Social Networks and the Emergence of the New Entrepreneurial Ventures in Russia: 1987-2000

THE DEBATE CONTINUES ON THE ISSUE OF WHETHER OR NOT THE RUSSIAN ECONOMIC TRANSFORMATION is proceeding in the direction of a normalization of free market relations. Most recently, Goldman (2004), in his analysis of the dynamics between the Russian state and the local owners of top Russian companies, suggested that the privatization of state resources proceeded too quickly, while failing to encourage the start-up of new businesses. The oligarchs seized the opportunity to grab large amounts of key economic resources, prompting a counterattack by the Russian state, which did not wish to see these resources controlled by either politically disloyal capital owners or foreign multinational companies. Shleifer and Treisman (2004: 21), on the other hand, argue that Russia can now be viewed as a "normal middle-income country" in which free market forces continue to contribute to economic growth, increasing macroeconomic stability and strengthening corporate finances. Whether writing about top business owners (Sestanovich 2004) or evaluating a larger sample of different entrepreneurs (Bonnel and Gold 2001), various authors acknowledge that there are significant risks involved in starting a new business in Russia. These risks may differ depending on factors that, among others, include differences in financial, human, social, and political resources available to an entrepreneur, the degree to which local officials favor free market economic relations, and the amount of "illegal" transaction costs, including payments to corrupt officials and criminal protection rackets. This article examines empirical cases of venture creation in Russia. While other studies often analyze "illegal" transaction costs of business start-ups (see Radaev 1998; Volkov 2002), I will focus on the variables of socioeconomic circumstances as represented by the extent and strength of professional, family, and other networks within and outside the business field in which an entrepreneur wishes to establish a company, the extent of the entrepreneur's previous professional and business experience, and, finally, the entrepreneur's ability to learn and quickly adapt to the new challenges arising in changing economic conditions. This focus by no means underestimates the importance of other variables such as the amount of the initial financial capital available to an entrepreneur, the ability to borrow at reasonable rates, and the transaction costs of dealing with protection rackets and corrupt state officials. Recently, much has been written about the socioeconomic background, political and economic connections, and sources of wealth of Russia's oligarchs (for recent examples, see Goldman 2004; Sestanovich 2004; Klebnikov 2000). However, the vast majority of business owners who do not fall into this category have received less attention. This is one of the reasons why I wish to focus on owners of small- and medium-size companies. The selection of Russian cases analyzed in this article comes from a study that I conducted in Moscow in 1997-1998. During this study, a randomized, purposive sample of 60 self-employed business owners of different types and sizes of companies were interviewed. For the purposes of this article, only the data from the interviews with 40 owners of small and medium-size businesses will be used. (1) These were selected in a way that would allow for the widest representation of the different industries in which they operate in Russia (see Figure 1). The interviewees were asked about all stages of their Soviet careers, their education, social and family background, how and when they made a decision to start a venture and/or become entrepreneurs, how they obtained their initial financial capital, and how their venture(s) developed. The respondents were also asked to detail the history of their business venture, which key challenges their businesses faced at each stage of development, and what kind of resources they used in order to cope with various challenges. …