Tag Archives: state capitalism

Russian State Capitalism Part III: How can Russia be neoliberal and dirigiste at the same time?

coexistence of the old, not so old, and the new in downtown Moscow

This is the third in a series of posts on ‘everyday’ political economy. The long read is now published here.

In a post back in May, I outlined the usefulness of Ilya Matveev’s work on state capitalism. To recap: Matveev sees 2004-8 as the pendulum in Russia swinging back to incomplete state domination of the Russian economy. Despite this, Russia maintains strong orthodox neoliberal policies. In the previous post my departure from Matveev was to start thinking about how neoliberalism as a form of governmentalizing ideology, is imposed on ordinary Russians, even in ‘state’ companies. I ended that post by pointing out that neoliberal subjectiviation is not lessened as a result of the Covid pandemic….

Neoliberalism refers to a way of thinking about organising social relations. It emphasizes ‘market competition [as] the basis of economic coordination, social distribution, and personal motivation’ (Sparke 2013: 454-5). Economic neoliberalism is a form of market rationality. Colin Hay (2004) provides a seven-point definition:

  1. the desirability of free capital mobility
  2. the ‘market’ as an efficient mechanism for allocation
  3. limited role for the state
  4. supply-side economics
  5. labour-market flexibility
  6. conditionality of welfare based on incentivizing market participation
  7. private finance seen as more allocatively efficient in provision of public goods

Governmentality is key to the maintenance of these relations as it links social life to the logic of what Foucault called the ‘enterprise society’. Governmentality is a process whereby subjectivity becomes increasingly dominated by discourses of self-regulation – inducing people to ‘work upon themselves’ to become ever more flexible to the demands of post-Fordism. This is not a simple top-down process of domination, however. Social control is produced though the active participation of individuals and groups in the regimentation of their own discipline. We have already seen how Matveev argues that the neoliberalism in Russia entails state involvement in supporting highly exploitative relations between individuals, firms and sectors. Stephen Collier (2011) adds to the perspective by returning to Foucault’s lectures on biopolitics to argue that rather than a focus on freeing markets per se, neoliberalism is about rethinking government according to an over-determined form of economistic reasoning.

The social state remains, but its governance ‘styles’ are influenced by ‘khoziaistvo’ – the legacy of Soviet integration of politics and economy based on a narrow, managerial conception of need fulfilment. For Collier, the present moment sees governmentality as a ‘formal rationality’ that privileges market thinking. He adopts the term ‘assemblage’ to trace the genealogy of Russian reform in the 1990s back to core neoliberal thinkers from the US. Moreover, the idea of biopolitics from which governmentality emerges has deep roots in Soviet planning – in ‘incentivisation’ at different scales of labour and production (Bockman and Eyal 2002).[1] Collier elsewhere (2012: 190) proposes synergy between activist states and marketized relations, underlining how neoliberalism as distinct from classical liberalism imagines a key role for governments ‘in creating the conditions for diffusion of markets and market-like mechanisms’ and may contain highly illiberal measures.

Peck and Theodore (2007) trace the debates on ‘global neoliberalism’ via diffusion through institutions, financial markets and foreign competition in the early twenty-first century. This approach anticipated a profound erosion of the nation state as adequate coordinator of the economic sphere. It focussed on the strategic interaction of mechanisms of routinized regulation at trans- and sub-national levels of analysis: ‘corporate governance, education and training, labor-market regulation’ (Peck and Theodore 2007: 744). Firm level and sector scales replace an overly broad-brush macroeconomic institutional framing but are themselves prone to functionalism. In the final analysis, the ‘varieties of capitalism’ approach, in seeking to acknowledge real geographical differences, supposes an unrealistic coherence that closer analysis does not justify. For example it is problematic to clump together as ‘coordinated’, models those market economies often synonymous with northern-European ordo-liberal types. Indeed, since the turn of the century, this criticism has been justified, as ‘coordinated’ models moved sharply towards their Anglo-Saxon ‘liberal’ brethren – especially in the spheres of labour market liberalization, and its corollary – welfare state residualization and retrenchment, two areas of interest in the Russian case (Oorschot and Gugushvili 2019). Variegated neoliberal convergence has in part replaced the ‘varieties’ approach. 

