Russian Corporate Capitalism
from Peter the Great to Perestroika
THOMAS C. OWEN
1995
Russian Entrepreneurship in Comparative Perspective [pp. 72-]
The high rates of participation by foreigners,
Russian Germans, Poles, Jews, and Armenians in Russian corporations [in the late
tsarist period] require explanation. Why did Russian society not generate its
own cadre of accomplished corporate managers in the era of the so-called Great
Reforms? A glance at the careers of some of the most prominent Russians who
leaped with more enthusiasm than expertise into the dangerous world of
corporate high finance reveals the weakness of what might be called their
cultural conditioning. Comparisons with recent scholarship on the phenomenon of
entrepreneurship in other cultural settings not only throws into relief some of
the reasons for the widely divergent patterns of economic behavior among persons
from different cultural backgrounds in the Russian case but also provides an
opportunity to make a modest critique of the theories of entrepreneurship in
light of evidence from imperial Russian history.
In the past half-century, historical scholarship on
entrepreneurs has undergone an impressive evolution. A recent contribution to
the literature neatly summarized the achievements and shortcomings of previous
theories of entrepreneurial behavior. Schumpeter's emphasis on the creative
individual who combined factors of production in new and more productive ways
than before despite the resistance of tradition offered a useful corrective to
equilibrium theory. Then A. P. Usher and N.S.B. Gras examined successful
businesses and laid the foundations of business history at the Graduate School
of Business Administration at
Recent research has focused on why some ethnic groups
adapt more successfully than others to a given economic environment. Examples of
successful entrepreneurial groups include Chinese and Indian shopkeepers in
The most intriguing facet of this recent work has been the effort of researchers to transcend the abstractions of social science in favor of flexible theories drawn from Darwinian biology. As two pioneers of this methodology explained it, an appreciation of the role of the entrepreneur requires that we seek the selective factors that determine the fate of entrepreneurial innovations. In the framework of the new metaphor, the entrepreneur introduces variant behavior into a community; but the ultimate historical significance of his activities is the result of the selective process. It is only if an innovative act is copied, and its frequency increased, or has secondary effects, that it appears as a patterned regularity, or institution in the community. ... In the populationist view, both successes and failures can be viewed as individuals seeking new or modified ways to obtain goals. Theoretically they are the source of both social pattern and its change.50
Likewise, Janet T. Landa recently offered an analysis of "ethnically homogeneous middleman groups"—Jews in Europe since the Middle Ages, Chinese in Southeast Asia, Indians in East Africa, and Lebanese in West Africa—in an effort to discover links between ethnicity and entrepreneurship. She followed other social scientists in defining ethnic groups according to the usual criteria of shared origins, common values, a sense of separateness from other groups, and visible signs of distinctiveness. She also stressed, however, that a comprehensive definition of ethnicity must include a provision for the transmission of shared values from one generation to the next; "the cultural traits of ethnic groups are treated as a group inheritance that is transmitted most often, but not exclusively, through family upbringing."51
By examining entrepreneurship in
a global context, Landa was able to offer a useful corrective to the theory of
Oliver E. Williamson, who accounted for the rise of firms in his analysis of
three kinds of economic interactions: through markets, the vertically integrated
firm, and long-term contracts among firms. Williamson's typology lacked
explanatory power in poor countries, where such capitalist institutions did not
exist:
The particularistic kinship/ethnic trading networks are the dominant form of economic organization in non-Western LDCs [less-developed countries]. As such, particularistic trading networks may be considered a fourth kind of economic organization in which relational contracting takes place between traders linked by particularistic ties of mutual trust. . . . [They] may be considered to be an intermediate form of economic organization, lying between markets (contracts) and hierarchies (the vertically integrated firm). They are an efficient form of economic organization that emerged for the protection of contracts, given thee conditions of contract uncertainty and the historical-institutional context in which these ethnic middlemen-entrepreneurs operate.52
Landa's findings found support in research on
entrepreneurs in a variety of other historical settings. Among Norwegians in
rural
kin-based groups linked together by social networks . . . provided the paths for the flow of information, including information about the reliability of information and consequently the reliability of those kin groups and associated social networks that supplied the information. The ideology of kinship assured that members of kinship groups—and participants in their networks—would fulfill the obligations without the need to appeal to formal sanctions.
