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Communism to commerce in Central Europe and Russia
Rodica Milena Zaharia*
For most of the twentieth century the nations of Central Europe and Russia were ruled by communist governments for whom the very idea of commercial activity, free enterprise, or business was anathema. Not only have these societies faced significant challenges since the demise of the communist empire, but so too has the very possibility and public conception of ethical business. This chapter offers an overview of the challenges to business ethics (understood chiefly as practical conduct but also as an academic discipline) during the transition process in Central Europe and Russia during the twenty-five years since the fall of communism. These challenges reveal critical issues for business conduct in these countries. The ethics of everyday business life remains in an evolution shaped by the ideological, cultural, and religious heritages of the former communist nations, as well as by the complex transformations these countries have experienced. Nonetheless, as the chapter concludes, business ethics in Central Europe and Russia is affected less by internal than external factors: the globalization of business and the European integration process. These elements may prove more powerful factors in shaping business ethics in these countries than any local vision about how business may be conducted ethically.
The countries analyzed in this chapter are mentioned in the literature under many appellations: “Central European countries,” “Central and Eastern Europe,” and “former communist countries” are typical terms. Because of the various referents of these appellations, from geographical to economic, cultural to political, there is ongoing discussion about what countries should be included in “Central Europe.” Opinions vary from the narrow (the four countries within the Vishegrad Group: Czech Republic, Slovakia, Hungary, and Poland) to the expansive (the Vishegrad Group, plus Slovenia, Croatia, Romania, and Bulgaria). Under the influence of an expanded European Union (EU) and NATO, the term “Central Europe” has become a fluid concept (The Economist 2000). With an embrace of the expansive notion of Central Europe, this chapter ranges over Central and Eastern European countries (specifically, Czech Republic, Slovakia, Hungary, Poland, Slovenia, Croatia, Romania, Bulgaria, other former Yugoslav Republics, and the Baltic nations), as well as Russia and Ukraine.
Prior to 1989, many communist countries were regarded, often without justification, as similar. They did share common ideological values (i.e., a centrally planned economy), but these were typically imposed rather than indigenous. Nonetheless, these imposed values also influenced attitudes toward business ethics. Indeed, the transition towards something akin to a capitalist economy disclosed many similarities across these countries (Lewicka-Strzalecka 2006; Estrin etal. 2006; Čiegis etal. 2008; Kuznetsov and Kuznetsova 2012). However, important differences existed among these nations before the arrival of communism and after its demise, with these differences also affecting the ensuing transformation from centrally planned to market economy. The distinct histories of each nation, their particular encounters with communism, and their varied transitions towards market economies has influenced the actual practice of business conduct (practical business ethics) and the academic domain of business ethics (Bohata 1997; Katchanovski 2000; Kronenberg and Bergier 2012).
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In practical terms, the ethics of everyday business in the former communist countries lag behind those of developed countries (Tsalikis and Seaton 2007). Communist rule encouraged a marked disregard towards business as a profession, and a corresponding lack of concern about business ethics. As a result, the development of business ethics has been mostly a consequence of external factors such as the business ethics practices implemented by large foreign corporations or encouraged by the EU. Thus, business ethics’ evolution in the former communist countries has been more a replication or adaptation of business ethics from advanced countries (mostly the EU and USA) than an indigenous process of building a new model of business ethics.
This chapter examines how business ethics manifested itself in the commercial landscape after communism’s collapse in Central Europe: how did the field, as practice or academic enterprise, emerge and evolve? The first section of the chapter explains the difficulties in analyzing business ethics in former communist countries. In these countries the very concept of business renders a first challenge to any attempt to define business ethics. The problem is not simply that “business” was considered a capitalist term, burdened with a “bad” connotation, but in the Slavonic languages, for example, there is no equivalent for “business” (Bohata 1997). In the subsequent sections of this chapter we focus on the transition from communism to markets. One of the most interesting and challenging processes in world history, this was a “giant social experiment” (The Economist 2008) influencing not only business, academia, and world politics but the lives of ordinary citizens. We first consider similarities among the former communist nations, and then, in the subsequent section, we take up differences. It is the differences that provide the key to understanding the evolution of business ethics in these transitional economies. The final section addresses, briefly, how the present and future of business ethics in most former communist countries are now linked to the EU.
Business ethics under communism
By the middle of the Cold War business ethics emerged in the capitalist world as an interdisciplinary field of study, bringing together philosophy, law, business theory, sociology, economics and other branches of social science (Shaw 2009). Business ethics gained particular attention in the 1960s, when unethical business conduct (for example, questionable labor practices, bribery, and undesirable moral attitudes) were showcased by the mass media (Lantos 2001). As business ethics came of age in the capitalist world, the communist nations remained committed, in word and often in deed, to the implementation of the doctrines of Marx and Engels, as enriched by Lenin’s vision and adapted by different communist rulers to the specific conditions of countries from Eastern Europe, Asia and the Caribbean. Communism in Central Europe and Russia was imposed on its citizens as the most ethical type of society.
