–285; James R. Harris, The Great Urals: Regionalism and the Evolution of the Soviet System (Ithaca, NY: Cornell University Press, 1999). 26. In May 1934, the Party Control Commission discussed the case of Zagotpushnina, an East Siberian agency for the procurement of exportable furs: “Over a number of years, the disgusting tradition of impudent self-provision and the bribery of chief local and party authorities developed.” The regional elite received gifts—food, commodities, or expensive hunting rifles and valuable furs—from a special “incentives fund,” which was intended to provide rewards for hunters. The director of Zagotpushnina was removed to a lower position; the chair of the local

Notes to Pages 106–111

state office was dismissed, brought to court, and expelled from the party; other responsible members of the staff were punished and arrested. Investigations of Zagotpushnina branches in others regions—the Urals, West Siberia, and Kazakhstan— revealed that corruption and bribery were not limited to East Siberia. An inspection conducted in 1933 in twenty-seven regional branches of Zagotpushnina resulted in 151 subordinate employees being brought to court, four of whom were shot (ASCP, fond 6, opis 1, delo 29:48–82; delo 38:160). 27. Chapter 7 discusses the phenomenon of whistle-blowing. 28. ASCP, fond 6, opis 1, delo 32:137–141. 29. ASCP, fond 6, opis 2, delo 86. 30. ASCP, fond 6, opis 2, delo 98:133–136. 31. ASCP, fond 6, opis 2, delo 114:21.

Chapter 7. selective Justice 1. Robert Conquest, Justice and the Legal System in the USSR (London: Bodley Head, 1968); Gerard Pieter van den Berg, The Soviet System of Justice: Figures and Policy (Leiden: Kluwer Law International, 1985); Peter H. Solomon, Jr., Soviet Criminal Justice under Stalin (Cambridge: Cambridge University Press, 1996); Yoram Gorlizki, “Rules, Incentives, and Soviet Campaign Justice after World War II,” Europe-Asia Studies 51, no. 7 (1999): 1245–1266; Paul Gregory and Eugenia Belova, “Political Economics of Crime and Punishment under Stalin,” Public Choice 140, no. 3 (2009): 463–478. 2. On purges, see, for example, Robert Conquest, The Great Terror: Stalin’s Purge of the Thirties (New York: Macmillan, 1968); J. Arch Getty, The Origins of the Great Purges: The Soviet Communist Party Reconsidered, 1933–1938 (Cambridge: Cambridge University Press, 1985); and J. Arch Getty and Oleg V. Naumov, The Road to Terror: Stalin and the Self-Destruction of the Bolsheviks (New Haven: Yale University Press, 1999); on the Leningrad Affair, see Yoram Gorlizki and Oleg Khlevniuk, Cold Peace: Stalin and the Soviet Ruling Circle, 1945–1953 (Oxford: Oxford University Press, 2004). 3. ASCP, fond 6, opis 6. 4. ASCP, fond 6, opis 2, delo 111:73. As discussed in chapter 6, one of the main functions of party control was disciplining party members involved in misconduct, including the illegal use of state resources and the violation of government decrees. See more in J. Arch Getty, Pragmatists and Puritans: The Rise and Fall of the Party Control Commission (Pittsburgh: University of Pittsburgh, 1997; CREES, no. 1208); E. A. Rees, State Control in Soviet Russia: The Rise and Fall of the Workers’ and Peasants’ Inspectorate, 1920–1934 (London: Macmillan, 1987); Eugenia Belova, “Economic Crime and Punishment,” in Behind the Façade of the Stalinist Economy, ed. Paul Gregory (Stanford, CA: Hoover Institution Press, 2001), pp. 131–158. 5. ASCP, fond 6, opis 2, delo 111:73–83. 6. Clemency within the party system was not the only form of “mercy” under Soviet rule. Amnesties and the reinstatement of rights also applied to outcasts outside the party. Already in the early 1920s and 1930s, while purging and alienating

