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. Last Updated: 07/27/2016

Changing Russia's Work Culture

Privatization, the one part of the Russian government's economic strategy which continues to show some dynamism, will not be enough to either save that strategy or to ensure that market reforms put down roots in Russia. The experience of Central Europe, and of Russia itself, shows that the privatization of companies, whether to workers and management or to a widely dispersed body of individual shareholders, or as usually in Russia to all of these, does not break the old habits and practices. The end of state ownership is an indispensable beginning, but it is not an end in itself.

Two very different studies recently published underscore this point dramatically. The first, by Kevin R. MacDonald in the latest issue of the Harvard Business Review, focuses on the experience of a number of plants in Poland - both those which had a substantial foreign shareholder, and those which did not. In the two cases where the foreign shareholder had invested capital, technology and (most important in MacDonald's view) management expertise in the Polish companies, they achieved dramatic turnarounds. However, where there was no dominant foreign shareholder, dramatic turnarounds were not reported (though some have improved).

The most salient case MacDonald gives is that of Polkolor, one of Poland's leading suppliers of TV color tubes, based in Warsaw. In 1991, the French TV giant Thomson signed a deal which gave it a share of a new joint venture which controlled all of Polkolor's assets - in effect, a privatization.

Thomson laid off 1, 000 excess employees with a year's salary and put $35 million into the plant. But most of its effort went into motivating a workforce which, according to MacDonald, had high absentee rates, allowed a 12 percent defect rate in the final product and had no trace of team spirit. Thomson conducted 10, 000 work days of training, sent management and workers abroad for 2, 000 further training days, instituted daily English lessons and raised salaries to 60 percent above the national average.

Not surprisingly, it worked; so well, in fact that the Polkolor plant is now one of Thomson's best performing plants and the initial planned investment of $35 million has been raised to $100 million. By contrast, those plants which have not attracted a dominant foreign shareholder have, claims MacDonald, either stagnated or improved only enough to stay roughly where they were.

This lesson is reinforced by the findings of an academic team from the University of Birmingham, working with Russian sociologists to study the behavior of privatized enterprises. In case studies just published, the team, writing from a largely Marxist perspective, agrees with MacDonald that privatization itself will not transform state enterprise into capitalism. and they also agree as to the cause: The reason is in management, and its relations with the workforce.

In their studies of companies which had privatized early before the collapse of the Soviet Union, internal structures of the companies were usually barely transformed. Even those companies which have adopted "Western" methods have largely only fired workers and cut down on product lines without adopting new marketing, or investment strategies.

The fact was, as they stress, that former Soviet workers had a lot of power to stop things from happening. Because of labor shortages, managers had to negotiate both collectively and individually with workers just to fulfill the plan. If companies are to be transformed, this culture also has to be transformed.

Because in Russia and in most of the other former Soviet republics the crisis of the state has effectively deterred most serious foreign investment, the possibility of the strong shareholder with access to capital, technology and management skills is very small. Yet it is not a pleasant lesson for Russian managers that without such shareholders, the possibility of real transformation to standards of competition with advanced states is low.

John Lloyd is the Moscow Bureau chief for the Financial Times