Peck and Theodore (2007: 755) anticipate a tide rising over all developed economies as relative institutional weaknesses fail to moderate or mitigate waves of neoliberal reforms when coordinated states face the entry of multilateral institutions who brought with them modes of rationalization and audit, self-monitoring and surveillance. These techniques are as important as any legislative or coherent ideological diktat. They then diffuse into new territories (such as state bureaucracies) via true ideologies such as New Public Management (NPM) (see Romanov 2008 for a summary of its implementation in Russia [pdf opens automatically]).

Today, international institutions themselves, ironically, cannot find a reverse gear when they need to because of their immanent neoliberal logic. For example the IMF stresses the need for slower adjustment and more progressive taxation in Russia because of Covid-19, but immediately reverts to ‘neoliberal type’ to suggest VAT rises and reduced payroll taxes as well as the need to ‘reduce the footprint of the state’ (IMF 2021). Peck and Theodore (2007) are a scholarly bellwether of the need for more thorough acknowledgement of the multi-scalar and multi-register insinuation of neoliberal governmentality and rationality into the political-economic fabric of societies.

I move on in the next post to Special Economic Zones in Russia as showing us evidence of just how pervasive neoliberal governmentality is in Russia, despite the relatively small penetration of transnational companies there.


[1] While Rupprecht (2020) agrees that Russian neoliberal thought has indigenous roots, he disagrees that the 1990s saw its implementation in any meaningful degree there.

Russian State Capitalism Part II – Matveev on dirigiste and neoliberal synergies

So, as I said in my last post, I’m writing a long piece for Sotsvlasti – a social science journal in Russia on state capitalism and neoliberalism. In this second post I’ll mainly focus on Ilya Matveev’s work on Russia as a state-capital-neoliberal hybrid, because Matveev’s position is my main departure point. Matveev uses the term ‘state capitalism’ to propose a kind of elective affinity between neoliberal economics and elements of dirigiste industrial policy that maintain the position of economic elites and provide political stability, but which are uncoordinated with the private sector. Notably while the primitive accumulation associated with the 1990s privatisation processes and subsequent political conflict gets a lot of attention in scholarship, the relative security of property rights for ‘winning’ elites, and the longer term development of ‘normal’ forms of market accumulation, are overlooked according to Matveev.  Matveev here cites Daniel Triesman’s work on the misperception about the ‘legitimacy’, durability, and sources of wealth for many current financial elites. Triesman elsewhere has useful paper on the 1990s privatisation ‘loans for shares’ affair and how this  reflected a delayed transformation of Soviet elites into one flavour of postcommunist asset oligarchs. I obviously don’t share Triesman’s implicit Pollyanna approach to Russian economic transformation (creating new owners at any cost is justifiable).  

Matveev focusses on the period 2004-8 as a turn to ‘dirigisme’. Yukos is merely the most visible example of the expansion of de facto state ownership in the economy, with swathes of banking, oil and gas, and some industrial monopolies directly or indirectly state owned. Despite, experiments in pronatal social benefits and elements of autarkic developmentalist policy since 2014 that run against market philosophy, Matveev argues that Russia maintains orthodox neoliberal policies such as a strong monetarist bias, fiscal consolidation, and marketized mechanisms of discipline and competition in the public sector. Matveev provides clues to my main argument: the need to make a distinction between clientelist and patrimonial negotiations of relative power and access to capital resources within the elite, and a broad and deep set of policies that affect the lives of the majority of Russians in the private and public sectors. Objections to Matveev’s argument are striking for their misrecognition of fundamental changes that align with core deregulatory and ‘responsibilizing’ principles in biopolitics.

Translating the substance of this transformation into the language of popular politics, localized versions of terms like ‘austerity’, ‘the 1%’, ‘one rule for the rich’, ‘work no longer has dignity’, ‘the callous state’, ‘we are a country of paupers’,  resonate for Russians, W. Europeans, and N. Americans alike. Indeed, for workers in state-influenced or owned firms in strategic industries, exploitative and intensified labour conditions are similar to experiences of corporate change elsewhere,. My long-term underemployed research participant, Igor, reflects on his experience as a seasonal [na vakhtu] construction contractor with Yamal LNG in the far North, where 80% of Russia’s gas reserves are found. Yamal LNG is joint owned by Novatek, a private inheritor-firm of a Soviet pipe constructor, in which the Russian state has a 9% interest, China’s main energy SOE and others.

