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OEO-ECONOMICS
Andrei BLINOV
Academician of the Russian Academy of Natural Sciences, D.Sc. (Econ.), professor of the Management Chair, All-Russia Extramural Financial and Economic Institute (Moscow, Russian Federation).
THE DIFFICULTIES AND CONTRADICTIONS OF SMALL BUSINESS DEVELOPMENT IN RUSSIA
Abstract
This article takes a look at the state of small business in Russia, the sensitive issues in this sector of the Russian economy, and the results of state support of small business. It presents scenar-
ios of the possible development of the small private economy in Russia in the near future. In the context of these problems, the author defines the main areas of appropriate state policy in small business.
I n t r o d u c t i o n
The small private business sector in Russia is as old as the market reforms. Small business is not only something new, it also requires immense efforts and is fraught with many dangers. Small business is the only sector where private property (whereby primitive although absolutely necessary for
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the efficient functioning of a market economy) exists in pure form. The absence or underdevelopment of small business in the economy makes it impossible to create a legal mechanism of market regulation (free contracts, protection and delimitation of property rights, the state’s efficient intervention in illegal infringement of the interests of all categories and groups of property owners). In addition, it is only through small business that ordinary citizens can understand what private ownership is all about and the opportunities, rights, obligations, and responsibilities that go along with it. It is not surprising that in Russia, where the years of reform have failed to lay a sufficiently strong and ramified foundation for small business, people are slow to respect other people’s property and abide by the law, development of a civil society and its institutions is faltering, corruption is thriving, and a middle class, the bastion of social justice, is very slow to form.
The Russian state and its legislative and executive branches are not inclined to undertake wide-scale measures and engage in constructive interaction with mass, grass-roots, and democratic small business. The state has more in common with shadow oligarchs and the directors of pseudoprivate post-socialist industrial giants. Consequently, it takes a state with a different mindset to create normal conditions for developing private initiative and propelling small business toward greater prosperity. It is the super task of small businessmen themselves (and not only them), their civil responsibility to their families and society as a whole, to encourage the state to change its mindset.
Small Business in the 21st Century
The development of small business is the most important prerequisite for economic growth in the globalized world.
There are no universal criteria that apply equally to all national economies for defining the entities of small business. Depending on its national interests, each country substantiates and legislatively enforces its own criteria for determining which entities shall be classified as small and medium businesses.
At the turn of the 1960s-1970s, small and medium enterprises began to occupy increasingly stronger positions in the economic structure of the U.S., Japan, Germany, France, and Canada, and a little later in Italy, Spain, and other countries in terms of forming the gross domestic product, the number of enterprises in the country and the size of their staff, and assimilating new technology.
In the past two or three decades, small enterprises have proven their worth with respect to breakthrough scientific-technical developments. A new term—venture business—has been coined to describe this kind of innovative enterprise. It implies organizing groups of researchers, engineers, and scientists in the form of a small business to elaborate a particular scientific idea or project. If an idea is successfully tested and considered a “scientifically rated product,” the profit of the small business will be much higher than the average branch level.
The main characteristics of the state of small business in different countries are presented in Table 1.
The opportunities for small business to carry out its functions are directly determined by the institutional environment and state of the productive forces. This thesis is extremely important for identifying the potential of small business and determining the rational areas and volumes of its support by the state.
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Integrated Indices Describing the State of Small and Medium Enterprises Table 1
Countries Number of Enterprises (thou.) Number of Enterprises per 1,000 People (units) Employees in Enterprises (million people) Share in Total Number of Employees (%) Share in GDP (%)
Great Britain 2,630 46 13.6 49 50-53
Germany 2,290 37 18.5 46 50-52
Italy 3,920 68 16.8 73 57-60
France 1,980 35 15.2 54 55-62
EU countries 15,770 45 68 72 63-67
U.S. 19,300 74.2 70.2 54 50-52
Japan 6,450 49.6 39.5 78 52-55
Russia 844 5.65 8.3 13 10-11
S o u r c e: A.G. Mikhailov, A.O. Blinov, R.M. Shafiev, Innovatsionnoe razvitie malogo predprinimatelstva, Delo, Moscow, 2008.
