Theoretical base of economical significance of small business

Development the small business sector is an important part of successful growth of any state economy, growth in production efficiency, market supplementation of necessary goods and services and the improvement of living standards, not only in Russia, but also in the advanced economies. While small businesses may not generate as much money as large corporations, they are a critical component of and major contributor to the strength of local economies. Small businesses present new employment opportunities and serve as the building blocks of the largest corporations.

Therefore, the issues of small business development are critical in programs of de-monopolization of national economies.

Development of small business is one of the factors in the way of formation of thesocio-economic development strategy of the region and at the same time it depends on the efficiency of the state support of small business sector.

There are a lot of research literature which interpreted links between entrepreneurial activity and economic growth. (Bosma & Nieuwenhuijsen 2000; Reynolds 1999; Caves 1998, p. 1973; Acs & Armington 2002; Audretsch& Fritsch 2002; Audretschet al. 2002). These studies observe influential level of small business activity in city, region and the state. Region that has a higher share of small business in comparison with other regions is considered to have higher small business activity and consequently experienced in terms of higher economic growth. The impact of number of market participants in any industry has the same consideration where an increase in the number of small enterprises is usually related to more intensive activity and subsequently higher economic growth. (Glaeser et al.1992; Nickell 1996;Nicolitsas & Dryden 1997; Lever & Nieuwenhuijsen 1999; Geroski 1989).

It must be highlighted that characteristic feature of central planned economy implies the absence of small business or private ownership. This is one of the major factor that led to the collapse of state socialism (Acs & Audretsch 1987; Prusa & Schmitz 1991 and Rothwell 1983, 1984).

Analysis of existing studiesabout links between entrepreneurship activity and economic growth revealed that they were restrictedto two units of research - at the level of enterprise and for regions but not country(Caree & Thurik, 2002; Audretsch 1995; Caves 1998).It also mast be noted that was positively and significantly related to economic growth, however, these studies analyze western countries and not examine the impact of entrepreneurship on economic growth for developing countries.

Carree & Thurik (1998, 1999a) examined the influence of the share of small firms in manufacturing industriesin European countries on the economic growth in 1990 and found that they had a positive and significant effect on the industrialoutput growth. Moreover, its findings indicated that excess growth of small firms had a great impact in changes in gross national product for a sample of 16 European countries from 1988 to 1993.

Furthermore, Robbins(2000) performed an analysis of 48 of the 50 United States of America for the period from 1986to 1995 and found that states that had a higher proportion of small enterprises employmentexperienced higher level of productivity growth and gross state product.

Audstretch & Keilbach (2002) hypothesized that regions with greater level of small business capitalexhibited higher output for German regions,ceteris paribus. They specified the following intrinsicallylinear model to link entrepreneurship to economic growth:

Where:

Kis a physical labor,

L is labor

R is knowledge capital

E is entrepreneurship

Henderson (2006) analyzed the relationship between entrepreneurship activity and economic growth for the period from 1980 to 1990 by regressing employment level for U.S.A counties on various characteristics of a county that was believed to influence economic growth as shown in equationbelow:

Where:

EMP (1991-2001) is the county's employment growth rate from 1991 to 2001;

Eis entrepreneurship

Lis labor

Iis infrastructure

Uis agglomeration,

T is taxes

A is special characteristics of the county.

Henderson (2006) distinguished his study from others by dividing entrepreneurship into two majormeasures of entrepreneurship based on proprietor following data levels: the average share of non-farmemployment in the county by non-farm proprietors, the average annual growth rate inentrepreneurs where three measures of entrepreneurship were used to test the hypothesis, namely theaverage number of per capita new business start-ups, the average number of per capita new business thatsurvived five years, the average number of per capita new business start-ups that produced high growthduring the first five years of operation.

Moreover, modern world practice has proved that small business plays an important role in the economy and its state support makes social, economic and budgetary effect. In Western Europe, the USA, Japan small businesses provide two thirds of growth of new jobs; in the EU share of small and medium-sized businesses in the GDP exceeds 50%.

