Philip Scranton’s article in this issue, “Managing Communist Enterprises: Poland, Hungary, and Czechoslovakia, 1945–1970,” represents the best of history writing. It succeeds in simultaneously satisfying the reader’s appetite with a tasting menu of narrative vignettes about an important facet of the past and leaving the reader hungry for more. In so doing, this work offers historians not just a glimpse of a period in history but also an opening of a number of exciting directions for future scholarship. In what follows, I will outline one of these directions, specifically, the conceptualization of state terror as a management practice and point to questions future scholars can pursue to build on this work.
One way of contextualizing Scranton’s contribution is to view it as an invitation to develop a more nuanced understanding of the antecedents and consequences of totalitarian regimes. The extent to which managerial practices constitute the infrastructure of any economic system, investigating such managerial practices is essential to understanding how these regimes work. In the aftermath of World War II and during the Cold War, social scientists investigated the underpinnings of totalitarian regimes.Footnote 1 The investigations, engaged with the questions of totalitarianism, subsided in part due to public outrage at the unethical treatment of the research subjects.Footnote 2
The public outrage at the social psychologists’ investigations reflects, in part, a temptation to turn away in horror from experiments revealing undesirable qualities of human nature. Indeed, the study of totalitarian regimes requires a willingness to fight the temptation to turn away. The communist experience was framed as an experiment, most famously in Professor Pavlov’s (of Pavlovian conditioning fame) remark that if what the Bolsheviks were doing with Russia were an experiment, for that experiment he would not give them a frog.Footnote 3 Scranton’s work reminds scholars of what could be learned from not turning away from and instead carefully unpacking the nature of the experiment.
Totalitarian regimes have played an important role in shaping the course of the twentieth century (among others), and business historians have an opportunity and, indeed, a responsibility to unpack how these regimes shaped business practices. Scholars of business bear a responsibility to the victims of these management practices to preserve the memory of what transpired for the generations that follow. In addition to this moral responsibility to these individuals’ research into these practices also offers the opportunity to distill and preserve the lessons of the collective experience of these practices.
Stepping back from Scranton’s manuscript, how do business historians approach the opportunity to investigate communist management practices? One challenge of this investigation is to conceptualize how the communist regime translated into managerial practices. Arguably, communist management practices differed from their capitalist (Western) counterparts along three dimensions. The first is the locus and the degree of centralization of the production decisions. The second is the mechanism for coordinating the producers’ actions. The third is the role of state terror in shaping workers’ and managers’ incentives.
My comment will focus on the last of these three dimensions. Understanding state terror as a management practice is important because this practice affected the lives of millions of people over decades. Indeed, the use of state terror as a management practice in communist countries persisted long after its initiators were gone. In the comparatively mild Brezhnev era, city workers who arrived late to work could be fined or dismissed, even if such lateness had to do with circumstances outside the workers’ control, such as a breakdown of the state-run public transit. (The state security apparatus was responsible for administering such penalties.) For the rural population, failure to meet overly aggressive production quotas meant losing already meager wages. Moreover, the stories of workers executed for minor infractions such as gleaning the wheat left over after official harvest to stave off hunger persisted for decades after these workers were gone—retold across generations both as cautionary tales and myths of the terror’s efficacy in instilling order. The challenge for business historians is to deconstruct not just the workings of terror per se but also the mythology of its effectiveness.
In this comment, I will discuss a range of options business historians have in documenting the terror practiced by the regime. I begin by defining terror as a management practice and consider the implications of this practice for individuals’ career choices, on-the-job coping mechanisms, and the development of mythology of terror.
State Terror as a Management Practice
For the purposes of this comment, I define state terror as the possibility of individual workers and managers in the communist system incurring extreme penalties for failure to meet the Communist Party’s goals. As Scranton vividly documents, these penalties ranged from fines and losses of employment to jail sentences and death. State terror worked on several levels. At the system level, the application of terror allowed for scapegoating the problems of the economy on a select few individuals, thus holding them responsible for the system’s failures. Scranton alludes to the production of scapegoats or counterrevolutionaries in his footnotes. The extent to which such scapegoating was effective in directing the popular anger away from the systematic causes of the failures promoted the longevity of the regime.