Main External Factors and Problems of Small Business in Russia
Small business as it is understood today in Russia began to develop at the beginning of the 1990s and has not undergone any significant changes to date.
There are two groups of reasons for the sluggish development of small business in Russia. The first consists of general economic reasons that are part and parcel of the state’s economic policy, and the second are of a specific, primarily organizational nature.
When analyzing the business environment, several reasons for the slow development of small business in Russia can be singled out:
■ the rather complex and ambiguous economic situation in the country:
■ inflation, breakdown in economic ties, deterioration of payment discipline, high interest rates, poor legal protection of businessmen;
■ the low level of organizational-economic and legal knowledge of businessmen, the absence of the necessary business etiquette and economic culture, both in small business and in the state sector;
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■ the negative attitude of some of the population that basically associates business with intermediation and buy-sell;
■ the underdevelopment of the organizational and legal foundations for regulating business development at the regional level;
■ the inefficiency of the small business state support mechanism;
■ the low level of development of the small business infrastructure.
The economic situation that has developed is having a negative effect on small business in all areas. Inflation in general and the increase in price for all elements of the production process are placing small businesses on the brink of bankruptcy. This particularly applies to enterprises operating in the production of goods and everyday services for the population that require raw and other materials which are becoming increasingly expensive.
The list of problems alone facing domestic businessmen shows that the necessary conditions have not yet been created for developing business in general and small business in particular.
A specific feature of small Russian business is that its entities essentially do not own any fixed assets. The overwhelming majority of small business entities are operating from rented facilities and using rented equipment. In this sense, Russian small businessmen can be described as hired workers rather than property owners. The main difficulties facing small Russian business include taxation, bureaucratic arbitrariness and administrative barriers, tyranny among the supervisory bodies, criminal pressure, the unregulated nature of leasing relations, constant changes in reporting forms, and difficulties with accounting reports. This results in a large shadow component in small Russian business. Despite all of its negative aspects, the shadow economy provides small business with a place to escape the stifling clutches of the draconian laws and regulatory acts, as well as with protection from bureaucratic tyranny.
According to expert evaluations, and taking into account illegal employment, at least one third of the total number of employees in Russia’s national economy works full-time and 60% part-time, i.e. they also hold a second job, in small business.1
An extremely important difference between small business in Russia and in developing countries is the fact that it is being formed and is developing on the basis of a previously created highly industrial infrastructure. New communications, transport routes, electricity and gas supply, on the one hand, and the population’s ability to work in present-day conditions, on the other, are giving rise to an entirely different potential of small business for resolving Russia’s socioeconomic development problems in the context of globalization.
World practice shows that two trends are possible in the development of market relations: the formation of a regulated or of an unregulated speculative market.
A deformed type of market is taking shape in Russia.2 It is wrong to think that the experience of Western countries is impeccable and that it can be transferred without a second thought to domestic practice. This is precisely what happened when the “shock therapy” model was tried on for size. It did not fit because the people in Russia failed to take several prerequisites into account. The experience of Western countries shows that shock therapy is applied to open up the narrow bottlenecks that are hindering development of the economy, thus drawing businessmen with their know-how into the ensuing gap. By creating the necessary production links (often with state support), the business environment “dissolves the blood clots” in the economy and within a short time helps it to recover from the crisis.
This did not happen in Russia since small business, the main prerequisite required to ensure the success of shock therapy, had still not formed. It was almost non-existent in material production, and
1 See: V.P. Ermakov, “Konkurentosposobnoi ekonomiku delaet malyy i sredniy biznes,” Natsionalnye proekty, No. 6, 2009.
2 See: A.O. Blinov, Maloe predprinimatelstvo. Teoriia i praktika, Dashkov i Co., Moscow, 2002.
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the deformed nature of the circulation sphere could not allow small business to make any significant improvements in the situation as well. Applying world experience is of course a good thing, but only providing that the conditions, possibilities, and mentality of one’s own country are taken into account, which can largely be ensured by domestic science.