The main characteristics of the communist countries of Central Europe and Russia were by some measures similar: the means of production were almost entirely the property of the state, thereby transforming all citizens into owners; decisions influencing all areas of activity were made by the Communist Party; economic initiatives were set forth and implemented by a compulsory plan (what to produce, how much, at what price, and for whom); and, of course, political freedom was suspended. “Business,”1 as it was understood in capitalism, wasn’t a term or an activity that was tolerated in communism. In the first place, communist doctrine rejected the very notion of profit, deeming it to be based on the exploitation of the working class. Nonetheless, within their state enterprises the communists did seek a surplus greater than costs, but this was deemed to be a “benefit.” Unlike profits, benefits were not gained through exploitation and so these were not for the use of a few. Rather, benefits, it was said, were obtained through equal rights and as a result of the “creative work of the workers” (Constantinescu 1983: 364), undertaken in the interest of the people (who were, of course, the owners). Secondly, since everything was planned, no economic activity could be accepted outside the plan; there was no room for the unforeseen emergence of new forms of business, entrepreneurial efforts, or privately held firms. Given the absence of private property and a centralized economy, private economic initiatives were impossible and managers2 had mostly a passive and defensive role (Kozminski 1995: 90). The third reason that business was not tolerated under communism was that capitalist firms presuppose private property over the means of production and capital, but such ownership was not possible in communism except under specific and limited conditions (including state control over all production, prices, and distribution).3 Not surprisingly, the Communist Party’s exertion of control exceeded the area of economic and social activity, interfering with the personal lives of the citizens. It would be hard to control the economic and the social without also controlling the personal actions and ambitions of citizens.
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Communist society, constructed explicitly on principles deemed scientific (as well as ethical and egalitarian), was proclaimed to be the only society eliminating exploitation and ensuring welfare for all citizens. In such a society there were no reasons for business and certainly no reasons for “business ethics.” The very concept of business ethics is an unscientific association for the Marxist: even if there were certain expectations or obligations within business societies, these were but the norms of bourgeois commerce; however, the point of communism was to overcome these exploitative practices and usher forth a new society. Thus, business ethics was considered an impossible and irrelevant concept for communism, a way of diverting attention from the systemic iniquities of capitalism (Shaw 2009). How can capitalist business be associated with ethics, when capitalism is exploitative and business practice relies on and sustains greed and inequality? How can capitalist businesses promote ethics when people are guided by self-interest instead of seeking prosperity for all citizens?4
Marxist ethics denounced the domination of the proletariat by the bourgeoisie and, thus, the ethics of capitalism. Marx did not introduce a new ethical theory, and some would contend that Marx purported only to engage in science; however, his philosophy did express considerations employing ethical terms such as “good,” “bad,” and “justice” (Ollman 1976). In this sense, Marxism concentrated on labor ethics and urged, following Marx himself, “the true resolution of the strife . . . between freedom and necessity, between the individual and the species” (Marx 1844: 84). In communist society individuals would labor with conscious intent and pleasure (Condur 2011), remain devoted to the communist cause, and contribute to society as people who were industrious, honest, responsible, self-critical, and committed to self-improvement as a means to social betterment. This is a society in which work is not the means but the purpose of life, where the driving principle is, “From each according to his abilities, to each according to his needs” (Marx 1844: 531). The new society should achieve genuine well-being for each citizen through public property, full employment, a centralized economy, and political power for the working class.
The social and economic context was more complex. In almost all communist countries, trade with (and travel to) the capitalist world was limited and under the strict control of the Communist Party and Secret Police. The absolute control of society and the isolation of communist countries from the capitalist world lowered overall economic performance, nullified civil rights, and diminished the welfare of their citizens. To keep a discontented population under control, the secret police became omnipresent. Police control over the daily lives of citizens induced fear, elicited distrust in peers and family members, eroded any spirit of voluntarism, and crippled the desire to help one’s neighbour. As civil society became debilitated, so did it become less of a guarantor of morality. Moreover, disregard for religion was promoted by communist parties in all countries, further weakening the moral conduct of the people. Under these circumstances, even the strongest society, one traditionally motivated towards ethical behavior, succumbed to distrust and moral indifference.
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Ethics in business was perhaps the most illustrative example of such derailment. For example, although property was allegedly owned collectively by all of the citizens, some would appropriate public property.5 Such acts, practiced on a large scale in many former communist countries, were often rationalized as rectification of an injustice, or even as manifestation of a kind of “dissidence.” In other cases, thievery was conceived as no thievery at all: it is not theft if the thief is the owner! The transformation of the working class into owners of the means of production had not only devastated economic efficiency but failed to build a society of morally strong individuals. In many ways the collectivization of property created a “property deficit,”6 an alienation of workers, as owners, from the means of production, the objects produced, and even the goods that they held outside of work. The state’s absolute control over the means of production neutralized any natural manifestation of property rights (via possession, use, agreement, or shareholding) over land, buildings, or resources. Once the people were proclaimed owners of everything (in terms of rights) they regarded themselves as owners of nothing (in terms of responsibilities). Therefore, they acted as owners alienated from their property. This left individuals with little incentive to care for the property even as they felt emboldened to take as much as they could, especially since the everyday person suffered from an ever-present lack of any genuine property to satisfy needs or desires. A Soviet era expression summarized the dismal situation: “If you are not stealing from the state, you are stealing from your family” (Nowak 1996: 323).
