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Friday, July 21, 2017

Why 20% of the Russian economy not controlled by government

The crisis in the country, the authorities engaged in a feverish search of money, which it would be possible to plug the growing hole in the budget. As always in such situations, their eyes turned to the informal sector of the economy. They say, do not pay taxes, the services of the state nevertheless enjoy… the President has instructed the government to consider measures to get out of the shadows the millions of Russians that the light well did not want.

But how many? The Institute of social Sciences of the Russian Academy of national economy and public administration under the President believe that about 30 million people, nearly a third of the working population of the country wholly or partially in the shade. In labor say that with a wages of about 15 million workers do not pay contributions to the Pension Fund is, according to the Agency, and there are shadows…

What it is — a shadow economy, how impressive it looks in modern Russia and whether (and most importantly, whether) it is determined to fight? This “MK” talked to the doctor of sociological Sciences, Deputy head, Laboratory for studies in economic sociology Higher school of Economics Svetlana BARSUKOVA.

photo: Alex geldings

Different research centers and authorities give different figures, saying about the shadow economy of Russia. Is it possible at all to calculate that in the shadows?

— If you dig in the literature, we can see that in any country — not only in Russia — within one decade, estimates of the volume of the shadow economy range from the symbolic to the terrifying. This means that the universal counting method no. As with anti-wrinkle creams: there are a lot that is the best proof that no one truly does not work… the choice of method of calculation affects the political situation: a lot depends on what you want to do is scare or, conversely, to show that there is progress in this area.

For example, the INDEM Foundation headed by Georgy Satarov considered the volume of corruption market in Russia and came to the conclusion that it is enormous, and it exceeds the revenue of the state budget twice. He was told that he is wrong in his, as we call it, “alarmist judgment,” because in this volume of corruption market economy would have long since plunged into chaos. Satarov argued that opponents simply can not imagine the scale of the shadow economy, taking into account that the total amount of economic activities is much more than people think…

— All concealed from the state, in relation to the informal economy?

— No, it is necessary to divide concepts of shadow economy and criminal. In the shadow economy creates goods and services which the law society is quite acceptable, the only problem is that they are produced with the violation of some formal rules. For example, in the underground workshop of sewn boots. Good boots, they people need. But the firm is not registered, pays taxes, hires employees… And a completely different story — prostitution, drug trafficking, illegal arms trade, the production of pornographic movies. Here the state’s claim to the product, not the procedure. Therefore, the objectives of the state in relation to these sectors should vary: the shadow economy it is necessary to try to legalize and criminal — to destroy. A pimp can be, and was glad to pay the taxes and sleep well, but his taxes are not taken. So he bribes the police, you have to pay a kind of tax to the state and its individual representatives.

When talking about the size of the shadow economy, it is useful to clarify whether separated in the calculation of the informal sector from criminal or these concepts are mixed. The same applies to cross-country comparisons. Somewhere prostitution, for example, prohibited business, and somewhere it is legal and is an official component of GDP.

photo: From personal archive
Svetlana Barsukova.

— As in Germany or Italy?

Yes. Or light drugs: their production, transportation to the Netherlands — part of legal GDP, and the us is part of a criminal economy…

More or less generally accepted is the opinion that in Russia about 20% of the economy is in the shadows. But it is necessary to refer to any quantitative estimates of this phenomenon with skepticism, because of the hidden activities you can count only on circumstantial evidence. For example, in 90-e years when we have the official volume of production of many types of products has dramatically decreased, the consumption of electricity fell not so much. Hence, the production work and the energy consumed, but the output was not declared.

— Sometimes talking about shadow employment and sometimes about employment in the informal sector of the economy. It is one and the same?

— It is categorically different things. Often with reference to the Rosstat Amateurs write that “according to official data, in the informal sector of the economy employs 10 million people, and call them shadows. But this is about something else entirely! Just in our statistics there is a separation of the economic activities in the formal and informal sector that has no relation to the legal and shadow economies. For example, conduct a poll and asked: “Tell me where you work?” If a person is responsible “company or organization” — he is considered employed in the formal sector. But, as we know he can work there without a contract, oral agreement, and receive a salary in an envelope, and then, before us is a typical case of shadow employment, but in the formal sector of the economy. But if you are a farmer or are employed in someone’s house cleaner, chauffeur, nurse, if you are an entrepreneur without legal entity formation, according to our statistics, you belong to the informal sector of the economy. Although you may are law abiding: have the patent, you pay taxes. That is based on the question “where do you work?” people spread between the formal and informal sectors, which tells us nothing about how to legally employed persons. To reveal shadow employment, it is necessary to ask other questions: “do you pay taxes?”, “do you have a contract of employment?” — which understandably will scare people off.

photo: Natalia Muslinkina
The main informals are sometimes considered to be trading in the street grandmother’s,but this is a misconception.

