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Analysis of stages and laws of small and medium enterprises development: institutional approach

Analysis of stages and laws of small and medium enterprises development: institutional approach
Analysis of stages and laws of small and medium enterprises development: institutional approach

[Contributo selezionato da Filodiritto tra quelli pubblicati nei Proceedings “Insights and Potential Sources of New Entrepreneurial Growth, 2016”]

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[Contribution selected by Filodiritto among those published in the Proceedings “Insights and Potential Sources of New Entrepreneurial Growth, 2016”]

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Madina Alikayeva[1]

Tatiana Gvarliani[2]

Madina Ksanaeva[3]

 

INTRODUCTION

Small and medium enterprises (SMEs) are one of the essential elements in terms of reindustrialization of the national economy, that enables to achieve sustainable economic growth, promotes the development of innovative technologies and reduce innovation gaps, provides the formation of tax revenues. It is known that the success of any transformation, including economic one, depends on the effectiveness of the institutional structure and changes in the institutional architecture of the sector of small and medium enterprises and the economy as a whole.

Currently there are about 5.6 million entities in the sphere of small and medium business, providing 18 million working places and about one-fifth of Russia’s GDP (Development strategy of small and medium entrepreneurship, 2016). It should be noted that the status of small and medium enterprises and the problems of its development in modern Russia are largely due to the history and conditions of its formation. Systematization of the stages of development and the emergence of SMEs in Russia is based on study of system of theoretical and methodological works in the field of modern institutional science, namely those sections that explore the theory of transformation of economic systems, institutions, mechanisms of their interaction, etc. Institutional theory implies a dependence of further development of the object on its past development; it allows predicting its further development and improvement.

The underestimation of the functional role of SMEs, ignoring its considerable socio-economic potential in modern conditions acquires the character of large-scale strategic miscalculation and requires the diagnosis of its condition at different stages of economic development and impact analysis of the institutional causes of the SMEs’ development dynamics.

 

THE THEORY

The complexity and diversity of processes of institutional changes determine the special importance of methodological issues, among which the study of the economic nature and content of the phenomena are of undoubted interest, which represent the basic components of the structural organization of the emerging system of small business. Equally important is the study of fundamental dependencies between separate elements of system and institutional factors with a variety of manifestations in the reproduction process (Ksanaeva, Alikaeva, 2013). System interaction in the sphere of SMEs considered in the framework of the reproductive process ensure implementation of the complex of socio-economic functions through a system of institutions in which and through which these interactions are carried out.

The works of S.G.Kirdina, I.Rubinstein, V.Tolmacheva, S.N.Novoselov, V.V.Bokov, S.N. Parukhin should be noted as the papers of Russian economists, where attention was focused on the development of the theory of institutionalism (Kirdina et all, 2016; Kirdina, 2016; Novoselov, and Bokov, 2016; Parukhin, 2002). Institutional environment and factors of effective small business development are studied by such Russian economists as A.N. Degtyarev, S.N. Parukhin, and others (Degtyarev, 2001; Parukhin, 2002).

The basics, the essence and organizational and economic features of the phenomenon of “small business” are covered in the works of many foreign scientists such as S. Brue, C. McConnell, K. Marx, M. Peters, R. Hisrich, A. Hosking, and the Russian professors such as S.S. Kamberdieva, G.V. Khetagurov, K.A Kabisov, A.Shulus (Shulus,1997; Kamberdieva, et all, 2012).

The stages of formation and development of the Russian small business are disclosed in the works by B.N. Ichetovkin, V.A. Vilensky, A.A. Orlov, and others (Ichitovkin, 1991; Vilensky, 1996; Orlov, 1999).

 

THE METHODOLOGY

Classic works of the representatives of institutionalism, namely, such scholars as T. Veblen, E. Durkheim, R. Coase, D. Clark, J. Commons, D. North, K. Polany, S. Williamson etc. became the basic framework that formed the methodological outline of this work.

Various questions affecting both economic evolution as a whole, and separate provisions of the evolutionary theory found reflection in works of these scientists – the competition, selection, adaptation and were used in our study. The methodological approaches as institutional and evolutionary of T. Veblen, E. Durkheim, S. Williamson allowing to consider development of regional systems in unity of factors of heredity, variability, the competition, cooperation, adaptation, and also taking into account the principle of a multilevelness were used.

The methods of institutional analysis, designed J. Commons, D. North, R. Coase, D. Clark, were used to establish linkages between the processes of development of small and medium-sized enterprises, the legal regulation of the economy and business, the extent of state influence on the economy and the tax burden on business in the region.

