The welcome changes from Stalinist centralisation gave the Armenian party-state leadership greater power over the local economy and at the same time greater opportunity to misuse the resources of the state economy. A continual tension existed between local Armenian managers and bureaucrats and the authorities in Moscow over increasing production and productivity. Local officials in Transcaucasia allowed the creation and development of a widespread underground, illegal "second economy". Favours were done in return for services and goods. Money and material were stolen from state enterprises. Workers worked in special jobs fro private reimbursement outside their regular jobs. And buying and selling of coveted but otherwise unavailable goods was carried in relatively openly, though prohibited by law. Corruption, "speculation", black-marketeering, and simply "doing favours" (papakh) became the normal way of doing business in Armenia. Everything depended on whom one knew; what was needed was "pull", or in the Armenian variant, "kh-tz-b" (khnaminer, tzanotner, barekamner) – in-laws, acquaintances, and relatives).
The "second economy" reached its height in the early 1970s under Kochinian's rule. Central Soviet authorities tried to bring it to an end by appointing an unknown young man from outside the Stalinist political establishment to head of the Armenian party. Karen Demirchian (1932-1999) was an engineer who had graduated from the Higher Party School in Moscow, worked in Leningrad, and had held party positions in Armenia only from the mid-1960s. his task was to cleanse the party and state of careerists and profiteers and to rebuild the morale of the political elite. But the "second economy" proved impossible to uproot. Family circles and friendship networks worked against the government's attempts to penetrate the illegal operations. As long as the state sector proved unable to supply Armenians with the necessities and luxuries they demanded, the population restored to illegal and semi-legal methods to obtain their goods and services. Demirchian managed to improve the economic situation, and for his relative success he was rewarded with support from Moscow, which kept him in power for over a decade. But like his predecessors, Demirchian eventually accommodated himself to the corrupt political system he inherited. By the mid-1980s he headed a political machine in Yerevan that enriched itself with little regard for the Armenian population at large.
The Rise of the New Nationalism
Both Western social scientists and Soviet analysts had long predicted that, over time, the national differences among the peoples of the USSR would diminish, ultimately leading to assimilation of the smallest ethnic groups into the Russian mass. But the experience of the Armenians and other nationalities belied this expectation. Not only did the federal structure of the USSR permit a legal existence for an Armenian political formation, but the policy of "korenizatsia" encouraged ethnic distinction and local control. Though its long-range goals were to create a single "Soviet people", the Soviet state, rather than pushing a consistent policy of forced Russification, settled for political loyalty to the Communist Party and tolerated cultural diversity. In Transcaucasia at least, educators and politicians pushed for bilingualism, not the suppression of local languages. A compromise was reached between the maximal goals of the central party leaders (sblizhenie [rapprochement of various nationalities] and slianie [their eventual melding into a single nationality]) and the aspirations of ethnic communities and local Communists.
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