Development of Russian entrepreneurship

In imperial Russia, the Soviet Union, and post Socialist Russia there was and still is a great amount of entrepreneurial potential. In the medieval Russian cities of Kiev and Novgorod not only did merchants and artisans have political power and wealth, but almost everyone above the lowest level of peasants was engaged in entrepreneurial activities. Entrepreneurs in the time of Peter the Great were traders who created Europe’s strongest military – industrial complex for imperial Russia. Only the Industrial Revolution (which started in Russia half a century later than it started in England) brought the real spirit of private entrepreneurship to Russia. In the late nineteenth and early twentieth centuries talented businessmen like S. Morozov were successful entrepreneurs in Russia. P.Stolypin and S.Witte were bright members of government who initiated economic reforms. After the Revolution, except for a short period of NEP, most entrepreneurial activities were destroyed. A transformation of the labor market and its monopolization occurred. The state was the only recognized legal employer and they did not provide the environment for entrepreneurship.

The reforms of N.Khruschov and A.Kosygin started a new wave of economists, such as L.Abalkin and Ye.Gaidar who tried to foster the role of entrepreneurship in economic development of the country. However, the Communist Party still was the dominant depersonified entrepreneur that were responsible for the economic education. In the Soviet economy, the overwhelming majority of its resources and industrial areas, such as construction, mining, trade, and power engineering were under the control of a small group of monopolistic coalitions. During the mid-1980s, in the Soviet Union, there were two main retail networks, one airline company, one oil extraction ministerial monopoly, and nine ministerial firms in defense industries.

In 1987, after the official acceptance of the need for economic changes, there was an unprecedented growth of business activities in the form of cooperatives, individual labor activity, and joint ventures with foreign capital. The absence of modern business practices resulted in the total breakdown of traditional economic ties. Bankers appeared as super entrepreneurs due to their role in economic development. Economic creativity was reflected in the new business being created either in start – ups or within large – scale amalgamations. New business associations were facilitated by: (1) former political structures organized by former party and Comsomol leaders; (2) government business alliances, such as the Ministry of Foreign Economic Relations; and (3) independent leaders, such as V.Bryntsalov, who proved their talents with sky – rocketing profits. After the adoption of the laws on cooperation, individual labor activity, and enterprise by the Parliament in the early 1990s, the concept of dominating form of ownership was changed. Even foreign businesses were able to participate in privatization. For the first time since 1917, private property was officially recognized. The privatization process resulted in thousands enterprises being privatized. Many shareholders appeared in Russia and thousands of enterprises with foreign capital were created. The 1990s gave birth to many successful entrepreneurs. One visible difference was the success – orientation and source of profits of the main two groups of entrepreneurs – whether in the short or long term. The first group (speculative entrepreneurs) tended to make profits from financial operations, weaknesses in the legislation and taxation system, or by adding value by trade operations. The country’s frantic privatization created a class of politically connected bankers and business people who got rich buying assets on the cheap. The second group (pragmatic entrepreneurs) worked hard to create the industrial base for business development and struggle against huge state bureaucracy while developing healthy ethical standards.

After seventy years under the communist rule and five years of economic reforms, Russia was joining the modern world. Inflation was down, the ruble strong. At long last, Russia was stable. The West’s leading financial institutions could bank on its potential. They threw themselves at the Russian leading companies. Companies like Gasprom, Lukoil found their shares trading on American stock exchange. By December 1997 the Russian stock market was the best performing emerging market in the world.

Then, on August 17 1998 the Russian government made a stunning decision to devalue its currency and default on its domestic debt. None of the emerging markets imploded with the mind – boggling speed and force of Russia. The 1996-to-1998 window in Russia will be viewed as one of history’s great bubbles.

One of the tragedies of the collapse in Russia was that many companies that did attract foreign capital for the right reasons – they had been privatized and restructured and were run typically by new managers under the age of 40 – were buried. About 50% of small businesses that did not attract foreign capital also collapsed. The country is still paralyzed by what has come to be known as managements crisis. The vast majority of companies in Russia either do not pay their bills or pay them with barter. Some do so to avoid the punitive tax rates that still exists in Russia – but most do it for a different reason: it is the only way to keep operating.

Match a line in A with a line in B (as in the text).

A	B
1. dramatic 2. state – dominated 3. entrepreneurial 4. private 5. labor 6. monopolistic 7. defense 8. unprecedented 9. joint 10. sky-rocketing	a) market b) ventures c) changes d) profits e) system f) growth g) entrepreneurship h) potential i) industries j) coalitions

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