Entrepreneurs not protected by the state
Starting and running a private business in Ukraine is still a very topical issue. Is it easy? Formally, the Ukrainian state strives to build a market economy. This month Businessman Day was marked on the state level: the President conferred government awards on the most distinguished businessmen at his official quarters and other state awards were handed out. The Association of Ukrainian Industrialists and Businessmen held a gala meeting.
Isn’t this reminiscent of a feast in the time of the plague? In Ukraine the industrial output has dropped by one-third, retail commodity turnover, including public catering, shed 20 percent in the first half of 2009, and wholesale transactions shrank even more drastically. With muss less to deliver, the transportation branch also suffered. These are the sectors with the highest concentration of small and medium-sized businesses. Are these people in a festive mood?
Since the early years of Ukraine’s national independence, small and medium-sized businesses have been relied on as a major guarantee of stability, and they have met the challenge, serving as a kind of barometer of market changes. Yaroslav Mesiats, leader of the Party of Small and Medium-Sized Businesses, noted that these entities have been the locomotive pulling Ukraine, Russia, and the other post-Soviet countries from communism and socialism to market economy and democratic society.
Mesiats believes that small and medium businesses are creating a new elite and new relationships between people, accumulating social wealth and forming the middle class. Ukraine does not as yet have a critical mass of entrepreneurs. Ukraine’s small and medium businesses produce 4–5 percent of GDP, compared to Russia’s 15–17 percent, and up to 70 percent in developed countries, says Mesiats.
However, in conditions of crisis large businesses, especially in the export field, have sustained far greater losses than the small and medium businesses. So far they are not cutting jobs, but this can be due to the fact that most small and medium businesses in Ukraine are operating in the shadow. What or who has driven them into the shadow? Most likely, the absence of transparent and stable rules of the game, as well as stable regulatory and taxation laws. Under the circumstances, the younger generations suffers the worst. Young people are simply scared to start a private business, realizing that, by operating in the shadow, they will have to act on the wrong side of the law.
Potential businessmen ponder the moral aspects of their ventures and often decide to go elsewhere. This is precisely the conclusion made by Oleksandr Beznis, a young and successful businessman, member of the Kirovsky District Council of Donetsk. He says a place in the shadow becomes a school of survival for the younger generation, the only way to make money. He polled his friends and colleagues, and 80 percent of the respondents stated that they were doing business in the shadow. Beznis believes that an additional factor here is that the younger generation fails to realize the fact that the taxes are the price you pay for civilization. He proposes to instill in the schoolchildren a patriotic attitude to the necessity of paying taxes.
Will this suffice? What has to be done to prevent the state from pushing businessmen into the shadow? The Day asked Poltava oblast’s governor Valerii Osadchev to comment on the status of small and medium businesses. He said: “They are not doing well. Our government has set up a huge variety of vertically subordinated controlling organizations that report directly to Kyiv. More often than not, these organizations are headed by acting chief executives, which means that they cannot even be sued for any wrongdoings… All this comes from the state agencies. I find it hard to remember their names and acronyms. Due to a lack of central budget funds, they are struggling to survive by putting the squeeze on poorly protected small and medium businesses… Lots of businessmen suffer from this corrupt practice.” By way of example, Osadchev says that a book market was closed in Poltava to free a parcel of land, which hurt a number of small businesses.
Osadchev believes that in time of crisis the small and medium-sized businesses could be protected by simplified taxation procedures. In particular, the maximum yearly business turnover for private entrepreneurs should be raised to a million— or better still, two million—hryvnias. “Given the current inflation rate, the existing cutoff at 500,000 hryvnias leaves no room. Nothing has been done to protect small and medium-sized business. Instead, there is a heavier tax burden and the requirement to make advance payments.”
