Organization and Management in the Embrace of Government

Organization and Management in the Embrace of Government

LEA’s Organization and Management Series Arthur Brief and James P.Walsh, Series Editors Ashforth • Role Transitions in Organizational Life: An Identity-Based Perspective Beach • Image Theory: Theoretical and Empirical Foundations Darley/Messick/Tyler • Social Influences on Ethical Behavior in Organizations Garud/Karnøe • Path Dependence and Creation Lant/Shapira • Organizational Cognition: Computation and Interpretation Pearce • Organization and Management in the Embrace of Government Thompson/Levine/Messick • Shared Cognition in Organizations: The Management of Knowledge

Organization and Management in the Embrace of Government

Jone L.Pearce University of California, Irvine

LAWRENCE ERLBAUM ASSOCIATES, PUBLISHERS

Mahwah, New Jersey

London

This edition published in the Taylor & Francis e-Library, 2008. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to http://www.ebookstore.tandf.co.uk/.” Copyright © 2001 by Lawrence Erlbaum Associates, Inc. All rights reserved. No part of this book may be reproduced in any form, by photostat, microform, retrieval system, or any other means, without prior written permission of the publisher. Lawrence Erlbaum Associates, Inc., Publishers 10 Industrial Avenue Mahwah, NJ 07430 Cover design by Kathryn Houghtaling Lacey Library of Congress Cataloging-in-Publication Data Pearce, Jone L. Organization and management in the embrace of government/Jone L.Pearce. p. cm. (LEA’s organization and management series) Includes bibliographical references and index. ISBN 0-8058-3769-8 (hardcover: alk. paper) 1. Organizational sociology. 2. Organizational behavior. 3. Management. 4. Bureaucracy. 5. Political science. I. Title. II. Series. HM786. P43 2001 305.3’5—dc21 00–046642 CIP

ISBN 1-4106-0078-5 Master e-book ISBN

To Maggie, David, and Harry

Contents

Series Editors’ Foreword About the Author Preface

xi xiii xv

1 Government’s Embrace

1

Chapter Organization

4

Studying the Organizational Effects of Government

9

2 Organizing in Spite of Government: Nonfacilitative Government

13

Independent Organizations

13

Effects of Governments on Independent Organization

14

Modernism and Governmental Facilitation

16

Neotraditionalism and Governmental Facilitation

18

Governmental Characteristics Facilitating Independent Organization

22

Nonfacilitative Government

35

3 Organizing by Personal Relationships: Understanding Trust

37

Organizing by Personal Relationships or Trust?

38

China Studies

41

Understanding Guanxi

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Nonfacilitative Governments and the Need for Personal Relationships

46

Evidence of Reliance on Personal Relationships Under Nonfacilitative Governments

49

4 Organizing by Personal Relationships: Meritocracy and Employee Empowerment

61

Effects on Organizational Form

61

Weber’s Rational-Legal Bureaucracy

64

Personal Relationships and Bureaucracy

69

Pseudobureaucracies

72

Effects on Human Resources Management Practices

76

Personal Relationships Are Inimical to Impersonal Meritocracy

78

Bureaucracies Empower Employees

79

Bureaucratic Means Without Bureaucratic Aims

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5 Engendering Participant Dissatisfaction, Fear, and Cheating

85

Perceptions of Workplace Justice

88

Dominance of Personal Relationships and Reward Allocations

91

Obsequious Subordinates

94

Distrust, Fear, and Wariness

95

Cheating and Rule Breaking

99

Organizational Commitment

101

Exploitation

104

Dissatisfaction and Alienation

105

Dysfunctional Organizational Behavior

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CONTENTS

6 Unpacking Culture

ix

109

Institutionalized Adaptations to Dependence on Personal Relationships

109

Relationships Dominated by Bargaining

111

Harmony in Interpersonal Relationships

119

Upward Gift-Giving

121

Supervisor-Subordinate Relationships Cultural Adaptations to Nonfacilitative Governments 7 Implications for Theory and Organizational Change

125 131 135

Bringing Governments Into an Understanding of Organization and Management

135

Better Practice: Organizational Change

143

Conclusion

147

References

149

Appendix

157

Author Index

167

Subject Index

171

Series Editors’ Foreword Jone Pearce opens her last chapter with the words, “Governments are critical to understanding organizations, not just because they may impose a regulation or tax that increases costs, but because they establish the framework on which all organizations are built. This is a framework with both direct and indirect consequences for these organizations and their participants.” This concluding thought makes a great introduction as well. We too believe that our field has paid too little attention to the political and economic context of organizations as we have developed and tested our theories about them. Jone Pearce at once calls attention to this lacuna and fills it. Drawing on her years of quantitative and qualitative research in emerging economies and her comprehensive reading over those years, we are treated here to a timely (and we suspect, timeless) treatment of these issues. Her contributions are many. For example, you will find yourself intrigued by some nonobvious insights about personal relationships at work. Her lively writing style only adds to our reading pleasure. We hope you will enjoy this book as much as we did. —Arthur Brief —James P.Walsh

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About the Author Jone L.Pearce is Professor of Organization and Strategy in the Graduate School of Management, University of California, Irvine. Her field is organizational behavior, with research centering on how the institutional context affects individuals’ behavior and their affective reactions in the workplace, often proposing and testing the mediating role of social processes. Her work has appeared in more than 60 scholarly articles in such publications as Academy of Management Journal, Academy of Management Review, Journal of Applied Psychology, and Organization Science. She has edited several volumes and has a book: Volunteers: The Organizational Behavior of Unpaid Workers (Routledge, 1993b). A Fellow of the Academy of Management, her honors include research grants from the National Science Foundation; a Fulbright Fellowship to the International Management Center, Hungary; Scholarly Contribution Awards (1998 from the Academy of Management and 1986 from the American Society for Personnel Administration); Teaching Excellence Awards; and an invitation to testify on legislation pending before the United States House of Representatives. Professor Pearce has been active in the Western Academy of Management, elected as President in 1995–1996; and in the Academy of Management elected as a Representative-at-Large on its Board of Governors 1995–1998; and now as Program Chair for the 2001 meeting and President in 2002–2003. BA 1974, Psychology, University of California, Berkeley; MA 1976, Administrative Sciences, Yale University; PhD 1978, Administrative Sciences, Yale University.

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Preface This volume is about how governments affect the ways people organize themselves, manage these resulting organizations, and respond to these organizations. It draws from my work over the past 11 years following organizations struggling with the transition from communism in Hungary, China, the Czech Republic, and Lithuania. Such settings are organizationally interesting in their own right, yet even more so for the window they open on the effects of governments. This volume was written primarily to introduce organizational scholars—those interested in organizational behavior, management, theory, and design—to the ways that governments can influence organization. However, it also was written with an eye to readers with practical interests in international management or governments. The impetus for the research was a leadership residential course for stateowned enterprise managers I cotaught in Tihany Hungary in April 1989. I became fascinated by these managers’ organizational complaints. Whereas many of their problems were the familiar ones of managers everywhere, others were quite literally inexplicable to me. I was swept up in trying to unravel these organizational mysteries, which were leading me on a quest that would take me in unexpected directions. In trying to fathom these organizations, I needed to spend more time with them, and I was very fortunate that my search for a research collaborator led to the incomparable Imre Branyiczki, then associated with Marx Károly Közgáztudomány Egyetem (which has since traded the philosopher’s name for the name of its city, becoming Budapest University of Economic Sciences), and we began a longitudinal data collection project that ran from the last months of 1989 until 1996. Later, I was able to conduct short-term projects in Czechoslovakia (since named the Czech Republic) and Lithuania, as well as begin another longitudinal project in China with Katherine Xin (now with the Hong Kong University of Science and Technology) that continues. As I learned more about how people operated in and through these organizations, I began to reexamine other more familiar organizations in a new light. Certainly, governments are a vital concern to those who run state-owned enterprises, so participants there focus on the thoughts, feelings, and actions of government officials. Yet, as the communist regimes came to an end and our studied organizations were privatized, governments still dominated managerial attention, but now for different reasons altogether. As we tried to understand why this should be so and began to read more broadly in sociology, economics, and political science, it seemed to me that governments’ effects had not been

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sufficiently recognized in the organizational sciences. Observed cross-national differences were psychologized as differences in values, with little exploration of why different actions and expectations might make practical sense in differing national circumstances. The one national circumstance that seemed to be making a very important, yet unrecognized, difference was government. This volume represents a broadening of that initial desire to understand how organizations made the transition from communism to include a broader exploration of the effects that differences in governments have on management, organizations, and organizational behavior. The research underpinning this volume did not proceed in a conventional fashion with hypotheses deduced from theory and then tested. Rather, in 19891 and my collaborators hoped to track what would happen to organizations and their participants as they faced the forces of transition—forces everyone expected to be powerful but that no one could foresee with any precision. As we learned more, we asked new questions and explored new scholarly literatures for guidance. We did collect systematic data when we could, and occasionally these data could be used to provide independent confirmation of the arguments presented here. Over the years, some of the ideas discussed here have appeared in earlier publications.1 I draw on data from several different studies and so would like to thank those who helped to support those studies. Imre Branyiczki and I together designed the 1989–1996 Hungarian longitudinal study, and he was primarily responsible for data collection. Our early data collection was supported by Vállalatgazdasági

1

Earlier published work includes Pearce, J.L. (1991). From socialism to capitalism. Academy of Management Executive, 5, 75–88; Pearce, J.L. (1993). Toward an organizational behavior of contract laborers. Academy of Management Journal, 36, 1082–1096; Pearce, J.L., Bigley, G.A., & Branyiczki, I. (1998). Procedural justice as modernism. Applied Psychology: An International Review, 47, 371–396; Pearce, J.L., & Branyiczki, I. (1997). Legitimacy: An analysis of three Hungarian–West European collaborations. In P.W.Beamish & J.P.Killing (Eds.), Cooperative strategies: European perspectives (pp. 300–322). San Francisco: The New Lexington Press; Pearce, J.L., Branyiczki, I., & Bakacsi, G. (1994). Person-based reward systems. Journal of Organizational Behavior, 15, 261–282; Pearce, J.L., Branyiczki, I., & Bigley, G.A. (2000). Insufficient bureaucracy. Organization Science, 11, 148–162; Pearce, J.L., & Čakrt, M. (1994). Ferox manufactured products and air products and chemicals. In D.S. Fogel (Ed.), Managing in emerging market economies (pp. 5–102). Boulder, CO: Westview; Pearce, J. L., Ramirez, R.R., & Branyiczki, I. (2001). Leadership and the pursuit of status: Effects of globalization and economic transformation. In M.McCall (Eds.), Global leadership II. Greenwich, CT: JAI Press; Xin, K., & Pearce, J.L. (1996). Guanxi: Connections as substitutes for formal institutional support. Academy of Management Journal, 39, 1641–1658; Xin, K., & Pearce, J.L. (2000). Harmony and ties in interpersonal relationships in China and the U.S. Working Paper, Department of Organization and Management, Hong Kong University of Science and Technology.

PREFACE

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Tudományos Egyesölet (Hungarian Business Economics Society) and an Irvine Faculty Fellowship. Later financial support was provided by my dean, Dennis Aigner, whose generous increase to my faculty research budget supported my many data collection trips to Hungary. The 1991 Czechoslovak case study was conducted in collaboration with Michal Čakrt, and was funded by the Unites States Agency for International Development (with Daniel Fogel as the principal investigator). Arunas Kuras and Romualdas Rimaitis assisted in data collection for the 1993–1994 Lithuanian study. Katherine Xin and I both designed the China–U.S. comparative studies, and she collected most of the unstructured interview data from China. Furthermore, I would like to express my appreciation to John Lara, whose cheerful assumption of family responsibilities during those many international data-collection trips made this work possible. The remaining comparative data were taken from several different studies conducted in the United States. Data collection assistance for the 1985 study was provided by Steve Sommer, Carol Sexton, and Greg Stephens. Together, Khalid Al-Aiban and I designed the 1987 U.S. comparative data, with him taking responsibility for data collection. Data collection assistance for the 1988 U.S. sample was provided by Steve Sommer. Finally, the 1992 U.S. data were taken from a large study I conducted with Lyman Porter and Anne Tsui (funded by a United States National Science Foundation grant, #SES-89123), with data collection assistance from Terri Egan, Brenda Edwards, and Jennifer Hite, and proposal assistance from Angela Tripoli. Data analysis assistance has been provided over the years by Greg Bigley, Patricia Martinez, and Sándor Tákacs. I also thank those who helped to bring this work to publication. The series editors, Art Brief and Jim Walsh, provided insightful feedback and suggestions on earlier versions of this manuscript. I am indebted to Anne Duffy, who has been extraordinarily supportive and helpful throughout the publication process. Another thanks to Sarah Wahlert, who moved the manuscript through the production process. I was ably assisted in the manuscript’s preparation by Valeska Wolf and Clare Lorenzo, and by Catherine Hammond’s editorial assistance. Certainly not least, thanks to Harry Briggs for his advice and support. Finally, this work rests on the work of two invaluable collaborators. First and foremost I would like to acknowledge the depth of my gratitude to Imre Branyiczki. He spent uncountable hours at companies charming and cajoling those with much to lose by trusting him and our promise of anonymity. Many of these ideas came out of our years-long conversations. He deserves the credit for any truths that may appear here. I am greatly indebted to Katherine Xin. She has been responsible not only for the Chinese data collection in the China—U.S. comparative studies, but also for many critical insights and ideas discussed here. I feel fortunate to have had the benefit of working with such a formidable intellect. The ideas developed here were shaped in conversations with Gyula Bakacsi, Greg Bigley, Michal Čakrt,

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Dan Fogel, Gábor Kornai, Imre Lövey, Lívia Markóczy, Patricia Martinez, Ian Taplin, the first class of Young Managers from Hungary’s Nemzetközi Menedzser Központ (International Management Center), and the many anonymous informants from China, the Czech Republic, Hungary, and Lithuania. I thank all of those who tirelessly explained the fine points to this naïve foreigner. I have had the luxury of circumstances allowing me to produce this book, but the insights are theirs.

1 Government’s Embrace Governments are important to organization, establishing and enforcing the rules under which organizations operate. They can make a course of action profitable or illegal. Governments may be stable guarantors of open and fair dealing, or they may be bumbling inept entities unable to control even their own officials. Governments facilitate the establishment and enforcement of the fundamental understandings necessary to action: who is entitled to what uses (use rights); who may legitimately sell products, land, and equipment (ownership rights); and what actions are acceptable (contract law). They are extraordinarily various, ranging from centuries-old tradition-encrusted institutions to the bandit in control of a small region, with every imaginable variation in between. Yet however various they are in form and practice, governments are always important to organizations and their participants. They establish the rules by which organizations must play and have the means to use physical force to coerce compliance. Because those who operate and work within organizations must always contend with the governments ruling over them, it is remarkable that government is virtually invisible in theories of organization and management. Certainly it has become a truism that economic activity is enmeshed in institutions (Polányi, 1957). That is, individuals act in the context of their expectations about the meaning and effects of their actions. Yet governments have not figured prominently in the institutions examined by theorists of organizations, organizational behavior, or management. Social institutions (Granovetter, 1985), cultural ones (Hofstede, 1980a) and historical experiences (Guillén, 1994) have received scholarly attention, whereas the effects from different forms of sovereign government are only rarely noted. To illustrate, corruption among government officials has been widely discussed in the popular management press but rarely addressed or explained in the scholarly organization and management literature. Yet surely the ability (or requirement) to avoid the enforcement of inconvenient laws results in different organizational strategies, organizational practices, and attitudes and behavior of participants than what would obtain in a society wherein enforcement of the rule of law is strict and assured. Economists have sought to analyze corruption as a cost of business, but rarely have organization and management scholars analyzed how corruption affects the way the participants organize their work and their relationships with one another. Moreover, corruption is just one 1

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example; the same strange silence confronts such government practices as erratic and opaque laws and regulations, requirements that organizations take state-owned partners into their ventures, or the practice of favoring cronies and family members in government contracting, among others. Despite O’Reilly’s (1991) call for more sociologic and conceptual explanation in organizational behavior, such explanations have been scarce, a situation this work is intended to address. Certainly, the fact that scholarship and research is dominated by those living in societies with comparatively strong, predictable, and supportive governments has played a part in this omission. Because governments in the societies wherein most scholars work tend to be strong, predictable, and supportive of independent organizations, the only visible scholarly focus on governments concerns differences in the content of particular laws, such as the German requirement, not found in many other developed countries, that large corporations place employee representatives on corporate boards. Yet no one in these societies is uncertain about how such government mandates are created, or doubts that these large corporations must comply with whatever the law requires. Because most scholars are not as familiar with the organizational effects of weak, erratic, and hostile governments, few scholarly theories have been cognizant of how the embrace of government affects management practice, organizations, and organizational behavior. The arguments presented here are derived from insights gained from the collapse of communism. Communism was an experiment in direct government control over all of the organized activities of a modern society. It can be viewed as an ambitious attempt, in numerous societies with vastly different cultures and histories, to operate in violation of many fundamental social science theories. For example, Parsons and Smelser (1956) argued that a central feature of modernism was the differentiation of societal subsystems, yet communism tried to recombine these subsystems into a single party-controlled one. Weber (1947) feared that the world would be dominated by bureaucracies because of the superiority of their rational pursuit of technical efficiency, yet in communist societies bureaucratic rationality was subordinated to political ideology. Under communism, organizations looked funny, and their participants acted in ways that appeared peculiar to the visitor steeped in knowledge of social science theory and organizational practice in the developed world. In seeking to learn more about why such unexpected behavior should have occurred, the author learned that the government-driven organizational forms and organizational behavior were not anomalies. Whereas the government interventions in communist countries were stark enough to draw the author’s attention, further research and observation led to the proposition that the effects of governments on management and organization are pervasive, powerful, and underappreciated by scholars in management, organization theory, and organizational behavior.

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Practitioners working in such countries certainly appreciate the power of governments, but they have received little explanatory assistance from scholars. Practitioner pamphlets, films, and books provide vivid anecdotes for those struggling with the complex challenges of international work. However, they offer little explanation. Rather, the reader is required to take the differences described as a fact of life and admonished to be sensitive to others’ differences. But surely not in all circumstances. Should Canadian managers adapt themselves to a Javanese view of time as holistic in their factory there? We all know they will do no such thing. Without an understanding of the reasons for particular international differences, useful advice about when to adapt and why cannot be given, nor can predictions about changing practices be made. Anecdotes help to caution new arrivals, but they are limited guides for the long hard work of organizing in countries not your own. Practitioners have been forced to make one ad hoc adjustment after another with no sense of why some may work and others may fail. This neglect of government’s role in management and organization is becoming an increasingly important problem. Large complex organizations arose with modernization, yet increasing global economic and institutional integration has placed organizations that developed in modernist societies into ones that governments are not willing or capable of supporting. Such spreading internationalization has been followed by a growth in scholarly and professional interest in international management. Whereas the amount of writing about international management increases, useful theories have not kept pace. This is the gap in understanding that this work seeks to fill. Although some scholars have sought to explain the role of governments in international differences in organizational behavior and practices, with few exceptions, such explanations are specific to a particular country and scattered in various scholarly journals ranging across fields such as political science, sociology, economics, anthropology, and psychology. This makes their insights unusable by practitioners and difficult to access for many organizational scholars. As demonstrated in this volume, governments have powerful effects on the fundamental ways in which organizations operate and on their participants’ expectations, attitudes, and behavior in the workplace. Here the scholarly ideas from these scattered social science disciplines addressing these effects are integrated with the author’s own research into a coherent argument about the effects of government on management practice, organizational form, and individuals’ organizational behavior. This work is an explanation of how governments’ ability and interest in facilitating independent organization affects organizing and organizational behavior. As governments vary from those that successfully facilitate independent organization to those at the other end of this dimension that actively seeking to impede independent organization. Facilitating governments are supportive, seek to provide predictable laws and regulations that they are

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capable of enforcing. As governments become less facilitative, the less supportive they are of organizations, and the more unpredictable and weak they become. Although a difference in governments’ facilitation of independent organization is not the only international difference affecting organizations, it is an important one, with powerful implications for organization theory, behavior, and management practice, that has yet to receive a systematic and comprehensive analysis. In this volume, the focus is on understanding the effects of nonfacilitative government, but it is addressed primarily to scholars and practitioners in rich, developed societies with facilitative governments, for several reasons. First, those living under nonfacilitative governments already know what they face. Rather, it is the scholar or practitioner who has worked only under facilitative governments and implicitly assumes its comforts who most needs assistance in understanding what nonfacilitative governments do to organizations and their participants. When confronted with organizations operating under nonfacilitative governments, they make blunders such as misunderstanding the meaning and uses of introductions, or ignoring the mutual obligations inherent in their local business relationships. Those who do not understand the role of government facilitation in organizations assume that others’ practices must result from ignorance, or from that vague all-purpose cause, cultural differences, instead of viewing them as practices and assumptions that others have found useful in their circumstances. Second, scholarly theories implicitly assuming facilitative government are partial without recognizing it. The study of organizational theory and behavior under nonfacilitative governments provides insights, elaborations, and modifications of these partial theories developed under facilitative governments. In some cases, this work provides empirical evidence to support and reinforce ideas that have not received broad testing, such as Redding’s (1990) argument that weak and hostile governments lead to organization based on personal relationships. In other cases, it suggests that a theory may be mischaracterizing a phenomenon, with potentially misleading results, as in scholarly descriptions that characterize reliance on mutual dependence in transactions as “trust-based.” Finally, this work adds new topics and insights to these disciplines, such as the study of employee obsequiousness, harmony in interpersonal interaction, and passivity. Although no scholars of organizational theory and behavior would maintain that governments are irrelevant, it is now time to begin understanding in what way s they are relevant and why. CHAPTER ORGANIZATION Organizational adaptations to differences in government facilitation have been numerous and significant. Although the central idea is a fairly abstract one, it

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has substantial implications for many of the most vexing organizational puzzles faced in international management. Figure 1.1 summarizes the arguments to be made, and where possible, tested here.

