State-Business relations and participation of firms in public procurement in russia: An empirical study
| DOI | https://doi.org/10.1108/JOPP-12-04-2012-B004 |
| Published date | 01 March 2012 |
| Pages | 547-592 |
| Date | 01 March 2012 |
| Author | Olga Demidova,Andrei Yakovlev |
| Subject Matter | Public policy & environmental management,Politics,Public adminstration & management,Government,Economics,Public Finance/economics,Texation/public revenue |
JOURNAL OF PUBLIC PROCUREMENT, VOLUME 12, ISSUE 4, 547-572 WINTER 2012
STATE-BUSINESS RELATIONS AND PARTICIPATION OF FIRMS IN
PUBLIC PROCUREMENT IN RUSSIA: AN EMPIRICAL STUDY
Olga Demidova and Andrei Yakovlev*
ABSTRACT. In this paper, we regard public procurement as an instrument
used by the government for indirect support of enterprises. In this context,
we have investigated the place that public procurement occupy in state-
business interrelations. Using data from a large survey of Russian
manufacturing enterprises conducted in 2009 we show that in Russia public
procurement cannot be regarded as a component in the system of
exchanges, and the extent of co mbination between direct and in direct
support depends on the level of government. At the federal level direct and
indirect instruments of government support complement each other. At the
regional and local levels the effect of mutual complementation can be
observed only in relations with firms, which conceal information about their
ownership structure and are supposedly affiliated with regional and local
bureaucrats. In relations with other firms at regional and local levels direct
and indirect support substitutes each other.
INTRODUCTION
The global economic crisis of 2008-2009 gave rise to a great
expansion of state interference in the economy. This tendency was
observed not only in Russia (Simachev et al, 2009) but also in most
countries throughout the world (Bertelsmann Stiftung, 2010; World
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* Olga Demidova, Ph.D., is an Associate Professor, Economics Department,
National Research University – Higher School of Economics. Her teaching
and research interests are in comparative economics, micro-econometrics,
nonparametric and Bayesian methods of estimation. Andrei Yakovlev, Ph.D.,
is Director of the Institute for Industrial and Market Studies, National
Research University – Higher School of Economics. His research interests
are in corporate governance, industrial policy and public procurement in
Russia and transition economies.
Copyright © 2012 by PrAcademics Press
548 DEMIDOVA & YAKOVLEV
Bank, 2010). Experts from international organisations note that state
interference in the economy is highly likely to continue in the near
future (World Bank, 2011). In a sense, it is possible to speak about
“return of the state” to the economy after about 30 years of
liberalisation and deregulation of global markets. In this context,
empirical analysis of relations between state and business assumes
great importance both to economic theory and economic policies.
This line of research has a long history. Its foundation was formed
by a well-known study of “state capture” effects (Stigler, 1971) and
the papers on patterns of behaviour and the relative inefficiency of
“politically influential” firms (Faccio, 2006; Bertrand, Kramarz,
Schoar, & Thesmar, 2006). However, in recent years, a prominent
economist from Harvard University, Dani Rodrik, in his papers on a
“new industrial policy” has upheld a thesis that in emerging
economies, the state and business should interact to guarantee
steady economic development (Rodrik, 2004, 2008).
With regard to Russia, many researchers following the 1971
model of George J. Stigler and using empirical data from the mid-
1990s have found confirmation of the “state capture” hypothesis by
firms, especially those at the regional level (Hellman, Jones &
Kaufman, 2000; Slinko, Zhuravskaya & Yakovlev, 2004). These
authors have asserted that government support was given mainly to
large, old, privatised enterprises that were inefficient but had “special
relations with authorities”. However, other more recent papers (Frye,
2002; Frye, Yakovlev & Yasin, 2009) have used newer empirical data
to suggest and prove another hypothesis – one about the existence of
“a system of exchanges” between enterprises and government. In
particular, these papers have demonstrated that the firms that
received government support faced additional costs and liabilities at
the same time. The results that were obtained by Yakovlev (2011)
indicated that, on the eve of the crisis of 2008-2009, priorities of
provision of support by federal, regional and municipal authorities
showed quite visible disparities. In particular, the established “system
of exchanges” between the state and business at the federal level
was much more conservative: It was focused on old enterprises,
companies with government stakes and firms that preserved jobs. On
the contrary, government support given in 2007-2008 at the regional
and municipal levels was more oriented towards modernisation, and
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