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The Soviet factory director: a window on Eastern Bloc manufacturing.

The Soviet Factory Director: A Window On Eastern Bloc Manufacturing

The Soviet Union, and now much of Eastern Europe, have entered a period of far-reaching political change. Some economic reform has already taken place, and much more will likely follow. But with perestroika occurring under the leadership of Mikhail Gorbachev, the Soviet Union has announced its determination to restructure the economy. Admittedly, little has been accomplished to date. One area in which there has been considerable change is the new Soviet joint venture legislation. It is now possible for a foreign company to own an equity interest in a Soviet enterprise. Although few joint ventures have been established between Soviet and American enterprises, many people believe that there are attractive opportunities.

The following portrait of the Soviet factory director should be of interest to anyone considering a joint venture or any other type of co-production arrangement in the Soviet Union. Much of what is said about Soviet factory--and their directors applies equally to Eastern Europe as a whole. All of the Eastern bloc nations have modeled their economies to be compatible with that of the Soviet Union.

To some, it might seem impossible to make generalizations about Soviet factory directors. The Soviet Union displays vast geographic, cultural, and industrial differences. Still, the nation's economic institutions and the people who manage them reveal a pervasive similarity. In capitalist societies, each corporation has its own distinctive personality and way of doing business, with the company possibly bearing the imprint of its owner or chief executive officer. In the Soviet Union, all large-scale enterprises are state-owned. Further, the Communist Party has extended its sway into every sphere of economic activity. The result is a uniformity of business behavior that transcends region, ethnicity, industry, and career function.

Most Soviet factory directors have a college education. This is especially true of younger managers. As the Soviet Union has industrialized, technical competence has become a virtual prerequisite for career advancement. In almost all cases, factory directors are engineers. Unlike in the United States, however, "engineer" is a broad designation and encompasses a wide range of competency and skill. Even those who have had little, or no, advanced training may legitimately be calling themselves engineers. Many directors have a degree from a university or technical institute. Upon graduation, they secured junior management positions. Others originally began as workers. Most of them furthered their education by going to night school.

The quality and content of education among directors varies, even when they have received the same amount and type of schooling. But, regardless of academic background, all factory directors share a common core of learning experiences. At the behest of the Party, a single philosophy of education has pervaded all technical training. Science and mathematics courses have focused upon practical application and largely ignored theoretical analysis. All Soviet students, regardless of their major, have received massive doses of ideological and political indoctrination--no matter how irrelevant such material might have been to the subject under study. And finally, even the most comprehensive engineering programs have contained little in the way of training for managerial effectiveness. This will be learned through on-the-job experience. In recent years, the Soviets have attempted to broaden the scope of study to include such courses as accounting, statistics, and management science. Furthermore, students are now being told that enterprises must be self-sustaining. They cannot rely forever on state subsidies.

In the final months before graduating from college, students begin applying for jobs. This is a deadly serious matter. Typically, enterprises write in to the school listing openings and describing job qualifications. Frequently, students go directly to the enterprise and ask for a position. Of course, students do not hesitate to use family influence if they have it, nor are they reluctant to offer gifts to school officials in charge of job placement. Connections and bribery notwithstanding, there is some correlation between academic performance and the attractiveness of the job offer.

All graduates are expected to take a job and to remain there for three years--their obligation in return for their free education. After the three years are up, they may seek other employment. By and large, the state does not discourage job-switching. Citizens are expected to take the most responsible position they are able to handle. Sometimes, of course, a person is "asked" to accept a particular assignment. Only the unambitious refuse.

An engineering degree will get the recipient an entry-level management position of some kind. Advancement is based upon managerial skill, luck, connections, and, most importantly, political reliability. Beginning in the mid 1980s, however, impeccable political credentials have become somewhat less significant than they once were.