FIG. 1.1. Organization and management in the embrace of nonfacilitative government. The central insight developed and illustrated in chapter 2 is that a primary role of government is to facilitate effective complex organization. Among other organizational effects, strong facilitative governments create legal infrastructures and enforcement regimes that allow sufficient advance planning to enable participants to judge whether personal and financial investments are worthwhile, and to rely on more efficient impersonal coordination. Yet not all governments develop and enforce the policies that facilitate such organizational work. Some governments do not do so because they are hostile to independent organizations. Communist governments are extreme examples of hostility to

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independent organization, but there are many other examples of governments hostile to independent organizations in particular industrial sectors (e.g., oil). Similarly, governments facilitate organization by ensuring predictability in laws and regulation. Finally, governments may simply be too weak to effectively facilitate organizations. Lack of enforcement can take different forms. Some governments are incapable of enforcing their own laws because they lack organizational skill or control over all their territory. Alternatively, some governments may be unable to control their own local officials, who then are free to hijack local agencies for their own personal use, However, just because governments may not be able or willing to facilitate independent organization, people do not stop organizing because such efforts are not made easier by governments. Rather, they organize as best they can under the constraints they face. Chapter 3 draws on the work of others such as Redding (1990), who have suggested that individuals adapt themselves to nonfacilitative government by basing their organizations on personal relationships. This adaptation is best documented in the burgeoning study of Chinese guanxi, or relationships. Under nonfacilitative governments, individuals seeking to organize will build the predictability and support they need via their own personal networks by cultivating relationships of mutual dependence with useful others. How such relationships look and how they are built and sustained as the basis for organization is illustrated with empirical and case descriptions from the research of the author and others in a number of countries. The arguments and data presented in this chapter call into question scholars’ use of the term “trust” to characterize transactions based on personal dependence. Such relationships may be characterized by personal warmth and trust, but more often they are wary, distrustful relationships, quite accurately described by the economists’ term “mutual hostages.” In chapter 4, the effects that a dominance of personal relationships have on the form and practices of organizations operating under nonfacilitative governments are examined. For example, it is proposed that dependence on personal relationships fosters high levels of centralization, because so much depends on personal relationships and it thus cannot be delegated. Nevertheless, although this dependence on personal relationships in organizing would seem to compel small organizational size, large organizations are found operating in societies with nonfacilitative governments. This suggests an anomaly: large organizations operating under technical circumstances that should make this very difficult or even impossible. In this chapter, the form and operation of such large organizations are proposed to provide insights into bureaucratic organizational practices. The large organizational type produced under nonfacilitative government is a distortion of bureaucracy that has been called pseudobureaucracy. This organizational form mimics the formal policies of bureaucracy without its goals

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of purposeful, goal-directed meritocracy. Drawing on the studies of political scientists and anthropologists of developing countries, pseudobureaucracies are analyzed in detail. This analysis leads to several propositions. First, when organizations are dominated by dependence on personal relationships, impersonal trust is damaged. Second, goal-directed purposeful meritocracy arose from and depends on the relative empowerment of employees. That is, in contrast to what some scholars assert, bureaucracy in practice seems to empower employees relative to the organizational alternatives. Finally, professional human resources management practices appear to be particularly sensitive to dependence on personal relationships in organizations. Therefore, various distortions of human resources management departments observed in organizations operating under nonfacilitative governments are described. Chapter 5 reports the tests of several behavioral and attitudinal implications of nonfacilitative government and the resultant dependence on personal relationships in organizations. The self-reports of professional, technical, and administrative employees from Hungary, Lithuania, and China are compared with those of their counterparts in the United States. These employee reports confirm the rather negative accounts from scattered social science disciplines investigating organizational behavior under nonfacilitative governments. Interestingly, there has been comparatively little systematic research in the field on the kind of negative behaviors described under nonfacilitative governments that pose no immediate risk to employers, such as obsequiousness, distrust of coworkers, and exploitation of others. Certainly, such behaviors may be found in any workplace, so the insights and new measures developed for these tests may be extended more generally to the study of this darker side of organizational behavior. In this chapter, employees working in the organizations operating under nonfacilitative governments report less workplace procedural justice; more obsequious employee behavior; greater distrust, fear, and wariness of others at work; more cheating and rule breaking; less employee organizational commitment; more exploitation of others; and lower job satisfaction than their counterparts working under facilitative governments. These results are consistent across the different studied countries, and confirm the observations of numerous scholars from varied social sciences. Thus, they leave little doubt that employees working in the organizations dominated by personal relationships under nonfacilitative governments are unhappy with their coworkers and their workplaces. Chapter 6 focuses on analyses of the complex adaptations employees make to working in organizations dominated by dependence on personal relationships. By building on the comparisons reported in the previous chapter, more complex adaptations to working in organizations based on personal relationships under nonfacilitative governments are analyzed. These include the dominance of bargaining in the workplace, a normative expectation of interpersonal harmony:

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upward gift-giving; and such features of workplace authority relations as distrust, paternalism, and passivity. These patterns are the basis for reflections on the way the concept of culture has been applied in organizational behavior. The adaptations can be characterized as behavioral patterns that become enculturated in participants’ expectations and assumptions. However, reflection on the role of these patterns as adaptations to nonfacilitative government suggests that there has been an overreliance on psychological theories of comparative organizational behavior. It is true that these psychological approaches have provided many valuable insights. Nevertheless, this psychological dominance of cross-national organizational behavior has been limiting because it mislabels what can be highly changeable expectations as the stable values of personality theory. As proposed in chapter 6, such theories cannot explain the changes in expectations and behavior that occur in response to governmental, economic, and technologic changes. Finally, in chapter 7 the question of change in organizations dominated by dependence on personal relationships is addressed. Drawing on the longitudinal study in Hungary and the work of others studying organizational change under nonfacilitative governments, insights into organizational changes in response to governmental change are developed. Because governmental changes in the former communist countries have been so rapid, these studies also provide the opportunity to isolate the relative facilitation of governments from the societal culture. The work concludes with a summary of the arguments and a discussion of the implications for understanding management and organizational theory and behavior. Particular attention is directed to the implications for both scholarly theories and practice. Examples include the distinction between trust and mutual dependence, the difference between bureaucracy and pseudobureaucracy, the dysfunctional effects of such personal relationship-based organizations on employees’ experience of work and their performance, the effects of bargaining and paternalism on employee attitudes and behavior, and the value of structurebased theories in international management. The implications for understanding the relation of personal relationships to meritocracy, bureaucracy, and alienation, one approach to deconstructing culture, and for a better understanding of nonproximal influences on organizational behavior are explored. This argument also has several important practical implications, not so much for those who have worked long under nonfacilitative governments, but for those who assume facilitative government and yet are unaware of its practical effects on management and organizational practices. For example, these managers can benefit from insight into why such things as relationships are so important in these settings, and into the fact that cheating does not arise from individual moral deficiencies in such societies. This work has implications for

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whether managers can create organizations in which the internal corporate cultures are based on trust, responsibility, and merit in societies wherein people have learned that success really depends on obsequious ingratiation. STUDYING THE ORGANIZATIONAL EFFECTS OF GOVERNMENT The aforementioned ideas developed from the work of social scientists in a variety of social science disciplines and from insights gained from the author’s own research. The literature addressing the effects of nonfacilitative government comes from a wide range of sources, usually written for audiences far different from the audiences for whom this work is intended. Therefore, some care is taken to introduce these ideas and explain their relevance for scholars in organization theory and behavior and for management practitioners. The research program consists of direct observation and the collection of archival and other secondary source material as well as participant self-reports in the forms of structured and unstructured interviews and questionnaires from nine research projects. The studies are listed in Table 1.1. More detailed information regarding organization sampling and procedures can be found in the Appendix. When possible, assertions are tested, relying on data that have not been filtered or interpreted by other researchers or the author, namely, the reports of participants blind to the explanations presented here. Unquestionably, causal statements are made in this work that are not definitely proved by the data and prior research cited. Certainly, there is a risk in trying to isolate the effects of government on organizing and organizational behavior. Governments and their societies are inexorably intertwined. Previous writers have suggested that governments reflect their societies (Banfield, 1958; Geertz, 1973; Hamilton & Biggart, 1988; Putnam, 1993) and provide compelling evidence that existing cultures inexorably stamp their formal organizations of government. Certainly, a detailed discussion on the causes of nonfacilitative government are beyond the scope of this work (Lipset, 1994; Tocqueville [1835–1840] 1968; Weber, 1947).1 Many other factors vary with governmental characteristics, and because it is not possible to do experiments in which governmental features are randomly varied while other historical, 1 Scholars of political institutions have noted that “brittle” governments (i.e., incapable of sustaining themselves) can result from extreme poverty, a mismatch of ethnic and political boundaries (Lipset, 1994), few civil associations (Tocqueville [1835– 1840] 1968), and nontraditional authoritarian regimes (Weber, 1947), among others. Furthermore, fundamental transitions such as those that occured in the formerly communist states will certainly weaken government. For example, China is undergoing a rapid economic transformation with its dominating formal institution, the communist party, becoming increasingly less significant (Nee, 1992) The Economist has been providing a chronicle of these processes, for example in the March 8, 1997 issue.

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societal, and cultural features are held constant, the effects of governments can never be isolated with complete confidence. For example, it is not possible to isolate relative nonfacilitative government from other common covariates, such as the spread of democracy, and then watch individuals build their organizations over time. TABLE 1.1 Research Studies Years

Countries

Collaborators

Methods

Sampled organizations from relatively nonfacilitative governments 1989–1996

Hungary

Imre Branyiczki

Longitudinal data collection consisting of structured and unstructured interviews, archival and popular press reports, and questionnaires

1991

Czechoslovakia Michal Čakrt

Case study

1992–1993

China and the United States

Katherine Xin

Structured interviews

1993–1994

Lithuania

Arunas Kuras

Unstructured interviews and questionnaires

1997–1998

China and the United States

Katherine Xin

Unstructured interviews and questionnaires

Sampled organizations from relatively facilitative governments 1985

United States

Unstructured and structured interviews and questionnaires

1987

United States

Khalid Al-Aiban Unstructured and structured interviews and questionnaires

1988

United States

Unstructured and structured interviews and questionnaires

1992

United States

Lyman Porter and Anne Tsui

Structured interviews and questionnaires

This limitation was approached in several ways. First, an attempt was made to collect data from four different countries with nonfacilitative governments but very different cultures and histories. For example, according to Hofstede’s (1980a) cultural dimensions, China is a highly collectivist culture, whereas Hungary is one of the most individualistic. Common practices found across all sampled countries are, it is hoped, more likely to reflect the common factor—

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nonfacilitative government—than nongovernment-related differences in cultural values or history. Second, the focus was on those countries that have been experiencing the most rapid changes in government: communist and reforming communist countries. Here, rapidly changing governments provide an opportunity to link governmental policies and practices directly to changes in organizational practices and individuals’ expectations, attitudes, and behavior. Third, the data collection provided many opportunities to talk to people. They were asked to describe actions and pressed for explanations. Participant accounts that strongly implicate nonfacilitative government in their attitudes and behavior are reported throughout. Finally, although readers are cautioned that the examples and tests presented in this volume are not and cannot be definitive proof, the author does not shy away from stating the bold belief that government facilitation does matter decisively in the organizational practices as well as individual attitudes and behavior documented in this discussion. The author has tried to avoid couching causal arguments in academic terms such as “is associated with” and “covaries.” So much consistent data from so many sources suggest to the author that governments affect management practice, organizational form, and organizational behavior in the ways that she describes. She may have gotten it wrong, but these erroneous ideas will not be corrected by hiding them in obfuscation. It seems best for the author to lay out her case and let others take their best shots.

2 Organizing in Spite of Government: Nonfacilitative Government Governments are not the only factors affecting organizational form and behavior, but they are important, malleable, and ill-understood elements. Governments are important because organizations look different and function differently. Moreover, their effects on their participants all are affected by differences in these institutions. Governments matter in organizing: They make the rules by which organizations operate and hold the monopoly of legitimate coercive power. Yet, management scholars have largely treated them anecdotally, one governmental policy at a time. In this effort to provide a broader perspective, it is necessary to develop a framework of governmental effects. This framework is based on the idea that governments vary in their facilitation of independent organization. INDEPENDENT ORGANIZATIONS Independent organizations are those that operate independently of direct government dictate. They are not components of government, nor do they exist to achieve government-determined objectives. The concept of independent organization is key to the discussion, but one that is difficult to define because it does not exist as an absolute. Certainly, all organizations depend on and reflect the governments operating in the places where they do business. Yet, there are differences in both the degree and in the nature of dependences that has a profound effect on the form of organization and the behavior of the participants. A sufficient difference in degree becomes a difference in quality, as the Pacific Ocean is a very different entity than a raindrop. Independent organizations are free to set their own goals rather than pursue those imposed on them by the government. Independence may be completely absent, as in government ownership of a railroad or an armaments factory. Independence also may vary with differing levels of government interpenetration. Governments interpenetrate organizations when they establish laws and regulations governing organizational policies and practices. They vary from extensive interpenetration of independent organizations to none, what typically is called laissez faire. 13

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The more extensive the government’s interpenetration within organizations, the less it can operate in pursuit of its own nongovernment-determined goals. For example, independence has been reduced in organizations such as private primary schools facing government mandates to provide social services to their pupils, oil drilling companies required to enter into joint ventures with stateowned partners, and business service firms believing it is wise to hire the regional government leader’s son to secure governmental support. In each case, governments (or their agents) have decided that they can best achieve their own goals (improved social service provision, societal retention of profits from mineral extraction, family enrichment) by using their coercive governmental power to require that nominally independent organizations carry out this function. Certainly, greater interpenetration reduces the independence of nominally nongovernment organizations. Heretofore, the study of governmental effects on organizations and management practice has focused on the effects that differing levels of government interpenetration have on nongovernmental organizations. For example, the field of economics has long focused on the study of how different regulatory practices (e.g., minimum wage laws, domestic-content requirements for manufacturers, financial reporting requirements) affect organizations. Such work has made invaluable contributions to policymaking in the developed countries. However, it does not exhaust the ways that governments affect the form, practices, and behavior of participants in the independent organizations operating in their jurisdictions. In this discussion, the focus is on the effects of relative government facilitation on independent organization. Governments vary not only in the relative extent of their interpenetration of organizations, but also in the extent to which they facilitate independent organizations in doing their work. As detailed in the following discussion, government facilitation depends on fostered predictability, policies to support independent organization, and sufficient capability of the government to enforce its own laws and regulations. EFFECTS OF GOVERNMENTS ON INDEPENDENT ORGANIZATION Douglass North (1990) provided one of the best-known cases for the importance of what he calls institutions in economic exchange. Following Adam Smith, he argued that a major function of institutions, such as governments, is to reduce unpredictability by establishing stable structures for human interaction. He suggested that as economic exchange increases in complexity, involving more numerous exchanges among more individuals across greater expanses of space and time, unpredictability increases. Furthermore, variability and specialization also increase unpredictability.

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15

When exchanges are simple, involving local trade, repeated dealings with the same parties, a common set of values, and informal arrangements such as tradition, religious precepts, and ritual are sufficient to sustain them. As complexity increases, however, participants’ attempts to maintain personalized relationships break down, and they find that impersonal exchange requires the enforcement of a government with formal laws and regulations. North suggested that as the size and scope of exchange increases, the participants attempt to maintain personalized exchange as long as they are able to do so, through reliance on kinship ties, exchange of hostages, and codes of conduct, often with traditions and religious rituals designed to constrain participants. However, as exchange scope and complexity increases, enforcement by government becomes essential. Therefore, when exchange extends beyond simple local transactions, people find that they are working with and depending on strangers, and that the clear connection between quality of work and reward can become muddied by complexity, time, and distance. North noted that attempts to maintain personalized relationships and establish codes of conduct remain, yet, by themselves, they are insufficient for complex undertakings requiring impersonal relationships. In complex exchanges, this coercive third party—government—becomes essential because the opportunities to cheat rise with increasing complexity, and people will not take the risks involved in such efforts if they believe they will be cheated of their benefits. Governments maintain and enforce formal constitutions with legal systems for settling complex disputes that make cheating more difficult. Formal legal systems can handle more complex disputes, and more complex exchanges require formal organizations with hierarchies producing even more complex property rights claims (Van Creveld, 1999). For example, complex intellectual property rights and copyright laws enable film producers to invest large financial resources in production of a film that otherwise could easily that be stolen by someone making numerous copies from one videotape. Without reliable governmental legal and enforcement systems in place, these producers could never cover their costs, and so would not make films. In short, these formal governmental rules help to reduce the unpredictability that arises when exchanges are no longer repetitive transactions in which known participants operate with shared informal understandings. This is a primary function of governments. For all but the simplest most tradition-bound activities, governments are needed to create legal infrastructures and enforcement regimes that enable buying and selling to strangers, as well as planning far enough ahead to allow the participants to judge whether personal and financial investments are worthwhile. Fligstein (1996) summarized these ideas in a model to explain the importance of governments, or what he called states, in providing stable and reliable conditions under which organizations form, compete, cooperate, and exchange. He reiterated that governments are important to the formation and ongoing

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stability of markets because independent organizations could not function without a set of rules governing which actions are not permissible (e.g., the elimination of competitors) and who is entitled to the products, services, and profits of organization. Governments may intervene directly or regulate, but Fligstein (1996), making a point central to the current argument, suggested that governments can vary in their capacity to intervene. That is, some governments cannot maintain sufficient control over their citizens or their own officials to ensure reliable enforcement. Many states do not have the capacity to enforce their laws, and such incapacity can be doubly costly, both in the absence of this necessary function and in the unpredictability of erratic, partial enforcement. Therefore, governments are necessary to complex organizations. Yet, North (1990) and Fligstein (1996) focused on the role of formal and strong government in the economic development of Western countries, so their argument takes on a teleologic cast. A case for the necessity of formal government to complex organizational activity seems to imply that organization would not exist in the absence of favorable government conditions. In any case, the authors are silent on the subject of complex organizations under no government or nonfacilitating governments. Yet, complex organizations do operate in countries without the advantages of strong governments capable of enforcing their laws. If North and Fligstein are right, somehow individuals have found ways to overcome these impediments. To understand how they organize in the absence of facilitative governments, it is necessary to draw on a literature that addresses what is called modernism and traditionalism. MODERNISM AND GOVERNMENTAL FACILITATION The arguments of North (1990) and Fligstein (1996) suggest that complex organizations depend on modern governmental forms, indicating that insights might be gained from an understanding of the concepts of modern and traditional societies. The distinction between modern and traditional societies began with modern social science itself (Comte [1832–1840] 1855; Toennies [1887] 1957). Because these have been central concepts in the comparative institutions work of so many disciplines, these societal forms have been called by many different names. For example, Weber (1947) called the modern form rational-legal authority and distinguished it from traditional authority. Parsons and Smelser (1956) analyzed modern and primitive forms; Putnam (1993) described civic communities and amoral familism; and Coleman (1993) labeled the modern societal forms purposive organization, in contrast to traditional, primordial social organization. Recent scholars have sought to elaborate the different forms and practices of traditional societies, with Collins (1997), for

NONFACILITATIVE GOVERNMENT

17

example, exploring what he called agrarian-coercive and Walder (1986) investigating neotraditional political systems. Although these theorists make the distinctions necessary for their analytic focus, all agree that what commonly have been called modern societies are characterized by highly differentiated subsystems, which tend to be purposely constructed around offices, not persons. Government is distinguished from business, and education from family, with each of these subsystems expected to operate according to different rules. Consequently, for example, in modern societies it is appropriate to provide for others in a family on the basis of their needs, with infants and the infirm receiving more time and support, whereas in business, compensation may be based on the market value of the participants’ contributions. By contrast, in traditional societies, less differentiation exists between subsystems, and relationships are dominated by concern for who the person is rather than for his or her nominal office. Therefore, a person might obtain an appointment as foreign minister because he is the king’s brother, with his status as the king’s brother, not his office, dominating his dealings with others. Modernism certainly appears to be what North (1990) and Fligstein (1996) described, so independent organization would appear to require modernist facilitative government institutions. Yet, there is a growing body of work indicating that large complex organization does take place in traditional societies under conditions of government nonfacilitation and even active impediment. The most important of these studies on nonfacilitative government is Putnam’s (1993) report on the development of new regional agencies in the more modernist north of Italy and the more traditionalist south. Having become a unified country only relatively recently, Italy contains regions that have experienced centuries of differing government forms. Northern Italy has a long tradition of self-governance via communal republics and thus has local societies rich with independent associations and civic engagement. In the South, centuries of occupation and then local despotic rule created a civic culture first described by Banfield (1958) as amoral familism, characterized by self-reinforcing patterns of distrust, exploitation, and stagnation. In the North, citizens attended public forums, and expected their elected representatives to heed their concerns. In the South, wealthy families and crime syndicates controlled the institutions of government, dispensing favors and exacting retribution on the basis of personal loyalties. Thus, the North had government institutions that could be characterized as modern, that is, differentiated from local business organizations, with participants obtaining office on the basis of merit not on loyalty to a powerful patron. In contrast, the South was more traditional, with less subsystem differentiation, and with favoritism dominating decisions. In 1970, the Italian central government implemented a new regional government intended to assume some local and some federal functions. This

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provided a unique opportunity to study the effects of modernist or traditional local expectations for government on the form and character adopted by these nominally identical organizations. Although these are government organizations rather than independent organizations, Putnam’s study provides a unique opportunity to examine how nominally identical complex organizations changed in response to local expectations of government functioning. Putnam (1993) and his colleagues found that these new regional organizations replicated the expectations and governmental practices of the societies in which they operated. The northern regional governments attracted the active participation of citizens and were judged to be more effective, with higher levels of performance and citizen satisfaction than the new regional institutions in the South. In the South, the regional governments were appropriated by local elites and crime bosses, and southerners continued their traditional roles as alienated, dependent supplicants. Yet, it should be noted that the new regional government organizations in the South were as large and as complex as those in the North. Although historically, large complex organizations may have arisen under the facilitating conditions of modernist societies, increasing global economic and institutional integration has placed large organizations in societies with less facilitating governments. Even the most traditional societies may have international air travel and host local branches of large multinationals. Yet, without facilitating governments, these complex organizations, such as Putnam’s southern Italian regional governments, would be expected to look and function differently under differing conditions of governmental facilitation. Just how different is suggested by a close study of organizations under communism. Insight into how organizations appear without the facilitation of modernist governments is suggested by the growing empirical work on the transition from communism to capitalism. This work provides vivid illustrations of organizational practices and organizational behavior, first under hostile, and later under weak government. NEOTRADITIONALISM AND GOVERNMENTAL FACILITATION Scholars have consistently characterized communist societies as neotraditional rather than modern. According to Walder (1986), who coined the term, communist neotraditional societies are a variant of a classically traditional society. Virtually all scholars who have studied communist societies note that participants rely more on personal favoritism and illegality and there is less differentiation between the government and other institutions than in modern capitalist societies. Walder (1986) contended that despite the superficial trappings of modernism, the societies of communism were neotraditional because they operated primarily on favors and personal ties. He contrasted them with modern organizations, that have restrictions on the personal discretion of

NONFACILITATIVE GOVERNMENT

19

supervisors, open conflict and contracts. In communist neotraditionalism, the workplace is the focal point for the delivery of public goods and services not available from other sources. The party tries to eliminate all competing organizations, and the discretion of supervisors is relatively unrestrained by enforceable regulations. Despite these organizations’ modernist forms, “particularism” was necessary to communist political control. Particularism refers to actions based on an exclusive attachment to one’s own group, nation, family, or circle of friends. To maintain political control under communism, wide discretion was delegated to local managers and party officials (usually the same people), who were free to exercise this discretion as they saw fit. Party officials had substantial influence over promotions, raises, and the nonwage benefits supplied by the employer, as reflected in the quotation in Box 2.1. Although such extensive supervisory discretion may have been more complete in Asian than in European communist workplaces, in all of these societies, the local managers/party officials retained wide latitude in making particularistic decisions about many more things than in any modern workplace. For example, in communist Hungary, many consumer goods simply were not available on the market, so refrigerators, apartments, and foreign travel were distributed to companies who would, in turn, decide who would receive them. Company managers had complete discretion to distribute these goods to whomever they favored. This resulted in the central feature of communist society workplace culture: a form of institutionalized particularism known as patron-client relations. As Walder (1986) suggested, patron-clientelism was not separate from the formal organization, but rather emerged from standard party practices. He emphasized that patron-clientelism was in fact created by party practices, as party leaders tried to control the workers by developing relationships with a few loyal and cooperative workers. Although the party allocated this discretion to local managers with the intention that they could allocate rewards and punishments on the basis of employees’ (or their family members’) political loyalty, such wide discretion, of course, invited wide abuse. For example, in a series of interviews in 1989, the author asked managers to recount any examples of wrongdoing at work, which are reported in Box 2.2. The lack of legal constraints on those in power in communist societies has been widely noted (Burawoy & Krotov, 1992; Litwack, 1991; Simis, 1982; Voslensky, 1984). Litwack (1991) argued that communist societies functioned in the virtual absence of legality, providing few constraints on those in powerful positions. As Simis (1982) stated, the lack of constraint on the personal power of leaders under communism has a long history. The Soviet regime never considered itself bound by the law and any organ within the system, from a district council to the Supreme Soviet, and any court, from a people’s court to

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the USSR supreme court can—indeed must—violate the law on orders from its opposite number in the party apparat. (Simis, 1982, p. 28) Stark (1989) set forth two relevant points: First, fundamental legal principles in communist societies tended to be based on vague regulations, so that it was difficult to be confident that one would not be arbitrarily punished. Second, actors in these societies typically assumed that they would need to act in a less than legal way to operate effectively. For example, in the companies studied in Hungary, Czechoslovakia, and Lithuania, gifts of various sorts were commonly used to secure reliable supplies. A private entrepreneurial research site in Hungary in the early 1990s had a competitive niche of “knowing how to get paid in communist countries.” For example, in 1988, a large bank in Leningrad wanted to buy a business machine company’s coin-counting machines. The bank was not authorized to pay for such machines, so they looked among their banking clients and found one with a product—marble—that could be sold in the West for convertible currency. The business machine company therefore organized a joint venture between itself, the bank, and the marble quarry. The Russian marble quarry shipped marble to Austria, diverting it from its plandictated destination, and delivered it to an Austrian-based joint venture (between the business machine company and an Austrian import-export company), which sold it for convertible currency. When the marble was delivered to the Austrian trading house, the business machines were delivered to the bank, and any remaining convertible currency profits were divided among the marble quarry, the Leningrad bank, the Hungarian business machine company, and the Austrian import-export company. Notably, this prominently successful entrepreneurial company collapsed once its sophisticated expertise was no longer needed after Hungary’s full conversion to a market economy. Box 2.1 In China, shop officials screen requests for factory housing and special distributions of consumer items. They review and approve requests for benefits under state labor insurance guidelines: vacations, annual home leave, personal leave, visits to sanatoria, special medications, and welfare and loan payments. Shop supervisors are also responsible for writing character reports, relaying information to the party and security apparatus, securing permission for workers to travel, and deciding on the application of fines and other punishments for breach of factory rules. (Walder, Communist Neo-Traditionalism: Work and Authority in Chinese Industry © 1986, The Regents of the University of California, p. 22. Reprinted with permission.)

