Andrei Kuznetsov

TL;DR: In this paper, the authors look at links between firms' behaviour and the institutional set-up in Russia and demonstrate that an institutional approach may achieve what the neoclassical approach has largely failed to accomplish, i.e. explain the factors that forced a great number of firms in Russia to delay restructuring and other anticipated responses following privatisation and price liberalisation.

Abstract: In this paper we identify three major influences affecting entrepreneurial culture in modern Russia and other countries that were formerly parts of the Soviet Union and evaluate their effects. It is argued that the diffusion of new patterns of business culture required by the process of market reforms in the country is going to be slow and idiosyncrasies will persist. As a result, a noticeable variance between national and international entrepreneurial culture is to remain a challenge to foreign firms doing business in Russia and a deterrent to the process of Russian marketisation in general. Business Culture, Economy and Systemic Change National culture is instrumental in arranging professional values and attitudes and determines the forms in which some universal principles get incorporated into business practices and thus become generally acceptable, for the duration of a particular historical period, at a national level. Societal culture puts constraints on the economy. They are informal but nonetheless, as noted by North (1990), very pervasive. As an inherent social institution, culture influences some “written rules” that enable and guide common interactions within societies. Culture also affects the progression in economic life. According to Arrow (1974), it asserts an additional set of variables expressing social demand through “internalised demand of conscience”, which has real, practical economic value and increases the efficiency of the economic system. Changes in the economic foundations of the society cause changes in cultural norms and values. This in turn stipulates alterations in the “demands of conscience” in respect to the economic system. Clearly, contradictions between culture and the economic environment are inevitable. We may expect economic parameters to be capable of faster and more radical change than those attributed to culture. The latter as an aggregation of accepted social rules endorsed by tradition, long standing norms and role models secures the continuity of features constituting a national character and other nation specific features. Post-communist transition has proved to be one of those rare historical events in which both the culture and economy experience radical changes simultaneously. Consequently, culture cannot play to a full extent its role of an institutional safety net helping to structure economic relations according to the premise of the “demands of conscience”. The process of economic and social changes has taken a particularly dramatic form in countries that were formerly parts of the Soviet Union because there the central planning model had been most prominent, putting these countries, in terms of social and economic experience, at odds with other countries at the similar level of development. Such a situation is bound to put particular stress on the formation of the national pattern of entrepreneurial and managerial behaviour, which counts reliance upon past experience and stereotyping among its important elements. This behaviour is built around a search for information about situations and options for the purpose of taking business decisions. Information is then processed and evaluated in the course of what is essentially selective filtering of input against certain criteria. If some of them become vague the efficiency of decision-making may suffer. Conventions associated with a national culture occupy a prominent position among these criteria as they are related to both institutional and subjective aspects of business. In their established form such conventions constitute a national business culture, making it easier to decision-makers to choose successful responses to signals emanated by the economic environment and the society. In modern Russia the task of developing adequate attitudes in terms of business culture represents a formidable challenge. First, radical transformation of the economic set-up urges economic agents to produce responses that are entirely new to them. Importantly, these responses have to be based on the set of values and the type of rationality which are different in comparison to those that was significant before and, due to social inertia, still constitute a notable part of the national culProblems and Perspectives in Management, 2/2005 26 tural tradition. Second, information coming from the economic environment is likely to be distorted, confusing and incomplete following the inefficiency of transitional institutions (Kuznetsov, 1994). Under these circumstances the ability of entrepreneurs and managers to take decisions and develop long-term strategies is hampered. Academic literature suggests that economic agents should react by attempting to obtain greater knowledge or redefine their decision problem so that uncertainty is no longer critical (Cohen and Cyert, 1965). Because decision-making in business has a cultural dimension, the accumulation of knowledge and problem setting will be affected by major cultural influences to which entrepreneurs and managers are exposed, including the national cultural tradition as carried over from the previous historical period; new cultural trends induced