Struggling to survive: A case study of adjustment at a Russian enterprise

Abstract

THE INSTITUTIONAL CHANGES FACING ENTERPRISES over the past decade as Russia has moved toward a market economy have been profound. Profit has replaced plan fulfilment as the key indicator of success. Ultimate responsibility for enterprise success or failure has devolved from the ministries and the plan administrators to the managers. Since the collapse of the Soviet Union in December 1991 the majority of enterprises have been privatised, thereby introducing a new governance structure in which managers formally answer to boards of directors and shareholders rather than to governmental or party structures.1 How are Russia's manufacturing enterprises adapting to this new post-Soviet environment? Their capacity to adapt and to flourish is critical to the long-term economic well-being of Russia. Unlike many other countries that have made the transition to a market economy, Russia began with a developed industrial base. Although start-up businesses are part of the solution, the real challenge is to reorient pre-existing enterprises to become competitive in a market economy. Why has the transition been so difficult for Russia? There is, of course, no easy answer to this question. Economists generally agree that market success in Russia requires macroeconomic stability and microeconomic restructuring. Given that inflation has been brought under control and macroeconomic conditions are generally stable, attention has turned to enterprise behaviour in seeking an explanation for poor economic performance.2 Many authoritative commentators place primary blame on the managers.3 Some have gone so far as to describe the mentality of Russian managers as 'suicidal'.4 They argue that the managerial cadre in power at the time of the transition, who were trained to operate in an administrative-command system, have been unable to recognise the need for fundamental change in behaviour with the introduction of market reforms, and have been more concerned with preserving (and even expanding) their own personal power and wealth than with the survival of enterprises. They contend that too many of these managers have continued to rely on subsidies from the state rather than restructuring their businesses in order to become viable. To be sure, there is some truth to the argument. But the reality is considerably more complicated. The image of enterprise managers with their hands outstretched to the government, while surreptitiously absconding with enterprise assets, is a facile caricature.