ETHNIC NETWORKS OR INFORMAL ECONOMY

This article is based on the data obtained during the semi-formalized interviews with businessmen and directors of enterprises in Ulyanovsk. I will consider how ethnic communities are related to the economic processes going on in the city. The issues relating to the informal economy will be paid a special attention. The growth of the informal economy is accompanied by the resistance to the liberal reforms being carried out by local authorities.

Nowadays personal networks take on special significance as they underlie a “network capital” which seems to be a necessary condition for the functioning of enterprises and commercial structures. Under the strong influence of informal economic processes the network capital becomes an important economic resource in a provincial city. According to our informants, about 40-50 percent of all unaccounted cash turnover goes for covering the expenses related to the bureaucratic apparatus.

There are three typical features characterizing the relations between the network capital and ethnic communities:

1. Quantitative variation of communications on the matter of economic relations (Siu-Lun, Salaff, 1998). The higher the status of the subject of communication (a family, for example) is, the greater the number of social networks which can be mobilized by immigrants and economic communities.
2. Qualitative variety concerning the use of the networks by ethnic communities. A personal social capital is often considered and used as the capital belonging to the whole community.
3. Some communities aspire to establish more “dense” relationships with bureaucratic apparatus in order to get an access to a higher and broader level of social networks.

Following the traditions of Bourdieu and Coleman (Bourdieu, 1986; Coleman, 1998), these characteristics allow us to consider a social network as a form of the social capital. Bourdieu defined the social capital as the “resources based on the related relations and the relations in the group of membership” (Bourdieu, 1986:4). At that, he does not specify that an individual or a group always have some additional possibilities or a choice. Coleman used this conception in a broader sense, including responsibilities and expectations, information channels and social norms (Coleman, 1998:95). In my study I focus on mobilization of personal networks which are used to obtain economic profit.

According to my hypothesis, entrepreneurs are limited in their choice of the style of network building. The choice depends, first of all, on existing family networks and the prevalent limitations on the market, which define the character of the networks (in particular, the potential of ethnic communities). The activity on the market can be successful if the relations outside the family and other weak connections are being flexibly used as a basis for the building or a strategy for the choice of a future model of the network behavior. The choice of the network character is defined by the economic behavior, because it determines the access to the sources of information and provides an economic subject with significant autonomy. This can lead to the creation of the networks using “structural holes”, or of the networks based on the weak points of existing legislation (Burt, 1992; Siu-lun, Salaff, 1998:361). Burt claims that this “optimization” of networks has two distinctive principles. The first principle is the efficiency of the contact and the recognition of relations with other clusters as leading to the establishment of indirect relations. The second principle is, the achievement through the differentiation of primary and secondary contacts, the focusing on the recources providing the maintenance of the achieved status (Burt, 1992:21).

Let us consider the communities’ role in the establishment of the relations between entrepreneurs and officials. The communities of Ulyanovsk have been formed not only as cultural centers, but also - even primarily - as the organizations oriented on commercial activity. In 1990, on the wave of a growing interest in the problems of the Soviet Germans, the document “On organization of the activity on the resettling of Soviet Germans in Ulyanovsk region (Oblast’)” was adopted (Istoriya, 1993:299-300). The business relationships which were formed at that time between the representatives of the German community and the Oblast’ authorities have been maintained until nowadays. They acquire a special role in situations of registration or obtaining a license on the right to sale or the right on commercial activity. In the words of our informant (commercial manager of a TV company), “there are joint-stock companies where the founders are not only us (the Germans - V.V.), but also some people from administration although primarily we were establishing them only to help the Germans who were coming back to their former places”. The Tatar community provides additional evidence of how social organizations are used as a basis for the establishment of commercial firms serving the interests of local authorities but not the aims of the organization itself:

“The money collected on publishing a newspaper has disappeared from a safe. As we have found out, they were “required” as there was a need to buy something... And our people could not refuse... But how could one to refuse? (An entrepreneur).

Our informants maintain that there exists a historically formed division of the Germans in Russia between the Germans of Povolzhie and “the Germans from the center”. Primarily the core of the German diaspora in Russia was composed of the highly skilled specialists from those invited by the Government to serve in administration bodies, in the army, in the institutes of science and culture and industry. Settling mostly in large cities, first and foremost in Moscow and St.Petersburg, these migrants from the German lands did not establish any ethnic contacts with the German peasants-colonists who started to migrate to Russia in large numbers in 1763. Moreover, they even thought of themselves as of a different ethnic group.

The Germans, in contrast to other ethnic communities, feel themselves stigmatized not only in relation to the local inhabitants, but also to the Germans living in St. Petersburg, Moscow or in the Baltic States. Their contacts are oriented to a large extent on Germany, the Germans in Povolzhie and those who still live in the regions of repatriation. “I don’t know how to help the Germans in general, but when somebody from the community addresses us with a request to help those who have stayed “there”, I always help them. This is what the community is needed for”. The German community assists its members also in obtaining licenses, doing it for free or almost (conditionally) for free. Thus, the community is being included in economic life.

