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Vladimir Putin: Distinguished colleagues,

On our agenda today are the issues of government policy in the sphere of small and medium-size entrepreneurship. We identified the key aspects of this topic at the meeting of the State Council Presidium yesterday. They are presented in the report prepared by a working group headed by the Governor of the Leningrad Region, Valery Pavlovich Serdyukov. I trust that you have familiarized yourselves with all the documents, or at any rate that the documents are all there.

As part of the preparation for the State Council, the working group and yours truly met with the representatives of big, medium-size and small businesses. And there were discussions within the business communities. The documents you are to discuss today contain the proposals both of governmental and non-governmental structures, including organisations that represent the interests of entrepreneurs.

Let me say from the outset that small business is an important national concern and I am sure that the majority of those present would agree with me. The more people are involved in small businesses the more stable and healthy is the Russian economy. The number of small enterprises in this or that region is a sure indicator of the performance of regional governing bodies.

Unfortunately, our hopes that small business will become the engine of reforms and take its due place in the economy have yet to be justified. To be more precise, it is not that the hopes have not been justified, but that we have failed to accomplish it. When I say “we” I mean the regional authorities, the federal and the municipal authorities. That is why there is no credible middle class in the country.

However, in spite of all the snags in this development, small business already provides livelihood for a third of the Russian population. But so far, unfortunately, it merely provides a livelihood without contributing to growth and innovation processes in the economy as a whole. More than half of all the enterprises in the sector are concentrated in eight regions, and a quarter of them are in the capital, Moscow.

As you see, it is a very spotty and not a very comforting picture. If nothing changes, small business has all but exhausted its growth potential. And the reason is by no means the inertia of Russian citizens. The wish to start one’s own business and to succeed is widespread. And our citizens have immense resources, above all intellectual resources.

But in the business day-to-day activities they face a huge number of obstacles at every step. Obstacles created by municipal, regional and federal authorities. Every level “contributes its mite”. As a result entrepreneurs remain “in the shadows” or shut up shop or withdraw “into the shadows”.

Obviously, all of us at the federal and local levels must change our approach to the problem. We must become aware that without the development of that sector the country will not have sustained economic growth or improve the life of its people.

I would like to mention the main priorities which can produce great improvements within a short time.

Government support of small business is above all about forming a high quality and effective legal environment for entrepreneurship as a whole. In the meantime our entrepreneur is often defenseless under the law. At the federal level there is not even a framework law that protects the rights of the entrepreneur.

Besides, at present one has to pay for every step, every document and every permit to the firms which have contracts with firemen, the sanitary inspection and dozens of other services. In reality this is nothing but a legitimized form of bribery. At a meeting with the representatives of small business I asked for a list of government and municipal organisations which engage in open, though legitimate, extortion.

So, it is necessary to have a closed list at the federal level of all the documents that the authorities have the right to demand from entrepreneurs. It has to be an exhaustive list. Without such an efficient approach all our concepts will make no sense. And if we competently write up all the details, frameworks and bans, that alone would yield a serious effect.

It is also necessary to improve the legal framework for the oversight of business activities. This is not to say that there should be no supervision, but supervision should be regulated, there should be no arbitrariness in this sphere. As it is, there is widespread arbitrariness. The main reason is the vague legal provisions and all sorts of “blank spots” in regulations.

The next problem is not just cutting taxes, but improving the very procedure of taxation and accounting. Most small businessmen have had no specialized training. These people find it hard to understand all the niceties of the tax system and modern accounting. It is quite within the capacity of the government to develop a simplified system which will be more effective for the government and ensure better collection of taxes for the local, regional and federal budgets.

In this connection an interesting idea is the so-called limit to taxation that has been discussed at meetings with the representatives of big and small business. I am aware of certain problems and they are being discussed at the Economy Ministry. The proposal has been backed by the Russian Union of Industrialists and Entrepreneurs. I think the Government should continue work on this issue. And particular attention should be given to improving the starting conditions for small businesses.

All this has to be borne in mind when we speak about improving the business environment. We must know precisely what prevents beginning businessmen from standing on their two feet, what prevents them from liquidating unsuccessful businesses in a civilised way. And of course we should remember that what makes small enterprises different from big ones is that they can be quickly started and quickly curtailed. I think it would be useful to conduct similar work in the regions.

One should also look for forms to make easier for small enterprises access to credit and other financial resources. The ultimate goal is to enable the entrepreneur to obtain cheap and long-term credit on condition that the credit will be paid back. Laws are needed to regulate the creation of such credit institutions and structures that ensure financial risks.

The problem is not only financial, but also managerial, and it is in many ways linked with business culture. There is a lot of room for improving that culture here. And it is up to the business community to change that situation.

It is also incumbent upon us to find ways to facilitate the access of small business to disused basic assets, above all premises and equipment. That problem was the subject of a lively discussion at the meeting of the Presidium yesterday. Opinions vary, but the problem is there and one must give thought to it.

We should also give thought to another element, the information resources. Information resources are emerging as the most important resources and their role is going to increase.

I have mentioned the more acute questions that must be discussed and solved.

In conclusion I would like to stress that the development of small business is ultimately about improving the well-being of our citizens. By limiting small business we constrain people in their desire for prosperity and a higher quality of life.

I think that a responsible attitude to this kind of activity may become an effective instrument in meeting the social and economic challenges facing us.

Thank you.