Why the businessman to feed the jerboa

— Hence, the shadow economy, we believe the one which do not pay taxes and insurance premiums?

— The shadow economy rests on three pillars: it is not included in statistics, it is not issued in the form of formal contracts and agreements and, importantly, it is not subject to government regulations of business activities — labour, tax, customs, land legislation. For example, you open a business and did not register it. Or import the goods into the country, distorting the nomenclature of goods in the customs Declaration (there were years when according to the statistics, Russia imported more green peas than it was grown in all the EU countries put together, under the form of green peas, which were low customs duty, imported anything). Or take on the work of migrant workers, not having the license on employment of foreign labor… But such a total disregard of the laws are the exception — usually violations of fragmented and strictly metered to minimize the risk of sanctions. For example, the entrepreneur pays taxes, but not all activities; contracts, but not all, workers; in the contract notes to pay, and actually pays a different…

— That is, the same businessman partially employed in the economy, and partially in shadow?

— Absolutely. Between the white and shadow economies are no Chinese walls. The art of entrepreneurship in our country and consists in finding the safest and most effective schemes of business in the form of a combination of formal and informal tools. Businessmen call it a beautiful word “optimization”, but actually we are talking about how to leave “shadow”, but to stay in character, a decent man and respectable businessman. In the shadows it’s easier to stay, if you are small — less chance of being caught. But if you are a tiny entrepreneur, the deaf to go into the shadows is unlikely to succeed, because then you lose many opportunities of development: to participate in the tender, it is necessary to show the history of the company, to receive a quota on imports of foreign food, we have to show volumes of import for last years is to take out a Bank loan, it is necessary to have a financial history… a Separate problem — the sale of the business, because the business is built on the fact that you and the mayor soared in the bath, not sold because a new owner in the bath may not be allowed. That is, the shadow economy is not just benefit from unpaid taxes and lost development opportunities.

But if they suffer from shadowing, why not come to the light? The taxes are high?

— Taxes are not the highest compared to other countries. Just the system is designed so that always have something to pinch off and keep on bribing officials and paying for a guaranteed victory in the tender for sponsorship of election campaigns. A businessman needs to be closed bases in the political sphere, he must have available funds in so-called charity and sponsorship… Like the head of “Renova” there were other concerns, how to buy Faberge eggs! And what we see in the Tretyakov gallery? “This room repaired at the expense of such a company”… In the Moscow zoo all the cells between firms divided: who feeds the tiger who jerboa. The money has nowhere to go? No, everyone understands that under the guise of charity and philanthropy, they invested in relationships with the authorities and thus get carte Blanche on the decision of some questions…

— But business runs a charity or contains animals in public zoos and in other countries!

The difference is significant. According to statistics in the Western world 90% of the volunteer assistance comes from individuals and very little from legal entities. In Russia all on the contrary. We actually created the institution of compulsory charity as another form of business taxation. In proportion to the scale of the business you are either balls to the city Day cheat, tiger or feed, or Faberge eggs in the country of return, or in the preparation for the Sochi Olympics participate. I think, Crimea’s economy will revive, actively using forced charity of the Russian business.

— And this is from legal will not make money, it turns out?

— Huge shadow momentum rolling, especially in the sphere of big business and its relations with the government, although the people of the shadow economy are the activities of the client or the grandmother who sells something on the market. Their demolition, chase, and shadow economy is growing. Take the same corruption. In recent years, we have significantly decreased the so-called household corruption, which is rooted in the relations of the population and the authorities. For example, nobody gives bribes for issuing passports, although it was until recently. Even the traffic cops rarely take. But at the same time increased significantly the so-called business corruption, serving the dialogue between the authorities and business. Corrupt the stream went up, and the higher the level, naprosyne system. When entrepreneurs ask how much it costs to solve this question, it turns out that the price decisions through bribes has increased. Bribes became less, but the average check rose!

— If to speak not about business, but about ordinary people — it looks like a typical Russian informals? The person who receives salary or pension and, as in the famous joke, “a little sewing”?

A typical shadow businesses — it is rather a male under the age of 35 engaged in construction, trade or services without higher education. People with relatively low levels of education, which is more difficult to find high-paying jobs, and young: they are the priority of employers not because of the modern thinking, but because because of their age think little about pensions and sick, they think that everything is infinitely far away…

But it is incorrect to interpret the wages in envelopes only as arbitrariness on the part of the employer. It is a mutual agreement. Often employees say, “what can I do?” but deep down, prefer to today.

