Author Archives: Ryan Foster

Helping Business Find Its Voice in the Former Soviet Union

The Association for Foreign Investment and Cooperation in Armenia. (Photo: CIPE Partner)

Small business owners in the west Russian city of Primorsk faced a serious threat. A corrupt land privatization auction resulted in many local entrepreneurs losing their leases, which would force the closure of 2,000 businesses and the loss of many more jobs. Individual business owners had little chance of successfully standing up to the powerful interests who had arranged the sale.

After the Fall: 20 Years of Post-Soviet Reform

Fortunately, they didn’t need to act alone: a coalition of 11 local chambers of commerce and business associations representing 1,200 businesses was ready to fight for their rights. The coalition, which had organized as part of a long-term, USAID-funded CIPE program to organize small and medium businesses against corrupt practices in Russia, launched a large-scale publicity campaign, which led to criminal charges being filed against several individuals involved in the corrupt deal and the return of leases to business owners whose businesses were in jeopardy.

The case of the Primorsk coalition is just one example of how CIPE has assisted the private sector throughout the post-Soviet world to take an active role in the policymaking process by forming networks and coalitions of organizations dedicated to advancing democratic governance and market-oriented economic reform. These coalitions are able to identify issues which are of common concern to all business sectors, bring them to the attention of policymakers, and advocate for the implementation of needed reforms.

Throughout the former Soviet Union, coalitions have succeeded in bringing about reforms that have made it easier to open businesses, create jobs, and attract foreign investment while demonstrating the benefits the democratic process can deliver for ordinary citizens.

In Moldova, a network of business associations and chambers adopt an annual National Business Agenda (PDF), outlining the reforms the business community believes most important to improving the country’s economic situation. Following the onset of the global economic crisis, the government swiftly adopted many NBA proposals, including creation of a “one-stop-shop” for business registration and abolishing mandatory capital requirements for start-ups, making it easier to open a business.

In addition to individual legislative successes, many coalitions have established themselves as key drivers of policy is their countries, engaging in ongoing dialogue with public officials. Armenia’s Business Advocacy Network has created an unprecedented deepening of dialogue between the public and private sectors, resulting in the creation in 2011 of a permanent SME Council to ensure that legislation and regulation supports, rather than harms, the creation and growth of small business.

In Russia, the advocacy efforts of local coalitions led to the passage of legislation allowing independent organizations such as business associations to become accredited to review draft laws to determine whether they have the potential to facilitate corruption. And in Kyrgyzstan, members of the National Alliance of Business Associations – a local CIPE-supported coalition – hold seats on 13 newly-established Public Supervisory Councils, through which they add the voice of business to an ongoing dialogue between civil society and state officials.

While efforts such as these unquestionably benefit entrepreneurs by bringing about market-oriented economic reforms, the positive impact of these coalitions is not limited to small business owners. By bringing about reform through civic activism, these coalitions support the development of democratic institutions and processes and demonstrate to everyone the potential of democratic governance to expand opportunities and improve lives.

This post is part of a series on the fall of the Soviet Union, the 20 years of reforms that followed, and the challenges that lie ahead.

Read all of the blogs in this series:

20 Years of Corruption

Democracy in Ukraine: 20 Years Later

Helping Business Find its Voice in the Former Soviet Union

Entrepreneurial Development in Russia

Democracy and the role of the Private Sector

Twenty Years After the USSR, Still Waiting for Freedom

Rough road ahead for Russia’s taxi drivers

Russian taxi drivers have good reason to be upset with new government standards. (Photo: RIA Novosti)

In many ways, taxis are the most visible and widely-known example of micro-entrepreneurship. Oftentimes, the entire business involves (usually) a man buying or renting a car, and working as many hours as he can to turn a profit on top of car payments and fuel. In the same way, Russia’s new regulations on taxis and taxi drivers can be seen as a microcosm of the way the country’s centralized and top-down approach to business policy hurts entrepreneurs and threatens job security in a country already rife with unemployment and limited prospects.

As reported by RFE/RL and the Moscow Times, taxi drivers throughout Russia are protesting new regulations from Moscow, which are due to come into effect September 1. These include requirements that taxis be painted a certain color and be equipped with meters and identifying lights on the roof and sides. Furthermore, they will require licenses for taxis themselves, rather than taxi drivers.

Drivers complain that, especially outside of major cities, these requirements are unnecessary and prohibitively expensive. According RFE/RL, “equipping and painting their cars will cost them 50,000 rubles ($1,700) each” and the repainting will decrease the resale value of the cars. In an industry with razor-thin profit margins, these rules may force many drivers to abandon their jobs or ignore the regulations, risking legal problems in the future. To make matters worse for drivers, Moscow has tasked each region with implementing the new regulations without specifying how they are to do so. This may mean that as of September 1, it may be impossible for taxi drivers to fully comply with new laws, even if they wish to do so.

Moscow’s approach to updating taxi regulations merely represents a deeper issue with the regulatory process in the country which affects all aspects of business.

