Wheeling it, dealing with it

Labour Relations and Political Change in Eastern Europe - Industrial Restructuring and Trade Reorientation in Eastern Europe - Restoration in Russia - Privatising Russia
January 26, 1996

As bookshelves groan under the weight of the new literature on the economics and politics of postcommunist transformation we might ask, where is it all leading? What emerges from this close inspection of model decline and system renewal? What are the findings of the army of social scientists that has descended with funds from USAID, Brussels or the Economic and Social Research Council? Can we now detect the key features of the process, its successes and its troubles?

Each of these studies adds to our understanding of what has been happening in Russia and eastern Europe since 1989, even if the most striking feature to emerge is the unevenness of the pace of change. It is by no means clear that each country is on the same development path, unless "path" is interpreted as a vast network of major and minor roads, motorways and tracks heading in virtually every direction except back. Also striking is the scope for diametrically opposed opinion to flow from surveys of essentially identical data.

Russia may offer the greatest possibility for diversity of interpretation: in Privatising Russia, Maxim Boycko and fellow authors describe an ownership landscape that is becoming more ordered and efficient, yet when Boris Kagarlitsky surveys the same scene in his Restoration in Russia, a lunar landscape emerges with "parasitic biznes [sic] I suffocating and bleeding white the system on which it fed".

When history appeared to end in 1989 many observers were much taken with the idea that liberal capitalism was the obvious terminus. Since then doubts have crept in: perhaps a despotic and corrupt capitalism with huge unevenness between winners and losers is more likely? Perhaps the state will hang on to a substantial economic role as the social mood turns away from the unrestrained economic liberalism of the earlier period? Perhaps the sudden collapse of an entire system demanded in 1989/90 a simple beacon, such as the unrestrained market seemed to offer?

Some six years on it is becoming clearer that the transformations across the formerly centrally planned economies differ greatly. Hungary, Poland and the Czech Republic are widely regarded as vanguard economies, most closely approaching the western model, soon likely to be in all the important "rich country" clubs. In Russia, where unimagined change has taken place in what is no more than an historical instant, the situation is very much more confused. Some observers see an economy poised on the edge of stability and in which a platform for economic take-off has been set up. For others it is a gangster economy whose closest parallel is a nightmare version of a 1920s United States.

Initially, western interest in Russia and eastern Europe focused on "big" system issues and the immediate need for a basic macro-economic stability. This created a vast opening for western economists and it is no accident that the first wave of transformation writing gave sharp focus to economics. Other social scientists have since become involved and have generally argued that change will be heavily conditioned by the legacy of the past and will be less neat than many economists may have imagined.

In Labour Relations Thirkell and his colleagues put the state enterprise under the microscope, asking how relationships between key groups in the firm may be evolving. It emerges that effective tripartism (government, unions, employers) in labour relations is not easily built since employer organisations are generally weak and trade union roles are shifting. Yet the case studies point to a fluidity within the firm out of which management may be best placed to reap the greatest advantages. Other studies, including the Boycko volume, appear to confirm that where privatisation has been extensive and rapid managers have gained significant material and political advantages.

It is not hard to understand why managers are almost uniquely placed to do best in the new market-oriented dispensation. Thirkell points out that the scope for managerial discretion expands almost effortlessly as the instruction-dominated planning system contracts. Labour organisations, on the other hand, struggle to find a role and no surprise; suddenly deprived of their auxiliary function in planning (transmission belts for plan fulfilment), weighed down by their ineffectiveness as representative organisations, they also must operate in economies heavily influenced by liberal economics. A less promising situation for labour organisations is hard to find.

In Privatising Russia Boycko and colleagues celebrate the voucher privatisation which, against all expectations, was the clearest success in the Russian economy in the turbulent early 1990s. Managers and workers appear to have done well out of the process but the former probably did spectacularly well. The authors believe however that large shareholding blocks able to exercise control over enterprise development are emerging. If so, managerial discretion will begin to narrow once again.

For Kagarlitsky, however, the privatisation process is little more than the plundering of state assets by rapacious managers or criminal gangs. He believes it will implode when there is nothing left to privatise. The idea that an effective market economy could be built using mass privatisation and economic shock therapy is simply naive, the pipedream of the reform economists, Yegor Gaidar and Anatoly Chubais, over-impressed by IMF designs. His objection is that there are no effective market institutions in Russia to support a market-based economic development. Home-grown Russian substitutes exist where, for example, gunfire on the street is "most likely not the Mafia settling its accounts, but an ordinary, commonplace bankruptcy".

But Kagarlitsky's view of development possibilities is not entirely clear. On the one hand he is a "gradualist" advocating first the building of market institutions before more adventurous change, while on the other he is attached to a socialist collectivism that is, he argues, just around the corner.

In Industrial Restructuring the editors have assembled the background data on economic change in Eastern Europe that provide the essential context needed to make sense of enterprise adjustment to new economic conditions. When the Communist party lost its critical role as coordinator of economic activity and a control vacuum opened at the level of the firm, a variety of enterprise responses became possible. One generally striking feature was the huge surge in trade with the West. Michael Landesmann and his colleagues draw attention to the extent that this was a success achieved by keen price setting rather than anything else. But to have achieved this decisive export switch in the difficult circumstances of 1990-91 surely shows that managers of state enterprises were not completely primitive in their business skills.

So, can we say any more clearly where things are heading? First, it does appear that managers have exploited the control vacuum most effectively. This was to be expected. They knew the real economic conditions of firms and were best placed to take advantage of new "opportunities" such as privatisation.

Second, trade unions and other labour organisations face in general a multitude of problems of which the greatest is perhaps a credibility deficit, mutual mistrust and more or less open government hostility.

Third, Russian privatisation was a spectacular success in its launch phase but there are some grave reservations over just who are now coming out on top as owners. The Financial Times reported that criminal gangs control more than 40,000 firms and in many cases their leaders are said to be gearing up for election to parliament in elections where the prize is immunity from prosecution.

Fourth, the adjustment of many East European economies to the sudden loss of Comecon markets testified to some business acumen but it was achieved, most probably, by a savage price cutting that is no basis for longer-term success.

George Blazyca is professor and associate head of the department of economics and management, University of Paisley.

Labour Relations and Political Change in Eastern Europe: A Comparative Perspective

Editor - John Thirkell, Richard Scase and Sarah Vickerstaff
ISBN - 1 85728 348 1
Publisher - UCL Press
Price - £32.00
Pages - 208

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