Small Firms and Economic Development in Developed and Transition Economies: A Reader by David A. Kirby Anna Watson

Author:David A. Kirby, Anna Watson [David A. Kirby, Anna Watson]
Language: eng
Format: epub
Tags: Business & Economics, General, Social Science, Social Work
ISBN: 9781351755139
Google: olkPEAAAQBAJ
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Publisher: Routledge
Published: 2017-11-22T02:20:34+00:00

SME Development and the Institutional Environment in Former Soviet Countries

The development of small private enterprises in the former Soviet republics started in the late 1980s, following the adoption of the law on co-operatives in the former USSR in 1987, which made it possible for non-state enterprises to exist legally. However, SME development remains at a modest level, even when enterprises in the informal economy are taken into account. For example, in Russia in the year 2000 official statistics indicated a total number of less than 900,000 registered small enterprises which amounts to roughly 6 firms per 1,000 inhabitants, although with huge core-periphery differences. In the Ukraine the number of incorporated small enterprises increased rapidly from 0.9 per 1,000 inhabitants in 1991 to 4.5 in 2000, although most of this rise took place in the early 1990s, with little change after 1996. In the year 2000 nearly 150,000 small enterprises existed, employing a total of 1 million, plus more than a million individual entrepreneurs. In Belarus official statistics showed that in the year 2000 only 30,000 SMEs were operating, employing a total of 39,000 persons whilst in Moldova the number of SMEs totaled 194,000.

Whilst these figures represent significant progress for countries where, until the late 1980s, private firms were not allowed to exist, it is a very slow pace of change in comparison with most Central and East European countries and some former Soviet republics (such as the Baltic States). At the same time, it must be recognised that official data underestimates the total extent of private sector activity because of the amount of informal activity that exists. For example, studies for the Ukraine estimate that 20-50% of total sales are concealed by registered firms (Yacoub and Senchko, 2000). Despite this, the contribution of SMEs to social and economic development is limited. Most SMEs are very small firms, operating in trade and services where more than half of all SMEs are found, and which contribute a major part of total SME employment. This sectoral pattern reflects an uncertain macroeconomic environment, which still favours short-term investments in sectors with a high level of profit and low barriers of entry and exit. It also encourages SMEs to operate in the informal economy to keep costs as low as possible and focus on short-term returns.

The inadequate and often hostile business environment in countries where market reforms have been slow or only partly installed plays a major role in constraining SME development (Smallbone and Welter, 2001b). In Belarus for example, the very slow pace of privatisation, combined with an increase in the regulation of small enterprise activity after 1996, forced many small firms into liquidation and others into operating abroad in Poland, Russia, the Czech Republic, Latvia and the Ukraine. By 1997, the effect of an increasingly hostile regulatory stance on the part of the government towards the private sector, resulted in 54% of all registered enterprises becoming illegal or driven out of business because of new registration rules (Zhuk and Cherevach, 2000). Methods used

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