Chapter 7
Secondary Endeavors

Cooperatives not only do not dominate the market; they even utilize the services of private individuals as contractors. . . . The trusts have ceased being masters of their own affairs and have found themselves in the hands of [private] middlemen. They appear to be state institutions in name only, in reality depending on private people and serving their interests.
—Report presented at a meeting of the Petrograd Party Central Committee

Private capital has seized the initiative and almost completely dominates the zagotovka market.
—Torgovo-promyshlennaia gazeta

In addition to conventional trade and manufacturing, smaller numbers of private entrepreneurs engaged in a wide variety of other activities. These businesses included cafés, restaurants, boardinghouses, inns, bathhouses, and shipping operations (using cars, trucks, horse carts, and boats on inland waterways). There was even a private airline (expropriated in 1929) based in the Ukraine and serving Khar'kov, Rostov-on-the-Don, Odessa, Kiev, and Moscow. One could also obtain a license to operate facilities such as private theaters, billiard halls, ice-skating rinks, gymnasiums, tennis courts, and the like.^[1] In addition, a government survey in 1923 (excluding Moscow and Petrograd) indicated that 9 percent of the "legitimate theaters," 29 percent of the cinemas, and virtually all variety theaters were privately owned.^[2] This list of activities might also be stretched to cover the "free professions" (doctors, dentists, architects), even though these individuals were not included in the same harsh tax category as most other private entrepreneurs.^[3] Although there is comparatively little information on private ventures outside trade and manufacturing, there is sufficient material to sketch at least the outlines of selected realms of endeavor—book publishing, middleman transactions, zagotovka work, joint-stock companies, and credit organizations—distinct in one way or another from the activities covered in previous chapters.

Book publishing was one of the few lines of private business not outlawed during War Communism. In 1918 there were 111 private publishers registered with the state, and during the next three years at least some of these operations issued books, both on their own initiative and to fulfill orders from the state publishing agency (Gosizdat). Nevertheless, the state effort to eliminate private trade during War Communism applied also to the sale of books, and this greatly hampered the activity of private publishers.^[4] The initial decrees heralding the transition to NEP said nothing of the book trade, and it was not until late in the summer of 1921 that the Moscow Soviet permitted the free sale of books by independent publishing houses.^[5] Only in December did the Council of People's Commissars (Sovnarkom) officially extend NEP to the publishing business and announce a new set of rules for this activity. As spelled out in Sovnarkom's decree, licensed private publishers were allowed to own printing equipment, sell their output at free-market prices, and import books (after obtaining special permission). All manuscripts had to be approved by the state, and Gosizdat reserved the right to buy at wholesale prices all or any number of the copies of a book being printed.^[6]

Following Sovnarkom's decree, the number of private publishing houses swelled rapidly, so that by the end of May 1922, there were 319 registered in Moscow and Petrograd (though only a handful in the rest of the country). But many of these were ephemeral operations or fronts for other business schemes and published few if any works. In Moscow, for example, of the 220 private publishers registered by May 26, 1922, fully 133 did not submit a single manuscript to Gosizdat for approval in the period after mid-November 1921. Another 60 firms requested clearance for one to five books each, and only 10 sought permission to publish at least eleven titles per enterprise. The situation was similar in Petrograd, where, during the period from January 31, 1922, to May 29, 1922, 44 of the 99 registered private publishers did not approach Gosizdat with a manuscript, and only one operation submitted as many as eleven.^[7] Either Gosizdat's censors were not particularly strict or most publishers limited themselves to safe works (including books issued under contract for Gosizdat), because only 41 of the 1,003 manuscripts presented for approval were rejected.^[8]

As a general rule, private publishing was most heavily concentrated in the humanities, accounting by the beginning of 1923 for a third of all titles on philosophy and psychology, for over 40 percent in the area of poetry, belles-lettres, and literary criticism, and for half the books on painting, theater, and sports.^[9] The private share of all books published

was under 20 percent in 1922 and under 25 percent a year later (see table 12).

