>>>From the recent
decisions of Putin in prosecuting businessmen (though he deies that he is in any
way involved!), it looks as though Russia is going backwards to its
Communist/Tsarist past.
>>>Keith
Yes, I think something like that may be happening,
though how it will work out is unclear. Russia's autocratic
and centralist tradition was a product of how difficult it was to hold an
ethnically, linguistically and religiously diverse country together. The
dominant concern of the central government, whether czarist, communist or
as now, pseudo democratic, has always been holding the country together
whether the challenge has come from nationalities, such as the Chechens, or from
rivals for power, such as the oligarchs. The oligarchs kept the Yeltsin
government going via the notorious "loans for shares" scheme and wound up owning
an enormous part of Russia's productive assets. They moved themselves into
a position of being able to exert a lot of pressure on the government and, in
effect, running the country. What Putin has done by arresting
Khodorkovsky and driving others like Gusinsky and Berezovsky into self-imposed
exile is reasserted the authority of the central government. Personally, I
don't see it as an anti-democratic move, but rather as a move designed to
transfer power away from strong vested interests and to the government.
We mustn't forget that Yeltsin's
so-called democratic Russia was really
quite meaningless. People elected representatives to a
government that really could do very little by way of effective governing
because it had little control over the affairs of state. Nobody paid
much attention to it because it lacked the mean for enforcement.
Putin is a very secretive man, and it is very difficult
to tell what he intends to do with the central government's power as it
increases. The "nice" vision is one of moving Russia toward democracy as
this is understood in the west. However, that may be too contrary to
Russian tradition. My own guess is that Putin and many other influential
Russians are quietly lamenting the collapse of Russia as a superpower and a
major player on the global stage, and fearing the potential consequences of the
country's current weak position as a global player. They want a position
of strength back, but to get it they need a large measure of central control so
that they can build an economy and military that is able to stand against the
rest of the world. They can't let a guy like Khodorkovsky get in the way
just because he was able to scam Yeltsin into giving him ownership of one of the
world's largest oil companies.
Ed
----- Original Message -----
Sent: Thursday, October 30, 2003 3:41
AM
Subject: Re: [Futurework] Bootstrap
development
Ed,
From the recent decisions of Putin in
prosecuting businessmen (though he deies that he is in any way involved!), it
looks as though Russia is going backwards to its Communist/Tsarist past.
Much enjoyed your following diary extract. Superb. I wonder what's
happened to Sergei?
Keith
At 17:39 29/10/2003 -0500, you
wrote:
I had the opportunity to gain
some understanding of what the small business sector was up against in
Russia when I was there in 1995. Surely things have improved by now,
or have they? The following is from my diary:
- Sergei (not his real name) is from St. Petersburg, and was in Moscow
for the day. He was invited to have supper with us, and a few of us met
with him. His business is writing computer software. He employs six
people, including his wife and an accountant, which seems a little strange
for such a small establishment (i.e., the accountant, not the wife). He is
Jewish, and some of the things he said suggested that he had undergone
some discrimination, but that he expected it and had learned to live with
it. He is well into his forties, and regards himself as middle class. He
speaks very good English - much more fluently than the "learned at school"
variety that you encounter here.
- Being a small businessman in Russia is difficult and requires far more
skill and moxy than running a business in Canada. You want to avoid
drawing the attention of both the taxman and the Mafia, since both can
crush the life out of a small business. To avoid the Mafia, Sergei has
kept his address secret for the past few years, though now he has moved
his office into what he considers a completely secure facility and feels
he can operate more openly. To avoid the taxman, he has to figure out the
income level to which he wants to work for tax purposes, keep his books
accordingly (hence the accountant?), and then figure out various under the
table means of getting the rest of his income. There is perpetual
frustration because petty rules and regulations are forever being changed
(also hence the accountant?).
- Dealing with the bureaucracy is a full time job. For example, he can
deliver his product to a client by email, but this is not good enough for
the Russian tax man, who believes that a contract has not been fulfilled
until there is firm evidence that something tangible has been delivered.
