ALCOHOL IN THE SOVIET UNDERGROUN D ECONOM Y b y Vladimir G . Trem l Paper No .5, December 1985 Library of Congress Catalog Card Numbe r 85-73407 TABLE 0F CONTENT S Forewor d i i 1 . Introduction 1 ALC0HOL IN THE SOVIET UNDERGROUND EC0NOMY 2 . Samogon 2 3 . Theft of Alcohol 1 6 by Vladimir G . Treml 4 . Abuses in Trade 2 3 Duke University 5 . Vodka as Money 2 7 6 . Sources and Bibliography 3 9 Footnotes 4 2 References Cited 5 3 Appendix 62 December 198 5 To be published in STUDIES IN THE SECOND ECONOMY OF THE COM - MUNIST COUNTRIES, edited by Gregory Grossman, University o f California Press, Berkeley, California, 1986 . ii i FOREWORD The research for this study was completed In early 1982 but the pape r Accordingly, the study and its conclusions can be viewed as curren t itself remained somewhat unfinished waiting for completion of the Berkeley - despite the cutoff of Soviet sources in early 1982 . Duke emigre survey which provided the author with estimates of such phenomen a In May of 1985 Soviet authorities launched a new and tar-reaching anti - as the theft of technical alcohol from places of employment, the use o f drinking campaign marked by higher penalties for drunkenness, increase d different inputs in illegal home distillation of alcohol, purchases and price s restrictions on the sale of alcoholic beverages, and a projected reduction i n of samogon, and the like . Computerization of the emigre questionnaire wa s the output of vodka and fruit wine . Penalties for making, selling and buyin g completed by mid-1985, and so was the paper . samogon were increases, and so were penalties for speculation in stat e Thus the study discusses and analyzes the alcohol underground throug h produced alcoholic beverages . In August, prices on all alcoholic beverage s early 1982 but is being offered to the reader only now . were raised by a hefty 25-35 percent . Continuing to read Soviet monographs and periodicals the author collecte d Gorbachev ' s anti-drinking campaign possibly opened a new chapter in th e a large body of additional evidence which, however, does not add anything ne w Soviet struggle against alcohol abuse, but we would have to wait for a coupl e to the main themes of the study . Some new data provided important supportin g of years to assess the results of the campaign on drinking generally and o n evidence for estimates made earlier . For example, a recent Soviet articl e the vast alcohol underground economy . Accordingly, the campaign is not discusse d reported that "illegal home distillation of alcohol uses up more than on e in this study . milliong tons of sugar annually " (C . Bazhenov, Literaturnaia gazeta, May 29 , 1985, p . 11), which is consistent with the author's estimate . ' Otherwise the new material supports the conclusions reached in the stud y without additional quantitative evidence . ' The author estimated the output of 40 percent samogon at about 1 .6 billio n liters in the late 1970s and speculated that up to 75 percent of samogon wa s made out of sugar (p . 4 and p . ii) . We do not know exactly what more tha n one million tons of sugar " is, but, for example, 1 .2 million tons would yiel d between 1 .1 and 1 .2 billion liters of samogon . Using the 75 percent shar e would result in an estimate of 1 .5-1 .6 billion Liters, which is very close t o the author ' s figure . Soviet official sources publish very little on production, sales , I. INTR0DUCTION prices, and consumption of alcoholic beverages, and it is not, therefore , The purpose of this paper is to analyze and, whenever possible, t o surprising that virtually no statistics on the alcohol " on the left " ar e quantify illegal private activities and transactions associated wit h available and thus had to be estimated . A summary of published data an d alcohol and drinking in the USSR . Specifically, the following topics wil l the estimation, verification, and full documentation of various issues an d be explored : illegal home distillation of samogon ; theft of alcohol fro m developments relevant for this study such as expenditures on state produce d industry and distributors ; and various abuses in the trade of alcoholi c alcoholic beverages, prices and taxes, output of synthetic ethanol, an d beverages . home distillation of samogon are available In a separate statistical stud y The reader who is familiar with Professor Grossman ' s work on the by the author (Treml 1982] . second economy will find that the various aspects of alcohol " on the lef t " * * * have the same origins and explanations as other illegal markets and privat e transactions in the USSR [1977 and 1979] . 