ABSTRACT
Chapter 3 analyzes administrative barriers to doing business in Russia. This chapter examines the impact of corruption in the higher echelons of power on street-level bureaucrats. The famous Russian expression “the fish rots from the head” vividly illustrates the demoralizing effect of kleptocratic rulers on low-ranking officials responsible for exercising authority over entrepreneurial activity. Russia’s kleptocratic regime led to the creation of “regulocracy,” a corrupt system of government agencies at the regional and local levels that systematically exploit their office for personal gain. “Regulocrats” are responsible for creating numerous administrative barriers to doing business in Russia, such as excessive and costly procedures required to start a new business, obtain construction permits, register property, get credit, or engage in trade across borders. To show how the existence of powerful “regulocracy” blocks deregulation reforms in Russia, the chapter analyzes recent attempts to improve the inspection regime for entrepreneurs and small businesses. Another negative consequence of overregulation and corruption is the decrease in entrepreneurial employment at the regional level. Spatial regression analysis identifies a negative relationship between administrative corruption and the number of entrepreneurs registered in Russian regions.