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large groups of people, the regime introduced the institution of appeals. Stalin’s disenfranchised outcasts of the 1920s, for example, sought the regime’s forgiveness by submitting petitions for the reinstatement of rights to a number of local and central organizations (Golfo Alexopoulos, Stalin’s Outcasts: Aliens, Citizens, and the Soviet State, 1926–1936 [Ithaca, NY: Cornell University Press, 2003]). The Soviet prison and labor camp system, its cruelty notwithstanding, had a constant turnover of millions of criminals through the Gulag due to the routine release of prisoners and the granting of amnesties—a phenomenon that Golfo Alexopoulos calls “the revolving door of Stalin’s Gulag” (“Amnesty 1945: The Revolving Door of Stalin’s Gulag,” Slavic Review 64, 2 [2005]: 274–306). 7. For a discussion of party operations, see chapter 6. 8. Michael E. Urban, An Algebra of Soviet Power: Elite Circulation in the Belorussian Republic 1966–86 (Cambridge: Cambridge University Press, 1989). 9. Belova, “Economic Crime and Punishment.” 10. ASCP, fond 17, opis 76, delo 1250:11. 11. ASCP, fond 17, opis 76, delo 1846:10. 12. In the early 1930s, Moldova was an autonomous republic within Ukraine. 13. Brilevskii hugely overpaid for the car. While its value should not have exceeded 5,000 rubles, he paid a total of 51,000 rubles: 3,300 rubles for the car and the rest, allegedly, for its spare parts and maintenance tools. Moreover, according to the investigators, he impersonated a member of the Central Control Commission and the Moldova regional government to get approval for the deal (ASCP, fond 6, opis 2, delo 111:73–83). 14. ASCP, fond 6, opis 1, delo 14:79–86. 15. ASCP, fond 6, opis 1, delo 14:148. 16. On December 30, 1934, a government decree banned increases in salaries. The Party Control Commission immediately dispatched inspectors, who vigorously reprimanded managers when violations of the decree were identified (ASCP, fond 6, opis 1, dd. 41and 42). In a few months, however, the campaign was almost over, and the “salary issue” was dropped from the agenda. The number of party control investigators was insufficient to uniformly cover all aspects of economic life, or to cover all the geographical territory, to enforce newly issued decrees and orders. 17. ASCP, fond 6, opis 1, delo 15:88–115. 18. Getty uses the terms “puritans” and “pragmatists” to refer to these two patterns respectively (Pragmatists and Puritans). 19. ASCP, fond 6, opis 1, delo 13:109–154. 20. In the 1930s, this evoked criticism from Party Control Commission chairman Ezhov, who argued that local party organizations too readily excused reprimanded managers (ASCP, fond 6, opis 1, delo 15:88–115). 21. ASCP, fond 6, opis 1, delo 15. 22. ASCP, fond 6, opis 1, delo 15:88–115. 23. The original KPK cases constituted a small fraction of the disciplinary cases generated within the party system. Typically, they resulted from CC requests to investigate unethical behavior—such as drunkenness, the abuse of office, conspicuous consumption, or weak political vigilance—of party members during

Notes to Pages 117–126

their business trips abroad. In 1939–1947, for example, only 540 cases (out of 91,551 processed in that period) originated in the Partkollegiia, of which 281 resulted in expulsions and the rest in other disciplinary punishments (ASCP, fond 6, opis 6, delo 3). 24. Sometimes, the Partkollegiia required the party organization to review the case, which usually resulted in a reversal of the previous decision. 25. ASCP, fond 6, opis 6, delo 3. 26. Between 1939 and 1947, the Partkollegia granted reentry in 1,108 cases for infractions such as the violation of workplace discipline (mostly tardiness)—458 cases; domestic violence (“nonparty behavior at home”)—135 cases; low political vigilance—133 cases; the misrepresentation of social origins—112 cases; and the loss of party documents—85 cases. The majority of such cases involved appellants whose party membership was relatively short (less than ten years). 27. The Party Control Commission report covering the period between XVIIIth and XIXth CPSU congresses (1939–1951) noted that “A large number of former party members expelled for different offenses continue to appeal to the Partkollegiia, asking it to reconsider their cases even though the Partkollegiia has rejected their appeals over and over again as groundless” (ASCP, fond 6, opis 6, delo 3:36– 38). Some cases were processed as many as seven times. One former party member continued to appeal even after at least four negative verdicts; the Partkollegiia sent his case to the archives. 28. ASCP, fond 6, opis 6, delo 3. 29. ASCP, fond 6, opis 6, delo 3. 30. Appeals also tried to create a positive image of the appellant by mentioning such characteristics as working class origin, service in the Red Army, and/or victimization by an “enemy” (such as the tsarist government, the White Guards, or a former superior who was exposed as a “counterrevolutionary”). There is no evidence, however, that any past merits of this sort affected the decisions. 31. ASCP, fond 6, opis 6, delo 2:16 (1940 Party Control Commission report to the Central Committee). 32. ASCP, fond 6, opis 6, delo 2:20. 33. ASCP, fond 6, opis 2, delo 26:22–24. 34. ASCP, fond 6, opis 2, delo 87:1–18. 35. ASCP, fond 6, opis 5, delo 135:30. 36. ASCP, fond 6, opis 5, delo 30:18. 37. ASCP, fond 6, opis 5, dd. 30–63. 38. ASCP, fond 6, opis 2, delo 93:1–24. 39. ASCP, fond 6, opis 2, delo 95:89–130. 40. ASCP, fond 6, opis 6, delo 2. 41. ASCP, fond 6, opis 2, delo 3. 42. ASCP, fond 6, opis 6, delo 3. 43. ASCP, fond 6, opis 6, delo 3. 44. ASCP, fond 6, opis 6, delo 3. 45. ASCP, fond 6, opis 2, delo 53:8. 46. ASCP, fond 6, opis 2, delo 110:14–20. 47. ASCP, fond 6, opis 2, delo 111:73–83.

