From Soviet to post-Soviet

This section briefly examines the historical events through which the paradigm shift in Russian business occurred. It considers political and economic circumstances during the period of the country’s transition from the Soviet Union to modern Russia and the role of the West in this transformation.

The Soviet Union collapsed in 1991. This was an event of enormous proportions and of colossal importance because it brought to an end the capitalism versus socialism debate, and it established the West, headed by the United States, as the dominant ideological influence in the global arena of the early 1990s. This transformation in world politics has led to profound changes in numerous social spheres in Russia, including politics, economy, culture, education, and religion.

By the end of 1980, the Soviet economy was in a state of deep economic crisis. Some

provide proper economic development of the country and a decent standard of living for its citizens” (Arbatov, 2001, p. 179). Mikhail Gorbachev’s vision was to found a country on a Swedish-like model of free market economy, known for its large public sector and high taxes: “…it is important that society itself comprehend and accepts the transition to the market” (Gorbachev, 2001, p. xiv). Many Soviet economists, including L. Abalkin, S.

Shatalin, and G. Yavlinskiy, were in favour of a gradualist approach to the market economy transition (Pomer, 2001).

However, the participants of the Houston 1990 Group of Seven (US, UK, Japan, Germany, Italy, France, and Canada), presented the Soviet Union with the set of conditions for Western cooperation that encouraged considerably more rapid and liberal measures than what Gorbachev had in mind (Bogomolov, 2001). The West’s prescription amounted to Russia’s instantaneous acquisition of neoliberal economics, the “shock therapy”

manoeuvre (Klein, 2007, p. 223). This plan was developed with the expertise of the International Monetary Fund, World Bank, the European bank for Reconstruction and Development, and the Organisation for Economic Cooperation and Development.

Hence, Boris Yeltsin - the first President of Russia in the post-Soviet context - undertook

“immediate capitalist transformation” (Pomer, 2001, p. 154). The President’s Russian collaborators consisted of a team of economists, many of whom in the final years of the Soviet Union belonged to a so-called free market book club and were enthusiasts of Milton Friedman’s ideas (Klein, 2007). Among Yeltsin’s collaborators from the West were the neoliberal advocates Jeffry Sachs from the Harvard University Economics Department, British Professor Richard Layard, and Swedish Professor Anders Aslund. The reform program - “shock therapy” - was directed by Western advisers holding official status in the

Russian government. They drew on the authority of international organisations and dominated Western public opinion. Proposals for more gradual phased transformation were branded as anti-reform or pro-communist (Bogomolov, 2001, p. 55).

One of the essential transitions was the removal of the authority of the Communist Party as recognised in Article 6 of the 1988 Soviet Constitution:

The leading and guiding force of the Soviet society and the nucleus of its political system, of all state organisations and public organisations, is the Communist Party of the Soviet Union.

In contrast to the Soviet political system, Article 1 of Russia’s post-Soviet Constitution (Constitution of Russian Federation, Article 1) transforms the socialist autocratic totalitarian State into a “…democratic federal law-bound State with a republican form of government”. Moreover, Article 3 bans any usurpation of power in the Russian Federation.

Another crucial consequence of the collapse of the Soviet Union was the radical remodelling of the economic system from the command economy model with state ownership and planning via Five Year Plans, into a market-based model, where free markets, rather than the government, regulate the distribution of goods and services. In contrast to Soviet State ownership, Article 35 of Russia’s 1993 Constitution protects the right to private property. Similarly, Article 34 promotes competition by explicitly prohibiting “…economic activity aimed at monopolisation…” (Constitution of Russian Federation, Article 34).

The intention of Yeltsin’s circle was to implement the “shock therapy” measures “…so suddenly and quickly that resistance would be impossible” (Klein, 2007, p. 223). The

range of shock therapy measures that took place shortly after the dismantling of the Soviet Union included rapid privatisation of the country’s approximately 225,000 state-owned companies, abandoning price controls, liberalisation of international trade and currency flows, and stabilising the currency value by reducing State spending (Pomer, 2001). Thus, the entire decade of the 1990s in Russia was permeated by the West’s encouragement, financial support, and ideological interference.

Measures taken during the first years of perestroika and “shock therapy” soon brought the population of the Soviet Union and Russia to completely unknown modes of existence and economic life. The outcome of the initial attempts of Western knowledge transfer was that words rather than the concepts they represent have penetrated the emerging Russian business context. Western representatives came with all too attractive sounding words, but the concepts behind the words were not understood clearly enough by an apprehensive and sceptical population (Holden et al., 2008). This situation contributed to the unpopular image of the entrepreneur and businessman. In contrast to other countries, in Russia there is a considerable degree of ambiguity regarding some of the most fundamental issues including ownership rights, role of contract, concept of legality, and the notion of business ethics, among others. Nuti (1992, cited in Kuznetsov & Kuznetsova, 2005, p. 27) pointed out:

Russia is currently in the stage of an “economic non-system”, that is, a situation in which the old economic mechanisms have been demolished, but the new one haven’t yet fully materialised. This leaves to the discretion of individuals many aspects of business, which under other conditions would be properly regulated by legal, professional, social and cultural conventions. Even the most meritorious of entrepreneurs find it difficult not to cross the line between legality and what is called sometimes ‘shadow’ economy.

Western management educators and consultants, when they first came to post-communist Russia, were then largely unaware of the implications of this state of affairs for the efficient transfer of management and market know-how. Their documentation was all too often not adapted but simply translated by Russians without any understanding of Western management concepts and terminologies. The entire knowledge transfer process “was studded with misleading translations and “crass, on the hoof” improvisations by armies of linguists” operating outside their competence zones (Holden et al., 1998).