The Development of Capitalism in Russia

Simon Clarke

• Publisher: Routledge
• Year: 2007
• ISBN:
  9781134206605
• Edition: 1
• Topic: Economics
• Subtopic: International Economics
• Index: Economics

This book provides a broad and comprehensive survey of the development of capitalism in Russia from the collapse of the Soviet economic system to the present, and includes the results of substantial new research on the current state of a wide range of Russian enterprises.

Simon Clarke – a well-known authority in this area:

• surveys the old Soviet system
• charts the progress through the early post-Soviet period, when neo-liberal theorists' 'shock therapy' did not lead to the immediate development of a capitalist market economy, and traditional enterprises became hugely loss-making
• considers the crisis of 1998, and its effects, which included the curtailment of speculation, and growing investment in the old industrial sector, which in turn put the new small and medium sized enterprises under increasing pressure
• discusses the wider theoretical implications of the Russian experience for other transitional economies.

1 Introduction

This book is based on the findings of a research programme carried out in collaboration with local research teams affiliated with the Institute for Comparative Labour Relations Research (ISITO) in Russia since the early 1990s, funded primarily by the British Economic and Social Research Council (ESRC) and INTAS. The research on which this book is based was carried out in two phases. The first phase, in 1991–5 in collaboration with Peter Fairbrother, involved intensive longitudinal case studies of the restructuring of management and labour relations in traditional enterprises in four Russian regions.¹ This research identified the continuity of traditional soviet management practices and the constraints on change imposed by the struggle to survive in a collapsing economy. This research was reported in a large number of publications in English and in Russian and forms the basis of the three introductory chapters of this book, which cover the central issues in theorising the transition, the characteristics of the soviet industrial enterprise and the key features of the survival strategies of traditional enterprises in the 1990s.

The first three chapters provide the context for the analysis presented in the rest of the book, which is based on the findings of a more recent research project, again funded by the ESRC, from 2002 to 2006 in collaboration with Tony Elger and Veronika Kabalina and our colleagues in ISITO.² This project has been based on intensive case studies of fifty-two successful enterprises of all property forms in a range of branches of the economy in seven regions of Russia in order to identify the characteristics and limits of management restructuring in the new conditions of economic recovery since the default of 1998 and has identified both persisting soviet legacies and radical innovation in management practices. A team of researchers worked intensively in each enterprise over an extended period of time, interviewing senior managers, line managers and workers, observing the work of the shops and conducting documentary and archival research. The project has generated a wealth of data and a wide variety of analytical papers prepared by our Russian colleagues, which provide the basis for this book.¹

The discussion of our research findings begins with an account of the changes that have taken place in the corporate management of our case-study enterprises. The research has concluded that the principal pressure for change in management practices and employment relations comes from the external environment, so the greatest changes have come in, and been driven by, those parts of enterprise management dealing with that environment, particularly sales and marketing. Similarly, change is more radical in enterprises which are owned by outsiders, and particularly those owned by Russian or foreign corporations, and tends to proceed from the top down. This is not so much because the managers of corporations are more competent than the managers of insider-owned companies, as because the owners are more unequivocally oriented to maximising the profits that they derive from their assets.

While there have been substantial changes in the practices of corporate management, it is very rare for the reform of management and labour relations in Russian enterprises to have penetrated the sphere of production and personnel management, even in foreign-owned enterprises. For this reason, the rest of the book concentrates on the examination of the barriers to change found in these spheres by exploring the characteristics of personnel management and the reform of payment systems, before looking in more detail at the contradictory pressures imposed on line management.

The adaptation of Russian management and employment relations is by no means a process free of conflict. However, conflict is not dramatic and does not appear primarily between employer and employees. The lines of conflict tend to coincide with the extent to which the traditional technologistic orientation to production of soviet management has been confronted with an economic orientation to profitability. This appears horizontally in the relations between marketing and production management, and vertically along a line which moves down the enterprise as reform proceeds, initially between senior management and outside owners and subsequently between senior management and middle and line management. In many of the most advanced enterprises line managers find themselves torn between conflicting pressures from senior management and from the labour force they are required to manage, variously coming down on one side or the other. The integration of line managers into the management hierarchy is a major problem facing the senior management of Russian enterprises.

