Small family business in Russia: formal or informal?
The purpose of this paper is to deal with informal entrepreneurial activity of micro and small family businesses in the specific transitional environment.
The paper uses two cases – an informal micro business (“marginal” family business), and a formal retail small firm (“simpleton” family firm), respectively, of a panel conducted in 2013–2015 in Moscow.
First, the real distribution of responsibilities between family members is informal; it relies more on interpersonal trust and “common law.” Second, exactly the ease of governing such trust-based businesses for the founders’ generation sets limits of succession of small-scale family businesses. Third, as trust in the state is very low, the policy of Russian authorities to quickly force informal entrepreneurs to become legalized is substantially wrong; the results would be either a transformation of “simpleton” into “marginal” businesses or quitting business.
Research limitations of the study are the number of observations and the localization of the panel only in the capital of Russia.
The fundamental failure of Russian State policy toward small-scale family businesses is its attempt to convince “marginal” to formalize and to oppress “simpleton” family businesses pushing them into informality. In fact, it should be designed vice versa: tolerate “marginal” businesses and let them to “live and die” while shaping a friendly environment for “simpleton” family firms.
The paper argues that the most important facet of informality in small family entrepreneurship is the informal property rights and governance duties’ distribution among the family members.