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48. Technically, there was no rule dictating that criminal charges should immediately be followed by expulsion from the party, and party control did not always turn cases over to the courts. For example, the chairman of an all-union trading agency was expelled from the party for the embezzlement of substantial amounts of money, but the Party Control Commission specifically noted that “it is not expedient to pass this case on to the court”(ASCP, fond 6, opis 1, delo 14:1–13; delo 15:88–115; delo 53:69). 49. ASCP, fond 6, opis 2, delo 111:73–83.

Chapter 8. How Much? 1. According to the Russian Federal State Statistics Service, 5 billion rubles constituted about 0.5 percent of the Soviet gross national product in 1990. 2. ASCP, fond 89, opis 4, delo 18:3 (October–November 1990). 3. ASCP, fond 89, opis 4, delo 18:3 (October–November 1990). 4. Expenditures on government administration can be found in Abram Bergson, The Real National Income of Soviet Russia since 1928 (Cambridge, MA: Harvard University Press, 1961), and Abraham Becker, Soviet Growth, Resource Allocation, and Military Outlays (Santa Monica, CA: RAND Corporation,1969). Both studies are based on the published USSR state budgets. Our data show that the CPSU added 23–36 percent to the government expenditures broadly conceived in 1940–1965. 5. A detailed report on membership dues collections in 1962 suggests that the average wage of a party member was higher than that of an average worker by only 15 percent (ASCP, fond 17, opis 75, delo 21:37). 6. ASCP, fond 17, opis 75, delo 18:361. 7. Gary Anderson and Peter Boettke, “Soviet Venality: A Rent-Seeking Model of the Communist State,” Public Choice 93, 1–2 (1997): 37–53. 8. See, for example, Paul, Gregory and Alexei Tikhonov, “Central Planning and Unintended Consequences: Creating the Soviet Financial System, 1930–1939,” Journal of Economic History 60, 4 (2000): 1017–1040; Eugenia Belova, “Economic Crime and Punishment,” in Behind the Façade of the Stalinist Economy, ed. Paul Gregory (Stanford, CA: Hoover Institution Press, 2001), 131–158; Eugenia Belova and Paul Gregory, “Dictator, Loyal, and Opportunistic Agents,” Public Choice 113, 3–4 (2002): 265–286. 9. ASCP, fond 6, opis 2, delo 16:129–130. 10. ASCP, fond 6, opis 2, delo 59:116–123. 11. ASCP, fond 6, opis 2, delo 93:1–24. 12. P. Gregory and M. Harrison, “Allocation under Dictatorship: Research in Stalin’s Archives,” Journal of Economic Literature 43 (2005): 721–761. 13. ASCP, fond 6, opis 2, delo 93:1–24. 14. ASCP, fond 6, opis 2, delo 53:8. 15. ASCP, fond 89, provides anecdotal evidence that allocations to foreign parties did take place. It is unclear, however, what exactly the source of funds was and what the mechanism was of such transactions. 16. Many early party members dropped out in the 1920s due to the tedium of party work (M. Lewin and G. Elliot, The Soviet Century (London: Verso, 2005).

Notes to Pages 135–152

17. Our calculations are based on cited archival files and official statistical publications. 18. We use the data set compiled by S. Gomulka and M. Schaffer, “A New Method of Long-Run Growth Accounting with Applications to the Soviet Economy 1928–87 and the US Economy 1949–78” (London: London School of Economics, Centre for Economic Performance, CEP Discussion Papers, 1990). It is based on earlier research by Abram Bergson and others. 19. For technical purposes the number of covariates in this specification is kept to a minimum. Labor, which has insignificant effects in the first two specifications, is not included. 20. Vladimir Popov, “Life Cycle of the Centrally Planned Economy: Why Soviet Growth Rates Peaked in the 1950s,” in Transition and Beyond, ed. Saul Estrin, Grzegorz W. Kolodko, and Milica Uvalic (London: Palgrave Macmillan, 2007). 21. D. Hoover, J. Rice, C. Wu, and L. P. Yang, “Nonparametric Smoothing Estimates of Time-Varying Coefficient Models with Longitudinal Data,” Biometrika 85, 4 (1998): 809–822.

