CHAPTER NINETEEN
Making Managers of Communist Bureaucrats
“TO REBUILD AND RUN the Hungarian business in which we are buying a 49% stake,” reports the CEO of a Western consumer-goods company, “we’ll need a dozen experienced Hungarian executives. We had over a hundred applicants, each appearing well qualified by job title and position. But only three or four turned out to have the experience and skills needed.”
Businesses in Central Europe seem to employ at least twice as many managers and professionals as do comparable businesses in the West. But there is an extreme scarcity of managerial skills and experience.
Many Central European managers have received excellent educations: Central Europe’s technical schools have maintained high standards. But then these people spent their working lives as paper-pushers—writing regulations or endless reports or negotiating with the ministry and the central planners about quotas, production targets, overhead allocation, prices. Or they made their careers as “fixers”: chasing promised parts that hadn’t arrived; scurrying to find a few extra tons of materials, a little extra food for their workers or foreign exchange to pay for a machine tool from abroad.
In fact, the abler a person was, the more likely he or she was to be shifted into paperpushing or fixing, and kept there. The skills needed to make a business perform are not in great demand in a Stalinist economy. Stalinism knows record keeping but not cost analysis or cost accounting. Financial management of any kind is totally absent. But so are pricing, market research, marketing, product innovation, product and customer service, quality control. No major design work on either one of East Germany’s two automobiles, the Trabant and the Wartburg, has been done since the mid-1960s, 25 years ago.
Commute from West
Indeed, people with experience and skills are so scarce that Commerzbank, third largest of West Germany’s big banks, is not even trying to find East Germans for the branches it is putting into every sizable East German town. It is staffing them with West German employees who will commute for 18 months or two years until their East German replacements have been trained. “Our new East German customers expect competent service,” explains one of Commerzbank’s top people, “and that requires a seasoned banker.”
Even two years’ training, I suspect, isn’t going to produce an executive seasoned enough to run a regional banking center in a big industrial city like Leipzig. But skills can be taught and can be learned. There is furious skill-learning going on all over Central Europe. Hungary, for instance, has opened an executive management center in Budapest—that teaches in English! Skills can sometimes also be supplied from the outside. The scarcity of people in Eastern Europe with the needed managerial and professional skills is a very big problem. But it should be surmountable, over time at least.
Infinitely more difficult but also infinitely more critical will be the needed revolution in the managerial culture of Central Europe. It means undoing 40 years of wrong values, wrong incentives and wrong policies.
For 40 years no one in a Stalinist country has been permitted to report the truth. An old Soviet story—going back to the early years of the Five Year Plans 60 years ago—tells of the plant manager who needed an accountant. He asked each applicant: “How much is two and two?” He gave the job to the one who answered: “How much do you need it to be, Comrade Manager?”
And that’s still the right answer, despite glasnost and perestroika. There is no other explanation for the near-famine in the Soviet Union today than that last fall’s glowing reports of record harvests were what Moscow “needed them to be.” And the regimes of Central Europe, especially the hard-liners in East Germany and Czechoslovakia, were even more economically Stalinist than the Russians, and stayed Stalinist longer. How can people now be expected to tell the truth when no one has been able to make a career for 40 years unless he was willing to lie and to be lied to? But a functioning economy is based on reliable information and on reports that can be trusted.
In a Stalinist system decisions are made at the highest possible level. This is the essence of a “Plan” (and, of course, a main reason why centralized planning did not work). What to make and how much, what the product should look like and how much it should cost, are all laid down in the Plan. But so also is the number of people employed, their pay and their bonuses, their job titles and their promotions. All this is decided on high with minimum or no input from the people who then are supposed to carry out the Plan. These people can sabotage the Plan—and they do. But they cannot decide.
