Trud August 30, 2002 THE SHADOW ECONOMY IS GAINING FORCE Small business in Russia is still underground Author: Alexander Protsenko [from WPS Monitoring Agency, www.wps.ru/e_index.html] THE STATE'S PROCLAIMED SUPPORT FOR SMALL BUSINESS HAS ACTUALLY YIELDED NO RESULTS, EXCEPT FOR SOME WHICH ARE THE REVERSE OF THOSE EXPECTED. WHAT IS SUPPOSED TO BE SMALL BUSINESS IN USUAL CIRCUMSTANCES HAS TO BE THE SHADOW ECONOMY IN CONTEMPORARY RUSSIA.
DURING THE LAST YEAR, THE NUMBER OF RUSSIANS INVOLVED IN THE SHADOW (INFORMAL) SECTOR OF THE ECONOMY HAS GROWN BY 3%. THAT FIGURE WAS OFFICIALLY QUOTED BY THE STATE STATISTICS COMMITTEE.
According to the statisticians, the informal sector consisted of 10.175 million people in May 2002, which is 15.4% of the aggregate numbers of the working population. The percentage of citizens somehow involved in that sector was 29% of the working population for the countryside and 11% for urban areas. At the same time, more than two- thirds of those economic "informals" (7.909 million or 77.7%) were employed only in the shadow sector. It was an extra revenue source for 2.265 million people (22.3%). The statisticians counted 5.214 million men and 4.96 million women in that sector.
In reality, all that "gray economy" is the very "small business" the state is supposed to be caring about in every possible way. Meanwhile, people go on skipping along from that caring. Just one year ago, there were 9.893 million "economic informals", but now they are 200,000 more.
Why they are skipping along is clear: instead of real caring of the power they only see troubles - faultfinding, bribe-taking, etc. A research center quoted a horrible figure a year ago: up to $15 billion is annually spent to bribe officials in this country. Most bribes are extorted. Bribes to the lowest officials take shape of small, but almost daily exactions. Practically any officially registered firm finds itself wrapped in thick cotton wool of local officials and various "controllers" from the very beginning of its activity. Each of them can anytime "shut down" the enterprise - for a day, week, or month - until the owners are more compromising.
The top has heard small business wail, so they are taking measures. At least, from early 2002 new laws on licensing and checks entered into force in Russia that in theory must bring down the administrative pressure on businesspeople. However, the Macroeconomic and Financial Research and Development Center published in July the latest results of studying administrative barriers to the operation of small and medium companies across Russia. It turns out there has been no decline, but rise in the numbers of checks and checkers in the last year.
Yevgeny Yasin, a known economist: "The law begins to act only when there have been examples of punishing officials for self-will. But there haven't. at the same time, the law on checks does include the police and tax agencies for example. To my mind, now they outrage still more than earlier".
The broadening of the "informal" sector is fraught with another side effect: growth in the general criminal situation in Russia's economy. "Gray" is not far from "black", isn't it? Meanwhile, law enforcement agencies say organized criminal groups are already in control of more than 40,000 legal entities with different ownerships, including 1,500 state companies, 4,000 joint-stock companies, over 500 joint ventures, nearly 700 wholesale and retail market places, and over 500 commercial banks.
But even these data do not provide a complete picture of the criminal situation in economy. Specialists state that 10% of grave economic crimes were revealed before reforms, while now that parameter amounts to 1%-3%, according to different estimates. (Translated by P. Pikhnovsky )
Izvestia August 30, 2002 NUMBER OF PEOPLE LIVING IN POVERTY HAS DECREASED State Statistics Committee: new figures on poverty and the shadow economy Author: Ilya Gorbunov, Yekaterina Kravtchenko [from WPS Monitoring Agency, www.wps.ru/e_index.html] THE STATE STATISTICS COMMITTEE HAS RELEASED SOME NEW FIGURES: THE NUMBER OF PEOPLE LIVING IN POVERTY HAS DECREASED BUT AT THE SAME TIME THE SHADOW ECONOMY SECTOR CONTINUES TO GROW. TEN MILLION PEOPLE ARE NOW EMPLOYED IN THE SHADOW SECTOR, AND 42.2 MILLION ARE LIVING BELOW THE POVERTY LINE.
According to the State Statistics Committee, the number of people in Russia living below the poverty line decreased in the second quarter, by 5.5 million people. There are 42.2 million of them now. At the same time, the number of those who work in the informal shadow sector of the economy came to 10 million people. It turned out that, in spite of the tax cuts, the predicted drop in the number of shadow economy workers didn't happen. Their number increased by 300,000 this year. According to the economists' forecasts, the "unregistered sector's" burst of activity is yet to come. As a rule, its peak usually happens in autumn. People sell the harvest of their garden plots during this time.
According to the calculations of the State Statistics Committee, the shadow sector of the Russian economy draws more than 15.4% of the total employment. At that, the number of the villagers who work in the informal sector is significantly more. It comes to 29%. At the same time, the number of the city-dwellers comes to 11%. The State Statistics Committee explains these facts by the noticeable proceeds' level from the sale of the agricultural production, which isn't registered by the tax offices. At that, the work in the shadow sector is the only source of income for 8 million people. At the same time, it is just additional revenue for 2 million people.
The shadow sector is mostly spread in the agriculture and forestry. It comes to more than 4 million people. The wholesale trade, retail trade and catering follow them. 3.5 million people work in these spheres. The number of those who produce the industrial production in the informal sector is 878,000. It comes to 673,000 in the building and to 441,000 in the transport and communication services. The shadow activity in the housing and communal services, public health, culture and sport comes only to 177,000 people.
The World Bank considers the figures of the State Statistics Committee to be an underestimate. The latest research shows that the unregistered sector of Russia came to 40%. The foreign economists explain the difference in the results by the fact that the imperfection of the statistical calculation system and big gaps in the estimate methodology take place in Russia. The Russian analysts are more optimistic.
"They try to perfect the monitoring methodology concerning hidden economic activity and people employed in this sphere. The increase of unregistered activity can be connected with the change in the methodology for the calculation of the shadow sector, not with its expansion," Chief Economist of Troika-Dialog Yevgeny Gavrilenkov said.
The State Statistics Committee confirmed that the Organization of Economic Cooperation and Development had presented an instruction concerning the measurement of the informal economy to the Russian statisticians in May. It turned out that all the same the State Statistics Committee uses its own methodology. It means that the growth of the "shadowers'" number isn't a result of the more accurate calculations of the State Statistics Committee. The shadow economy is still growing. Unfortunately, business develops quicker than the legislative basis does. (Translated by Gregory Malutin)
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