Data of the contribution of small and medium-sized enterprises in the economy of the advanced industrial countries are presented in Appendix 1.Russia is characterized by low supply of small and medium-sized businesses and their insignificant contribution to GDP, suggesting the lack of effectiveness and efficiency of policies to support small businesses.

Nowadays development and the role of small business in the Russian economy are under public scrutiny. However, small business as the way of life for millions of people does not have deep historical roots. Russian entrepreneurship did not appear by the evolutionary way, as in the traditional market economies, but as a result of economic transformation “from above”, at the end of the collapse of centrally planned economic system of the state.

The scale of development of small business in Russia and its contribution to economic recovery today is clearly not sufficient. However, it should be noted the impressive achievements in a concerted effort to support entrepreneurship, which means a positive attitude towards the private sector in the country.

For example, increasing popularity has business incubators, industrial parks and other forms of support. Today, the corresponding indicator of the Russian business environment is more favorable than it was ten years ago.

In addition, taking into consideration the fact that the country embarked on the path of market economy only in 1990s, Russia has made ??significant progress in the development of entrepreneurship. In comparison with other countries included in the study of EY «Barometer entrepreneurship G20» in 2013, Russia has shown good results, indicating progress in creating an enabling environment for business, which was made in recent years.Entrepreneurs has opportunities due to the development of the consumer market, the growth of disposable income, the presence of abundant natural resources and a highly skilled workforce.

1.1 Regulatory framework analysis

National policy in the sphere of small business support was started at the end of 1999 where government of the Russian Federation adopted Resolution N1460 "On the complex of measures for the development and state support of small and medium enterprises in the sphere of material production and promote their innovative activity", which stated that this kind of support is the most important of the activities of federal executive bodies. A list of supported industries was quite extensive, that is why there was a number of ministries and executive authorities of subjects of the Russian Federation, which was instructed to ensure the implementation of measures aimed at such support.

In the Russian Federation the main document that regulates the particular legal status and activities of small enterprises is federal law of 24.07.2007. N209 “Development of small and medium enterprises in the Russian Federation”. This law marked the new stage of regulation the relations between government and individuals in the development of SMEs.

The law defines the main terms used in the regulation of relations in the development of SMEs, the concept of SME, SME support infrastructure, types and forms of such support.

Adoption of this law was a symbolic because it has comparable legislation of the development of small and medium enterprises with the countries of the European Union - the main trade partner of Russia, equalizing criteria for the classification of business entities for SMEs. Based on the world experience, which shows that medium business has the same significance for the effective development of the economy, the new legislation signed a new term “medium business”.

Also, the Federal Law № 209-FZ of the main principles of the division of powers authorities at various levels for the development of SMEs, harmonized criteria for the sector of small and medium-sized companies, to ensure equal access of small businesses to government support, and a mechanism for considering the opinion of representatives of employers in making regulations.

In accordance with the law public authorities and local governments are required to provide support to SMEs in innovation and industrial production through forming the infrastructure of SMEs support. Innovation organizations are parks, centers of technology commercialization, technology development and scientific-industrial zone.

Government resolution of October 13, 2008 N 753 "On amendments to Certain Acts of the Russian Federation regarding the powers of the federal bodies of executive power in the sphere of small and medium business" are defined executive authorities, which are obliged to develop measures to support the subjects SMEs, including the development of relevant departmental target programs in the established field of activity. Among these executive bodies there are the Ministry of Education and Science of the Russian Federation, Federal Agency for Science and Innovation , Federal Agency for Education , the Federal Agency for Information Technology , Ministry of Industry and Trade of the Russian Federation , Federal Agency for Press and Mass Communications , etc.

Besides the basic legal framework of small business support in Russia , it was adopted other important laws, such as:

N135 "On protection of competition", 26 July 2006 (with amendments of December 1, 2007, April 29, June 30, November 8, 2008, July 17, December 27, 2009, April 5 May 8, November 29, 2010, March 1, June 27, 1, 11, 18 July 2011);

N195"On Amendments to Certain Legislative Acts of the Russian Federation with regard to the formation of favorable tax conditions for the financing of innovation", July 19, 2007;

N294 "On protection of legal entities and individual entrepreneurs in the implementation of state control (supervision) and municipal control", 26 December 2008;

President resolution of May 15, 2008 N797 "On urgent measures to eliminate administrative barriers to entrepreneurial activity.";

Government resolution of 17 March 2008 № 178 "On the Government Commission on the development of small and medium-sized businesses." and other legislative acts.