Implications for Career Choices
Presumably, one goal of applying terror as a management practice is to scare the fellow citizens of the executed or the disciplined into working harder. However, a necessary corollary of this approach is turning managerial positions in communist economies into high-stake gambles. Specifically, signing up for a management or Party leadership job meant accepting a position in which one could be held responsible for a range of circumstances outside of one’s control. Survival on the job depended on either the luck of the stars aligning in a way that allowed one to fulfill the Party’s objectives or skill at convincing one’s superiors that the stars aligned properly, no matter the stars’ actual alignment.
One fruitful venue for investigating management by terror is to consider how being held responsible for events outside of one’s control, embedded in this management practice, affected individuals’ career choices. The high-stakes nature of the bets entailed in management careers—one was betting that he or she would come out alive—shaped self-selection processes into and out of managerial jobs. These processes not only had implications for performance at the individual level but also for the performance at the level of enterprises as well as society at large.
Some researchers have suggested that the desire to avoid facing the high-stakes gamble of the management track motivated people to opt out of participation in the communist management hierarchy and state employment altogether. In an environment in which salaries were only loosely associated with work stress levels, such opting out could take the form of taking a low-paying menial job, such as a janitor, which allowed ample free time that could be used for leisure or to run a small artisan business, such as hat making.Footnote 4 Future research should consider the pursuits of the people who opted out of state employment and how they directed their creative energies.
While the availability of sources is likely to direct scholars to study large enterprises, it is important not to ignore smaller entrepreneurial ventures. One potential source for investigating the activities of such ventures is the documentation of their encounters with law enforcement. Such sources are especially important in light of the insights of entrepreneurship scholars who have argued that from a societal perspective, entrepreneurship can take unproductive as well as destructive directions.Footnote 5 Investigating these less obvious directions could yield important insights into communist management practices and the sorting of managerial talents toward or away from large state-owned enterprises.
At the enterprise level, the application of state terror with the goal of perpetuating the existence of the state drove the selection of individuals for management positions who were neither activists (overly committed to the communist ideals) nor dissidents (openly questioning the communist ideals). This process also weeded out individuals who were overly ambitious (careerist).Footnote 6 Scranton, in his article, describes the managerial selection pressures as driven by factors other than on-the-job competence. The resultant quality of enterprise managers made it less likely that communist enterprises could generate the products necessary to sustain the regime, thus eventually undermining the perpetuation of the regime.
Coping with Terror
For the large number of individuals who did not have the luxury to opt out of state employment, a critical question of interest is how people held responsible for outcomes outside their control reconciled the arbitrary relationship between terror and their work performance. One way to think about this connection of rewards to arbitrary events is as an extreme case of incentive misalignment. Research in psychology has found that being punished for circumstances outside of one’s control can lead to the development of learned helplessness—a condition in which an individual does not believe there is anything he or she can do to affect the situation.Footnote 7
If every system is perfectly designed to produce the outcomes that it produces, what were the outcomes this system was designed to produce? In analyzing the individuals’ responses to terror as a management practice, it is useful to consider three alternatives: silence and apathy, active efforts at managing appearances (impression management), as well as resilience and resistance.
Silence and Apathy
One outcome of management by terror is the production of a silent majority whose members neither opted into managerial ranks nor opted out of the system altogether.Footnote 8 The motto of “Maul halten und weiter dienen” (Keep your mouth shut and serve) was originally articulated by Jaroslav Hašek as the modus operandi of soldiers conscripted into service of the Austro-Hungarian Empire.Footnote 9 Any managers implementing Hašek’s approach could display apathy or decision-making paralysis—the refusal to make decisions out of fear that any decision they make could be held against them. Existent management studies on silence as enabling or creating space for conformance could inform investigations of the role of apathy in communist management practices. While Western management scholars have dedicated much research to the alternative roles of voice and silence,Footnote 10 an examination of communist management practices suggests that the studies of apathy in response to Western management practices may prove fruitful.