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Certainly, according to Parsons and Smelser’s (1956) distinction between highly differentiated modern societies and less differentiated traditional ones, communism can be seen as a less differentiated form. The party assumed control of all the other societal subsystems. First, and most important, it assumed control of the government. Second, the party, via designated government agencies, acquired all independent organizations. It not only took over businesses such as shoe factories and banks, but it also created and funded groups such as trade associations, women’s associations, and environmental groups, mimicking modern associational pluralism without the substance. This subordination of the artistic, scientific, social, economic, and legal subsystems to one political entity under communism has been amply described by scholars (Burawoy & Krotov, 1992; Kornai, 1992; Voslensky, 1984; Xin & Pearce, 1996). Box 2.2 Manager A’s large construction company sponsors sports teams that host and visit foreign clubs. High-ranking party officials in the company always appoint themselves as officials of these clubs so they can obtain foreign travel. What the manager thought of as wrongdoing was not this, but the fact that these clubs were only partially supported by company funds, with the remainder coming from “voluntary” workers’ contributions through their [party controlled] trade union…. A previous employer of Manager B was created as a “workplace” for relatives of high party officials to provide them with additional family income. The organization had virtually no real work to do. On the one hand, he said he had a wonderful “quality of life”— little work to do and a warm, supportive supervisor. On the other hand, he didn’t like “being forced to do illegal things” for the powerful. For example, he was asked to list the son of a Central Committee member as an employee so the son could get company housing, even though the son never set foot in the company. (See Appendix; 1989–1996 Hungarian longitudinal study) However, this communist attempt at total societal integration overwhelmed the capacity of government institutions, some more completely than others (Boisot & Child, 1988). This breakdown meant that semiautonomous actors bargained and traded on personal relationships instead of following formal procedure (Antal-Mokos, 1998; Kornai, 1992; Stark, 1996; Walder, 1986). Consequently, governments and organizations under communism functioned more like those of traditional societies than like those in modern ones, not because they tried to recreate the grace and predictability of traditional societies, but because

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substantial, unconstrained discretion needed to be delegated to local party officials to ensure that any political dissent could be quickly managed, and because government decision makers could not cope with such a complex information problem. In turn, these officials with wide discretion were themselves controlled by the unpredictable threat of investigations or purges. During the transition from communism, these features of neotraditionalism— dependence on personal ties, patron-clientelism rather than legality, vague regulations, and undifferentiated subsystems—were exacerbated by the confusion attending such a mammoth change. For example, Hsing (1998) describes the experiences of Taiwanese investors in China. He noted that a partnership with the local military unit and a good relationship with the local public security bureau allowed Taiwanese factory managers to ignore Chinese labor and tax laws. These factory owners would hire retired People’s Liberation Army officers as personnel directors, who would use their personal connections to staff the factory. This was simply an extension of the existing practice in which the local Chinese communist government officials’ mixed the government and business functions of the newly formed independent private organizations. As described by Hsing, there was no sharp distinction between private and public domains in transforming China (i.e., the subsystems continued to be the weakly differentiated ones of neotraditionalism). In summary, theorists agree that complex organization is facilitated by effective maintenance and enforcement of laws supporting independent organization established by a capable government. Such societies have long been characterized as modern, yet we discover that complex organization can and does occur in societies without facilitating governments, but that organizational practices may look quite different in such settings. Before exploring these differences in depth, the ways in which governments facilitate and impede independent organization can be summarized as follows. GOVERNMENTAL CHARACTERISTICS FACILITATING INDEPENDENT ORGANIZATION Three characteristics that affect the extent to which governments facilitate independent organization are represented in Fig. 2.1. All three should be regarded as dimensions along which governments may vary, with the different combinations giving the varied forms of nonfacilitative government their distinct characters. Therefore, governments may vary in the extent to which they are hostile or supportive of independent organization, erratic or predictable in their polices and practices, and weak and thus incapable of enforcing their polices and regulations or strong and capable of seeing the laws executed. These characteristics are proposed to be multiplicative, such that a hostile, erratic, and weak government would be the extreme case of government nonfacilitation, but

NONFACILITATIVE GOVERNMENT

23

an implacably hostile government, an extremely erratic one, or a government thoroughly incapable of enforcing its will also would be nonfacilitative.1

FIG. 2.1. Dimensions of governmental characteristics facilitating or impeding independent organization. Before these characteristics are discussed, it is necessary to note that this list does not include government facilitation of a particular organization via monopoly concessions enforced by the coercive power of government, as when the British government granted the East India Trading Company the exclusive right to trade in the Far East. Such concessions or any other special treatment for a favored organization certainly would be seen as facilitative of that particular organization. However, these practices are not facilitative of independent organization. Such organizations are creatures of the governments that create and sustain them, and this fact certainly affects the form of the organization and its managers as well as its participants’ actions, as is detailed by those studying privatization (Antal-Mokos, 1998; Estrin, 1994). To the contrary, when such politically favored organizational forms become dominant in the economy, their politically focused practices tend to create impediments for independent organization.

1

For the mathematically inclined, if we give a value of zero to extremely hostile (no support), highly erratic (no predictability) or weak (incapable) governments, when we multiply them together, any one value of zero would produce zero facilitation.

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Hostile or Supportive Governments may view their role as supportive of independent organization or as hostile. Impediments to independent organizing may be a purposive strategy, intended to make independent organization as difficult and costly as possible. The clearest example of this hostility to independent organizing is communism, in which independent organizations of all kinds are illegal. Interestingly, independent organization was difficult to eradicate by communist authorities. Simply forbidding it was insufficient. In the early years of communism, the authorities found they were unsuccessful in eradicating petit bourgeois activity.2 Whereas plants and shops could be nationalized, small manufacturing or services run from the owner’s home were hard to find and suppress. Furthermore, authorities found that individuals would pool their meager finances to provide seed capital for more ambitious underground operations. Government officials approached this problem in several different ways. First and most prominently, they established price and wage controls designed to provide for basic needs but leave virtually no cash available to hoard as seed capital. Second, they required that all able-bodied adults have a work unit (i.e., full-time job in a state organization). A worker who failed to present a work-unit identity card when asked could face prosecution for vagrancy. These and a host of other policies, taken as a whole, were designed to eradicate independent organizing, thus constituting nonfacilitation of independent organization in an extreme form. Nevertheless, even under these ambitious attempts to impede independent organization, it does occur. Communist societies’ second economies and black markets have been extensively documented (Stark, 1989). In the author’s own research, the founder of one studied Hungarian private entrepreneurial company had been “out of business” for only a few years during the most oppressive period of Hungarian communism (early 1950s). He had run a company until the communists nationalized it, and then continued small-scale manufacturing in his apartment, taking care to have an official place of work in a state enterprise to avoid arrest for vagrancy. In the 1960s, he slowly expanded his business as various reforms permitted increased independent activity. Hostility to independent organization can be subtle and partial. For example, governments can impede independent organization by maintaining control of a critical resource. (E.g., government ownership of all banks as in many European formerly communist countries in the early 1990s). When governments control a critical resource, they do so to further their own objectives. These objectives might be in the public interest, as when government officials on the boards of state-owned banks in Poland, the Czech Republic, and Hungary during the early 1990s directed the banks to provide credit for large companies on the verge of bankruptcy to avoid massive social dislocation in the regions these companies 2

Dr. Imre Branyiczki, personal communication.

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25

dominated. Similarly, governments may want to maintain control of scarce building materials to ensure that high-priority infrastructure projects are completed in a timely manner. When critical resources are acquired on open markets, any financially viable organization can obtain what it needs. When the government controls these resources, organizations in political favor receive them. Nevertheless, whether government officials’ intentions are benevolent, mistaken, or venal, under these circumstances, those wishing to build independent organizations become dependent on these government officials’ favor for their prosperity. Hsing (1998) noted that China’s local officials have monopolized key economic resources like credit, loans, foreign exchange, and raw materials. They also possess regulatory authority in granting tax relief and issuing investment permits. This has made the local officials the most competitive players in China’s new economy. (p. 118) Additionally, the managing director of the studied large Czech gas products and equipment company described the effects of his extensive dependence on the local governmental authorities’ discretion under communism: Ten to fifteen years ago the local authority discovered a shortage of hay. All companies in its region were made responsible for a quota of hay and accountable for it to the county communist party committee. Our assigned meadows were inaccessible for the heavy mowing equipment so we had to select those people from Ferox who understood how to work hand scythes. Our managerial problem was how to choose people who knew how to cut hay! Which employees were needed least that day? Our lawyer went out to cut hay. We had to provide lunches and transport them. Then the local committee decided that yields were too low so we were invited to purchase a quota of fertilizer each spring. (See Appendix; 1991 Czechoslovak Study) In China, as independent individual and communal enterprise was allowed, stepby-step, one of the last things the government retained was control over what it called strategic goods (e.g., steel, lumber, and cement). Therefore, small entrepreneurial companies found that if they wanted to build a factory or other business structures, they needed to procure critical building materials from government officials. Because there is always a shortage of any governmentprovided resource (Kornai, 1992; Nove, 1983), these supplies were problematic. How then could the executives of independent organizations ensure their procurement of critical supplies? They could do so only by building good

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personal relationships with the government officials, or their superiors, who controlled such supplies. As described in chapter 3, this might be done by forming a joint venture with them (or a favored state-owned organization), by taking government officials’ relatives as partners, or by insuring that in other ways the nominally independent organization pursues these officials’ objectives. Dependence on a government monopoly for a critical resource reflects a lack of support for independent organization. Managers of such organizations are not free to obtain that resource, and whatever the intentions of such restrictions, they do not facilitate independent organization. Therefore, governments vary in the extent to which they are hostile to independent organization or supportive. Hostile governments seek to impede independent organizations. The impediment can involve forbidding independent organization through various practices designed to make independent organization costly or difficult. Those seeking to organize independently under hostile governments find that they become dependent on those with the power to grant dispensations, provide a critical resource, or just look the other way. Erratic or Predictable When governments seek to support independent organization, one of the most important ways they may do this is by fostering a predictable environment in which organizations can operate. As North (1990) noted, as economic exchanges become more complex, the participants need the greater predictability that only formal governments can provide. Unpredictability can be distressing and costly not only to businesses. Even if people wish to dedicate themselves to the service of others, they need to know that their teacher salary, however small, will be reliably paid, that the hospital will have electricity, or that the funds they have raised for orphans will be used to help them and not to enrich their keepers. No one will donate to a worthy cause if he or she fears the possibility of being duped, nor will any undertake years of study if there is little possibility of practicing one’s art or science in the future. In all their forms, independent activities and organizations depend on governments to provide predictability by securing their property and punishing those who would misrepresent themselves to gain at another’s expense. The importance of unpredictability has long been a central one to both organizing and organizational behavior (Katz & Kahn, 1978; Thompson, 1967). An early theorist of organizational design, Thompson (1967), conceptualized organizational designs as ways to isolate and limit the costs of unpredictability stemming from the nature of the task performed. The classic example provided by Thompson is the manufacturing plant. Sales fluctuate seasonally, but it is more efficient to run manufacturing operations at a constant pace so parts can be ordered in advance (avoiding rush shipments), overtime work can be avoided (which can reduce quality and add to costs), and workers can be hired and

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trained before needed. If the widely variable seasonal sales orders arrived directly at the plant, the costs of a responsive manufacturing process would quickly escalate, and the inevitable delays could mean the loss of customers. Thompson (1967) suggested that the solution to this classic problem of predictability is to forecast sales demand and to manufacture products at a constant rate, allowing them to accumulate in a warehouse ready for shipment when the order arrives. Thus, the amount of unpredictability in the work has a direct effect on organizational form and practices as organizations seek to isolate the unpredictability. This allows them to gain the efficiency and performance advantages of greater predictability of operations wherever possible. Here it is proposed that just as organizations vary in form based on the unpredictability inherent in the task and technology they use, so also will they take different forms and adopt different practices in order to manage the unpredictability arising from differences in government facilitation. Unpredictability affects not only organizational design, but also the behavior of individuals working in these organizations. Those studying individuals’ behavior in organizations also have been concerned with the effects of unpredictability. At the individual level, unpredictability usually has been framed as role ambiguity, an absence of usable knowledge about the effects of one’s actions, and this is expected to lead individuals to experience greater tension, job dissatisfaction, a sense of futility, and lower self-confidence (Kahn, Wolfe, Quinn, Snoek & Rosenthal, 1964; Pearce, 1981). For individuals, greater unpredictability can mean wasted effort, and even paralyzing neurosis because they fear that any action they take may result in punishment (Seligman, 1975). Government unpredictability can be expected to have the same effects as task-based unpredictability, producing fear, dissatisfaction, and as discussed later, complex coping strategies among individuals. In fact, psychological distress can be even more severe, because governments maintain coercive powers more threatening than the more limited risks of job malperformance. Furthermore, managers running independent organizations will seek to buffer their organizational work from governmental unpredictability for the same reasons, if not in the same ways, they buffer task unpredictability. The primary way governments build predictability is through the provision and enforcement of property rights. Property rights define who has claims to the use and dispose of property, material goods, and profits (what some call “residual claims”; Jensen & Meckling, 1974). As Fligstein (1996) argued, these are more contested than many theorists seem to assume in all societies, so they properly should be seen as varying from highly ambiguous (as in societies transitioning from communism; Nee, 1992; Stark, 1996) to assumed as a given for most practical matters. Governments establish and enforce rights to hold private property, to keep it for personal use, and to use any profits. Whereas the incentive value of being able to retain profits is obvious, the important role of

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private property for organizing nonprofit independent organizations such as schools, charities, or political parties should not be underestimated. This is so because when private property rights are secured by governments, individuals wishing to organize an activity are free to purchase or hire a facility to conduct their good works. Without this right, only those who are politically favored can obtain a room to organize a conference or teach others. Under reform communism in Hungary (1968–1989), small-scale independent businesses were allowed, but commercial property was not private. This meant that only those independent organizations favored by local officials could operate. Interestingly, the transition from communism has blurred property rights in many instances. Stark (1996) described how the clear status of collective property eroded with the growth of the second economy under Hungarian reform communism. Then, it was common for managing directors of stateowned enterprises to use state-owned assets for private business or to develop sideline businesses, as was illustrated earlier by the Russian bank and marble company. These allowed the executives to obtain supplies or parts not otherwise available, to ensure that workers received the higher compensation necessary to prevent them from leaving for the growing private sector, and to provide opportunities for personal enrichment. Nee (1992) called such ambiguous property rights hybrid property. Stark (1996) presented evidence to show that such transformation, rather than clearer privatization, served to blur property rights, the boundaries of organizations, and the legitimacy of justifications for managerial action, all tending to decrease predictability. He suggested that transformation to a capitalist economy has been impeded by an overabundance of accountability, as reasons for any actions can be offered. Because so many different ministries, agencies, and banks have a voice, each can be put off by a story that one of the others will not permit, or that they require or prevent it. Under such unpredictability, independent organization is not facilitated. As an illustration, under communism health care services, such as dentistry, were state property, and dentists were instructed to serve all the patients in their jurisdiction on a first-come, first-served basis. However, under Hungarian reform communism, dentists would take patients on a private basis (patients paid a fee to get more rapid or more extensive service than allowed by the state). It was common for dentists in the late 1980s to see their state patients in the morning and their private patients in the afternoon in their state provided and provisioned offices. Once private dentistry and medicine were legalized at the end of that decade, its development was impeded because it was not economically feasible for a dentist to purchase equipment and pay office rent when their competitors continued to use their state-owned equipment and space to see private patients. Furthermore, when government laws are written and openly published so all may have access to them, this increases predictability. First, and obviously,

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written laws and regulations are clearer than spoken promises and assurances. In addition, codified laws and regulations foster predictability by reducing dependence on the personal goodwill of government officials. The importance of this practice is best seen in its violation. In China, some laws are nebu, a state secret. Factory managers can never be confident that the supplies they need to import will not be subject to a customs agent’s personal assessment regarding whether a nebu regulation applies to their imported parts. It is not surprising that remaining in the good graces of these officials remains a pressing priority for executives in China. This is not as rare as many readers unfamiliar with nonfacilitative government may assume. For example, Putin’s earliest decrees after becoming acting president of Russia in January 2000 contained numerous secret paragraphs (Gessin, 2000). In addition to secret laws, the wording of written laws may be so vague that government officials are free to apply them at their own whim (Redding, 1990; Stark 1996). The consequences of vague laws and the wide latitude they give government officials are illustrated in the article in Box 2.3. Although these examples are extreme, milder variants are pervasive. Moreover, clear, open laws that foster predictability are applied prospectively, not retroactively. Clearly, a law that did not exist at the time of the action would not be knowable by the actor. Yet, frequently, laws that are fundamental to organization are applied retroactively. For example, in the Czechoslovak case study, the managing director of an American-Czech joint venture complained that the tax laws for the current year had not yet been passed by the legislature. Yet, current law stated that the chief financial officer and chief executive officer were liable for criminal penalties (with prison terms) if any accounting law was violated, making them quite nervous. Another retroactive lawmaking practice is seen when governments unable (or unwilling) to control inflation through control of their own spending declare certain currency notes void. For example, in 1987 the military junta in Burma canceled all banknotes of the two highest denominations, thereby destroying 80% of the money in circulation, and so most the populace’s savings. Governments also seek to foster predictability for organizations by building various kinds of supporting infrastructure in many ways. Governments may invest in public goods, such as roads, education, or health care, that facilitate independent organization by reducing transportation costs, providing a healthy labor pool able to learn sophisticated technologies, and the like. Governments may establish legal frameworks encouraging the movement of capital to profitable organizations by establishing laws requiring transparent financial institutions, bankruptcy procedures, and other institutions that encourage investment in companies run by strangers rather than a cousin’s machine shop.

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Box 2.3 Do you want to deter Russian crooks from bothering your Moscow office? These days, a superstubborn receptionist rather than a lot of gun-toting bodyguards is likely to be a businessman’s best ally. Criminally minded officials rather than hoodlums are now the biggest threat to corporate security in Russia, and fending them off is a question of brain rather than muscle. It used to be different. In the anarchic days of the immediate postSoviet era, any visible business was likely to be visited by beefy, singleminded men, offering security from their competitors in return for a large cut of the profits. Refusals were inadvisable. Two things have changed. First, companies’ own security has become a lot better…. Second, the more intelligent crooks have realized that the state’s powers to extort are far more menacing than those of a mere private hoodlum. The criminal infiltration of state bodies that have the power to snoop and confiscate has been one of the most sinister developments in Russia during the past few years. Russia’s idiosyncratic system of public administration gives bureaucrats sweeping powers, and their victims correspondingly little recourse. Given a peek inside a company’s books and files, bent officials can face managers with the unappetizing choice of a huge back-dated fine for some fictitious or trivial offense (most likely compounded at some arbitrary and punitive rate of interest), or, alternatively, an “administrative payment” to the official concerned. (The Russian Mafia means business [1998, July 4], p. 60, The Economist) Another form of government-supplied predictability is maintained by institutional structures and processes that include regulation, insurance agencies, and the like (Shapiro, 1987). For example, the existence in the United States of a Securities and Exchange Commission that requires certain financial information be disclosed about companies seeking to have shares publicly traded, monitors for insider trading, and so forth helps to facilitate predictability by increasing the amount of information openly available. In short, unpredictability is both costly to organizations and personally distressing to those who must work in such environments. Governments seek to counter these problems by establishing the rights to hold property privately, and by codifying laws, applying them prospectively not retroactively, and writing them in ways that minimize the discretion of individual officials. Governments also facilitate predictability by the provision of physical, intellectual, or fiscal infrastructure. As the examples illustrate, many erratic governments are not that way by choice, but may find themselves coping with circumstances so unprecedented that they make predictability impossible, at least in the short run.

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Weak or Strong Governments differ not only in the extent of their support for independent organizations and in the predictability they provide, but also in their ability to enforce their laws and regulations. That is, many governments are incapable of maintaining stable and reliable enforcement. This has enormous practical implications for independent organization that are only now being explored by scholars. Many governments are weak, and thus unable reliably to enforce their laws governing property rights, contracts, and the like (Fligstein, 1996; RoseAckerman, 1999). Sometimes the failure of government is pervasive, whereas other times, governments may reach only limited territories or groups. Writers such as North (1990) and Fligstein (1996) have articulated the role of governments to those who may have lost sight of its importance in maintaining the conditions for independent economic activity because strong facilitative government is taken for granted in their societies. Yet strong governments are far from the rule, as is illustrated in Box 2.4. Geertz (1993) described how first the Moroccan Alawite monarchy, next the colonial powers, and then the postrevolutionary governments struggled to bring these hundreds of competing centers of power under their control. Such halfpolities become increasingly unmanageable as the demands for government facilitation commensurate with complex organization confront governments consisting of such weak groups and individuals all struggling to gain (or avoid) control. This is so because these contending groups render governments incapable of carrying out their own directives. Such nonfacilitation may range from the mundane to profound. There are numerous examples of Western executives who took government facilitation for granted and then were surprised by the effects of its absence. One is illustrated in the article excerpted in Box 2.5. In this case, it is clear that Chinese officials did not intend to impede Avon Products and Mary Kay, but that these companies rather were the unintended victims of a central government unable to control its local officials. Such a weakened government was forced to develop heavy-handed laws and enforcement regimes to prevent the more serious problem of pervasive fraudulent business practices. Furthermore, governments are weakened when government offices are acquired by patronage or sale. These sales sometimes reflect the government’s inability to control its local officials (such sales rarely are legal and formalized). Weber (1947) provided numerous illustrations of how the sale of government offices produced inept government. To cite one of his examples, when the office of provision supplier to the armies was sold, armies literally died of starvation in the field. Once supply provision became professionally managed, armies were more reliably provisioned.

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Even when not producing inept officeholders, the sale or patronage disbursement of government offices impedes independent organization. When offices are bought, government officials realize that their job security does not depend on responsive, expert service. This leads to distortions in the administration of law and regulation. Often, these officials, expecting to sell decisions to recoup their investment, coerce payments from those requesting permissions, permits, and licenses. Wade (1981) provided a detailed analysis of how corruption among Indian canal engineers had a negative effect on economic development by leading to faulty canals. He suggested that office selling was based on the assumption of a certain level of bribery opportunity. Contracts therefore were let to those organizations paying the largest bribe, who felt no need to produce functioning canals, and the resulting unreliable water supply was distributed to those private farmers who paid the highest price to the official. Weak, incapable governments create serious operational difficulties for independent organizations. To cite just one contrast, in the United States executives normally do not worry that the fire safety inspector will threaten them with an unfavorable evaluation unless they have secured personal protection through a good relationship with someone in that office, a common practice in China. This is not to say that executives operating in societies with capable governments do not have vehicles for obtaining favorable laws and regulations. It is just that they do so largely by attempting to get them written in public forums rather than by inducing an official to produce a favorable review as a personal favor. Box 2.4 Traditional Morocco consisted of an enormous, ill-organized field of rapidly forming and rapidly dissolving political constellations on every level from the court to the camp, every basis from the mystical to the occupational, and every scale from the grand to the microscopic. The continuity of the social order lay less in any durability of the arrangements composing it or the groups embodying it, for the sturdiest of them were fugitive, than in the constancy of the processes by which, incessantly reworking those arrangements and redefining those groups, it formed, reformed, and re-reformed itself. (Geertz, The Interpretation of Cultures © 1973, Little, Brown, p. 246)

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Box 2.5 Wuhan, China—Door-to-door sales networks can seem dangerously intriguing to people still gullible about tales of easy money, so when a craze for selling ankle massage machines hit this city early this year, it spelled trouble. Many thousands of wide-eyed men and women clamored for a chance to sell, convinced that it was the road to riches. They were willing to pay up to $500, almost a year’s salary for most urban workers, just for the right to cart an ankle massager door-to-door. But the frenzy, for selling was limited, it turned out, to selling. Few people wanted to buy. And no wonder: Anyone who looked closely could see that the ankle massager does not really massage the ankle at all. It simply shakes it back and forth. “I lost my own money, my wife’s money, my parents’ money, my brother’s money, my friends’ money,” said Fu Yanbing, who borrowed from so many to buy a small truckload of ankle massagers. “My wife says I have a year to pay it all back or she wants a divorce.” In April, citing a rash of fly-by-night operations like the one that tricked Mr. Fu, the Chinese government banned all door-to-door selling, or direct sales. When the announcement was made, managers at many of these companies closed shop and fled, provoking riots in Wuhan and other cities where salespeople were unable to return unsold goods. The ban has been a disaster for American companies like Amway, Avon Products, and Mary Kay, which have spent heavily trying to apply a direct sales formula for soap, cosmetics, and other products in China’s vast market. The ban was intended to clamp down on illegitimate sales operations, many of them run by local Chinese and Taiwanese businessmen, which played shamelessly on the native aspirations of a people still emerging from poverty and not yet wise to the dark side of capitalism. For a directsales giant like Amway, it has been a lesson in the utter unpredictability of doing business in China. Amway has invested more than $100 million since it came to China in 1995, and it was careful to secure official approval while building a network of 80,000 distributors, or people selling door-to-door full-time. In 1997, Amway sold $ 178 million of personal care products. Chinese officials met extensively with Amway executives in Beijing recently, insisting that Amway shift its sales from the street into stores. Amway executives say they are committed to staying in China, but want to try to avoid sacrificing their core sales method. “We realize the Chinese have concerns,” said Richard Holwill, Amway’s director of international affairs, based in Washington. “But we have a basic bond with our distributors worldwide that we will not sell in the retail outlets.” Executives at Avon and Mary Kay also expressed amazement that faced

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with a situation that called for better regulation and supervision, the Chinese authorities instead issued a blanket ban on door-to-door sales, effectively punishing legitimate operations along with fraudulent ones. (A smile, a shoeshine, and a scam in China [1998, May 27] p. A4, The New York Times. Copyright © 1998 by the New York Times Co. Reprinted by permission.) In summary, weak government can be characterized by a general inability to enforce contracts and collect taxes impartially, what commonly is called the “rule of law,” in which individuals and organizations are treated without favor, as equal before the law, by the police and judiciary. The impartial application of laws facilitates organization in several ways. First, it makes the costs of different undertakings more predictable. As Lipset (1994) stated: Where power is arbitrary, personal, and unpredictable, the citizenry will not know how to behave; it will fear that any action could produce an unforeseen risk. (p. 15) Second, organizational activities involve numerous risks based on the fact that most transactions cannot be completed on the spot. Few are paid at the end of each workday, and many kinds of products must be built over time according to specifications. Even in the case of goods or services that could be delivered and paid for on the spot, it may be more economical to take delivery when available and pay invoices once a month. All these transactions become more costly or impossibly risky without rule of law. Sometimes rule of law fails because, although a formally impartial legal system exists, it can be suborned in practice. Litwak (1991) described how illegality permeated all aspects of Soviet life, despite formal laws (see also Vaksberg, 1991). For example, tax rates (annual assessments on state enterprises) were continually set and adjusted only after government officials reviewed existing conditions, justifying this as needed to remove any inequalities. Litwak (1991) described how, despite Gorbachev’s stated intention of removing the personal discretion on which illegality was based: Virtually every law that has promised stable taxation to eliminate uravnilovka and make profit incentives operable has been overtly violated or revoked to the preservation of discretionary expropriations. (p. 86)

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NONFACILITATIVE GOVERNMENT The practices of government that operate either to facilitate or to impede independent organization have been clustered into three dimensions, as summarized in Fig. 2.1. Government hostility to independent organization may take the form of purposive strategy, as under communism, or the hostility may be partial or subtle, as when governments control a critical resource. Governments build predictability through the establishment of laws, the enforcement of property rights, and the provision of public goods. Without these things, erratic and unpredictable governments make planning difficult and can foster fear and distrust. Finally, many governments are incapable of enforcing their laws and regulations. Government weakness can lead to abuse of power by allowing unconstrained local officials to increase others’ personal dependence on them. Governments can facilitate independent organizations by supporting them, by acting predictably, and by enforcing laws and regulations. The three can operate independently, inasmuch as governments may be highly facilitating on one dimension, say supportive of independent organization, while impeding on the other two dimensions, such as erratic and weak governments incapable of enforcing their laws and regulations. Nevertheless, we often see governments clustered at the ends of all three dimensions. The modernist societies that have been the settings for most organization and management scholarship enjoy comparatively facilitative governments that are supportive of independent organization and relatively predictable and strong. Therefore, theories originating in these societies have tended to neglect the effects of nonfacilitative government on the operation and experiences of organizations. Because they have no experience with nonfacilitative government, its effects on organizations have not been visible to them. To begin a redress of this theoretical imbalance, the remainder of this work focuses on the effects of nonfacilitative government. However, throughout this work, the implications for organizations and their managers working under facilitative governments are addressed.

