One Russian company in three takes refuge under protection rackets - "a new form of monopolism under the market conditions." The economic rationale of those doing the protecting "is maintenance of the high level of prices and profits by limiting the number of participants," research findings declared in Moscow today (Tuesday.)
Even law-abiding businessmen flee to the gray economy as it represents "the only way to survive" in the face of excessive taxation. "It is hard to conceive that enterprises fully complying with all the legal requirements exist," according to a report published by experts of a policy "think tank" advising the Russian government on market economics and democratic society.
"Informal" taxes imposed on a portion of profit provide the spoils for equally "informal groups" running protection rackets in a runaway economy, splitting specific market sectors among themselves, the researchers found in
findings revealed by the European Union-funded Russian-European Center for Economic Policy.
But even police are said to be in on the corruption game, selling cover to more than 36 percent of companies turning to what Russians call "kryshas," or "roofs" in English, to keep wolves with even-sharper fangs clear of the door. The "authorities" want their share of the action, too, mopping up 35 percent
of "krysha" trade, according to the research.
The findings reported to a news briefing today were part of a study by specialists from St. Petersburg State University of Economics and Finance into wide-ranging elements of Russia's shadow economy, research founded on unrecorded transactions "understood as a financial/business transaction that
cannot be disclosed through direct auditing."
Officials of tax and financial authorities joined company accountants in an anonymous baring of souls and books to inquirers who found that in the northern capital, St. Petersburg, every single company seemed locked into tax evasion. Nearly half of business was at it nationwide, the authors said.
Avoiding taxation was a big temptation, they noted. But shadow incomes for increasing personal gain gave the problem "a moral dimension."
"Uncontrolled processes, in particular those related to profit distribution,
pose a serious threat to society and require considerable resources to combat," the report said.
An even more focused accompanying analysis of affairs in Russia's isolated western enclave of Kaliningrad offers deeper-still evidence of how far crime
and the gray economy is part of society's fabric.
Drug production and trafficking were found to account for between 34 percent
and 36 percent of the region's shadow economy, the analysis revealed.
Smuggling amounted to between 21 percent and 26 percent, prostitution between 18 percent and 20 percent, and illegal production and sale of "fire, gas and
cold arms" contributed to between 10 percent and 15 percent. These all had the largest share of the gray market.
According to "a sufficiently-concerted" opinion of experts conducting the study, the average volume of shadow activity was about 90 percent of official gross regional product, they said.
Analysis showed glaring inconsistencies in data tracking economic activity in a region giving rise to serious security concerns for the European Union, pondering having Kaliningrad locked inside community borders when region neighbors Poland and Lithuania become members.
For while official statistics showed the enclave's standard of living was 1.4 times lower than the Russian average, contrasting - but also official - figures showed there were 300,000 cars in a population of just some 950,000,
the report showed.
Further food for thought - 1,655 joint ventures and more than 6,000 small businesses were said to have been established in a region reporting economic
growth of 12 percent and investment growth of 31 percent.
Gross regional product indicators showed a positive upward trend reaching 17
percent in 2007, compared with an average value of 11 percent now.
"Conspicuous discrepancy" indicated the existence of a well-developed shadow
economy, the report said.