In absolute terms private publishing declined dramatically at the end of the decade, paralleling the fate of the Nepmen in general. If their output in 1927 is labeled 100, then private publishers issued 61.9 titles in 1928, 49.6 in 1929, 14 in 1930, and 2.4 in 1931.^[10] All of these figures may prompt one to conclude that private publishing was insignificant. Certainly it cannot be considered one of the Nepmen's major areas of activity, with regard to either the number of people involved or their impact on the state and population. Nevertheless, by virtue of their concentration in the fine arts and the willingness of some to issue works from a variety of literary circles, private publishers contributed to the cultural richness and diversity that help distinguish NEP in Soviet history.^[11]

Whereas the endeavors of private publishers were less than critical to the nation's economy, another group of entrepreneurs—private middlemen—played a significant economic role in the "socialist" sector itself. We have already noted the Nepmen's importance in marketing goods produced by the state and will focus here on their activity as supply agents for state and cooperative organizations.

Raw materials and other supplies were frequently as scarce as finished consumer goods, and many inexperienced "socialist" enterprises, thrust out on their own in the marketplace, were forced to engage the

services of private middlemen even to obtain products from other state agencies. Soviet scholars such as I. Ia. Trifonov concur on this point: "Lacking experience and skill in trade-money operations, state enterprises [at the beginning of NEP] appeared helpless, carrying on isolated and unorganized trade. Even business between state enterprises could not be conducted without private middlemen."^[12] Some Nepmen sold products to state agencies as just a part of their operations, continuing to deliver goods to private customers as well. But often a middleman was more closely linked to a state firm, making purchases and sales in the latter's name and agreeing (not always sincerely) to conduct no additional business on the side. Under this arrangement, a Nepman could garner a handsome commission (generally at least 10 to 15 percent of the transaction) without investing any capital of his own.^[13] These private middlemen, acting as plenipotentiaries for "socialist" enterprises and traveling with official documents and passes, were a common sight on trains in the first years of NEP.^[14]

Data available for October 1922 indicate that fully 32 percent of state industry purchases were made from Nepmen (dropping to 11 percent in September of the following year). Even in Moscow, where official supply agencies were concentrated, some state stores in 1922 relied heavily on private middlemen for manufactured consumer goods such as textiles.^[15] The situation was similar with the cooperatives. As a general rule, the farther one looked into the countryside, the weaker the state distribution system became, and the more cooperatives depended on Nepmen for supplies. On the periphery of Moscow guberniia, for example, cooperatives obtained roughly 45 percent of their merchandise through private middlemen in 1922. Taken as a whole, the cooperative system bought between 30 and 40 percent of its wares from Nepmen at this time. According to a report from the Petrograd Guberniia Party Committee, some cooperatives even received loans from the private sector.^[16]

In the case of nonagricultural products, a private middleman delivering goods to a state enterprise generally acquired them from a second state agency. At an official congress on trade and industry in Rostov-on-the-Don, delegates from around the region told of the poor or nonexistent relations between "socialist" operations in 1922, which resulted in the "'organic' functioning of private middlemen in transactions between various state trade agencies." Similar reports elsewhere emphasized that this state of affairs was common throughout the land.^[17] At times, the helplessness of state enterprises was breathtaking. "It would seem apparent," complained an official in the Workers' and Peasants'

Inspectorate (RKI), "that oil and coal could be bought from state fuel agencies, electric lamps from the Electric Trust, but even here [state firms] often run for help to middlemen." To cite but one example: In 1922 a Nepman contracted to supply GUM (the main state department store) with two million pudy (36,000 tons) of coal at sixty-five kopecks per pud . He simply took the advance payment from GUM over to Torgugol' (a state agency whose name indicates that it sold coal), where he was able to buy coal at thirty-eight kopecks per pud and thus have a considerable quantity of coal left over after delivering GUM its share.^[18]

In such conditions it is not surprising that Nepmen often made large profits, either from hefty commission fees and gross overpayments by incompetent state agencies or in more underhanded ways such as using bribes to obtain scarce commodities or simply disappearing with the advance payment. Semen Pliatskii, whom we encountered in a previous chapter, sold a Petrograd trust 30,000 pudy of metal that happened already to be in the trust's own warehouses.^[19] These and other abuses and the profits streaming into private pockets sparked numerous outcries and reform proposals in the press.^[20] At the same time a number of government bodies were discussing ways to control the activity of private middlemen. RKI, for instance, proposed among other things that large sales be registered with the state commodity exchange and that commissions be limited to 1 percent of the value of the transaction.^[21] By an order issued on December 4, 1922, the Moscow division of the Supreme Council of the National Economy forbade state agencies in Moscow from using private middlemen in dealings with other state enterprises. State organizations could still employ Nepmen in transactions with the private sector, but could not pay commissions at a rate exceeding 3 percent.^[22] Finally, on January 2, 1923, Sovnarkom issued a decree for the country as a whole that banned private entrepreneurs from conducting business between two state agencies. Instead, state enterprises were permitted to retain their own in-house middlemen to facilitate sales and purchases.^[23]