Material deprivation and the increased appetite of the communist elite for power, wealth and favours (Matthews 2011) created a huge gap between workers, the majority of the population, and the small ruling class, considered the de facto owners of everything. The pressure of full employment kept wages low, discouraging an interest in pursuing increased productivity7 (Cerami and Vanhuysse 2009: 23; Romano 2014: 32). Moreover, individuals were not hired or promoted on the basis of merit, a feature of the economy that led many denizens of these nations to the general belief that the communist society was, in fact, unethical and immoral. In many ways the ethics deficits of the economic actors under communism was a combination between the moral shortfalls of the ruling class (communist elite) and the resultant demoralization of workers (who did not identify with their role as owners of the means of production, and treated the state as an exploitative owner).
Similarities among former communist countries
The transition from centrally planned economy to market economy was one of the most interesting, complex and least-predictable processes in recent history. As Peter Boettke (2002: 2) mentions, scholars were neither prepared with a theory to explain the failure of socialist political economy nor able to present a workable theoretical framework for a shift to post-communist political economy. Yet such a shift would affect all aspects of the society—economy, politics, the judiciary—thereby influencing everyday expectations about the conduct of one’s fellow citizens. What did the transition mean for business ethics? We can broach this question at three levels: theoretical (the concept and theory of business ethics), educational (business ethics as a discipline in the university curriculum) and practical (business ethics as a lived practice).
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Business ethics as theory
Because of the difficulty of even conceiving of “business ethics” within the communist framework, those initiating dialogue on the concept of business ethics in Central Europe were Western scholars. The moral challenges involved in the transition from planning to market freedoms were taken up in meetings of the European Business Ethics Network (London 1992) and of the International Association for Business and Society (Vienna 1995). During the first few years of the 1990s, Central European scholars were open to a global academic discussion about how business ethics would be approached in this new context. The subjects of discussion ranged over the qualities and effects of business transactions: maintaining business relations, responding to the needs of business partners, embracing the development of the community, and advancing the firm’s capacity to differentiate its goods and services (Mahoney and Vallance 1992: vii). In addition, these same scholars discussed the theories most relevant for an ethical evaluation of the transformation of public into private property, as well as the necessity of business ethics in a climate of distrust (Sexty 1998). In short order, however, the discussion drew almost wholly from Western ideas and scholars, with their appeals to corporate social responsibility and corporate citizenship. Consequently, the debates were hardly different from those existing in the more flourishing Western democracies. In some cases the conversation was enriched with examples from the transitional economies or otherwise given a particular emphasis on specific practices. Moreover, some questions—“is unemployment an unethical matter?” or “is the egalitarian society good or bad?”—proved of particular interest to journalists and to university scholars in the former communist countries. However, business ethics came to be pursued under the same approaches and perspectives utilized by ethicists from Western countries.
Business ethics in the universities
As a discipline of study, business ethics has been influenced significantly by the importation of topics from Western curricula. The emergent pedagogy reflects little of the economic and social realities of the formerly communist nations. Of course, the academic structure inherited from communism didn’t include among its disciplines anything related to business ethics. During the communist period, ethics focused on the superiority of Marxist-Leninist ideology and celebrated the egalitarian character of the socialist society. This perspective was considered the only one capable of eliminating exploitation, offering genuine equality and equal opportunities for all members of the society.
After 1990, as academic exchanges developed between West and East, many universities in the formerly communist countries began to adapt their courses to the Western curricula. By 1992 business ethics had its own course at the Economic University of Prague; in that same year a single course devoted to business ethics and engineering ethics was introduced at the Faculty of Management and Economics, Gdansk University of Technology (Nemcova 1993; Popowska 2016: 124). As markets developed and society became freer, so did business ethics and related disciplines begin to appear in the curricula of other universities (Sexty 1998; Matten and Moon 2004).
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However, the parallel development of market and society and the advancement of business ethics have occurred without many connections between them. Academic business ethics has tended towards the abstract, focusing on topics such as sustainable development, corporate social responsibility, and corporate governance. Even so, some twenty-five years after communism’s fall, business ethics is present in almost all economic and business academic programs in Central Europe and Russia. For the former communist countries that joined (or signed a cooperation agreement with) the EU, an important step in the development of business ethics as an academic discipline was the “Bologna Process.” Launched in 1998, this series of accords sought to standardize and enhance the quality of higher education across the EU countries. The adherence of former communist countries to the Bologna accords (European Commission 2015) led to a harmonization in curricula, including business ethics.
Business ethics as practice
During the transition the hardest test for business ethics has been business ethics as a practice. Any consolidation of a genuine business ethic, as an expected form of commercial conduct, has been challenged by several factors. There is, first, the factor of mental attitudes, the mind-set encouraged and rewarded during the communist regime (for example, a reluctance to undertake risk and a disposition to compliance). Since business was illegal during communism, and regarded as a corrupt and exploitative activity, individuals acquired the belief that a person engaged in business was a mere speculator, using any unfair and unethical activity to gain an advantage (Lewicka-Strzalecka 2006; Čiegis etal. 2008). Although in some studies (Peng 2001) illegal business activities (as defined under communist law) are shown to manifest a version of entrepreneurial skill, the general public tolerated these activities more than they agreed with them. Those engaged in business (“business people”) were not necessarily admired for their illegal activities; if these individuals were accepted, even sometimes envied, this was a grudging acknowledgment of their role as providers of scarce goods hardly available otherwise. In terms of the communist ethos and its corresponding ethical attitudes, such activity was not considered ethical.
