Vzaimnyi zachet (Russia)
|Definition: Russian term meaning ‘bilateral exchange in kind’, and referring to a specific type of inter-firm exchange, whereby a commodity transferred to a partner is paid for by non-monetary means.|
|Keywords: Russia – FSU – Entrepreneurship – Taxation – Tax avoidance|
|Clusters: Market – Functional ambivalence – Gaming the system – Camouflage – Creating facades|
|Author: Caroline Dufy|
|Affiliation: Centre Emile Durkheim, Sciences Po Bordeaux, France|
|Website: Profile page at PO|
By Caroline Dufy, Centre Emile Durkheim, Sciences Po Bordeaux, France
| Vzaimnyi zachet (also known as vzaimo zachet, zachetnaya skhema and zachet vzaimnykh trebovanii) is a Russian term meaning ‘bilateral exchange in kind.’ When used in the plural (vzaimnye zachety), it refers to a specific type of inter-firm exchange, whereby a commodity transferred to a partner is paid for by non-monetary means.
In this sense, vzaimnye zachety are part of a wider concept of transactions-in-kind described in Russian as barter, which in turn is derived from the English ‘barter,’ meaning the exchange of goods or services for other goods or services without the use of money.
Non-monetary transactions are commonplace in international trade. Under the Soviet economic system, such transactions enabled socialist states such as the Soviet Union, which lacked access to foreign-currency reserves, to pay for imported goods. Trade between the member-states of the Soviet-led Council for Mutual Economic Assistance (COMECON), for example, was mostly handled through countertrade or bilateral clearing agreements. For instance, the German Democratic Republic supplied the USSR with machinery and in exchange the USSR supplied it with oil.
Following the collapse of the USSR, vzaimnye zachety came in the 1990s to be seen by Russian economists as a specific feature of domestic barter in the context of a dire financial and monetary crisis during which money surrogates and inter-enterprise arrears were widespread. Massive arrears in wages, pensions and welfare benefits paralysed the economy at every level. Demonetisation and the disrupted role of money as a universal means of exchange made vzaimnye zachety an alternative means of enabling goods to circulate in the economy.
While vzaimnye zachety took many different forms, two major types may be identified. The first denoted successive bilateral exchanges, whereby one original entity exchanged goods or money surrogates in successive bilateral transactions with several partners until the desired commodity was attained. This strategy allowed holders of low-value goods, who were excluded from the hard-money circuit, to distribute and sell their goods on alternative circuits, using non-monetary means of exchange.
The second denoted a complex chain of exchanges, mixing commodity-transfers and debt-schemes, whereby Party A transferred a commodity to Party B, who thereby became indebted to Party A. The commodity was then transferred to Party C, who in turn became indebted to Party B, and so on. The chain might involve five, six or even more parties in debt-and delayed- payment chains.
While the first type described above referred to demonetisation, the second often involved tax-evasion and the bypassing of legal regulations. In the illegal and criminal transactions described by many experts as Russia’s ‘virtual economy’, intermediate firms were often artificially bankrupted; this meant that, while the original supplier went unpaid, the final recipient took possession of a commodity that had no owner needing to be paid for it.
High negative moral value was accordingly attributed to vzaimnye zachety by economists, officials and experts from international economic and financial organisations—such as the International Monetary Fund, the World Bank and the European Bank for Reconstruction and Development—which monitored the transition of the former socialist countries to a market-based economy.
In his annual address to the Russian parliament in 1998, President Boris Yeltsin declared that ‘The Russian market is still cluttered with barter. It is in the stranglehold of mutual debt defaults; enterprises live on debt and have no intention of repaying their debts… This practice cannot be continued. It is useless and dangerous to try to cheat the economy’.
Vzaimnye zachety have been criticised by economists and officials on several grounds. The first concerns the discrepancy between barter and economic norms in modern capitalism, while the second relates to a loophole in the legal conditions of exchange. Anthropologists have also noted the phenomenon of ‘shadow barter,’ that is, the close association between the ingenuous schemes of barter exchanges justified by economic necessity and the illegal workings of the shadow economy.
The dramatic rise of the practice of barter in Russia in the 1990s surprised Russian observers as well as many experts from international organisations. Up until then, the socialist economy had entailed fixed prices which generated shortages, informal exchanges and a lack of competitiveness.
In 1991, when Russia began its transition to a market economy, prices started fluctuating, thereby reflecting the volatile desirability of goods. Pro-market advocates see the monetisation of transactions in the economy as encouraging efficiency, favouring the emergence of interest-based behaviour and, more generally, paving the way for further structural changes. This was not, however, the case in Russia. Far from declining as expected in the new market conditions, the share of barter in commodity-exchanges grew dramatically. In 1993, barter was estimated to account for a mere 9 percent of the volume of industrial sales in Russia. Within three years, however, its share nearly quadrupled, reaching 35 percent in 1996, 42 percent in 1997 and 51 percent in 1998.
The financial crisis of August 1998, the sharp devaluation of the rouble and Russia’s default on its external debt led however to a dramatic drop in barter, which in 2001 and 2002 fell to a low of 16 percent of industrial sales.
Following the 1998 crisis, the Russian government tasked the State Statistics Committee with measuring the various means of transaction used by businesses. Their findings revealed a steady decline in barter. In 1999, 47.4 percent of all transactions were based on non-monetary means of payment, 24.5 percent of which were vzaimnye zachety. In 2000, barter accounted for only 30.2 percent of all transactions, 15.5 percent of which were vzaimnye zachety. The massive devaluation of the rouble in 1998 had reduced arrears in the economy and remonetised transactions. Russia’s competitiveness increased, easing exports and reducing the flow of imports. In the 2000s, a process of legislation and accounting-regulation effectively banned barter in Russia, leaving only bilateral exchanges in kind.
Classic economic anthropology highlights the moral value of transactions. This provides a basis with which to explain the negative appraisal in relation to the norms and models implemented by society.
The British economist William Stanley Jevons defined barter as a situation requiring a ‘double coincidence of wants’. In support of his argument, multiple testimonies collected in fieldwork in Russia in the early 2000s depicted barter as a less than optimal situation, requiring additional work to negotiate which commodities were to be accepted as means of payment. Furthermore, barter generated an imbalance between parties, uncertainty as to the quality of the goods received, and confusion over the return deadline.
As shown by the history of the rise and fall of vzaimnye zachety, the definition of transactions is at the heart of economic and social design. For, as the cornerstones are being laid in the burgeoning market, these definitions make a clear-cut distinction between those types of transactions that are considered desirable, and those that are not.
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