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Entrepreneurship in Imperial Russia and the Soviet Union
By Gregory Guroff, Fred V. Carstensen
PRINCETON UNIVERSITY PRESSCopyright © 1983 Princeton University Press
All rights reserved.
CYRIL E. BLACK
Russian and Soviet Entrepreneursbip in a Comparative Context
The purpose of this book, which brings together chapters based on papers discussed originally at a conference held on November 16-18, 1978, at the Kennan Institute for Advanced Russian Studies in Washington, D.C., is to advance our understanding of entrepreneurship in the Russian Empire and the Soviet Union.
The various interrelated functions of entrepreneurship, management, and innovation, which are among the most characteristic features of national development in the modern era, have received relatively little attention in the Russian and Soviet contexts. Conventional wisdom has taught us that Russia was a backward society until the Five-Year Plans were inaugurated in 1928, that a weak middle class accounted for the failure of the Provisional Government in 1917 and the establishment of a socialist administration, and that educated Russians in the nineteenth century were primarily concerned with abstract ideas rather than with questions of management. Entrepreneurship is a skill associated with commerce and manufacturing in relatively free-enterprise economies, and neither Russia nor the Soviet Union was perceived as an environment where this skill was likely to flourish. Research on Russia and the Soviet Union in recent decades has dispelled many of these preconceptions, but the results of this research have remained scattered and unfocused. This symposium seeks not only to bring together what we know about this subject, but also to bring to bear the judgments of scholars currently working on this theme on issues still under debate and calling for further research.
An underlying task of the comparative study of modernizing societies is to distinguish between those aspects of the advancement of knowledge, political development, economic growth, and social integration that are common to all societies, and those that reflect the varied heritages of institutions and values of each society. It has taken a good many years to sort out those characteristics of contemporary Western societies that are universally valid, and those that have roots in a premodern England and France to which modernity was no less alien than it has been to Russia, Japan, or China. Our first task here is to focus on those aspects of entrepreneurship, management, and innovation that are relevant to economic growth regardless of its cultural milieu.
Comparative studies of economic development suggest that an underlying feature common to all societies is that as industrialization advances, the role of entrepreneurship, management, and innovation increases as compared with that of capital and labor. Industrialization is the key factor in the productivity of labor and capital and should be regarded as an economic resource as well as a system of authority.
Early definitions of entrepreneurship stressed the role of the entrepreneur as working in an ambience of uncertainty, that is, contracting for a job without knowing in advance the cost of labor and materials — in contrast to salaried officials working within the constraints of a budget. These days we all seem to be working under conditions of uncertainty, and to this extent we may be entrepreneurs, but this is not a very useful definition for the purposes of this symposium.
There is also the narrow definition of entrepreneurship associated with the work of Schumpeter, which stresses innovation as its principal function — the furthering of economic growth through the improvement of technique. Those who simply administer ongoing concerns, under this definition, may be businessmen, capitalists, bureaucrats, or managers, but they are not entrepreneurs. This is too narrow a definition for our purposes, even though we are concerned with both entrepreneurship and innovation. It is very difficult in the modern era — in which change under the impact of the scientific and technological revolution is of the essence — to isolate "innovation" from the other functions of entrepreneurship except in a very specialized context.
Between a very broad and a very narrow definition there remains a large area that includes functions not only of innovation but also of leadership, management, the mobilization and allocation of resources for particular ends, risk taking, marketing, and certainly cost control, a function no less important in a planned than in a market economy.
Studies of entrepreneurship in a variety of settings lead to the conclusion that as economies develop and as enterprises grow in size, an increasingly higher proportion of managerial resources is required. Not only growth but also innovation call for a large investment in managerial skills. Much is made of the role of individualism in the leadership of market economies, but the fact is that management by teams rather than by individuals increases in proportion to the size and complexity of an organization.