3 Organizing by Personal Relationships: Understanding Trust Whereas there are many reasons why governments may impede or fail to facilitate independent organization, the forms that organizations take under these circumstances are singularly dominated by reliance on a single factor: personal relationships. Without facilitative government, impersonal relationships are insecure, and when there are none of the substitutes for complex impersonal dealings that a facilitative government can provide, organizing depends on personal relationships. The hallmark of modern societies has been the institutional arrangements that can produce impersonal trust among strangers— when the scope of business activity expands beyond what can be accommodated by a friendship or kinship circle (Fligstein, 1996; North, 1990). If governments are unwilling or unable to provide the institutional infrastructure needed to support impersonal trust, individuals have no choice but to continue their reliance on the only means available to them: the personal relationships they build themselves. When government officials can use the coercive power of government at their own discretion, all others become dependent on the personal beneficence of these officials. Such government support must be personally secured, and may be obtained in many ways, all of them costly. A portion of the profits may be shared through partnerships, paid directly to officials as fees, or through such provisions as a scholarship for the official’s daughter to attend college in California. Yet, as shown in this chapter, such a return to traditional reliance on personal relationships does not, in practice, reflect warmer and more personally meaningful relationships, as suggested in the organizational literature. The following chapter elaborates on the argument that organizing and workplace organizational behavior is dominated by personal relationships. Then this proposition that those seeking to organize depend more on personal relationships for the support and predictability not provided by a facilitative government is tested using data from Chinese studies. Furthermore, observations are reported suggesting that in organizations dominated by personal relationships, the character of these personal relationships used to cope with nonfacilitative government seems to have been overly romanticized by scholars studying only organizations operating under facilitative governments.

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ORGANIZING BY PERSONAL RELATIONSHIPS OR TRUST? Long recognized, organizing based on personal relationships has been called organizing based on trust (Arrow, 1974; Bradach & Eccles, 1989), personal trust (Luhmann, 1979), clan-based organization (Ouchi, 1980), or character- or process-based trust (Zucker, 1986). Unfortunately, theorists did not derive these ideas from close observations of how such relationship-based organizations operate in practice. Rather, in some cases they have contrasted historical accounts of organizational dependence on personal relationships with modernist forms of impersonal organization to understand better the origins of impersonal organization. In others, they have sought to highlight the advantages of interpersonal trust in reducing the need for the costly surveillance systems of bureaucratic organization. In all cases, they could assume the context of modernist facilitative government. The attention paid to organizations operating under the difficult circumstances of nonfacilitative government in this discussion suggests that previous scholars’ use of the term “trust” can be a misleading description of personal relationship dependence in organizing. Trust has become a topic of growing interest to scholars of organizational theory and behavior. However, as the study of trust has expanded, so too has the number of meanings ascribed to the term. Bigley and Pearce (1998) suggested that there is a conceptual commonality these diverse definitions: Trust is based on the idea that actors (whether they be individuals, groups, or organizations) need to act despite their vulnerability to others. One way for action to take place in the face of this vulnerability is for the actor to trust that the others will not seek to exploit that vulnerability. For example, Kee and Knox (1970) suggested that trust involves situations in which at least one party has something meaningful at stake and is aware of the potential for betrayal and harm from the other (see also Pearce & Henderson, 2000). Similarly, Gambetta (1988) suggests that “for trust to be relevant, there must be the possibility of exit, betrayal, defection” (p. 217). Luhmann (1979) made a distinction important to the present argument: One can trust particular people or groups (here called “personal trust”), and one can trust organized systems (here labeled “institutional trust”). Personal trust is the belief that particular individuals or groups will not harm you based on your repeated interactions with them or your knowledge of their reputations. Granovetter (1985) and Shapiro (1987) argued that this type of trust, based on familiarity, interdependence, and continuity in relationships, plays an important role in reducing the potential uncertainty of social life. As Granovetter (1985) suggested, when given a choice, all will choose to work with, buy from, and sell to those with whom they have a relationship of trust built on personal experiences or reputation. Institutional trust is a belief that others will not harm one based on a system of institutionalized rules, structures, and expectations. Such trust is signaled by

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the presence of certain practices and structures that serve to reinforce expectations. For example, in the United States, the Federal Deposit Insurance Corporation assures bank depositors that a bank collapse will not mean the loss of their savings. It needs to be emphasized that institutional trust does not replace existing networks of personal trust, which are possible whenever particular people have frequent interaction and interdependence, but provides for the possibility of confident action under circumstances in which the size and complexity of transactions or the necessity for cross-cultural interaction precludes the possibility of establishing sufficiently extensive personal trust. Also relevant is Zucker’s (1986) distinction between three modes of trust. Characteristic-based trust is trust in others based on characteristics that one has learned to associate with trustworthy behavior. Often such characteristics are those that made the other similar to one’s self (e.g., a shared ethnicity), but they also can be characteristics that mark a stranger as possessing certain knowledge (e.g., a licensed accountant, who could be trusted to produce a balance sheet). Process-based trust is trust in one another that emerges from repeated interactions. When people work together frequently, they get to know each other and learn to trust or not to trust each other on the basis of personal experience. Finally, Zucker (1986) described how the growth of industrialization overwhelmed these two modes of trust in the United States during the 19th century. In their place arose bureaucracies and intermediaries such as professions, government licensing, and financial institutions to substitute institution-based trust for the now inadequate characteristic- and process-based trust. Zucker (1986) described how the personal trust relationships, satisfactory for economic life two centuries ago, were disrupted in the United States by the geographic spread of economic activity, the inclusion of members from different national groups (through immigration), and the sheer complexity of economic transactions that developed. She provided persuasive evidence that personal trust relations were supplemented by the development of mechanisms that fostered institutional trust. Although not Zucker’s (1986) focus, institution-based trust clearly is a feature of modernism supported by facilitative government. Licensing regimes based on particularism or bribes do not produce such trust. All too often when governments are nonfacilitative, licensing and credentialing bodies become captured by the powerful to be used as a source of revenue (Kohli, 1975). If it is widely known that credentials can be bought, they no longer signal the bearers’ expertise. Financial institutions that make loans to those favored by government officials will not foster institution-based trust. Without facilitative governments, institutional trust is not an available mode of trust. Furthermore, outside of small homogeneous traditional societies even characteristic-based trust is limited. Characteristics based on credentialing cannot be used if the credentialing bodies are not free to set and enforce standards. Without facilitative governments, those

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who wish to organize or exchange goods are reduced to reliance on personal knowledge of those to whom they may be vulnerable. Others have seen direct personal knowledge of those on whom one depends as an alternative method governing economic transactions. Ouchi (1980) argued that clans are more efficient than either formal organizations or markets when it is extremely difficult to evaluate individual performance. Clans are face-to-face groups of members sharing common values and beliefs who are confident that all the members share the same goals. Members of clans need neither the performance evaluations of formal organizations nor the clear signals of prices. However, clans are limited because they require goal congruence and traditions, requirements that may not be met in many situations. Certainly, the fact that Ouchi chose a word associated with traditional societies to describe organizations relying largely on personal relationships is consistent with the arguments made in this discussion. Similarly, Bradach and Eccles (1989) suggested that economic activity can be governed by combinations of three different control mechanisms: price, authority, and trust. Such trust is built up over time by repeated interactions. These authors echo Arrow (1974) who argued that when trust governs exchanges, “It is extremely efficient; it saves people a lot of trouble to have a fair degree of reliance on other people’s word” (p. 23). Bradach and Eccles (1989) also emphasized that trust can be valuable because it averts the costs of settling disputes in courts and of monitoring partners’ behavior for cheating (see also Kramer, 1999). These authors, like their predecessors, consider control by trust to be an unqualified good: It reduces opportunism, and therefore the costs of monitoring and the need for sanctions. Yet such opportunism-controlling trust requires either confined and stable face-to-face interactions or a facilitative government. Insight into the subtle yet critical role of facilitative government can be found in Sabel and Zeitlin (1985). They studied industrial groupings as alternatives to large-scale mass production. These industrial federations of artisans and shops each specialized in one phase of production and relied on personal relationships of mutuality and reciprocity rather than on a superordinate authority to coordinate their work. Sabel and Zeitlin (1985) observed that such extensive personal trust depended both on facilitating political institutions and on generations-long traditions of cooperation. They found that governments had a crucial role in fostering the personal trust necessary for the effectiveness of the trust-based organization that Arrow (1974), Bradach and Eccles (1989), and Ouchi (1980) described. The current study draws on this rich literature, but approaches the problem of relationship-based organization from a different angle. Ouchi (1980) and Bradach and Eccles (1989) made powerful arguments for the advantages of the less familiar trust in the face of large intellectual disciplines focused on markets (economics) and formal organizations (organization theory). Yet, their work

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reflects its origins in modernist societies with its assumed presence of facilitative government. The focus in this discussion is on how organizations operate when nonfacilitative governments make personal relationships the only available option for organizing. This is not the positive view of trust among friends—Macaulay’s (1963) common honesty and decency—but rather, closed circles that develop in the face of vulnerability and fear. The burgeoning literature on Chinese business practices describes these closed circles in detail. CHINA STUDIES Gordon Redding (1990) was among the first to suggest that the distinctive pattern of organization based on personal relationships, what he calls “Chinese Capitalism,” was developed by Chinese merchants who found themselves working in societies with weak and often hostile governments. His important work, drawing on a wide-ranging historical review and extensive current data on overseas Chinese (ethnic Chinese living in Southeast Asia), is the most complete treatment of organizational strategy and behavior under noncommunist, nonfacilitative government. Redding (1990) suggested that these behavioral patterns developed in response to the long-standing hostility toward business and the weakness of the imperial Chinese governments. This derived partly from the incapacity of the early dynasties to extend their centralized control into a vast and impoverished agricultural society without developed cities. Commerce and trade were never highly esteemed by a society that valued scholarship and agriculture, and merchants sought to turn their wealth into honorific titles, government offices (if at all possible), or agricultural holdings (Chan, 1977; Feuerwerker, 1984). That is, independent business and trade were never highly respected or seen as worthy of government support. By contrast, Jardine (1996) described the great status of merchants in Renaissance Europe, illustrating her argument with portraits of Jan van Eyck and Erasmus dressed as merchants, who intended to advertise themselves as highly respected, cosmopolitan merchants rather than artists or scholars. In contrast to Europe at the same time, imperial Chinese governments never developed or allowed independent financial institutions, independent guilds or large-scale trade fairs in the interior of the country. Redding (1990) illustrated this Chinese antipathy to independent organization by citing Chan’s (1977) prefatory phrase from an official document announcing the formation of a ministry of commerce: “because by social convention…industry and commerce are thought of as matters of the last importance” (p. 19). Furthermore, when not aloof, imperial Chinese government officials could be predatory. The primary problem was a lack of codified law. All sectors of society were completely dependent on the personal decisions of government

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officials. Legal rulings were based solely on government officials’ interpretation of general Confucian principles. There were no independent lawyers who could guide or represent business people (or anyone else) in dealing with government officials. Historians have documented how Chinese merchants and manufacturers were subject to the demands of corrupt local officials. These government officials used techniques such as destroying receipts and demanding personal payments, manipulating deadlines to extort late payments, holding cargo at ransom, among others. As Redding (1990) summarized: The position of merchant then became increasingly vulnerable the more he prospered. He had no resort to a system of property rights, even when his prosperity allowed him to buy land, as land ownership remained precarious and irrational…. The property which he held in his business was represented in cash and tangible assets rather than in shares, and was thus also subject to various forms of confiscation, operating commonly through the tax system. (p. 124) In addition, there were no Chinese free cities or guilds acting independently in their members’ interests. Government officials kept a close watch over all such activity. Only officials could claim any legitimate power, and no other person could assert any standing independent of the government, regardless of wealth or social station. When guilds did exist, they were largely honorific societies engaged in distributing honors and in occasional charitable activities. Imperial Chinese government was hostile to independent organization. Enforcement was unpredictable, and it was often weakened by wars. By the 20th century, Europe, and by extension the Americas, had centuries-long traditions of independent organizations facilitated by governments that China did not have. Redding (1990) suggested that the distinctive pattern of overseas Chinese relationship-based business developed because those conducting business learned to rely on clan- and family-based connections to provide the protection they could not assume from their hostile, unpredictable, and weak governments. Networks of family and friendship relationships could not be seized by officials; individuals could develop and control them. Without facilitating government institutions, organizations could not be depersonalized. Without predictable enforcement of contracts, business could be conducted only with those well known to those conducting business. Because Chinese business people were unable to rely on facilitative governments, they confined their dealings to members of their own clan or village. Such clans may have had members in far-flung geographic locations, but their business relationships were governed by tradition and shared values, supported by frequent personal contact and strong normative expectations of obligation to members of their network. Redding (1990) suggested that when Chinese merchants moved overseas to Southeast Asia, they often faced hostile,

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unpredictable, or weak governments in these new lands, conditions for which their traditional business practices were particularly well suited. Davies (1995) also explicitly linked the use of guanxi to China’s weak legal system. Redding (1990) proposed that dependence on personal relationships is central to such organizations. To operate overseas, Chinese merchants and manufacturers required a supportive network of ties among those who had confidence in one another through either family or long-standing stable relationships of mutual obligations. This situation still obtains in China, but it also persists at a lesser extent even in nonmainland Chinese countries such as Singapore, Hong Kong, and Taiwan that have developed comparatively more facilitative legal and governmental institutions. For example, Sit and Wong (1989) reported substantially more reliance on local relationships among small and medium-size Hong Kong firms than would be found among their Western counterparts, with 34% of subcontracting relationships based solely on verbal agreements. Wu and Wu (1980) provided a detailed description of how particular industries in Southeast Asia are organized around regional ethnicities. For example, the Hakka specialize in leather goods, whereas the Yunnanese specialize in jewelry. Many other researchers have described the importance of personal relationships in business among the Chinese (Chan & Chiang, 1994; Davies, 1995; Jacobs, 1980; Tsang, 1998; Yang, 1994). Chinese relationship-based organizing has come under increasing scholarly scrutiny, producing a vivid picture of the operation of organizations dominated by personal relationships. For example, Yeung (1997) described the activities of Suntec Investment, based in Singapore but serving as an investment vehicle for a group of Hong Kong executives. He analyzed the close friendship and regional ties of these partners and the ways in which they used their connections to win the bid for Singapore’s largest private development project. Yeung suggested that Suntec had substantial bargaining power within Singapore by virtue of its guanxi muscle, with its benefits of rich personal relationships, mutual interdependence, and obligation with the powerful, rather than any technical advantages arising from its operation of the businesses themselves. In studies of executives in China, the author found that they reported utter dependence on the personal relationships of their participants. The owner of a small Chinese textile trading company was explicit about the importance of relationships (Box 3.1). As he and others reported, personal relationships dominated all strategic and operational decisions in their organizations. UNDERSTANDING GUANXI Relationships are critical to a business operating without facilitative government. However, it would be misleading to imply that these business relation-

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ships are characterized by a warm feeling of trust. Redding (1990) noted that these relationships rather reflect “the hard edge of an unsentimental society” (p. 192), as reflected in Box 3.2. Box 3.1 In my mind all business is connections and trust. That is all it is. No trust, no connections, no business. I could not have opened my store in [the main street] if my cousin’s husband had not been in charge of that district’s business planning. If my business partner’s father were not the director of the Light Industry Bureau, I would not be in this business. (See Appendix, 1992–1993 China—U.S. study)

Box 3.2 The instrumental view of relationships, the opportunistic “using” of other people, is likely to lead to friction only when one of the partners is naive, and the naive do not survive in this environment. More typical is the working out of a cautious, watchful accommodation, each being aware that both buyer and seller should be wary of each other. (Redding, S.G. The spirit of Chinese capitalism, 1990, p. 192. Reprinted with permission from Walter deGruyter, Inc.) This contrasts with Arrow (1974), Bradach and Eccles (1989), and Ouchi’s (1980) characterization of these organizational forms as trust based. This anomaly needs to be explained. Insight into the nature of these relationships can be gained by a closer examination of Chinese guanxi. The term guanxi means relationship, but it is not a precise term in the social scientific sense; it has many subtle connotations. Guanxi is an instrumental personal tie that can range from strong, warm personal loyalties to a tie based on mutual gain or threat of exposure. The expectations of others in guanxi relationships can be extensive and subtle, as, for example, when those who have good guanxi with one another are obligated to help each other and anyone else with whom the guanxi partner has strong guanxi. Guanxi is both a relationship between two individuals and a relationship between the personal guanxi networks of those individuals. An individuals’ acquaintanceship with another is affected by the character of the relationships each has with others and the strength of any connections they may have in common.

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Yang (1994) described the long process of testing her fellow students underwent in establishing the level of their guanxi with one another. Selfdisclosure was slow and measured compared with that of the American students among whom Yang had lived previously. She explicitly tied this wariness to the system of political informers prevalent in China during the 1990s. Although the slow development of guanxi relationships is a practice with a long cultural tradition, it appears to be sustained by living under a government in which betrayal by one’s fellows is a real possibility. Although the use of interpersonal relationships created by nonfacilitative governments are best documented in the scholarly literature in China, there is ample evidence that others working under nonfacilitative governments also rely on personal relationships. For example, the Russian term “blat” and the Haitian term “pratik” refer to the same type of instrumental personal tie. Emphasis on the importance of taking the time to build personal relationships when conducting business in countries, such as Brazil, Mexico, the Arabic countries, and Asia is a standard feature of international management textbooks (Deresky, 1994). A saying in Latin America reflects this concept: “A los amigos todo, a los enimigos nada, al extrano la ley” (for friends everything, for enemies nothing, for strangers the law). Descriptions of wary, distrustful relationships also are found in scholarly descriptions of non-Chinese workplaces operating without facilitating governments (Putnam, 1993; Voslensky, 1984). For example, Haraszti (1977) described a Hungarian factory during the communist period (see excerpted in Box 3.3). Therefore, many observers have noted the dependence on personal relationships in China and other societies without facilitative governments, characterizing such relationships as often wary and distrustful, despite the participants’ mutual dependence on one another. This seems to present a contradiction. On the one hand, participants in these relationships must trust one another because they cannot rely on impersonal mechanisms. On the other hand, observers describe wary and even antagonistic relationships, that few would characterize as trusting. One way to resolve the contradiction may be to counter the implicit assumption that trust is undifferentiated (i.e., if someone is trusted to do one thing, he or she can be trusted in all things). Clearly, we trust others in particular areas, as I might trust certain coworkers to deliver their portion of the project by the deadline, but not enough to give them ownership of my house. With repeated interaction, people will learn what to expect of one another, both good and bad. The absence of an institution-based trust does not necessarily imply that characteristic- and process-based trust would be any higher. Rather, there may be less trust overall, and thus more limited and constrained organization. How then are such relationships maintained? They are more accurately characterized as relationships of mutual knowledge and dependence rather than trust. In many cases, the economists’ felicitous phrase, “mutual hostage taking,”

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is a better characterization than mutual trust. The partners need each other and are more useful to one another in the relationship than outside it. Given the unpredictable legal environment and dependence on arbitrary officials, participants often are in a position to do serious mutual harm to one another. Therefore, they would follow the old adage, “Hold your friends close and your enemies closer.” Box 3.3 Almost everyone in the section is a member of a brigade. After 2 months I learned I had been attached to the “First of May” brigade; to this day I have no idea who the other members are…. The foreman decides who belongs to which brigade, and the trade union secretary lets us know the decision during a meeting…. That is to say, a brigade is not composed of workers involved with a single type of machine, but includes an assortment of borers, millers, and turners. This most effectively prevents members of a brigade from discussing anything in common or from regulating the level of production to defend themselves against revisions of the norm…. Furthermore, this division excludes all possibility of cooperation in production. It even prevents rivalry, if that has anything more to it than this bitter struggle against ourselves and against others which goes on quite independently of the brigades. (Haraszti, A Worker in a Worker’s State © 1977, Penguin/Putnam, p. 67)

NONFACILITATIVE GOVERNMENTS AND THE NEED FOR PERSONAL RELATIONSHIPS Summarizing and extending the foregoing literature, dependence on personal relationships in organizing under nonfacilitative governments arises for several reasons: protection, information, and dependence management. Protection To begin with, if laws and regulations are not predictably enforced, the only way to protect yourself from government power is to cultivate personal relationships with government officials. Gambetta (1988; 1993) described how the personal ties characteristic of the Sicilian Mafia served to protect the organization’s members under a weak government and a dangerous environment. Varese (1994) proposed that the weakened and erratic government of Russia after the collapse of the Soviet Union led to the rise of the Russian “mafias.” When

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47

threatened, people band together in small clusters for security. These clusters are of vital importance to their members, because to be excluded is to face certain ruin. By contrast, those who live under the protection of a facilitating government are freer to venture forth and work with strangers who might help with a new market or provide a fresh source of funds. They do not need to cling to those who can protect them from danger. In other words, weak, hostile, and unpredictable governments produce a more threatening environment. Those seeking to organize independently face unpredictable government officials who may expropriate their businesses, levy unexpected taxes and fees, and possibly threaten their personal safety. Personal relationships with the powerful, often government officials, provide the only protection available under nonfacilitative governments. Information In addition to protection, facilitative governments help to provide useful information, and when that information is not freely available to all, personal relationships with those in a position to know are particularly useful. Katz and Kahn (1978) argued that the more information a manager possesses, the more politically effective the manager will be. People will tell their close connections things they would not pronounce publicly. Nonfacilitative governments limit information. As Khanna and Palepu (1998) argued, this is because in emerging markets there are problems with inadequate financial disclosure and an absence of intermediaries such as investment bankers, venture capitalists and an active business press. Therefore, executives lack adequate financial information about potential partners. Khanna and Palepu found that in India and Chile, this favored the growth of large heterogeneous business groups because such groups have competitive information advantages in such environments. Their visibility made them more trustworthy recipients of financial support and more attractive to managerial talent. In addition to their role as signals, personal relationships produce information that can help reduce the costs of transactions. Khanna and Palepu (1998) reported data indicating that obtaining loans and capital in India and Chile is substantially more expensive for companies that are not part of a large business group because financial institutions consequently view them as more risky. In developed societies with facilitative governments, credit and capital suppliers can rely on extensive databases and regulatory bodies that allow them to assess risk more accurately, thus reducing the cost of capital. This often is reflected in the substantially higher interest rates on business loans in countries with less facilitative governments. For example, during the 1989–1996 longitudinal study in Hungary, interest rates on business loans ranged from 30% to 45% per year, which were substantially higher than the single-digit rates of Western Europe at that time. Therefore, it is not surprising to find that in China personal

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introductions mean that the introducer backs or supports the people being introduced, and this provides information about their reliability. Those with personal relationships know one another, producing information about reliability and performance unavailable elsewhere. Under nonfacilitative governments, personal relationships can produce information for the participants that would be more widely available to all under more facilitative governments. Dependency Management Finally, when governments are nonfacilitative, they become a critical dependency that must be managed. A critical dependency is one that must be managed to ensure the organization’s survival. Pfeffer and Salancik (1978) summarized the argument that different organizations working under facilitative governments face different critical dependencies because of differences in their revenue sources or technologies. For example, in the United States, for these universities that depend on external grant monies, a critical dependency is attracting and retaining faculty members who obtain large external grants. Purely teaching schools depend more on attracting students, who are their primary source of revenue. Because of this dependence on different faculty contributions, the varied types of universities reward different faculty contributions. When government officials administer laws in erratic and personal rather than impersonal ways, they make the government officials themselves a critical dependency. Their benevolence and goodwill must be maintained if the organization is not to be mired in audits, seizures of assets, or other interference at the discretion of the officials. Reliance on personal relationships under high levels of unpredictability in organizational life appears to be a general phenomenon. There is evidence that organizational executives try to manage their nontask and financial critical dependencies by seeking to build personal relationships with those on whom they are dependent. Some years ago Pennings (1980), in his review of the literature on interlocking governing-board directorates, reported strong evidence that executives manage their dependencies by building personal relationships. For example, they placed executives from those organizations on which they were most dependent on their firm’s board of directors. About half of all members belonging to U.S. boards of directors surveyed by Pennings reflected their corporations’ critical dependence on reliable supplies of financial capital. He found that, indeed, the more extensive the proportion of financial executives on a company’s board, the lower the company’s interest rates, and thus their costs of doing business. Similarly, Larson (1992) described how trust, reciprocity, and mutual dependence were central to less secure high-growth entrepreneurial firms because of the greater unpredictability they faced. Certainly, the threats posed by nonfacilitative governments are at least as problematic as those involved in