2 . SAMOGON There are, however, some factors which make the alcohol phenomeno n 2 has always been, and stil l unique . The first is the very magnitude of transactions and activitie s The private distillation of samogon e involving alcohol " on the lef t " which can be conservatively placed at 16-1 8 probably is, the single most important illegal economic activity in th billion rubles (gross) in 1979 (see Appendix) . This means that between USSR . Its significance lies not only in the billions of rubles of " left " one-fifth and one-fourth of all alcohol transactions are illegal, thu s revenues it generates and the thousands of tons of agricultural produc e e dwarfing by comparison other mixed (i .e ., legal-illegal) markets . wasted in its production, but also in the fact that the existence of th t Illegally procured alcohol, i .e . home-distilled and stolen, boosts the pe r samogon market has consistently frustrated and handicapped the Sovie . capita consumption by at least one-third and of strong liquor by ove r government ' s struggle against alcoholism and heavy drinking in the country one-half . Any radical policy proposal, such as increasing prices or decreasing th e Another interesting issue is the unique role played by alcohol, bot h output of alcoholic beverages, was always countered by the argument tha t legal and illegal, in the second economy, where It is an instrument o f such policy would simply result in a higher output of samogon and henc e establishung trust between different parties, is used as an almos t would be ineffective . mandatory element in bribes, and, in fact, services as a " second currenc y " As early as 1927, Stalin, hardly a man to yield to the peasants , (u the USS R or a " commodity money " supplementing or replacing the ruble . justified the resumption of the large-scale marketing of vodka 3 * * * by stressung the fiscal needs of the new state and by noting that halting 3 the production of vodka would only lead to home distillation by peasant s Average Annual Output of Samogo n (Millions of liters, 40% alcohol content) Stalin, 1949, 232] . Samogon a s Soviet authorities clearly recognize the existence of a seriou s percent o f total. con- alcohol problem in the country, and both the technical literature and th e sumptio n of stron g periodic press frequently discuss various aspects of alcohol abuse . alcoholi c Rural Urban Total beverage s However, no summary statistics on the production or consumption o f 1955-1959 947 88 1,035 44 .2 % alcoholic beverages, or data on alcoholism, are published . Samogon i s 1960-1964 994 167 1,161 42.0% . 1965-1969 1,160 251 1,411 40 .7 % treated in a similar manner -- the literature offers anecdotal evidence o n 1970-1974 998 342 1,340 36 .1 % 1975-1979 1,037 596 1,633 35 .0 % samogon making, discusses the waste of foodstuffs, and explains the healt h hazards of drinking samogon, but virtually no information on the extent o f Thus, while the relative importance of samogon in the total quantit y illegal distillation is available . In fact, the last summary statistics o n of strong alcoholic beverages is declining, its absolute output i s samogon were published in the late 1920s . increasing and is exceptionally high for a country at the level of economi c It must be pointed out that the very nature of illegal hom e development of the USSR . distillation in the USSR is such that accurate accounting is all bu t In the 1975-79 period, consumption of samogon averaged about 3 . 4 impossible, and authorities themselves probably do not have exac t liters of absolute alcohol per person 15 years and older . Adding thi s year-by-year, region-by-region statistics on the output of samogon . 4 figure to consumption of state produced alcoholic beverages of about 11 . 6 In the absence of published Soviet statistics on the level of samogo n liters gives us a total consumption of about 15 liters of absolute alcoho l production, the figures below were estimated by the author on the basis o f per person [Treml, 1982, 68] . Even without stolen alcohol and home-mad e a variety of secondary sources and indirect evidence and must be considere d wine and beer, this average consumption figure is one of the highest in th e as first approximations [Treml, 1982, 55] . world, exceeded only by Portugal, France, and Italy . A more meaningfu l statistic reflecting on health impact and effects on behavior of drinker s is consumption of strong beverages (40 percent alcohol and more) . Th e average consumption is about 9 .4 liters of absolute alcohol (6 liters o f state produced beverages and 3 .4 liters of samogon) per person 15 years an d older and is the highest in the world [Hyman et al ., 1980, 111 .