First, one of the necessary features of a regulated market is conditions promoting the free investment of funds in different spheres, while the gist of state regulation is not in manipulating the price system, but in forming optimal proportions. Second, such a market requires a perfect mechanism for regulating consumer demand, that is, for stimulating higher incomes and, consequently, higher purchasing power among most of the population, which acts as the driving force behind production. The contraction of the domestic consumer market (because of the increasingly perceptible drop in the population’s overall paying capacity) is an important factor hindering the development of small industrial business. It is not easy for a small businessman to gain access to the world market with his product due to its low competitiveness in the market. Another reason slowing down the development of small business is associated with the existing taxation system. According to a poll conducted by the All-Russian Public Opinion Research Center, 86.2% of enterprise directors named tax shortcomings and high tax rates as the main negative factor influencing the economic position of enterprises.3
The difficulties in forming small business in Russia are also associated with its specific features, whereby a business community consists of groups which gravitate toward one of two poles. One group consists of businessmen who organize their business on the generally accepted basis by means of loans, credits, shareholders’ contributions, and so on. Their activity is carried out within the framework of the adopted legislative regulations. The other group consists of entrepreneurs who use capital earned in the shadow economy to put their business on its feet. According to a poll conducted by the Russian Union of Industrialists and Entrepreneurs, 49% of the businessmen surveyed said they had come from the shadow economy, thus confirming the illegal basis on which their business was organized.4
In the context of the drop in standard of living, this is giving rise to a negative attitude toward small business among most of the population, and business is associated in people’s minds with something injurious. All of this discredits business and creates an unfavorable social base for its efficient functioning.
The organizational reasons for the sluggish development of small business in Russia include the difficulties in obtaining permission to create business structures. Serious administrative barriers are arising due to the local authorities’ subjective understanding and interpretation of legal acts, which is leading to tyranny and the establishment of one’s own rules for entering into business.
The next reason significantly hindering the creation and development of production business is the absence in protectionism policy of a clear orientation toward supporting production operations in particular. Business activity in material production is not being duly stimulated. Policy aimed at supporting business “in general,” and not the basic branches in particular, is leading to serious deformation in the structure of business development and not ensuring the most optimal results.
State Regulation as a Barrier to the Development of Small Business
Having embarked on the road of market reforms, Russia must define its strategy with respect to the nongovernmental sector of the economy—national private, foreign, individual, collective, big,
3 See: A.I. Kornienko, “Malyy i sredniy biznes: osobennosti funktsionirovaniia,” Ekonomika zdravookhraneniia, No. 2, 2009.
4 See: A.V. Vilensky, “Problemy malogo predprinimatelstva,” Voprosy ekonomiki, No. 4, 2005.
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and small. A correctly formulated plan of action implies conscious formation of conditions for the operation of economic entities, which ensure the long-term profitability of business, mobilization of its investment resources at the micro level, and rapid progress in general.
An authoritative and competent government is better for business than a weak one. A high level of social tension is always regarded as a risk factor. Ethnic and territorial conflicts do nothing to attract foreign business capital; and in such conditions national capital looks for a profitable place to invest abroad.
In any country, business activity is organized and controlled by the state, proceeding from the priorities of the country’s economic development. The legal framework sets the degree of freedom for the businessman and molds his behavior. For example, if tax legislation is faulty, he looks for ways to evade taxes rather than ways to minimize tax payments within the framework of the law. The state should create a taxation system that makes timely payment of taxes more advantageous than nonpayment. The overall instability of economic legislation has the same effect, that is, it makes businessmen less inclined to obey the law.
The population’s attitude toward market reforms is also very important. As it becomes stronger, the market is failing to create new public structures or form a pro-market public opinion. So the state should pay close attention to and try to influence public consciousness.
Innovation is one of the most important areas in the development of small business. Russia’s small business undoubtedly has an innovation component. It can be clearly discerned in commerce and services, in small production and construction. But the gist of this innovation lies in active incorporation and adaptation of foreign technology and materials. Small business is a kind of sponge that soaks up and disseminates production and business ideas in the local market that have already been successfully implemented in other parts of the world.
The situation with scientific-technical small venture business in Russia leaves something to be desired. And this is the most important component of contemporary innovative small business. Russian scientific-technical innovative small business is insignificant in scope and operates primarily under direct contracts from foreign companies or transnational corporations that try to economize by working with cheap researchers. The small number of venture funds in Russia that are engaged in financing this activity have so far essentially been fully operating on foreign capital.