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49

technological or market shifts. Under facilitative governments, organizations operate within predictable, supportive institutional systems. The participants do not fear that their competitors may harness the power of government to expropriate their company or have them thrown in jail for tax fraud. Furthermore, as much as executives detest having to battle in court over patents, they have the luxury of assuming a sufficiently facilitative government to make patents and copyrights safe enough to have economic value. To restate this concept in more general terms, the greater our dependence on others, the more likely we are to cultivate a personal relationship of mutuality with those on whom we depend. This may be done by placing such persons on our organization’s board of directors, but this is not the only relationshipenhancing option. Executives also may arrange for an appointment in a prestigious club or a prominent position in a professional association for someone they wish to cultivate. Jacobs (1980) found that interorganizational relationships in Taiwan were enhanced by giving gifts and hosting banquets. None of these practices would be visible in data sets confined to lists of boards of directors. That is, formal appointments in organizations hardly exhaust the opportunities for the building of mutual dependence. Under nonfacilitative governments, personal relationships are more critical because they become the primary available way to build and sustain organizational work. Because facilitative government and other structures of modernism are intended to build substitutes for personal relationships where complexity and scope require extensive exchanges with strangers, when those substitutes are not available, personal relationships with the powerful are all that is left. Relationships provide protection and needed information, so they become critical to survival. Whereas personal relationships are useful for virtually any dependency, they are particularly well suited for managing the insecurity posed by nonfacilitative governments. Such environments are significantly more threatening and opaque, so the protection and information that relationships with the powerful provide are quite simply indispensable. EVIDENCE OF RELIANCE ON PERSONAL RELATIONSHIPS UNDER NONFACILITATIVE GOVERNMENTS It would be useful to have systematic tests of the insights that scholars such as North (1990), Redding (1990), and Davies (1995) have regarding the role of personal relationships when governments are nonfacilitative. The researchers have observed the operations of organizations and their participants in a country or two, or have traced the historical development of institutional forms in one set of circumstances. Khanna and Palepu (1998) have provided evidence for the effectiveness of formal business groups in prereform Chile and India, but

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business groups do not exhaust the possibilities for building personal relationships. The author and her colleague, Katherine Xin, have undertaken to test hypotheses derived from the preceding arguments regarding the effects of differences in government facilitation on executives’ dependence on personal relationships in organizational work. In addition, the longitudinal project in Hungary provides an opportunity to isolate the effects of government. Hungary’s transition from communism involved an abrupt weakening of government strength, which occurred simultaneously with a reduction in hostility to independent organizations with their legalization. This is in contrast to the centuries-long evolutions occurring in most other societies that make it difficult to isolate the role of government. Dependence on Personal Relationships Under a Nonfacilitative Government In the first study, we proposed that during China’s transition, personal relationships would be more critical for the independent privately owned companies than for either the communally owned or state-owned enterprises (for more details, see Xin & Pearce, 1996). In China, state-owned enterprises, owned by the central government, were the backbone of their socialist economy. These state-owned enterprises obtained most supplies and delivered their output according to government directive. However, beginning with the reforms of the 1970s, rural communes, municipalities, and other local and regional entities were allowed to develop businesses, such as manufacturing facilities. These are called communally owned enterprises, and as Nee (1992) articulated, these organizations were quasi-independent of government. Their ownership by local governments gave them priority access to supplies and prevented any threat of expropriation or extortion by government officials. However, they sold their products in highly competitive international markets. Finally, in the late 1980s, private individuals were permitted to own and operate wholly independent businesses. The explosion of economic activity in the 1980s and the difficulty a communist country had regulating, controlling, and facilitating these numerous independent and quasi-independent organizations was reflected in the earlier story of door-to-door sales in China. Not only was much of the legal infrastructure necessary to a capitalist economy not yet developed, the government found itself struggling to implement an appropriate legal sy stem for communal and independent businesses. That is, in the 1980s, China’s government became less hostile to independent organizations, yet their proliferation increased unpredictably and exposed pervasive government weakness. The author’s group proposed that under these circumstances, the executives of independent, privately-owned companies would have a greater need to manage their dependence on government officials by building personal

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relationships with them than would the communal or state enterprises. Without a facilitative government, all Chinese executives fear arbitrary action by government officials, yet, because government officials oversaw governmentowned organizations, executives there had less to fear from arbitrary assaults by their governmental colleagues. By contrast, independent companies would have no such structural protection. The author’s group suggested that, consistent with the foregoing theories, the executives of these independent organizations would have needed to substitute for their relative lack of structural protection by endeavoring to build their protection via personal relationships. As a test for the idea that personal relationships are more important for independent and communal enterprises, executives in the independent companies should report, first, greater dependence on their personal relationships for business success, second, that their most important business relationships are with national government officials, and third, that these relationships are most useful as a defense against threats, as compared with the experience of executives managing state-owned enterprises. It was found that, after controls were used for organizational age and size,1 the executives of the independent companies did indeed report that their interorganizational relationships were relatively more important to the success of their businesses, that more of these important connections were with national government officials, and that the relationships were more likely to be used to defend the organization from threats than reported in the communal or state enterprises of their counterparts (Table 3.1). It can be seen that the relationship pattern of the communal enterprise executives’ differed from that of the stateenterprise executives in only one way: They gave primacy to cultivating relationships with national government officials, as did the independent company executives. An example of how these independent company executives used personal relationships to defend themselves from the threats inherent in working under a nonfacilitative government is illustrated by the quotation in Box 3.4 from the owner of an independent computer company. “X” is the general-manager interviewee’s administrative assistant and the son of an important government official hired to strengthen the relationship with the father.) It is worth noting that this quotation does not reflect a warm trusting relationship so much as the conniving adversaries seeking to extract as much as possible from one another.

1

It was necessary to control for age and size because these were confounded with the different ownership types. The independent organizations were younger and smaller than the communal and state organizations. Because smallness and newness are known liabilities for organizational survival, it might be possible that the executives in the independent companies established more connections for these reasons rather than for the hypothesized reason of structural protection. (See Xin and Pearce, 1996, for a more complete discussion of this issue.)

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Box 3.4 My company had bad luck. We were audited for income tax fraud. There is no real income tax law. The Auditing Bureau has Red Eye Disease [jealousy]. Whenever they see a private company making money, they come and find trouble. My company got in the newspaper for excellent performance, but that performance did not come easy. I don’t want to get in the newspaper anymore. The tax auditor just showed up one day, and wanted to see our income tax return copies and company books. There are no standardized rules for keeping books in China, especially for private companies like ours. If they want to find fault with your income tax, they will always find something wrong. If we were found guilty of tax fraud, we could face thousands of yuan in fines and the possible suspension of our business license. All our hard work would be gone like the wind. Our accountant was very worried. However, my administrative assistant is X, a high official’s son. I called X into my office, and told him the situation. He smiled and said, “Give me a 2,500-yuan fee [equivalent to a middle manager’s six-month salary], and I will take care of everything.” I had no choice. So I said, “I will give you 2,500 yuan, but you will lose your job if you cannot handle this crisis.” I stayed in my office, restless. By noon, my phone rang. X asked me to go to lunch with the auditors at the best restaurant in the city. We hired a Mercedes Benz and went to lunch. The auditors kept saying that they needed only a working lunch. I was worried that X had gone overboard, but X was right. After expensive drinks and Peking duck, the head auditor started to praise our accounting sy stem, saying how good and efficient it looked. This lunch lasted 3 hours, and cost plenty, but saved my company. After lunch the head auditor left me a notice requesting 2,500-yuan income tax supplement. The reason he had to force us to pay the supplement was that he had to report to his boss on what he accomplished that day…. There are too many threats for small companies like mine. There are no laws really to protect you. You cannot compete with state-owned companies; they are rich and powerful. The only way we can protect ourselves is through personal connections, trust, and being flexible. I hired X, a high school graduate, with his father’s connections in mind. It does not sound right but everyone does it; you have to be open-minded. If I had refused to give X the 2,500-yuan fee, I probably would be out of a job and the company would be gone. (See Appendix; 1992–1993 China—U.S. study)

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These data provide an independent confirmation of the extent to which executives operating independent organizations under nonfacilitative governments depend on personal relationships. Under China’s nonfacilitating government the lower their structural protection via government ownership the more likely these executives were to report depending on their personal relationships for protection and seeking that protection by cultivating relationships with government officials. Nevertheless, this study did not directly compare organizations under governments that differ in their facilitation of independent organization. Therefore, it was decided to further explore these ideas with comparative data from executives working under a facilitative government. TABLE 3.1 Dependence of Chinese Independent, Communal, and State-Owned Company Executives on Their Personal Relationships Independent c,d

Reported importance of relationshipa,b

3.79

Relationship with national government officialb

0.44d

Use of the relationship as a 4.53c,d defense against threatsb

Communal 3.18

e

State-Owned 3.17

p

p < .01

0.50d

0.24c,e

< .01

4.03e

4.05e

< .01

a

First variable is the response to question, “How important is this relationship to you?” as rated from 1=(not important) to 4=(vitally important). Next is the response to the question, “What is the primary reason for the person’s usefulness?” coded as 1=(important connection in national government) or 0=(important connection in nongovernmental company). Finally, the executives rated their agreement with, “This relationship is useful as a defense against threats,” as rated from 1=(strongly disagree) to 5=(strongly agree).

b

Comparisons are from the 1992–1993 China—U.S. study, and were first reported in Xin and Pearce (1996).

c

Significantly different from communal executives’ reports.

d

Significantly different from state executives’ reports.

e

Significantly different from independent executives’ reports.

Comparative Dependence on Personal Relationships Under Facilitative and Nonfacilitative Governments Comparative data were collected in a country judged to have a more facilitative government: the United States. Executives were expected to depend more on

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their personal relationships in their organizational work under the less facilitative Chinese government than in the United States with its centuries-old legal and economic systems and its frequent self-characterization as “a nation of laws, not men.” For the reasons outlined earlier, Chinese executives were expected to be more dependent on personal relationships than American executives. Although it was expected that interorganizational personal relationships would also be used by American executives to manage their critical dependencies, the overwhelming need of Chinese executives operating without a facilitative government to secure their existence should have been reflected in several differences. First, it was expected that Chinese executives would report greater dependence on their personal relationships, second, that these relationships would be used to protect them against threats to a greater extent than they are by the Americans, third, that they would be more likely to ask the connection to make an exception or grant them a dispensation, and finally, that such business relationships would more likely be built on a personal foundation than the business relationships of the matched American executives. Chinese executives, who must operate without a comparatively more facilitating government, are proposed to be more dependent on their personal relationships than American executives no matter what their industrial sector. Whereas Americans operate under a government in which such fundamental threats as arbitrary local officials and expropriation of their firm by government officials are unimaginable, Chinese executives do not have this luxury. Because Chinese executives do not have secure property rights, their most critical dependency is to secure their businesses from basic threats to their existence by building personal relationships (i.e., good connections) with those in a position to protect them. As Hsing (1998) noted, government officials have great personal discretion in the granting of licenses, building permits, taxes, and the like. If the preceding arguments are correct, executives operating in such nonfacilitative environments would seek personal relationships with those in a position to protect their business from expropriation, and from whom they can obtain the permissions needed for certain transactions. They need officials’ personal approval to obtain a favorable location for their organization, to secure convertible currency, or to get loans or supplies, which can become scarce overnight. In the United States, these critical dependencies are handled by impersonal government regulation or the market, and do not require the intervention or protection of powerfully placed good connections. Another reflection of Chinese executives’ use of their personal relationships to solve the different critical dependencies as they work under a nonfacilitative government is their use of relationships to cope with unpredictability resulting from instability and change. New regulations and laws to establish an infrastructure for private enterprise in China are being developed, revised, adapted, and changed. Furthermore, unlike the formerly communist countries of Europe, China is not adopting, wholesale, the European Union’s legal structures

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for a market economy. Rather, it is attempting to develop a third way by maintaining extensive government ownership of, involvement in, and control over a market economy (McKinnon, 1994). What China is attempting to do has no historical precedent, so innovative policies are developed and found not to work (or to have unintended consequences), so they are scrapped, modified, or circumvented. Furthermore, the opaque nature of law-making in China means that these fundamental changes are made more rapidly and with less advance notice than they would be in the United States, with its open political debates and free press. These frequent changes in laws and regulations create many challenges for those operating businesses in China. Often, no legislation applies, or there are contradictory directives, or a secret law may apply in a given case. Even with the best of intentions, executives find themselves caught in impossible and contradictory situations. It simply would not be possible to know every law because many are vague or mutually contradictory (see Gregory, 1989; Newman & Nollen, 1998; Pearce, Branyiczki, & Bakacsi, 1994 for discussions of the contradictory demands placed on enterprise executives in societies making the transition from central planning). Under these circumstances, executives use their personal relationships with government officials to help them cope with this unpredictability. There is no possibility to trust in the laws, because they are too unclear and change too often and too unpredictably. The only safe harbor is to have good connections in the government to ensure that you are warned and protected from unreasonably harsh interpretations of unknowable laws and regulations. Not only would Chinese executives see themselves as more dependent on relationships to secure themselves from threats posed by nonfacilitative government, but once these relationships are established, the ability to obtain dispensations from laws and regulations can be used offensively as well as defensively. Certainly, whereas nonfacilitative governments create difficulties for those organizing independently, it must also be noted that aggressive executives can profit from the predictability and support they have built interpersonally that their competitors may not have. In both cases, whether executives need protection from unpredictable interference or seek to use the possibility of favorable treatment to their competitive advantage, they need to have some way to obtain dispensations. The ability to gain the favorable backing of officials under nonfacilitative government can be a powerful competitive advantage, and a weak, nonfacilitating government provides more scope for those who wish to benefit from their good connections. In contrast, American executives can expect to conduct business without much need to use good personal connections to obtain relief from law or regulatory enforcement. In the United States, it is more difficult for local authorities to grant dispensations: Stronger government means that officials are more constrained by law. Therefore, American executives were expected to be

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less likely than Chinese executives to report the cultivation of personal relationships for the purpose of obtaining legal and regulatory dispensations. Finally, because personal relationships with government officials are more critical to executives operating under relatively nonfacilitative governments, and because executives expect to ask officials for dispensations that may be risky for the officials, it was expected that proportionately more of these relationships would have a personal rather than a professional or occupational basis. That is, as the earlier quotation indicated, the Chinese executives would report that they knew their business connections personally first, then built businesses based on that connection. By contrast, American executives would be more likely to cultivate relationships based on their business involvement, attending professional association meetings or involvement in a favorite charity. This is consistent with the observations of Jacobs (1980), Redding (1990), and Yang (1994), who have commented on the family or home village basis of Chinese guanxi relationships. With a facilitative government executives are free to build relationships to solve critical dependencies arising from markets or technologies. They join associations or hire consultants because they want to develop relationships with those knowledgeable and capable in those areas. Under nonfacilitative governments, the need for basic security becomes the overriding critical dependence. This difference should be reflected in reports of all Chinese executives (in independent, communal, and state organizations), indicating that their most important business connections are personal friends whom they have known for a longer period of time rather than purely business associates as with comparable American executives. These arguments, in fact, were found to be supported by the executives’ reports (Table 3.2). Indeed, Chinese executives reported that they depend significantly more on personal relationships for their organizations’ success; that they use relationships more as a defense against threats and as a way to obtain exceptions to rules, laws, or regulations; and that they have known their connections longer and experience a relationship based more on personal than on purely business contact with their most important business connections than do a matched sample of American executives. The self-reports of these Chinese and American executives provide consistent, independent confirmation that Chinese executives under a less facilitative government are more dependent on their personal relationships, and that they need to cultivate such relationships with government officials secure themselves against threats from arbitrary and potentially predatory government officials, and to secure personal dispensations from rules, laws, or regulations that may be vague or erratic.

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TABLE 3.2 Dependence of Chinese and American Executives on Personal Relationships Chinese Executives

American Executives

p

Reported dependence on relationshipa,b

3.26

2.62

< .01

Use of the relationship as a defense against threatsb

4.18

3.70

< .01

Use of the relationship to obtain exceptions to rules

0.17

0.01

< .01

The characterization of 0.22 relationship as more personal than business

0.06

< .01

Length of relationship (years)

6.94

< .01

9.30

a

This variable is the responses to the following interview questions: “How would you characterize your dependence on one another?” (1=little mutual interdependence, 2=the person depends on me more than I depend on him or her, 3=we are both dependent on one another, 4 =I depend a great deal on this person whereas he or she is not very dependent on me).” This relationship is useful as a defense against threats,” as rated from 1=(strongly disagree) to 5= (strongly agree). In response to the question “The last time you called on this person for assistance, describe the circumstances,” and presented with 14 choices, if the category “to obtain rule exception treatment” was selected this variable=1, otherwise=0; executives were asked “How did you first meet?” with the categories relatives, home town, former classmates=1 and political activities, industry association and in the course of doing the job=0. b

Data are from the 1992–1993 China—U.S. study. (See Appendix)

As the quotations hopefully have illustrated, when these Chinese executives speak of their dependence on their personal relationships, they speak of a dependence born of arbitrary nonfacilitative government. Yet, although substantial differences are found between Chinese dependence on personal relationships, as compared with American settings, such observations cannot definitively demonstrate that this arises from differences in the extent of government facilitation rather than some other feature of society or culture. Studies of the transition from communism can help isolate government facilitation from these other variables.

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The Effects of Government Change Countries such as China have institutionalized behavior patterns that have endured for centuries. As such, it is difficult to isolate nonfacilitative governments as a primary factor in the observed differences in the reliance of the Chinese on relationship-based organization. Indeed, it could be argued that such patterns lead to nonfacilitative government because participants learn to rely on their own personal relationships and thus see no need to press for strong facilitative governments. Fortunately, the political transitions in the other formerly communist countries provide a natural intervention that allows us to began isolating the effects of government. First, Whiteley, Henderson, Czaban, and Lengyel (1996) discovered that, contrary to their expectations, personal relationships became more important to the executives of state-owned companies during the early stages of Hungary’s economic transformation. They found that these corporatized (but state-owned) enterprises still depended on the government, with executives continuing to focus on their relationships with government officials rather than on their customers. Apparently, the political maneuvering and frequent changes in policies and personnel during the early transformation led to substantial unpredictability that executives tried to manage by maintaining personal relationships with government officials. Furthermore, Whitley et al. (1996) found that the relationships of these enterprises’ with their customers and suppliers had changed very little, with continued high levels of informal communication, when compared with similar British executives. Whitley et al. (1996) summarized their results as suggesting that the expectations that corporatization (i.e., increased autonomy) for state-owned enterprises awaiting privatization would lead to more impersonal market-driven actions by executives were obviated by a nonfacilitative government. Increasing government unpredictability made personal relationships with government officials, suppliers, and customers even more important. In an environment of uncertain privatization, rife nonpayments by state-owned customers, and transforming legal and banking environments personal relationships helped to ensure survival. Second, in a paper based on the 1989–1996 longitudinal project in Hungary, Imre Branyiczki, and the current author proposed that the increased unpredictability in the early period of the transition led Hungarian managers to be even more dependent on the good graces of government officials than they had been under reform communism (Pearce & Branyiczki, 1997). The process of privatization in Hungary was long and drawn out, characterized by changes in ruling parties with shifting political objectives. The transition introduced new players (foreign owners or alliance partners), but these simply added to the complex maze of relationships that needed to be maintained. As Stark (1996) noted, in Hungary, large state combines were broken into hundreds of incorporated shareholding companies. These increased 20-fold, and limited liability companies went from 450 to 79,000 between 1989 and 1994. These

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entities were in turn owned by a myriad of new government agencies. In addition to the old Ministry of Industry, there were various holding agencies, and privatization agencies themselves formed and revised over time. Furthermore, complex joint ventures and alliances with domestic and foreign private companies added to the dense network of parties with a say, a stake, or an opinion about these recast organizations. Hungarian enterprise executives needed to redouble their efforts to foster and sustain good relationships with an exploding number of other executives and government officials. Yet, unpredictability began to overwhelm the capacities of individuals to cultivate relationships. A heavy personal investment in cultivating good connections could be wasted as people rotated into and out of power, as it was for the managing director in the porcelain factory, described in Box 3.5. In Hungary, as government unpredictability increased, executives sought to manage it by cultivating relationships with those who could help or protect them. The upheaval of the transition meant that it became more difficult to know who had power, leaving many invested in relationships that were no longer useful and mistakenly ignoring the newly important. Nevertheless, their assumptions that unpredictability could best be managed by relationshipbuilding remained. Box 3.5 The managing director had been enrolled in a Western-university sponsored Master’s of Business Administration program and had decided that he needed to reorganize the company to get rid of what he called “old party hacks” in middle management. The factory is located in a distant small village where there would be no other job opportunities for fired middle managers, and so it perhaps should not have been surprising that a middle-manager party hack would fight his removal as vigorously as he would fight his physical death. Half of the ruling company council was composed of these middle managers (the managing director had appointed his direct subordinates to this reform-mandated council when it was created to help him maintain his personal control). Apparently these middle managers were able to persuade their colleagues on the company council that this managing director was a very dangerous man, and that a majority had voted to fire him last month. The real use of what had been widely seen of formalistic and meaningless powers by the company council shocked the country; the story was front-page news in the Budapest newspapers. The managing director felt so humiliated that he moved out of his company house immediately and no one knows where he is. (See Appendix; 1989–1996 Hungarian longitudinal study)

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Personal Dependence and Trust When governments are nonfacilitative, organizations become dominated by dependence on personal relationships because this is all that participants have. Descriptions of business practices in China as well as evidence from the author’s own work underpin the argument that under nonfacilitative governments, those running organizations depend more heavily on their personal relationships, and that they use those relationships to secure protection from threats that are more completely managed by facilitative governments. Under nonfacilitative governments, executives are more likely to try to develop relationships of mutual dependence with government officials, because these officials are less constrained when their governments are weak, unpredictable, or hostile. As also reflected in the quotations, although this reliance on personal relationships has been called trust-based authority, these relationships are not necessarily characterized by the warmth and supportiveness usually associated with that word. Rather, this is organizing based on mutual personal dependency rather than trusting relationships. The relationships are characterized by varying norms of mutual obligations and binding mutual dependence. Under nonfacilitative governments, personal relationships with government officials provide executives with the support and predictability they need to organize. The participants may have warm trusting feelings about one another, but this is not necessary, nor, as these data indicate, is it common.

4 Organizing by Personal Relationships: Meritocracy and Employee Empowerment Organizational dependence on personal relationships as a means to operate without facilitative governments may have many effects (e.g., financial and strategic), that are beyond the scope of this work (see excellent descriptions of strategic implications in Redding, 1990; Khanna & Palepu, 1998). In this chapter the effects of relationship-based organizing on organizational form are discussed. It is proposed that organizing based on personal relationships results in highly centralized organizations that, whether large or small, undermine performance-focused meritocracy and disempower employees. Furthermore, these organizational practices are best illustrated by distortions in human resources management departments. EFFECTS ON ORGANIZATIONAL FORM Highly Centralized Decision Making Redding (1990) suggested that dependence on personal relationships led to highly centralized decision making in the overseas Chinese organizations he observed. He described the process by which all decisions, both trivial and important seemed to gravitate to the owner’s desk: “When authority becomes so bound up with a person, it becomes very difficult for others to exercise it on his behalf. It remains indivisible” (p. 131). The organizations are so dependent on the executives’ own networks of personal relationships that the executives must conduct business directly among the principals who have the relationship. For example, important knowledge about what is possible and who is protecting whom cannot be disclosed for fear of exposure. Such extreme centralization also fosters secrecy. Along with the strong hint of corruption in many of these relationships, it was found that a substantial proportion of Chinese executives reported that their most important business connections were kept secret from others. On a 3-point scale, with response options ranging from 3=(completely secret) to 1=(completely open), Chinese 61

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executives reported a mean of 1.75, as compared with 1.03 for the Americans (p<.01). This practice of keeping contacts secret from employees was familiar to (if not always practiced by) the Chinese executives, but virtually unheard of by American executive interviewees. Such secrecy has its origins in the need for personal relationships with government officials to ask for (dangerous) dispensations. When critical information is held only by those at the apex of an organization, they dare not decentralize decisions to those who lack this critical information. Under nonfacilitative governments, decentralization could result in subordinates making costly mistakes that could risk these critical relationships with the powerful. Small Organizational Size Redding (1990) reported that because of the need to remain centralized, the Chinese organizations he studied remained small, or that when they did become large, they used simple technologies that allowed them to be centrally managed by one individual, as if they were small. This is so for several reasons. First, the heavy centralization of decision making necessarily limits organizational size. The owner of a one-facility doll manufacturer can make every decision, whereas the head of a multinational aerospace manufacturer cannot. Redding notes that even the large organizations, such as those found in Hong Kong, are primarily property business; ones in which decisions can be made by one or a few individuals who know the property market well. Furthermore, because the Hong Kong government still owns so much of the land, Hong Kong real estate is an industry in which government connections are particularly useful. Small size provides other advantages under nonfacilitative government. In small organizations, everyone can know everyone else, so there can be shared information about performance demands. When performance objectives are clear to all and everyone knows everyone else well, meritocracy and a performance-focus can be sustained without formal rules, written records, or even the coldness of impersonal treatment. The association between larger size and greater formalization of rules and practices has long been accepted by those studying organizations in modern societies (Pugh, Hickson, Hinings, & Turner, 1968). In small organizations there are fewer information problems; monitoring is easier; and the incentives can be clearer. In addition, the wariness described in chapter 3 also would work against allowing subordinates to make critical decisions. In short, according Redding (1990), nonfacilitative government should foster small, highly centralized organizations. Nevertheless, there is contradictory evidence. In communist countries, organizations grew large. However, they did so for political, not technical, reasons. This occurred partly because it was easier for authorities seeking to command an economy to supervise fewer entities, and partly because larger size gave the executives of the organizations themselves more bargaining leverage

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with government authorities (Gregory, 1989; Kornai, 1992). That is, fewer entities made it easier for the primary actors (i.e., company managing directors and central planners) to maintain personal relationships with all those who may have been important to them. Therefore, in Czechoslovakia dozens of small textile companies in the Bohemian region of Broumov were combined into the Veba textile enterprise (Newman & Nollen, 1998), and this was repeated dozens of times in all of the communist countries during their first decades. Under communism, organizations were not large because size gave them any technical or market advantages. They were large because size gave them political advantages. They were too big to be ignored in government allocations, and threats of layoffs (if allocations were meager) meant potential region-wide unrest. In the emerging markets they studied, Khanna and Pelapu (1998) noted that size gave business groups political advantages. Thus, large organizations established for political reasons in settings where the technical demands of maintaining personal relationships for protection, information, and management of critical government dependencies favor centralization, which in turn favors small size. The maintenance of large organizations in such technically unfavorable circumstances presents an anomaly: large organizations operating under circumstances that should make that very difficult or even impossible. Does this mean that theories in this volume about organizational size are wrong? In this chapter it is argued that, to the contrary, the form and operation of large organizations under nonfacilitative governments provide fresh evidence in support of earlier theoretical works. What is more important, the distorted practices of large organizations in societies without facilitative governments suggests further refinements about our understanding of organizational form. These out-of-place large organizations are called pseudobureaucracies, an organizational form with many of the formal features of bureaucracy, but with those features distorted, sometimes subtly and sometimes starkly, by the dominance of personal relationships. This argument begins with a careful examination of bureaucracy. As the distortions of pseudobureaucracies make clear, subsequent scholars too often misunderstand Weber’s (1947) original argument, confusing what are widely accepted bureaucratic ends with the limited 19th century means Weber described. Following this, the reasons why bureaucracy is undermined by a dependence on personal relationships as a basis for organization are outlined. The author makes the case that the dependence on personal relationships necessary under nonfacilitative governments appears to be fundamentally incompatible with the impersonal performance-centered goals of bureaucracies. Finally, the chapter concludes with a discussion on the implications of pseudobureaucracies for a more complete understanding of organizational form and the behavior of participants.