Because tomorrow you don’t know what will!

— Yes, but not only that, but also the poor quality of public services. If to get the proper treatment you need to go to private specialists or to pay doctors who treated formally “free”, and if the free school is taught so that without an army of Tutors normally the exam is not to pass, and if the police found the stolen car, the person begins to think: maybe it’s better the money is not to give to the state to solve the problems yourself?

Before us disclosures: next, Deputy Minister or Governor was arrested. Apparently, we should feel a sense of deep satisfaction, but for example, I always think: that’s where the money, including my taxes! After such reflection the incentive for tax compliance is clearly waning. And businessmen also have to decide whether they want to feed this army officials or not…

Whether suffering from this state? Yes, officials say all the time about wanting to fight shadow employment. But if you block the channels of the shadow-money doctors, teachers, ordinary policeman, then you need to pay them a decent wage. What, as you know, no money. And people are like “slovyane”, fed… how can the State, in fact, satisfied with the current situation: the shadow economy is portrayed as the enemy of the formal economy, but is the enemy, which often provides an invaluable service, it provides social stability, dampens the poverty, reconciles people with inadequate laws because they realize that they do not have to perform.

A similar story was in the Soviet Union, although the nature of the shadow economy were there is different.

Speculators sometimes fell in the Soviet cinema: still from the film “Ivan Vasilyevich changes occupation”. Photo: still from the film.

How and what Russia caught up with the West

— The volume of shadow economy in the USSR was less…

Research on this subject when the country was conducted. But the Americans were trying to explore the “second economy of the USSR”, where he related the economic activities outside the planned economy. In particular, it was a study on the shadow income of Soviet citizens. To do this, I interviewed the immigrants from the Soviet Union to the States and came to the conclusion that the share of informal income in the total income of the Soviet people grew from North to South and from East to West: living in the Northern cities, it was minimal, and living in southern underbelly — resorts, port cities in the Baltic States — is very large.

But in any case, the shadow economy in the USSR have substituted the shoulder of the planned economy. She extinguished the deficit. She was reconciled with the ideological paranoia: when people see that there are flea markets, speculators, black-marketeers, the socialist propaganda took on a bit in quotation marks. In addition, the shadow economy mitigated inflationary overhang, which is inevitably formed in a situation when the price of milk and bread stable for many years, and salaries and pensions are growing, there is money there, and buy nothing. You can always go to the flea market and with a significant overpayment to by Yugoslav boots or American jeans!

And yet, the shadow economy has given people active and do not want equally live modestly the channel exit bursting with energy: they can become guilders, underground millionaires.

— Risking at the very least sit or even to be shot?

Everyone understood: if the amount of illegal activities will be negligible, the risk of punishment from campaign to campaign minimum…

But in any case, the nature of the shadow economy in the USSR was determined by the shortage and ban on business activities. If described in one word its core — it was theft. But otherwise, if in the country there was no market for tools and raw materials?

— On the state of equipment do left products stolen from raw?

— In fact, the whole second economy in the USSR parasitized on the resources allocated to a planned economy, and therefore was showing the wonders of efficiency. For example, the relevant statement was drawn up that yarn is burned, and then from her knitting, fashion items. The machines were written off as worthless, and then they worked perfectly in illegal workshops… Take personal farms of the Soviet era. When in the 90s began to smash the collective and state farms, one of the arguments was this: the productivity in the farm sector are low, and next, at the farm, at times higher, because people are working for themselves!

Were not taken into account that gasoline, seeds, feed, fertilizers, which were allocated to the collective farms, the shadow image was distributed in certain proportions between them and on the private households. When the farms died and the resources we had to buy, was so much more than that. Farms in the early 2000s gave 2-3% of gross agricultural production, now provide only about 10%. And farms, many of which are not inferior to the size of farms now generate as much as agricultural organizations including the largest agricultural holdings, because unlike the farmers do not pay taxes…

Between the shadow economy of the West and the USSR was always a huge difference: they were talking about tax evasion, and in the USSR — about the theft as the only means to access resources. It turns out that modern Russia is “caught up” with the West in this sense.

Why is beef trouble

It is considered that to bring the economy out of the shadows helps lower taxes.

— A simplified approach. If you look at the economic history of different countries, you can see that the hard drive belts between taxes and GDP exist only at high levels of quality power. (The quality of power is understood as the integrated indicator that includes the level of political competition, the adequacy of laws, the efficiency of the arbitration system, etc.) When quality of government is high taxes quickly affect the economy. But if the quality of power is low, the drive belt is weakened, and even raise taxes, at least lower — the economy reacts poorly.