Like everywhere now a cleverly [khitro] designed small base ‘white’ [taxed] salary with bonuses that are impossible to earn. Again, like everywhere, there is a ‘black’ [unregistered, illegal] component of pay that is also withheld at will, as a kind of weapon over you.  Terrible conditions, worse than a prison camp. I quit ahead of my term because I got neither the days off, nor the travelling expenses in the contract. As a result, they wrote a terrible recommendation letter – without which I will not get another contract. We are just another item of brittle or pliable ‘inventar’ [equipment] to be used until it breaks (instead of a 12-hour shift we regularly worked 16). To me it’s like Russia is a slave colony, we just don’t use that term anymore. We ‘manage’ our slavery ourselves, with some help from machines and technology. [interview in Kaluga Region, summer 2019]

For me what’s important here is the presence of lay political-economic analysis that experience generates. In terms of everyday political economy, does it really matter whether one works for an SOE or not? This ‘everyday political economy’ is a framing device that hopefully will work in a book-length treatment.

Matveev’s analysis, while underlining that a serious study of state capitalism has its place in any analysis of Russia, should remind us that salient features are present in large measure in ‘core’ democratic states. By the same token, strategic ownership by the state and elite corruption does not alter the fundamental division between capital concentration, cartels, financialization and the rise of a rentier-class on the one hand, and the erosion of labour’s position, the retreat of the social state, and economic neoliberalism for the majority on the other.

 ‘State capitalism’ may exacerbate distortions in capital allocation towards favoured producers in weapons, metals or energy, and lead to spill-over into high levels of elite corruption. However, in the ‘core’ states, capital interests also make ‘good’ use of the state to entrench and ‘enmoat’ themselves into cartels in what look like ‘new’ industries, but whose final services are eternal necessities – consumer durables, transport, and information/entertainment (Amazon, Uber, Google). Where ‘disruptors’ arise, they rely, not only on financialization, but crucially, on tax subsidies and legislative capture or lag – Tesla being a prime example.

Covid-19 made these processes impossible to ignore, as one of the most deregulated of ‘free market’ states – the United Kingdom – engaged in some of the most corrupt practices of state-capital connivance – handing out production and service healthcare contracts without tender to crony insiders who gouged both citizens and state organisations. At the micro scale, in supposedly solid democratic states, severe impositions on freedom of movement and assembly are imposed that focus on the individual and her economic positioning. The reader will already see where I am going with this argument: that the varieties of capitalism approach is less useful than the evaluation of the objective and subjective economic relations as dictated by a logic of ‘neoliberal’ subjectivation. Explaining how that logic operates in Russia is a large part of the rest of my article and I’ll return to it in the future.

State Capitalism Part I – Dorit Geva on Hungary’s Ordonationalism and the Parallels to Russia

Novatek Polska in Germany – a good example of a hybrid state corporation with transnational reach

A shortish first post on ‘state capitalism’ in Russia [actually there’s a previous post on this in relation to Covid and the state]. Defining state capitalism for me is important – as a precursor to more authoritatively talking about what I mean by the ‘incoherent state’ – an idea I’ve been playing with for a while now. Another reason for my interest in the term ‘state capitalism’ is that it is linked – for better or worse – with the meaning of neoliberalism in Russia.

I’m prompted to blog about it now because yesterday I read this great article by Dorit Geva on Orbán’s Hungary. I tweeted a few excerpts which provoke comparison to Russia. Here they are slightly edited: Geva argues that ‘ordonationalism’ entails: (1) a nationalist state invested in flexibilizing domestic labour; (2) state capture as means to control access to domestic accumulation; (3) a novel regime of social reproduction, linking financialization, flexibilization of labour, and a marked decline in social support. It’s interesting to reflect on the comparability with Russia where these destabilizing currents lead to the authoritarian state being forced to step in and find a (sticking-plaster) solution – this chimes with the various ‘manual control’ moments in Russian politics where elites are forced to ‘correct’ overzealous policy that threatens to completely impoverish citizens and provoke a coalescence of protestpension reform is one example of a “безальтернативно” policy that got watered down. Indeed the pension reform row-back was not some neat trick to show Putin masterfully ‘correct’ an unjust proposal, but an indication of the ‘living dead’ influence on economic policy in Russia. The so-called ‘Petersburg liberals’ still have political heft and they are still constructing policy from the same tired old flatpack Ikea version of the Washington Consensus, despite most of the rest of the developed world moving on more shabby-chic Keynesianism, post-Covid. Discussion here not specifically on pensions, but on the development of factionalism in the elite as reflected in such conflicts. Discussion here on the pension changes as neoliberal policy.