This ambiguous position of line management is one reason why there is not yet a coherent managerial middle class and no clear lines of class division have yet emerged in Russia. Potential conflicts between labour and capital are dissipated within the management structure. Workers continue to appeal to their line managers, rather than the trade union, when they experience problems, and their line managers usually represent the grievances of their subordinates within the management hierarchy. In rare cases in which line managers have been more thoroughly assimilated into the management hierarchy, industrial relations tend to become more conflictual.

One aim of the project was to address the question of whether a specifically ‘Russian’ variant of capitalism is developing, which integrates features of company management borrowed from the leading capitalist countries with features of the organisational culture and employment and personnel practices inherited from the soviet past. Although current management structures and practices are strongly marked by the coexistence of the old and the new, we are sceptical that this marks a specifically Russian model of capitalism, in the sense of a distinctive set of institutional arrangements which provide a stable basis for the sustained accumulation of capital, rather than a transitional stage in the adaptation of Russian values, institutions and practices to the imperatives imposed by global capitalism. Of course, the legacy of Russia’s past will never be extinguished, but it is premature to assess which features of that past are consistent with the sustained accumulation of capital, which features might constitute barriers to such accumulation and which features might provide the basis of effective resistance to the rule of capital. As Marx noted in The Communist Manifesto, ‘the history of all hitherto existing societies is the history of class struggle’, and the struggle continues to shape history into the future.

The reason for our scepticism about the emergence of a stable Russian model of capitalism is the conflict outlined above, in which there is a clear tendency for capitalist management values and practices to penetrate ever deeper into the Russian enterprise, with the most radical change being in foreign-owned companies and the least change being observed in insider-controlled traditional enterprises. There is certainly some tendency to preserve traditional features of personnel management in response to the expectations of workers, particularly in the paternalistic provision of social and welfare benefits, but these expectations are largely confined to older workers, young workers being preoccupied with the size of the wage and having little interest in funeral benefits or access to sanatoria. This underlines the significance not only of change within particular enterprises, but of the fall and rise of enterprises and the way in which this intersects with generational changes in by-passing old expectations and institutional practices.

Changing management structures and practices is much easier in enterprises which are undertaking substantial investment programmes, which both require the introduction of new working practices and facilitate their acceptance by being associated with improved wages and working conditions and better prospects. This is the principal reason why management change has proceeded further and more smoothly in foreign-owned enterprises and in the oil and gas, electricity generation, and metallurgical sectors than in those branches of the Russian economy supplying the domestic market.

Our case studies suggest that the Russian economy is acquiring a dualistic structure, with modern management practices and technology employed in the export-related sectors, while producers for the domestic market rely for their survival on the skill and experience of an ageing labour force to operate worn-out plant and equipment. Both sectors face an increasingly acute problem of a shortage of skilled workers as traditional industrial training systems have collapsed and younger people have no interest in making a career in industry. This links to the more fundamental question facing Russia, of what future the country has in the global capitalist economy, other than as a supplier of fuels and raw materials.

Finally, the project studied a number of dynamic new private enterprises and found that these shared many features familiar from SMEs in the capitalist countries, of being under-capitalised, operating on the margins of legality, having highly concentrated managerial decision-making, with insufficiently formalised management practices and an excessive reliance on the owner-director and being highly prone to fragmentation in the event of intra-managerial conflict. While the new private sector fills an important niche, it is not in a position to fulfil the task assigned to it by some commentators of regenerating the Russian economy.

The book by no means covers all aspects of the research, but rather focuses on a number of central issues in the areas of corporate management, personnel management and production management. Our findings are consistent with a substantial body of research on the development of Russian enterprise management structures and practices over the past fifteen years, mostly carried out by Russian researchers on the basis of official statistical data and enterprise surveys, but add the depth that can only be provided by detailed case-study research.

1 ‘The restructuring of management and industrial relations in the Soviet Union’ ESRC award L309253049 and ‘The restructuring of management, labour relations and labour organisation in the FSU’ INTAS-93-1227.

2 ‘Management structures, employment relations and class formation in Russia’ ESRC award R000239631. I am very grateful to Tony Elger for his helpful suggestions and careful comments on the manuscript of this book.