These measures, along with increased business expertise in many state and cooperative undertakings, reduced considerably the number of private middlemen by the second half of NEP. In December 1927, a resolution of the Fifteenth Party Congress spoke confidently of the "socialist" sector's dominant position in the economy and recalled the prevalence of private middlemen at the beginning of NEP as simply an indication of how much progress had been made since.^[24] But despite the state's undeniable economic gains, investigations and reports throughout NEP in-

dicated that many "socialist" enterprises continued to rely on Nepmen (not necessarily illegally) for the supply of raw materials and other services.^[25] This is hardly surprising, since shortages and resource distribution problems refused to succumb completely to state policies. Even today, in a planned economy, these difficulties continue to plague both manufacturing and distribution operations. As a perusal of the satirical journal Krokodil confirms, some state enterprises still hire people to scour the country for scarce supplies.^[26]

Thus, just as Soviet consumers were partially dependent on private retailers, many state enterprises relied at least to some extent (especially at the beginning of NEP) on private middlemen. But even though most Bolsheviks were willing to tolerate Nepmen in the market squares for a number of years, they were considerably less patient at the spectacle of private entrepreneurs servicing the "socialist" sector. At the First All-Russian Congress of Commodity Exchange Officials early in NEP, Rykov asserted: "In the area of trade, private capital is trying to fill the cracks between our state production organizations and devoting too much of its attention and capital to middleman activity." Although there was certainly room for private capital to play a "large and useful role" in the development of trade, Rykov added, private involvement in transactions between state agencies was inappropriate.^[27] In a similar vein, the aforementioned congress (on trade and industry) in Rostov-on-the-Don declared that private retail trade was "desirable"; private wholesale trade "only tolerable"; and private middleman activity between "socialist" enterprises "completely impermissible."^[28]

In other words, even though there was widespread agreement that many nascent state undertakings had little alternative to dealing with private entrepreneurs,^[29] the official "solution" seems to have been almost exclusively a determination to eliminate private middlemen and improve at once the efficiency of the "socialist" sector. This in contrast to retail trade, where the state was more willing to accept the presence of Nepmen for a time. To the Bolsheviks, the Nepmen's transactions with state and cooperative agencies seemed a much graver threat to the development of socialism in Russia than did private sales to individual consumers.

Another important occupation of the Nepmen was the purchase of food and various raw materials in the countryside. This zagotovka work, mentioned briefly in a previous chapter as a source of merchandise for private traders, merits additional attention here for both eco-

nomic and political reasons. Private buyers roaming the countryside sought a wide variety of goods, ranging from grain, meat, vegetables, and eggs to hides, wool, and flax. These products, the vast majority of which were purchased from the peasantry, were then resold to private manufacturers and traders, "socialist" agencies, or directly to consumers. The grain zagotovka clearly assumed paramount urgency for the party, both because bread was the staple of the people's diet, and because the Bolsheviks desired to amass a grain surplus to support industrialization. Here, as in the case of private middlemen, the party found itself in the position of needing the Nepmen, but fearing their presence would undermine state control of a vital sector of the economy. Before pursuing this point, we need to examine the extent of private participation in the zagotovka of grain and other products.

There is little statistical information on the size of private grain purchases in the first years of NEP, because this activity was largely beyond the monitoring ability of the fledgling state bureaucracy. Certainly, though, the Nepmen's share was substantial, given the chaos plaguing state zagotovka efforts and the peasants' suspicion of (not to mention hostility to) state grain collection campaigns in the wake of War Communism. During 1922/23 in Tambov guberniia, for example, private buyers obtained over four times as much grain as state and cooperative zagotovka agencies.^[30] By the middle of NEP the private percentage of the grain zagotovka had fallen but was still far from negligible—roughly 30 percent in 1924/25, 20 percent in 1925/26, and 15 percent in 1926/27.^[31] In the Ukraine, private middlemen bought approximately 40 percent of the grain marketed by peasants in 1924/25 and accounted for over half the procurement in many regions of the country.^[32]

The Nepmen's share of the zagotovka of all agricultural products taken together has been estimated at 40 to 50 percent in 1924/25, 30 to 40 percent in 1925/26, and in the neighborhood of 30 percent the next two years.^[33] In the case of a number of products, including meat, butter, eggs, furs, and hides, the private sector's role was even more impressive (see table 13).