So as well as sending the product by email, Sergei has to send the client
something tangible by mail and get a piece of paper that demonstrates that
he has in fact done so. Usually, he sends an empty diskette, but this
costs him $79, which he is not always sure that he can write off for tax
purposes (what you can write off seems to vary from year to year). As
another example, a client sends Sergei a check for services rendered and
Sergei puts the check in the bank. However, Sergei cannot draw on the
check until he is able to demonstrate to the satisfaction of the banker
that he has indeed rendered the service by presenting a piece of paper
from the client stating that the contract has been fulfilled. Getting this
piece of paper has at times taken weeks. Sergei as much as implied that he
is in on a growing underground business of counterfeiting the various
forms needed by the bureaucracy, which is necessary just to keep things
moving.
- A basic problem is that the laws and regulations which small
businessmen work under, and the bureaucracy which administers them, are
inherited from the Soviet era when there were very few entrepreneurs, or
at least when there were few out in the open. They are designed to catch
and punish the small businessman, not to help him. This may be one reason
why the attitude of small Russian business people, right down to the lady
who operates the ice cream cart, is basically defensive.
- Another problem is property rights. Sergei works in the field of
intellectual property, but has virtually no protection for what he
produces. He claims to have seen more than a few instances of where
something he has produced has been pirated and incorporated into someone
else's software. And there is still a more general problem - getting
Russians to enter the computer age. Many of the officials he deals with
really do not understand what he is doing and that he is producing
something - i.e., do not understand value added except in a very tangible,
physical sense, like making a component for a machine. And of course
behind all of this is the corruption of the entire system, and the
readiness to rip-off anyone who might be making any
money.
Ed Weick
- ----- Original Message -----
- From: Keith Hudson
- To: [EMAIL PROTECTED]
- Sent: Wednesday, October 29, 2003 12:36 PM
- Subject: [Futurework] Bootstrap development
- Some years ago I was thinking of setting up a conventional music
publishing business in Ukraine and I had a couple of colleagues over there
who could help me. However, when I learned just how many departments I
would have to register with (19) and how long it would probably take (9-18
months) and the backhanders I would probably have to pay -- never mind
what banks to avoid because of mafia informers always on the lookout for
'commissions' -- it didn't take me long to withdraw completely.
- Here's why -- and here's why it takes a great deal more energy than
any normal entrepreneur possesses in order to start even a modest business
in many countries. Martin Wolf's excellent article is one reason why some
countries are never going to develop anytime soon.
- Keith Hudson
- <<<<
- A SCANDALOUS BURDEN FOR THE WORLD'S POOREST NATIONS
- Martin Wolf
- Under the pressure of neo-liberal ideologists, governments of
developing countries have chosen market-friendly regulatory regimes. That
is the conventional wisdom. But it is nonsense. Inapposite regulation of
business remains far more onerous in poor countries than in rich
ones.
- If you start a business in Australia, Denmark, Canada, New Zealand,
Singapore, Sweden, the UK or the US, it will cost you 1 per cent of the
country's average annual income, or less. In Australia, your business can
be up and running in just two days. In Brazil it will take you 152 days,
in Indonesia 168 and in poverty-stricken Haiti, 203. In Ethiopia and
Niger, starting a business will cost you more than four times average
annual income per head. This cost is quite apart from the investment you
must make in the business itself.
- Do you want to manage your workforce? Do not go to impoverished Sierra
Leone, with the most generous annual leave requirement, at 39 days. The
Republic of Congo (Brazzaville) requires 35 days, Ethiopia 33 and Chad,
Ivory Coast and Niger 32. Regulation of employment -- flexibility of
hiring and firing and freedom to negotiate conditions of employment -- is
least severe in Austria, Denmark, Hong Kong, Malaysia, New Zealand,
Singapore, the UK and the US. It is most severe in Brazil, Mexico, Panama,
Paraguay, Peru, Venezuela, Angola, Belarus, Mozambique and
Portugal.