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WEBER’S RATIONAL-LEGAL BUREAUCRACY Bureaucracy is a form of organization originally developed, and one might say perfected, by governments, and then adopted first by Western businesses as the size, scope, and complexity of their operations overwhelmed traditional practices in the 19th and 20th centuries (Chandler, 1977). The word bureaucracy first appeared in English print in 1848 in John Stuart Mill’s ([1848] 1961) Political Economy II, in which it referred to a form of government dominated by professional governors, hence its meaning, “rule-by-office.” This original meaning is still reflected in the term’s use as a synonym for government organizations, as for example, in the title of Wilson’s (1989) volume describing the functioning of government organizations: Bureaucracy: What Government Agencies Do and Why They Do It. Of course, the term retains its pejorative reference to a usurpation of power by officials, bureaucrats, or employees. To understand the impact of the domination of organization by personal relationships it is necessary to understand what organizational rule-by-office actually means. Max Weber, the German sociologist, first articulated the organizational principles characteristic of bureaucracies 100 years ago. He was interested in describing the different bases for authority, or the different reasons why anyone willingly obeys another’s commands. He distinguished the historically newer organizational form, which he called bureaucracy, from premodern systems of authority which he called traditional and charismatic authorities. Weber (1947) argued that bureaucracies exercise a form of authority based on, “rational grounds—resting on a belief in the ‘legality’ of patterns of normative rules and the right of those elevated to authority under such rules to issue commands (legal-rational)” (p. 328). Weber’s characteristics of bureaucracies appear in Table 4.1 (Weber, 1947, pp. 329–333). First, bureaucracies have a consistent set of written rules, intentionally established rather than handed down from tradition. In bureaucracies, rules are established for a reason and justified as furthering the organization’s formally stated objectives. Of course, the rationale for rules may not be known by all. Nevertheless, the familiar statement, “There doesn’t have to be a reason; it’s the rule,” is characteristic of traditional societies, but not bureaucracies in the ideal sense. Of course, in practice, rules may become outdated, and officials may not want to bother to explain them. But this is a human failure to implement bureaucracy fully. As Perrow (1979) noted, rules and regulations seem to be the very essence of bureaucracy to many and have drawn a lot of criticism: Rules are needed in organizations when complexity increases due to variability in personnel, customers, environment, techniques of producing the goods and services and so on. When these matters

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are complex, it is not possible to allow personnel to “do their own thing,” no matter how much we might prefer that. (p. 24) Second, no one is above the law in a bureaucracy. This means that the company per-person limit on meal expenses holds equally for the president and the sales trainee. The company president cannot use his or her power over the bookkeeper to seek personal exceptions to rules. This feature of bureaucracy is regarded as central to its legitimacy by those, such as clients and low-level employees, who do not wield much power (Tyler, 1990). TABLE 4.1 Characteristics of Bureaucracy Intentionally established, purposeful rules exist. The rules apply equally to all. Allegiance is owed to the impersonal order, not to persons. Spheres of authority are limited, with separation of official property from personal property. Each office is unambiguously responsible to another. Meritocratic hiring and promotion occurs. Actions and decisions are recorded in a written record.

Third, the law, rule, or regulation, is obeyed rather than a particular person: In the case of legal authority, obedience is owed to the legally established impersonal order. It extends to the persons exercising the authority of office under it only by virtue of the formal legality of their commands and only within the scope of the authority of the office. (Weber, 1947, p. 328) Military recruits are taught to salute the uniform, not the person. In ideal bureaucracies, employees do not do as their supervisors suggest because they like them, or what is most important, they do not disobey because they detest them. They do so because the person making the suggestion legitimately holds the office, and following the supervisor’s commands is what employees agreed to do when joining the organization. In ideal bureaucracies, there are no personal loyalties, only loyalty to the system. The computer-support technicians are supposed to carry out repairs and maintenance according to their rule, “in the order received.” They should not repair the machine of an important person first, or let the one from the rude engineer languish for months.

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Fourth, in bureaucracies obedience is owed only within a sphere of delimited authority. This means that authorities are allowed to give orders only regarding job-relevant behaviors. Your supervisor can tell an employee to put one project aside and work on another one that has a higher priority, but cannot dictate the employee’s social life. In practice, this zone of authority is not always unambiguous. For example, can the clerical supervisor order the clerk-typists to wear skirts, hose, and closed-toe shoes? The governing board of the orchestra delegates the right to decide on the season’s music to the music director, but later panics because the director’s season of challenging and obscure pieces has led to a sharp drop in season subscriptions. Bureaucratic participants often are consumed by these jurisdictional disputes without realizing that only with bureaucracies are there zones-of-responsibility to fight over. An aspect of delimited authority particularly relevant to this discussion is a complete separation of officeholders’ personal property and property belonging to the organization. The resources and power used on the job are only for the assigned task and are not the personal property of the employee. For example, in an ideal bureaucracy, accounting supervisors may not order their subordinates to spend Saturday helping them move furniture to their new apartments. Similarly, employees may not appropriate their office (i.e., use it for personal gain). Job rights exist, when they do, according to rules intended to ensure that the employees conduct their duties in a normatively desired manner. Professors in universities receive lifetime job tenure (personal rights to an office) not because they are personally deserving (whatever they may think), but because of a reasoned judgment that this frees them from pressures by politicians or donation-hungry administrators so they may seek and publicize the truth. That is, job rights exist only when extending them facilitates organizational goal attainment. Certainly, this principle is difficult for anyone with power to maintain. Needless to say, the temptations of officials working for weak governments to use organizational resources for their personal gain are commensurately more seductive. Neither offices nor decisions may be bought or sold in ideal bureaucracies. Decisions are to be made on the basis of impersonal rules or professional judgments. They are not be exchanged for money or favor. Again, although violations of this principle of ideal bureaucracy are most visible in societies with weak governments, they are not confined there. In all countries, advertisement buyers have accepted kickbacks for placing ads in particular media, and purchasing agents have directed company purchases to the suppliers who gave them football game tickets. Fifth, in a bureaucracy, usually organized as a hierarchy, each office is unambiguously responsible to another, with each lower office under the supervision of a higher one. The formalization of responsibility serves two important purposes. First, it guarantees that no employee is outside the organization’s control. This is the basic organizational control system: everyone

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is always responsible to someone else. In addition, this allows the handling of the unexpected. If something does not fit the rules, it is declared to be an exception and passed up the hierarchy of responsibility until it reaches someone who can make a decision in this exceptional case. This procedure is intended to ensure that the exceptional decision, which may have broader implications that people at the lower level do not know, is made on the basis of the best available information. Sixth, hiring, promoting, and firing are to be based on objective demonstrations of what we today would call job-relevant merit. In the ideal bureaucracy, personnel decisions are based on impersonal judgments of who is the most competent to perform the work. Decisions are not based on family or nationality, as in traditional systems, or on personal grace or belief in the leader’s vision as in charismatic systems. This merit principle has become so ingrained in the expectations of those working in modern societies that violations are greeted with howls of protest (when possible) or muttered resentment (when prudent). The problem, in Weber’s (1947) time as in ours, has been the definition and assessment of merit. Finally, administrative acts, decisions, and rules are recorded in writing, or formalized. The requirement that all decisions and rules must be written down ensures that those making decisions can be held accountable, and that others can learn about the organization’s decisions. This openness serves two functions. Certainly, the larger the organization is, the greater the need for a written memory, because the volume of information overwhelms the ability of any one individual to know all relevant information (Pugh, Hickson, Hinings, & Turner, 1968). Most importantly, it also prevents officials from using nonmerit criteria in making decisions or misusing company resources for personal gain because a written record ensures that decisions can be scrutinized. Potential access to information eliminates the ability of those in authority to release information only to those they wish to favor. That is, a requirement for written records is a method of controlling employees to insure that they are not misusing their offices for personal gain. These characteristics can be seen as the objectives of an ideal bureaucracy: Bureaucracies are a form of organization intended to achieve the organization’s formally stated goals. Because misuse of power for personal advantage and favoritism in decision making by employees interferes with organizational goal achievement, rational organizations seek explicitly to delimit authority and enforce merit-based impersonal decisions. As clearly seen in the illustrations of common violations of bureaucratic objectives, these are not descriptions of how actual organizations really work, but ideals on which the legitimacy of organizational authority in a bureaucracy is based. Weber (1947) also described several organizational practices designed to achieve these objectives. These means were based on his observation of 19th century German governments. These include the means of hiring and promotion

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based on objective written examinations and educational credentials to achieve merit-based impersonal decisions, lifetime careers in one organization with a pension at retirement, strict division of labor, pyramidal hierarchy, and formalism, among others. These practices certainly were more likely to achieve the bureaucratic objectives of the purposeful pursuit of performance than the nepotism, office-selling, and tax-farming that were the comparative practices of large governmental organizations during Weber’s time. Nevertheless, we all know that there has been a substantial increase in our understanding of how to design and operate large organizations since the 19th century. Consistent with the bureaucratic objective of purposeful design, different organizational forms have been analyzed and various practices tried and improved in the last century. Now there are many other organizational practices that can achieve the bureaucratic ends of the impersonal meritocratic pursuit of organizational performance under differing circumstances with fewer of the costs incurred by Weber’s early bureaucratic means. For example, assessment centers are better measures of a candidate’s future performance as a manager than civil service tests of academic knowledge (Gaugler, Rosenthal, Thornton, & Bentson, 1987). Nevertheless, Weber’s confident 19th century confounding of objectives and means has contributed to common misunderstandings of bureaucracy. Bureaucracy’s current disrepute results not only from a confusion of Weber’s means and ends; it also violates recent intellectual fashions (Donaldson, 1996). First, as noted earlier, bureaucracies have become associated in popular language with control and suppression of individuality, features that many scholars find offensive (Ferguson, 1984). Second, to many, bureaucracies represent functionalism, and organizational scholarship has shifted in recent years to studies of perception, choice, and power (Clegg & Dunkerley, 1977; Silverman, 1970), to the application of biologic (Hannan & Freeman, 1989) or economic (Williamson, 1985) models to organizations. Finally, our understanding of bureaucracy and the operation of pseudobureaucracy suffers because bureaucratic objectives so often are assumed implicitly in the developed modern world. It is what everyone there implicitly knows organizations should do and how they should do them. Even those who advocate the introduction of charismatic features into bureaucratic organizations, in the guise of corporate values and visionary leadership (Conger & Kanungo, 1998; House, 1977), promote these features with reason-based arguments about their contribution to goal achievement. As one measure of how bureaucratized the developed world’s organizational expectations have become, it is hard to imagine any 21st century management theorist or popularizer advocating a new technique without a function-based rationale for its utility in the pursuit of organizational goals. All management writers are Weberian in their assumption that their readers will want to pursue improved organizational performance as rationally as they possibly can.

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Certainly, there is much ambiguity in the implementation of the bureaucratic ideal. What constitutes a misuse of power and what is merely a perquisite of office can be a matter of dispute. Not too long ago in the United States, hiring only attractive young adults for clerical positions was considered fine, and when questioned, was often justified as being “good for the corporate image.” Now in that country, the charges of job irrelevance are more insistent, and many clerical supervisors are cautious. This relatively rapid change in practice attests to the power of the bureaucratic ideal of meritocratic hiring and the widely shared scorn for using an official position for personal benefit in that country and other modernist ones. Unfortunately, as both Clegg (1990) and Perrow (1979) noted, for those studying microlevel organizational behavior, the term “bureaucracy” has become focused primarily on Weber’s (1947) 19th century means and disassociated from the objectives that these means were designed to achieve. This confounding of means and ends, bureaucracy as civil service formalism rather than goal-focused efficiency, serves the purpose of scholars, such as Mintzberg (1979), who needed to give a familiar label to a kind of rigid, formalistic organizational form to distinguish it from alternatives. Nevertheless, the practice has tended to draw attention away from Weber’s focus on the goaloriented, meritocratic purposes of bureaucratic organization, a distinction that becomes necessary to understanding the pseudobureaucracies that develop under nonfacilitative governments. PERSONAL RELATIONSHIPS AND BUREAUCRACY Any individual can develop personal relationships with only a relatively small number of individuals, and yet complex society is based on transactions among highly dispersed networks of individuals and organizations. During the 19th century, large businesses found that they needed to supplement personal relationships with universalism, constrained authority, job-relevant decision making, and written records. That is, they needed to bureaucratize their organizations to support institutional trust (Zucker, 1986). In bureaucracies, employees and clients receive numerous signals that they can trust the organization’s policies and procedures and are not wholly dependent on personal relationships. In a bureaucracy, gifts and personal fees are not necessary to secure import licenses, and there is no need to have a personal relationship with the tax authority’s representative before asking a question about the tax regulations. To restate the findings reported in chapter 3, once clients and employees believe that an organization is largely operating as a bureaucracy, they need not invest as much time in cultivating good connections to carry out their business or get their job done. Therefore, despite their disadvantages,

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bureaucracies make possible the kinds of complex impersonal transactions that are characteristic of modern economic life. Why should organization based on personal relationships be inimical to the bureaucratic objective of purposive goal pursuit in large organizations? Certainly, there is nothing in the writings of organizational theory or organizational behavior that suggests as much. To the contrary, the building of personal relationships, particularly between supervisors and subordinates, has long been advocated (Roethlisberger & Dickson, 1939; Sayles, 1964). However, all such works were written by those studying organizations operating under facilitative governments. They assumed that bureaucratic objectives dominate, with personal relationships harnessed to cope with the unexpected or to foster clearer performance-based communication. However, observation of pseudobureaucracies operating under nonfacilitative governments suggests that such writings have been blind to the importance of bureaucratic constraints on personal relationships. Without the limits on such relationships imposed intentionally by a bureaucratic organization, personal relationships are antithetical to purposive meritocratic organization. This is so because personal relationships make demands that undermine the impersonality and primacy of organizational goals. The Demands of Personal Relationships When personal relationships dominate organizations, they create their own demands. For example, even in modern societies with strong bureaucratic traditions, it is notoriously difficult to set aside personal relationships in response to bureaucratic demands to act impersonally. This has always been an exacting and difficult standard. Parsons (1951) suggested that such impersonal universalistic orientations were inherently unstable, because everyone is socialized in particularistic situations. It is difficult to rely on impersonal rules, because they may not take into account the unique features of a case, and so violate participants’ sense of substantive justice. It is more comforting, more naturally human, to rely on someone you know to look after you and treat you fairly. Yet, dependence on personal relationships does not work well if you have the bad luck to come under the control of someone who is malevolent or indifferent, or if you belong to the wrong ethnic group or religion, or if you peeve powerholders in any number of possible ways. Bureaucracies have been condemned as impersonal (for scholarly examples, see Mintzberg, 1979; Morgan, 1986). That is exactly the point. The decision criteria must focus on impersonal procedural justice, applying the same rules to everyone without fear or favor, even if occasionally at the expense of substantive justice (unique mitigating circumstances sufficiently weighted), because the unconstrained pursuit of substantive justice can always be suborned by the powerful.

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Without bureaucratic constraints on the powerful, participants must foster and maintain a network of personal relationships, because this is the basis of their survival and success. When personal relationships dominate, participants depend on their personal network for organizational success, not on their performance. Certainly, confidence of the powerful actors in someone may be based on that person’s job performance, but even so the person is driven to maintain the relationship first and foremost. Without bureaucratic constraints, individuals likely would make it a priority to invest in the development of their personal network rather than job skills. Under nonfacilitative governments, the pressure to build personal relationships with those who may be useful becomes a dominating objective in all interpersonal interaction. The Sustenance of Personal Trust Bureaucratic universalism is further damaged by the way in which systems of personal relationship dependence are actively sustained by those who benefit most from them. Those who have built themselves favorable positions based on their good connections find that it is in their interest to undermine any development of an impersonal order, that is, bureaucratic constraints on their own actions). This is because an impersonal order would devalue their own hard-won personal network. Gambetta (1988) illustrated this phenomenon with his description of how Mafia chieftains in Sicily actively used their positions to foster others’ dependence on them. Mafiosi would regularly inject distrust into the social milieu. Gambetta cited the example of a coachman client of a local Mafia chief who bought and sold horses. The coachman described how his Mafioso protector ensured that he was not cheated in these transactions and how, with this protection, the coachman had been able to pass off a bad horse as a good one. The Mafioso did not try to prevent cheating in his domain (i.e., establish an impersonal order that did not allow cheating). Rather, he used his position to protect his own clients from cheats and also to provide opportunities for them to cheat others, thus reinforcing the pervasive distrust that made his protection necessary (similar examples are provided by Pagden, 1988). This illustrates how confidence in the impersonal order that characterizes bureaucratic forms of organizing may be actively undermined by the powerful, often government officials, but most certainly local elites, who want to maintain the value of their personal patronage. At other times, participants’ behavior to secure personal protection does not so much intentionally disrupt an impersonal order as it inadvertently sustains the primacy of personal relationships. If everyone assumes that personal relationships are the basis for all decisions and allocations, they act in accordance with this assumption. They seek to build as many useful personal relationships as they possibly can, using whatever resources they have to make others indebted to them personally. Participants do not have the luxury of considering whether such actions are right or wrong, functional or dysfunctional.

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It simply is the way the world works, as inevitably as aging. Furthermore, because dependence on personal relationships is driven by insecurity and fear, participants are reluctant to abandon their relationships or ignore an opportunity to develop useful new ones. Whether consciously manipulated or not, once established, organizing based on personal relationships achieves a powerful stability. Its demands are so insistent, so critical to survival, that they subordinate attempts to build purposive meritocratic organization. PSEUDOBUREAUCRACIES This institutionalization of dependence on personal relationships, when applied in larger organizations, results in a distorted form of bureaucracy that has been called pseudobureaucracy. Certainly, bureaucracy is an ideal type that rarely is observed wholly in practice. Human failings and needs lead to what Perrow (1979) called the “insufficient bureaucratization” we observe in practice. A critical issue for this discussion is to identify how much imperfection is severe enough to make the organization pseudobureaucratic. The author suggests that a pseudobureaucratic organization is one in which personal relationships dominate rather than the purposive pursuit of openly acknowledged goals. For example, in a pseudobureaucracy, participants would not make appeals to impersonal rules because no one believes that such an appeal would work. By contrast, even in incompletely but largely bureaucratic organizations participants take rules and the impersonal order seriously. Violation of its rules would be done secretly and in fear that discovery will lead to embarrassment or expulsion. In a pseudobureaucracy, exposure would be troubling for a different reason entirely. It would signal that powerful people had decided to destroy you. Moreover, as Banfield (1958) suggested with respect to amoral familism, “[it] is a pattern or syndrome; a society exhibiting some of the constituent elements of the syndrome is decisively different from one exhibiting them all together” (p. 11). Pseudobureaucracies have a long history in scholarship, but it is the scholarship of anthropology and developing-country public administration rather than that of management and the organizational sciences. One of the best descriptions of pseudobureaucracies is Fallers’s (1965) analysis of what he called “Bantu Bureaucracy.” In his study of the African Soga people (in today’s Uganda) during the colonial period in the mid-20th century, he discovered what he described as a conflict arising from the structural incompatibility between the Soga’s traditional forms of authority and the European-imposed bureaucracy. Because these two systems were based on incompatible forms of trust—trust in particular others rather than trust in an impersonal order—the mixing of the two resulted in painful conflicts for many participants and instability in administration. For example, bureaucratic civil service rules dictated that employees should be selected on the basis of merit, yet tribal chiefs had strong moral obligations to distribute resources to kin and loyal dependents.

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Riggs (1964) called the pseudobureaucracy so prevalent in colonial and postcolonial societies “formalistic bureaucracy.” He suggested that here the bureaucratic forms are retained to appear modern, but that these forms bear little resemblance to the ways in which decisions actually are made. Riggs illustrated his argument with a description of how a fire devastated the large central market in a Filipino city because existing fire and safety laws were not enforced, making it impossible to move fire equipment to the scene of the fire. In such societies, it is possible to purchase a piece of paper that looks like a plane ticket and purports to be a plane ticket for a flight on the national airline. However, because there are many more such pieces of paper than seats on the plane, the purchased piece of paper does not entitle the bearer to a seat, nor is there any realistic expectation that the plane will leave at the scheduled time, or even on the scheduled day. Such plane tickets mimic the forms of bureaucracy without the purposive pursuit of performance. Box 4.1 provides another illustration of this phenomenon. Box 4.1 We can see that the degree of formalism in law enforcement can have important social consequences…. If, for example, a law is generally violated, opportunities arise for the corruption of administration. An inspector, knowing that a rule is being broken by a merchant, is put in the position of being able to make trouble for him unless he receives some consideration. The shopkeeper knows that if he obeys the regulation, he will be put at a disadvantage with respect to his rivals. Hence he has a keen incentive to resist enforcement and, if necessary, to offer the inspector something in the hope of being left alone. The officer for his part may be badly underpaid. He knows that there is little realistic prospect of securing effective enforcement of the regulation, and so eases his conscience when he looks the other way. (Riggs, The Ecology of Public Administration a 1961 by the author, p. 96) In many colonial societies, modern-appearing bureaucratic forms were imposed on traditional systems of personal dependence and obligation. The demands of personal relationships in the form of claims by family and clan were not abandoned with the addition of formal hierarchy along with the desks, white shirts, and other trappings of modernism. In fact, Wilson (1991), among others, argued that the widely decried corruption in many developing countries is a result of Western misunderstanding and perversion of traditional practices. Rather than taking the time to build the personal relationships on which business is based in these settings, hurried Westerners try to quickly buy friendships with

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quid pro quo bribes. Their wealth and unwillingness to invest their time in personal relationships perverts local practices designed to support personal relationships. Although similar to their postcolonial counterparts, the pseudobureaucracies of communist societies have a different origin. Whereas in some countries communism can be characterized as a formalistic imposition on traditional practices, in others modernist institutions were well developed, but foreign occupation and communist ideology forcibly converted them to pseudobureaucracies. As noted in chapter 2, Walder (1986) posited that the desire for thorough political control necessitated the delegation of discretion to local party cadres, because only they could know who was politically reliable. Although organizations in these neotraditional societies certainly were bureaucratic in the popular meaning of the term (i.e., using the means of formalism and hierarchy), they rarely were impersonal, meritocratic, or rule constrained. Organizations in communist societies had numerous rules. However, these rules gave enormous discretion to workplace authorities (Nove, 1983; Pearce, 1991; Stark, 1989). These organizations, despite their volumes of rules, were formalistic rather than rule bound. In the 1993–1994 Lithuanian study the author and colleagues found, consistent with the arguments of Walder (1986), that the increased unpredictability arising from the withdrawal of the Soviet state had led to an exacerbation of pseudobureaucratic favoritism and corruption. An example appears in Box 4.2. Of course, in a bureaucracy, open, written rules are applied in an attempt to reach a decision based on the impersonal merits of the case. Box 4.2 According to newly passed privatization legislation, anyone was able to apply to purchase a building owned by the state, paying only a nominal fee. A partner in an entrepreneurial group described their actual experience: The partnership applied to the building privatization office for a building for their business and was told to find a building that suited their purposes and return to apply for it. (They were given no list of available buildings.) The partners selected a building and went back and applied for it, only to be told “That one is not available; go select another one.” No further explanation was offered. They came back with another choice, only to be told the same thing. After several similar rounds, the entrepreneurs finally understood that there would never be any building available to them unless they paid a bribe or could secure the patronage of a powerful official. Because they had insufficient money and connections, they could not obtain a building. (See Appendix; 1993–1994 Lithuanian study)