Conclusions 1. ASCP, fond 89, opis 9, delo 103 (excerpts from minutes No. 183 of the CC Politburo meeting of April 5, 1990). 2. John Aldrich, Why Parties? (New York: Cambridge University Press, 1995). 3. Michael Kaser showed long ago that it was clear to a keen contemporary observer that Soviet planners, as well as academic economists, were increasingly dissatisfied with the use of fixed prices of 1926/7 in accounting, let alone in transactions between industrial enterprises (“Soviet Planning and the Price Mechanism,” Economic Journal 60, 237 [March 1950]: 81–91). The price reform, however, was never realized, and its alleged author, Nikolai Voznesensky—the chief of Gosplan—was arrested and executed in 1949 (Yoram Gorlizki and Oleg Khlevniuk, Cold Peace: Stalin and the Soviet Ruling Circle, 1945–1953 (Oxford: Oxford University Press, 2004). 4. For details on how the Communist Party of Poland in the 1970s followed the Soviet model, see note 24 of chapter 3 above. 5. V. F. Zima, The Famine of 1946–1947 in the USSR: Its Origins and Consequences (Ceredigion, UK: Mellen Press, 1999). 6. Ronald J. Hill, Soviet Politics, Political Science and Reform (Oxford: Martin Robertson, and Armonk, NY: M. E. Sharpe, 1980). 7. ASCP, fond 89, opis 9, delo 103. 8. D. Stola, “Finanse PZPR 1949–1970,” in Centrum władzy w Polsce, 1948– 1970, ed. Andrzej Paczkowski (Warsaw: ISP PAN, 2003). 9. ASCP, fond 89, opis 9, dd. 1–23 (August 1989); delo 28 (September 1989); delo 13 (April 1991). 10. ASCP, fond 89, opis 9, delo 85 (March 1990). 11. ASCP, fond 89, opis 5, delo 16 (March 1991). 12. ASCP, fond 89, opis 5, delo 15 (April 1991). 13. ASCP, fond 89, opis 5, delo 18 (October 1991).

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Index

accountants: calculations by, 58; in publishing houses, 51; regional, 27; as supervisory network, 101–2 activists, 8, 19, 75–88, 90–94, 148; choice of career path by, 80–82; compared to party bureaucracy, 79, 82; decrease in, 88; factors influencing, 90–94; incentives for, 82; increase in, 148–49; productivity of, 82; recruitment of, 65–66, 80–81, 88; changing role of, 78. See also incentives; promotion contract; sympathizers; volunteers Administration of Affairs. See Upravlenie Delami advertisements, in newspapers, 53, 55 Altai, 49, 125 Andropov, Yuri, 88 apparatchiks, 25–26 appeals to Party Control Commission, 63, 111–12, 117–27, 149–50. See also pardons appointments, refusal to accept, 63, 121–22 Armenia, 42, 61 army, 49, 64; party finance and, 27; revenue transfer from, 67–68, 71. See also military personnel, membership dues of Astrakhan district, 126, 127, 134 audit: party financial, 9, 95, 97–99; in party rules, 30 auditors: regional, 97; reports by, 34, 37, 142; spending monitored by, 134; violations discovered by, 99

autonomous republics, 27 Azerbaijan, 42, 61, 100 Baltic republics, 42; party structure in, 59–60. See also Latvia; Lithuania banking, party involvement in, 39, 152 barter, 50, 126 Belarus (Belorussia), 28, 55, 61 Bergson, Abram, 57 Berliner, Joseph, 57 Bolsheviks, 4, 6, 10, 143 Brezhnev, Leonid, 25, 57 Briansk, 49 bribery, 107, 119, 133 Brilevskii, the case of, 111–13, 119, 126–29 budgets, 16, 143; accumulation in, 42; accuracy of, 37–38; budget office, 24–25; use of budgets, 23–35; enforcement of discipline in, 46, 99; function and nature of, 8–9, 23; planning, 26–27; priorities in, 36; regional, 26–27, 29, 101; shadow budgets, 38; union-level, 29; variations in, 64. See also party finance Bukharin, Nikolai, 6 bureaucracy: and activists, 76, 79; apparatchiks, 25–26; benefits, 59, 96–97; and entrepreneurship, 53, 153; forced retirement of, 88, 94; free riding in, 85–86; hierarchy, 85; incentives for, 82; and industrial management, 11, 147; length of tenure in, 87–88; otvetrabotniki (party officials), 94; percentage of party membership, 74; purges in, 87; role of, 7,