A significant portion—47 percent in 1926/27 according to one estimate—of the Nepmen's purchases in the countryside was resold to state and cooperative enterprises.^[34] It is difficult to determine the share of the state's total zagotovka that came through the hands of private middlemen, because "socialist" zagotovka agents sometimes bought goods illegally—grain, for example—through the private zagotovka network.^[35] Figures available for 1925/26 indicate that Nepmen supplied roughly 40

percent of the state's zagotovka of hides and furs,^[36] and undoubtedly considerable quantities of other products followed similar paths to the "socialist" sector.

Though conceding that private zagotovka activity was necessary to help acquire raw materials and food, Bolsheviks also harbored serious misgivings about Nepmen in this sphere of the economy. The party's concern went well beyond the risk of some "socialist" enterprises becoming dependent on private suppliers. The private zagotovka network was extensive and could offer the peasants free-market prices, in contrast to "socialist" zagotovka agents, who were supposed to observe price ceilings.^[37] As a result, the Nepmen proved to be effective contenders for the peasants' produce, and thus threatened to block the development of the state's smychka with the peasantry. This outcome, Lenin had declared a number of times, would thwart the construction of socialism.

Most ominous of all was the private sector's success in the grain zagotovka, for as we have noted several times the Bolsheviks attached great importance to accumulating a large grain surplus (and not at high free-market prices). By 1926, newspaper articles appeared frequently

with complaints that Nepmen were disrupting the state's grain collection efforts by offering peasants higher prices and taking precious space in freight trains for private grain shipments.^[38] The state moved in this period to reduce the private grain trade by cutting off credit to private zagotovka operations; limiting the amount of privately owned grain that could be milled in "socialist" facilities; revoking the leases of many large private mills; forbidding state and cooperative agencies to conduct grain transactions with Nepmen; and restricting private grain shipments by rail.

These measures helped reduce the private share of the grain zagotovka to the neighborhood of 15 percent by 1926/27. But as the volume of grain marketed by the peasants lagged farther behind demand, the gap between the official and the free-market grain prices widened sharply, prompting more peasants to seek private buyers. By 1928/29 the Nepmen's portion of the zagotovka had rebounded to just under one quarter.^[39] This rally at the expense of the grain collection effort of the state was undoubtedly one of the factors that prompted Stalin and his allies to launch their momentous collectivization drive and ban the free trade of grain. Only in this way, they no doubt concluded, would the state obtain a steady, reliable source of grain without having to pay free-market prices for it.^[40]

Most Nepmen were rather primitive petty traders and artisans, hardly meriting the label of capitalist so often applied to them in the 1920s. Nevertheless, a few private entrepreneurs (generally those with some capital and prewar business experience) operated on a larger scale, not just in permanent shops and factories but also in comparatively sophisticated ventures such as joint-stock companies and credit institutions. Private investors could participate in two basic types of joint-stock enterprises: those in which all shares were privately owned and those, known as mixed companies, where "socialist" organizations held a portion of the shares.^[41] To cite two examples of the first type, in June 1922 the state approved a private joint-stock charter for a company named Lim that manufactured sugar products. According to the agreement, Lim was required to pay 25 percent of its profits to the state. Three years later, Nepmen in Krasnodar formed a joint-stock business (Kubzhirprom) through the sale of twenty-five hundred shares of stock at one hundred rubles each. Kubzhirprom's charter permitted it to buy or lease factories for the production of goods from animal fat, conduct its own

zagotovka operations for raw materials, and open warehouses, branch offices, and stores.^[42]