Impression Management
In addition to silence and apathy, management by terror cultivated the appearance of compliance with Party plans and production quotas even in the absence of such compliance. This was achieved either through negotiations of the expectations with Party leadership and planners or through perception management of the outcomes. Scranton documents several instances of such compliance that entailed following the letter rather than the spirit of the Party plan, including outright fraud, in both nail and light bulb manufacturing. Note that this production of the appearance of success is not unique to the totalitarian setting: scholars of Western management practices have documented firms’ adjusting their aspirations to the firms’ actual performance.Footnote 11 The specific practices of impression management—including earnings smoothing,Footnote 12 emotional labor,Footnote 13 and flexible self-presentationFootnote 14—have been theorized to contribute to one’s ability to build a career in the Western system.
Resilience and Resistance
Perhaps the most interesting unintended effect of communist management practices that Scranton documents is resilience. Digging into histories of communist management outcomes, both individual and collective, can yield important insights on how organizations function in times of terror. Indeed, studying communist management practices can shed light on the psychological mechanisms involved in overcoming the trauma of terror, whether such trauma engendered learned helplessness, social identity threat,Footnote 15 or other issues.
Indeed, Scranton’s story in many ways is a story of both individual and collective resilience. To build on his work, it might be useful to conceptualize the histories of communist management practices as histories of not just terror but also of resilience. Biographies of communist managers could prove important in understanding the antecedents of different responses to terror. They could help answer questions such as: What enabled people to keep trying in these extreme circumstances? What it is that these people were trying to do? Helpful here would be a comparison of the biographies of communist managers and the histories of their organizations to individuals and organizations that survived other extreme settings, including, for instance, World War II.Footnote 16
These narratives of resilience open the possibility of investigating what pockets of freedom the totalitarian regime left open within state-owned enterprises.Footnote 17 These questions of surveillance versus individual initiative and operating outside of official decrees are not unique to studies of communist firms. Scholars of Western management practices have documented challenges of overcoming corporate obstacles in pursuing innovative ideas (including ideas in the company’s best interest).Footnote 18 Scholars have also documented the practice of pursuing activities that fall outside the boundaries of work on company time in capitalist economies.Footnote 19
In investigating the efficacy of terror as a management practice, it is important to understand not just the different coping mechanisms employed by individuals subjected to these practices but also the limits of these practices. Important sources of information about such limits are the cultural productions of these coping mechanisms. One unofficial outcome of the disconnect between the regime’s goals and the means for achieving them available to the workers was the production of humor—an art form that requires a contradiction to exist. While scholars have argued that the Brezhnev era was the golden age of anekdoty (jokes), joke telling also formed an important part of the social fabric of those living under the Stalin regime.Footnote 20 Attempts to disentangle culture from business practices are notoriously thorny tasks.Footnote 21 One possibility for such disentanglement is to investigate whether the spread of terror as a management practice resulted in the importation of a culture that prioritized martyrdom, typically associated with Russian kenoticism,Footnote 22 to other countries.
Mythology of Management by Terror
In addition to implications for the output of state enterprises, terror as an approach to management also spilled over into cultural productions. The productions took the form of official cultural narratives that included not just the demonization of enemies and saboteurs held responsible for the system’s failures but also the deification of mythical individuals enthusiastically complying with the impossible demands for productivity.Footnote 23 Such cultural productions had to account directly or indirectly for the system’s failures by providing a set of direct or indirect explanations. Questions of interest in understanding such cultural productions are: What cultural tropes did such productions involve? How was the news created in communist society? What management techniques were associated with such productions?
One of the issues the cultural productions had to account for were the self-destructive elements associated with state terror as a management practice. One of these elements was mechanical. A society that pursues state terror on a long-term basis runs the risk of eventually running out of scapegoats or people willing to take jobs that make them scapegoat candidates.Footnote 24 The other self-destructive element of state terror as a management practice lies in scapegoating undermining the populace’s faith in the system. Indeed, if a society repeatedly finds high-ranking managers acting as saboteurs, this raises questions about the reliability of the vetting processes in their selection and about the competence of the appointment process.Footnote 25 How can a system that cannot protect itself from internal enemies at the highest levels aspire to protect its citizens?