As a result no one is in the habit of decision-making, trained in it, tested in it. Nothing so much frightens people in former Communist countries, visitors report, as to be asked to make a decision. They are paralyzed by the fear of making a mistake. They hold endless meetings, call for more and more studies and in the end find a good reason why someone higher up should take the responsibility. Yet it is the essence of a market economy—and its strength—that decisions are made close to market and customer, all the way down to the salesman who decides whether to stop calling on an unreceptive prospect, and to the supervisor who decides whether to stop the line to correct a malfunction. This is almost inconceivable to people who have lived and worked 40 years under a Stalinist regime.
Central Europe desperately needs middle-sized enterprises. The greatest opportunities, especially for providing badly needed new jobs, lie in services and in consumer goods. These are both areas in which middle-sized, locally managed businesses flourish. The bankrupt, giant government businesses can in most cases be salvaged only if broken up into smaller and more manageable units. If instead they are “privatized” as they are—as now strongly advocated by government people in Czechoslovakia, East Germany and Poland—they will simply shift from being unproductive government monopolies to being unproductive non-government monopolies. And there would then be no economic turn-around, no free-market economy, only continued economic stagnation.
But where will the people come from to manage middle-sized enterprises? Stalinism can tolerate a farm woman’s selling a few apples off a push cart. It cannot and does not tolerate middle-sized enterprises. To be effectively controlled, enterprises must be big and super-big. There is the huge ministry, employing tens of thousands which centrally runs all of the country’s machine-tool factories. There is the Kombinat, only slightly smaller, the large holding company which centrally runs all the country’s clothing factories. And then there are large conglomerates for which Stalinism has special affection. The former Bata shoe factory in Zlin in Central Czechoslovakia—until World War II the world’s most efficient and most profitable footwear manufacturer—still makes shoes. But it now also includes a dozen totally unrelated businesses, including machinery manufacturers and even an airplane maker.
Sixty years ago Central Europe was chock-full of the kind of firms the Germans call “Mittelstand,” that is, successful middle-sized businesses, usually family-owned and family-managed. But only a few old people at or past retirement age even remember them now. The last ones in East Germany were expropriated more than 30 years ago; in Czechoslovakia and Hungary, as well as Poland, they were gone 10 years earlier.
And even if the needed entrepreneurs were to emerge, would they be allowed to do their work? After 40 years of Stalinist indoctrination there is deep prejudice against such people. That they try to make a profit is bad enough. Worse, much worse, they are independent. And for 40 years independent people have been virtual outlaws. “They all want capitalism,” said a Belgian Mittelstand industrialist who had just come back from a long trip to Hungary and East Germany. “But they don’t want capitalists; they want functionaries.”
What Is a Market Economy?
There is, finally, an even bigger problem of managerial culture than any discussed so far: the lack of understanding of what free enterprise and a market economy are all about.
An American marketing executive this spring visited the Czech provincial city in which she had been born and raised and which she left, 22 years ago, fresh out of college, when the Russian tanks crushed the “Prague Spring” in 1968. “I was immediately asked,” she reports, “to hold a seminar on marketing for the top people in the city’s five big factories. I started out by telling them how our company in the U.S. operates. We have 2500 employees and are number three in a small but highly competitive and fast-moving market. I soon realized that I made no sense to my audience.
“So I stopped and said: ‘I have the feeling that you define a competitive market as one in which prices are kept high enough for every competitor to make a good profit.’
“ ‘That’s exactly right,’ they all said. ‘After all, in a market economy a business has to make a profit.’
“ ‘No,’ I said, ‘in a market economy it has to earn a profit.’ And there was a look of utter bewilderment on every face.”
Very few, if any, people in Central Europe still believe in communism as a political, a social, an economic or a moral system. They want political freedom. They want the incomes and the goods that they know only a market economy can provide. But do they yet know—and how could they possibly know?—that in a market economy there is no “profit” but only “profit and loss”; no “reward,” but only “risk and reward”; and that freedom is not just the absence of restraint but self-discipline and responsibility?
[1990]