Thus, it can be definitely claimed that the system of regulation of small business was born 15 years ago, that is incomparable with the United States or European Union countries where regulation system of small business was started 65 years ago.

1.2 Structure and forms of small business government support

State support for small businesses in a broad sense is a system of financial, economic, organizational and legal and social services for the effective operation and development of small business.

In the context of conducted fiscal reform, the transition to budgeting, results-oriented, the specialascent of budgetary funds is placed on the effectiveness of its use. Therefore, in terms of state support of small and medium-sized businesses also raises the question of indicators of the effectiveness of this policyimplementation.

The most important principle of organization of state policy towards small business is and target orientation, which involves the development of programs to support small business development, which should be clearly presents the expected results of the program and the amount of resource support.

Targeted programs of small businesssupport and development focus on the coherence and effectiveness of government in order to create more favorable conditions for the development of small businesses in Russia in general and in particular in the regions.

In order to overcome problems of small business development in Russia, it was created the infrastructure of small business support which represents a set of public, non-governmental, public, educational and commercial organizations that regulate the activities of companies providing various services necessary for the development of small business and providing the environment and conditions for the production of goods and services. One of the key elements of small business support infrastructure is a public authority at all levels where the main federal body coordination functions of state support in the small business sector is Ministry of Economic Development.

Besides the “public” element of infrastructure, there are some bodies small business support, engaged in structures that interact directly with small businesses.

The main functions of the business support body include:

Financial support (assistance in getting a loan, giving subsidies, loans etc);

Technical and informational support (consultation services, mentors' support, providing by the angel investors etc).

In order to implement the state policy in the sphere of small and medium enterprises in the Russian Federation there were created federal laws and other normative legal acts which are foreseen:

Special tax regimes, simplified rules of tax accounting, simplified tax return forms for certain taxes and fees for small businesses;

Simplified system of accounting for small businesses engaged in certain activities;

Simplified procedure for preparation by small and medium-sized businesses statistical reports;

Preferential order of payment for privatized small and medium enterprise state and municipal property;

Special conditions of participation of small businesses in competitions for placing orders for the good supply, works and services for state and municipal needs;

measures to ensure the legitimate rights and interests of small and medium-sized enterprises in the implementation of state control (supervision);

Measures to ensure financial support of small and medium enterprises;

measures to develop the infrastructure of small and medium-sized businesses, etc.

For each subject of the Russian Federation was developed a separate target program for the development of small entrepreneurship. Subjects of the Russian Federation have unequal socio-economic development that prevent to consider the impact of government support measures for the development small business in Russia as a whole.In this connection it is necessary to highlight the region of Russia, which has the highest socio-economic development in order to compare it with foreign practices of developed countries.According to the research center of RIA-Novosti "RIArating" first place in the socio-economic development occupies the city of Moscow.(Appendix 2)

In the result of analysis of the Moscow target programs, it can be highlighted the following measures of government small business support:

Complex provision small business by the systems of small business support;

Improving infrastructure of small businesses support;

Support of prior directions of small business;

Providing small business by uninhabited premises in the administrative districts;

Financial support of small business;

Information and consulting support of small business;

Training support;

Support in expanding of business opportunities of small business.

The aim of small business complex provision by the systems of small business supportmeasures is addressing to provide needs of complex urban systems of small business support in order to improve the environment of business development, to form of the legal space, providing unhindered development of the small business sector.

In order to implement the measures of state support for small business in Moscow the special structure was created, which can perform government tasks to support the business. Thus, the next measure of small business support is addressing to improving the government infrastructure of small business support.