A variety of tools typical for many economic schools and trends (economic theory, institutionalism, new political economy, evolutionary economic theory) were used in the research process, which allowed to follow the logic of SME development in Russia, to describe and analyze the status of SMEs at the present stage.

The methodological basis of this work is a systematic approach to the unity of its functional, structural and subject-object aspects, institutional, evolutionary, historical and logical approaches. The methods of comparative, structural and system analysis were used at different stages of the research with application of economic-mathematical apparatus and methods of statistics, unity of objective and subjective issues in the formation and development of economic processes.

 

RESEARCH AND RESULTS

The nature of the business largely depends on the type of development of society characterized by not only economic but also historical, social, cultural, ideological factors. The relationship of the economy to the specifics of a particular country determines the uniqueness of the economic models, which have a significant effect on the nature and development of entrepreneurship, including small one (Kamberdieva et al., 2012).

In the history of the modern Russian small business development many domestic researchers distinguish  different stages based on different aspects of small businesses and the state of the economy. In our view, the periodization of development of this sector logically can be based on the dynamics of the number of small enterprises and the institutional environment, and only then can be compared with the state of the economy. Based on the proposed principle, in our view, it is possible to allocate following stages of the development of small entrepreneurship in the Russian Federation.

 

Phase I (1987 – 1990) – the emergence of small business

This stage was marked by significant innovations in the legislation. Thus, the Law “On state enterprise (association)” (1987) introduced a new form of economic calculation and stimulated the emergence of new forms of lease relations. The law “On individual labor activity” has lifted a ban on the practice of handicraft, folk arts and crafts, domestic service, home-based work. These institutional innovations helped the mass creation of new organizations, most of which had the smallest size (Degtyarev, 2001).

This period created the initial private capital of the citizens, increased the number of people involved in entrepreneurial activity and formed cooperatives.

The highest rates of growth of the cooperative movement were noted in 1988, when the number of cooperatives has increased more than 46 times, the total number of employees has increased 11.5 times, and the volume of their production increased threefold (table. 1). The peak values of the number of cooperatives and workers were reached in 1991, however, this occurs after the collapse of the cooperative movement and its rebirth in other forms. A sharp reduction in the number of cooperatives appears to have been caused by the abolition of the privileges granted to cooperatives (The Civil Code of the Russian Federation, 1994). The disruption of logistical supply, the instability of tax policy, the high degree of criminalization of business, the oppression of criminal organizations have further accelerated this process. Cooperatives re-registered in 1992 and opened in the form of limited liability partnerships or joint stock companies (open or closed).

 

Table 1. Development of cooperation in 1988 –1993 (at the beginning of the year)

Indicators

1988

1989

1990

1991

1992

1993

The number of operating cooperatives, thous.

7,3

338,9

1102,2

1134,6

778,4

443,8

The number of employed, thous. people

669,7

7708,2

22688

33512

22665

994,0

The volume of sales, mln rub.

1168,2

3326

224875

442801

449425

1183759

 

Source: Author, 2016.

 

Major changes in the political, economic, ideological, and social spheres of Russia have taken place in this period, which created the necessary conditions for the emergence and rapid development of small business.

 

Phase II (1991 – 1994) – the dynamic development

Phase II is characterized with fast dynamic development of the small business enterprises, institutionalization, isolation, and decoupling of this sector from other types of businesses. At this stage a legislative and financial framework for small business was formed under conditions of the backdrop of the degradation and significant reduction in activities of medium and large enterprises. At this stage an increase in the total number of small businesses was noted. So, in 1991 the number of small businesses amounted to 268 thousand, and by the end of this phase it reached its peak – 896,9 thousand, the number of employed amounted to more than 8.5 million people.

The first Institute of the state support of small business was the Committee for the development and support of small business, established in 1991 by the Council of Ministers of the RSFSR “On measures for support and development of small enterprises in RSFSR” in which for the first time in the history of Russia special privileges (tax profit, the possibility of accelerated depreciation of the active part of production funds) were granted. In addition, the regulation obliges different state agencies to assist small businesses.

With the introduction of the Resolution of Council of Ministers of the Russian Government dated on the 11th of May, 1993, № 446 “On priority measures for the development and support of small entrepreneurship” was established the other criteria for the selection of firms in the category of small ones – industry affiliation and number of employees. The category of small enterprises includes organizations of all the existing forms of ownership, the average number of employees in which amounted to: in industry and construction – at least 200; in the field of science is less than 100; for other industrial enterprises – less than 50; in the non-manufacturing sectors, retail trade and public catering – at least 15 people (The RF Government decree of 11 may 1993, 1993).