Many private joint-stock companies were actually little more than previously existing enterprises with new names. Much along the lines of a false cooperative, a joint-stock charter often enabled a firm to obtain goods and credit more easily from "socialist" agencies, since the charter indicated that the business had been deemed respectable, even necessary, by the state. In addition, joint-stock undertakings received certain tax privileges, such as exemption from the leveling tax during the first year of business.^[43] In Leningrad, for example, a factory that processed liquid gases managed to avoid nationalization during War Communism and continued to function as a private plant following the introduction of NEP. The owners, deciding to take advantage of the privileges available to joint-stock companies, drew up a charter and formed a board of directors. But then they proceeded to buy all the shares of the "new" enterprise and thus controlled it as completely as ever.^[44]

Mixed joint-stock ventures were sometimes initiated by state agencies as a means to acquire additional (private) capital for a wide variety of projects. In the Novonikolaevsk region, for instance, the Siberian Revolutionary Committee declared it essential to involve private capital in the completion of the Achinsko-Minusinskaia railroad; to this end Siberia's first mixed joint-stock company was formed in the summer of 1922. At about the same time, the Northwest Economic Committee (headquartered in Petrograd) helped organize a mixed joint-stock undertaking to exploit natural resources along the Murmansk railroad and promote colonization of the region. As a final illustration, a mixed joint-stock fishing enterprise was chartered the following year in Vladivostok. The state fishing agency (Glavryba) contributed half the capital, with Nepmen supplying the rest. Glavryba retained the rights to 60 percent of any additional shares issued and after five years had the option of buying out its private partners.^[45] Despite the opportunities, however, most Nepmen with funds to invest in joint-stock companies shied away from the mixed variety.^[46] The prospect of intimate state supervision and the fact that the state was supposed to control at least half the shares in mixed enterprises undoubtedly convinced many private entrepreneurs that it would be less risky and more profitable to invest in purely private undertakings.

By the end of 1924, 114 joint-stock businesses had been chartered. Of these, 44 were funded entirely by the state, 38 were mixed (though 95 percent of the capital came from the "socialist" sector), and 32 were

private. Only 14 of the private firms were actually in operation. Two years later there were 166 joint-stock companies registered in the RSFSR, 89 of which were private.^[47] As these figures suggest, the great majority of private joint-stock enterprises sprouted up during the middle of NEP when the business climate was most encouraging. After only five new private joint-stock ventures were registered in 1924, the figure jumped to 23 (one source reports 24) new private undertakings in 1925 and an additional 50 in 1926.^[48] In the following years, reflecting the fate of the private sector in general, the number of new private joint-stock companies plummeted (table 14). As early as 1926/27, even before the onslaught of 1928, the profits of private joint-stock enterprises plunged fully 86 percent compared to the previous year.^[49]

Holding true to form, the bulk of private joint-stock investment was concentrated in the lines of consumer products that occupied the energies of nearly all Nepmen—food, textiles, haberdashery, leather goods, soap and candles, and metal tools and utensils. In addition, there were a number of firms active in construction work.^[50] According to the charters filed by private joint-stock companies, roughly equal numbers of these businesses were involved in trade and manufacturing. But in reality, many of the "industrial" undertakings simply bought and sold items produced elsewhere.^[51]

The number of private joint-stock enterprises was never very large (see table 14). During the years from 1923 to 1928 only 185 such firms registered and operated at one time or another in the entire country. Even in the peak year of 1926, the list of private joint-stock compa-

nies was well under 100, numbering 80 on October 1.^[52] Of the capital invested in all joint-stock ventures ("socialist," mixed, and private), roughly 70 to 80 percent came from the "socialist" sector.^[53] Clearly, then, the vast majority of private capital in trade and manufacturing did not flow through the coffers of private joint-stock enterprises.^[54]

Private credit organizations proved somewhat more fruitful than stock sales as a source of funds for the Nepmen. These institutions most often took the form of a Society of Mutual Credit (Obshchestvo Vzaimnogo Kredita or OVK), a sort of credit cooperative. OVKs obtained reserves through members' deposits and state loans, and then lent money to members engaged in various business activities. Five months after a decree of January 24, 1922, permitted private individuals to organize savings and loan cooperatives, the first OVK appeared (in Leningrad).^[55] In the months that followed, several others opened around the country, though the largest and most active OVKs tended to be found in Moscow, where private capital was most heavily concentrated.^[56]

The number of OVKs grew at a pace that reflected official policy on the Nepmen. The increase was least impressive in 1924 when the state adopted harsher measures toward the private sector, and most vigorous in the comparatively tolerant years of 1925 and 1926:^[57]