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This incident in Lithuania was hardly an isolated case. In 1994, a local entrepreneur had become so disgusted with governmental corruption that he put up the equivalent of U.S. $10,000 for a newspaper to hold the following contest: A government official could win the prize money by being the first official to nominate him- or herself as having been honest during his or her term of government service and surviving 10 days of investigation by the newspaper. If the newspaper found evidence of wrongdoing, it would publish the selfnomination letter with the uncovered evidence that the nominee had not been honest. If nothing incriminating could be uncovered in 10 days, the nominee would win the money. By the time of the author’s departure from the country, dozens of government officials had nominated themselves, sometimes with pathetically self-serving letters detailing their sacrifices for their country, and every single one had failed to survive a 10-day investigation. The entire country was riveted to this uproarious series, boosting the newspaper’s circulation beyond the publisher’s dreams. This account not only illustrates the pervasive corruption in Lithuanian government in 1994, but also reflects a society in which privacy rights and libel laws were not as constraining as they would be in developed modern societies. Why should this be so? As noted earlier, Simis (1982) argued that the lack of constraint on the personal power of leaders under communism was intrinsic to it. Walder (1986) said that a lack of constraining rules allowed cadres the necessary discretion to ferret out political opponents. With accurate planning impossible in a centrally planned economy and little expectation that rules were substantive rather than formalistic, sensible individuals learned to put their trust in good people rather than their bad organizations (Pearce, Branyiczki, & Bakacsi, 1994; Puffer, 1992; Welsh, Luthans, & Sommer, 1993). Communist pseudobureaucracies have many of the bureaucratic organizational means. Yet personal relationships could always be used to circumvent them. In addition, the structure of the command economy, by creating planned systems of such vast complexity and size, demanded massive amounts of paperwork to keep track of all of the materials, output, labor use, and so on. Yet again, paperwork was usually formalistic, with the numbers themselves not taken seriously, as is reflected in Box 4.3. Planned targets often were so seriously out of line with reality that no one, anywhere in the system, actually believed they were binding, and no one had an incentive to announce publicly that the plans were inaccurate. Pseudobureaucracies have the formal trappings of Weber’s (1947) bureaucratic means: formalism, rules, hierarchy, and strict division of labor. However, these practices are not in the service of impersonal meritocratic attainment of openly acknowledged goals. Rather, such rules can and would be set aside as a personal favor. In fact, there is a notorious quotation from Khrushchev regarding the primacy of the personal over any impersonal order:

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Who’s the boss: the law or we? We are masters over the law, not the law over us—so we have to change the law; we have to see to it that it is possible to execute these speculators! (Nikita Khrushchev, 1961, from Simis, 1982). These arguments have several implications for theory and practice. First, an understanding of how pseudobureaucracies operate provides a more complete picture of the professional human resources management function in organizations. Second, contrary to the long-standing assumptions in much of the organizational behavior literature, personal relationships can damage the basis for performance-focused organization. Third, contrary to bureaucracy’s image in some circles as an antihumanist sy stem of control, in practice it grew from and depends on the establishment of employee power over elites. Each of these implications is elaborated in the following discussion. Box 4.3 In Hungary, a common joke is told: The local administrator asks a managing director of a cooperative farm how many pigs he will slaughter at the end of the season. The managing director will be punished if he does not meet his quota, so he launches into a litany of complaints and hard luck stories, finally allowing himself to be pinned down to an estimate of two pigs slaughtered at the end of the season. The local administrator forwards the estimate to the district administrator who is under pressure to raise production (and he knows these locals always underestimate), so he lists “four pigs” in his report to the county administrator. The county administrator has just been told that there is a new campaign to increase agricultural productivity (and her career will be enhanced if she can contribute to the campaign—besides everyone knows the locals always underestimate), so she writes “eight pigs” in her report to the agency’s central office. These all get passed up the line being inflated as they go, resulting in a plan triumphantly announcing that the meat from 32 pigs will be delivered from this cooperative farm to the local meat distribution center at season’s end, despite the fact that the farm has only five pigs! (See Appendix; 1989–1996 Hungarian longitudinal study)

EFFECTS ON HUMAN RESOURCES MANAGEMENT PRACTICES What usually are spoken of as human resources management policies and procedures in the modern world should properly be viewed as the bureaucratization of tasks that had been handled personally by factors or shop floor bosses. Jacoby

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(1985) discussed how both trade unions and professional personnel specialists worked to bureaucratize the personnel systems in organizations as the best defense against the arbitrary power of shop floor bosses. Before the bureaucratization of employment relations in the modernist countries, foremen had complete control over hiring, paying, and supervising workers. Jacoby (1985) noted that foremen had the personal freedom to be highly arbitrary, thus building their subordinates’ personal dependence on them. In contrast, in bureaucratized human resources departments, employees are hired, rewarded, and promoted on the basis of specified rules. Therefore, if nonfacilitative governments produce that distortion called pseudobureaucracy, they might also be expected to produce distorted human resources management practices. This was, in fact, observed. In 1989 during reform communism in Hungary the author found a distorted set of modernist practices reflecting the pseudobureaucracies under which they operated. Personnel departments had formalistic job descriptions, pay grades, bonus systems, and the like, but these were deployed by the powerful for their own ends. One of the most interesting pseudobureaucratic distortions was the administration of large bonuses at the sole discretion of a secretive committee. As a result of both labor shortages and the difficulty of firing workers under reform communism, a complex monetary bonus system was developed. Under this system, bonuses could range from 0% to 200% of an employee’s base salary, yet rarely were these large bonuses tied to explicit performance objectives. Similarly, as Walder (1986) and Voslensky (1980) also found, promotions to managerial positions were not based on attempts to determine merit objectively, but often were awards for loyal service. It was common for a company to receive a call from a ministry official asking it to find a place for a political functionary who, presumably, had lost a political dispute and was being bumped from the political center out to a position in industry. In Hungary, these descending elites were called “parachutists.” Of course, a position for such a dignitary could not be an unimportant one, and the attempt to reorganize and shift subordinates to this newly created department for the parachuting executive wreaked havoc on the efficient operation of organizations. Furthermore, the protection of local governmental officials would include protection from the enforcement of labor and safety laws. Box 4.4 reports the story told about one of the largest industrial combines under communism in Hungary run by a notorious Red Baron. Under communism, therefore, human resources management systems were formalistic, on the surface resembling the departments of developed countries, but distorted to serve the political purposes of the regime. One consequence was that professional human resources management was thoroughly discredited. As the Czech personnel director said in reference to his department in the 1991 Czechoslovak case study, “The stink of the decayed body of the communist party is all over us.”

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Box 4.4 He was a widely feared autocrat. J told the following story: [The Red Baron] would walk through the combine’s plants looking for any action he considered disrespectful. One day he saw a worker walking with his hands in his pockets and said, “Go over and pick up your [labor] book. You’re fired!” He did this because the baron thought the worker looked insolent walking with his hands in his pockets; workers should be working! This at a time when workers had legal job security in a communist country. (See Appendix; 1989–1996 Hungarian longitudinal study) This led to the following problem. In late 1989, the Hungarian government rescinded a law specifying that all companies have personnel departments. Immediately, some large companies abolished their personnel departments and handed the record-keeping duties to the accounting department. Consequently, in the training the author conducted for human resources managers in late 1989, two of the 20 attendees were accountants who thought the program might help them with their new responsibility, and two others were managing directors who had just assumed the human resources management responsibilities themselves. Human resources departments were not seen as places with experts on selection, reward systems, training, or any knowledge useful in the large organizational changes that organizations were undertaking. In short, they were the visible reflection of a discredited system of personal relationships, not bearers of any useful technical expertise. This assumption further crippled many companies’ capacity to navigate the economic transition successfully. PERSONAL RELATIONSHIPS ARE INIMICAL TO IMPERSONAL MERITOCRACY The current study indicates that personal relationships at work cannot be assumed to support the bureaucratic efficiency advocated in normative academic and popular writings for managers working under facilitative governments. Without the support of facilitative government, those who depend on their personal relationships will work actively to ensure their continued usefulness, and they can do that best by undermining those expectations and institutions that support impersonal meritocracy. Yet does this not contradict decades of admonition to establish personal relationships among coworkers and between supervisors and subordinates? It does suggest that the context in which these personal relationships exist is more important than has been acknowledged. Those advocating that one should build

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personal relationships with subordinates, managers, peers, or alliance partners actually are advocating a very specific type of relationship, one assuming both that performance obligations remain paramount and that the parties know they share the common objective of the organization’s success. Such assumptions are not possible with nonfacilitative governments, and probably should not be assumed to be universal in organizations under any kind of government. When personal relationships dominate organizations, as they do more frequently than is acknowledged in the organizational behavior literature, they destroy rather than enhance trust in the impersonal meritocratic system. Whereas a closer relationship between two individuals may enhance the trust they have in one another, this dynamic relationship exists in a larger social milieu that influences, and in turn is influenced by, the relationship. Heretofore, advocates of building more personal relationships at work have not had to justify themselves. They assumed personal relationships among those working together in organizations to be an unqualified good. Observations of pseudobureaucracies suggest otherwise. BUREAUCRACIES EMPOWER EMPLOYEES Bureaucracy arose from the demands of empowered employees, so probably it is not a coincidence that pseudobureaucracies are more characteristic of authoritarian and communist polities. Box 4.5 is an excerpt from Jacoby (1985) describing how the continuous political pressures by employee- voters led to the bureaucratization of American business operations. Jacoby (1985) argued that bureaucracies developed as a form of due process protection from arbitrary treatment. Employees in bureaucracies are protected from unconstrained exploitation. Before the bureaucratization of employment relations in modern societies, foremen had complete control over hiring, paying and supervising workers. Jacoby (1985) described how foremen could be highly arbitrary: At one Philadelphia factory, the foreman tossed apples into the throng; if a man caught an apple, he got the job. (p. 17) Alternatively, foremen could be more systematic, hiring relatives or members of favored ethnic groups, or the worker who gave him a box of cigars. In an ideal bureaucracy, employees are hired, rewarded, and promoted on the basis of specified rules designed to hire the meritorious. Workers in democratic polities have some means to protect themselves from arbitrary employers, and they often seek protection by imposing bureaucratic procedures for objective assessment of merit and due process guarantees on their employers (Jacoby, 1985). For example, political pressure in the United States to eliminate hiring practices that

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discriminated against women and minorities fostered wider adoption of more meritocratic selection practices based on job-relevant criteria (Guttman, 1993). Over time, American employers lost some of their discretion and were compelled to use more meritocratic grounds to defend their decisions. Box 4.5 Through their unions, workers sought to bureaucratize employment in order to enhance their bargaining power, shield themselves from turbulent competition, and ensure managerial consistency and fairness. In fact, managers in some companies resisted or delayed bureaucratization even as their employees promoted it. These managers were concerned that structure and rules would hinder their discretion, although they were sometimes willing to impose these things on themselves in order to forestall what they regarded as a greater evil—unionization. (Jacoby, 1985, p. 3. Reprinted with permission from the author.) By contrast, in authoritarian and communist countries, employees have had much less leverage with their employers. They cannot form political parties to advocate employee rights and then elect their representatives into office. Certainly, disgruntled employees can petition powerful government leaders, but depending on the strength of those benefitting from the employees’ exploitation and the capacity of the government’s central officials to impose their will on local officials and employers, this may or may not result in effective change. Many of these governments pass employee-empowering decrees, regulations, and laws, but government weakness means that these laws are never actually enforced. For example, under communism, on paper there were admirable laws on worker safety, environmental protection, and the like. However, to enforce the law, one branch of government would need to compel another branch to do its bidding. Career-minded party officials would think twice before taking such a risk. Certainly, at high-level government conferences (secretly, behind closed doors), the head of, say, the environment ministry, might argue vigorously for pollution controls for a particularly noxious plant. However, such controls are always expensive, and would then be traded off against claims that could offer more employment or international prestige. Under such regimes, if you really wanted something the most effective approach would be to maneuver to have a very powerful person support your claim. Again, this solution is based on getting the support of the right person, not on any rules openly enforced. Once established, bureaucracies provide several advantages for employees. First, bureaucracies free employees so they can concentrate on building their professional expertise, and if this expertise is useful to the organization, it can

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give them a measure of protection. In organizations dependent on personal relationships, employees are better off currying favor with the powerful. Bureaucracies provide more secure careers for employees, allowing them the choice to ignore politics in a way that participants in organizations based on personal relationships cannot afford. Second, not only does bureaucracy depend on empowered employees; it also further enhances their autonomy. As full-time insiders, employees are well placed to become masters of the rules. When the rules are the basis for decisions, the ability to invoke a rule is the ability to get what you want. Whereas rule-knowledge does not allow the glorious arbitrariness of the appletossing foreman at the factory gate, it can be very useful in getting a better deal for oneself. For example, an employee may want to work only 60% of the time in her job after the birth of her child. If her supervisor says “no” and she is unaware of corporate policy on the matter, she is forced either to work full-time or to quit. If, however, she knows that the corporation has a published policy favoring family-friendly flextime unless it creates an undue burden on the department, the new mother can make a formal request, which includes documentation indicating that there would be no departmental hardship. In this way, her supervisor is constrained, unless the supervisor can find a way to dispute the documentation, leading to the war-of-facts so common to bureaucracies. The employee may not get everything she wants when policies are written, but she has a fighting chance, particularly if she is an experienced bureaucrat. Furthermore, as any experienced bureaucrat knows, rules provide the best form of deniability. Employees often are forced to turn down supplicants, and many do not receive this bad news graciously. If you have personally decided that this enthusiastic entrepreneur wanting to start a new fitness center is not a good credit risk, you would not want to dwell on your personal discretion with an irate weight lifter. It would be much better if you could show him how his proposal’s finances do not qualify, under the rules, for a loan. You could even be helpful and explain what criteria would need to be met for him to have a successful application the next time. Finally, bureaucracies empower employees because knowledge of bureaucratic procedures increases with time. This makes employees more valuable and more powerful with experience. Thus, the old adage, “age and treachery will always overcome youth and enthusiasm,” reflects the fact that with experience, employees can gain deep knowledge of the rules and policies. Age confers no special knowledge advantage in organizations based on personal relationships because everyone learns very quickly who the powerful people are. Even the greenest youth knows that the way to get what you want is to curry favor with the powerful. Thus, bureaucracy creates a kind of seniority system of expertise, based not on one’s arbitrary date of birth, but on knowledge of rules and policies acquired over time. Ironically, in this way bureaucracies help to

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recreate at least some of the security and predictability that traditional societies offer employees. Employees see a system whereby their value and standing can grow over time, so it is a system worth their commitment. Therefore, Mill’s ([1848] 1961) original use of the term bureaucracy to mean a usurpation of power by paid officials may have been more than just a broad insult. In practice, employees are the great beneficiaries of bureaucracy. BUREAUCRATIC MEANS WITHOUT BUREAUCRATIC AIMS The study of large organizations operating under nonfacilitative governments has provided a useful addition to historical analyses portraying the development of bureaucratic practices in modernist societies with facilitative governments. Nonfacilitative governments favor highly centralized organizations by making the executive’s personal relationships critical to the organization’s protection and prosperity. Such centralization would favor small organizations on technical grounds, but we do observe many examples of large organizations, largely for the political advantages size confers. Yet under nonfacilitative governments, these large organizations remain dominated by personal relationships, with the result called pseudobureaucracy by those who have studied them in communist and developing societies. Furthermore, this dominance of personal relationships is inimical to meritocracy because the maintenance of personal relationships in such settings must necessarily trump meritocratic considerations, first, because those with powerful positions would be expected to resist limitations on their discretion, and second, because expectations that personal relationships will dominate become self-perpetuating. The implications of these arguments’ for understanding the role of human resources management functions, and for a more nuanced understanding of the ways that personal relationships at work can undermine meritocracy and bureaucracies’ empowerment of employees were elaborated. Furthermore, bureaucratic means can be employed to serve the personal power of individual participants as well as they can serve meritocratic purposive goal achievement. Interestingly, when merely formalistic rules are in the service of officials’ personal gain, they have a tendency to expand. The more complex and contradictory the regulations, the more necessary is a friendly contact in the government. Bribery creates an incentive for government agents to create more rules and require more permissions. The World Bank now advocates lowered regulation and reduced tariffs as a means to reduce what it calls the “bribery tax” on struggling economies. It is an ironic posthumous comment on Weber’s (1947) work that bureaucratic means perverted to decidedly unbureaucratic ends should be thought by so many to be bureaucracy. A shift in attention back to the objectives of bureaucracy provides a fruitful basis for understanding organizational behavior in large pseudobureaucracies

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under nonfacilitative governments. Whereas documenting the dysfunctions of excessive bureaucratization has a long history (Argyris, 1957; Weber, 1947), the fields of organizational theory and behavior and management have remained nearly silent about pseudobureaucracies and other forms of organization based on personal relationships. When bureaucracy has been proposed as bad for employees, it was never compared with any actual alternative way of organizing large numbers of people. Similarly, when deeper and more extensive personal relationships have been advocated for organizations, it has been with the implicit assumption that organizational performance will trump personal loyalties. In the next chapters, the focus shifts to understanding individual behavior in and reactions to organizations dominated by such personal relationships.

5 Engendering Participant Dissatisfaction, Fear, and Cheating In previous chapters, brief descriptions of the expectations, affect, and behavior of individuals working in organizations dominated by personal relationships operating under nonfacilitative governments have been presented, but without any systematic analysis of organizational behavior. In this chapter and the remaining chapters, the implications of nonfacilitative government for organizational behavior are articulated and, when possible, tested. Most organizational behavior scholarship occurring in organizations operating under facilitative governments, has developed a focus that both assumes many bureaucratic constraints and the luxury of facilitative government. It has been able to ignore questions of government effects. In contrast, scholars from a wide variety of other disciplines have proposed behavioral and attitudinal effects arising from nonfacilitative government, and these form the basis for the current analyses. The observations and propositions of these scholars are organized in Table 5.1. In an effort not to stretch the words of others too far from their original intentions, yet bring together the work of those addressing this issue, Table 5.1 retains the scholars’ original terminology. Note that none of these scholars use the term “nonfacilitative government,” although all of them describe characteristics that reflect various aspects of nonfacilitation. In reviewing these effects of nonfacilitative government on organizational behavior, several matters deserve note. First, as indicated in the table, none of the participant emotions, cognitions, attitudes, or behaviors suggested by this wide range of theorists would be considered positive. Whether from a managerial perspective (“no one leads and no one follows,” “widespread nonconformance to policy”) or from subordinate employees’ perspective (“deference” or “low satisfaction”), these are unattractive organizational behaviors. Such a consistently negative picture has profound practical implications, so it would be particularly useful if these effects could be confirmed by independent analyses of reports from the participants. Second, although the terminology may be somewhat different, there is substantial overlap in the proposed organizational behavior effects. Noteworthy are reports of favor shown to those with whom one has a personal relationship; distrust of those in authority and members of out-cliques or clusters; obsequious deference to those in power; fear, alienation, and dissatisfaction; and lowered commitment both to professional ideals and the organization. 85

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TABLE 5.1 Literature Summary of Nonfacilitative Government Effects on Organizational Behavior Scholar

Characteristic

Attitudinal or Behavioral Effect

Banfield (1958)

Amoral familism

• Deliberate concerted action rendered difficult • Pathologic distrust • Arrogance among those in power • Resentment among those without power • Self-serving efforts • Corruption • Melancholy • No sense of calling among professionals • No one leading and no one following

Riggs (1961)

Transitional society

• Particularism • Loyalty to one’s own clique, Hostility to members of other cliques • Widespread nonconformance to policy • Expected to securing one’s own income from position

Simis (1982)

Communism

• Dependence • Ingratiation

Voslensky (1984)

Soviet communism

• Obsequiousness • Joining of useful cliques

Walder (1986)

Neotraditionalism • Dependence • Deference • Particularism • Favors

Zucker (1986)

Lack of clear rules and arbitrary power

• Fear • Distrust of those outside one’s limited cluster

PARTICIPANT DISSATISFACTION

Gambetta (1988) Unpredictable sanctions

87

• Distrust • Unpredictability in agreements • Stagnation • Reluctance to cooperate

Litwak (1991)

Soviet-type system

• Illegality • Highly personal vertical relationships

Redding (1990)

Chinese capitalism

• Wariness • Low organizational commitment

Putnam (1993)

Amoral familism

• Self-reinforcing distrust • Exploitation • Low performance • Low satisfaction • Alienation • Supplication • Cheating

Lipset (1994)

Arbitrary, personal, and unpredictable power

• Uncertainty about what action to take • Fear of unforeseen risk

Another matter worth noting is that few of these individual effects are variables traditionally studied in relation to organizational behavior. No doubt one reason for this has been the neglect of governmental and societal effects in a field dominated by attention to supervisor-subordinate relationships and the formal procedures of managerial control. Yet, although fear, distrust, and obsequiousness are not the usual focus, they are not unheard of in the organizations of any society. Therefore, in order to link these proposed effects into the existing organizational behavior literature, whenever possible, the proposed effects are represented in this chapter by similar variables more familiar to organizational behavior scholars. This chapter draws on data the author has been collecting as part of a research program begun in the late 1980s to test as many of these proposed behavioral and attitudinal effects as possible. This research program is detailed in the Appendix. These tests of the effects, reported in Table 5.1, are organized by the following questions.

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First, do the participants themselves perceive that their organizations are more dominated by personal relationships under nonfacilitative than under facilitative governments? The previous chapters showed that executives depend on personal relationships with government officials for the protection nonfacilitative governments could not supply. The scholars listed in Table 5.1 imply that this pattern of personal dependence extends into organizations. Because personal relationships are important in workplaces every where, it is necessary to see whether participants themselves perceive any difference in the role of good connections within organizations. If they do not see any difference, they cannot be expected to have any differential attitudes or behaviors. Next, how do participants react to working in organizations dominated by personal relationships? How do those reactions affect their relationships with others at work, their job performance and their attachment to their organizations? Here, as many of the assertions and observations appearing in Table 5.1 as possible are tested with this data set.1 In chapter 6, the more complex behavioral patterns or syndromes attributed to participants in organizations under nonfacilitative governments and frequently bemoaned are explored. PERCEPTIONS OF WORKPLACE JUSTICE Although the effects organization dominated by personal relationships have not been directly addressed in the field of organizational behavior, its obverse has. This obverse is the study of what is called procedural justice, or participants’ perception that the organizational rules and procedures are fair. Much research in the area of procedural justice has focused on organizational rules and policies as antecedents of procedural justice perceptions, which in turn are posited to affect employee attitudes and behavior. Perceptions that procedures are just have been associated with trust in supervisors, better job performance, greater employee organizational commitment, and job satisfaction, among others (Alexander & Ruderman, 1987; Brockner, Tyler, & Cooper-Schneider, 1992; Folger & Konovsky, 1989; McFarlin & Sweeney, 1992). The meritocratic principles of impersonal decision making that Weber (1947) associated with bureaucracy appear to parallel characterizations of just procedures. Particular procedural characteristics have been shown to foster perceptions of justice, such as formal mechanisms for voice and public criteria for evaluation (Leventhal, 1980; Thibaut & Laurens, 1975). These have long have been considered surrogates for bureaucratization by scholars of institutional development (Coleman, 1993; Jacoby, 1985; Zucker, 1986). Thus, 1 Unfortunately, the author and her collaborators did not have Table 5.1 when they designed the Hungarian longitudinal study in 1989. They included variables they expected to be affected and conventional organizational-behavior measures. Therefore, this cannot be a comprehensive test of the arguments summarized in Table 5.1.

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procedural justice as perceived by employees would reflect impersonal rule boundedness and bureaucratization. The body of procedural justice scholarship suggests that the more organizational practices are bureaucratized, offering formal due process and protection from arbitrary treatment by those in power, the greater the employee perceptions of a just workplace. This is consistent with the arguments of Banfield (1958), Gambetta (1988), Redding (1990), and Putnam (1993), as summarized in Table 5.1. If organizational executives themselves depend on their personal relationships, we would expect this dependence to be replicated within the organization. We have already seen the example of the Chinese computer company executive who hired those who could deepen his relationships with the powerful. He could hardly implement a formal system of performance-contingent salaries when some of the employees were there only to please an important outsider. As noted in chapter 4, when personal relationships are the priority, considerations of meritocracy need to be subordinated to them. We would not expect employees observing these processes to see them as just or fair. Employees’ self-reported procedural justice perceptions were compared, as represented by employee reports from the 1993–1994 Lithuanian study versus the 1992 U.S. study with its sample of comparable American electronics employees. No substantial differences in the perceptions of procedural justice were found between the employees of organizations under nonfacilitative (Lithuania) and facilitative (American) governments. On a 5-point scale of perceived procedural justice, Lithuanian employees reported a procedural justice perception mean of 2.72, whereas the Americans reported a mean of 3.11, a significant difference (p < .01; Pearce, Bigley, & Branyiczki, 1998, for more detail). Judging from such items as “The process used to make decisions about my promotions or job changes within this organization are fair,” it is clear that the Lithuanians differed substantially from their American counterparts in their perceptions that the procedures for administering rewards or handling grievances was fair. The comparative lack of attention to formal procedures within this Lithuanian organization is reflected in the fact that neither this Lithuanian television factory nor any of the other sampled organizations in Hungary or Czechoslovakia had written performance appraisals for their employees, whereas such appraisals were used in all of the American organizations. Of course, there are many potential explanations for this other than a dominance of personal relations under nonfacilitative government. However, the interviews consistently confirmed the contention that these organizations were dominated by personal relationships fostered by its nonfacilitative government. Few felt able to rectify the pervasive sense of injustice at the company level alone. For example, the account in Box 5.1, given by the personnel director of the Lithuanian company, describes his difficulties. As the example in Box 5.1 illustrates, even when participants genuinely struggled to produce substantive justice, the lack of government facilitation

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meant that many felt subject to potential abuse and injustice. The judge saw no need to be confined by the law and simply acted arbitrarily on her own sense of what was right. With a nonfacilitative government, attempts to create small microenvironments of procedural justice within organizations were always precarious. This is particularly so if an organization, either through its size, success, or foreign ownership, finds itself to be visible, and thus important to the local government officials. Box 5.1 Like most Soviet-era combines trying to compete in suddenly competitive product markets, the company found that it was heavily overstaffed. New Lithuanian laws recognized the right of employees to unionize and to sign collective bargaining agreements with their employers, but did not specify how bargaining units were to be determined. Furthermore, if unions were present, they had to approve any layoffs of their units’ members. Several months before data collection, the company had sought to lay off 30 engineers from a unionized group of several hundred engineers with union approval. However, when the 30 engineers received their layoff notices, they met together, declared themselves to be a new union (of the 30), and refused permission to lay off its members. The issue was pending before the courts—no cause for optimism. A recent court case initiated by an employee of the company disputing her layoff had dragged on for 2 years before there finally was a hearing before a judge: The judge asked, “Has this woman done anything wrong?” “No,” the personnel director replied, “She was not fired for poor performance. She was let go because we have no work for her to do.” The judge replied, “Well, if she hasn’t done anything wrong, why are you picking on her? You are a big company and she is a poor woman. You should take her back” (See Appendix; 1993– 1994 Lithuanian study) In summary, employees in the studied organizations operating under nonfacilitative governments reported significantly less procedural justice than their American counterparts. The interview accounts suggest that these perceptions were grounded in reality: There were fewer formal procedures; those that existed were unstable and uninstitutionalized; and employees frequently witnessed arbitrary acts by those in positions of power. Thus, there is reason to believe that the negative attitudinal and behavioral consequences documented by those studying procedural justice will be found in organizations dominated by personal relationships.