Do factory directors really believe in the communist ideology? In the past at least, the question was irrelevant. With rare exceptions, the party permitted only the politically faithful to attain prominent positions. Would-be managers either accepted the party line, or at least pretended to do so. In such manner, the Communist Party preserved its political dominance.

The Soviet Union is currently in a state of political and economic flux. Many young people are now quite willing to voice their doubts about communism. Although the regime is more tolerant of dissenting opinions--indeed, recent events no longer guarantee a Communist Party monopoly in the Soviet government--it is too early to assess the career chances of non-believers.

As party members, much has been demanded of directors. Most of all, the party has expected them to serve whenever and wherever called. Outwardly, directors have had to conduct themselves in exemplary fashion and be models for the community. Consequently, directors' professional and private lives have been more regimented than those of ordinary citizens. The Communist Party frowns on divorce, public drunkenness, and ostentatious display. Directors are expected to participate in party functions, to attend meetings, and to deliver speeches. Weeding out the politically suspect and the obligations of party membership narrowed the pool from which managers were chosen. Some candidates were unwilling to adhere to the party line, while others were rejected because their backgrounds made them politically suspect. Many were not willing to shoulder the heavy burdens imposed by party membership. The selection process imposed a heavy price upon the party. The country was denied the professional contributions that could have been made by many talented citizens. Conversely, many people rose higher than their abilities warranted because they had satisfied the political requirements.

The American corporation also imposes parameters upon its personnel. One hears a great deal about the "company" person. But there are vital differences between the two systems. In the United States, success requirements vary from company to company. The variety of settings benefit company and employee alike. Moreover, some U.S. corporations, especially the successful ones, are willing to tolerate mavericks as long as they produce results. The Soviet system has taken its toll upon the ambitious.

Advancement demanded an enormous amount of pretense. In every society a disparity exists between national ideals and daily reality. But in the Soviet Union, the gap between the two has been a chasm. The system bred an enormous cynicism. It was not so much that most directors did not believe in communism. They didn't believe in anything or anybody--except perhaps themselves. The party was assured that it would rarely hear unpleasant truths, but it was closed off to the opportunities that came with new ideas and ways of thinking.

The Soviet economy is in crisis. Some estimates even suggest that the economy has actually been contracting over the last several years. The Soviet economy needs to attract and promote the most capable of its citizens. The country sorely needs the new ideas which these people can offer. Gorbachev and his supporters are trying to create a more open society, but without relinquishing their power.

The industrial world into which the graduate enters is tightly controlled by the economic bureaucracy and the Communist Party. The Soviet economy, especially in its outward form, is planned. The party determines the ultimate direction and emphasis of national economic activity. On the basis of these goals, Gosplan, the state planning agency, formulates a multi-year plan, usually of five years' duration. The plan specifies production targets and input constraints for each sector of the economy. The primary production targets are the quantity and value of outputs and the composition of the product mix. Labor productivity objectives are also set. In recent years, Gosplan has become increasingly concerned with the return on investment. The main constraints are the amount of investment and operating capital available to each economic sector, the quantity, quality, and cost of inputs, and the size, composition, and pay scale of the labor force. Gosplan also sets the price at which outputs are to be sold. Figures for each industry and for every enterprise within it are broken down into yearly, quarterly, and even monthly schedules. Management must work within a series of precise parameters set by the state.

For Soviet factory directors, the plan has been a double-edged sword. If they could meet, or better yet exceed, production targets their jobs were probably secure and they may even have been promoted. Conversely, if they continually missed their quota, they were likely to be demoted. All of this is not to suggest that plan fulfillment has been a director's only objective. On the contrary, directors frequently have had to take actions having little, if anything, to do with productivity. In fact, they sometimes had to do things that were in conflict with their production obligations. Influential party officials, government bureaucrats, suppliers, and customers all have had the capacity to advance or hinder a director's career. These people have called upon the director for special favors. Local party leaders, for example, might have asked him to allocate workers and material for projects having nothing to do with the factory. The director was well-advised to cultivate their cooperation. He also had to follow his ministry's directives, even if they hampered production. Determining when it was safe to ignore orders from above has not been an easy task. Gorbachev has been trying to remove party interference in factory operations. It will be a difficult task to accomplish.