On the whole, the negative trend toward a contraction in the sphere of scientific-technical small business is caused by:
■ the lack of domestic demand for scientific-technical production;
■ the low profitability of scientific-technical activity in small business;
■ the lack of interest of big Russian capital in scientific-technical innovation activity on the whole and in small innovation business in particular;
■ the high ambiguity of economic activity in the Russian market.
As of the present, a market for servicing small businesses and, correspondingly, the main institutions of this servicing have already developed in Russia’s leading regions.
The Russian system of small business support must be placed under strict public control. This primarily means control by public associations in small business. This requires that the government play a mandatory role in their support.5
The ubiquitous criminalization of the economy, which is becoming increasingly ensconced, is having a negative effect on small business in Russia. The prevalent share of the shadow sector of the economy continues to be a distinguishing feature of small business. It must be said that the state system of small business support that has developed in Russia is on the whole equivalent to the current
’ See: E.V. Sytova, “Stimulirovanie malogo i srednego predprinimatel’stva v usloviiakh krizisa,” Nalogi-2009, No. 6.
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Russian institutional macro environment. Therefore, this system is failing to stimulate improvements in the business climate and help small business to open up lucrative opportunities for itself in the national economy.
Small shadow business is unable to give large bribes to big bureaucrats. It circles around the many middle- and low-ranking officials who are satisfied with small but regular extortions. According to experts, the total amount of such extortions, although it lags behind the amount of bribe-taking in big business, is still very high.
The current state system of business regulation is pushing small business into the shadow economy.
The main reasons for small enterprises retreating into the Russian shadow economy are lack of protection of property rights, corruption, weakness of the law-enforcement system, insufficient available financial resources, lack of circulating assets and the possibility of alternative payments (cash, barter, and so on), the coercive nature of leasing relations, administrative-bureaucratic barriers, underdevelopment of the market infrastructure, the heavy tax burden, and so on.
An obvious reason for Russian small businesses becoming widely incorporated into the shadow economy is the unsophisticated nature of the regulatory-legal basis of entrepreneurship.6 There are too many gaps and imprecise formulations in the laws that allow for double and triple interpretations. The economic laws are random, fragmentary, and often contradict each other. This kind of legislation is a perfect Klondike for bureaucrats to procure unearned rent money. Shadow revenue of small business is primarily used as follows:
■ for the enterprise’s current activity (illegal payment in cash, office lease payments, paying off business partners, and so on);
■ for personal use;
■ for paying state controllers, tax officers, and security and law-enforcement officers, going through various authorization procedures, and so on (bribes);
■ for paying racketeers who provide “protection.”
The personal safety of businessmen is becoming an especially urgent issue as the economy becomes more criminalized. It stands to reason that this is making the business sphere less attractive for working in and forcing businessmen to look for a solution to the current situation. Some are creating their own security services, which are usually expensive and, due to the low professionalism of their employees, unreliable.
Administrative barriers in Russia are not simply one of the difficulties in small business development. They represent an entire set of complicated and contradictory relations associated with interaction between business and the government in the management structure, the main entities of which are inclined toward engaging in a constant battle for preferences. Such barriers that hinder the movement of goods, capital, and labor are bureaucrats’ main tool in countries with developing markets for obtaining high-status rent money.
Administrative barriers are usually divided into two groups: those that prevent the small businessman from gaining access to a particular commodity market or conducting particular economic operations (licensing, certification, accreditation) and those that arise due to the adoption (threat of adoption) of particular control measures over current economic activity.7
On the other hand, serious administrative barriers are arising due to the local authorities’ subjective comprehension and interpretation of legal acts, which is leading to arbitrariness and the establishment of one’s own rules for entering into business. The procedure for obtaining a license to engage in
6 See: A. Kryslov, “My khotim uprostit rabotu malogo biznesa, a ne posadit ego na sheiu gosudarstva,” Rossiyskaia Federatsiia segodnia, No. 22, 2008.
