Flickering economic conscience of Russia

No matter what the government does, shadow economy is still prospering in Russia. Although taxation is currently tougher, the tax burden is reduced, the shadow economy is still strong.  Every year Russia’s Statistics Committee reports share of enterprises of the shadow economy and calculates amount of GDP produced there. Even President Vladimir Putin has to admit that the government hasn’t advanced in the struggle with unemployment and shadow economy at all. It is perfectly evident that something is to be done to overcome this phenomenon, however, nobody knows what exactly. If the shadow economy problem is not settled, Europe and the USA will still consider all Russians gangsters of  the Russian mafia.

As of May 2002, an informal economic sector, or so-called shadow economy, covered 15,4% of the country’s working population, that in its turn makes up 29% of villagers and 11% of working urban population. At that, shadow economy is the basic source of income for 7,909 million people, or 77,7% (the showing made up 7,556 million in May 2001), and for 2,265 million people, or 22,3% it is an additional source of income (23,6% for May 2001). Such is the sad statistics provided by the Russian Statistics Committee. At the same time, it is perfectly clear that shadow economy is even stronger in fact.

It is funny, but villagers who sell agricultural produce from their own farms and grown in the gardens, but the sales are not controlled by the fiscal inspection, these people are also ranked among those working in the shadow economy.

In some respect, shadow economy is a mode of living of Russians. As the government and oligarchs are not so much concerned about the way people live, ordinary people, in their turn, think that the government shouldn’t care about the way they earn money. This  opinion is very much popular in Russia. That is why it was a great problem for the fiscal police to make Russia’s largest producers and banks pay taxes at the end of the 1990s.

What is the Russian shadow economy and what is the way to stop it? Are old women who sell cigarettes at the underground real criminals, activists of the shadow economy? This is an additional source of income for them, because pensions paid by the government are not sufficient enough. It is difficult to define at once who are actual criminals in the Russian shadow economy.
Russian Accounts Chamber Chairman Sergey Stepashin says, the share of shadow economy is exaggerated in Russia. Before appointment to the Accounts Chamber, Sergey Stepashin held office at the Interior Ministry, Federal Security Service and was Russia’s prime minister for some time. He knows the situation from inside perfectly well, probably he is right when he says about the overestimated scale of the shadow economy in Russia. For example, it is not clear for him, who and how managed to calculate that $40 billion are illegally transferred from the country every year. Sergey Stepashin thinks that exaggeration of the shadow economy’s scale is favorable only for foreign organizations like FATF that desire to infringe upon Russia’s interests. He says, no organizations, including the Accounts Chamber, can calculate actual scale of the shadow economy in Russia. It is impossible to struggle with this phenomenon being completely unaware of its actual scale.

Russian President Vladimir Putin is not so much optimistic about the problem. He said at a conference for social and economic problems of Russia’s south  in May: “Industrial production isn’t increasing, the rate of the shadow economy isn’t reducing.  Neither federal target programs, nor free economic zones are efficient in this situation.”  

Duma deputy Oksana Dmitrieva says: “Official unemployment rate is unreliable, because many people are employed in the shadow economy  sectors.” The deputy knows the situation from inside perfectly as well, as she held the post of labor and social development minister some time ago. Oksana Dmitrieva thinks that main problem in Russia is that needs of Russian regions for manpower and different goods are disregarded. And no officials want to go into the problem. Another problem, in her words, is poor stimulation of new workplaces’ creation.
To tell the truth, nothing is done in the country to stimulate creation of new workplaces. Special Centers for employment of the population were opened all about the country to register unemployed people, place them in jobs or train them for new professions. That is why the centers can provide statistics concerning only those unemployed people who are registered there, at the time when many unemployed people are not registered at such centers at all. That is why two methods are used in Russia to calculate the number of unemployed people: according to information provided by the Russian Ministry for Labor and methods used by the International Labor Organization.

The official unemployment rate is still low in Russia. A question arises at that: where is the shadow economy from? Are experts right when they suggest that honest people, having finished work at their official workplaces do some more work to ear money on the side?
Are any methods used in Russia for struggle against the shadow economy effective at all? Publications about seizing large-scale batches of unauthorized goods, liquidation of illegal alcohol producing plants and so on are frequent in the Russian mass media. The media suggest at that, the shadow economy is probably profitable for some top officials, who gain profits from illegal production and trade.
Mass media also report, Russia’s Ministry for Internal Affairs developed a special program at the end of July to disclose some sectors of the shadow economy. This autumn, special operations were planned in the gambling and tobacco business, import of consumer goods, fishing,  fish processing and employment of illegal migrants. The Ministry for Internal Affairs is sure that tough measures implied in these spheres would bring $5-6 billion to the budget.  But leakage of the information ruined the plans of the Ministry for Internal Affairs. The Interior Minister Boris Gryzlov was summoned to the Kremlin, where he was recommended to focus on criminals, and not interfere in the economic sphere. It means, as traditional, the economic block of the government will deal with the shadow economy.

Dmitry Slobodyanyuk

Subscribe to Pravda.Ru Telegram channel, Facebook, RSS!

Author`s name Michael Simpson