On the surface, the situation of the Soviet director seems similar to that of the American manager. Those who meet the expectations of their superiors, be they state planners, party officials, stockholders, or a board of directors, will get ahead. Those who fail to do so will be demoted or fired. Yet there is a fundamental difference between performance evaluations in the Soviet Union and in the United States. For the Soviet factory director, it has usually been the appearance of performance that is evaluated. Above all, the Soviet director has had to satisfy plan requirements. But these are stated in numerical terms. And, in any case, ministerial representatives are not on the spot. At least in the past, the director has had considerable opportunity for maneuverability and manipulation. What he could confidently claim to have accomplished was more important than what he actually did. The Communists have not allowed market forces to hold sway in their economy. In the absence of these mechanisms, they have been unable to develop an adequate alternative for assessing achievement.

Unlike their Soviet counterparts, U.S. managers are not able to hide their actual performance for long. To be sure, some Americans manipulate their books in order to show paper profits, but these efforts to produce the semblance of success pale next to those of the Soviet director. The American's maneuverability is limited. Ultimately, the enterprise is profitable or it is not. The shifty can fool a cumbersome economic bureaucracy but not the free market.

Most of all, a director's success has depended upon his ability to negotiate an easily reachable quota. The bureaucrats are fully aware of this. They know all the familiar ploys and perhaps even a fiew the director hasn't learned yet. He'll try to hide productive capacity or request greater quantities of inputs than needed just to make certain he has enough on hand. The bureaucrats are between the proverbial rock and a hard place. They have no urge to set unrealistically high quotas. It is not in their best interest to have those below them fail. The end result is that entire industries, often with bureaucratic connivance, get more than they need while producing less than they are capable of. Meanwhile, other industries have to halt production for lack of supplies.

Ministries are under constant pressure to increase production. Sometimes, an official will unknowingly overcompensate for a factory director's low projection. The upshot is an unattainable target. The director, in turn now is under even greater compulsion to camouflage his factory's performance. It is a vicious cycle.

There has been continuing tension in the Soviet Union between the long-range planning of the state and the short-run solutions of the factory director. Part of the problem is that the state has formulated multi-year goals but has evaluated and rewarded directors on the basis of immediate performance. Directors have typically been awarded cash bonuses for reaching or surpassing short-term quotas. This money may represent forty percent or more of their salary. But it's not just that the director wants the bonuses. If he doesn't receive them, it indicates that he hasn't reached his quota. This can be grounds for dismissal. The unfortunate result is that directors feel compelled to take actions in conflict with long-range objectives. They doubtless know this, but don't have much of an alternative. If, for example, they take worn machines out of production for repair or replacement, too much down time will lost. Instead, they work the machines into the ground. Toward the end of the bonus period, Soviet directors exhort workers to make Herculean efforts in order to reach targets. Once the new period arrives, productivity plunges because the workers are exhausted. Factories will turn out whatever can be produced easily--no matter how shoddy, styless, or unwanted. Gorbachev has sent quality inspectors into the factories and ordered them to reject inferior goods. As a result, many production targets have been missed and bonuses not awarded.

Quota and bonus considerations aside, the organizational structure of management has encouraged its members to think in the short-term. The management apparatus is hihgly integrated--that is, decision-making power is concentrated in a very few hands. Structural variations do exist among enterprises depending upon the size and nature of industry, but the Soviets have generally adhered to a standardized organizational format. By and large, management has not been free to alter its structure in response to local conditions or operational needs. The integration and standardization of management has made it easier for the state to control enterprise operations.