In addition, the more important the stability of the rules of the game. Frequent change of rules, even if it changes for the better, nullify their effect. Look at the agricultural sector: how we did well with chicken and nothing with beef! And because the beef industry long investment cycle, business is afraid to play with the state long-term, prefers to fit in with the current political situation, quickly make your money back as long as you have not changed the rhetoric of power and while the action was given by her preferences. And here we are with Turkey had a fight, stopped their tomatoes to take you to the greenhouse, however, have in mind to build, took a loan and we with Turkey have made up and…

The business monitors the system as a whole and not just taxes.

Over the last 15 years we have had several cases where the tax change was presented as aimed at the conclusion of the shadow economy. A flat income tax of 13% for example.

— Introducing the flat rate, the government actually signed the impotence to collect taxes from profitable groups. One person earns 10 thousand, and another 10 million who has more ways to cheat the IRS and defend against her claims in court? But to say directly, “we cannot establish fiscal discipline in the country” the government could not, therefore, cover the other arguments — say, the simpler the better.

The flat rate causes more complaints. Now, when the work of tax service became more effective, I do not exclude that we will return to the question of progressive taxation.

Except for the carrot and stick there punitive measures like tightening criminal liability for tax evasion…

They, of course, give any effect. But it seems to me that entrepreneurs in their majority not pathologically greedy people with mental disabilities and think about legalization and the shadow business quite rational. Yes, they weigh the risks of exposure, take into account the stiffness of the punishment for a violation. But thinking about whether to develop the business, having lost shadow schemes.

If the entrepreneur knows that if the infringement of his rights, he will go to arbitration and there quickly, honestly, on the merits will consider his case, — he considers taxes as payment for the protection of their rights by the state. But if he knows that quickly solve the problem can only be a bandit or a personal Union with some official, he begins to accumulate funds for payment of their services, including through tax evasion.

Shadow economy — is the shadow cast on a living economy is inefficient, lax and cumbersome state machine. Look who is investing in Russia Bahamas, Cyprus and other offshore. That is saved from taxes by using offshore schemes the money otherwise it is unclear what efficiency would have been spent by our government, returned to Russia as foreign investment…

— Recently, the President instructed the government to come up with measures to combat the shadow economy. But if it helps the population to survive, whether in crisis to do?

As we have said, the shadow economy has different incarnations. With the criminal we must fight. And corruption, too — then entrepreneurs would be relieved of the need to accumulate considerable resources to corrupt bargain with the government. However, developing measures, it is necessary to consider that the Russians demand to restore order in the country, not referring to himself. That is the logic runs: “place your order but don’t touch my familiar world, my reliable ways of solving problems.” When you build a house or repair apartment, I always ask whether the workers need the documents? A nanny hired through an Agency, Contracting, or in your neighborhood glue ads, interview your friends? And if you do not receive a check at the dentist, you worry if he’s good?

People reproduce the shadow economy not only in the workers but also for consumers who constantly demand for its services. By the way, very interesting moment when the crisis in the twentieth century has faced US and UK, it was found that the population of these countries responds to changing conditions in different ways. While reducing legal income Americans drifted into the shadow economy, and the British compensated for the reduction in legal income that was jimali consumption and began to serve themselves — sewing, cutting, etc. So that the role of culture, the choice that stands before man, has not been canceled.

— And the Russians that prefer in a crisis?

I think we found the picture is colorful. In the world’s poorest will increase, the archaization life in the form of beds, greenhouses, pickles; along the trails will grow the ranks of women with buckets of mushrooms and berries. Someone will fight for wealth, leaving the seasonal construction crews in seasonal work. Someone will start to steal even bigger — as the last time. With all the differences is ignoring the state, the neglect of his laws, that may be part of our culture. Listen to yourself, as we ask the official: “Let’s work this out like human beings!” As if the law is definitely “not human”. Name one Russian writer, who would love and respect wrote official. Chekhov, Saltykov-Shchedrin — a complete Qur word… In the “job state” — the source of the problem, but also the basis of the status of our people, and reserve their vitality.

— Why we are so loyal to shadow everyday practices?

— There are studies that show that the Russians, who have a contract, pay taxes, earn a pension and have all the charm of legal employment, not subjectively feel more secure and happy than their counterparts in the informal sector. They have no sense of stability and reliability. And if so, then the price of this legitimacy is low.

It’s not about that “in the shadows” good. It’s about the fact that “light” is not much better…

Financial crisis. Chronicle of events

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