Middle class, SMEs and Democracy

Sergey Guriev and Aleh Tsyvinski bundle them alogether to argue the ineluctable democratization of Russia: 

In short, the third main lesson of Russia’s transition is that state capitalism does not work (at least not without a strong meritocratic political party, as in China). Indeed, recent events have shown the system to be inherently unstable. As market reforms have brought substantial prosperity (average annual per capita GDP, at purchasing power parity, is now $17,000), a large middle class, based mostly in small and medium-size companies and the service sector, developed beyond the reach of the state-owned behemoths. Most of this middle class also lives in large cities – where the battle for Russia’s future is now taking place.

Hence the crucial importance of knowing more about how Russian SMEs are financed. Family  and friends are not sufficient, big Russian banks tend not to lend to SMEs. Foreign banks are supporting international commerce, small local bank are very inneficient. The lending technologies available in Russia are not manyfold, because their use depends on the institutional structure (courts, credit bureau) in place. It also depends on social relation. It has been proven that social relations help to reduce interest rate on loan, which is an advantage of relationship lending. However, little is known on how the social context structures creditors - lenders relationships in transition countries.