In Russia the growth of small business has been much slower compared with the leading transition countries (Poland, the Czech Republic and Hungary). In Poland, and to a lesser degree in the Czech Republic and Hungary, this sector has been the engine of the economic recovery. A natural question is why Russia differs. Apart from the fact that in contrast to these countries Russia does not have an entrepreneurial tradition and has experienced communist rule longer what is especially distinctive about Russia has been the strong influence of interest groups during the transition process which favoured the allocation of entrepreneurship to largely unproductive activities.

The political and ideological concerns aside, the fundamental economic argument in favor of postsocialist transition to a market system has been a supposition that it will improve allocative efficiency and thus the competitiveness of the industries and standard of living of households. It is believed that the shift of property rights from the state to private sector must quickly facilitate such an improvement. Yet in the majority of cases, even after the first decade of transition, the economies have not returned to the path of sustainable growth. The countries tackling the issues of recovery and growth relatively better are these which were able to focus not only on de-nationalization of the state assets, but mainly on the development of venture entrepreneurship. The grass-rooted development of especially small and medium enterprises has contributed significantly to overcoming the transitional depression and then to recovery and fast growth. Yet to accomplish such a sequence specific systemic and policy conditions must be met. To facilitate such a path of development proper institutional arrangements must be executed by the governments, legal framework must be established and the government policies ought to support the rise and competitive performance of the small and medium enterprises (SME). Liberalization is a prerequisite of growth of this sector in transition economies, but is not a sufficient condition. The crucial factors involve the institutional arrangements.