Almost universally, enterprises have evolved from family-dominated "patrimonial" businesses to more impersonal, professionally managed, corporations. Although family names have often been retained long after families have lost exclusive control — as with Ford and Chrysler, Mitsui and Toyota, Peugeot and Krupp — size and complexity require a greater range of skills than any single family is likely to possess. As entrepreneurship evolves from the initiative of a single individual or family, investing savings and loans in new enterprises, to that of managers of large organizations, the role of entrepreneur becomes increasingly one of selecting and directing personnel. Innovation becomes less a matter of individuals having bright ideas for new techniques, than of the administration of research departments with large staffs of specialists engaged in basic and applied research.
In addition to being an economic resource, entrepreneurship and management are also systems of authority. In this respect more than in others, entrepreneurs tend to vary rather widely from one culture to another. This variation depends in part on the types of personality that predominate in a culture, and in part on the social status and educational level of the workers.
As a system of authority, management may range from a highly centralized authoritarian leadership, which is still sometimes evident in advanced industrial societies, through varying degrees of paternalism, to enterprises in which management and labor cooperate on a wide range of policy decisions. Although one might think that enterprises, like polities, would evolve from authoritarian to democratic patterns over the years, the prevailing style of management appears to reflect the mores of a society more than its level of development.
Management has tended to be paternalistic in Japan, and also in some West European countries, owing primarily to the continuing influence of relationships prevalent between landlords and peasants before they became managers and workers. In other Western countries, especially in the United Kingdom and the English-speaking countries of the New World, paternalism has given way to a more pluralistic approach that gives labor an increasing role in management. In the later-developing societies, however, the size and limited education of the available labor force have encouraged entrepreneurs to run their businesses with a heavy hand.
In all societies, the authority structure of enterprises depends greatly on the economic status, political culture, and educational level of the labor force. If, to take an extreme case, managers are employing slave labor — the reference here is to twentieth-century examples, not to ancient times or the United States before 1861 — the entrepreneurial role is naturally quite different from the situation in which, at the other extreme, the labor force is adequately trained, well-organized, and protected by law in its right to negotiate. Most cases fall between these two extremes, and the available studies show a wide variation by country, by region, by industry, and by personalities of entrepreneurs. What these studies tell us is that the common functions of entrepreneurial leadership — including not only promoting innovative techniques, but also managing both administrative personnel and labor — can be successfully performed in a wide variety of settings.
Although the study of entrepreneurship in Russia and the Soviet Union is a rather recent phenomenon, there are several aspects of the subject on which scholars of various persuasions are likely to agree.
Of these, the most obvious is that there is a continuity from at least the eighteenth century down to the present in the degree to which Russian and Soviet society have been state-centered. Although this is not to suggest that the monarch and his bureaucracy before 1917 achieved anything like the penetration of society that has characterized the Soviet party-state administration, yet in the nineteenth century the state played a large role in directing the economy and in determining the relations between social strata. Neither the church, nor provincial leaders, nor estate or class organizations could influence the policies of the imperial administration in any decisive way.
The Russian economy and society developed rapidly in the last decades of the monarchy, but the state failed to adapt political institutions to changing economic and social realities and in the end it finally succumbed to revolution. The fact remains, however, that in both Russia and the Soviet Union, in marked contrast to the situation in Western Europe, entrepreneurship evolved in a setting where the interests of the state predominated over those of the entrepreneurs. Between actual government ownership and state contracts, the state in the last decades of the empire played a very large role in industrial development. To this extent, the evolution toward a planned economy in the Soviet Union continued imperial policies, although to be sure in a much more intense form, rather than departing radically from them.
In another dimension, however, Russia and the Soviet Union were very dissimilar settings for entrepreneurship. Before 1917, entrepreneurs had no well-defined status in Russian society, and only in the last decades of the empire did they emerge as a well-organized interest group with direct access to the central government. The merchants, tradespeople, and artisans of Great Russian ethnic origin were slow to develop entrepreneurial skills, and national minorities and foreigners played a larger role than in most comparable countries. At the same time, entrepreneurship did not have a high standing in the values of the empire. Only the upper guild of merchants had a status in some ways comparable to that of the noble landowners, and in the popular culture persons involved in commerce and artisanry were held in low esteem. The fact that in dictionaries today the term for tradesperson (meshchanin) is a synonym for narrow-minded, vulgar, uncultured, and Philistine, suggests that this is a continuing attitude.