- Do you wish to secure payment from a recalcitrant customer? In
Guatemala, you will need to go through 19 procedures, which will take
1,460 days. Enforcing the same contract will take just seven days in
Tunisia, 39 days in the Netherlands and 50 days in New Zealand and
Singapore. In Austria, the Netherlands, the UK, the US Taiwan, Brazil and
Jordan, the costs you incur will be negligible. In the Democratic Republic
of the Congo, the Ivory Coast, India and the Philippines, the costs of
enforcement will be close to the country's average income per head. In
Indonesia, they will be more than twice average income per head.
- Do you need credit? In most developing countries, you will experience
frustration and probable rejection, unless you are well connected. Why is
it so difficult to obtain credit? One explanation is the absence of shared
credit information. A more important obstacle is the lack of legal
protection for creditors. Suppose, for example, you want to collect a bad
loan secured on business equipment. In Germany, Ireland, Tunisia and the
US, it will take a week. In Brazil and Chile it could take five
years.
- Alas, you go bankrupt. In Canada, Ireland, Japan, Norway and
Singapore, it should not take more than a year to complete the process. In
Brazil, Chad and India, it will take over a decade.
- All these fascinating examples come from the first of a planned series
of studies from the World Bank group.* Instead of the usual polls of
experts or enterprise surveys, the study rests on detailed assessment of
the regulations and laws of 133 countries, against hypothetical examples.
To take just one, researchers asked local experts what would be involved
in recovering an overdue payment worth half their country's average income
per head. They also specified the location and characteristics of the
litigants, the remedy sought and the merit of the claim. In this way, the
study generates an internationally comparable evaluation of regulatory
regimes.
- Overall, the analysis comes to three conclusions. First, regulation of
business varies hugely around the world. Second, rich countries regulate
more consistently and appropriately than poor ones. Third, poor regulation
brings dismal outcomes.
- The variation in the intrusiveness and cost of regulatory regimes is
not determined only by a country's wealth, important though that is. The
origin of the legal system also matters. Nordic and English systems impose
the least regulatory burden and socialist and French the most, with the
German in the middle. One can expect the worst regulation in the world in
a poor Francophone country.
- The costs imposed by inapposite regulation are many: a higher
proportion of businesses operates outside the law; the tax base is
smaller; corruption is greater; unemployment is higher; and productivity
is lower. In Bolivia, for example, one of the most heavily regulated
economies, an estimated 82 per cent of business activity takes place in
the informal sector. In many developing countries, it is close to
impossible for a business to operate successfully inside the law.
- Some economists have argued that developing countries should regulate
more, because their markets are more imperfect than those of rich
countries. This is nonsense. First, much of this regulation is
misdirected: making it prohibitively costly to start a business, adjust
the size of the workforce, obtain judgment against debtors and go through
bankruptcy does not make markets work better. Second, the institutions of
governance are normally still more imperfect than the markets they are
supposed to oversee.
- Developing countries need to focus their limited resources on the
tasks that matter. The most important are to define and protect property
rights and safeguard citizens against injury from other citizens and the
state itself. There is strong evidence, moreover, that the more intense
are the regulatory interventions, the weaker are these essential
protections. As the Bank study remarks: "Rather than spend resources on
costly (and often ineffective) regulation, good governments channel their
energies into enhancing prosperity."
- In general, regulation should be reduced to what is essential,
efficacious and readily enforceable. Markets themselves will do much of
the regulation, provided they are competitive. Governments also need to
use modern technology to improve the efficiency of what they do.
- Policymakers and analysts have been paying too little attention to the
core of what makes businesses work: the ability to start up, close down,
secure credit, demand payment and manage the workforce. In all these
respects, the environment in many developing countries is calamitous. The
countries that can least bear the burden of cumbersome and misdirected
regulation suffer from it most. This is a scandal and a tragedy.
- *Doing Business in 2004: Understanding Regulation (World Bank and
Oxford University Press, 2004)
- Financial Times 29 October 2003
- >>>>
- Keith Hudson, Bath, England, <www.evolutionary-economics.org>, <www.handlo.com>,
<www.property-portraits.co.uk>
Keith Hudson, Bath, England, <www.evolutionary-economics.org>, <www.handlo.com>, <www.property-portraits.co.uk>
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