Thus, an important cultural production associated with management by terror is the mythology of terror’s effectiveness. This cultural production persisted after the worst manifestations of terror had passed—laid to rest in part by the mechanisms that rendered terror ineffective as a long-term approach, described in the previous paragraph. After Stalin’s death, the efforts at perpetuating this myth translated into whitewashing the terror’s legacy, leading to a confusion of the terror’s aspirational goals and actual accomplishments. The terror worked in part through the mythology of its effectiveness. Long after the terror was gone, the notion that during the Stalin era there was order (and egalitarianism) produced a nostalgic longing for the Stalin era.Footnote 26
For social scientists, seeking to understand the workings of the communist economic system, the mythology of terror’s effectiveness translated into a war of ideologies—an important aspect of the Cold War reflected in Scranton’s work. The writings of socialist economists cited by Scranton capture the perception of capitalism from the other side of the Iron Curtain. These writings represent a treasure trove for researching the socialist economists’ views on the Western managerial practices. A fascinating area of comparison would be to consider the writings of Western academics and their perceptions of communism. How do the beliefs about the ideal ways to do business shape managerial practices?
Implications and Opportunities for Further Research
An important lesson that emerges from Scranton’s work is the need to push forward comparative scholarship. Comparative histories of communist and Western management practices can make important contributions to understanding business history as well as allied fields such as management, economics, and economic sociology. These histories could shed light on the commonalities in the coordination problems, price-setting mechanisms, and failures of foresight or incentives. The quest for a universal science of management may be elusive, but understanding not just differences but also similarities between communist and Western management practices will prove informative to understanding how, why, and under what circumstances businesses do what they do. Such comparisons can prove instructive in helping revisit and redefine the constructs of communist and capitalist economies.
What can we learn from further research of communist management practices and, more specifically, terror as a management practice? As I suggest in this comment, one way to interpret management by terror is as a case of extreme incentive misalignment. Comparison of different incentive schemes across communist and capitalist management practices can improve scholars’ understanding of how workers respond to incentives, thus contributing to an improved understanding of human motivation. Studies in applied economics have considered, for instance, the differential effects of individual versus collective incentives, with collectives being defined at the level of workplace teams.Footnote 27
Communist societies are societies of collective responsibility or blame. A fruitful area of inquiry would be to ask how communist human resource screening practices that held individuals responsible not just for the outcomes outside their control in work settings but also for the actions of their family members affected individuals’ career choices. Comparative studies of management by terror can consider the implications of applying such practices to different levels of collectives, including family groups, ethnic communities, and even countries.
Moreover, the consequences of terror reverberated beyond a single infraction and the individuals immediately affected. In Western society, careers can be nearly random.Footnote 28 In the communist setting, an individual’s work history was ensconced in a single state-issued document. This system ensured that the worker’s disciplinary record followed him or her from the first job to retirement. Investigating the effects of this practice would allow scholars to observe the effects of penalties that follow an individual for the rest of his or her career.
Business historians are in a unique position to contribute to studies of workplace incentives because the long-term effects of different incentive practices cannot be tested in a laboratory or even in field experiment settings. While the comparison of state terror under communist regimes to the incentives implemented in capitalist countries may seem extreme, comparative studies could help outline the boundary or scope conditions in the tendency to view incentives as a panacea in modern economics. How does homo economicus behave differently when the downside of one’s actions is unlimited?
Framing the communist management experience as a case of extreme incentives is of interest to Western scholars, inasmuch as in the aftermath of the 2008 mortgage crisis the absence of Wall Street bankers’ “skin in the game” was a metaphor used to describe a precondition for the crisis. The context of Scranton’s article offers a case that is the opposite of such lack of shared fates. Indeed, in Scranton’s vivid depiction of communist management practices, “skin in the game” ceases to be a metaphor because managers’ success or failure at meeting the stated objectives was a matter of life and death.
