NOT DOING BUSINESS IN RUSSIA
Russians’ Attitudes Towards Entrepreneurs Are Contradictory, But Not as Simplistic as Those of The Russian President
In his recent interview with TASS, Russian President Vladimir Putin said that, in his opinion, “there are certain reasons” to perceive businessmen as “crooks” and claimed that the “people” think so too. In fact, however, Russians’ attitudes toward domestic businessmen and entrepreneurs are much more complicated, as a Levada Center survey conducted among 1,600 Russians in November 2019 demonstrates.
Useful and Smart
The survey results reveal that Russians generally have a positive attitude towards entrepreneurs. This view has been steadily improving in recent years. For example, in November 2019, over 80% of respondents believed that small and medium-sized businesses benefited the country (only 58% thought so about large-scale business). These numbers are the highest in 16 years of measurement. Young people and wealthy citizens had particularly positive views of businessmen. Low-income people had the most negative opinions, probably because it is harder for them to imagine themselves as entrepreneurs, and probably dislike them.
In addition to viewing businessmen in a positive light, Russians also tend to believe that some of the most intelligent, talented, and capable Russians work in the sector. Again, these people were more often people under age 25, well-off, and with some business experience (or the desire to open a business, which accounted for about 40% in each category). In other words, those belonging to these social groups viewed entrepreneurial status as unusually high. They believe that businesses contribute to the development of the country by creating jobs and paying taxes.
Who Thinks Entrepreneurs Are “Crooks?”
Respondents named primarily state-linked businessmen and “oligarchs” in this category, including those who made a fortune in the 1990s. This group includes some of the most respected Russian entrepreneurs: Roman Abramovich, Alisher Usmanov, Mikhail Prokhorov, and Mikhail Khodorkovsky. They named less often entrepreneurs who created their business from scratch: Sergey Galitsky, Pavel Durov, Oleg Tinkov, and Evgeny Chichvarkin. Those respondents who said they wanted to start their own company named the following as the five “most respected” businessmen: Roman Abramovich, Pavel Grudinin, Mikhail Prokhorov, Alisher Usmanov, and Pavel Durov.
Despite positive attitudes towards specific entrepreneurs, trust levels toward business in society at large are somewhat low, according to a Levada Center survey conducted in September 2019. Only 26% of respondents said they trusted small and medium businesses; 16% said they trusted large ones. These outcomes are much lower than trust levels toward the army (63%), president (60%), or security services (48%). In our opinion, low levels of trust in business may be linked to widespread societal perceptions that entrepreneurs often violate laws by evading taxes and not fulfilling their primary public function.
Wanting Start a Business But Changing Their Minds
In Russia, there are still very few people with experience starting their own businesses. Only 14% of respondents said they had started a business, of which only 3% owned their own business at the time of the interview while 11% owned a business in the past. While almost half of the respondents said they would like to work for themselves one day, only a quarter were considering opening their own business at the time of the interview. Other studies also have demonstrated that the willingness to start a business has declined in Russia in recent years. Young respondents and people with business experience (more than half in each group)—as well as more educated, well-off, male respondents—were more likely to desire starting their own business.
Focus groups with young people and comparative studies have shown that the opportunity for self-realization, independence, and a chance to move to a different country rather than the opportunity to make a lot of money are the key factors that make creating one’s own business attractive to Russians. However, the current Russian environment is not conducive to doing so. As a participant in one of our focus groups put it: “My wife and I, we wanted to start our own business, but we ran some numbers and changed our minds.”
Indeed, almost three quarters of the respondents believed that starting a business in Russia is challenging. More than a third believed that business conditions have worsened in the country over the past 10–15 years. Importantly, respondents with entrepreneurial experience showed the highest levels of skepticism in the group at 60%.
Respondents primarily named high taxes, corruption, the need to pay bribes, the lack of start-up capital, and high loan rates as crucial obstacles. They mentioned less frequently low demand, an over-regulated economy, a lack of proper state support, and a poor economic situation. However, people with entrepreneurial experience had slightly different views: they emphasized primarily high taxes, expensive loans, and low consumer demand as key impediments.
According to respondents, a successful business requires start-up capital, contacts in government and state support, entrepreneurial talent, and a good business idea. Notably, respondents with entrepreneurial experience emphasized the presence of connections and state support in particular. Without those, it would be hard to succeed as an entrepreneur.
Unlawful Pressure on Business
Respondents rarely mentioned unlawful business pressure as an obstacle to starting their own business. However, about one-third of respondents said that illegal raids on business were widespread in Russia, 40% said that businessmen were unjustifiably prosecuted, and half of respondents said that there was unlawful pressure on their company by various inspection bodies. Respondents with business experience mentioned the prevalence of these issues more often than the general population.
However, respondents said they knew little about specific cases of such business pressure. Only 6% of respondents (primarily residents of the biggest cities, the most informed and knowledgeable citizens) were able to name specific people in business or companies that were subjected to such pressure. Yegenyi Chichvarkin and the Euroset case, Sergei Petrov and the Rolf Group, and Khodorkovsky and the Yukos case were mentioned most frequently; Pavel Durov and Pavel Grudinin were mentioned less often. Yandex and the Baring Vostok cases were only mentioned a few times.
Paradoxically, despite the widespread belief that entrepreneurs evade taxes, about half of respondents were convinced that attacks by law enforcement agencies on entrepreneurs are often caused by selfish bureaucratic motives. About 58% of those with entrepreneurial experience, 69% of respondents familiar with cases of pressure on business, and 73% of Muscovites held this belief. Fewer than a third of respondents thought attacks of law enforcement agencies were motivated by actual violations of the law.
In general, our study reveals contradictory trends. On the one hand, most respondents think highly of businessmen and their contribution to the development of the country. On the other hand, these respondents also do not fully trust them. While many respondents considered starting their own company, they were in no hurry to do so. While many believe entrepreneurs evade taxes, they also saw predominantly selfish motives behind the actions of the siloviki, among others. Overall, in our data, Russian society looks like a society of double standards with a crafty attitude towards leading public players. It is a society of people who are ready to break laws for the sake of their own profit (applicable to entrepreneurs, monitoring officials, and security officials), and such behavior is largely perceived as the norm.
Experience in doing business also slightly alters which factors people believe are necessary to succeed. People with an entrepreneurial background named the presence of state connections and support as a key factor for business success—i.e., the key to success is not talent or a good business idea, but access to state spoils and good relations with government representatives. The results indicated the biased motivations of entrepreneurs who prioritize political expediency and the need to please an official. But in a country where the state has a predominant role in the economy, it can hardly have been otherwise.
A logical policy conclusion is that to promote entrepreneurial activity in Russia, getting higher rankings on the Doing Business rating, lowering interest rates on loans, or facilitating property and permit registration is not enough (although, of course, these steps are important and necessary). Fighting corruption is not enough to change the situation. Instead, a reduction of the role of officials, inspection bodies, and security forces is needed—that is, establishing simple, understandable, and stable rules of the game. This recipe is well-known and old, but until this happens, it will be hard to motivate more active citizens to do business in Russia.
1 April 2020
Denis Volkov is Deputy Director of the Levada Center, Stepan Goncharov is Sociologist at the Levada Center, and Maria Snegovaya is CEPA Adjunct Fellow.
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Photo: “Meeting with permanent members of Security Council” by kremlin.ru under Public Domain.