Doing Business in the USSR

There were ways of providing business in the Soviet Union which are difficult to explain to people who have grown up in the world of free market and conditional, but nevertheless, democracy. I'm going to tell you a true story. It takes only one short paragraph to say it in Russian. We will see how long it will be making it clear for you in English. Let's start. So, what is the basic difference between the soviet system of the economic management and the Western one? Please don't expect to read an economic essay. I'm no good in this matter. I'm going to talk about my personal experience.

In the USSR, all business enterprises and organizations belonged to the State. Formally, small businesses were legal, but they were taxed so highly that they were doomed to fail before they started.

Why did the government want full control of all active life of the country? First of all, for ideological reasons. The motto of communism is “From each according to their ability, to each according to their needs”. In a socialist society, there should be no poor, no rich. It doesn't let boss-bloodsuckers get rich by exploiting slaves who have no rights. So, how were they going to manage a complicated business without capitalist sharks?

They established a table of salaries for the whole country. It said what amount of money everybody would get according to his or her skills and the kind of job. It also limited income of the top management leaders to only two-three times more than a common laborer.

Another reason for full control of enterprise was their attitude toward competition. It was assumed that competition is an unhealthy corollary of the free market. We don't need it, as the conscience of the Soviet peoples was much higher than the Western working people. All of them will work honestly and without urging. In order to avoid competition, manufacturers shouldn't produce similar products.

To organize such a system, they established a planning ministry with branches in all republics. It planned ahead for five years who would produce everything and when – from weaponry to heavy building equipment, transportation, food, houses, bed sheets, kitchen hardware and textbooks, everything the country would need.

Such a huge and complicated system, even if itself error free, could work only in an ideal human society where everybody works honestly, cleverly and wholeheartedly.

But as we know, the mentality of people can't be changed just because of the replacement of authority. The same as a thousand years ago, everybody acts in the best interest of himself, which does not necessarily suit the rest. What changed mostly was the verbiage and phraseology.

Centralized planning on an enormous scale can't provide good performance with needed accuracy. (Some economy analysts said that for planning accurately at that time,there wasn't enough computer power. It would take a few years to calculate the plan for just one year. However, now supercomputers can help to produce such a detailed plan in very reasonable time). As a result, there was a permanent deficit of everything. Without competition, the quality of goods and services was beyond all criticism. The black market was always available, but prices for most people were unaffordable.

The manufacturers in turn tried to produce as few goods as they could and laborers had almost no benefits from making additional efforts. After receiving a long term plan, they studied it thoroughly. It included a product mix, funds, raw materials, equipment, and prices on their products. Then they made a lot of efforts to wrest better conditions (fewer goods and better supply) from the planning department. There have been always battling about it. Planning departments, knowing that manufacturers would fight them, put in their plans more than was needed to try to get the maximum. But even facilitated plans were never accomplished completely.

In the years of détente and lessening of international tensions, hope started in cooperation between West and East. There were talks about Two Worlds Convergence.

At that time, somebody told a joke. American and Soviet plants exchanged technical managers to see what each of them could bring back to their country to improve their own business. After the first day, the American boss called the Russian guy and asked him how it was for him. The Russian, with a lot of pep, replied: “Very good, sir. There were seventeen clients coming to place an order. I was lucky to send all of them away!” In the Soviet plant, the boss asked the same question of the American manager. He cheerfully reported: “I wish to be so lucky in my own country. I've got signatures on twenty-eight contracts in one day!

As you can imagine, both of them were severely reprimanded. Their home experiences were useless abroad.

I suppose that after you have read this far, you've got a basic idea about the Soviet business system. Now, I'm going to tell you my little story as an illustration of it.

During the time I was working in the town of Chelyabinsk in the Ural Mountains, our company was providing surveys for development and building. Our main customer, an institute of development, asked us to survey and make a map of underground communications – water and sewage pipes, electric and telephone cables.

Here I need another deviation to explain the intricacy of that problem.

Of course, it is clear to everybody that you have to know the exact location of every single pipe or cable so as not to damage them while digging or for repair or development. The simplest way is to put them on the map at the time of building. But by bad tradition the builders ignored that task or did it carelessly. Later, if you have to find a particular pipe, you have to dig a hole much bigger than needed, as you don't know the exact location. That is why the institute asked us to map all communications in the town of one million people. But it was almost an impossible task.

In the best tradition of our routine, we refused to take this contract. However, our client was strong and powerful. To resolve the differences, we were summoned to Moscow to our ministry. As my boss didn't like to be treated as a little boy, he sent me. Well, personally, I was in favor of taking that order, but the best interest of our company demanded otherwise and so I went.

On the plane, my opponent, Michael Shmelev, and I were sitting side by side. We were acquainted for a long time and had a good personal relationship. After having exchanged news, we started to talk about our jobs. This is what Michael told me:

“Once on Friday after lunch, when all of us were anticipating the coming weekend, the director of our institute called me up and told me that in the Regional Party Office, they expected a formal certificate about the amount of meliorated land in the region for five years. The certificate had to be put on the desk of the First Secretary (actual boss of the region, the size of an American state) on Monday at 10:00 a.m.

What a misfortune! I had to call all hands on deck and assign everybody to calculate the areas of melioration. People naturally started to grumble as all family plans for the weekend became ruined. But there wasn't much that could be done about it. Soon all desks and even the floor were covered with maps and other materials and people with rulers, planimeters and calculators measured the areas. It took us up to 10 p.m. every day till Monday to finish.

At the appointed time, I was in the office of the Master, the First Party Secretary of the Chelyabinsk Region. He thoroughly studied our certificate, signed by my director and me and said: «I have no doubt that you worked hard and your number is correct. However, can't you see - how do I put it gently - it doesn't represent adequately our efforts and honest concern about improving our valuable arable land? People in Moscow can misinterpret us. I hope you don't mind if we adjust it a little bit. »

Then, without waiting for my reply or even looking at me, he took his pen and added a zero on the right side of our so scrupulously calculated number. My jaw dropped in amazement and my mind gnawed at the thought of how 30 people had worked so hard and wasted their weekend!

After arriving in Moscow and meeting with our supervisor, he went to the meeting with me for moral support. The minister asked Michael to explain the problem to all. There were a few people unknown to me sitting in the room. Michael told his story very well. Everybody understood the importance of knowing the exact locations of underground utilities. Then I was invited to explain our position. I started to talk, but I hadn't time to finish my first sentence as the boss interrupted: "Did you come here to charm us with your eloquence? If you do not take that contract, we will give you such an enema that your town will be left without water for two weeks."

The ears of the common foul-mouthed man would have wilted by listening to the following speech of that top ranked communist functionary. At that point, the court was closed.

What happened next? But of course, we didn’t sign the contract. Interruptions of the water supply in our town happened, as it did every year, but from different causes. Ah well, in sympathy to my failure, our supervisor promised me to send us some long-awaited equipment. And he kept his word to my great surprise. That's my personal illustration about doing business in the USSR.