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Russian Financial Community

The first prototype of a financial community in Russia was created back in the 12th century. One of the oldest mercantile communities was founded in free Novgorod. Back then the city was a separate democratic republic but the head of the city government was a knyazh whose power was limited by a council of boyars and the veche of Novgorod. Separate areas of activities implemented in the city were managed by experts. In particular, trading activity was managed by a mercantile community.

The community mainly consisted of merchants a merchant guild. The guild was founded under the Church of St John the Baptist-on-Opoki in Novgorod and named Ivans Hundred. The guilds charter was granted by the Knyazh of Novgorod,Vsevolod Mstislavich, in 1135.

A mercantile community was established by merchants that sold wax to bordering towns. After a while, merchants selling other goods joined the guild. The main aim of the community was the protection of the communitys interests from the authorities. Trade became so important for the city that Knyazh Vsevolof Mstislavich granted specific privileges to the merchant guild. In particular, the members of Ivans Hundred were exempted from the Knyazh and the church power. Now, merchants were free to set their own trade rules, controlled traders measures (length, weight, etc.), settled trade disputes and carried on trade with overseas merchants.

In order to join the community it was necessary to make a contribution to the guilds treasury and a donation to the church. The head of Ivans Hundred consisted of five wardens that were elected by five city districts. The wardens settled any disputable issues arising in connection with trade. Novgorod merchant guild influenced the lifestyle of Novgorod principality and its development as the trade during that period was one of the main instruments of economic development.

The unification of the Russian lands around Muscovy in the 14th, 15th and 16th centuries led to the concentration of power. Novgorod also went through changes and lost its privileges. As a result, Novgorod merchant guild lost its influence.

There werent any associations in ancient Russia that could be compared with Novgorod merchant guild. Though, merchants united in other Russian cities too. Usually, associations were based on professional specialization of merchants. In particular, in Moscow during the 14th, 15th, 16th and 17th centuries there were merchant guilds selling cloth and carrying on trade with foreign cities. Communities were formed under churches that were used for meetings and storage. Wardens were chosen, trade issues were solved and joint actions were discussed at meetings. Representatives of communities protected the interests of its members, obtained trained concessions. Though, such communities couldnt influence the authority or trading rules. At the same time, ancient documents contain a lot of mentions of guests (merchants carrying one trade with foreign cities) and merchants selling cloth which is a proof that salesmen were united as a separate social group of urban population that had its own privileges and benefits. Thus, it can be concluded that mercantile communities were very important for a citys life.

The second stage of development of mercantile communities started in the 18th century. Its key difference consisted in way it was established. In the medieval Russia Merchants were free to unite in a community to protect their interests and in the 18th century such communities were established by an order of the authorities.

Peter the Great introduced European guild division, that is to say, he divided the community in accordance with professional skills. As a result, merchants, salesmen and jewelers were placed into a separate guild practically forming a professional association.

Membership fee paid to the guild represented a certain percentage of the stated capital. Guild members had a number of benefits and rights. In particular, it was the guild membership that defined a merchants type of activity either foreign trade or own a factory or any other production. Thereby, guilds were self-regulatory organizations which membership provided with the right to implement a certain type of activity. As banking started developing in Russia in the 19th century, guilds started to include bankers and financiers. Merchants and financiers united in separate communities elected wanders that collected taxes and contributions and granted estate and trade certificates.

After the reform in 1861 the significance of capital in economic and social spheres began to grow. Emergence of liberated workforce contributed to the development of industry which in turn stimulated the development of financial markets. Stock exchanges, private banks and joint-stock companies were established in Russia.

Eventually, in 1860s the first attempts to consolidate the financial profession were made in Russia. The first Merchant Congress took place in 1865. In 1867 the first Russian association of entrepreneurs, the Society for the Promotion of Russian Industry and Commerce (SPRIC), was created. The Society stood for entrepreneurs interests and tried to inform the authorities on their initiatives. In addition SPRIC organized international exhibitions. At the initiative of the Society in 1870 the first all-Russian Congress of Manufacturers and Factory Owners was held.

