Handshake between Russian government and business symbolizes evolving economic ties.

From Cronyism to Cooperation: How Russia's Business Climate is Evolving

Mira Elwood in Business & Economy August 2025 • 4 min read.

"Discover how the changing dynamics between the state and businesses in Russia could lead to more transparent and mutually beneficial relationships."

The relationship between businesses and government in Russia has long been a subject of intense scrutiny. The financial crisis of 2008-2009 threw these dynamics into sharp relief, highlighting the critical nature of state support and how it's allocated. This sparked renewed interest in understanding not just the mechanics of these interactions, but also the priorities that guide governmental assistance at the federal, regional, and local levels.

Historically, Russia's business-government interactions have been viewed through various lenses. Early analyses often pointed to "state capture," where larger firms, particularly at the regional level, were seen as manipulating government support to their advantage. This model, popularized by J. Stigler in 1971, suggested that government assistance disproportionately favored established, often underperforming, enterprises with strong ties to local authorities.

However, a contrasting view emerged with the "grabbing hand" model, which described a more predatory relationship, especially impacting small and medium-sized new businesses (SMEs). In this scenario, government officials were seen as extracting resources from these firms, creating a challenging environment for growth and innovation. More recently, economist Timothy Frye proposed a more nuanced perspective, suggesting a "system of exchange" where enterprises and regional authorities engage in reciprocal relationships, trading support for obligations.

The Rise of the "Model of Exchange"

Handshake between Russian government and business symbolizes evolving economic ties.

Recent research indicates a significant shift in these dynamics. A 2009 survey of 957 manufacturing enterprises reveals that the "model of exchange" is now the predominant pattern in Russia's business-government relations. This suggests a move away from the more exploitative models of the 1990s, where either state capture or the grabbing hand held sway. Instead, businesses and the government are increasingly engaging in mutually beneficial collaborations.

This "model of exchange" implies a more balanced relationship. Companies receive support in return for providing public benefits, such as contributing to the social development of their regions or maintaining stable employment. This evolution could be a sign of greater maturity in Russia's economic landscape, reflecting a move toward more transparent and sustainable partnerships.

What Does the 'Model of Exchange' Look Like? Support for social development initiatives. Maintaining stable employment rates. Contributing to regional economic growth. Engaging in modernization activities.

However, the survey data also highlight important differences in priorities at different levels of government. The federal government, for example, tends to prioritize support for state-owned and mixed enterprises that ensure stable employment. Regional authorities, on the other hand, are more inclined to support firms actively pursuing modernization. This divergence suggests that while the overall trend is toward a collaborative exchange, specific objectives may vary depending on the governmental level.

Implications for the Future

These trends suggest that Russia may be on the cusp of a significant shift in its approach to economic development. As regional authorities increasingly focus on supporting modernization, the country could move toward a more innovation-driven economy. The federal government's focus on employment stability, while conservative, provides a crucial safety net during economic transitions. The blend of these approaches could pave the way for sustainable and inclusive growth.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: 10.2139/ssrn.1868811, Alternate LINK

Title: State-Business Relations In Russia In The 2000S: From The Capture Model To A Variety Of Exchange Models?

Journal: SSRN Electronic Journal

Publisher: Elsevier BV

Authors: Andrei A. Yakovlev

Published: 2011-01-01

Everything You Need To Know

What was the initial view of business-government interactions in Russia, and how did 'state capture' play a role?

Initially, analyses indicated that larger firms manipulated governmental support to their advantage through 'state capture,' particularly at the regional level. This meant that established, often underperforming, enterprises with strong ties to local authorities disproportionately benefited from government assistance. This dynamic was prominent before shifts towards more balanced relationships.

Can you explain the 'grabbing hand' model and how it differs from 'state capture' in the context of Russian business-government relations?

The 'grabbing hand' model describes a predatory relationship where government officials extract resources from small and medium-sized new businesses, creating challenges for their growth and innovation. Unlike 'state capture,' which benefits larger firms, the 'grabbing hand' negatively impacts SMEs by hindering their development through resource extraction.

What is the 'model of exchange' in Russia's business-government relations, and what does it imply for the country's economic landscape?

The 'model of exchange' in Russia's business-government relations involves enterprises and regional authorities engaging in reciprocal relationships. Businesses receive support in exchange for providing public benefits like contributing to social development or maintaining stable employment. This indicates a move towards more balanced and mutually beneficial collaborations.

How do the priorities of the federal government differ from those of regional authorities in supporting businesses, according to recent surveys?

At the federal level, the government prioritizes support for state-owned and mixed enterprises to ensure stable employment. Regional authorities focus more on supporting firms actively pursuing modernization. This divergence suggests that, while the overall trend is towards a collaborative exchange, specific governmental objectives may vary depending on the level of government.

What are the potential long-term implications of the shift towards the 'model of exchange' and the differing priorities of federal and regional authorities for Russia's economic development?

The shift towards the 'model of exchange,' coupled with regional authorities focusing on modernization, suggests Russia could move towards a more innovation-driven economy. While the federal government's focus on employment stability provides a safety net, the blend of these approaches can pave the way for sustainable and inclusive growth. However, the text doesn't discuss potential challenges or obstacles that could impede this transition, such as corruption or bureaucratic inefficiencies.