Finally, in
These patterns had analogies in the Russian Empire before 1914, where the rudimentary contract and bankruptcy law provided little defense against unscrupulous debtors, suppliers, and customers. Several of the ethnic groups prominent in Russian corporations resembled Landa's ideal type of ethnic middlemen. The statistics suggest that Germans and Jews conformed most closely. Although the parallels between Puritans in England and Old Believers in Russia has been drawn in the historical literature, and although several Old Believers distinguished themselves in corporate entrepreneurship, among them Petr I. Gubonin, Timofei S. Morozov, and Koz'ma T. Soldatenkov in Cycle 4 (See Table 3.5), their corporations remained restricted to textiles and related banking operations or occasionally to railroads, not to the kaleidoscopic variety typical of the Moscow Germans.
Vasilii A. Kokorev, one of the many Old Believer merchants imbued with enthusiasm for economic nationalism after the Crimean War, showed unusual energy as he launched grandiose corporate plans in international trade, railroad and steamship transportation, insurance, banking, petroleum, and agriculture. However, he lost his fortune as easily as he gained it. Although his Old Believer coreligionists may have contributed some funds to his schemes, Kokorev always acted alone, as a gambler whose impetuosity alarmed his more cautious associates. In particular, he failed to convince the tsarist government of the cogency of his plan to finance the emancipation of the serfs and the construction of a railroad network by the proceeds of a reformed vodka tax-farming scheme. After the collapse of his railroad and petroleum ventures, he owed his financial recovery to the State Bank, which rescued him from bankruptcy and forgave millions of rubles' worth of debts to the state.54
In this respect, the shortcomings of the older
literature on entrepreneurship become evident. The Old Believers may have
provided a good example of
More
promising is the factor of "relationships of confidence and trust" among
business partners, a general phenomenon explicitly stressed by
As Landa
noted, trust is most often cultivated among members of a family network or an
ethnic group. Both the intimate knowledge of subtle messages among persons who
share a similar cultural background and the distrust of outsiders contribute to
the feeling of loyalty that is essential to reducing or eliminating what
economists call opportunistic behavior: the cheating of one party by another in
the absence of effective incentives or sanctions. In a large corporation, the
complexity of managerial functions and the relatively large number of persons
unrelated by family ties render supervision more difficult than in a small firm.
The need for trustworthy personnel becomes all the more important.
The colonies
of German, French, English, and other ethnically distinct merchant groups in the
major Russian cities depended on trust within
each group to carry out economic operations. Trust and friendship among
merchants occasionally bound individuals from vastly different cultural
backgrounds. According to a letter from Ludwig Knoop to his brother, several
Russian merchants figured prominently among his closest friends. In the words of
one biographer, Knoop "enjoyed unlimited trust; the Russian merchants were
satisfied with Knoop's verbal assurances in the largest contracts, and only in
later years did they begin to adopt developed forms of business relations.'"56
Likewise, trust occasionally
operated across ethnic
lines among Swedes,
Russians, Armenians, and Azeris in
Without attempting a contribution to the theory of
entrepreneurship, this chapter has offered new statistics and biographical data
from the history of corporate capitalism in
These findings raise further questions about the
cultural and political causes of the slow pace of corporate development in the
Russian Empire. As noted in Chapter 1, the most interesting topic for further
investigation is the disappointing performance of capitalist institutions in the
era of the Great Reforms, from the early 1860s to the mid-1870s. The most likely
reasons appear to be the weak entrepreneurial tradition in
The failings
of Russian corporations in the 1860s contrasted sharply with the successes of
Japanese businesses under the Meiji restoration. There, the efficient state
bureaucracy pioneered the creation of enterprises in heavy industry and then
transferred successful enterprises to an equally efficient managerial elite
drawn not only from displaced samurai warriors but also from a long tradition of
merchant enterprise. These two sources of
domestic entrepreneurship—an enlightened bureaucracy and a vigorous native
merchant class—barely existed in
Thus, statistics and the memoir
literature reiterate three of the main characteristics of Russian capitalism
under tsarist rule: its institutional immaturity, its geographical
concentration, and its foreign nature. These features emerged once again in the
brief period of reform at the end of the Soviet period, when, just as before
1917, they contributed to the creation of resentment against foreign and
domestic capitalists.