战略与国际研究中心-PONARS-Policy-Memo-078_7页_82kb

Russian Entrepreneurship After the 1998 Crisis

Core Content

This policy memo, authored by Vadim Radaev in October 1999, analyzes the impact of the 1998 financial and economic crisis on Russian small and medium enterprises (SMEs). It explores how the crisis affected various market segments, identifies winners and losers, and discusses the structural and policy changes that followed.

Main Viewpoints

Immediate Impact of the Crisis

• The crisis initially led to the belief that small businesses were ruined, but this was proven incorrect.
• SMEs remained active despite facing numerous difficulties.
• The crisis caused payment arrears and the collapse of several commercial banks.
• Purchasing demand fell sharply, leading to the closure of about 30% of SMEs by August 1998, with nearly 10% not restarting operations.
• The crisis peaked in September and October 1998, followed by a partial recovery by the end of the year.

Winners and Losers

• The crisis had mixed effects, with some businesses suffering while others saw growth opportunities.
• SMEs involved in import transactions and using imported resources were hit hardest due to the dramatic devaluation of the ruble.
• Local producers and traders, who relied on domestic inputs, benefited from the decline in imported goods and their higher prices.
• The formula for success included:
  • Low prices from local inputs
  • Acceptable quality from imported equipment
  • Spare capital from speculative and mediating activities

Shift to Local Products

• A noticeable shift towards local goods occurred, but it was selective.
• Factors influencing this shift included:
  • Price competitiveness: Cheaper local goods replaced more expensive imported ones
  • Demand elasticity: Necessities like food were still purchased, while luxury imports declined
  • Quality concerns: Some consumers returned to imported goods due to dissatisfaction with local quality
  • Pricing strategy: Local producers who raised prices close to imported goods failed to gain market share

Return to the Early 1990s

• The crisis caused a regression in market practices, resembling the early 1990s.
• Markets became more open and less monopolized, with new agents entering.
• Long-term relationships were replaced by short-term contracts, and barter exchanges increased due to liquidity shortages.
• Consumption patterns reverted to simpler forms, with less demand and more tolerance for lower quality and wage cuts.

A Time of Opportunities

• Despite losses, the crisis opened new opportunities for SMEs.
• Major markets that were previously monopolized became more accessible.
• SMEs had a chance to occupy niches left by larger firms and restructure their operations.
• Financial discipline and internal control improved, reducing corruption and increasing efficiency.
• The crisis allowed some SMEs to gain a competitive edge through technological upgrades and better management strategies.

Key Information

Data Sources

• The study used interviews with SME entrepreneurs in Moscow, Tomsk, and Novosibirsk.
• Data was also collected through collaboration with the OECD and standardized surveys.

Policy Shifts

• No consistent SME support policy was pursued; instead, there was bureaucratic competition and reduced funding.
• Taxation reforms introduced instability, and political considerations took precedence over economic support.
• Post-crisis SME policy should focus on:
  • Alternative financial mechanisms (e.g., investment credits)
  • Leasing schemes for declining large enterprises
  • Mutual assistance funds
  • Legislative stability and simplification of administrative burdens

Conclusion

The 1998 crisis significantly impacted Russian SMEs, though not as severely as initially feared. It accelerated the shift towards local products, increased market openness, and forced structural changes. While the crisis created challenges, it also provided opportunities for SMEs to adapt and gain a competitive advantage. The future of Russian entrepreneurship will depend on policy reforms that promote stability, reduce administrative barriers, and support local production.