Unfortunately, the transition process didn’t change totally this negative perception of the link between business on the one hand, and, on the other, the enrichment of those whose newfound wealth signaled illicit gains or, at best, social arrivisme. The changes occurring in the transition reinforced skepticism about the legitimacy of business and fomented mistrust regarding the conduct of business people (Howard 2002; Kuznetsov and Kuznetsova 2012). In particular, privatization and the new regulatory environment were politicized: those in power in the communist era suddenly emerged as the owners or shareholders of large businesses (Wasilewski 1998). Moreover, these former apparatchiks used their power to forge new government policies inimical to free competition. Within their firms these figures also perpetuated the nepotism of the old regimes. Business was now intertwined with political power. Business initiative was still not associated with intelligent, hardworking, innovative people willing to assume economic risks, but with people who had the right political connections, perhaps with some former activist8 or a representative of the old secret police. On top of these forms of political cronyism, there emerged a new wave of illegal activities—corruption, tax evasion, bank fraud, and money laundering (Estrin etal. 2006).
These troubled associations between politics and business seemed to flourish in the privatization process, one of the biggest challenges for the formerly communist countries. Nonetheless, the privatization of state enterprises was not only a key step in the transformation of an inefficient centrally planned economy into a more productive one but a crucial element in the restoration of the role and position of private property in society. The number and sizes of the enterprises that could be privatized was huge. According to Daniel Kaufmann and Paul Siegelbaum (1997: 419), in the first half of the 1990s more than 500,000 medium- and large-scale enterprises were privatized in former communist countries. The capital required for the purchase of shares had to come from either foreign or domestic sources, but domestic capital was almost non-existent in these countries. The scarcity of domestic capital, the low performance of the communist enterprises, and the desire of all governments to attract foreign investors fueled the instability of the legal and institutional framework, opening the gate for non-transparent agreements between governments and foreign investors. The result was a steady stream of corrupt practices: influence trafficking, bribery of government officials (e.g., to secure state contracts or to promote regulations favorable to some, or to acquire a right to buy resources at subsidized prices), as well as favoritism for large as opposed to small firms, illegal privatization (i.e., without public auction), and unclear rules for the restitution of property to former owners (Ramanadham 2002; see also Corruption Information Exchange 2003).
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Privatization illustrates both the corrupting links between politics and business and the lack of a stable, predictable legal framework—the rule of law. Thus, instead of promoting the entrepreneurial spirit or encouraging private initiative, a corrupt process of privatization discredited the business profession (Lewicka-Strzalecka 2006; Čiegis etal. 2008; Kuznetsov and Kuznetsova 2012). After 1989, the means by which some people undertook new businesses, together with a pre-existing distrust in “business people,” contributed to businesspeople being held in low esteem. The corruption of the privatization process generated public suspicion about the huge fortunes accumulated, in a short period of time, by some former activists, their friends or relatives, or former directors of state-owned companies. In Russia, for example, rights to operate some monopolies were distributed as political “spoils” to former high government officials and prominent businessmen (Kotchegura 2004: 139). The net result is that almost three-fourths of Russians declared themselves in favor of a reversal, full or partial, of privatization (Kuznetsov and Kuznetsova 2012: 38). In Poland, the businessperson’s image fell almost as far: the businessperson was now seen as “less respected socially as [than] a cleaning lady” (Domanski 2004, cited in Lewicka-Strzalecka 2006: 441). In Romania, in a 2015 survey of the public’s trust in various institutions (among which were included trade unions, the press, universities, police, non-governmental organizations, journalists, and “business owners”), only 15.5 percent of respondents reported having trust in “business owners,” a result that placed business in the twenty-first place out of 24 institutions (INSCOP 2015).
The troubled relations between politics and business indicate a more general problem: the legal framework during the transition permitted serious deviations from ethical conduct and failed to provide the conditions for free and fair competition. In Russia, for example, businesses were guided by unofficial imperatives to withhold information, including to government bodies, except where the information must be disclosed by law.9 In general, the lack of an appropriate legal framework also incentivized neglect of ethical norms. Large corporations adapted early to a vague and equivocal legal framework. In their home countries these multinational corporations had promoted ethical conduct within the business, but in these transitional economies they tolerated or accepted corruption (including bribery of public officials or lobbying for regulatory favors) as a standard way of doing business, sometimes ignoring the rights of workers, or engaging in fraud or illegal payments (Čiegis etal. 2008).
Another factor contributing to the erosion of the ethical character of business practices was the lack of concern of business (mostly among large foreign corporations) about anything other than profit. Small and medium enterprises (SMEs) felt that the law discriminated against them in favor of large foreign corporations. There are cases in which a large corporation has been granted a legal monopoly for limited periods of time (for example, Romtelecom, a telecommunications company in Romania). The SMEs considered themselves as already exercising social responsibility by providing jobs and paying taxes (Zaharia etal. 2010). Given this context, these same SMEs formed the attitude that any costly new ethical practice should apply to large corporations already privileged by law.