Bob Jessop’s strategic-relational approach gets a nod from Geva in her article, and this approach is quite important to me because I think it is underemphasised on work on Russia for various reasons. More on that another time.

[From a wiki:  “the state has differential effects on various political and economic strategies in a way that some are more privileged than others, but at the same time, it is the interaction among these strategies that result in such exercise of state power. This approach is called the “strategic-relational approach” and can be considered as a creative extension and development of Marx’s concept of capital not as a thing but as a social relation and Antonio Gramsci’s and Nicos Poulantzas’s concept of the state as a social relation, something more than narrow political society.”]

Funnily enough, an undergrad student (!) yesterday made a similar point to Geva’s but about Putinism. Geva writes that ‘Orban [is] contemporary manifestation of Bonapartism‘ emerging from a crisis of hegemony and class deadlock. Geva again: ‘Bonapartism for the neoliberal age; a political solution to the crisis of hegemony produced by neoliberalism, and whose strategy for accumulation of power is to take control of the state as primary arbiter over accumulation of capital’. According to this analysis, states struggle with hegemonic consent, thus turn to increasingly authoritarian policies to advance neoliberal projects that exacerbate their disruptive tendencies. Orban shows it’s possible to fortify hegemonic rule through advanced neoliberalisation. Geva cites Ian Bruff’s work on this point – a key reference for those interested in how authoritarianism is the present vector for sustaining neoliberal politics. I include a section on Bruff’s relevance to the Russian context in my article – I’ll expand on this in a future post.

Toplišek called the Hungarian path ‘counter-neoliberalisation’, incl. re-nationalization of key sectors, protectionism. However, ‘re-nationalization’ needs to be understood as form of financial nationalism which extends the logic of neoliberalism – not wholly a counterneoliberal’ move. Examples: Fidesz’s bank levy; national oligarchic dependents carving out sectors for exclusive rent collection; pension fund nationalisation – the volume of state-owned assets increased by two-and-a-half times between 2010 and 2015. Nonetheless, while there is no ‘political neoliberalism’, à la Stephanie Mudge, instead we get the central social policy plank of workfare, and individualised contractual relations, low corporate taxes and many other examples that reveal intensified neoliberal tendencies via ordonationalist policy. Geva concludes with a balancing statement: “Where Orban’s post-neoliberal prebendalism cannot fill a market niche, such as with the auto-manufacturing industry, he leaves those sectors to investment by global capital.” This is very close to my own work on transnational corporations’ place in the Russian economy. The case study of Special Economic Zones features in my work.

Some of this post relates to ideas from an article I’m writing for Sotsvlasti – a social science journal in Russia. I will expand on that in my next post, where I’ll also return to Ilya Matveev’s work on Russia as a state-capital-neoliberal hybrid. My ‘job’ right now it to try to put ethnographic skin on the political economy bones of that argument. I have some good interviews with people that went to work on contracts in the Far North for Novatek (which might serve as an example of a hybrid state-private corporation), but I need more time in the field to develop this material. I also have a lot of unused material on the SEZ in Kaluga – a ‘state within a state’ that echoes the political economic organisation of the former Soviet-era closed town I made a study of in my last book.

Covid field tales – Part Two: Unmasking State Capitalism or Capitalist Realism?

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A pharmacy in Omsk with the sign ‘We have no masks or antiseptic gel in stock’.

This is the second of a series of Covid tales, made possible by collaboration with Galina Orlova of HSE Moscow. There will be 3-4 texts  on different aspects of lockdown and postlockdown Moscow. These will be based on one long text that will appear shortly in the journal City and Society. That journal, thanks to my colleague Derek Pardue, who is editor, has published some amazing Covid despatches – they are open access –  so please check it out. Space in those dispatches is very limited, so here on the blog I will take a little bit more of a circuitous route.

The last post chronicled the rise of Moscow as the focal point of the disease and its spread in Russia, not we move on to how City Hall has dealt with lock down and in particular what this reveals about ‘State Capitalism’.

