Opportunities and Barriers for Entrepreneurs in Rural

Russia
Presented at the European Society for Rural Sociology Meetings
Vaasa, Finland, August, 2009

Working Group 5. 2 - Rural Business and Sustainable Realities in Russia

David J. O’Brien, Columbia, Missouri USA

obriendj@missouri.edu
Valeriy V. Patisorkovskiy, Moscow, Russia
patsv@mail.ru
Stephen K. Wegren, Dallas, Texas USA
swegren@smu.edu

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 Findings from:

A 2006 Survey of Households

in 9 RuralRegions (N=900)

 
Krasnodarskii krai
Voronezh oblast
Republic of Tartarstan
Kurgan oblast
Krasnoyarskii krai
Moscow oblast
Leningrad oblast
Altai krai
Amur oblast
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 Conventional Definitions of Entrepreneurship

“A Person Who Organizes, Operates and Assumes the

Risk for Business Ventures..”

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 In rural Russia, however, households often have a
mixed economy – some income from working for others
and some income from household businesses.

The 2006 survey found that: 32.4% of household

income was derived from household enterprises - mainly
sales of agricultural products from plots and rented land -
and 44.5% was derived from salary and wages

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Therefore, rural Russian entrepreneurship must be seen
on a continuum

Our analysis seeks to identify:

•which types of households are more successful as

entrepreneurs
•similarities and differences in the lives of the more and
less entrepreneurial
•the barriers to further expansion of entrepreneurship

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 Characteristics of the More Entrepreneurial Households -

• More household Labor

•Being a manager of a large enterprise
•Larger number of “redundant” helping ties
•Larger amount of Cultivated Land

Characteristics of Households with Higher Income

From Salary and Wages -

•More household Labor

•Higher level of Education
•Position as a Specialist (higher science/technical education)
• Larger number of “non-redundant” helping ties
• Living closer the raion center

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Table 1. Regression of Entrepreneurial and Salary and Wage Income on Household
Human, Social and Physical Capital (N=900) Unstandardized Coefficients on top;
standard errors in parentheses
Entrepreneurial Income Salary and Wage Income
Equation 1 Equation 2 Equation 1 Equation 2
Respondent’s education n. s. n. s. 217.528** 194.483**
(70.538) (68.924)
Household Labor 1302.617*** 1878.548*** 2243.079** 2396.351***
(212.144) (230.610) * (181.276)
Husband’s position as Manager 8796.307*** (180.748)
8582.468*** n. s. n. s.
(1374.344) (1338.611)
Husband’s Position as Specialist n. s. n. s. 4040.993** 3487.629***
* (704.103)
Number of Redundant Ties 104.263** 128.031*** (721.734)
n. s. n. s.
(41.092) (40.160)
Number of Non-Redundant Ties n. s. n. s. 269.360** 250.576**
(93.991) (91.358)
Amount of Land Cultivated 267.881*** 261.091*** n. s. n. s.
(22.083) (21.531)
Distance of Village from Raion n. s. n. s. -42.291** -43.037**
Center (14.366) (13.952)
Salary & Wage Income -- -.267*** -- --
(.039)
Pension Income -- -.279** -- -.352***
(.088) (.071)
Household Enterprise Income -- -- -- -.148***
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Adjusted R 2
.237 .276 .289 .330
 Entrepreneurial Households Have More Property
Table 2. Percent of Households Owning Different Types of Property by Ranking of
Household Enterprise Income in the Sample by Quintiles (N=900)
Household Enterprise Income Strata
0-20 % 21-40 % 41-60 61-80% 81% + Total
0 rbls 50-999 rbls 1000-3700 3701-7400 7401-83200 (N=900)
(n=262) (n=97) rbls rbls (n=186)
(n=180) (n=175)
Property
Summer 22.5% 29.9% 27.2% 40.6% 49.5% 33.3%
Kitchena
Cow Barnb 36.6% 42.3% 70.6% 89.7% 87.1% 64.8%
Grain Barnc 8.4% 11.3% 21.1% 25.1% 30.1% 19.0%
Garaged 41.6% 35.1% 57.2% 69.1% 73.7% 56.0%
Outside 55.0% 56.7% 72.8% 80.0% 78.0% 68.3%
Banya e
Automobilef 43.2% 36.1% 55.6% 71.1% 71.8% 56.2%

Truckg 0.8% 1.0% 5.6% 13.7% 19.9% 8.2%

Tractorh 2.3% 3.1% 6.1% 17.7% 23.6% 10.6%
a
Gamma= .313, p<.001; b Gamma= .641, p<.001; c Gamma= .383, p<.001; d Gamma= .384,
p<.001;
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e
Gamma= .328, p<.001; f Gamma= .362, p<.001; g Gamma= .671, p<.001; h Gamma= . 613,
 Entrepreneurial Households Are More Likely
to Make Substantial Improvements to their Property
Table 3. Percent of Households Building Something on their Property from 1991 to
2006 by Ranking of Household Enterprise in the Sample by Quintiles* (N=900)