1 Research methodology, interview data, case-study reports and analytical papers can be accessed at go.warwick.ac.uk/Russia/manstruct/management_structures.htm. A set of papers has been published as

2005. I draw heavily on these project materials in several parts of this book. I have checked back with the original data, so any errors that may remain are undoubtedly entirely my responsibility. I am also grateful to Guy Standing and Tatyana Chetvernina for giving me access to the data of the Russian Labour Flexibility Survey (RLFS). All other statistical data are those issued by the State Statistical Service, Rosstat, formerly Goskomstat, unless otherwise stated.

2 Theorising the transition

There has been a great deal of largely inconclusive discussion over the past twenty years around the appropriate theoretical framework within which to conceptualise the transformation of the former state socialist economies. The commonly used notion of ‘transition’ has often been questioned as doubly problematic. On the one hand, it is a teleological notion in implying that the process is determined by its end point, whereas critics have emphasised the dependence of the process on the initial conditions, summed up in the notion of ‘path dependence’.¹ For this reason some commentators prefer to use the term ‘transformation’ rather than ‘transition’.² On other hand, it begs the question of the characterisation of the end point of transition. The transition is most commonly characterised as the ‘transition to a market economy’, which is usually a euphemism for the transition to capitalism, but this leaves open the question of what kind of capitalism is developing in Russia. Is the capitalism that is emerging in Russia modelled on one of the existing ‘varieties of capitalism’?³ Or does Russian capitalism have its own original character, based on the incorporation of capitalist practices into soviet/Russian traditions, values and institutions? If this is the case, how does Russian capitalism measure up to its competitor varieties of capitalism when it confronts them on the world market?

Michael Burawoy rightly pointed to the dominance of a ‘politicised’ view of the transition from socialism to capitalism, which focuses on political programmes while neglecting their real consequences.⁴ Most commentary on the transition in Russia has been based on a dualistic interpretation of the transition in terms of the interaction of liberalising reforms and state socialist legacies, the latter being seen as barriers to and distortions of the former. Recognition that the path of liberal reform is not necessarily strewn with roses has been accommodated within a vulgarised notion of ‘path dependence’, according to which the path is littered with obstacles inherited from the past which have to be assimilated or removed, but the past plays a purely negative role in such an analysis. This analysis underpins a voluntaristic interpretation of transition as the outcome of political conflicts between reformers and conservatives. In the first half of the 1990s discussion focused on the role of the ‘young reformers’, who assumed a pivotal position in successive Moscow governments under Yeltsin, and their western allies, who set the agenda for the involvement of the international financial institutions which provided and financed the blueprint for reform. Assessments of the Putin regime have been much more ambivalent, ranging from those who give Putin credit for institutionalising the achievements of liberal reform in a law-governed state, to those who see him as embedding the corruption of the Yeltsin years in the authoritarian apparatuses of a kleptocratic state. However, a voluntaristic and dualistic approach, which analyses the emerging forms of capitalism as a synthesis of an ideal model and an alien legacy, fails to identify the indigenous roots and real foundation of the dynamic of the transition from a state socialist to a capitalist economy and so fails to grasp the process of transformation as a historically developing social reality.

The theoretical basis of this kind of dualistic analysis has been provided by the classical liberal analysis of the development of capitalism out of feudalism provided by Adam Smith. Many commentators have compared the soviet system to that of feudalism in being based on the appropriation of a surplus by the exercise of political power. For Adam Smith and Friedrich Hayek the central feature of feudalism was the distortion of the natural order of the market economy by the superimposition of political rule, and the transition from feudalism to capitalism depended on sweeping away the political institutions of the old regime in order to establish the freedom and security of property – what Smith referred to as ‘order and good government’ – which would allow the market economy to flourish as the expression of unfettered individual reason. This was the ideology that informed the neo-liberal project of the transition to a capitalist market economy in the former state socialist economies.

Smith, in The Wealth of Nations, had provided a blueprint for a liberal reform programme, but had been very pessimistic about the possibility of such a programme ever being adopted against the resistance of popular prejudice and vested interest:

To expect, indeed, that the freedom of trade should ever be entirely restored in Great Britain is as absurd as to expect that an Oceania or Utopia should ever be established in it. Not only the prejudices of the public, but what is much more unconquerable, the private interests of many individuals, irresistibly oppose it. . . . master manufacturers set themselves against any law that is likely to increase the number of their rivals in the home market . . . [and] enflame their workmen to attack with violence and outrage the proposers of any such regulation . . . they have become formidable to the government, and upon many occasions int...