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Subsequent to the initial years of privatization, not enough has been written in business ethics journals about the social consequences of privatization and whether large corporations have dealt with any related social problems. For example, once privatized, the newly restructured enterprises received updated technology but instituted a dramatic reduction in workforce. When Renault bought Dacia Pitesti (Romania) in 1999, there were over 20,000 workers in that enterprise; in 2014 there were around 13,500. In the steel plant Sidex Galati (Romania), there were 27,000 employees before privatization in 2001, but only about 7,000 employees in 2013 after acquisition by multinational ArcelorMittal. In other cases, former communist enterprises have been bought by private investors and sold as junk (with physical assets sold as scrap, factories demolished, and the land used for new buildings). There have been few if any concerns about unemployment resulting from privatizations, or about the death of towns dependent on a single major enterprise later privatized, then either closed or demolished, often by a foreign investor. It is, of course, true that the communist dictum of full employment created bloated and inefficient enterprises. It is also correct that, in the long run, a more efficient economy, to be delivered in part through privatizations, would also entail a reconfiguration of industries and their workforces. However, in the context of the transition, the motivation of new investors (many of whom were not, as indicated above, interested in a genuinely free and competitive market) was purely economic: to increase the profit and to do so by taking advantage of weak political leadership and corrupt authorities. New investors seemed to make little effort to identify ways to cooperate with the government or local administrations to develop common programs that would increase the employability of the released personnel or to develop their entrepreneurial or business skills.
Of crucial importance for the practice of business ethics is the power and influence of the civil society. A vibrant civil society—as constituted by non-governmental and non-commercial organizations and activities—not only sets standards and shapes behavior, but helps to monitor and react to human rights violations, abuses of power, corruption and other unethical, unfair, and unjust practices. In almost all former communist countries civil society was severely damaged. Communist regimes repressed all forms of autonomous non-state activity, sabotaging (and ultimately replacing) such spontaneous locally directed organizations and endeavors by forcing them into organizations established and controlled by the Communist Party (Howard 2002: 160). For example, trade unions lost entirely their purpose of supporting members’ (employees’) interests against the owner’s (employer’s) interest: trade unions were sanctioned only to control and to indoctrinate those who were not members of the Communist Party. In the larger society, any sort of voluntary work became compulsory (“patriotic work,” as it was called in Romania); voluntary organizations were considered unnecessary and the putative need for them was considered nonexistent or fulfilled by the state. For example, there was no necessity for charitable organizations: under communism, people worked for the good of all and lived in happiness. Even organizations for the protection of animals were forbidden. After all, even the dogs and horses were protected by communism!
Differences among former communist countries
Although there are many similarities among Central European countries and Russia, their post-communist evolution and achievements reflect differences. As Fenger (2007: 13) mentions, there exists a wide variety among these countries in terms of institutional characteristics and paths to development. For business ethics, these differences may be assessed indirectly through some of the factors influencing a company’s ethical behavior. These factors include the nation’s business heritage before communism, as well as the degree to which the implementation of communism allowed some modicum of private property. Along with these two features one must also take into account, both before and during communist rule, the distinct roles of civil society, the divergent levels of economic development, and the role of religion, both institutionally and in the daily lives of individuals (Bageac etal. 2011). In the discussion below, these features are set forth in a general way so as to indicate, albeit indirectly, how post-communist business conduct might reflect different historical features of the nations living under communist rule.
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During communist rule in Central Europe and Russia (as opposed to the People’s Republic of China) the political ideology was fundamentally the same, but the heritages of those countries before communism were distinct. At the beginning of the twentieth century in the first country to establish communism (1917), many private firms had strong ethical guidelines and a code of ethics, “Seven Principles Governing Business in Russia,” was adopted at national level in 1912 and expressed the core values of business, among them being respect for the government, honesty and truth, respect for private property rights, love and respect for one’s fellow man, being true to your word (a hand shake is worth more than a formal piece of paper), not living beyond one’s means, and being purposeful (IDA-RID 2004: 12). Some authors appreciate that 64 percent of the Russian businessmen (the so called Old Believers) adhered to those ethical principles (Korobkova 2015). After the Red Revolution, any such spirit of ethics in business disappeared, together with business people. By the end of World War II the Russian tradition of ethical business principles had been destroyed and forgotten (Apressyan 1997). Even now, in the decades following the demise of communism, Russia and its businesses remain “unbalanced [and] corruption-ridden” (Puffer and McCarthy 2011: 21).
