The Impact of Monopolies on Small Business Development in Russia

• Author: N. S. Ragimova,L. A. Mierin,E. M. Korostyshevskaya
• Published date: 01 November 2019
• DOI: http://doi.org/10.1111/ajes.12303
• Date: 01 November 2019

The Impact of Monopolies on Small

Business Development in Russia

By L. A. Mierin*, e. M. KorostyshevsKAyA†, and n. s. rAgiMovA‡

AbstrAct. The imposition of economic sanctions on Russia by other

countries has raised interest rates, diminished the working capital of

small and medium-sized enterprises (SMEs), and led to the restoration

of state-owned companies in many sectors of the economy.

Nevertheless, the Russian Federation continues to make efforts to

develop a market-oriented economy based on open competition. This

article considers the current situation with SMEs in Russia from the

standpoint of market competition and the influence of monopolies on

this process. It analyzes bottlenecks in the interaction of monopolies

with SMEs. For example, the wires and pipelines required to distribute

energy, heat, and electricity over large geographic areas are natural

monopolies: only one company can provides each service efficiently

in a given area. The companies that control those natural monopolies

are able to extract payments far in excess of cost from small businesses.

In this and other ways, monopolies are able to dominate the Russian

economy and restrict competition from SMEs.

Introduction

This article is written during a time of great economic uncertainty

in Russia due to external events. Foreign governments, led by the

United States, have imposed economic sanctions on Russia since

2014 in complete contradiction of the principles of the World Trade

Organization, of which the Russian Federation is a member state. In

addition, an oil glut in 2014 brought down the world price of oil,

causing severe damage to the Russian economy and to the budget of

American Journal of Economics and Sociology, Vol. 78, No. 5 (November, 2019).

DOI: 10.1111/ajes.12303

© 2019 American Journal of Economics and Sociology, Inc.

*Professor of economics, St. Petersburg State University, Saint-Petersburg, Russia.

Email: mierin.l@unecon.ru

†Professor of economics, St. Petersburg State University, Saint-Petersburg, Russia.

Email: e.korostyshevskaya@spbu.ru

‡Deputy Head of the Department of Supervision over Natural Monopolies, Federal

Antimonopoly Service of Saint-Petersburg, Russia. Email: natania_07@mail.ru

1202 The American Journal of Economics and Sociology

the federal government. There is evidence that the United States con-

spired with Saudi Arabia to engineer the oil glut for geopolitical rea-

sons, including an effort to weaken Russia economically (Topf 2014).

With foreign sources of capital cut off by sanctions, the Russian state

and Russian businesses vied for the remaining capital, causing interest

rates to climb. Higher interest rates harm small and medium-sized

enterprises (SMEs) more than state-owned businesses and large pri-

vate companies, each of which have greater access to bank loans than

their smaller competitors do. Thus, the period since 2014 has been an

especially difficult one for smaller enterprises, which have lost ground

to larger, monopolistic economic units.

It is impossible to know if recent events represent an aberration

from long-term trends or if they portend a new condition of economic

warfare against Russia. In this article, we ignore current events and

focus on long-terms trends that revolve entirely around domestic an-

timonopoly strategies.

The purpose of this article is to examine the ways in which mo-

nopolistic behavior is manifest in Russia today and how it stifles the

development of small- and medium-scale companies. In order to un-

derstand the specific features of the situation in Russia, we begin by

discussing the general conditions under which monopolies function.

Various economic systems have developed a diverse structure of

market relations. Each system is therefore characterized by various

types of monopolies. A national economy dominated by state-owned

enterprise differs dramatically from an economy that encourages open

competition among many producers.

In the economics of the 19th century, the ideas about monopoly

and competition were initially shaped by representatives of various

economic schools, starting with the classics of economic thought such

as Adam Smith, David Ricardo, Nassau Senior, and John Stuart Mill.

In the 20th century, the specific mechanisms by which monopolies

arise and persist, how they function, their negative and positive con-

sequences for society, the dynamic interplay of competition and mo-

nopoly, and other market imperfections were analyzed accrording to

basic research carried out by John Bates Clark, Augustin Cournot,

Alfred Marshall, Karl Marx, A. C. Pigou, Donald Robertson, Joan