As early as the 1850s, the enterprises in the Moscow region nevertheless began to organize interest groups to press their case with the central government, and they gradually emerged as an influential force in society. After the revolution of 1905, industrial interests began to play an even more active role as a pressure group through the Association of Industry and Trade and other organizations, and were able to exert a strong influence on several of the political parties that emerged in this period. They never felt that their needs were adequately understood by the central bureaucracy, however, and their representatives were among the leaders who urged Nicholas II to abdicate in 1917 in the hope that a government more in tune with industrial needs would result. From what is known of the thinking of leading Russian entrepreneurs at this stage, they would have liked to see a form of cooperation between government and business somewhat along the lines that has recently been developed in Japan.
The situation has of course been very different in the Soviet Union where, especially since the inauguration of the Five-Year Plans in 1928, entrepreneurship, management, and innovation have been the principal concerns of the government. Joseph Stalin might well have echoed, in the very different Soviet context, Calvin Coolidge's assertion that "The business of America is business," and in due course most leaders of the Soviet hierarchy included as part of their training some experience in agricultural and industrial management.
One could of course write at length about the transformation of Russian and Soviet society in the nineteenth and twentieth centuries, but this brief sketch of the continuities and contrasts will suggest the problems faced by an effort to trace the development of entrepreneurship in a country such as this. A particular challenge is represented by the need to distinguish form from function — to discover the essential roles of entrepreneurship that may be concealed under various institutions and titles that may seem alien or irrelevant when viewed from the vantage point of the West.
In seeking to give unity to our subject, we must look for a reasonably consistent set of entrepreneurial functions in a period stretching from the emergence of Muscovy, after the virtual destruction of manufacturing and trade as a result of the Mongol invasions, to the development of a modern industrial economy in the twentieth century. The cast of characters thus ranges from the gosti, the merchants whose origins go back to the Kievan period and who survived into the nineteenth century, to the managers of contemporary industrial and agricultural enterprises.
The identification of the specific roles that we should consider as entrepreneurial is one that deserves particular attention. In a society that more than most others has been inclined to label societal actors and provide them with a legally defined status, we should be able to identify those engaged in entrepreneurial activity. If we are going back to the gosti, we should also consider the other posadskie liudi, including the kuptsy who in their various incarnations played a central role until 1917, as well as the meshchane. If chairmen of kolkhozy are to be considered in the Soviet period, should we not also pay attention to those pomeshchiki who ran substantial estates that produced for the market and for export, and the prikazchiki who served as stewards or bailiffs on both government and private estates.
The fact that Witte is referred to as an entrepreneur in both his private and ministerial capacities raises the question of the extent to which the term entrepreneurship includes government as well as private activity. This question is even more relevant in the Soviet period, when both state officials and enterprise managers surely work under conditions of sufficient uncertainty to be considered as entrepreneurs.
Once the entrepreneurs have been identified, it is important to locate their position in the social scene. Did entrepreneurs have a high and respected position in society — as in twentieth-century United States, where at least in terms of personal income they are on the top of the pile — or were they assigned a relatively low position — as in Ch'ing China? In other words, did society encourage or discourage entrepreneurship? This ranking should be determined not only in terms of income, but also of legal status as reflected in privileges and restrictions.
In this context, special attention should be given to non-Russians as entrepreneurs. Not only native non-Russians, such as Armenians, Poles, and Germans, but also foreigners played an important role in Russian, and to a lesser extent, Soviet entrepreneurship. Religious minorities, too, notably the Old Believers and the Jews, deserve special consideration.
Excerpted from Entrepreneurship in Imperial Russia and the Soviet Union by Gregory Guroff, Fred V. Carstensen. Copyright © 1983 Princeton University Press. Excerpted by permission of PRINCETON UNIVERSITY PRESS.
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