Tue, Jul 19, 2016 - Page 9 News List

Putin peers into the shadows, where 30 million toil on the fringes

By creating the conditions that would motivate entrepreneurs to come out of the ‘garage economy,’ Russia might pave the way for a revival of small and medium-sized businesses, which the president sees as a foundation for the economy

By Evgenia Pismennaya and Ilya Arkhipov  /  Bloomberg

Illustration: Yusha

Just about every other worker in Russia has gone missing.

Uncounted by statisticians and invisible to tax collectors, a population the size of Texas’, or about 30 million people, ply their trade in the nooks and crannies of what has become known as the “garage economy.”

There, professions such as mechanics, builders, dentists and veterinarians conduct their businesses off-the-books and in cash.

Russian President Vladimir Putin is zeroing in on the phenomenon, two participants in a Kremlin meeting on economic policy said.

It is the cops, prosecutors and taxes driving them underground, Putin told a gathering of ministers, advisers and regional bureaucrats, said the people, who asked to remain unidentified because the discussion was not public.

Putin asked the “serious, bespectacled” lot in front of him to devise a way to ferret out the businesses and motivate them to legalize their operations, the people said.

The scale of this underworld, estimated at as much as a quarter of GDP, presents the Russian leader with a dilemma. For an economy that is struggling to shake off a recession in an era of cheap crude oil, the millions of undocumented workers could prove an unrivaled resource as government finances run dry, but by surviving and even prospering on the fringes, they have opened a safety valve amid Putin’s worst economic crisis as the state is increasingly forced to leave people to fend for themselves.

About 30 million, or 40 percent of the economically active population of 76.5 million, are part of the “shadow” labor market at various points throughout the year, according to a survey published this month by the Russian Presidential Academy of National Economy and Public Administration.

While the estimates are inexact, the size of the workforce has been stable since the research group began tracking the data in 2001, said Andrei Pokida, a sociologist who led the study.

For that reason, dismantling the “garages” is out of the question, said Vladimir Governor Svetlana Orlova, who complained at the meeting with Putin of the torment inflicted on small businesses.

“If you tinker with the garages, there will be a whole revolution,” Orlova said.

The scale of underground activities is among the key factors behind Russian illicit capital flows, according to Washington-based Global Financial Integrity. Crime, corruption and tax evasion spawned at least US$211.5 billion in illicit outflows between 1994 and 2011, with illegal transfers reaching US$552.9 billion, it said in a report.

SHADOW ECONOMY

The size of the shadow economy over the study period was estimated at 46 percent of GDP, according to the group, which researches cross-border money transfers. A separate report found that Russia was second only to China among developing nations for illicit inflows between 2004 and 2013.

Putin’s spokesman, Dmitry Peskov, did not reply to a request for comment on government discussions or Putin’s thinking about the underground economy.

The appeal of working off the grid is obvious for Alexander, a 36-year-old who moved near to Moscow after quitting his military career in the Far East. Doing a 30,000 rubles (US$475.47) factory job for five years, he found that his construction work on the side, laying tiles, proved more profitable.

Alexander said he quit and found a partner, another former military man who specializes in plumbing repairs. Their earnings might be uneven, but he now makes 80,000 rubles to 150,000 rubles per month, enough to buy a car and pay off a mortgage.

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