We recently had a family friend from Russia stay with my mom. He stayed for a week, touring NYC and left to see family in San Fran. Inevitably we talked about life in Russia. This gent is a successful small businessman. In the last few years he has opened several stores that sell god-knows-what. This is quite an accomplishment over there. In the last couple of years doing business has gotten easier for him.
To open a store in Moscow you have to register your business with some office, and pay a nominal fee. Piece of cake. Once you have a store front, or office, set up the local police will stop buy and require that you pay ~$4,000. You don't have an option in this matter. The policeman may come back later and ask for another installment, so it is often a good idea to pay him more than he asked, as goodwill. Of course, you still have all the usual expenses, bodyguard for you and your family, "delivery" people who demand you pay cash for goods before they have arrived. All in all its an interesting place to do business.
I mentioned that the current situation is an improvement, and it is. There seems to be emerging a type of "order", it may involve corrupt officials, gangsters, bribery, etc.. But at least there seems to have emerged a balance, between criminal and government gangs. A couple years back there would have been several visits from different gangs all demanding tribute, complete confiscation of your business, or simply murder.
My mother, who is not very sanguine about the future of Russia, asked our friend why he wouldn't move to the States. Someone who is able to make money in such an environ should do well here and not worry about bodyguards. His was reply was no way! "In the US everything is open, it is much harder to hide your income".
For us here it is hard to comprehend this mentality and as Ayn Rand once said it is good that we do not. The idea that the government and all sorts of other semi-official organs are out to steal from you is a unassailable fact, not just a paranoid rant. The black economy in Russia is not peripheral, the whole country is involved in hiding money from one another, usually in foreign banks. There are Russian software companies that sell accounting systems which keep two sets of books, one for the government and one for yourself. And this is all a normal, everyday, fact of life.
Some estimate that Russia's black economy is 70% of GDP. Why is it this so big and bad? The only reason you need to hide income is to avoid confiscation by the government via taxation. Hiding income from thugs is easier to do in banks and why pay all the extra costs/risks of hiding money from officials that can shake you down, or imprison you, unless the risk is worth it. And for millions of Russians it is definitely worth it.
For the government this 70% meant they could not fund the military, pensions, etc. without printing money. Amazingly, they did something completely rational and moral. In Jan 1 2001 they imposed a flat tax, 13%. So far tax revenues have gone up 30%
. Tax revenues have gone up in a country where paranoia is a prerequisite for survival. Tax revenue before the tax reform were 9% of GDP. By November 2001 tax revenue where 16% of GDP
I am cynical about the prospects for a country like Russia. But one has to wonder, how such a god-forsaken place implements these ideas. It must be the utter desperation that forces the mind to focus and ignore political compromises. Or it might be an enlightened ruler, Czar Putin. Countries based on enlightened rulers will eventually have to deal with the issue of succession. But in the mean time it will be very interesting to see how these changes impact Russia's society.