Russia Profile
April 2, 2008
Disappointed Hopes
A New Political Will in the Kremlin Gives Small Businesses Hope for the Future
Comment by Georgy Bovt
As soon as the country’s political elite found out the name of the future president, some of its representatives began making plans for the future that are in certain ways adjusted to the new master of the Kremlin. Unlike previous changes in political cycles, this time many assume that the presence of Vladimir Putin on the political scene as the Prime Minister will provide the needed share of continuity and stability. At the same time, the fact that the “post number one” will be handed over to a new person continues to give reason for some to fear for their political future, and for others to express hopes for some changes to the reality that doesn’t suit them.
The last few years of Russia’s political life have worked out in the same way: the main set of problems the country faces is widely known, their presence is more or less accepted by the ruling elite and by the society, but for some reason the process of solving them keeps getting postponed. High oil prices are most often mentioned as the reason behind this stalemate -- a favorable economic situation does not promote reformative sentiments, especially when the matter concerns some unpopular changes (for example, changes in the field of utilities and housing, or those dealing with switching to insurance medicine, or reforms postponing the age of retirement given the growing deficit of the pension fund, the decrease of the active workforce and the increasing number of pensioners).
Since many reforms that started during President Vladimir Putin’s first term slowed down during his second term (as was the case with administrative reform, which was basically a flop, and as was the case with judicial reform, obviously not carried out completely), the coming of a new president is logically connected with new hopes that the arrival of a fresh political will can suffice to implement the long matured and long discussed reorganizations. In this sense, both the Russian society and the ruling elite are used to looking only to the country’s “first person” whatever that person orders will get done.
The situation is the same with small business in Russia. When Dmitry Medvedev held his first State Council meeting last week, he said quite a bit about the fact that small business in the country is overly regulated and that the bureaucrats are simply not letting it work or breathe, and that is it suffocated by constant inspections by dozens of very different governmental bodies. This was immediately followed by a preliminary decision to free small business from nearly all inspections. That is, to somehow chop up this Gordian knot. The Ministry of Economic Development and Trade hurried to the site: responding to Medvedev’s criticism, it immediately suggested introducing a “notifying” procedure for registering small businesses. Minister Elvira Nabiullina also spoke out in support of banning oversight bodies from coming to small business enterprises with inspections. “You only need to come in and inspect when third parties’ rights are being violated,” she said. Basically, that means that inspecting small businesses will only be allowed with a prosecutor’s sanction or a court order. Another suggestion is to shorten the list of activities that need to be licensed, and to replace licensing with insurance and financial guarantees whenever possible.
The funny thing is that despite the superficial novelty, all of these suggestions have nothing fundamentally new to them from the point of view of the existing Russian bureaucratic system. And this is in case you don’t remember that liberating small business from bureaucratic oppression is something that has been talked about for the past 15 years, and often in the same words that Medvedev used.
The number of the types of business activities that need licensing has already been significantly decreased before in the early 2000’s, but this had no significant positive impact on small business. There was also an attempt to regulate the number of tax inspections--the corresponding instructions were even printed. Crafty functionaries, however, immediately got around them, finding numerous loopholes that would let them stick like leeches to businessmen and to suck out bribes. This is probably the only way to explain the fact that while the starting salary of a tax officer is only about six thousand rubles per month, admission to the Financial Academy is one of the most competitive in the country. These people want to control small business, and they know well that they will “win something” for it.
As for inspections based solely on court orders, let’s remember the fact that all arrests of criminal suspects are now carried out only based on court decisions. However, we have practically never heard of any cases when some court would refuse to allow a police investigator to arrest someone. The courts nearly automatically produce such decisions. And they will do so with issuing decisions to inspect businesses. As for governors and other representatives of the ruling Russian elite who passionately supported Medvedev’s speech at the aforementioned State Council meeting has everything he said been unknown to them until now? Aren’t they the ones to definitely know how the bureaucratic system functions in the federation subjects they are in charge of? And aren’t they the most active participants and direct leaders of this system? They will, of course, nod at Medvedev’s speeches (as they nodded along to Putin’s righteous speeches for eight years), and then they will “roll up” any reform that they find personally unprofitable and potentially dangerous for their bureaucratic, absolute power.
Is this a dead-end? Is there no solution? There is none within the current social paradigm not for small business, not for any other urgent problem that makes the progress of our country simply impossible.
The main mistake that Russia’s current “reformers” make is trying to solve specific social problems purely within the bureaucratic structure: to write another “right” and “good” law or instruction, to appoint some inspectors, and then other inspectors to control the first ones. But in the end nothing works. The instructions get circumvented, and the laws get so misinterpreted that sometimes you can’t even understand what the original, “noble” idea was. The inspectors quickly become corrupted and a heavy burden on those they were supposed to save from bureaucratic tyranny.
Meanwhile, the solution to all similar kinds of problems lies neither in the field of economics nor even more so in the field of bureaucracy. It lies in the field of politics. Administrative or judicial reform will never be carried out completely, until an intelligible political force starts fighting for it--a political force that enjoys the support of the masses and that aims at becoming part of the regime at any level (from federal to municipal) to implement its ideas. The same is true for small business, as well as for medium and large business: there is simply nobody to protect their interests at the political level, while it is basically useless to hope for the will of the country’s leader, even if this leader is driven by the noblest motives. Because at the bottom level, all the decisions are made not by the president, but by a specific bureaucrat, who will never act honestly and transparently as long as there is no control from below and no need to report to the taxpayers. Only political competition can become the driving force behind all such reforms. Along with political freedom.
Dmitry Medvedev has already introduced his “trademark” slogan: “Freedom is better than lack of freedom.” The question is how extensively this slogan will be interpreted during the years of his presidency.