same locales maintain regional-level _price controls_ on some agricultural products. Businesses using migrant workers. are often charged _registration fees_ -by local governments, which add to the costs of production and inhibits labor mobility. Regional authorities also grant special _tax or credit preferences_ to build local business champions. _Arbitrary licensing_ of one kind or another is also pervasive, and provincial authorities often create local monopolies by granting single licenses. Indeed examination of the wholesaling system shows a continuation of exclusive distribution patterns that largely remain from the central planning system: privatized wholesale organizations continue to distribute mainly to and from the same customers they served in the old days. In short, large _public_ monopolies have been turned into large _private_ monopolies that are now working closely with government. In this regard, it is telling that in recent years some of the most frequent violations that MAPSE has dealt with were abuse of market dominance and anti-competitive actions by local governments.<sup>8</sup>

## m. **BARRIERS TO NEW** ENTRANTS

According to official estimates, in 1997 seventy percent of Russia's GDP came from the private sector, up from less than 10% just five years earlier at the start of reform. This is a remarkable achievement. But the main source of the expansion of the Russian private sector remains the privatization process. The creation of private _de novo_ businesses in Russia is exceptionally weak and continues to lag far behind the pace of other transition economies, especially in Eastern Europe and the Former Soviet Union (EE/FSU). The lack of effective entry by new private firms is a missing critical ingredient in Russia's enterprise reform program.

# 1. Who Are The New Private Entrants in Russia?

A World Bank 1996 random survey of Russian firms of all ownership categories indicates that 58% of _de novo_ firms in the private sector are owned by managers, 26% are owned by individuals ("outsiders"), and 6% are owned by workers. The owner-manager firm--mainly small and medium size enterprises (SMEs)--appears to be the dominant form for private _de novo_ Russian enterprises. SMEs were virtually eradicated in Russia during the Soviet period, more so than in any other EE/FSU country, and mushroomed again only in the late 80s. While the SME sector grew very fast in the early years of Russia's reform, in the last few years growth has slowed dramatically, and may even have ceased.

There are 845,000 registered SMEs in Russia, generally defined as business establishments with less than 250 employees (of which "small" firms are defined by law as establishments with less than 100 employees). This is four times the number a decade ago. Most SMEs operate in services, trading and public catering. SMEs employ about 13% of the Russian labor force, and produce about 12% of GDP; however, these figures are likely to be inaccurate since much small business activity is still in the informal economy and thus goes largely unreported. Still the fact remains that in comparison with other countries in the region, Russia's SME growth has been severely limited. The percentage of national employment accounted for by SMEs in the Czech Republic is 37%; in Georgia 58%, and in Macedonia 37%; SMEs account for 53% of US employment, 80% of Italy's employment, and 69% of France's employment. Importantly, the geographic distribution of SMEs in Russia is highly skewed. Whereas Moscow accounts for 22% of all SMEs, and St. Petersburg accounts for 10%, 28 subjects of the Federation each account for only about 0.5% of the total.

## 2. Constraints **On New Entrants**

Economists distinguish between different types of structural entry barriers: those that are (i) _economic_ in nature, principally determined by technology or market forces, and those that are (ii) 4