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Small Business Collective Action and Its Effects on Administrative Modernization in Putin’S Russia from “Grabbing Hand” to “Helping Hand”?

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Small Business Collective Action and Its Effects on Administrative Modernization in Putin’S Russia from “Grabbing Hand” to “Helping Hand”? LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE Small Business Collective Action and Its Effects on Administrative Modernization in Putin’s Russia From “Grabbing Hand” to “Helping Hand”? Brian Aitchison A thesis submitted to the Department of Government of the London School of Economics for the degree of Doctor of Philosophy in Political Science, London, May 2014 1 Declaration I certify that the thesis I have presented for examination for the MPhil/PhD degree of the London School of Economics and Political Science is solely my own work other than where I have clearly indicated that it is the work of others (in which case the extent of any work carried out jointly by me and any other person is clearly identified in it). The copyright of this thesis rests with the author. Quotation from it is permitted, provided that full acknowledgement is made. This thesis may not be reproduced without my prior written consent. I warrant that this authorization does not, to the best of my belief, infringe the rights of any third party. I declare that my thesis consists of 64,203 words. A note on transliteration: this dissertation employs the “BGN/PCGN” transliteration system of the United States Board of Geographic Names (BGN) and the Permanent Committee on Geographical Names (PCGN) of the British government. 2 Abstract Throughout the 1990s and 2000s, epidemic corruption hindered Russia's economic performance. At the grassroots level, low-level administrative agents preyed on small- and medium-sized enterprises (SMEs), exploiting Russia's ever-changing and loophole-ridden legal codes to extort rents from these relatively powerless firms who lacked the political connections necessary to protect themselves from these predations. In contrast to larger, better-connected firms, SMEs suffered from this "grabbing hand" of the state. They lacked the resources to engage in the "capture" and "elite exchange" models of business-state ties that characterized interactions at higher levels of the politico-economic hierarchy. While some firms benefitted under Russia's systemic corruption, SMEs tended only to suffer under it. This pervasive "grabbing hand" drove the consolidation of the SME interest toward the resolution of this common problem. But, given their individual weakness, SMEs' only means of systemic political leverage comes from pooling their resources into mechanisms of collective action. This presents a number of problems according to the theory of collective action as laid out by Mancur Olson. As a large, diverse, and geographically scattered interest, SMEs face significant organizational costs in achieving political outcomes when compared to smaller, sector-specific organizations. However, the Putin administration has put SME development and the reduction of corruption at the center of Russia's modernization program. Through the creation and empowerment of "peak" SME business associations, the administration has in effect subsidized these increased costs of collective action for the SME community. The synergy of interests between Russia's "power vertical" and the SME community has resulted in a push for a more professional, accountable, and transparent administrative apparatus. This dissertation explores the thesis that the common administrative obstacles facing the SME community has driven the emergence of an "encompassing interest" in administrative modernization, which is more likely to produce results given the support of Russia's powerful president. 3 Acknowledgements This dissertation emerged from personal experience living, working, and studying in various towns and cities in Russia from 1996 to 2006. Small businesses, typically restaurants, shops, and local watering holes were a central feature of my daily life in Russia. I came to know many of the shops’ owners and employees. To my untrained eyes, the small business community appeared vibrant and robust, and did not mesh with the picture often portrayed of Russia as a dreary place, run by mafia gangs, dominated by oligarchs, and subjugated under the thumb of an authoritarian leader. I wanted to reconcile these two perspectives. I wanted to know more about the entrepreneurial experience in Russia. David Woodruff of the London School of Economics served as my supervisor for this project. His guidance was patient and supportive. His critical perspectives were always thoughtful and challenging. As a PhD student, one hears many horror stories about absent or uncaring supervisors. I consider myself lucky to have had David on my side. For absolutely essential logistical support, I must extend my gratitude to the dedicated and ever-helpful women working at the international studies office at the Volga Academy of Civil Service in Saratov, Russia. Elena Samsonova and Nairya Ambaryan in particular made the daunting task of finding interview respondents in a town I did not know a manageable one. I must also thank Alexander Kazakov of Saratov State University. Our informal conversations over beers on the banks of the Volga were some of the most illuminating (and fun) I had during my fieldwork time. He also provided invaluable contact with experts in SME issues in Saratov. I also extend my thanks to the many representatives of the SME community who took the time to speak with me. Their stories were fascinating. I hope this dissertation does some justice to their rich accounts. Finally, this dissertation is dedicated to my mother, Dr. Rebel Palm. She got her PhD late in life, and was only able to enjoy the fruits of her education for a few years before succumbing to her cancer. Unfortunately she did not quite make it to see me achieve my own. She taught me the value of education from an early age, and it was education that got me out of some very limiting circumstances. I am ever grateful to her for that. 4 Table of Contents Declaration ................................................................................................................................. 2 Abstract ...................................................................................................................................... 3 Acknowledgements .................................................................................................................... 4 Table of Contents ....................................................................................................................... 5 CHAPTER 1: EMPIRICAL PUZZLE AND THEORETICAL CONSIDERATIONS ............. 7 Introduction ............................................................................................................................ 7 Empirical Puzzle and Core Research Questions .................................................................... 9 Businesses’ Role in Advancing Modernity as “Good Governance” ............................... 10 Theoretical Perspectives and Literature Review .................................................................. 16 Collective Action in Action: SME Mobilization under Putin's Administration .............. 16 Capture Models: Seizure, Elite Exchange, Grabbing Hand, or Helping Hand? .............. 27 SMEs, the State and Bureaucracy in Historical Perspective ................................................ 30 A Brief History of Small Private Enterprise in Contemporary Russia ............................ 32 The Russian SME Community Today: Problems and Prospects ..................................... 35 The “Large N”: Quantitative Evidence for SME Effects on Institutional Modernity ......... 36 Hypotheses: Elaborating the Model ..................................................................................... 41 A Qualitative Model ........................................................................................................ 44 Methods and Research Design ............................................................................................. 48 Variables and Method ...................................................................................................... 49 Theoretical Summation and Dissertation Plan ..................................................................... 51 CHAPTER 2: THE CONSOLIDATION OF THE SME COMMUNITY IN RUSSIA 1996- 2010.......................................................................................................................................... 56 Introduction: SMEs and the Push for Inspection Reform .................................................... 56 Empirical Puzzle and Theory ............................................................................................... 56 Hypotheses and Model ......................................................................................................... 59 The Organizational Consolidation of Russia’s Small Businesses and the Fight for Inspection Reform ................................................................................................................ 65 SME Congresses and Crisis: Rhetoric Becomes Reality ................................................. 66 Inspection Reform: From Legislation to Implementation ................................................... 75 The Inspectocracy: The “Grabbing Hand” at Work ........................................................ 75 Conclusion ........................................................................................................................... 82 Theoretical Perspectives on SME Consolidation and Inspection Reform ....................... 83 CHAPTER 3: INSTITUTIONAL OUTCOMES OF RUSSIA’S SME MOBILIZATION: A REGIONAL PERSPECTIVE
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