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Index bureaucracy (continued) 35, 105; salaries of, 82–83; size of, 91; structure of, 58–62, 73, 85–86. See also nomenklatura; promotion contract; salaries, of party employees capital: human, 83; physical, investment in, 81, 92; stock, 80, 92–94, 136–137, 139–140 capital–labor ratio, 80, 87, 93, 137 Central Asia, 42. See also Kazakhstan; Kirgizia; Tadjikistan; Turkmenistan; Uzbekistan Central Audit Commission (Tsentralnaia Revizionnaia Komissia), 27, 37, 97 Central Committee (of the CPSU), 7, 37, 98, 147, 151; Department of International Affairs, 141, 151, expenditures for, 26; and Pravda, 51; Secretariat of, 25 centralization, 147 Cheliabinsk, 49, 71 Cheliabinskii Rabochii, 54 Chita, 121 Chkalov, 120 cities, party committees of, 27, 60. See also gorkom clemency, 122, 125, 129, 150; and leniency, 121, 128; types of, 117–18. See also pardons collectivization, 4, 12 Collegium. See Party Control Commission, Collegium commodities, hoarding of, 49–50 Communist parties, foreign, 12, 134–35, 141, 151–52 Communist Party of the Soviet Union (CPSU): assets of, 130, 141–43, 151–52; autonomy of, 8; beginning as Bolshevik party, 4, 6; cost of maintaining, 131–38; as employer, 14; expenditures of, 131–132; financial planning in, 26; financial records of, 2, 15–16, 30, 36–38, 142–43; financial study of, 4; institutional role of, 136, 148; local organizations, 26–28; merged with state, 6; organizational boundaries in, 5–7; party rules, 32; as political monopoly, 3; as regime stabilizer, 11, 16; relationship with state, 11, 15, 16, 49, 147–48, 150. See also budgets; Central Committee; party bureaucracy; party cadres; Party Control

Commission; party finance; party membership; party organizations; Politburo; regional party organizations; Soviet Union competitive markets, 56 construction: expenditures for, 42, 43, 68; underspending on, 103–4, 106–7 control, oversight and, 95–99 Council of Ministers, 6–7, 147, 152; as owners of Pravda, 51. See also Council of People’s Commissars Council of Ministers Reserve, subsidies from, 29 Council of People’s Commissars, 6, 28. See also Council of Ministers CPSU. See Communist Party of the Soviet Union Crimea, 100 decentralization reforms, 49 democracy, political parties in, 13–14 democratization, of Soviet Union, 89 dictatorships: and bureaucracy, 85–86; role of government in, 14; military, 4; one-party, 4–5; political economy of, 3; political parties and, 142; under Stalin, 10; strategies for survival, 12–13 disciplinary punishments, 63, 149–50; imposition of, 112–16; irregularity of, 114–16; for misconduct, 98; by Party Control Commission, 98, 107–108, 111, 112, 114, 117, 121. See also appeals; expulsion from party; pardons; reprimands district committee. See raikom; gorraikom Eastern Europe, 12, 141, 151–52. See also Poland education, investment in, 13. See also higher education; schools embedded obkom, 28 embezzlement: of membership dues, 99–100, 133; of party funds, 113, 120, 125, 133 emergency fund, 42, 47, 55, 145, 151 exempt secretary. See osvobozhdennyi expenditures: actual vs. expected, 37–38; allocation strategies for, 64–67; budget items, 26; control of, 102; determinants of, 135–38; econometric model of, 139–40,

Index 148; elasticity of, 136; compared to GNP, 131; investment, 41–42; and revenue, 39; structure, 41–42; trends in, 41–44 expulsion from party, as punishment, 111–13, 118, 120, 123, 127, 129 extortion, 133 Ezhov, Nikolai, 98 famine, 147, 192 farms: collective, 28, 43, 78, 117; membership dues of farmers, 31–32; party cells in, 28; state, 27, 43, 48, 133 financial data, quality of, 36–38, 98. See also party finance financial statements. See budgets fraud, 100, 111, 112, 133 fundamental problem of command, 37 Georgia, 28, 42, 49, 55, 61, 105 GKO. See State Defense Committee GNP. See gross national product Golyshev, the case of, 126 Gorbachev, Mikhail, 55, 88, 150 gorkom, 27, 59; Moscow, 70; position in party hierarchy, 59–60. See also party organizations Gorky, 71 gorraikom, 27; position in party hierarchy, 59–60. See also district committees; party organizations Gosbank (State Bank), 31 Gosplan. See State Planning Committee Gospolitizdat, 50, 52, 54, 55 government bonds, 31, 76, 147 government subsidies. See subsidies Granick, David, 57 Great Terror, 12, 63, 87, 98, 110, 133 Gregory, Paul, 15, 58, 83 gross national product (GNP), Soviet, 131, 136–37, 139–140; party expenditures compared to, 131, 136 Hayek, Friedrich, 56–57 health care: funding for, 13, 35, 91, 102, 132; rationing of, 102; resorts, 132; spending limits on, 58 hidden costs of CPSU, 132–35 higher education, 83–84, 91 Hough, Jerry, 13 housing, investment in, 13; subsidies, 91