Household Enterprise Income Strata

0-20 % 21-40 % 41-60 61-80% 81% + Total
0 rbls 50-999 rbls 1000-3700 3701-7400 7401-83200 (N=900)
(n=262) (n=97) rbls rbls (n=186)
Built (n=180) (n=175)
House 2.7% 1.0% 2.2% 3.4% 6.5% 3.3%
Building in 37.0% 29.9% 46.7% 48.6% 46.2% 42.3%
Yard

House & 6.5% 5.2% 11.1% 10.9% 19.4% 10.8%

Building

No Building 53.8% 63.9% 40.0% 37.1% 28.0% 43.6%

*
Gamma=.217, p<.001.
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 But, the Infrastructure in the Homes of The More
Entrepreneurial
Households is Not Much Different than that of their
Neighbors
Table 4 . House Infrastructure by Ranking of Household
Enterprise Income in the Sample by Quintiles* (N=900)
Household Enterprise Income Strata
0-20 % 21-40 41-60 61- 81% + Total
(n=26 % (n=18 80% (n=186 (N=90
2) (n=97) 0) (n=17 ) 0)
Present in
5)
House
Indoor 57.3% 49.5% 58.3% 61.1% 55.9% 57.1%
Water
Hot Water 29.0% 24.7% 24.4% 32.0% 29.6% 28.3%
Sewage 33.2% 25.8% 30.6% 34.9% 29.6% 31.6
Computer* 13.7% 9.3% 17.8% 21.1% 26.9% 18.2%
Gamma=.244, p<.001. No statistically significant differences
*

between household income strata on the other three items.

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What are the Main Barriers to Increasing Entrepreneurial
Activity in the Countryside?

 
Contrary to the View of Observers of the Energy Sector & Other Large-Scale
Areas of Business Activity in Russia,

there is Evidence of Stabilization of Market Institutions affecting Rural

Household Economies

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An Indicator of a Stabilization of Market Institutions in the
Countryside

Figure 1. Number of Households in 9 Rural Regions Obtaining A

Loan by Year (N=900)

No.
Taking
Loans

Year

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 Residents Report that Barriers Remain, especially in
Acquisition of Land and physical infrastructure to support
entrepreneurial activities

But, Formal Institutional Barriers Appear to Be Less

Important than
Identifying Good Quality Land that is Easily Accessible

Other barriers include: poor local markets and weak

cooperation between producers – need for real co-
operatives run by producers

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 Table 5. Residents Perceptions of Barriers to Land
Purchase in 9 Rural Russian Regions. Mean values on a
scale of 1-5, with 5 being most serious obstacle* (N=900)
Location of Land Plot 3.79
Low Quality of Land 3.74
Locating Land 3.55
Local Power 3.48
Administrative 3.30
Taxes 3.17
Price of Land 3.05
Formal Registration 2.99
* There are no Statistically Significant Differences in Perceptions
between Different Occupational Groups

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 Rental Land is a More Important Source of Physical
Capital to
Support the Growth of Household Enterprises

Persons who are Managers (as well as running their own

businesses) See Fewer Barriers to Land Rental than those
Who Identify
Themselves as Self-Employed

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 Table 6. Perceptions of Barriers to Land Rental by Managers, Self-Employed and Other
Groups in Nine Russian Rural Regions. Mean values on scale of 1-5

Administra Local Powerb Formal Price of Taxese Location of

tivea Regis- Landd Land Plotf
trationc
Managers 3.00 3.25 3.00 3.00 2.94 3.06
(n=16)
Specialists (n=45) 3.56 3.56 3.29 3.36 3.44 3.49

Clerical 3.76 3.87 3.71 3.75 3.73 3.84

(n=55)
Workers 3.72 3.74 3.61 3.65 3.65 3.69
(n=186)
Private Farmers 3.17 3.33 2.50 3.17 2.83 3.50
(n=6)
Self Employed 4.22 4.30 4.05 4.05 4.05 4.25
(n=81)
Other 3.60 3.40 3.40 3.60 3.60 3.60
(n=5)
Total 3.77 3.82 3.64 3.68 3.68 3.77
(N=394)
a
F(6)=5.064, p<.001; scheffe – managers < self-employed; bF(6)=5.067, p<.001; scheffe –
managers < self-employed; cF(6)=6.176, p<.001; scheffe – managers < self-employed; dF(6)=4.339,
p<.001; scheffe – managers < self-employed; eF(6)=4.727, p<.001; scheffe – managers < self-
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employed; f
F(6)=5.917, p<.001; scheffe – managers < self-employed
 Conclusions
•There is considerable growth in entrepreneurship in Rural Russia
•Entrepreneurial Households are Different than their neighbors – more
household labor, larger number of redundant ties and larger amount of
cultivated land
•Education per se is not a discriminating factor in deciding who will be more
or less successful as an entrepreneur, but rather position in non-
entrepreneurial activities
•The formal institutional environment is not a significant barrier to
entrepreneurship
•Previous Experience and Contacts with Resource Providers provides
Knowledge about how to network and access resources. This gives
advantages to managers of large enterprises
• In order to stimulate further entrepreneurial development and a sustainable
rural household economy it will be necessary to provide specific training in
entrepreneurial skills
•We are currently working on a Ford Foundation sponsored project to
evaluate entrepreneurial training in two forest resource dependent regions
(Karelia and Kostroma). These areas face additional barriers to
entrepreneurship because of extremely low population density and very poor
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infrastructure