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Another Look At Kaliningrad

Business conflicts drove the Kaliningrad demonstration in January
Business conflicts drove the Kaliningrad demonstration in January today published a nice little analysis of the problems of small and medium-size business owners in Kaliningrad. The goal of the piece is to lay out the real reasons for the large demonstration that took place in the exclave in January and which many took as a sign that the endless patience of the Russian people was nearing its end.

The piece is based on information from Kaliningrad Oblast legislator Igor Rudnikov, who participated in the meetings that led up to the protest. He notes that it was precisely the oblast’s many small business owners who formed the nucleus of the protest, reporting that small and medium-sized business accounts for some 70 percent of the oblast’s GDP. There are some 12,000 small businesses there, mostly tiny retail sales outlets.

Rudnikov reports that the owners have been in the grips of local bureaucrats for years now. Since 1994, they have been forced to secure fresh approval from the city administration for “the right to setup a small-business point.” The city administration charges from $100 to $2,000 for such permission, plus business owners must conclude separate arrangements with other bureaucracies such as the fire and health inspectorates.

Every two months. Since 1994.

Rudnikov writes that the “business” was so good for the officials that the city had to set up a municipal enterprise called Municipal Property, where more than 70 bureaucrats do nothing more than stamp the permissions six times a year and collect the fees.

But that’s not what brought people into the streets. What made people upset was when the city decided that all small businesses would have to pay 15,000 euros to buy a specially designed uniform kiosk from a specific supplier. The local business association said they’d go along with this scheme, but only if officials started issuing three-year business permissions instead of the two-month ones.

That was when the protests began last summer, which attracted the attention of Kaliningrad Oblast Governor Georgy Boos. He arranged a roundtable meeting of officials and business representatives at which it was agreed that businesses would be given three years to decide whether to buy the 15,000 euro kiosks. If they choose to do so, they would be given permission to work for another seven years. That is, the state would guarantee their right to trade for 10 years if they invested the 15,000.

But the agreement never made it to the city council. It sat inside the city administration and languished. Boos organized another meeting at which city bureaucrats said “they hadn’t had time to get all the necessary approvals because some people have been sick and others were on vacation and there just isn’t enough staff.” (Does this remind anyone of the British sitcom “Yes, Minister”?)

Boos reportedly demanded that the new system be in place and that, instead of giving businesses that make the investment permission for another seven years, they be given a green light for a full 25. Anyone can see how the corrupt officials would like that idea.

So, Rudnikov says, they determined to stall the agreement until September, when Boos’s current term expires and it may or may not be possible to lobby the Kremlin to have him removed.

The story continues with more about the customs regime in the oblast and how competitors from other regions very likely influenced Moscow customs officials to level crippling fees against Kaliningrad factories.

The upshot is that businesspeople in the region are at a loss regarding protests. Demonstrating for benefits or tax breaks or special trade status means, in reality, demonstrating for the right of bureaucrats to determine who gets such benefits and who does not.

“The main lesson of Kaliningrad is this,” the article concludes. “At a certain moment in a certain country two absolutely antithetical forces collided – small and medium-sized business on the one hand and the bureaucracy on the other. The goal of business is logical and traditional – to earn money and the more, the better. But the goal of the bureaucracy in Russia is not to advance one’s career, but money – by extorting business. Major corporations live under the terms of concrete agreements with the authorities – the larges ones work directly with deputy prime ministers. That means that the main source of income for the bureaucracy is small and medium-sized business. This is not unique to Kaliningrad. But 70 percent of the GDP there comes from this sector. And that’s why the explosion happened there.”

-- Robert Coalson

About This Blog

The Power Vertical
The Power Vertical

The Power Vertical is a blog written especially for Russia wonks and obsessive Kremlin watchers by Brian Whitmore. It offers Brian's personal take on emerging and developing trends in Russian politics, shining a spotlight on the high-stakes power struggles, machinations, and clashing interests that shape Kremlin policy today. Check out The Power Vertical Facebook page or


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