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Official website of the President of Russia

Transcripts   /

Address to the Nationwide Conference of Small Businesses

March 15, 2000, Moscow

Vladimir Putin: Good afternoon.

I would like to begin by identifying the three most persistent of our acute problems, the way I see them.

Problem number one is that small and medium-sized businesses have had no stability guarantees for a long time. In fact, what we see is blatant ignorance of the rules of the game and practically no chance to protect oneself from racket, whether criminal or administrative. We have just talked about the huge number of inspections. I don’t think it is getting any smaller.

Bureaucrats are out to make profits at private companies’ expense. That undying desire is so strong that I have no idea how to fight it. It once occurred to me that we could establish a kind of monitoring ministry.

Let me try to explain. What I mean is an agency that would alone have the right to conduct inspections. It would be the single place where companies could come with problems caused by the numerous bureaucrats of the fire safety inspection or the sanitary and epidemiological service. The presidential control service might have its functions extended at the same time. I don’t think accounting logbooks alone would be enough.

Let us think together how to do this. If the matter boils down to nothing but legislative restrictions, that will be a very long affair, I think. Half the people in this audience will be ruined before we achieve legal restrictions. That is why I invite you to think about it all together. I am ready to promote any sound initiative in this field. I am well aware how you feel about it.

Regrettably, the state is extremely inconsistent in this area. The number of inspecting agencies has been steadily growing. There are rumours of a company checked on 300 occasions last year, if I am not mistaken.

Problem number two is a selective approach and unfair distribution of attention to big and small companies. Major corporations have been pressuring the authorities for several years now, while small businesses have just been shrugged off.

I am often asked what I think of oligarchs. If we mean the merger of business with state authority, I disapprove of them. If we mean support of business in general, a dialogue with businessmen, I like them. I do not think the state would be just if it had contacts or a direct dialogue with big business alone.

Last but not least comes the third of our basic problems. It is closely linked with the development of private enterprise. Those are the principles of state economic regulation. There is a constant muddle here – some have been calling to build up the bureaucratic expansion to new economic fields while others have been multiplying departmental instructions in areas that must be governed only by the law.

It is the state’s duty to promote a healthy market and just competition. For that, we must strengthen our anti-monopoly instruments, enhance the independence and authority of the courts of law, which is a matter of principle in this country, offer financial support to arbitration courts, and reduce the burden on judges working in that system.

According to a recent decision, the number of arbitration judges in Russia will increase by two thousand.

Redundant administrative levers and arbitrary pressure of inspections of all kinds, from fiscal to fire, are destructive. I stress it once again. Unmotivated interference breeds corruption and strangles entrepreneurial freedom.

Let us once again together analyse certain facts and figures.

There were 890,000 small and medium-sized companies in Russia last year, employing 7.5 million people, according to government statistics — that is, 10% of the working age population. Small companies alone are expected to employ up to 8.5 million before the end of next year, and to account for 12% of the gross domestic product.

The latter figures were approved a month ago in a federal programme of supporting small business. A number of state measures must make them come true. Meanwhile, there have been no major structural changes of economic branches or dynamic progress of enterprise.

The 1998 financial crisis is regarded as one of the factors to blame for the present situation as it badly undermined the emergent middle class. That is only part of the whole truth.

Russia had no full-fledged middle class, and now has none, to much regret. The word “middle” clearly shows that a majority must belong to that class, which must make the basis of our community. Today, we can talk about people of medium income, people who are sure of themselves, self-relying and taking responsible attitudes to their business – people the state must support and help as a social group potentially ready to shoulder the responsibility for economic stability.

Our small and medium business is strong, above all, thanks to its independence and initiative. The recent years brought you real economic stamina. Many of you are self-made businesspeople who have started from scratch. You have no privileges to speak of. In principle, we should put an end to privileges. But I don’t think they are the root of all evil. There is a greater danger. On the one hand, small and medium business is under great fiscal pressure. On the other hand, it has no acceptable terms of investment loans. Next, bureaucratic barriers persist on the road to lucrative contracts.

More than that, the available licensing practice is also an obstacle to you. There are too many activities to be licensed. I think it is high time to amend the relevant law and drastically cut the list of such activities.

Many local bodies of authority have made licensing a tool for manipulating business and businessmen, an extra source of income. Such things are often motivated politically, and sometimes otherwise.

There is another painful matter. Beginner entrepreneurs have no starting capital. Bank crediting of small companies must be promoted. The Government and the Central Bank have much to do here. Then, there is a stale problem in that field, just as with bureaucracy. I mean never-ending checks. Not much has been done to make them milder. But it clearly depends on the overall financial situation in this country.

I think we should be more resolute as we lease to small companies unfinished production premises and pass to them redundant military infrastructural projects. We must cede them ownerless premises and state owned companies’ idle equipment.

Such projects are now sold on patterns envisaged by privatisation. But, as practice has shown, private investors are not very eager to purchase them. They are auctioned with difficulty, and such auctions bring only token returns to the state purse.

That is why I would support an initiative of the property and anti-monopoly policy ministries to use state property for developing small and medium enterprise. There are such proposals, and they must be formalised and implemented.

Next, small companies need sparing arrangements, at least for the start – special leasing terms, direct financial support, and so on. All of us – authorities and you – must bear in mind that unified principles of responsibility, which make all equal before the law, must be the sole basis for our partnership.

We spent a long time in what, I confess, was often idle discussion on just when the Russian economy would revive with your help. Meanwhile, you achieved a great deal – you established a small but rather steady corporation.

While we were saying some of you would make the Russian middle class, you really learned to stand up for your rights and your property. You established a new managerial culture. Some were squandering resources while you were laying the foundation for the Russian economy. It is no exaggeration to say so. A great deal has been done.

Small and medium business provides jobs and earnings to a majority of developed countries’ population. Such business is steadier than monopolies, and is more flexible to respond to all the market ups and downs. As the result, your work is much more fruitful than the most drastic administrative measures. It offers better guarantees of economic and social stability, provides transparency and makes politics more predictable.

All that is the ABC of the civilised market. Today, it is our duty to maintain an unbroken and responsible dialogue.

Thank you.

March 15, 2000, Moscow