by changes in domestic business and economic environment; the example of business practices in countries with mature market economies. To trace the three influences in the behaviour of economic agents is a very important issue that may throw light on the future of Russian business culture as well as help to explain some unorthodox patterns of behaviour existing in transitional Russia (Hansen, 2002). Capitalist Values and the Realities of Transition The doctrine of free entrepreneurship contradicts everything that the Soviet system stood for. Yet we cannot expect modern Russian entrepreneurs to liberate themselves entirely from any social experience gained under socialism. This is as much impractical as impossible because common social experience provides the framework for a meaningful exchange of information necessary for carrying out business activities. As pointed out by Hampden-Turner and Trompenaars (1996), cultures are neither wrong nor right: hereditary cultural holdings provide orientations to issues “because there would be chaos unless they did so.” Accordingly, in modern Russia, there is a pronounced tendency for informal rules, which previously existed as a superstructure over now extinct formal rules, to remain in service as temporary substitutes for more formal arrangements. This fulfils the prediction of the institutional theory that in the absence of a developed institutional infrastructure informal constraints including those rooted in a common cultural background become crucial in resolving basic exchange problems among economic agents (North, 1990). In the context of a transitional economy this brings about particular complications following a contradiction between the origins of informal constraints applied (a centrally planned economy) and the circumstances under which they are put to use (a proto-market economy). A conflict between informal rules in use and formal rules introduced in the course of reforms becomes inevitability. There is a paradox: economic agents have to comply with informal constraints until a functional institutional framework is in place but by doing so they make the installation of the latter even more difficult. Another aspect of this problem is that reliance on a transient set of rules brings to life a specific type of short-term oriented rationality that precludes businesses from strategic commitments, which has a negative effect on economic growth in the country. Understandably, in modern Russia the selection of norms of behaviour and experiences carried over from the past by managers and entrepreneurs reflects the realities of the present setup. What makes this choice bear important social and cultural consequences is that almost everything that was praised under the old system appears to be irrelevant or even counterproductive under current circumstances while behavioural patterns that were anathematised or seen as improper acquire importance. The shift in perspective puts the first generation of Russian entrepreneurs, in terms of culture, in a rather uncomfortable position of being at odds with the traditional cultural model. They are forced to abandon some of the norms, which for millions of Russians are still synonymous to a socially responsible model of behaviour, in favour of practices that were stigmatised during the lifetime of several generations. The paradox here is that new entrepreneurs act objectively as propagators of new cultural norms and values which, however, in the minds of many of their compatriots bear a strong resemblance to something old and well known, something they grew accustomed to regard as vicious on moral grounds. This contradiction is prone to create strife and tension in the relations between social strata. In modern Russia the circumstances under which the advancement of capitalism occurs contribute to the vilification of the image of the entrepreneur. This prejudice has its origin in the times Problems and Perspectives in Management, 2/2005 27 when most forms of seeking economic self-interest were outlawed as antisocial and subversive as it was necessitated by the contemporary economic and political systems. In terms of culture this transferred into an attitude that treated the activity of that kind as something low, indecent and shameful. Still nowadays opinion polls demonstrate that Russian public tends to deny entrepreneurs such virtues as morality, integrity, talent or hard work. Characteristically, Russians regard dishonesty and connections as the keys for business success in their country (based on the survey of 2000 Russians by the All-Russian Centre for Public Opinion. See: Journal of Commerce, November 21, 1997). The torrent of derogatory jokes about “new Russians” is another sign of the resistance that the traditional culture offers to the intrusion of n

TL;DR: In this paper, the authors reveal the potential of the concept of national competitiveness as a practical analytical tool and offer suggestions on how research on national competitiveness can contribute to setting targets for socioeconomic agenda in transition economies with special focus on Russia.

TL;DR: A link between macroeconomic policy and microeconomic responses for the purpose of explaining the poor results of Russian economic reform in 1992 is discussed in this article, where it is argued that a notorious resistance to reforms of vast layers of Russian enterprise managers which never ceased to exist cannot be fully accounted for unless one recognises that it was conditioned by some economic facts which the reforms failed to address properly.