In the case of countries such as Poland, the Czech Republic, or Slovakia, prior to communism, businesses functioned within the society’s traditional ethical and philanthropic practices; in these countries commerce was more embedded within society than in countries with a fragile (Romania) or almost nonexistent (Bulgaria or Albania) class of entrepreneurs or industrialists (on the sociological notion of embeddedness see Granovetter 1985). The implementation of communism in Central Europe was also different from Russia’s. In Poland, the Czech Republic, Slovakia, and Yugoslavia private property was not completely abolished. Throughout communist rule, private farms dominated the Polish and Yugoslavian agriculture sector (in terms of both production and land). Liberalization reforms were implemented in Hungary before communism’s fall, and Yugoslavia had long granted a certain degree of autonomy to enterprises (Katchanovski 2000: 56, 161). In countries with private land holdings, the shortage of common goods didn’t reach the dimensions it did in Romania, for example. In these nations, the continued memory of an ethics of doing business, not to mention the philanthropic actions of former businessmen, helped these countries recover more quickly and adapt more easily to the Western model of business ethics (Bohata 1997). In the Czech Republic, for example, after the collapse of communism, the management principles of famous industrialists, such as Tomasz Bata or Emil Skoda, as well as the practices of ethical commerce (existing prior to communism) eased the transition to a private economy and have ensured that these ideals have been not only recovered but integrated into the training of managers and the teaching of management principles and business ethics (Bohata 1997: 1573).
Closely related to the pre-communist heritage, important differences among former communist countries are exhibited in the role of civil society. Although trust among people was eroded by the repressive instruments of all communist regimes, there existed important differences among communist countries. In Romania, for example, the lack of a participative tradition of voluntarism and an insufficient trust in one’s fellow citizens10 delayed the re-emergence of a strong active civil society. The example of Romania lends evidence to the more general consideration of how conduct and social institutions are affected by the damage done to social relations (see Granovetter 1985: 487). By contrast, in Poland and the Czech Republic a strong tradition of independence and dissidence from authority helped civil society organizations regain their status and functions, thereby supporting and reinvigorating their citizens’ latent ethical sense.
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Another difference among the Central European nations was overall levels of economic development. The extent of economic development, it is argued, may exert an important influence on business ethics. According to Ronald Inglehart (2008), individuals in wealthy countries are driven by post-materialistic values. By contrast, those in less developed countries, with an economic context of poverty, are governed by self-interest and are willing to accept corruption more readily. Presumably, therefore, there is a stronger orientation toward ethical behavior in developed than in developing countries. If this generalization has merit, it might explain some of the difference between business conduct in the formerly communist nations and that of Western European nations. At the beginning of their communist history, the level of development among former communist countries was different. The Czech Republic and Poland were the most advanced industrialized countries in Central and Eastern Europe, followed by Hungary and Slovakia. Romania, by contrast, was largely agrarian with a labor-intensive economy. Bulgaria had almost no industrial infrastructure, producing agricultural goods inefficiently at high cost, mainly due to lack of modern mechanical equipment (Dăian and Manova 2013: 56). Albania was the poorest country in the region. With almost 80 percent of the population illiterate, 80 percent of the population in extreme poverty, and almost no industry (in 1949), Albania implemented one of the most severe versions of communism (Gjonça 2001). If ethical conduct in business tracks levels of economic development, then there should be relevant differences in business conduct among these nations. In fact, some unethical practices (e.g., various forms of corruption, influence trafficking, tax evasion, and disregard for worker rights) seem to be more pronounced in less economically advanced countries of Central Europe (such as Albania or Bulgaria) than in more advanced countries such as the Czech Republic.11 All the former communist countries suffered from material and spiritual12 deprivation (Willis 2013), but there were differences among them reflected in the depth and speed of implementing economic reforms (such as laws liberalizing trade or removing price controls) and re-building important institutions (stock markets, political parties, independent judiciaries) after communism’s collapse. Some economic achievements during the transition—as in the cases of the Czech Republic or Poland—seem to mirror the degree of actual ethical behavior in business (Woolcock 1998; Foss 2012).
The relationship between religious commitment and business ethics may also prove positive. Some studies have suggested that individuals who recognize religion as important in their own lives also demonstrated higher levels of ethical behavior (Longenecker etal. 2004: 371). We can extend this generalization to former communist countries. Of course, communist governments generally sought to undermine religious institutions, but it remains the case that religion and religious institutions played different roles in different nations. In Poland, the Catholic Church was a symbol of resistance against communism, but the Orthodox Church in Romania and Russia were rather supportive of the Communist Party. In Albania, religion was interdicted by law for more than 20 years, starting with 1967 when Albania became officially the first atheist country in the world (Albania 1992). The Romanian Orthodox Church offered no alternative to communist authority; the Romanian Church was preoccupied, throughout much of its history, with adapting itself to political leaders and serving thereby the Church’s pecuniary interests (Stan and Turcescu 2000: 1467). In Russia, the Orthodox Church provided a religious foundation for an autocratic state, helping isolate Russia from Catholic and Protestant Europe’s influence (IDA-RID 2004). Ethical behavior in countries where the chief or dominant religious institution has stood as guardian for human values is stronger than in countries where religious authorities collaborated with the communist regime. For example, in Albania or Russia statistics record higher degrees of bribery, money laundering, and fraud than in Poland (Kroll 2015).