Since 1993 the Ministry of the Russian economy became the main coordinator of the system of state support for small enterprises. However, in 1994 these functions were transferred to the State Committee of Antimonopoly policy, which was established by the Federal Fund for the support of small enterprises on the base of budget allocations for its development.

These institutions were the main developers of the first Federal program of state support of small business in 1994–1995. The main purpose of which consisted in the following: improvement of normative legal base of small business, development of measures for financial and personnel support of small entrepreneurship, engagement of small enterprises in foreign trade turnover and etc. The main disadvantage of the program was its underfunding (20 billion rubles was allocated instead of 210 bn). Later, on the basis of this program new Federal law “On state support of small entrepreneurship in the Russian Federation” was developed and adopted, it marked the beginning of a new stage in the development of small business.

The peculiarity of this stage was that at this stage there have been legislative (formal) selection of small entrepreneurship as a separate sector of the economy, building the infrastructure of its state support began, criteria were formulated for classifying enterprises to small created the initial basic conditions for the existence and development of small business. New subjects of small businesses failed to form a base for further development of the national economy, to prevent the development of the crisis, to compensate for the collapse of old economic ties new, despite the large number and rapid development, but they helped to alleviate the major social problems of society.

 

Phase III (1995 – 1996) – the decline in the number of small businesses

This phase is characterized by the reduction in the number of small businesses. This was due to a number of reasons. In our opinion, primarily to the reduction in the number of SMEs has led the process of re-registration of enterprises established before 1991, which adopted a new legal form or dissolved. Closed businesses that were registered but actually were not carried out. Because of their large specific weight in the total number of organizations the impact of this factor was very important.

Affected the number of enterprises and more stringent economic policy of the state that has had a negative effect – a reduction in the number of small businesses and positive, it has improved the quality of its composition (gone broken businesses, the number of semi-criminal associations which could not continue its activities in the conditions of strengthening of state control over entrepreneurial activity).

The possibility of obtaining super-profits in new fields of activity have been exhausted, which served as the main incentive to open new businesses in previous periods, since almost all new market niche was already occupied. During this period strengthened the position of medium-sized and large businesses, stabilized and was streamlined legislative and regulatory framework of entrepreneurship, its taxation.

The main institutional change in the field of small business largely predetermined its future status and development was the adoption of the new Federal law №88 “On state support of small entrepreneurship in the Russian Federation” dated 14.06.1995 G. This law was significantly amended criteria for the allocation of small businesses. Remained the industry criterion, but for most industries decreased significantly the limit values of the workforce. So, the figure for construction and industry have decreased from 200 to 100 people in scientific and technical sphere – 60 to 50 people, in agriculture (other sectors of the production sphere) – from 100 to 60 people, and for the trade industry has set two limit criteria for retail it was increased from 15 to 30 people, and for wholesale up to 50 people. In addition, introduced a new condition limiting participation in the Charter capital of other legal entities (25 %) (The law of the Russian Federation №88-FZ, 1995). An important innovation introduced in this law was the classification of small business entities individual entrepreneurs and farm households.

This period is characterized by increase in the activity programs of Bank crediting of small entrepreneurship supported by the state and donor organizations. The most important directions of state support of small entrepreneurship were established by the government, namely: 1) formation of infrastructure of support of MP; 2) simplification of licensing, registration, certification, record-keeping and reporting; 3) support of foreign economic activity; 4) provision of concessional public resources (financial, technical and technological, information, scientific and technological development); 5) assistance in the training and retraining of personnel.

The second Federal program of state support of the small business was developed in 1996–1997, whose main objective was the sustainable development of small business in innovation and production spheres. However, its adoption was long delayed by long discussions in the State Duma, so the effect of its implementation was affected only in 1997.

Despite the fact that the dynamics of small enterprises was negative in this period, in our opinion, in these years the foundations were laid for further development and expansion of this sector, accumulated economic potential, well-established and has gained the stability of the new production and economic ties, and the small business sector has firmly taken its niche in the economy. The most important in the development of the institutional framework of small business was the creation of a new law on state aid, the division and coordination of powers of state bodies in the sphere of regulation of entrepreneurial activities, development of programs of state support of small business.