During the period from October 1922 to October 1926 the OVKs' membership swelled from 1,250 to 85,415 people. But as one would anticipate, in the following years these institutions withered and died—along with NEP itself. On the one hand the state began to cut back its loans to OVKs, and on the other, the elimination of private entrepreneurs removed not only another source of funds but also most of the OVKs' customers. In fact, as part of the official campaign to root out the last Nepmen, Sovnarkom decreed in November 1929 that surviving OVKs had to provide tax officials with the names of those private businessmen still receiving loans.^[58]

The majority of members in OVKs were private traders, followed by private manufacturers, with state agencies playing only a minuscule role. The dominance of private traders is evident in the distribution of OVK members in October 1923:^[59]

As a general rule, the larger the business, the more likely its owner was to join an OVK.^[60] Sizable operations tended to require more credit than did those of petty vendors and craftsmen, and they were also more likely to have sufficient cash for the required minimum deposit. The membership figures imply that the lion's share of the credit extended by OVKs went to private traders and manufacturers, and this was indeed the case. In 1924/25, for example, these two groups received roughly 80 percent of the loans made by OVKs in the RSFSR.^[61] But the distribution of these loans differed considerably in Moscow and the provinces. In the capital, with its comparatively heavy concentration of large private enterprises, the most important clients of OVKs were private wholesalers and factory owners. In the provinces, where substantial Nepmen were few and far between, smaller-scale private retailers assumed this distinction.^[62]

Records available for the three-year interval from October 1923 to October 1926 indicate a dramatic surge in the volume of money lent to Nepmen by OVKs. From just 4.8 million rubles in October 1923, the total jumped nearly 1000 percent to 51.4 million rubles in October 1926.^[63] Of all loans made to private entrepreneurs by OVKs and state banks, the portion provided by OVKs climbed from roughly 10 percent to 50 percent during this period.^[64] Many of the loans from OVKs were actually made with government funds. State banks slowly but steadily increased their loans to OVKs and in this way supplied roughly a third of the capital that OVKs loaned to Nepmen over these years.^[65]

Interestingly, when given an opportunity to voice their opinions (in surveys and short newspaper columns), Nepmen revealed a preference for loans from state banks rather than from OVKs. The reason given most frequently was that the state charged less interest, though sometimes the complaints included the extreme dearth of funds in OVKs and

the expense of becoming a member.^[66] In 1925/26 and 1926/27 private entrepreneurs paid interest on loans from state banks at annual rates in the teens—no more than half the rates charged by OVKs (table 15). Frequently, there was not sufficient credit from either the state or the OVKs, forcing Nepmen either to operate strictly on a cash basis or turn to independent moneylenders on the so-called free credit market. Here, funds could generally be obtained, but at astronomical interest rates—sometimes, depending on demand and the political and economic climate, as high as several hundred percent annually.^[67]

The formation of joint-stock companies and OVKs signaled a considerable increase in the sophistication of private economic ventures compared to the early months of NEP. But to reiterate, these initiatives remained exceptions in the private sector. Most private entrepreneurs were small-scale traders and manufacturers without the surplus capital or expertise to invest in joint-stock undertakings or OVKs. This, combined with a comparatively hostile government and uncertainty over long-term business prospects, kept such institutions well below their prewar levels of development. Shortly before the Revolution, for example, there were 1,177 OVKs with far more capital than their successors during NEP. Similarly, around the turn of the century, private joint-stock companies were over ten times as numerous as in 1926.^[68]

These contrasts are another manifestation of the generalization that private enterprises were much more likely to be simple and small-scale during NEP than before the Revolution. As noted in chapter 4, nearly two thirds of private trading operations before the war were permanent shops, whereas in 1925 only about one quarter of all private traders worked in such facilities. The reasons for this (such as a greater need to be mobile and inconspicuous, difficulties in obtaining goods and credit

from the state, the new tax decrees, and uncertainty over the future) stemmed from the Bolsheviks' ambivalent bargain-with-the-devil attitude (and policies) toward the Nepmen. Even in the heyday of 1925/26, when the state offensive at the end of the decade could hardly have been anticipated, taxation and other regulations must have led veteran private entrepreneurs to recall the prerevolutionary years as the golden age.