Support of the priority directions of small business development involves financial, property and other support for those activities that have the most favorable impact on the socio-economic situation in the region. According to Knyazev D.A., deputy head of the Department of Science, Industrial Policy and Entrepreneurship in Moscow "City are primarily interested in enterprises engaged in manufacturing, innovation sphere, housing and communal services, social and consumer services, transportation, agriculture and tourism industry and others. There are 14 priority activities."

Ensuring small business by non-residential premises in administrative districts of Moscow implies property support of small business. The objective of this measure is to provide a right to preferential rental rates for small enterprises, rent of nonresidential property located in the treasury of Moscow, under existing lease agreements without competitive bidding.

The purpose of the financial support of small business is providing entrepreneurs by grants (subsidies) to develop the business. Financial support programs and allocations in various targeted programs are heterogeneous and depend on the medium-term strategic objectives of the subject of the Russian Federation. Thus, the target program for 2010-2012 identifies the following types of subsidies:

Innovative projects support;

Start-up project support;

Priority activities support;

Youth entrepreneurshipsupports;

Supporting of small business who have credit contrasts with banks;

Supporting of small business who have signed contracts of financial rent;

Providing subsidies to compensate a bank guaranteefor small and medium business;

Providing grants to compensate part of costs of small and medium-sized businesses on contracts for connection to the electrical and utility networks;

Providing grants to compensate part of costs of small and medium enterprises for the production and certification of products (ISO, GMP), the development of industrial design and trademark.

Microfinancing support

Information and consulting support of small businessare provided through the preparation and posting information on the specialized informational Internet resources, as well as by establishing and supporting the functioning of these resources. Moreover this measure is functioned through the establishing specialized multi-service centers authorized to provide advice to small businesses on any question of doing business.

Expanding business opportunities of small business consists in searching fordomestic and foreignmarkets and partners, in order to small business development and promotion of Russian producers of goods and services abroad.

In 2012, the volume of public expenditure to measures of small business support in Moscow is about 20 million rubles, which is two times more than in 2001(Appendix 3). . Furthermore, due to the fact of increase in the expected performance of socially and economical significant indicators and in the budget allocation, we can assume that the logic of the government policy in the sphere of small business support is relatively proportional increasing in the business environment per unit of input budget.

Also in terms of researching state measures of small business support it must be noted the traditional task of budget spending - task of improving the efficiency of budgetary spending in order to achieve maximum results (creation of new jobs, increased tax revenues from small businesses, increase in the share of small enterprises in total GRP, etc.) with minimal support of small entrepreneurship, which is based on a mathematical approach to performance indicators.

In this regard, in setting targets to maximize the effectiveness of the implementation of government programs to support small business development it is offered to take into consideration the following aspects:

Achieving maximum results for a certain level of limited budgetary resources;

Achieving a minimum flow of budgetary resources for a given level of the final result.

Implementation of these requirements can be suggested as conditions of improving the efficiency of the executive authorities of the region and the implementation of government programs to support small business development, because they guarantee the maximum results at the minimum cost, taking into account constraints on the objectives and financial resources.

Thus, the activities of the authorities can be considered effective if it revealed that budget expenditures and achieved their results using the specific objectives set by the executive authorities in the development of programs to support small business.

In conclusion to chapter 1 it is important to highlight that according to numerous studies, small business plays an important role in terms of forming the market economy of the state. Development the small business sector is an important part of successful growth of any state economy, growth in production efficiency, market supplementation of necessary goods and services and the improvement of living standards, not only in Russia, but also in the advanced economies.

While small businesses may not generate as much money as large corporations, they are a critical component of and major contributor to the strength of local economies.

Small businesses present new employment opportunities and serve as the building blocks of the largest corporations.- J. Mariah Brown)

In Russia for a long time dominated the planned economy, which does not imply the development of small business. Concerning this fact, small business development began in the late of 20th century, the regulatory framework governing the rules of small business support appeared only 2007.

Today in Russia there are many programs of small business support, which means that the Russian Federation took the path of creating the sustainable market economy. However in order to consider the adequacy of existing measures of government support it is necessary to consider the best international practice.

2. RUSSIAN AND INTERNATIONAL EXPERIENCE OF SMALL BUSINESS DEVELOPMENT