To avoid an official ‘state of emergency’ which would have meant taking on a massive financial burden, City Hall adopted various heuristics to manage quarantine. From March 5, the Moscow had a high-alert mode, from the 26th – self-isolation for those 65+, from the 30thself-isolation for all. The delegation of responsibility for their own health and well-being to citizens, after recent restrictions on freedoms, looked neoliberal. At the same time, the scope of quarantine education addressed to ignorant citizens and belief in its effectiveness, suggested the return of Soviet sanitary propaganda (Shok, Beliakova, 2020). In conditions of lockdown uncertainty, the boundaries of self-isolation were delineated by rituals of taking out garbage, buying food and medicine, dog walking. From April 1, fines of 4,000-5,000 rubles were imposed for each violation. On April 15, quarantine met the control society with digital codes for trips around the city. Since May 12, wearing masks and gloves became mandatory in stores.

When the president empowered regions as responsible for fighting the disease, and the prime minister asked the Moscow mayor “organizationally and methodically” to help colleagues “on the ground”, Sobyanin became the face of the ”virus federalism” and the capital’s protocol “counteracting the spread of coronavirus infection” became a model to follow.

Unmasking state capitalism or capitalist realism?

While the self-isolation regime is gone, the ”glove-mask system” remains. Entering public transport or shops without PPE is prohibited – although it looks like the mask requirement will soon be dropped.  Disposable masks – medical blue, three-layered – are found far beyond pharmacies: at newspaper stands, at the ice cream kiosks, in cheap and expensive grocery chains. At the reopened farmfoods store, half-empty due to supply disruptions, masks are at a discount. In May, they cost from 29 to 70 rubles, in March-April – up to an exorbitant 150 and you could buy them only on the Internet from resellers, thirty-times more expensive than in 2019. Prices began to rise in February. At the peak, the government tried to mandate them, but immediately abandoned this measure. The rhythm of the pandemic in Moscow was not only the appearance or absence of masks, but their price in(de)flation.

In the Russia that imported the bulk of masks from China before Covid-19 there were three domestic manufacturers. City Hall not only took ownership of the largest factory but removed its facilities from the city of Vladimir to the capital, turning the pandemic into a “Moscow state business”. Two thirds of masks from the Moscow government (about 4 million items a week) were sold at cost to hospitals and communal services, 500,000 – for a “standardised price” of 30 rubles in the metro. The rest were put into a city administration reserve.

Compared to the free distribution of mask not only in the Paris metro, but on buses in Russia’s Far East, Moscow’s choices provoked discussion of the political economy of PPE. Vladimirites were disgusted by the capital’s betrayal leaving them not only without protection, but one profitable business less. Their objections to internal colonialism were tempered with racist suggestions that the masks from Moscow – now produced by “immigrants from disadvantaged countries of the near abroad” – were now “less hygienic”. Muscovites discussed the superprofit extracted by City Hall, and supposed that “since they bought the plant, the mask-regime will never end.” Stuck between epidemiological citizenship and city-state paternalism, they claimed that the government had no moral right to demand wearing masks without free distribution. Citizens made a hopeless diagnosis – “it’s all capitalism and they don’t give a shit” – and continued to buy masks.

The nature of state-capital conjunctions in the Russian capital has long been a bone of contention. The question of who can sell masks and gloves and who profits from their production is at the heart of thinking about the paradox of Russia’s political economy Ilya Matveev calls ‘dirigisme and neoliberalism at the same time’ to financially benefit insiders. Matveev has been criticised for this argument – with the riposte mainly about the piecemeal nature of actual liberalising reform since 2000. However in many ways that critique (from 2016) was misplaced, and I think the virus response illustrates Matveev’s view well – state capture by interests does not exclude the market ‘for thee, but not for me’. 

Appropriating profitable PPE businesses, strategically significant in an epidemic, City Hall enters the order of state capitalism. Obliging citizens to wear masks and offering them at commercial prices, they interpret civic responsibility in a neoliberal mode as a personal transaction according to the logic of capitalist realism that anathemizes any alternative to marketised relations (Fisher 2009).

Nonetheless the virus’ acceleration of neoliberalism does not completely destroy the legacy of the Soviet social state, instead weakening and transforming it beyond recognition. By sending masks to hospitals at cost price, Moscow combines the logic of minimal profitability and sluggish paternalism. Opting to create a reserve fund instead of free distribution of masks, it reproduces a pattern of deformed care without expenditure, developed by the federal government via the Russian Reserve Fund. State capital accumulation has a perverse obsession with curtailing the circulation – of money, of civic potential, – we call this the political economy of “the untouchable reserve”.

Emergency Reserve

‘Emergency reserve’. The untouchable reserve relates more to a strategic reserve of collected stock for emergency use.

In the next post we will discuss ‘disinfection’ and the ‘smart city’.