7 See: S.N. Katyrin, “Zakony biznes-klassa,” Rossiyskaia gazeta, 28 July, 2009.
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business activity is arduous and demanding, requiring not only the submission of a multitude of references, information, reports, and other documents, but also the payment of artificially high fees to register founding documents.
An important task of small business development in Russia is organizing the training and retraining of civil servants working in the small business support system.
Training personnel for small and medium business requires the following:
■ developing a system for teaching the basics of business activity at different levels of educational institutions;
■ developing a system of extended professional education for directors and specialists of current small businesses, infrastructure facilities of small business support, as well as civil servants, whose sphere of competence should include managing small business development and regulating its activity.
Solving these tasks requires:
■ creating an extensive network of educational institutions at the federal, regional, and municipal levels;
■ developing educational services for meeting the demand of different social groups (unemployed and unoccupied citizens, retired servicemen, pensioners, young people, migrants, women);
■ ensuring the availability of high-quality business-education for beginning and already established businessmen.
Since federal programs are not being financed by the state, the tasks aimed at improving educational services for entrepreneurship and small business are essentially not being performed. Less than a third of society’s real demand for businessmen training is satisfied.
So a corresponding contract with higher educational institutions should be formed.
The state should assume part of the cost for business basics training. The system of extended education in the regions, which ensures retraining and advanced training of small business specialists, should be financed from the budget.
Small business development in Russia requires a mechanism for its interaction with big enterprises. Drawing big business into small business development should become one of the most important areas in the state’s economic regulation policy. Projects for creating holding companies, into which the big production complex can integrate, are a good case in point.
World practice has long become convinced of the economic efficiency of interaction between small and large businesses. This interconnection gives businesses the opportunity to cooperate with each other on a very diverse basis: from delivering raw materials to selling finished products. The optimal model of this multidimensional interconnection is called a cluster.
This kind of interconnection is not based on the sectoral principle, but on principles that create a technological chain for bringing a commodity or service to the consumer, whereby without intermediary and sales companies. A cluster corporation can be created on the principle of building up a structure and incorporating elements into it that at first glance are distantly related to each other.
Financial institutions, banks, and licensing and insurance companies play the main role in forming a financial infrastructure for small business. They carry out most of the lending and investing in small business, bear the main risks, and render the main accompanying financial and information services to small businesses.
In the past three years, according to experts, the volume of bank lending to small and medium business has doubled. This increase is generated by the new players entering the market and expansion of the portfolios of its previous participants.
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Large banks have significant resource potential for attracting a large number of borrowers and lowering interest rates. But at the same time stricter demands when selecting small business borrowers and the lack of interest in small loans prevent them from encompassing the entire spectrum. So far large banks are servicing only higher quality small businessmen rather than smaller credit institutions.
In order to augment the share of the small business market, banks have to constantly improve their product supply. This segment of the market is very mobile and it requires constant changes for its development.
In Russian conditions, the problem of constant changes is particularly pertinent due to the rapid implementation of global reforms in the economy and the progress of information technology.
Business Structures are the Driving Force behind Private Business Development
The state and lines of activity of public business structures are important indicators of the socioeconomic situation that has currently developed in Russia and the results of the market reforms. We will note that many such public structures have already been created in Russia, including elite interest clubs, and so on. But it is public business corporations that constitute the legitimate tip of the iceberg of such structures. It is obvious that small businessmen, due to their low status, do not belong to elite clubs. Therefore public small business associations are called upon to perform both the formal and informal functions of defending the interests of small business before the state and big capital and to create a favorable climate for small business.
Associations of small business entrepreneurs are an institution of collective protection of small business interests in the state power structures and control over power. It is not difficult for the bureaucracy to deal with each small businessman individually. However a public association is a very different thing. This kind of association has the ability to parry bureaucratic blackmail, extortion, and threats to paralyze work.
Associations of small business entrepreneurs are more active than any other structure, recognize the most urgent problems of small business, and find ways to resolve them. As practice shows, the ways to develop small business they offer are usually superior to the proposals and projects of state departments in terms of their effectiveness and understanding of the issues.8
Associations of entrepreneurs participate in the formation and implementation of state and municipal policy which in one way or another affects the interests of small business. This participation is effected through representation offices of business associations in the consultative bodies of the state power structures and through political parties. Business associations usually take the most active part in elaborating and implementing small business support programs financed by the state and municipal authorities.