The factory director and his most important assistants have been chosen by the ministry, often in consultation with local party leaders. (Gorbachev has been experimenting with a new system in which the workers of an enterprise elect the director.) Management responsibilities have been broken down into departments, bureaus, and units. The entire framework is roughly similar to that of an American factory of 50 to 75 years ago. There are, for example, departments of finance, accounting, personnel, sales and delivery, purchasing, and capital construction. By contemporary American practices, the most notable omission is the lack of a marketing department. Blue-collar functions are headed by a chief engineer. He in turn supervises the manager of production. Typically, the chief engineer also oversees such departments as product development, technology, quality control, and maintenance and repair.

In most cases, the director relies mainly upon four people; the chief engineer, the heads of planning and supply, and the chief accountant. The chief enginner is thoroughly familiar with the plant's equipment and productive capacity. The head of planning is responsible for seeing that the enterprise meets its quotas on time and that operations are carried on within plan constraints. He also plays a key role in negotiating the quotas. The supply chief has the vital task of determining the plant's supply needs and of obtaining the requisite inputs. The chief accountant prepares the reports the ministry uses to assess the plant's performance.

The centralization of power within the factory leaves little authority in the hands off mid- and lower-level managers. The end result is that the director and his assistants are forever being called upon to deal with daily emergencies ("fires," to a U.S. manager). Even when they are disposed to plan long-range, the pressures of their jobs will not permit them to do so. Their milieu places a premium upon interpersonal skills, quick thinking, and an ability to devise quick, if ineffective, solutions.

The Soviet economic system discourages risk-taking. It is only the rare person at any level who willingly separates himself from the crowd and and embraces the untried and unproven. In part for this reason, technological innovation has proceeded at a slow pace. The introduction of new equipment or processes, whatever their long-term potential, will cut into current production. Moreover, spare parts or servicing for the new technology may be difficult to obtain. Likely, too, many directors have reluctant to entrust their workers with expensive equipment. Alcoholism, sloth, and carelessness are rife within the labor force.

In many cases, the tyranny of the plan actually encourages directors to keep their operating costs high. Many factories have an production quota expressed in weight. The lighter the final product is, the more units will have to be produced. Consequently, it may be in the manager's interest to make his product as heavy as possible. Visitors to the Soviet Union have noticed that Russian locks are unusually large, and no wonder--Khruschev once complained that Soviet factories were producing the heaviest chandeliers possible because output was figured in tons. And what about a factory whose production quota is measured in value? If input costs remain high, the factory will not have to produce that many units in order to reach its quota. Suppose that factory technicians discover a cheaper substitute for a component currently being used. If this new part is utilized, the value of the finished product will fall. To reach its quota, the factory will then have to produce more than ever before.

For most directors, the chief obstacle to meeting production quotas is the unavailability of material inputs. (During the last couple of years, the Soviet government has allowed a small number of enterprises to make purchases abroad without going through the Ministry of Foreign Trade.) If the Party determines that a particular industry--for example, aerospace--is of preeminent importance, a steady stream of supplies will be allocated to it. But directors of less imprtant enterprises will not be so lucky. The ministry does detail the supplies a factory is to receive and on what delivery dates. No matter. The failure to honor contractual obligations is endemic. Incoming deliveries may be too small, of substandard quality, or long behind schedule. All too often, shipments never even arrive. Frequently, the fault is the carier's, not the shipper's.

Soviet directors cope with supply problems in a number of ways. They try to put together fully integrated operations inorder to be as independent of other enterprises as possible. In consequence, factories expend too much effort on items that they are not equipped to produce efficiently. Thus, Soviet factories are, on the average, larger than those in the West. Managing them effectively is all the more complex because of their size and their diversified activities. Soviet directors, often with the aid of their ministries, hoard materials. They can never be certain when they will encounter a supply shortage. Whenever directors are in a position to take possession of material or equipment they do so. They might not even have any direct use for it. But they might be able to trade it for something else. Sadly, surplus goods stand idle or even rot away in one location while at another production is halted because the input is unavailable. No one knows how many billions of rubles are wrapped up in precautionary inventory.