While new rules may indeed be needed to ensure that passengers are safe and do not fall prey to unscrupulous drivers charging exorbitant rates, a reform process that does not take into account the views of those who will be affected by them is likely to produce results that create as much harm as they do benefit.

The harm is compounded by lack of communication between federal decision-makers and regional level bureaucrats who must implement decisions. This situation gives local officials a great deal of discretion in enforcing the rules, creating a breeding ground for corruption. As always, the answer is developing clear legislation through a transparent and inclusive policy making process.

Through coalitions, such as those in Russia which CIPE supports in their efforts to reduce corruption, businesses — including individual taxi drivers — can use the power of collective action to make their voices heard and demand access to the policy making process. In order to build a functioning and effective economy, Russian leaders will need to do a much better job of listening to the citizens they are meant to serve.

For our freedom and yours

A woman waves a European Union flag in Warsaw. Poland has called for an increased commitment to democracy assistance in Europe. Wojtek Radwanski/AFP/Getty Images

The Polish people have a saying: za naszą i waszą wolność – for our freedom and yours. The phrase dates back to the era when the Polish state had ceased to exist and its exiled soldiers took up the cause of independence movements throughout the world. Now that Poland has regained its independence and its freedom, it has become a leading voice for the spread of democracy throughout post-Communist Europe and beyond.

As it assumed the presidency of the Council of the European Union on July 1, Poland’s leaders called for the the creation of a European Endowment for Democracy – an organization which, like the US-based National Endowment for Democracy, would support democratic organizations and civil society. Other European countries should follow Poland’s lead and support the Endowment for one key reason: Europe needs it.

While the great majority of European countries are functioning democracies with well-established institutions, meaningful and competitive elections, and respect for rule of law, there remain several countries where democracy is weak, troubled, or even – in the case of Belarus – a complete façade. The countries of the Western Balkans all have aspirations of joining the EU, but must shore up aspects of democratic governance to do so. Bosnia and Kosovo in particular have deeply chaotic institutional arrangements resulting from the conflicts surrounding their independence that must be addressed to ensure their continued existence as functioning states, let alone EU members. Post-Soviet Europe faces a more existential democratic crisis – Belarus is a consolidated authoritarian state and there is no guarantee that Ukraine, Moldova, and Georgia will not share that condition in the future.

In this uncertain atmosphere, European countries have done their part to support democratic development in the continent, but in a highly varied and uncoordinated manner. West European countries have tended to take a “development first” approach, hoping that increased living standards and integration with the rest of Europe will bring about a more participatory approach to governance. Newer EU members – chiefly the Czech Republic, Poland, and Slovakia – have taken a more direct approach to democracy assistance, but, as a recent report from the Carnegie Endowment indicates, have each done so in their own way, focusing their efforts on a particular country or group of countries. Furthermore, most European countries lack independent development agencies, instead channeling aid through their foreign ministries and embassies abroad, thus subjugating democracy assistance to other policy goals.

A European Endowment for Democracy will provide an effective means of supporting democratic growth in Eastern Europe outside the bounds of the complex and sluggish European bureaucracy. There are several things the EU can do from the outset to help ensure the new Endowment is a success. First, the Endowment should be based not in Brussels but in one of the Central European countries that has lent strong support to this form of democracy assistance. Warsaw is an obvious choice, but other candidates such as Prague or Vilnius would also make sense. This would not only underscore the independent nature of the Endowment, but basing the organization in a post-communist country would act as a powerful symbol of the ability of Europeans to work together to bring about democratic change.

Second, the Endowment should be funded not from the central EU budget but by individual member states, at whatever amount each country finds appropriate. Again, this would emphasize the independent nature of the Endowment, while also adhering to the values of democracy and transparency it will proclaim. Furthermore, a system of voluntary contribution will increase buy-in among the countries that contribute the most to the Endowment, and encourage them to remain active in helping it succeed.

Finally, and most importantly, the Endowment should support not only NGOs outside of the EU but also organizations based within the EU that work closely with counterparts in countries requiring assistance. For years, NGOs such as the Stefan Batory Foundation in Poland and the Pontis Foundation in Slovakia have implemented democracy-focused projects abroad, often with support from the NED.

The European Endowment should adopt this system of triangulation between itself, EU NGOs, and recipient country NGOs. Doing so will carry many benefits, including a high level of effectiveness at relatively low cost while fostering a sense of identity and common democratic destiny among Europe’s oldest and newest democratic states.

An emerging network for economic reform in Moldova

Collective action – the ability of a group composed of individuals with unique interests to work together in pursuit of common goals – is an issue central to the political process in all countries, and at all levels.

Acting collectively is challenging, as any number of problems can result in failure – inability to agree on priorities, leadership struggles or poor leadership, splits among the group on important decisions, and many more. When the business community attempts to engage in collective action, the challenges are magnified.

After all, competition is key to business success, and it is only natural for business leaders to regard one another with some level of distrust.

