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St. Petersburg Times
December 4, 2001
These Predators Are Killing Small Businesses
In response to "Small Business Looming Large in Fueling Economy's Growth," Nov. 20.


Support of small and medium-size enterprises (SMEs) is indeed a fashionable topic. But like most fashions, it is mostly hot air and cheap talk. The fact that nothing real or helpful is being done is no surprise and certainly not news.

One hears a lot about the obvious problems: the lack of credit, bureaucratic complexity and the absence of tax incentives/benefits. While these are real burdens, everyone is studiously avoiding the core problem facing the sector.

The real enemy of the SME is the bureaucratic predator. The wilderness between government power and business is teeming with them. The further from Moscow, the more there are.

These predators live to use government regulation to inflate their importance, creating fiefdoms of power to extract tributes. They come at SMEs armed with a blinding whirlwind of orders, acts, instructions and bizarre interpretations thereof. Often the predator will openly laugh as it goes through the list of outlandish, impossible-to-comply-with, regulations and instructions. The legal system forces the victim to prove the predator's interpretation wrong or to comply, no matter how bizarre the request. Since a ministry or similar powerful agency is behind the predator, a fight is both dangerous and expensive, even if a successful outcome is assured.

SMEs, not having the resources to fight, are often forced to resort to the old-fashioned conflict-resolution method: coming to "an agreement." These agreements are expensive and time consuming. Just listening to the babble and sending them away takes time and energy better spent on clients and management.

Many large companies have the resources (lawyers, staff time, money and access to power) to fight off predators. So predators go after the smaller companies again and again, often tripping over each other for their turn and always turning each other on to potential victims. The effect of such harassment on a small company can be crippling.

Interestingly, the system also serves the large, entrenched corporations in a way. In mature economies, giant companies enjoying economies of scale have much to fear from small, nimble and innovative companies. It would not be surprising for some to celebrate, and even encourage, barriers put in the path of potential competition from below. Cozy relationships between big business and government make this all the more convenient.

The predator system is written into law, usually through over-regulation and poorly written, ambiguous legislation and instructions. The predators represent agencies needed to fulfill the qualifications for many licenses, certifications or registrations. Without their approval, no license, registration or certification will be granted and the company cannot work legally.

Survivor SMEs work out ways to deal with them, often devoting up to 50 percent of their management time to fighting off predators. But countless others simply decide that it is not worth it and move into the gray economy or simply close their doors.

The system exists thanks to a compromise that leaders have made with the legions of bureaucrats and power structures. Instead of paying bureaucrats properly and reducing their numbers, the government continues to permit them to earn their money the old-fashioned way. The buck is passed. Federal and local budgets won't pay and large companies won't pay, so the SME sector takes the lion's share of the burden. The real losers are the consumers, who do not enjoy the service quality and innovation that small companies provide in a healthy economy.

The good news is that, in spite of the lack of support, the sector will grow. But the enemies will fight to make it a slow, painful growth. As Niccolo Machiavelli said, "Innovation makes enemies of all those who prospered under the old regime, and only lukewarm support is forthcoming from those who would prosper under the new."

Christian Courbois
St. Petersburg

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