Because the regular supply systems is so unreliable, factory directors are compelled to use extra-legal means to obtain needed inputs. Virtually every enterprise has tolkachi (expediters) on its staff. These are wheeler-dealer types whose job it is to beg, borrow, or steal supplies that are otherwise unavailable. Most commonly, the tolkachi rely upon bribery and the trading of favors. Without their efforts, the Soviet economy would run even less smoothly than it does. The tolkachi can help the enterprise only when the supplies are available in the Soviet Union. If the inputs have to be purchased abroad, then the factory director usually has to go through the cumbersome process of working with the Ministry of Foregin Trade. In deciding what to purchase, ministry officials act in consultation with Gosplan. The two organizations evaluate purchasing requests in terms of national economic and political goals. They must also consider foreign exhange availability as well as alternate ways of spending the money. Individual factory directors have little direct knowledge of the objectives and pressures under which Gosplan and the trade ministry operate. And even if they did, they have little way of making their influence felt. To compound the problem, they often have little advance warning that inputs are in short supply. In a capitalist economy, rising prices signal scarcity. But in the Soviet Union, prices are administratively set and do not fluctuate in response to supply and demand. For the factory director, dealing with the Ministry of Foreign Trade is a source of continual frustration. Purchasing requests may be denied; the wrong item may be purchases; or deliveries may arrive many months after the order was first put in.

Ministry officials are fully aware of the devices directors use to protect their interests. But why do the bureaucrats not take action? They answer was best given many years ago by Hans Berliner, who spoke of a web of influence enmeshing directors and bureaucrats alike. Both have a vested interest in the success of the other and likewise have must to lose from the other's failure. Directors and bureaucrats are in the same boat. Thus, bureaucrats will usually wink at a director's transgressions if such actions contribute ot plan fulfillment. In fact, the bureaucracy often initiates such maneuvers.

In addition to a salary and bonuses, management personel receive a number of perquisites. This is also true in the United States. But in the Soveit Union, such benefits represent a much larger portion of a manager's income. And as one moves up the career ladder, economic privileges of a non-monetary kind become even more important. In the Soveit Union, virtually no one has independent means. A person's livelihood depends upon the job he holds. If he loses his posistion, he will forfeit everything. Furthermore, no one has a guaranteed place in society. A parent can, of course, use influence on a child's behalf. But such power depends largely upon the parent's position. There is little opportunity to offer more.

The size and make-up of rewards vary with the manager's professional status. The state may provide him with the use of a car, not an inconsequential matter. Automobiles are very expensive in the Soviet Union, and waiting lists can be several years long. While most Soviet families have to endure cramped or dilapidated quarters, the director may receive a choice apartment and nominal rent. Often, a Soviet director is permitted to make purchases at special stores, closed to the general public, that carry an array of high-quality goods, many of them imported. The director and his family may also have access to special medical and dental facilities closed to the public. On the whole, the staffs of such facilities are probably of a higher caliber than elsewhere in the country and probably have adquate stocks of scarce drugs.

Many of the directorhs benefits are not directly part of the remuneration package at all. In the Soviet Union, many advantages depend on receiving preferential treatment. Everyone in the country trades in favors. "Blat (influence)," the Russians used to say, "is even more powerful than Stalin." Favors are delivered for a fee. The grantor wants something in return--if not now, then later. The Soviet director is especially well-positioned to deliver favors, and thus to receive them. He controls considerable inventories of materials and large numbers of people. Above all, he has important connections.

Although the Soviet director's standard of living is lower than that of his Western counterparts, he has good reason to be satsified. He is one of the elite. Compared to his fellow citizens, he is living quite comfortably. Here is an ever-present reminder that the regime has been good to him and also what awaits him if he should fall from grace. In a land of scarcity, only a few can live well.

