Saturday, June 19, 2021

Is Russia Too Big for Small Business? Bovt Asks

Paul Goble

            Staunton, June 16 – In Western countries, small businesses account for 50 percent or more of GDP; but in Russia, they form only about 22 percent, a number that is falling rather than increasing. That raises the question, Georgy Bovt says, as to whether Russia is too big for small businesses to prosper.

            The commentator and co-chairman of the Right Cause political party says that all the talk of the political leadership notwithstanding, the number of micro-enterprises has seen little growth. In fact, the number of people employed by them has fallen by three percent since 2018, despite calls to increase such companies’ share of GDP to 40 percent by 2030.

            The government “on paper” looks to be doing a lot: it created a Small and Mid-Sized Enterprise Corporation which was supposed to be analogous to the American Small Business Administration. But that body has done little to help: it doesn’t have branches in the regions where small business matters most and it spends most of its money on itself.

            It should be financing small businesses to allow them to grow, Bovt says; but it isn’t. And banks won’t take the risks preferring to deal with large enterprises. As a result, most small businesses get money for family and friends, thus limiting their ability to do more than tread water (

            If this situation is to change, the government needs to take a number of steps, small and large, to help small businesses get started and then grow. Entrepreneurs always complain about taxes, but in Russia, the situation is made worse by the fact that taxes are not only high but constantly changing.

            That is why many small companies pay wages “under the table,” something that helps them stay in business but opens them to official attack and makes it more difficult for them to challenge the monopolies in many areas that the government in fact favors, whatever it says about helping smaller firms.

            Taxes need to be reduced and laws regularized rather than constantly changing, the government must give preferences to small businesses when letting contracts rather than as now helping the monopolies first, and the courts must be allowed to defend private property against raiding by other companies of officials.

            “The siloviki,” Bovt continues, “must be stripped of their power to harass businesses for no reason whatsoever or out of self-interest.” But unfortunately that is “hardly possible” unless and until real political competition and media freedom are established in Russia, something not now on the radar screen.

            At the same time, he argues, “entrepreneurship must be rehabilitated in the eyes of ordinary people.” They need to stop thinking of businessmen as they did in Soviet times as inherently criminal. “It should be no less prestigious and honorable to become a businessman than to join the siloviki or officialdom.”

            To achieve such “a revolution in public consciousness,” of course, will require “the de-sacralization of the state” and the reduction of power of the bureaucracy. That will require films, television programs and school programs not now in place and many other things which at present seem impossible.

            But Bovt argues that one should not be discouraged by thinking that everything must be done or nothing can be accomplished. Many of the technical changes he urges can be taken now; and if they are, he says, those will boost the share of small businesses and with them the size of the middle class whose members will then be in a position to demand more fundamental change.

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