Thus, entrepreneurs and financiers once again regained their economical and political importance. The members of the association actively participated in municipal government authorities. The 1870 reform secured the right of the cities to independently manage their economics and elect own government. As a result, representatives of financial and merchant professions started to play the key role in urban governance.

In 1882 SPRIC organized the second all-Russian Congress of Manufacturers and Factory Owners. In 1896 not only the Community of entrepreneurs but the ministry of finances participated in the organization of the third congress which shows the national significance of the event.

Meanwhile, the influence of SPRIC was growing. Manufacturers and financiers began to more actively use SPRIC as an instrument of their capacities expansion. In particular, the members of the association tried to launch banking activity in Siberia, establish trade links with Iran, Romania, Bulgaria excluding intermediaries. Not all the attempts of SPRIC to develop Russian entrepreneurship were successful, but its work indicated the aspiration of financiers to act in cooperation and to develop a economic development joint strategy.

SPRIC wasnt the only organization of manufacturers and financiers. In the beginning of the 20th century there were more than 150 profit oriented organizations in Russia, including:

- merchant boards;

- committees on trade and manufactories;

- stock exchange associations headed by stock exchange committees;

- sectoral and territorial associations congresses and advisory offices of manufacturers and salesmen;

- association of manufacturers and factory owners.

Not all of them were efficient, some were even formal, but the tendency of business people to unite was evident.

For instance, merchant boards fell of their own weight in the 20th century. They didnt correspond to new commercial and industrial relations that were rapidly developing in Russia. Committees on trade and manufactories were inefficient in terms of promoting the interests of entrepreneurs. Such committees were headed by appointees of the ministry of finance instead of entrepreneurs. Thus, committees depended on the government and in fact were public authorities themselves which undermined the trust of businesses in committees.

Stock exchange associations and stock exchange committees were the most common types of financial associations in the beginning of the 20th century. By 1906 there were approximately 85 stock exchanges in Russia. Formally, the development of exchange trade could be attributed to the activities of stock exchange committees. Though, in the view of the fact that there were no efficient institutions aimed at trade and industrial interests protection, stock exchange committees practically acted as trade and manufactures committees elaborating strategies of development and protecting the interests of entrepreneurs and financiers. Moscow Stock Exchange Committee was the most efficient and largest committee.

Its main function was the representation of the interests of bourgeoisie and manufacturers in public authorities. The Committee was making reviews of bills and attempted to make amendments, carry out statistical analysis and refer to examples of the foreign legislation. The representative of Moscow Stock Exchange Committee was a member of the State Bank Council; the Council representatives protected the interests of the association in the presence of Moscow Treasury Chamber, Moscow Tax Department and Special Tax on Trade Department. Thus, Moscow Stock Exchange Committee was pretty efficient in respect of work with public authorities and yielded favorable results.

Moscow Stock Exchange Committee also organized congresses and meetings. Apart from bourgeoisie (a new element of financial community in Russia) high-ranking representatives of ministries and agencies took part in meetings including the ministers.

In spite of its weight in the financial and industrial community Moscow Committee was not the only instrument for bourgeoisie to present its interests. Financiers and manufacturers working in various fields had their own view on economical and political situation in the country which led to the split of the community. In the beginning of the 20th century manufacturers and financiers started their political activity. Many parties formed that stood for the Duma elections. Though, disunity and absence of electors support didnt allow bourgeoisie to be presented in legislative authorities of Russia.

The October Revolution of 1917 dramatically damaged the Russian financial profession. Immediately after the revolution large, medium sized and partially small industrial enterprises were nationalized. Transportation, trade, banking establishments became national. At the same time, commodity and stock exchanges were abolished. Financial activity in Russia was blocked because private property was forbidden, private financial institutions were liquidated and all financial instruments were consolidated by the government.