ideology: funding of, 26, 28, 35, 36, 42–44, 103–5; and the promotion contract, 78–79; provision of, 13, 143; underspending on, 145. See also propaganda incentives, 2, 5, 11, 15, 72, 149, 153; enforcement by justice system, 127–28; jobs as, 14; problems with in socialist economy, 56–58; promotion as, 62–66, 73, 75, 96, 148 income tax, 132. See also taxes inflation, during World War II, 144, 147 informants, 14, 77 information distortion, 37 Inoizdat, 52 inventories, sale of excess, 39, 47–49. See also commodities investment: political, 14, 44, 65–66, 72, 122, 149; capital, 81, 87, 92–94, 147 job assignments, refusing, 63, 121–22 journalists, 52–53 justice system, 110, 149–50. See also appeals; disciplinary punishments; pardons Kabardino-Balkaria, 35 Kaganovich, Lazar, 69, 98 Kaliningrad, 35, 62, 104 Kalmykia, 104 Kaluga, 104 Karelia, 100 Kart, the case of, 107–9 Kazakhstan, 28, 52, 61, 76, 99 Kazakhstankaia Pravda, 52 Kemerovo, 70–71, 106–7 KGB, 27, 40, 152 Khabarovsk, 54 Kharkov, 107 Khrushchev, Nikita, 7, 25, 28, 49, 69–71 Kirgizia, 104 Kirov, Sergei, 69 Komsomol. See Young Communists League Komsomolskaia Pravda, 52 KPK. See Party Control Commission krai, 27–28 kraikom, 27–28, 49. See also regional party organizations Krasnoyarsk, 71 Krasnyi Proletarii, 55 Kruchina, Nicolai, 55

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Index Krupin, Dmitrii, 24–25, 33, 35, 39, 45–48, 50–51, 54–55, 63–64, 143, 151 Kuibyshev, 71, 113 Kursk, 104 Kyzyl, 122 labor, 78, 80, 92–94, 136–137, 139. See also capital-labor ratio labor camps, 13 labor law of 1940, 120 Latvia, 49 lectures and speeches, proceeds from, 28, 39, 51 Lenin, Vladimir, 6, 10, 13, 56, 74 Lenin Museums: funding of, 29; revenue from, 51 Leningrad, 29, 61, 64, 67–73, 152 Leningrad Affair, 70, 110 Lithuania, 49, 55 lobbying, 53; discouraging of, 38 loyalty: 3, 43, 153; and party participation, 65, 68–69, 71–73; and political regime survival, 12–13; and the promotion contract, 78; raising, 15, 16; rewarding, 65 loyalty networks, 106 Mari obkom, 63–64, 103 Marxist–Leninist ideology, 10. See also ideology membership cards, 32; value of, 76 membership dues, 23–24, 29–33, 76, 132, 142–44; calculation of, 31–33; collection of, 33–34, 47, 98; decline in, 39, 40, 138; evasion, 145; embezzlement of, 99–100, 133; increase in, 40, 138, 145; and payroll tax, 31; and salaries, 30–31; sources of, 39–40; tracking, 38; used for imputation of wages, 67. See also military personnel, membership dues of; party membership military personnel, membership dues of, 31–32, 40, 43, 143 Ministry of Health, 132 Moldova, 60, 119 Molotov, Viacheslav, 6–7, 26, 69 monetary reform of 1947, 144 Moscow, 29, 53–54, 61, 64, 67–73, 105 Moskovskaia Pravda, 53 Moskovskii Rabochii, 53 Murmansk, 70

nationalist regimes, 12 newspapers, 51–52. See also advertisements; Cheliabinskii Rabochii; Komsomolskaia Pravd; Moskovskaia Pravda; Moskovskii Rabochii; Pravda; Rabochii Put nomenklatura, 13, 65–66, 74–75, 84, 89, 96, 122; corruption in, 108, 149; dismissal from, 112; party records of, 117; system of, 122. See also bureaucracy Novgorod, 103 Novosibirsk, 100 obkom, 27, 34–35, 49, 51, 54, 101; cash reserves in, 47; Chkalov, 120; embedded, 28; expulsion of party members by, 120; industrial, 70–71; Kemerovo, 107; Khabarovsk, 54; Kharkov, 107; Mari, 63–64, 102; Moscow, 53, 70; Novgorod, 103; Omsk, 121; Orel, 103, 123; position in party hierarchy, 59–60; Pskov, 104; Stalingrad, 111, 122, 126–27; Stavropol, 100; Tuva, 122; Voronezh, 102. See also party organizations; regional party organizations oblast, 27–28 Ogushi, Atsushi, 39 okrug, 28 oligarchy, 85–86, 148 Olson, Mancur, 86 Omsk, 104, 121 Orel, 123, 103 Orgburo (Organizational Bureau), 7, 24–25. See also Central Committee osvobozhdennyi (exempt), party cell secretary, 60 otvetrabotniki (party officials), 94 overdraft, by regional organizations, 101–3, 145 oversight, and control, 95–99, 153 overspending, prevention of, 33, 101–4. See also overdraft Panorama, 55 pardons, 63, 111–12, 117–18, 122, 126, 149–50. See also clemency partiinoe prosveshchenie. See party cadres partiinyi bilet. See membership card partiinyi kontrol. See Party Control Commission Partkollegiia KPK. See Party Control Commission, Collegium