The communist experience provides a counter-example of an assumption seemingly implicit in modern economics that stronger incentives are better at achieving socially desirable outcomes. The idea that terror can produce multiple outcomes beyond making people work harder is worth investigating. What questions should business historians explore with respect to the role of terror in shaping communist management practices? How did the role of terror in management practices evolve over time? What role did the fear of the state play in managerial decision making? How did terror translate into incentives?
In taking this lens on the fundamental difference between the communist and Western approaches to management, one cannot help but question if communist is the right word. Is the phenomenon of interest a set of management practices common to totalitarian regimes? As Scranton points out, the countries on which these management practices were imposed already were used to versions of these practices as implemented by the National Socialists. Answering this question would require comparisons of business practices across totalitarian regimes with different ideologies. Perhaps, more importantly, reframing the comparison of communist and capitalist in terms of totalitarian and democratic, respectively, can help business historians more fully appreciate the spectrum on which the different countries’ management practices are located.
Comparative research is necessary to shed light on these important questions. The comparisons of management practices can operate at country, industry, enterprise, and individual levels, and these comparisons can take several paths. One path is a comparison of cases that share a common history but are treated with different levels of exposure to communist management practices. Scranton alludes to the comparison of Czechoslovakia and Austria, countries that shared a common past but were subject to different management practices after World War II: Czechoslovakia was placed in the Eastern bloc, thus, receiving the communist treatment, while Austria continued on a capitalist path.
One promising study in this vein is Kogut and Zander’s study of Zeiss’s split between East and West Germany in the aftermath of World War II.Footnote 29 The study analyzes the patenting outcomes of the two resultant firms. A worthwhile follow-up study could consider the managerial practices that led to the firms’ performance differences. The focus on managerial practices can help disentangle the differences in problems and responses between communist and Western managers. Comparative case analysis could prove valuable in understanding how similar coordination problems were resolved in the different managerial contexts. Digging into the history of communist management practices will yield no shortages of communist equivalents of the coordination problems of the kind encountered by the Boeing Dreamliner—a project that faced numerous delays due to outsourcing different components to different suppliers.Footnote 30
An important comparison implicit in Scranton’s work is the comparison of countries that follow different paths in the aftermath of a disaster. Europe offers an interesting starting point in the comparative analysis not just because of the variation in post-WWII managerial practices but also in the degree of the destruction wrought by WWII. Explicit comparisons of countries that were exposed to the Soviet rebuilding efforts versus the Marshall Plan would be informative—both Western and Eastern Europe had the luxury of outsourcing military expenses—however, this luxury had different implications for the countries of the Soviet bloc. While Europe offers a great context for understanding how communist management practices develop in a post-disaster context, considering communist management practices in countries untouched by WWII could prove instructive. These countries, not geographically contiguous with the Soviet bloc, thus far outside the reach of Soviet tanks (such as Cuba and North Korea), could provide interesting cases for distinguishing among the antecedents of business practices.
In drawing enterprise-level comparisons, it is useful to ask: What Western organizational forms would make for appropriate reference points for comparing large state-owned enterprises under communist regime? A natural comparison point could be large Western enterprises. It is not clear whether the fear of losing a well-paying job in the capitalist West is comparable to the terror experienced by the workers in a totalitarian regime. However, as late as the beginning of the twenty-first century, a loss of a job in the United States could translate into the loss of health insurance, becoming a meaningful threat to a family’s livelihood. Alternatively, one could compare state-owned-enterprises to the units of a large criminal enterprise in which justice in the form of life and death is doled out based on perceptions of loyalty to the cause.
Arguably, the management problems in communist countries are not substantially different from the management problems incurred in the West. The differences appear to be more matters of degree than matters of kind. However, these different degrees of problems and approaches to solving them can inform scholars’ understanding of both the nature of the problems in question and the assumptions that underlie different approaches to their solutions. By offering a glimpse of what can be learned from the communist experiment, Scranton’s work provides business historians with an opportunity to engage in scholarship that would also enrich the study of management and allied disciplines.