Despite the difficulty, encouraging collective action in the business community is central to CIPE’s mission, as private sector participation in the policy process can lead to significant improvements in a country’s political and economic environment. Working together, business leaders can help governments to design and implement reforms that create jobs, promote trade and investment, and help citizens live productive and fulfilling lives.

Furthermore, public participation in policymaking is the cornerstone of a healthy democratic society, and the private sector has an important role to play in building democratic institutions and holding officials accountable. Given that, it is no surprise that the majority of CIPE’s programs have some connection to promoting successful collective action among the business community.

The behind-the-scenes video below demonstrates how CIPE works with local partners to build an understanding of the basics of collective action, and guide them in taking further steps themselves. Since 2006, CIPE has been supporting Moldovan business leaders in developing a network that can represent the voice of business on the national level. Today this network represents over 20 Moldovan business associations and chambers of commerce, who advocate policies that make it easier for Moldovan businesses to export their products and spend less time and fewer resources dealing with administrative hassles.

In the video, which was recorded during an event at which CIPE staff shared CIPE’s experience building successful advocacy coalitions in several countries, participants in the project describe in their own words the importance of learning to engage in collective action, and CIPE’s important role in this process.

Whatever happened to the Russia of tomorrow?

Did Russian innovation reach its peak 50 years ago? (Picture: Smithsonian Institute)

Fifty years ago, Yuri Gagarin became the first human being to leave the comfort of Earth’s atmosphere and enter outer space. While his voyage to the cosmos was a solo trip, it did not represent an individual effort. Hundreds of scientists and engineers from throughout the Soviet Union contributed to the mission’s success. Gagarin’s historic flight became a symbol of the Soviet Union’s new role as one of the world’s leading innovators. Soviet leaders claimed that they would soon surpass the capitalist Western nations, including the United States, and become the world’s most technologically developed country.

Five decades later, the Soviet Union is no more. But surely its successor, the Russian Federation, is still able to draw upon the intellectual might that was first to send a man to space, right?

According to data from the World Intellectual Property Organization, Russians submitted just fewer than 30,000 patent applications in 2010. Not too bad for a mid-sized European country like Switzerland or the Netherlands, but unimpressive in comparison with today’s leaders in innovation, countries such as South Korea (172,000 patents), the US (400,000), and current leader Japan (500,000). Nor can this year be considered an aberration: in terms of total number of patents in force, Russia has slipped to 11th place in the world, behind Hong Kong and Spain.

So what has happened in the last 50 years? It’s not that Russians don’t have good ideas – it’s that the ones who do are fleeing west and setting up shop in the UK, Germany, even Serbia. They’re leaving because the business environment in Russia is so smothering to potential entrepreneurs that it often makes more financial sense simply to pack up and leave the country than to deal with the endless parade of auditors, tax inspectors, and police making demands of business owners, often with vague – if any – grounding in actual law. This article by a CIPE consultant details how established elites often conspire with authorities to force business owners to sell their firms at prices far below market rates, or to steal it outright. What’s worse, the better, and thus more profitable, an idea is, the greater the chance that it will catch the attention of a well-connected rival.

Russia’s leaders have acknowledged that this “innovation gap” has created an over-reliance on exports of oil and primary goods, while creating too little wealth for its citizens. President Medvedev has called for the creation of an innovation center at Skolkovo near Moscow – Russia’s “silicon valley.” But the original Silicon Valley was not created by government fiat. Instead the area developed over time like a garden – the seeds of innovation were planted in the rich soil of academia and nurtured by free-flowing venture capital in the sunlight of supportive government policies. If Medvedev and his team take a similar approach, Russia may again one day be the first to cross new technological frontiers. Until then, they will have to settle for memories of better days.

The deadly side of corruption

A building destroyed by an earthquake in Indonesia. According to a recent study, Indonesia experiences greater corruption than other countries with similar income levels. Photo:Oxfam Indonesia

Quick – what’s the name of the architect who designed your house? How competent were your doctor’s professors in medical school? How trustworthy was the quality control inspector at the plant that manufactured that jar of mayonnaise you picked off the shelf?

Unless you have an unfathomable amount of time on your hands, I’m willing to bet you don’t know the answer to any of those questions, and you probably can’t think of any reason why you should. Fortunately for you, building plans, university faculty, and food production facilities all must meet a fairly standard set of criteria – criteria that ensure that products are safe to use and professionals are capable of performing their jobs. Those who live in societies where corruption is prevalent, however, are not so lucky.

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Russia’s big problems need big solutions

Russia's president has admitted that the fight against corruption will be a major challenge (Image: RIA Novosti)

In Lewis Carroll’s poem “The Walrus and the Carpenter” the Walrus laments the “great quantities of sand” to be found on the beach, and that even “seven maids with seven mops” would not be able to sweep it clean. Those following corruption in Russia most likely share in the character’s pessimistic assessment of the task of cleaning up Russia’s political and economic system. Russia’s President Dmitry Medvedev has declared fighting corruption to be a primary focus of his administration, and compared his anti-corruption campaign to Martin Luther King’s struggle against racial segregation in the US.

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