The director knows that living conditions in the West are far superior. Sometimes he yearns for the luxuries available in the United States, Japan and Western Europe. But these places are far away and out of sight. Most of the time, the director remains content, a member of the privileged class in a classless society.

Compensating managers on the basis of short-term production has major drawbacks, yet the system has barely been modified since Stalin introduced it during the 1930s. At the time, the approach made a lot of sense. If there was going to be central economic planning, then some kind of general guideline had to be established in order to evaluate directors. Output had the advantage of being easily quantifiable. Frequent performance reviews served as an everpresent reminder that the party could withhold as well as bestow privilege. And there was no rival company around to offer the same benefits.

It is widely agreed in the Soviet Union that the quota system has outlived its usefulness. In Stalin's day, central planners were preoccupied with heavy industry. The production of such items as steel and coal was, in fact, easily quantifiable. But the quota system is fundamentally unsuited to consumer goods industries. At the risk of oversimplifying, a ton of steel is a ton of steel. In the absence of consumer sovereignty, how does one quantify a sweater that fits poorly?

According to Soviet practice, the director is in complete charge of factory operations. He is answerable to his ministry regarding factory matters. But the ministry is far away. There is no one on the spot to contravene the director's orders. He is encouraged to consult with his assistants and his workers. But the power to make operating decisions is his. In theory, factory personnel can bypass the director and go directly to the ministry or to the Party. In practice, this does not happen often. Glasnost notwithstanding, whistle-blowing is dangerous in the Soviet Union. The system survives on favoritism, privilege, and silence. Few are willing to hear that all is not as it should be. Potential complainants must also consider that their own records may be vulnerable. They have likely committed numerous misdeeds of their own at the factory. Finally, all factory personnel are judged by the same quota. If anyone interferes with the director, factory production might be jeopardized. No one will receive a bonus and, more importantly, all careers will suffer.

All Soviet workers are organized into unions, but the unions have virtually no power to interfere with management. Unions cannot engage in collective bargaining, nor strike, nor decide work rules. Although the Soviet Union is allegedly a workers' state, Soviet leaders are at heart deeply suspicious of the workers' commitment to socialism. It is thus the party's task to reinforce the workers' socialist values. Under the Communists, the union has been made into a vehicle through which workers imbibe Marxist dogma, learn of party policies and objectives, and obtain technical knowledge. The union's authority is limited to minor labor grievances and social welfare issues. Workers, either singly or collectively, have scant recourse against managerial excesses. This does not mean, however, that Soviet labor is compliant. Most directors must forever struggle with an unmotivated work force. Alcoholism, absenteeism, and sloth are endemic. Labor turnover is high. Theft is pervasive. To a considerable extent, the problem is that the director has little power either to reward or discipline his workers. He has neither carrot nor stick. Workers are poorly paid and unmotivated.

Workers' wages are low and there is little that the director can do about it. The bureaucracy determines the size, composition, and pay scale of his work force. A director might be able to wrangle a higher pay classification for some of his workers. And he can remind his workers about bonuses for plan fulfillment. In some cases, the director can offer special inducements to some or even all of his workers. A few enterprising directors, for example, have set up recreation centers at the factory. All in all, though, the capacity of most directors to offer incentives is constrained. But the evidence also indicates that directors have not tried very hard to exploit those opportunities that are available. Perhaps directors have not exercised their creativity because they regard the workers with disdain. Most citizens have a condescending attitude towards manual labor. Workers in heavy industry typically make far more than doctors, teachers, or office clerks. Yet the latter three positions carry more status in Soviet society. The citizenry believes that vocational schools for high-school age children should remain a part of the Soviet public school system, but parents would rather have them to go to college.

The few extra rubles workers can earn on the job mean little to them. Basic necessities, like housing, public transportation, and food are subsidized by the state. And there are few after work or weekend activities on which to spend money. Even in the big cities, the streets are largely deserted after dark. There aren't enough bars, cabarets, discos, restaurants, movie houses, or theaters. What the worker really wants is access to quality merchandise and services. These are almost impossible to find, except occasionally at exorbitant prices. Thus, a somewhat larger paycheck does not have much of an allure. From the worker's perspective, it's not so much that he is underpaid but rather that there is so little to buy.