 

Phase IV (1997 – 2000) – the stagnation

At this stage, the number of enterprises has varied slightly, but the overall results were positive. This period was relatively favorable for small business: slowed down the rate of inflation; increased funding by credit institutions to the real sector; there has been economic growth; reduced the level of criminal pressure on business, including small.

August  crisis of 1998 took place at this period, the impact of the crisis on small business was initially positive, as small businesses were less dependent on the banking system, almost was not involved in the primary sector and in the period of weakening medium and large businesses and significantly strengthened its position. During this period, increasingly revealed the dependence of the Russian economy on raw material sectors and the situation on the world oil markets and precious metals, which traditionally provided only by large and multinational companies.

However, the financial crisis led to the outflow of capital from Russia, which has undermined the financial base of enterprise development. According to some estimates about 30 % of small businesses were forced to temporarily or completely suspend their operations, and the imbalance in small business in the sphere of trade and circulation even more intensified.

Those small businesses that were focused on regional markets, on the contrary, its position strengthened due to a significant rise in imported products and falling demand for them. Strengthening of state regulation of activity of small enterprises was partly one of the reasons restraining the development of small business in this period.

An important institutional change in this period was the adoption of several Federal laws “On unified imputed income tax”, “On licensing certain types of activities”, “On leasing”.

Infrastructure of support of small business in this period has been mainly formed, but in many regions the development of institutions to support small enterprises was slower. The consulting system did not correspond the challenges and opportunities of small business development, making it ineffective (Mingaleva, 2013).

In the Federal program of state support for 1998 – 1999 one of the main tasks of the system of state support was the coordination of instruments and measures Federal, regional and local levels (The Federal program of state support…, 1998). It provided for the establishment of conditions for the development of small business (socio-economic, legal) and integral system of its state support. At this stage, intensified the development and implementation of regional programs of support of MP, the effectiveness of which is largely determined by the degree of activity and the availability of financial resources of regional authorities.

Phase V (2001 – 2004) – the crisis

This phase is characterized by economic growth and stabilization of the macroeconomic situation in the country. Reducing the price gap between domestic and imported goods was due to the strengthening of the national currency and a more flexible pricing policy of foreign firms.

An increase in overseas and foreign investment took place predominantly in the primary sector, in which small business was not represented practically.

During this period, significantly changed the taxation of small enterprises has decreased the number of activities subject to licensing, simplified system of accounting and reporting of small businesses to unify and simplify the registration procedure of legal entities that eliminated additional administrative barriers in business development.

Negative impact on the development of small business reduction of tax incentives provided by the state, and as a consequence – increase of the tax burden on small businesses (The Tax Code of the Russian Federation, 2000). On the one hand, the emergence of special tax regimes provided entrepreneurs with the right choice of the taxation system, which, despite some shortcomings, has allowed to achieve the main goal – to simplify accounting and reduce the tax burden on small business. Their negative influence on the development of small businesses is manifested in the fact that the increased control over the activities of the enterprises from the tax authorities, and tax exemptions, became much narrower range of businesses. The first factor has had a positive effect on the state of the MP – entrepreneurs who were not ready to work more hard and clear conditions have ceased their activities. The negative impact of the second factor – the disparity of criteria for classification of enterprises to small and criteria for application of special tax regimes – is still preserved.

The Federal program of state support of small entrepreneurship main challenges put the elimination of administrative barriers, streamlining the work of government agencies in regulating the activities of small business and the optimization of its industrial structure through the development of production and innovative spheres. These problems were not solved and at present remain valid.

The most favourable trend in state regulation and support of the MP in that period was the intensification of efforts of regional authorities, the results of which showed themselves in the next stage of development of small business.

 

Phase VI (2005 – 2007) – the moderate growth

This stage is characterized by moderate growth, stabilization. According to Rosstat, the number of small businesses at the end of this phase exceeded 1.1 million enterprises, and the number of individual entrepreneurs amounted to 3.4 million. In 2007, increased turnover and investments in fixed capital in small business (Rosstat, 2015).

This period is characterized by stabilization of the economic and political situation, the improvement of the General conditions of entrepreneurship development. In 2007, Russia’s GDP grew by a record for the post-socialist economy, the value of 8.1 % (according to Rosstat). The growth was largely due to the growth of spending (almost 13% compared to 2006), and also positive dynamics of investments, including foreign.

