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Despite the rapid emergence of small businesses since 1991, there are still too many obstacles for the entrepreneur in Russia: The bureaucracy around setting up and registering a company, the bribery required for obtaining approval from various government agencies, and the unpredictability of the overzealous tax police make market entry and ongoing operations costly. Moreover, loans are difficult to come by, and finance or business training for newcomers is not readily available. For the small entrepreneur in a world overshadowed by big business and big bureaucracy, the risks are high and the incentives low.

While the government has expressed its support for small business, in reality the attention has been on the bastions of Russian industry -- mainly oil, gas, metals and defense. As a result, we have seen little of the much-discussed diversification of the economy.

The crisis is prompting a reassessment of the role of small business as part of the solution to a potentially explosive situation. Deputy Economic Development Minister Andrei Sharov has promised 10.5 billion rubles ($314 million) of federal funds for the development of small enterprise and a threefold increase to 30 billion rubles ($898 million) in government support of small business loans.

Local authorities are making their own contribution to the effort. Regional funds for small business support are being set up to provide seed funding, and employment centers are to offer advice to people who have recently lost their jobs. It is a good start, but with the government's small business program aiming to create up to 400,000 new jobs in 2009, this will not be enough to stem the rising tide of unemployment, which is expected to reach 9 million by the end of this year.

Large, unprofitable corporations are also part of the overall problem. As beneficiaries of bailouts from the government, many of the strategic industries have been able to continue to employ their workers, at least temporarily. The government should not continue subsidizing unprofitable businesses unless it is prepared to return to the old Soviet business model. They will have to restructure sooner or later, and this will necessarily entail downsizing.

The question is how to do this without provoking social upheaval and destroying the already fragile social cohesion in the regions. U.S.-style mass layoffs are not an option -- particularly because Russians are less able to relocate to new cities for employment opportunities.

Experience in other countries has shown that local partnerships in stimulating small business development can alleviate the immediate short-term effects of recession. For example, the French Suburbs' project was initiated following the riots of November 2005. It offers microcredits to unemployed people to set up their own businesses, and mentoring is provided by BNP Paribas.

In Russia, there are some modest examples of such approaches. A number of business-led initiatives, managed by the International Business Leaders Forum, are stimulating entrepreneurialism and employability in the regions. For example, Royal Bank of Scotland and Oxfam are piloting a microfinance and mentoring scheme for young entrepreneurs in Kaluga. In 12 cities, local companies and nongovernmental organizations are working together to help develop youth employability schemes. At a national level, a financial literacy program called Azbuka Finansov --led by Citi and Visa with the involvement of the Finance Ministry, the World Bank and the State Duma -- is encouraging banks to educate their customers, corporate volunteers to teach in schools and colleges and young entrepreneurs to obtain advice through an online help desk.

During his speech at the January World Economic Forum in Davos, Prime Minister Vladimir Putin said, "The 21st-century economy is an economy of people, not of factories." By scaling up the efforts to stimulate an entrepreneurial and diversified business environment, the Russian government, the local administrations on the ground and the major corporations can share the short-term costs of weathering the current financial storms and reap the long-term benefits of transforming Russia into an advanced and diverse economy of the 21st century.

Brook Horowitz is executive director of the Moscow office of International Business Leaders Forum, a business association that promotes responsible business practices worldwide.