Law on Cooperatives (1988)

Law on Cooperatives (1988). Enacted on May 26, 1988, by the Supreme Soviet of the Soviet Union under the leadership of Mikhail Gorbachev, this landmark legislation was a cornerstone of the perestroika economic reforms. It legalized and promoted the formation of private cooperative enterprises across various sectors, marking a radical departure from the centrally planned economy of the Soviet Union. The law aimed to stimulate economic activity, alleviate consumer goods shortages, and introduce market-style mechanisms within the socialist economic system.

Background and legislative context

The law emerged during a period of severe economic stagnation in the Soviet Union, often referred to as the Era of Stagnation under Leonid Brezhnev. Mikhail Gorbachev's accession to the position of General Secretary of the Communist Party of the Soviet Union in 1985 initiated a series of reforms, including glasnost and perestroika. Prior to 1988, limited private activity was permitted under laws like the Individual Labor Activity Law of 1986, but these were highly restrictive. The Law on Cooperatives (1988) was developed as a more radical measure to decentralize economic control, responding to failures in the Five-year plans of the Soviet Union and inspired in part by experiments with market socialism in countries like Hungary and Yugoslavia. Its drafting was influenced by reformist economists such as Leonid Abalkin and faced significant ideological opposition from conservative elements within the Communist Party of the Soviet Union.

Key provisions and cooperative structure

The legislation granted cooperatives legal status as independent, self-financing entities operating on principles of self-management and profit motive. Key provisions allowed cooperatives to be formed in nearly all sectors, including manufacturing, services, foreign trade, and even scientific research, excluding only areas like defense production. Cooperatives could set their own prices based on supply and demand, determine wages for their members, and retain profits after taxes. They were required to register with local Soviets but were free from direct control by Gosplan or other state ministries. The law mandated a democratic governance structure, with a general meeting of members electing a board of directors and audit commission. This framework created a hybrid entity, operating within the socialist ownership system but employing distinctly capitalist operational methods.

Economic and social impact

The law triggered a rapid proliferation of cooperatives, with their numbers soaring into the hundreds of thousands by 1990. They played a crucial role in alleviating consumer shortages, particularly in sectors like catering, retail trade, and personal services. Notable early successes included cooperatives like Tekhnika, which provided consumer electronics repair. The surge in cooperative activity contributed to the growth of a nascent private sector and a new class of entrepreneurs, often disparagingly called cooperators. However, the impact was socially divisive; while cooperatives created jobs and goods, they also led to rampant price inflation, widespread speculation, and accusations of profiteering and black market ties. The visible wealth generated by successful cooperatives exacerbated public resentment and highlighted growing income inequality during the final years of the Soviet Union.

Implementation and challenges

Implementation was fraught with difficulties from the outset. Many local party officials and Soviet bureaucrats, entrenched in the command economy, obstructed cooperatives through excessive regulation, denial of premises, and punitive tax inspections. State-owned enterprises, or SOEs, often refused to supply materials to cooperatives, forcing them to rely on the shadow economy. The legal ambiguity between "permitted" and "speculative" activity led to constant harassment from the Militsiya and the KGB. Furthermore, the law's success was undermined by the lack of a coherent financial market, with cooperatives struggling to access credit from the State Bank of the USSR. These operational challenges were compounded by a hostile media environment, where publications like Pravda frequently denounced cooperatives as a source of economic crime and social injustice.

Amendments and subsequent legislation

Due to its controversial nature, the law was amended multiple times. Significant revisions in 1989 and 1990 imposed higher tax rates and stricter price controls on cooperatives in an attempt to curb profiteering and public discontent. However, the momentum toward a market economy proved irreversible. The law was effectively superseded by more comprehensive legislation following the dissolution of the Soviet Union. In the RSFSR, the Law on Enterprises and Entrepreneurial Activity (1990) provided a broader framework for private business, which was fully realized after the Belovezh Accords. The principles and entrepreneurial class fostered by the Law on Cooperatives (1988) became foundational for the economic transition in the post-Soviet states, including Russia, Ukraine, and the Baltic states.

Category:1988 in Soviet law Category:Economic history of the Soviet Union Category:Perestroika