Index party bureaucracy. See bureaucracy; nomenklatura party cadres, training (partiinoe prosveshchenie), 45, 146 party cells. See also party organizations; primary party organization party committees. See party organizations; gorkom; gorraikom; kraikom; obkom; raikom Party Control Commission, 9, 15–16, 43, 95, 98–99; administrative units of, 99; appeals to, 127; discipline by, 107–108, 111, 112, 114, 117, 121; function as party’s police, 114–15; objectives of, 98–99, 114; pardons and clemency issued by, 116–24; reports by, 142–43. See also Party Control Commission, Bureau; Party Control Commission, Collegium Party Control Commission, Bureau, 98, 107 Party Control Commission, Collegium (Partkollegiia KPK), 98, 110, 112, 128; appeals to, 117–21, 124–25, 149. See also appeals party expenditures. See expenditures party finance, 7–9, 11, 15–16; increase in funds, 138; role of party membership in, 26; policy changes affecting, 26; problems of, 33–35; reforming, 39; in party rules, 30; related to state finance, 135–38; structure of, 27–29, 46, 58–62. See also audit; budgets; emergency fund; financial data; party membership; subsidies party financial audit. See audit party membership, 74–75; benefits of, 96; cost of, 132; demand for, 92–93; growth in, 138, 145–46; and justice system, 110, 128; of workers, 31–32. See also membership cards; membership dues party organizations, 27–28; autonomy of local, 97; in enterprises, 135; growth of, 68–69; hierarchy of, 59–63; nonterritorial, 27, 40, 64; regional, 27–28; territorial, 39–40. See also district party organizations; regional party organizations party participation. See party membership party revenue. See revenue party rules, 30 party secretaries, 108; disciplining, 127–128, 149; exempt, 60; incentives for, 11. See also party committees

Pavlodar, 100 plenipotentiaries, of Party Control Commission, 99 podmena, 150 Poland, 151 Politburo, 5–7, 15, 24–25, 55, 141, 147, 152. See also Communist Party of the Soviet Union; Central Committee (of the CPSU) political labor market, 81–83 political parties, function of, 13–14, 142 political rents. See rents Popov, Georgii, 69 Poskrebyshev, Alexander, 24 Pravda, 50–52, 54–55; subscription fees, 132 price reform, 144 primary party organization (PPO), 27–28. See Primorye, 71 privatization, 89, 145 promotion contract, 59, 77–79; discontinuation of, 148–49; and dynamics of party membership, 80–82; empirical analysis of, 90–94; enforceability of, 84–85; increasing stability of regime, 78, 81, 89; limitations of, 82–84; participation constraints, 84, 87–89; renegotiation of, 84–85; time inconsistency, 84; violation of, 85, 87, 88–90. See also promotion incentives promotion incentives, 14, 62–65, 57–58, 73, 75, 96, 148. See also incentives; promotion contract propaganda, 10, 14, 16; expenditures on, 42, 44, 146; underspending on, 103–5, 145, 146. See also ideology property: leased by CPSU, 39; owned by CPSU, 130, 152 Pskov, 104 public funds, contribution to household consumption, 91 public goods, 13, 77, 81 publishing, 152; investment in, 130; party control over, 51; proceeds from, 26, 28, 39, 40, 138; profitability of, 47, 50–55, 144–46, 153. See also Gospolitizdat; Inoizdat; newspapers; Panorama punishment. See disciplinary punishments purges, 110–11. See also Great Terror

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Index Rabochii Put, 54 raikom, 27, 47, 60, 101, 120, 121, 122–23 rational choice model, 10–11, 80 rationing: abolition of, 48, 144 reconstruction, postwar, 144 Red Army, 6, 143. See also army regime: change, 82–86; hierarchical, 86–90; stability of, 78, 81, 84, 89, 91 regional party organizations, 6, 13, 143; budget planning in, 26–27; financial support for, 14, 24; financial support from, 143, 144; functions of, 43, 106; industrial–rural divisions, 28; material stocks of, 48–49; and party audit, 98; relationship with central government, 16; interaction with Politburo, 15–16; interaction with subordinate organizations, 101; types of, 27–28. See also kraikom; obkom; party organizations rehabilitation process, 116–17 rents: allocation of, 79; distribution of, 14; expected, 82; income inequality and, 91; increase of, 14, 89; influence of, 94; per capita, 77; sources of, 87–89. See also bureaucracy, salaries repression, 3, 72, 77, 89; alternatives to, 13, 15; rapidly adjustable, 15; as deterrent, 133. See also Great Terror; purges reprimands, as punishment, 107–108, 112–13, 117, 120,126 republics: autonomous, 27; Baltic, 42, 59–60; budgets of, 29; Central Asian, 42; central party committees of, 28; union, 27 resource allocation, 14–15, 57–59, 61–67, 131. See also subsidies retirees, party membership of, 31–32 revenue: actual vs. expected, 37–38; local sources of, 47; shortfall problem, 33–34; sources of, 26–28, 39, 50; trends in, 39–41 revizionnye komissii. See audit Rigby, Thomas, 5 Rostov, 71, 104 rural districts, party committees of, 27, 60. See also raikom Russian Federation, 27, 28, 152 Rutland, Peter, 13 Rykov, Alexei, 6 Ryzhkov, Nikolai, 152