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The EU’s enlargement to the East is probably, after the collapse of the Berlin Wall in 1989, one of the most important events in the recent history of this region. The EU’s 2004 enlargement—including eight former communist countries (Estonia, Latvia, Lithuania, Poland, Czech Republic, Slovakia, Hungary, and Slovenia), continuing in 2007 with another two (Romania and Bulgaria), and in 2013 with one more (Croatia)—brought huge challenges to the EU, as an entity, and to its member states. Although the EU acts as a single market for the movement of capital, labor, goods and services, it remains too extended to encourage a uniform European business ethics model (Habisch etal. 2005). Nonetheless, an “implicit” model of commercial responsibility, specific to Europe, may be identified (Matten and Moon 2008): it embraces a more regulated economic and social environment, common policies, and the existence of supranational bodies (such as the European Commission). However, in many aspects (such as business ethics), the EU remains a group of particular nations, not a single entity. In this sense, issues in business ethics still vary across Europe, from environmental concerns in Northern Europe, to social inclusion and employment issues in Southern Europe, and to employees’ rights in Central and Eastern Europe (Furrer etal. 2010). Unfortunately, the former communist countries are not very active in these discussions, neither in promoting business ethics nor implementing successfully some guidelines for ethical business practices. The former communist countries have to overcome their weak societal infrastructure and their debilitated capacity to provide the public goods—e.g., roads, schools, impartial and predictable law— necessary for economic development. Along with a culture of distrust of government bodies and of politicians (Habisch etal. 2005: 3), these factors combine to render difficult any implementation of ethical business practice in the national context (Clark Williams and Seguí-Mas 2010).
Outside the EU, Russia remains a world power whose business enterprises remain intermingled with politics, as manifest by a business oligarchy with strong connections to the former KGB. Even though the practice of commercial ethics is fragile, the business ethics discourse of many business people in Russia is dominated by rejection of unethical business practices associated with the corrupt Russian business environment (which includes cooperation with criminals, money laundering, and disrespect for the law). Nonetheless, only a limited number of Russian companies have even started to develop codes of business ethics, so it remains almost impossible to evaluate how well such codes function.
Concluding remarks
The former communist countries offer a unique case for business ethics. They have traversed two ideological regimes, with almost totally opposed values. Within these countries, the current practice of business ethics is fundamentally influenced by the business heritage each nation enjoyed prior to the imposition of centrally planned economies, as well as by the transition to democracy, and, ultimately, by integration (in most of these countries) into the EU. There remain several critical business ethics issues for the future of these countries. These issues are more acute for some than for others. For many of the former communist countries, the European integration process imposes (additional) rules calling for explicit ethical policies for companies (Matten and Moon 2008). This is a major challenge for SMEs: rules and regulations raise the cost of doing business, and, given the ongoing economic difficulties in many of these nations, EU policies may inhibit growth and expansion (or pose additional barriers to entry into the market). In this way some smaller enterprises may find the appeals to ethics to be so inhibiting that they give these a low priority. Such costs must be taken into account by regulators and policy makers even as the EU’s commitment to business ethics through various regulations (including standards of employment, codes of conduct, and environmental constraints) challenges all economic actors to pursue ethical guidelines.
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Business ethics is inseparable from the general economic, political, and social environment. A society’s moral climate is reflected in its commercial morality. The larger moral dimension is, in general, part of the challenge that confronts practical business ethics (Argandoña 2012: 3). Since this dimension is felt acutely in the former communist nations of Central Europe and Russia, a significant test is to rebuild trust, restore confidence in institutions, diminish moral anomie, and, consequently, to decrease the cynical attitudes affecting the motivations and conduct of citizens. Corruption is still high in some countries (such as Romania and Bulgaria—even higher in Russia and Albania) and politics mixes too much with business (mostly, but not only, in Russia). Businesses must be seen less as strategic avenues for gain than as creative, productive organizations whose management and employees act with courage and resolve, treat others with honesty and respect, observe the law, and seek to sustain a culture of freedom in which competition and enterprise are esteemed, cronyism and corruption condemned.
A stable prosperous society encourages a culture of business ethics that supports ethical behavior within and by business firms. Ethical norms, moral guidelines for conducting business, ethical boards specific to different business associations and professions indicate how a mature society commits itself to ethical behavior. In the case of Central European countries and Russia there remains room for improvement. For the moment, mostly large and usually foreign companies are those promoting business ethics codes or ethical policies for conducting business.
Finally, it is not only in politics, but also business, that leadership is of exceptional importance. Among the critical issues in business ethics, the problem of leadership is probably the most acute concern for Central Europe and Russia. In some former communist countries (like the Czech Republic or Poland) examples of moral leaders before communism (and the management principles they promoted in their firms) have been rediscovered and presented as models for future managers. Businesses do not exist outside human relationships. Business action is human action; a company’s decisions are its leaders’ decisions. The Volkswagen scandal is an example of the necessity of moral leaders. Moral companies are led by moral leaders; and moral leaders are a result of a moral society and of a moral education. Moral leaders have an internal motivation, but they are shaped through education and lived example, each emblematic of the values accepted and rewarded by the society.