Though, in the beginning of the 20s of the 20th century the government made attempts to recover the economy. As a result, in 1921 it was allowed by legislation to create societies in participation and in 1922 it was permitted to create joint-stock companies, general partnerships, limited liability companies. The private sector appeared in industry and trade. Some public enterprises were denationalized; some factories were put on lease. Mutual loan societies were actively developed in the financial sector. The New Economic Policy (NEP) contributed to the appearance of a new financial community the so-called NEPmen.

NEPmens activity led to the development of trade and financial relations in the country which contributed to economical development of the country. Though, the belief of new financiers didnt correspond to the state policy. The main aim of NEPmen was to enrich themselves which contradicted to the state ideology. As a result, entrepreneurs ended up being isolated. The government, proletariat and professional classes didnt like them. In particular, salesmen were deprived of the voting right.

In such conditions the consolidation of the financial community was inevitable which resulted in establishment of various entrepreneurs organizations. Financiers organized Market Committees, Mutual Loan Societies, sections of private Industry and Trade, etc. A specific feature of these organizations was their independence from governmental entities which was a great achievement that time. Entrepreneur organizations protected the interests of the profession before the authorities. The representatives of organizations tried to enter in trade regulating public authorities and achieved favorable conditions for developing credit activity.

Realizing their alienation from the whole society NEPmen tried to support each other often issuing gift loans and credits. In addition to that, there was a tough competition in the trade sphere. The combination of such two factors as high level of competition and mutual support were distinctive features of the financial community in the 20s of the 20th century. When it was about negotiating with the government, entrepreneurs often acted in cooperation ther trying to obtain necessary goods and gain the right to lease enterprises. Sometimes it led to positive results.

Though, the activity of the financial community in the country didnt last long. Since the middle of the 20s of the 20th century the curtailment of the NEP started. The government excluded private capital from industry; the people's commissariats representing a strict, centralized economy management system were created. In 1928 the government started the course of industrialization and collectivization, announcing the beginning of the first five-year plan. Officially, the NEP came to end in 1931 after the enactment on elimination of private traders speculation. Though, by then the NEP was practically curtailed.

Once again, the government controlled all finances. Besides, a new financial system was created in the country. The government failed to attract investments to develop the country. Because of that, it practically turned to clearing settlements using cash only for settlements with the workforce. Such an approach allowed the emerging nation to make an enormous industrial spurt, but at the same time, the new financial system ruled out the development of financial relations. Thus, capital last its significance within the new framework of the USSR financial system, which based on the governments incentive of industry development and clearing settlements.

Vigorous financial activity in the country recommenced only in the 80s of the 20th century. Economic reforms in the USSR that were taking place when enterprises were making a transition to self-sufficiency and self-financing resulted in establishment of cooperatives. Lease of production facilities was permitted once again. The new forms of economic activity almost immediately proved to be efficient. At the same time, the banking sector that was no longer under the government control started developing. In fact, the end of the 80s and the beginning of the 90s of the 20th century was the period of accumulation of seed capital in Russia.

Recovery of the market economy resulted in origination of private capital in the country which contributed to the establishment of a new financial community in Russia. Almost immediately public organizations of financiers that tried to protect their professional interests started to be established in the country.

A specific feature of new public financial institutions was their sectoral distribution, for instance, banking communities, communities of financial analysts and stock players. Many associations were regional. As a consequence, modern public financial organizations pursue different objectives. Some organizations are engaged in scientific research of financial processes, others solve problems of the profession on a regional level. Some organizations try to solve sector -specific problems.

On one hand this demonstrates a wide range of interests of the Russian financial profession. On the other hand, the diversity of financial organizations that often copy each other demonstrates the absence of a single development strategy of the financial profession in Russia and also shows the absence of communications between the financial employees.

The lack of a common strategy and communication is proved by the fast-growing popularity of forums and summits that became an integral part of a modern financial life. In order to achieve a new level the Russian financial profession needs consolidation and a single representative body that would protect the interests of the profession on the government and social levels. The mission of RCFD is to bring together all the financial employees of the country. The Club is poised to become a base for a new stage in the development of financial activity in Russia.

© Russian Club CFO, 2014
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