Saki, 100 salaries, of party employees, 59, 61–63, 76, 82–83, 86–87, 92, 94, 104, 152. See also rents; wages Saratov, 71 schools: party cells in, 28; party schools, 41 Secretariat (of the Central Committee), 7, 25, 46 secretaries: duties of, 35; exchange of information between, 37; exempt, 60; hierarchy among, 61; literacy of, 34; misuse of funds by, 34, 134; temptations of, 108; as volunteers, 135 self–rewarding, 133–34 shadow economy, 83 Shkiriatov, Mikhail, 76, 98, 106, 117 Siberia: Kemerovo region, 70; Western, 100, 106 Smolensk, 54, 99 socialism, criticism of, 56–57 Soviet Union: collapse of, 16, 89, 141; decision-making in, 11; democratization of, 89; fiscal crisis, 144; as a hierarchical regime, 86–90; influence on other regimes, 12; as mono-organizational entity, 5; party-state merger in, 6; relationship with CPSU, 15, 16, 49, 147–48, 150. See also Communist Party of the Soviet Union soviets (workers’ councils), 10 spending, control over, 27, 134 spending limits: calculation of, 58; enforcement of, 33, 101–5 staff positions, 52, 61–62. See also bureaucracy Stalin, Joseph, 6–7, 10, 13, 56, 86, 122, 148 Stalingrad, 49, 111, 122, 126–27, 133 Stalinism, 2, 4, 144 Stasova, Elena, 24 State Bank (Gosbank), 31 State Defense Committee (GKO), 6 state farms. See farms state obligations. See government bonds State Planning Committee (Gosplan), 24, 53 Stavropol, 100 students, party membership of, 32 subsidies: categories of, 28–29; data on, 28–29; reduction in, 33, 39, 45–46, 144; to regional committees, 26; as rewards, 65–67, 72; elimination of state subsidies, 12, 23–25, 144–45, 147; trends in

Index government subsidies, 41, 143. See also resource allocation supervisors, activist, 77–78, 80, 90, 92–94 supervisory agencies, 95–97, 108–9. See also audit, party control supplies, hoarding, 47–50 Supreme Council of the USSR, 29 Sverdlovsk, 71 sympathizers, 76. See also activists Tadjikistan, 104 Tambov, 104 Tashkent, 133 taxes: collection of, 78; income, 132; and the state, 144 territories, hierarchy of, 59–60. See also party organizations; regional party organizations; district party organizations totalitarian regimes, 12 trade unions, 143; membership dues, 31 Transcaucasian republics, 42. See also Armenia; Azerbaijan; Georgia transportation expenses, 27, 44, 103. See also vehicles Trotsky, Leon, 6 Tsentralnaia Revizionnaia Komissia, 27, 37, 97. See also audit Turkmenistan, 133 Tuva, 122 UD. See Upravlenie Delami Ukraine, 28, 55, 61, 100, 107 underspending, by regional organizations, 101, 103–5, 146; 145 union republics, finance in, 27 Upravlenie Delami (UD), 8; creation of, 24–25; role in dues collection, 30; finance department of, 24, 26; finance department files, 37–38; meetings of, 27, 45

Ustav. See party rules Uzbekistan, 28, 55, 105, 133 vehicles: allocation of, 58–59; maintenance of, 58, 103; purchase of, 58, 103, 107–8; illegal trade in, 107–108 vhodiashchii. See embedded volost, 60. See also Baltic Republics, party structure in volunteers, 14–15, 74–78, 80, 90, 92–94, 135. See also activists von Mises, Ludwig, 56–57 Voronezh, 102, 120–21 Voslenskii, Mikhail, 13 vydelennaia gruppa, 61 vydvizhenstsy, 12 wages: average, 86–87, 131–132; and income inequality, 91–92; increasing, 83; of journalists, 52–53. See also rents; salaries, of party employees War Communism, 12 Western Siberia, 100, 106. See also Kemerovo; Omsk; Siberia What Is to Be Done? (Lenin), 10 World War II, 6–7; inflation during, 144, 147; effect on party participation, 66; effect on revenue, 43–44 Yaroslavskii, Emelian, 98, 114, 117 Yeltsin, Boris, 69, 141 Yoshkar–Ola district, 64 Young Communists League (YCL) (Komsomol), 76; income from, 27, 40–41, 143 Yurga, 106–7 Zhdanov, Andrei, 26, 52, 69 Zinoviev, Grigorii, 69

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