Publication: Monitor Volume: 7 Issue: 78

The Russian government’s bid to debureaucratize the economy is apparently facing huge resistance from the country’s army of entrenched state officials. On April 19, the government sent a final version of its draft law “On licensing individual types of activity” for consideration by the State Duma.

As originally conceived by German Gref’s Ministry of Economic Development and Trade, the draft is the centerpiece of a series of proposed laws aimed at debureaucratizing business, and was meant to reduce sharply the number of activities requiring licenses and thus limit the scope for official corruption, which has been a major factor in stunting the growth of small businesses in Russia. Gref’s ministry initially wanted to reduce the number of activities requiring licenses from some 340 down to forty or fifty. In February, Deputy Prime Minister Aleksei Kudrin said that the cabinet had agreed that the number of activities should be reduced from 340 to ninety-one (see the Monitor, February 28). At a conference last month devoted to helping the small business sector, Prime Minister Mikhail Kasyanov promised the government would do all it could to assist small-business growth, adding that it was important that the government’s draft laws on licensing, on simplifying registration procedures for businesses and on strengthening the protection of entrepreneurs’ rights not be “eroded” once they were introduced to the State Duma (, March 21). President Vladimir Putin has publicly backed these measures. In his State of the Nation address to the Russian parliament earlier this month, the Russian president said it was necessary “to further reduce the list of licensed types of activities,” declaring that only “transparent relations between the state and entrepreneurs, which are stated in law, can provide a new boost to the development of the Russian economy” (Russian agencies, April 3).

The draft, however, met its first hurdles not in the Duma, but within the government itself. After being subjected to an interministerial review, the number of activities subject to licensing in the bill was back up to 104, and some of them were taken out of the bill altogether. These activities, including those connected with communications and customs, will now be subject to separate laws and, it is safe to say, rigorous licensing requirements. These changes were reportedly the result of vigorous lobbying efforts by officials from various state agencies, including the Federal Agency for Government Communications and Information (FAPSI). The new bill, for example, gives FAPSI a de facto monopoly control over the market for cryptographic services. This prompted the government’s Council on Entrepreneurship to comment that it was “unacceptable” for a state organ to function simultaneously as a monopolist and “remove competitors from the market with force methods” (Vremya Novostei, April 23).

While it would certainly be something of an achievement if the number of business activities subject to licensing were reduced from some 300 to perhaps 100, the draft must now pass the State Duma. There it will undoubtedly be further watered down, thanks to lobbying efforts by interested state bureaucrats and the “private” businesses connected to or enjoying the favor of those bureaucrats, which see restrictive licensing procedures as a way to keep out competitors.