In addition, associations of small business entrepreneurs are an institution for raising the responsibility and competence of small business entities and forming a positive corporate charter for conducting business. Business associations promote a rise in businessmen’s work ethics, first, by removing from business associations those who have proven themselves to be sneaky dealers and, second, through constant monitoring of business ethics. Business associations themselves elaborate codes of ethics (honor) keeping in mind sectoral specifics and see to it that they are faithfully abided by. In the final analysis, self-regulating business associations must answer to the state and consumers (the population) for the reputation of each of their members.
! See: A.N. Buiankina, Malyy biznes: gosudarstvennoe regulirovanie, Luch, Moscow, 2008.
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Small businessmen ultimately participate in the activity of public business associations in order to achieve three main goals:
(1) lobbying and protecting their private and group interests before government and primarily large private structures;
(2) improving the institutional environment of the business activity of small business entities using the business association’s resources, including receiving privileged services from business associations in the form of business, legal, and technological information; obtaining the possibility of privileged advanced training of small business employees, the business association’s assistance favorably settling business conflicts;
(3) rationalizing the functions of business activity regulation and control, including business associations taking upon themselves certain management and regulation tasks that used to be performed by the state and municipal power structures (i.e. through self regulation).
The organizational system of public business associations that claims the trust of its members should be as democratic and open as possible. Whatever the case, the degree of their transparency should be a notch higher than that of the state structures engaged in small business support.
Possible Scenarios of Russian Small Business Development in the Near Future
In all likelihood, three main scenarios are possible in the development of Russian small business in the near future—optimistic, pessimistic, and realistic. The optimistic scenario presumes that the Russian state will finally turn its promises into practical steps—carrying out real reduction and simplification of small business taxation, resolutely fighting corruption, dropping the administrative barriers that hinder access to the market, and strengthening the legal regime of private property, including ownership of land. In addition, artificial support of faltering large businesses should stop, and their restructuring should be carried out in a way that gives small business more direct and easier access to their assets and areas. Aside from political will and corresponding priorities in economic policy, this also requires specific external prerequisites—retention of relatively high prices on Russia’s main export commodities (oil and gas) in the mid-term, redistribution of tax revenue from export to the stimulation of non-raw material branches and innovations, and establishment of as favorable conditions as possible for restructuring the country’s external debts.
In this context, the small business sector is beginning to undergo rapid development; we believe that the rates of its development may come close to the level seen at the beginning of the 1990s when the number of small businesses approximately doubled every year.9 Trying to evaluate the possible dimensions of small business development, given the most favorable scenario of the socioeconomic situation in Russia, we proceed from the following hypotheses. First, the sociological studies carried out in countries with a developed market economy show that the percentage of potential businessmen usually constitutes 4-6% of the adult population.10 Similar studies carried out in recent years in Russia confirm on the whole that the same thing is happening in Russian society too. In this way, given the optimistic scenario, essentially all potential businessmen could carry out their business inclinations, which would bring the number of active small businesses up to 2.8-3 million, and the number of
' See: A.G. Mikhailov, A.O. Blinov, R.M. Shafiev, op. cit.
9 !
10 [http://www.hse.ru/journals/wrldross/vol01_4/Chepurenco1.htm].
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full-time employees in small business to 18-24 million people. Second, the restructuring of large enterprises and rehabilitation of the country’s financial system will inevitably lead to a large number of redundant workers. This will naturally swell the ranks of the self-employed, as well as cause a rise in the number of small businessmen who enter the private sector of the economy “out of necessity.”
The pessimistic scenario presumes that the cosmetic reforms of the Russian economy and social sphere will continue. In so doing, the slogans of “small business support” will turn in practice into further intensification of tax pressure, which will cause small business to take to its heels and find shelter in the shadow economy at an even faster rate. The state will react to this by intensifying the repressions (the reverse side of which is further burgeoning of corruption at the grass-roots level) and tightening up registration and licensing procedures. This will naturally not deal small business an ultimate death blow, if nothing else by virtue of the fact that large enterprises will be unable to absorb the entire workforce, but at best it will continue to stagnate at approximately the present level, in a situation where the number of small businesses throughout Russia as a whole is approximately the same as the number in Warsaw alone.