Essential readings
A view of life under communism is presented by Jim Willis in Daily Life Behind the Iron Curtain (2003). The complex context of politics, sociology, and history in the former Soviet Union and the privileges reserved to its elite are detailed in Mervyn Matthews’ book Privilege in the Soviet Union: A Study of Life-Styles Under Communism (2011). A detailed presentation of the transition from communism to markets, with a focus on the Soviet (Russian) context, is offered in the collection of essays by Peter Boettke, Calculation and Coordination: Essays on Socialism and Transitional Political Economy (2002). For a general view on the political, economic and social changes in former communist countries see the collection of papers in Donnacha Ó. Beacháin, Vera Sheridan and Sabina Stan, Life in Post-Communist Eastern Europe after EU Membership (2012). An analysis of business legitimacy and responsibility in Russia is presented in the article by Andrei Kuznetsov and Olga Kuznetsova, “Business Legitimacy and the Margins of Corporate Social Responsibility in the Russian Context” (2012). Those wanting a discussion of business ethics and Marxism should consider William H. Shaw’s recent article, “Karl Marx on History, Capitalism, and . . . Business Ethics?” (2017). A general European analysis of business ethics and related concepts may be found in the collection edited by Andre Habisch, Jan Jonker, Martina Wegner and Rene Schmidpeter, Corporate Social Responsibility across Europe (2005).
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For further reading in this volume on the nature of business as a profit-seeking activity, see Chapter 13, What is business? On the significance of property to markets and business, see Chapter 18, Property and business. A philosophical account of the nature and conditions of exploitation may be found in Chapter 29, Exploitation and labor. For a general discussion of the problem of corruption, see Chapter 34, Corruption, bribery, and moral norms across national boundaries. On the ways in which the political process may influence and alter markets and business, see Chapter 21, Regulation, rent seeking, and business ethics. On the influence of Western conceptions of business ethics, see Chapter 32, The globalization of business ethics. For a relevantly analogous case of the transition from communism to a version of market society, see Chapter 35, Business ethics in China.
Notes
* This research was partially possible thanks to a research grant offered by the United States Fulbright Commission in 2014, at Marywood University, Scranton, Pennsylvania.
1 In many communist countries the preferred term for “business” was “economic activity.” For the sake of consistency, “business under communism” should be understood as “economic activity.”
2 “Managers” were called “directors.” They were appointed by the communist party and supposed to have similar responsibilities as the “managers” of capitalist enterprises: to coordinate, organize, plan and control the activity of the enterprise. However, these duties occurred only under the constraints of central planning and the pressure of communist propaganda. As a result, the directors acted according to the communist party instructions; obedience was the means of keeping one’s position.
3 In some countries small private initiatives were permitted (some family businesses existed prior to communism—tailoring, cobblers, small shops). In the context of a controlled market, these private initiatives were severely limited.
4 For the communist these are rhetorical questions, but for others these questions are a mix of normative and empirical assumptions, all of which must be evaluated and sifted. We cannot address these here.
5 Some examples of the theft of public property include stealing from canteens, appropriating medicines from hospitals (for personal use or for resale on the black market), or helping oneself to agricultural goods or production materials (tin, cement, wood) for personal use.
6 The notion of a “property deficit” concept is inspired by the similar concept of a “democratic deficit,” as defined by Levinson (2007, 859). A democratic deficit may be characterized in terms of the failure of democratic organizations or institutions to fulfill the principle of democracy in actual practice. In the context of a communist society, a property deficit may be understood as a failure of the natural functioning of the relationship between the owner and the object of his or her property. Under communism the means of production were under public, not individual, control so the relations between the public owners (individuals) and the object of property were altered and compromised.
7 Under communism there was full employment, but this was a kind of mirage that hid low wages, slight wage differentials across skill levels, and inefficiencies in work and production. Unethical hiring practices were encouraged: people well connected to the ruling class were hired in “warm” venues and often given few responsibilities (not to mention five secretaries instead of one, seven accountants instead of three, and so on).
8 An “activist” under the communist regime was a person responsible for distributing communist propaganda in schools, enterprises, and so on.
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9 A lack of transparency meant that the public was not informed about who owned what, or even, in the case of privatizations, who was participating in public auctions and on what terms.
10 For example, in Romania, after the demise of communism, the disclosure of documents from the secret police (Securitate) revealed cases in which parents had denounced their children for their intention to flee to the West, husbands or wives had spied on a spouse, priests had disclosed to the Securitate the confessions of parishioners, and doctors and lawyers had divulged their patients or clients’ thoughts to the communist regime (Mitran 2013).
11 For three relevant nations, the World Bank data (WB 2014) shows the GDP per capita as follows: Albania $4,256, Bulgaria $7,498 and $19,858 for the Czech Republic.
12 In almost all communist countries there existed a long-standing “Cultural Revolution” (distinct from the sort instituted by Mao Tse-Tung in China) and with this on-going revolution came different degrees of religious interdictions: some authors, considered to be a danger for the new regime, were banned; access to Western literature was limited and under strict control of the Party; the history of the nation was reinterpreted and taught in schools according to the interests of the communist regime. In Albania, for example, there was a complete ban on religion by the Communist Party. In other countries, religious symbols were forbidden or replaced by secular symbols. For example, in Romania, the Santa Claus of Christmas Eve was replaced by Mos Gerila, a purely secular version of “Jack Frost” related not to Christmas but to New Year’s Eve.
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