In 2006 – 2007, the government adopted measures to create favorable conditions for entrepreneurship development at the Federal and regional levels. So, it adopted a new law on development of small and medium enterprises (medium-sized enterprises for the first time became the object of state protection), was approved by the regulations, facilitating access of small and medium firms to receive financial and material support of the state, aimed at removing administrative barriers.

State tax policy in this period was the most liberal, saw an increase of tax revenues of the state with above-average growth in the tax base. This was due to the change of the order of recognition of expenses for income tax, increased tax privileges, and also with application of the regressive scale of UST. Tax increases resulting from the growth of the economy, revenues of enterprises and population, and a favorable situation on the world energy markets. Negative factors for the development of small business and the economy as a whole during this period can be called the increase in inflation (especially of housing services), rapid growth of imports, growth of interest rates on loans because of high inflation expectations, increasing the national debt.

The growth of small business in this phase of development occurred against the backdrop of economic growth and was largely due to lower volatility of its external environment, adaptation to existing economic conditions in the country, the growth of incomes and domestic demand for goods and services. This trend continued until the beginning of the global financial crisis, marked the beginning of the next period of development of Russian small business.

Phase VII (2008 – mid 2014) – the rapid growth

This stage of development of the small enterprises occurred during another financial crisis in the Russian and world economy. The causes of the crisis, according to experts, were serious geopolitical and geo-economic imbalances. The state managed to avoid global socio-economic problems, however, completely compensate for the negative effects of the crisis failed. If before the crisis (in the first half of 2008), the rate of economic growth was high and stable, and the business environment is very favorable, in the post-crisis 2010, despite a slight growth in most national economies, including Russian, predictions and expectations were much less optimistic. This is due to the fact that recovery from the crisis was due to a significant infusion of financial resources and rising costs of the state and not the recovery of the economy through market mechanisms. Such active government intervention in the economy was necessary and a necessary measure to prevent the worst of developments in the economy. However, the temporality of these measures and the impossibility of overcoming the crisis at this stage, through market regulatory mechanisms do not allow to build  more optimistic prognosis and say that the crisis has been overcome completely. In addition, a number of foreign economies (Greece, Italy, Spain, Portugal) are still at risk.

The slowdown of economic growth in 2008 and decline in the following year was caused by the fall in external demand and a simultaneous decrease in domestic demand.

The main factor contributing to the country’s exit from the crisis in 2008 (as of the August 1998 crisis) has been the improvement in the external economic environment and the stabilization of the situation on world commodity markets.

From the last quarter of 2009 began to grow exports, and from the second quarter of 2010 has increased domestic consumer demand. However, in contrast to 1998, in 2008, despite the significant decrease in imports of goods (about 30 %) of Russian enterprises have not received a great competitive advantage, and increased business growth caused by growth in domestic demand, did not happen.

The unified social tax, which was paid by entrepreneurs since 2001, ceased to apply in 2010 in connection with the introduction of the new Federal law. Insurance contributions to state extra-budgetary funds, which replaced the ESN, increased the tax burden on entrepreneurs from 26% to 34 % (later it was reduced to 30 %) of the payroll. However, for the enterprises of some branches was provided a temporary decrease in interest rates at the expense of mandatory contributions to the Pension Fund by 8% for the period 2010–2011.

Accounting work and reports for companies and entrepreneurs has significantly increased and complicated. So, starting in 2013, all taxpayers, applying STS, required submitting the balance sheet and statement of profit and loss, which actually means the accounting in full. The legislation provides for the possibility of a simplified accounting procedure, however, neither the methods nor the specific instructions in what form this simplified form of accounting has, the regulations do not specify. The only legitimate manner of accounting is a general order, established by the Law “On accounting”. Reporting on social insurance has also increased. Now entrepreneurs need to pass information about a personalized account on a quarterly basis.

In 2009 – 2010 changes were made to legislation that has significantly reduced as the grounds for conducting field audits of SMEs and their dates, and some services that are provided by small businesses was abolished compulsory licenses. The development of the Russian economy in 2011 (budget surplus, the minimum level of inflation over the past two decades, low but stable GDP growth) showed that the country has overcome the consequences of the 2008 crisis, the Main factors that contributed to economic growth in 2011 steel: higher prices for oil and gas on the world market, the revival of the business sector, the decline in official unemployment, the reduction of debts to the budget. However, the global financial crisis has shown the vulnerability and insecurity of a stable state of the domestic economy that determines the particular relevance of its modernization and further stability of sustainable development. The most important changes in external economic policy was the accession of Russia to the WTO (it has become its 156th member), functioning of the Customs Union and the agreement on the common economic space of Russia, Kazakhstan and Belarus.