Putting in a good word for the Russian bourgeoisie

small shop in Russia

A typical small independent shop in a provincial town now under a lot of pressure from cartel-like supermarket chains.

A shorter version of this post appeared on Ridl.io

As anthropologist James Scott once said, ‘it’s time someone put in a good word for the petite bourgeoisie’. Shopkeeper-owners, small independent professionals and traders fulfil essential social and economic functions in any society but are especially important in modernizing ones. Sooner or later they turn into a middle-class with property rights and economic interests to defend. They are seen, even by Marxists, as a motor of political change.

However, in Russia the growth of a real middle-class and a healthy private sector is hindered at every step, largely in favour of a state-big business nexus. Whole industries – particularly in strategic sectors, are managed by state-owned monopolies, and have preferential access to banking finance, as Ilya Matveev points out.

The idea that the Russian political economy is a hybrid form of ‘state capitalism’ is widely accepted. However, less attention is paid to how these processes affect entrepreneurship generally and the wider implications for society. Coercion to gain access to wealth and the violent form of corporate raiding are also widely studied. However, elite insiders’ appetites for unearned wealth and sources of economic rent mean that even small businesses are subject to ‘taking’, rather than ‘trading’, to use Gerald Easter’s terms. This reflects a ‘maturing’ stage of insider elites and the way natural resources have already been ‘gathered back in’ by the state.

In most societies, the diversity of small and medium sized businesses – made visible in town and city centres – is seen as a key indicator of the health of the economy, and society more generally. If ‘mom and pop’ businesses are driven out of business, goes the logic, it’s because bigger capitalists have preferential access to power or the state, and because taxation and regulations are too burdensome for smaller operators. Russia suffers from both these structural obstacles and things are getting worse rather than better. To explore this we can start from the big picture and progressively narrow our focus to show how entrepreneurs are increasingly squeezed out and how informal ‘micro businesses’ are now one of the only viable alternatives for those without patronage from system insiders.

One way of understanding this is by looking at the share of ‘entrepreneurial incomes’ versus employment wages.  In 2000, it was 15%, but in 2018 it had dropped to 7.5%. Incomes from property are microscopic – 5%. So much for a broad property-owning class. The number of small and medium-sized enterprises (SMEs) is falling by 6-7% a year. We can also look at the average size of firms as an indicator. Labour researcher Stephen Crowley argues in a forthcoming book that Russia is an extreme case of the privileging of large enterprises. 80% of employment in manufacturing firms is in large companies, only 10% of the country’s workforce is employed in SMEs, versus 70% in the EU. Moreover since the Russia-Ukraine conflict and its economic side effects, consolidation has intensified, with the vast majority of closures in small and medium firms. There is plenty of evidence that monopolies and cartels are growing and competition falling. David Szakony reports that 14% of firms in 2016 reported they had ‘no competition’, a rise from 1% in 2013. Yet the number of ‘unfair competition’ court cases heard has fallen over the same period, while the Federal Monopolies Commission is notorious for pursuing SMEs in bureaucratic actions. Szakony summarises: Since 2014, SMEs have been squeezed by ‘skyrocketing interest rates, unsustainable tax burdens, and uncertain protection for their property rights’.

That the conditions and prognosis for SMEs are so bad is very visible in the Sisyphean efforts of the Minister for Economic Development, Maksim Oreshkin. Today Oreshkin is quoted as saying that preventing the stagnation of small business requires ‘work to increase the confidence of the business community in the state (both in regulation and in the system of enforcement) and reduce administrative costs.’ The report carrying the quote adds, ‘According to him, all these areas are enshrined in the list of key structural reforms.’ The problem is that all the signs are that for good reasons smaller businesses don’t trust the state.

Schemes like low interest loans for restaurants and small shops are a drop in the ocean ($30m), and almost exclusively go to ‘connected’ insiders at regional level. Indeed, this scheme is in fact a policy reversal – a similar scheme was discontinued because it mainly benefited the banks and was abused by businesses with political connections. In Kaluga region in 2017 (where my fieldwork sites are), for example, all the subsidized loans went to four companies owned by a single individual.  But even if the scheme provided fair access, an individual entrepreneur in a low-margin business (which is most shops) would find this a risky proposition.