The realistic scenario lies somewhere in the middle. The state will make taxation easier, but cannot perceptibly lower it (due to the absence of political will or unfavorable foreign economic and macroeconomic conditions). Legislation will be improved slowly, sluggishly, giving bureaucrats time to react to each improvement in the law with refined by-laws which will greatly neutralize the positive effect of law-making. It will be easier to register a company, but it will still be difficult for the businessman to obtain a license for conducting a specific type of activity. The struggle over the Land Code will end in another draw with private ownership of land being declared but the mechanism for carrying it out legislatively not established, thus making both mortgage and various types of loan coverage essentially impossible. State policy with respect to small business will begin to be carried out more decisively and intensively, but will most likely be of a corruptive nature. In such conditions, a slow increase of 1.5-2-fold in the number of small enterprises and their employees is possible compared to the current modest level, that is, to 1.5-2 million small enterprises and 12-15 million full-time employees, whereby the share of small business in GDP may grow to 18-20%.
The range of issues examined related to the problems facing the development and management of small business in Russia’s present-day conditions requires more in-depth study, combining the new theoretical knowledge with practice, and removing the gap between them.
C o n c l u s i o n
Systemic reform in Russia, given all the zigzags, blunders, and foot-dragging, is still part and parcel of movement toward a market economy. So the state should aim to create framework conditions that will help this process to develop of its own accord. In order to achieve this goal, the state’s economic policy should, at minimum, be neutral with respect to the nascent entities that are the driving force behind the market economy—private businessmen. It would be even better if the state made targeted efforts to assist the formation of market entities. Of course, in order to realize this minimum, the Russian government must change the very ideology of the state’s economic policy.
Stimulating competition in the economy as a whole promotes the development of small business. An extremely important advantage of small business is open markets. This means free movement of capital, goods, and labor, which promotes the creation of a genuinely competitive environment. It does not take a lot of money to remove the internal boundaries and customs barriers, bureaucratic red-tape, and attempts to establish monopoly dictatorship, it takes only political will and the streamlined efforts of the corresponding power branches and government structures. If this were done in Russia’s conditions, it would give a significant boost to the business climate.
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Small business is especially vulnerable since it does not have such powerful defenses as its own legal service and security service, which partially help to minimize the cost of the legal tyranny engaged in by large business structures. This also requires stronger state guarantees of property rights.
Finally, a long-term concept of state small business support must be formulated and an inventory taken of its methods. This requires developing mechanisms for attracting private loans in the regions against the guarantee of specially created warranty funds (agencies), creating financial leasing centers, and also elaborating a mechanism of simplified taxation and imputed income taxation. All of this should help to facilitate the access of potential businessmen to loan capital for opening and expanding their business and ease management and accounting at newly created enterprises.
In addition, the government’s role in forming a favorable climate for developing small business should in no way be limited to direct economic policy measures alone. First, the state should learn to see small business and the associations representing it as its equal and worthy partners. This can be demonstrated in practice not so much by holding occasional sumptuous congresses of the “frontrunners of small business” and creating servile small business associations, as by involving their representatives in permanently functioning structures where they can participate in forming small business policy.
Kornely KAKACHIA
Associate Professor, Department of Political Science, Faculty of Social and Political Studies, Javakhishvili Tbilisi State University (Tbilisi, Georgia).
ENERGY SECURITY AFTERMATH RUSSO-GEORGIAN WAR: IMPLICATIONS FOR THE CENTRAL CAUCASUS
OF
Abstract
Since the collapse of the Soviet Union, the Caspian Sea and Central Caucasian region has become the focus of considerable international attention, primarily because it is one of the oldest and potentially richest oil and gas producing areas in the world. The August 2008 Russian invasion of Georgia and the unilateral rec-
ognition of the independence of Abkhazia and South Ossetia fundamentally changed the situation in the region. The war has created a new strategic situation.
And the question is now how to handle this delicate situation in a strategically and geopolitically important region. So by controlling Georgia (in case Russia reach-