Many workers respond to their situation by taking a lackadaisical attitude towards their job and by engaging in illegal activities. The image of the Soviet workers as a malingerer ("The state pretends to pay us; we pretend to work") is all too accurate. While a few more rubles is hardly an incentive, a great deal of extra money can be very tempting. On occasion, high quality goods are available, but only at steep prices. How can the worker make that kind of money? Certainly not on his paycheck. Illegal activities, however, can be quite lucrative. The worker can, for example, steal factory supplies or finished products and sell them on his own. He can provide preferential treatment in return for a bribe. Most importantly, the worker can take on a private assignment after working hours (sometimes during working hours, for that matter). Commonly, he will do the same kind of work he is paid to do during the day. The risk of being arrested and prosecuted is slight. Impropriety is so widespread and alienation from the state so pervasive, that few people will turn in wrongdoers.

The director has few effective means of disciplining his workers. He can, it is true, dismiss a worker. Should he decide to keep the person on, the director can make life difficult for him. The director also has the option of reporting to the police any illegal behavior--for example, alcoholism, absenteeism, or negligence. But in practice, the director's position is more complicated and his options fewer.

Although he can fire workers, there is a labor shortage in the Soviet Union. The director might have more workers than he currently needs. But what is he to do if his ministry suddenly calls for increased production? Replacements are hard to find and, quite possibly, even less competent than the people who left. The wise director hoards labor as well as supplies and machinery. In any case, if the director fires too many workers, local officials will complain. The Soviet regime believes that every citizen has an obligation to work and a right to a job. The regime prides itself on the country's low unemployment level. Of course, many people are underemployed, but that is another matter. Finally, if the director takes disciplinary action too often, it might suggest to his ministry and to the party that he cannot keep his workers in line.

In running his factory, Soviet directors are less restricted by health, safety, and ecological considerations than their American counterparts. Both the Soviet bureaucracy and the directors themselves almost always give priority to production goals. The Soviets tolerate hazardous factory conditions that simply would not be tolerated in the United States. State enforcement of health and safety standards is lax, and in most cases directors are not influenced by deep-seated concerns for their workers' well-being. Western visitors to Soviet factories typically remark upon the dangerous and unsanitary working conditions. Factory-related injuries and death are far more common in the Soviet Union than in the United States. More often than not, the state also ignores pollution and other environmental infractions. Violators are rarely punished. When they are, the penalty is usually a fine which the director pays out of enterprise funds that were originally supplied to the factory by the state. It would be as if a U.S. government contractor merely added OSHA fines on to its bill. Under Gorbachev, the Soviet people have become far more outspoken about their ecological concerns. But except for flagrant violations of the law, the government still responds slowly and cautiously to violations.

Soviet directors operate in a sellers' paradise and don't have to contend with competition. The Soviet Union is far less integrated into the global economy than are the other industrialized countries of the world. Most directors are neither concerned with selling abroad nor with competing at home against foreign products. They also do not have to worry about competing with other domestic producers. Usually, managers can sell all that they can manufacture, because many goods are in short supply. Even when they are not, other enterprises will purchase all that is produced at the behest of the state. Opposition to economic reform is widespread.

Periodically, one reads in the American press that the Soviet government is contemplating broader authority for factory directors. Such is now the case. But despite all the talk about perestroika, little has actually changed. As in the past, many powerful forces stand in the way of thorough reform. Although Soviet leaders allow the director considerable discretion, they have jealously guarded their overall control of the economy. It is one thing to tolerate independent action; it is quite another to legitimize it.

