Counter-Intelligence in a Command Economy

We provide the first thick description of the KGB’s counter-intelligence function in the Soviet command economy. Based on documentation from Lithuania, the paper considers KGB goals and resources in relation to the supervision of science, industry, and transport; the screening of business personnel; the management of economic emergencies; and the design of economic reforms. In contrast to a western market regulator, the role of the KGB was to enforce secrecy, monopoly, and discrimination. As in the western market context, regulation could give rise to perverse incentives with unintended consequences. Most important of these may have been adverse selection in the market for talent. There is no evidence that the KGB was interested in the costs of its regulation or in mitigating the negative consequences.