In 2008 – 2010 in the framework of anti-crisis measures regional programs of subsidies to promote the development of small enterprises and self-employment with financial support from the Federal budget in the amount of not more than twelve-times of the maximum value of unemployment benefit (not more 58800 rubles) were developed and implemented.

Phase VIII (the second half of 2014 to the present time) - the fall

This stage is characterized with negative dynamics of SME development. According to the Federal statistics service, the share of SMEs in turnover for the economy as a whole steadily decreases. The drop in operating income in 2014 compared to 2013 was 1.8 points (Rosstat, 2015). There is reduction in the share of exports of SMEs in total exports of the Russian Federation; it amounted, according to the Federal customs service, of about 6%. This is due to the adoption of the regulatory decisions which introduced additional requirements to increase the financial burden on SMEs. Changes were made to the tax component of doing business (repealed privilege tax on the property for entrepreneurs-payers of the simplified tax system and the taxation system in the form of unified tax on imputed income; introduced sales tax; production changes of the non-stationary trade objects placement, etc.), as well as in the sphere of compulsory insurance payments (increased fixed insurance premium for individual entrepreneurs). In August 2015 changes were made in the marginal values of revenues for SMEs, while the limits were prescribed for each category of economic entities individually (micro enterprises - 120mln RUB.; small enterprises – 800 million rubles; medium-sized enterprises – 2 billion rubles). Double increase compared to the 2013 limits was supposed to lead to the expansion of the list of small and medium enterprises. However, the onset of the financial crisis has created a favorable financial environment for business development. Negative impact on the profitability and cost of production of the enterprises of small and medium enterprises, investment plans and financial stability of SMEs had an increase in interest rates and liquidity crisis.

The increase of fiscal burden, unfriendly system of administrative-legal regulation, ignoring the specifics of doing business in SMEs leads to the fact that the enterprise that is just starting out do not have the opportunity to increase the market share and thereby enhance its profitability, and this in turn allows you to move them from the category of microenterprises to small or medium. This approach undermines the level of trust of entrepreneurs to the state and creates the conditions for business to go to the informal sector of the economy

A feature of this stage is the formation of a new ideology to support SMEs, the main provisions of which are: the development of the social functions of small business; guarantee the stability of fiscal and regulatory conditions for the development of SMEs; support social and economic activity of young people.

Conclusion

SMEs at the present stage of their development are not working effectively, and their role in the economy has a pronounced negative trend. The state’s efforts in this direction up to the present period did not allow to achieve the main goal – to provide a large-scale expansion of the sector of small and medium enterprises - despite the scale and focus of the regional and Federal authorities. Moreover, the challenge is not the absolute increase in the number of SMEs, but the qualitative growth of the sector and the involvement of wider population in entrepreneurial activity. Institutional analysis carried out in the paper allowed to formulate the basic problems of SMEs in Russia: the limited internal market, including low demand for goods and services provided by small enterprises, due to the reduction of state and municipal orders, the lack of funds of client companies and reduce the purchasing power of the population in the face of growing pressure of imports; the predominance of large organizations in the national economy (economic and financial), the monopolization of their productive resources and markets; excessive rigidity of the state economic policy (fiscal, monetary), which exacerbates the problem of reproduction due to the shortage of factors of production that give it the current activity of small enterprises that encourages entrepreneurs to use gray schemes activities and concealment of their income; regional polarization of the economy and the domestic market because of the disproportionate transportation costs and the appreciation of the cost of shipping the products, the imbalance and underdevelopment of the infrastructure in the regions and impact of intraregional issues that lead to uneven development of the SME sector in different regions; the imperfection of the normative-legal base of functioning of small businesses and the opacity of property relations and, consequently, the exclusion of small businesses from the process of institutional improvement of the economy and the inability of strategic planning in this sector.

The practical significance of the results of the study is that it focused on the solution of an important problem and represents a search of approaches to creating conditions and selection of tools that will improve the efficiency and effectiveness of the functioning of SMEs and its role in sustainable economic growth and reindustrialization of the national economy through the impact of institutional factors.

[1]Kabardino-Balkar State University. Nalchik, Russian Federation, Alika123@rambler.ru

[2]Sochi State University. Sochi, Russian Federation, antana-tata@mail.ru

[3]Kabardino-Balkar State University. Nalchik, Russian Federation, ksanm@yandex.ru

 

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