Publication: Monitor Volume: 7 Issue: 234

For the second time this month, President Vladimir Putin has spoken out on behalf of Russia’s beleaguered small and medium-sized business sector. Opening a meeting yesterday of the State Council, the advisory body made up of regional leaders, the Russian president said that the fate of small business was a serious matter for the state. “The more people can be drawn into small business, the healthier Russia’s economy will be,” he said. “Unfortunately, our hopes that small business would become the engine of reform have not been realized…. We were not able to make it so, and thus a middle class has not emerged in the country.” The Russian president, who chaired the State Council meeting, noted that more than half of all Russians involved in the small business sector (7 million to 9 million people, depending on the estimate) are concentrated in eight of Russia’s eighty-nine regions, with Moscow alone accounting for a quarter of the total number of Russians working in small businesses. Putin called these statistics “discouraging.”

The Russian president also enumerated what are, in his view, the main barriers to small business formation–complicated systems of taxation and bookkeeping, lack of access to credits for business start-ups and obstacles presented by state structures. Elaborating on the latter, Putin said that entrepreneurs run into barriers erected by various state structures, and sometimes even “legalized forms of bribes.” The need to get permission and authorization from numerous state organizations and levels of state authority in order to open small and medium-sized businesses amounts to “naked extortion,” he said: “Administrative organizations that feed off small business at every stage of its development, including licensing and registration bodies, the fire department and health department, have created a whole market of legalized corruption” (Kommersant, Vremya Novostei, Moscow Times, December 20; NTV.ru, December 19).

Putin’s remarks at yesterday’s State Council meeting elaborated on those he made earlier this month in a meeting with representatives of the Association of Entrepreneurial Organizations of Russia (OPORa), which was set up this past September to represent the interests of Russia’s small business sector. During that meeting, the Russian president declared that bureaucratic barriers to small business activity erected by state structures amounted to “legalized corruption.” The OPORa representatives told Putin that they had “exhaustive information” about state agencies and departments guilty of creating administrative barriers to small business activity and Putin asked them to provide him with a list. This past summer, the State Duma passed Kremlin-backed laws reducing the number of activities requiring licensing (see the Monitor, December 6, July 16). Another speaker at yesterday’s State Council meeting, Deputy Prime Minister Aleksei Kudrin, who is also finance minister, noted that the laws on licensing and other debureaucratization measures, which will go into effect in July of next year, will simplify the procedures for registering businesses and hold state agencies responsible for damage done to businesses during audits, checks and inspections. “We know how these organs are used in competitive battles,” said Kudrin (Kommersant, December 20). Kudrin said that the government would submit a bill to the Duma early next year that would include “lower taxes, simpler taxes and more transparency” for small businesses (Moscow Times, December 20).

Most of the speakers at yesterday’s State Council meeting declared support for the concept of state assistance to small business developed by a Council working group headed by Leningrad Oblast Governor Valery Serdyukov. Like the Russian president, that working group wants to simplify the tax regime for small business, remove administrative barriers and reduce the control and supervision functions of state organs. Still, sharp differences remain between the regional leaders and the federal government, which wants to keep government financial support for small businesses to a minimum. These differences are likely to sharpen once the Economic Development and Trade Ministry drafts a law on small and medium-sized businesses (Polit.ru, December 19). Meanwhile, Putin ordered the government yesterday to put the finishing touches on legislation regulating the activities of nonbank credit institutions (AK&M, December 19).