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ussia, under both the tsars and the Soviets, has been notorious for its bureaucracy. Russia's post-Soviet market economy has been overshadowed by this history, which continues to hinder efforts by the country's nascent private sector to practice business. 

Under current federal law, entrepreneurs must go through tremendous hurdles to register new businesses. According to data of the Russian Association for Small Business Development, an entrepreneur wanting to open a café must complete 74 different steps at 40 state agencies, a process which on average takes 800 days to complete. Obtaining permission to open a dry cleaners requires 64 steps at 39 state agencies, and an average wait of 540 days. 

Needless to say, such red tape has done little to encourage the growth of small business in Russia, while much to encourage the growth of Russia's "grey" market -- in which bribery, tax evasion, and corruption reign. The result has been a private sector unable to function according to existing legislation, and a government unable either to eliminate corruption, support small business, or collect tax revenues.

The municipal administration of Vladimir, an ancient city four hours northeast of Moscow, has been working to change this. With funds from the Eurasia Foundation, the administration created a new computer program and database register at its municipal information center to facilitate the registration and licensing of businesses in Vladimir. "The system was not established for its own sake, however," explains Sergei Chernikov, the director of the center. The new register proved to be an impetus for dramatic change in registration procedures and in the reorganization of municipal structures.

Before the system was established, an entrepreneur was forced to submit registration papers to the city administration, his local raion administration (one of four in Vladimir), the tax inspectorate, and each of the state funds -- the pension fund, the medical insurance fund, the social security fund, and the employment fund. This was an exhausting bureaucratic process and deterred many from either starting new business or from doing so in accordance with the law. Because of a lack of coordination among these separate government structures, a firm could register only with its raion administration and begin work without having registered with tax or state fund authorities. The resulting disorder made it very difficult for municipal agencies to regulate businesses, much less know how many businesses -- legally or otherwise -- were active in the city.

The new register developed by the municipal information center made it possible for the administration to dramatically simplify its registration and licensing procedures, creating a more streamlined and efficient system. Now, Vladimir entrepreneurs are able to register with all the necessary agencies by submitting information one time in one place. Before the system was introduced, an average of 700 new businesses was registered each year and the registration process could take up to several months for each. Now, registration is completed in one month, and the administration is on track to register approximately 1,400 firms in 1999. Registration departments in the raion administrations have been closed, and all information is being transferred to the new register at the city administration.

Moreover, the information in the register is readily available to other municipal agencies and government structures, and certain information is accessible to private citizens and businesses, therefore improving the transparency of firms doing business in Vladimir. Tatyana Slavnova, a staff member at the administration's Business Support Department, both enters information about new businesses in the register and uses the database to reply to requests for information. "Although we have had to adapt to the new system," says Tatyana, "it has dramatically improved the efficiency of our work." Tatyana's department receives approximately 20-30 inquiries a day. Before the system was in place, it could take weeks to answer one letter -- now it takes only a few minutes to locate the necessary information and respond.

Both administration employees and entrepreneurs agree that this has been a tremendous step forward for supporting businesses in the city. Arsen Pogosyan, a local businessman who manufactures furniture, comments, "Things are changing, and they will get better. Before there was disorder, and we were inexperienced. Now everything is in its place." Tamara Mironenko, chief of the city administration's Business Support Department and a leading force in changing administration procedures, is proud of these changes. "Not only can entrepreneurs now work honestly to feed their families, the system ensures that they pay taxes so that doctors and teachers can feed their families as well." Alexei Kluyev, another local businessman, agrees. "This is how things should be, although the system hasn't worked this way in the past."

Vyacheslav Kartukhin, a young lawyer and a deputy in the Vladimir city duma, also confirms that the new system is very promising for small business growth in the city. "Procedures are simpler. Businesses can register more quickly. There are fewer obstacles to starting work. The most important result of these changes is that the state is no longer turning people away from business, but is attracting them. Businesses can no longer blame others or the system if they fail -- they have become responsible for their own success."

The increased efficiency of the administration allows the Business Support Department to support entrepreneurs in other ways. "Now I can spend my time meeting with businessmen and providing consultations," says Tamara Mironenko, who provides consultations for 10-12 people each day. Mironenko's Department conducts an active outreach campaign, organizing frequent seminars, to reach entrepreneurs in the city and educate them about sound business practice. "I am sitting on two chairs," explains Mironenko, "that of the government and that of the business community. We understand that we need to support small businesses and not hinder them. We must make it easier and more secure for them to work. They need to have faith in each other as well as in the government. If they succeed and pay their taxes according to law, then the administration, and in turn the citizens of Vladimir, will benefit."

April 1999

This document (c) 2001, The Eurasia Foundation.
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