The communities help in establishing primary relations between an entrepreneur and power structures. The maintenance and further development of the relations is a responsibility of the entrepreneur. According to the entrepreneurs’ evaluations, there are the fixed taxes of consisting of bribes set up in relationships with bureaucratic structures. An entrepreneur cannot dictate the conditions to an official, there are thus the relations of dependency: “In principle now it is impossible to make money without people from power. To make profit it is necessary to look for “needed” people (a commercial director).” One of the entrepreneurs has pointed out that “if earlier when the firm was in the stage of its foundation, there were many officials who were taking little, now the number of “taking” officials has decreased but instead they ask for more”. There is a tendency among Russian entrepreneurs to skip duplicate structures and “to enter into direct contacts” with officials. German entrepreneurs address the community in order to solve their problems: “I understand that in some situations I might have to pay, but I cannot...But if you share your problems with the committee, the questions will be solved in a few days”; “probably, there is some agreement between our community and local authorities, not to interfere in our affairs”.

Ethnic communities are engaged not only in organization of the links “an entrepreneur/an official”, but also in the relationships “an entrepreneur/an entrepreneur”. They help in minimizing the risks.

In the majority of cases the infringement of business agreements is considered to be connected with the lack of good faith of a partner, in particular, of those belonging to a different ethnic group. For instance, Russian businessmen talked about the infringement of obligations from the Tatars’ part. After a few deals with the Tatars, they try to avoid any business contacts with them. An entrepreneur , dealing with the software installing, related that “it is desirable to establish business relationships with relatives or good acquantances people. I had agreed with a Tatar to look for an order, I made a deal, and he was responsible for a “rough work” only, to finish a packet ... The program packet itself was also installed by me. But then he claims that the main amount of work has been done by him, and we have to divide not 50/50, but 30/70 . I told him, I am sorry but I am not working with you any more”. At the same time, it is easier and more profitable to work with “the Asians’ or “the Caucasians”: there is a chance to “push down defective goods /../ They will swallow up everything”. However it is not a case of swindling a partner. The cases of the infringement of business contracts vanish away when the selection of partners has been completed and the circle of persons becomes narrow: “The relationships have been closed into a reliable and well familiar network”.

The role of the German community in the formation of business networks is especially evident between the members of the community themselves, as there are no unfamiliar people or those who want to start own business from zero: “We all know each other, we have no new people”. This also characterizes the German community as a closed structure, where the main activity aims not at the obtaining maximal profit, but at the minimization of risks.

The Tatar community has got a different character. Firstly, there are always new members who are being included ( in most of the cases, but not necessarily) in trade relations. The recruiting of new members goes on all the time. In the beginning they are being monitored, they work as assistants, and then the “new” people can think of starting their own businesses. Secondly, the Tatar community is rather open, although the leaders of the community do try to resist the entering of new immigrants from rural regions. Still, due to family relations the new comers might have, at least, some guaranteed earnings.

The functioning of business networks is based on continual monitoring supported by additional informal relations and services. If the relationships outside of business are finished, there is a danger that the business relationships will be over, too. One of our informants ( a director of wholesale shop) told: “I was addressed for recommendations/.../ My former acquaintance had asked them for a credit. I would have recommended her earlier, but now I did not. I simply don’t know her any more”.

On the other hand, the network capital is a resource on the labor market (Lin, 1982). In this case, it appears as an unstructured resource, accessible for an individual through the system of his/her personal networks (Davern, 1997:290). An entrepreneur will have better chances to get an access to labor resources, addressing not only official organizations, but also having opportunities to look for the labor force informally. In this case social networks play a double role: they are involved not only in the search for the labor force, they are also helpful in providing the jobs for those who have just arrived, often without signing a contract: “My acquaintances phoned and asked me to place their relation on a job. They told me that he had just arrived and could not find a job, not having an official registration... He worked in my firm for three months, but we did not sign a contract”...

The network also provides its members with information about vacancies and possibilities to find specialists for less money. Ethnic communities can also play a mediating role, although entrepreneurs are more inclined to rely on other sources (stable business networks) and to consider the community’s offers as forced steps: “Sometimes we have to turn specialists down. I have already promised to take an accountant. True, she is only studying and working in my firm now” told a German informant, who had given a job by the community’s request.

The business relations in a firm reflect rather the personal style of the manager, than any ethnic influence. Only one informant ( a representative of the Tatar community) admitted that he had dismissed a Russian and had taken a Tatar instead, although both workers differed very little.

Considering ethnic networks as a resource for the successful development of commercial enterprises we are able to describe the functioning of some processes in the informal economy and the reasons for their emergence. At the same time, the research data do not allow us to prove the hypothesis about the formation of economic behavior on a basis of ethnic priorities. Ethnicity as one of the factors of the business network formation becomes actualized only at the stage of starting an enterprise. Business networks are based to a larger extent on market mechanisms, on the striving for minimizing risks. To get additional profit entrepreneurs are forced to come to an agreement with officials. At the same time, ethnic identity plays a certain role on a labor market and in informal employment.

Coleman, J.S. (1998) Social capital in the Creation of Human Capital // American Journal of Sociology. Vol. 94. ¹1. P.95-120

Davern, M. (1997) Social Networks and Economic Sociology // The American Journal of Economic and Sociology. Vol.56. ¹3. P.287-301

Siu-lun, Wong & Salaff, J.W. (1998) Network Capital: Emigration from Hong-Kong // British journal of sociology. Vol. 49. ¹3. P.358-375