Ideological assumptions stand in the way of economic decentralization. The Communists take it as axiomatic that a socialist state ought to be centrally directed and guided. They are certain that if they surrendered economic control, political decline would follow. Many communists are also genuinely distrustful of a free-market model. They fear that unfettered competition would bring business cycles, inflation, high unemployment, and exploitation of the worker.

Gorbachev and his advisors wish to decentralize economic decision making without surrendering their monopoly of power. They are convinced that the present economic system is unwieldy. Too many decisions are made by bureaucrats who have little, if any, direct contact with the factory. Directors, for their part, have grown lethargic and inefficient because they do not have to compete in order to survive. Gorbachev has repeatedly said that his foremost task is to persuade the Soviet people to work harder. The Soviet leader would like to introduce a profit mechanism as a spur to greater productivity.

Most middle- and lower-level bureaucrats, and their numbers run into the millions, are hostile to decentralization, whatever its underlying motivation. Though their reasons for opposition are multifaceted, self-interest is at the heart of the matter. Greater autonomy for the director would undercut their power and status and perhaps even their livelihoods. Gorbachev has already eliminated thousands of bureaucratic positions. Most of these officeholders, however, have managed to be transferred to other ministries.

It would be a mistake to assume that all, or even most, directors want to dismantle the current system. Many are reasonably comfortable with centralized planning. Although they are aware of the system's shortcomings, they have become masters at negotiating its pitfalls. Why risk the perils that might ensue with greater independence? Bureaucratic meddling has long been a convenient excuse for failure.

Further Reading

"Joint Ventures as a Form of International Economic Cooperation," New York: Taylor & Francis, 1989.

Terrence Deal and Allen Kennedy, "Corporate Cultures: The Rites and Rituals of Corporate Life," Addison-Wesley: Reading, MA, 1985.

Bruce Steinberg, Thomas Moore, and Stuart Gannes, "Reforming the Soviet Economy/Managers: Russia's New Elite," Fortune, November 25, 1985.

Nicholas Spulber, "Socialist Management and Planning" Bloomington, IN: UMI Books on Demand, 1971.

David K. Shipler, "Russia: Broken Idols, Solemn Dreams," New York: Times Books, 1983.

Marshall Goldman, "U.S.S.R in Crisis: The Failure of an Economic System," New York: W.W. Norton, 1983.

D. Franklin, "Gorbachev's Gamble: A Survey," The Economist, April 9, 1988.

Alec Nove, "The Soviet Economic System," London: Allen & Unwin, 1982.

Joseph F. Berliner, "Factory and Manager in the U.S.S.R," Cambridge, MA: Harvard University Press, 1957.

Peter Toumanoff, "Economic Reform and Industrial Performance in the Soviet Union: 1950-1984," Comparative Economic Studies, Winter 1987.

Michael Binyon, "Life in Russia New York," Pantheon Books, 1983.

Wolfgang J. Koschnick, "Russian Bear Bullish in Marketing," Marketing News, November 21, 1988.

Joseph S. Berliner, "The Innovative Decision in Soviet Industry," Cambridge, MA: The MIT Press, 1976.

Bruce Parrott, "Politics and Technology in the Soviet Union," Cambridge, England: The MIT Press, 1983.

Alastair McAuley, "Economic Welfare in the Soviet Union: Poverty, Living Standards, and Inequality," Madison, WI: The University of Wisconsin Press, 1979.

Hedrick Smith, "The Russians," New York: Times Books, 1983

Vladimir Shlapentokh, "Workers' Involvement in the Soviet Union: From Lenin to Gorbachev," Work and Occupation, November 1988.

David Lane and Felicity O'Dell, "The Soviet Industrial Worker: Social Class, Education, and Control," New York: St. Martin's Press, 1978.

Marshall Goldman, "The Spoils of Progress," Cambridge, MA: The MIT Press, 1972.

Michael Kublin is associate professor of international business and marketing at the University of New Haven.
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Author:Kublin, Michael
Publication:Industrial Management
Date:Mar 1, 1990
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