 

In addition, for retail businesses there will be a broadening of the ‘compulsory barcoding’ of products to allow the state a real-time assessment of turnover.   While the idea behind these changes is to simultaneously prevent tax fraud and help small businesses by taxing their actual turnover, it is expensive for small shops to install and service. An online ‘cash register’ requires much more work in marking stock and inventory control . Finally, proposals like ‘inspection holidays’ to protect ‘conscientious’ business from excessive regulatory attention, only underline how much predatory and corrupt power bureaucrats have over small businesses. While the rate of some inspections is falling, there has been a sharp rise in ‘unplanned’ visits by regulators – up 74%). Regulatory inspection in Russia remains  a key area where bribe-taking can occur.

These dynamics are most observable in the changing patterns of shops and SME employment in small and medium sized towns. In the town of 20,000 people where I conduct field research, only two independent grocers remains, down from more than a dozen in the early 2000s. Three chains of mini-markets have taken their place – very convenient, but a classic example of cartel-like behaviour. One is owned by a state bank, the other two by oligarchic interests. This pattern is mirrored more widely – around 40% of trade is controlled by large retailers and the trend is increasing. The poorest areas do without the chains completely but even here a genuine local entrepreneur will struggle.  A vocal observer in this has been the controversial business commentator Dmitrii Potapenko, who in 2017 offered a stark analysis – ‘a seven rouble difference in the price of a loaf of bread is a critically significant sum’ (then around 10 US cents) illustrating the extreme price sensitivity of consumers. Potapenko has been in the limelight again just recently, commenting on cryptocurrencies. This was against the backdrop of discussions about the self employed ‘going into the shadows of cash only’, [ушли в кэш], the merits of employees demanding the option of payroll in cash, and the use and abuse of the Federal Law 115-F3 on money laundering that allows banks to freeze business accounts. While there’s more heat than light in the discussion, it highlights how trust of the banking system is still highly relative, and, as we’ve seen with even high-ranking politicians, cash is king!

But back to the suffering of small business under insurmountable pressures…

A similar trend to that seen among small shops is observable in employment, whether in services or manufacturing. In my town, small producers of steel, building materials, and plastic manufactures have either gone to the wall or sold up in the last ten years. Some of this is a natural process as many of these businesses were left-overs of large and outdated Soviet-era enterprises. A few with very special niches will hang on, but most are dying out. The local owner of a steel fabricators employing around 100 people, recently sold out to a conglomerate, tired of bureaucratic sword of Damocles, fed up with competing with Chinese imports, but mostly exhausted by the experience of being an entrepreneur in Russia: ‘in business you need to know when it’s time to leave,’ he told me. Another more optimistic entrepreneur had just opened a high tech laser-cutting materials workshop with around 20 employees – just the kind of business Russia needs, making good use of its still impressive human and technical capital. However, it turns out this venture was more out of necessity than choice. His prefabricated building business had been ‘taken over’ by competitors, against his will, and another side-line in printing merchandising materials and school textbooks was frozen due to a seemingly endless tax inspection.

However, this doleful picture is not the whole story. There has been a statistically measurable rise in start ups – in micro-businesses – defined as having 15 employees or less. While starting small is typical the world over, in Russia it has specific connotations. The smaller the business, the more potential there is for it to disappear into the informal economy and escape taxation and regulation partly or entirely, especially as the law on self-employment is unclear, as discussed in a previous blog post. Indeed, one informal fix to burdensome and predatory state regulation is spinning off part of a business into the underground, a phenomenon I’ve witnessed first-hand. A large proportion of the informal economy is connected to micro-businesses – largely made up of sole-traders.

If the state wants to support legal micro business, one way would be to bring back their most visible incarnation – the street kiosk – typically selling newspapers and magazines, hot food and beverages, or even clothes, domestic goods and toys. While long bedevilled by issues like mafia extortion and high rents, these micro-retailers are making a comeback outside Moscow and St. Petersburg. While the demand is clearly, there is a long way to go, and many municipalities are not keen on these small businesses. There are some 16,000 kiosks nationally, down from 42,000 some years ago. Certainly though, the resurrection of the kiosk, along with the high number of informal sole traders shows that entrepreneurialism is alive and well in Russia. However, that this is limited to the niche of individual self-exploitation – whether in street kiosk or shadow economy self-employment – is far from the dream of popular ownership of the means of production that James Scott lauds for its emphasis on autonomy, civic society potential and self-reliance. We’re back to the argument about Russia’s ‘missing’ middle-class (Balzer’s phrase)- or at least the entrepreneurial conception of it.