PARTICIPANT DISSATISFACTION

91

DOMINANCE OF PERSONAL RELATIONSHIPS AND REWARD ALLOCATIONS This sense of unfairness appeared to be linked to employees’ resentment about the dominance of personal relationships in reward allocations. The test used in this study focused on whether employees in Lithuania and Hungary perceived that job performance was less important than personal relationships in the distribution of rewards and promotions. This question was evaluated by comparing questionnaire reports of employee perceptions about both the extent to which performance was the basis for reward distribution in their organizations (Table 5.2), and the extent to which personal relationships were the basis for organization rewards (Table 5.3). The comparisons were made between reports from two groups of employees under nonfacilitative governments, Lithuanian and Hungarian, and reports from their American counterparts. TABLE 5.2 Performance-Based Rewardsa Studies

p Lithuania

U.S.

2.55

2.99

Hungary

U.S.

1989–1996 Hungarian longitudinal studyb

2.08

2.99

1989–1996 Hungarian longitudinal study

1990

1992

1993

1994

Specialty glass manufacturing

1.953

2.023

3.990,2,4

3.180,2,3

1993–1994 Lithuanian study

Porcelain factory Elevator company a

b

2.15

3,4 4

2.21

— —

< .01

< .01

3.95 —

0

< .01

3.89

0

< .01

3.47

0

< .01

Five-point Likert-type scales, with “5” indicating high perception of meritocratic practices. Scale adapted from Al-Aiban and Pearce (1993). Sample item includes “Promotion is based solely on job performance in this organization.” b Hungarian sample from 1990 administration; American sample from Al-Aiban and Pearce (1993). Superscript indicates mean is significantly different than mean for indicated year: 0=1990, 2=1992, 3=1993, 4=1994.

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The reports of these employees confirm that they see a significant difference in the extent to which performance or personal relationships is the basis for rewards in their workplaces. In both the Lithuanian and Hungarian organizations, employees reported significantly less emphasis on performance and significantly more emphasis on personal relationships in the distribution of rewards. Although only one facilitative government was sampled, that of the United States, the fact that reports of significantly greater emphasis on personal connections were found in a sample of organizations in two quite different nonfacilitative countries bolsters support for the arguments of Voslensky (1984), Walder (1986), Simis (1982), and Putnam (1993). TABLE 5.3 Relationship-Based Rewardsa Studies

p Lithuania

U.S.

3.49

2.48

Hungary

U.S.

1989–1996 Hungarian longitudinal studyb

3.54

2.48

1989–1996 Hungarian longitudinal study

1990

1992

1993

1994

Specialty glass manufacturing

3.61

3.57

3.52

3.36

NS

Porcelain factory

3.64

—

3.60

3.46

NS

Elevator company

3.21

—

—

3.82

NS

1993–1994 Lithuanian study

b

< .01

< .01

a

Five-point Likert-type scales with “5” indicating high particularism. Scale adapted from Al-Aiban and Pearce (1993). Sample item includes “‘Connection’ or ‘who you know’ is more important than job performance in getting ahead here.” b Hungarian sample from 1990 questionnaire administration; American sample from Al-Aiban and Pearce (1993). NS, not significant.

Interestingly, whereas the very low levels of reported performance-based reward practices in 1990 improved significantly in all three Hungarian companies by 1994, their reports on the role of personal relationships remained virtually unchanged. All three of these organizations had come under increased marketderived performance pressure during those 5 years, and these pressures

PARTICIPANT DISSATISFACTION

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apparently were reflected in the perceptions of employees. The interviews indicated that there was an increased accountability for poor performance. Stories were heard in all the Hungarian organizations: Reports now had to be turned in by the deadline; those who would not or could not do their jobs were let go; quality standards now wereenforced. Notably, is that this increased attention to performance-based rewards was not reflected in a commensurate decline in the reported importance of personal relationships in reward and promotion allocations. These two scales were designed originally to represent polar opposites, with performance-based rewards at one end and person-based rewards at the other end. In fact, in 1990 these two scales had substantially negative correlations in the Lithuania (r=−.57) and Hungary (r=−.50); (p<.01 for both). However, by 1994 the relationship in Hungary was only r=−.20 (p<.05). That is, despite the greater emphasis on performance to satisfy customers and demands for higher quality products and services, the employees remained convinced that organizational rewards were based on personal relationships. This observation supports the contention in chapter 4 that expectations of dependence on personal relationships appear to persist even when expectations of performance have increased. Thus, there is clear evidence, apparent to the employees, that performance is increasingly important to the organization, and that poor performance is an increasingly risky choice. Yet, these employees have not abandoned their belief that who you know is more important than performance. The shadowy power of connections continues to exert its force even in the face of evidence to the contrary. Why should this be? It could be that employees integrate performance pressures into their assumed dependence on others. Performing well just becomes another way of ingratiating yourself with the powerful. Alternatively, it could be that although employees recognized that poor performance would result in punishment, they believed that rewards were still allocated to the favored. Certainly, connections still counted. There is indirect evidence that the Hungarian managing director of the elevator company protected some loyal employees who were not very productive. After the managing director was fired in March of 1994, his replacement (a Western expatriate) spoke about having to let go several of the unproductive old fellows he had been protecting. Furthermore, the assumption that connections are what really matter appears to create a climate in which any other explanation for events reflects a pathetic naiveté about the way the world really works. The power of secret personal connections becomes a convenient all-purpose explanation. Pearce (1991) described how the hidden character of the highly centralized decision making in the communist era led to a situation in which most participants, even high-level managers, knew very little about their own supervisors’ or colleagues’ goals and

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pressures. Furthermore, they had learned not to inquire to closely, as reflected in the following stalemate: “Some even feel that it is not their responsibility to understand these things” (Pearce, 1991, p. 85). This, in turn, fostered imprecise communication, so that ambiguous, darkly hinting statements were made, which listeners did not question or demand to be clarified. Under these circumstances, once such conspiracy theories are established, they need very little supporting evidence to sustain themselves, because the theory-holder expects not to be able to see what is purposely kept hidden. This assumption that what really takes place is hidden from view, and that powerful actors manipulate events behind the scenes, is particularly pernicious for those trying to establish more performance-based organizations. No matter how much evidence employees see of the importance of performance, their belief that connections will matter persists. If connections are what is important, then ingratiating yourself with the powerful is a sensible course of action. OBSEQUIOUS SUBORDINATES When personal relationships are the basis for survival and success in organizations, participants were expected to focus their attention on building personal relationships with the powerful. Because powerful people are not plentiful, ambitious individuals might need put a great deal of effort into the attempt to build of such relationships. For this reason attempts to ingratiate may tend to excess. This would produce the obsequiousness noted by Voslensky (1984) the deference described by Walder (1986), the ingratiation reported by Simis (1982), and the supplication noted by Putnam (1993), (Table 5.1). There are observational data to support their contentions that organization based on personal relationships breeds obsequiousness. Numerous examples of obsequious behavior were observed. Box 5.2 reports an account from the author’s field notes describing the end of a week-long training program she had conducted with colleagues for the middle managers of a large computer company in Hungary in 1989. Other examples abound. The author conducted several other training programs in a small communist party vacation facility. Every morning, the kitchen staff served breakfast to the house director and accountant, who ostentatiously presided at the head table in the dining room while being served by the kitchen staff. Even relatively low-level managers of small party owned vacation facilities expected and received the fawning attention usually associated with oriental potentates. With power so centralized and with few restraints on its arbitrary exercise, the ambitious, or merely cautious, find that exaggerated obsequiousness is the prudent course to pursue.

PARTICIPANT DISSATISFACTION

95

Box 5.2 I was surprised to see one of the county center managers toadying to the human resources director who was visiting on the last day. He hung around the director whenever he could; his previously aggressive demeanor turned sweet and mild. I had admired him as an aggressive fighter (even if he did step on a few toes). Yet now he followed this director around like a fawning puppy, literally waiting to be the last to see him at the end of the training. I was personally shocked and offended by his behavior (and I can imagine his colleagues felt at least as strongly about it as I did). Yet on reflection,…assuming my earlier observations were accurate and he is aggressive and wants to get ahead, the environment he perceives himself to be in is not one that rewards displays of performance prowess, but rather one that rewards toadying like a courtier. His behavior was probably more noticeable because he tended to excess rather than subtlety, and because others told me he had few opportunities to interact with someone as important as this central office human resources director. He apparently wanted to make the most of this opportunity, no matter what the cost in his reputation among fellow managers. N clearly did not think that the best way to get ahead was to build markets aggressively for his products (something he probably would have been better at; the flattery was too obviously insincere), but to smile sweetly and serve as a handmaiden to the high-ranking. What most startled me was that no one else was surprised by his behavior. They might have seen it as a bit amusing (because it lacked subtlety), but viewed it as normal behavior for an ambitious center manager. (See Appendix; 1989–1996 Hungarian longitudinal study)

DISTRUST, FEAR, AND WARINESS As noted earlier, observers recount a great deal of distrust, fear, and wariness among participants in organizations based on personal relationships. Rotter (1980) summarized extensive laboratory data demonstrating that the experience of arbitrary treatment is unsettling and fosters distrust. Banfield (1958) characterized this as pathologic distrust, an inability to see anyone as other than self-serving or corrupt. In the southern Italian village he studied, anyone who presented him- or herself as working for the common good was seen as either disingenuous or a fool. Gambetta (1988) and Pagden (1988) described how distrust was actively cultivated by those who wanted to make sure their personal patronage would continue to be necessary. Finally, Putnam (1980), Gambetta (1988), Banfield (1958), and Redding (1990) described the self-reinforcing

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quality of this distrust: Individuals expected to be exploited and so sought to exploit first, reinforcing the assumption that others outside the close circle of family or limited personal network should be feared. The most provocative insight from these scholars’ rich descriptions is that even those in personal networks or tight family clusters may not trust one another. Rather, they are mutually dependent on what has become the smallest possible grouping needed for survival. Certainly, the prior literature on communist workplaces suggests that peer distrust at work was pervasive. Haraszti (1977) provided a powerful story of the distrust among factory workers under Hungarian communism, which is presented in Box 5.3. Yang’s (1994) description of what she calls the “culture of fear” among students and factory workers in China is particularly noteworthy. She told of the need to build low-density, single-strand networks in her Chinese fieldwork, to make sure that everyone in her circle of acquaintances and informants was connected solely through her for their own protection. Conducting interviews, both she and the informant felt more comfortable if only the two of them were present, because security was enhanced if a potential informant knew that his or her interlocutor could be traced personally to the information: In the first half of the 1980s, the culture of fear was still a powerful force in constraining actions and speech in everyday life. To be sure, it was a milder form of the culture of terror that had reigned during the Cultural Revolution (1966–1976), but for me coming from another world, it was one of the main sources of culture shock. (Yang, 1994, p. 20) Such distrust does seem to be associated directly with government practice. In addition to Yang’s observations, Haraszti (1977) also described how company practice (dictated by government), such as the cross-departmental formation of brigades described in chapter 3, was designed to limit and disrupt any personal relationships that might naturally build among coworkers in frequent contact with one another and facing common problems. Yet, whereas these observers reported high levels of distrust among organizational participants under such nonfacilitative governments, do the participants themselves report differences in their trust? After all, there could be local features of personalities or organizational circumstances that might swamp any distant government effects. It seems possible that a kind supervisor and caring coworkers could build strong trust relationships among themselves, regardless of the government under which they worked. One way to address this question is to ask employees about their peers. Are they trustworthy?

PARTICIPANT DISSATISFACTION

97

Box 5.3 Supplementary wages are our most frequent topic of conversation with the foremen. They have at their disposal a relatively large sum for the adjustment of individual wages. No one knows exactly how much, nor whether all or part of it is used up. The foremen’s accounts never mention it, nor can you find any trace of it under either “deficits” or “outgoings” in the “official bulletin of results.” … The foremen, setters, and inspectors never once mentioned the existence of supplements, and it was only some time after my arrival that I heard about it from old M…Only one thing is certain: The foremen resist paying supplementary wages. Each worker therefore concludes that if there are too many demands, less will be left for him…. So each worker treats what he gets as a supplemental wage as a secret. (Haraszti, A Worker in a Worker’s State © 1977, Penguin/Putnam, p. 98) Yang (1994) and the others observed that many employees under nonfacilitative government believed that their organizational peers could pose a threat. Peers may be well connected themselves, but even if they are not particularly well connected, one can never be sure that they will not seek to ingratiate themselves to the powerful by denouncing or informing on you (Haraszti, 1977; Pearce, 1991; Walder, 1986). In such settings, membership in the same workgroup or department would not itself foster mutual trust. Researchers working under facilitative governments have suggested that sustained contact with one another fosters trust (Deutsche, 1958; Hardin, 1993; McAllister, 1995). The author proposes that mere contact in an environment dominated by personal relationships would not in and of itself foster trust. This argument can be tested by comparing the self-reported trust in coworkers of employees under facilitative and nonfacilitative governments. If this argument is correct, employees in organizations under nonfacilitative governments dominated by personal relationships would not be expected to report less trust in their coworkers than comparable employees working under the organizations possible under facilitative government. In fact, consistent with this argument, in the sampled organizations there was significantly lower employee self-reported trust in coworkers in the Hungarian and Lithuanian companies than reported by employees in the American comparison organizations (Table 5.4). Furthermore, although a wide variety of American companies were sampled in both the profit and nonprofit sectors, in not one of these organizations was employee trust in coworkers as low as in any of the organizations operating under nonfacilitative governments. Whether trust in coworkers improved with the changes in the transition from communism was tracked in a sample of three Hungarian organizations. As noted earlier, the hostility to independent organization dissipated in Europe with the

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changes beginning in 1989. However, government facilitation of independent organization did not improve as quickly. Governments became more unpredictable as legislatures struggled to develop new laws, to privatize a national economy, and to provide reliable enforcement in an environment wherein less than legal practice had been the norm. For these reasons, distrust was expected to recede slowly. As can be seen in Table 5.4, only the employees in the porcelain factory reported a significant increase in their trust of coworkers from 1990 to 1994. This increase, however, only put them in line with the other Hungarian employees, still significantly below their American counterparts. The particular circumstances in the porcelain factory seemed to be a factor causing this increase in coworker trust: This factory had been suffering from profound mismanagement. As a result, the company culture was particularly averse to performance, and employee alienation was rife. The new, effective managing director, who joined the company only a few months before questionnaire administration in 1994, appeared to be making headway in reforming this company, apparently enough for the changes to begin to be reflected in growing employee trust. TABLE 5.4 Trust in Coworkersa Studies

p Lithuania

U.S.

3.46

3.88

Hungary

U.S.

3.59

3.76

1989–1996 Hungarian longitudinal study 1990

1992

1993

1994

Specialty glass manufacturing

3.42

3.48

3.52

b

1993–1994 Lithuanian study and U.S. electronics samples

1989–1996 Hungarian longitudinal studyc and 1985 and 1988 U.S. studies

3.64

Porcelain factory

3.29

Elevator company

3.53

a

4

< .01

< .01

—

3.20

—

—

4

3.58 3.55

NS 0,3

< .05 NS

Five-point Likert-type scales with “5” indicating high trust in coworkers. Scale taken from Pearce (1993). Sample item includes “I can rely on those I work with in this group.” b Comparison first reported in Pearce, Bigley, and Branyiczki, 1998. c Hungarian sample from 1990 questionnaire administration; comparison first reported in Pearce, Branyiczki, and Bigley, 2000. NS, not significant. Superscript indicates mean is significantly different than mean for indicated year: 0=1990, 2=1992, 3=1993, 4=1994.

PARTICIPANT DISSATISFACTION

99

Therefore, employees working in organizations dominated by personal relationships under nonfacilitative governments echo the observations of those who have conducted fieldwork in such settings. Although they had worked alongside coworkers for many years, these engineers, accountants, clerk typists, and managers in organizations dominated by personal relationships trusted their coworkers substantially less than did their counterparts under facilitative governments. These data cannot tell us whether such distrust is fostered directly by government practice, as Yang (1994) and Haraszti (1977) suggested, or by an absence of supportive environments, of which nonfacilitative government is only one part, as Redding (1960) and Banfield (1958) proposed. Yet these organizations were characterized by the same highly centralized and arbitrary exercise of power characteristic of their governments, so it should be no be surprise to find the same within-organization distrust, fear, and wariness that scholars have described in larger societies. CHEATING AND RULE BREAKING Concomitant with distrust in coworkers is the expectation that they, and in fact everyone, is cheating and breaking rules whenever they possibly can. Tyler (1990) noted that compliance depends on judgments of both the morality and legitimacy of authorities’ directives. Because authorities are seen as immoral or illegitimate, certainly a widespread reality under many nonfacilitative governments, cheating and rule-breaking would be expected. Riggs (1961) spoke of the ways in which widespread violations of rules, regulations, and laws begot more nonconformance as it became the normative expectation not to obey, which in turn forced even those who were personally inclined to follow the law to disobey simply to avoid being placed at a disadvantage. Litwak (1991) and Gregory (1989) likewise described widespread illegality and rule-breaking in the Soviet Union (Table 5.1). Organizations dominated by personal relationships should be expected to foster antiorganization behavior such as cheating. Antiorganizational behavior is a time-honored way of restoring one’s dignity and self-respect in the face of oppressive conditions (Mars, 1982). Certainly, individuals in a close personal relationship would be less likely to cheat each other. However, they may very well cheat the organization they perceive to be unfair, immoral, or illegitimate by such antiorganizational behaviors such as shirking their tasks or stealing from the organization. Of course, it is difficult to obtain self-reports of respondents’ own cheating and rule breaking in a questionnaire. Therefore, to test whether these scholarly observations of widespread cheating would be reflected in reports of employees in the sampled organizations, employees were asked whether their coworkers tended to shirk their job responsibilities. As is clear in Table 5.5, the Lithuanian

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and Hungarian employees reported substantially more shirking by their coworkers than did the comparable American employees. Lest anyone assume that this reflects a problem of incentives under communism, the Lithuanian and Hungarian employees had substantially higher pay-at-risk than did the Americans. During data collection, the former were receiving individual bonuses ranging from 30% to 200% of their base pay, whereas the Americans could expect merit increases ranging from 0% to 7% at that time. Whereas it is true that the Americans’ raises were based on formal performance appraisals, the Lithuanian and Hungarian supervisors were not indifferent to shirking. In Table 5.5 it can be seen that, consistent with the earlier finding that the Hungarian employees continued to believed in the dominance of personal relationships, there was little change from 1990 to 1994 in the Hungarian employees’ suspicion that their coworkers were shirking. Only the elevator company had a significant drop in reports that others shirk. This decline still left their perceptions of shirking significantly higher than those of their American counterparts. TABLE 5.5 Coworkers’ Shirkinga p

Studies Lithuania

U.S.

2.91

2.55

Hungary

U.S.

1989–1996 Hungarian longitudinal study and 1985 and 1988 U.S. studies

3.29

2.55

1989–1996 Hungarian longitudinal study

1990

1992

1993

1994

Specialty glass manufacturing

3.14

3.14

3.02

3.39

Porcelain factory

2.87

—

2.90

3.01

1993–1994 Lithuanian study and 1985 and 1988 U.S. studies b

Elevator company a

4

3.22

—

< .01

< .01

—

2.93

NS NS 0

< .05

Five-point Likert-type scales with “5” indicating high levels of perceived coworker shirking. Scale taken from Pearce, Branyiczki, and Bigley, 2000. Sample item include “People here do whatever is necessary to meet deadlines and finish a job (reverse scored).” b Hungarian sample from 1990 questionnaire administration; comparison first reported in Pearce, Branyiczki, and Bigley, 2000. NS, not significant. Superscript indicates mean is significantly different than mean for indicated year: 0=1990, 2= 1992, 3=1993, 4=1994.

PARTICIPANT DISSATISFACTION

101

The interviews also reflected a widespread assumption among employees that others cheated. For example, if anyone else received some reward or benefit, a common assumption was that it must have been because he or she had cheated in some way. For example, a manager in a Hungarian engineering company in 1989 described his experience in awarding bonus money to his subordinate engineers. He said that he had carefully evaluated their job performances and then awarded differential bonuses on the basis of relative contribution. Of course, this evaluation was not based on any written standards, nor were the criteria explained to the engineers. It must be remembered that there is no expectation that publicly known rules guide action. However, the first time this manager gave differential bonuses, a fistfight, one with serious blows and rolling on the floor, broke out between two of his engineers. One had asked his colleague the size of his bonus, and when told a number higher than he had received, he became so enraged at the injustice that he threw a punch at his colleague, and the fight ensued. The reader can be assured that the normative expectations regarding workplace fist fights among college-educated professionals are as censorious in Hungary as they are in his or her own society. This engineer was incensed at what he assumed must have been some form of cheating by his colleague. Furthermore, employees freely recounted stories of others’ misappropriation of company resources. One example appears in Box 5.4. Moreover, under reform communism in Hungary, it was common practice for people who worked at construction companies to steal what they needed for the summer houses they were constructing, and using company cars and offices for one’s private second job were so routine as to be unremarkable. In Hungary, rule-breaking was simply assumed, captured in a common saying, “Rules are just sticks making a fence; the more sticks you have, the more spaces you have to get through.” Of course, individuals might learn that particular people were honorable, and some individuals did earn widespread reputations as personally honest people. Nevertheless, all assumed that many others probably were cheating. ORGANIZATIONAL COMMITMENT Organizational commitment is a variable of long-standing interest in the field of organizational behavior. Recent work has divided organizational commitment into behavioral and affective commitment (Salancik, 1977). Behavioral commitment concerns the commitment someone may have to an organization because he or she has few other attractive alternatives. This may be because of lost pension benefits, because job skills are not easily transferred to another employer, or because difficult-to-obtain government permission is needed for a change of employers.

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Affective commitment is a commitment that individuals may have to their organizations because they share its goals or feel their work makes a contribution they personally value. As reported in Table 5.1, Redding (1990) suggested that overseas Chinese employees had low commitment to their organizations. Similarly, Banfield (1958) observed what he called a “lack of a sense of calling,” telling the story of a school teacher who would not even acknowledge his pupils with a greeting after school hours. This suggests that affective commitment would be lower under nonfacilitative government. If people generally are disaffected with organizations and focused primarily on personal relationships, this should be reflected in lowered organizational commitment. For employees working under facilitative governments, the empirical relation between procedural justice and organizational commitment is well established. Procedural justice has been shown consistently to be positively related to organizational commitment (Folger & Konovsky, 1989; McFarlin & Sweeney, 1992). Certainly, it would seem that employees who believe their organizations use just procedures to allocate opportunities, rewards, and sanctions would tend to be relatively more committed to them. Conversely, when personal relationships are the basis for decisions, it seems less likely that employees would be to be committed to the organization (however committed they may be to the persons on whom they depend). In organizations dominated by personal relationships, the employee’s commitment would be to those participants with whom they have personal relationships, not to any larger abstractions. Box 5.4 In the porcelain factory we heard about a warehouse supervisor who stole a sample that had been prepared as part of a bid for a large airline contract. When the salesman arrived at the warehouse to pick up the sample to take to the presentation, he found it was gone, and without the sample there was no presentation and no contract. The supervisor-thief was “yelled at” but not fired, but the salesman quit soon afterward. (See Appendix; 1989–1996 Hungarian longitudinal study) Indeed, the studied employees in Lithuania and Hungary were less committed to their organizations than their American counterparts (Table 5.6). These results are particularly interesting in light of the greater behavioral commitment of the Hungarian and Lithuanian employees. Whereas job mobility was prevalent among the Americans in this sample, particularly for software writers and accountants, job mobility was highly constrained under communism. Although neither country had the job-assignment system of China, in practice, economies

PARTICIPANT DISSATISFACTION

103

dominated by monopoly producers, offer few alternatives for most professionals. Furthermore, in the early 1990s job hopping still retained a stigma: When the specialty glass manufacturer had its first large layoff in late 1991 the union requested, and management agreed, to write in departing employees’ labor books that they had left voluntarily because these employees feared that other employers would assume a lay off was really termination-forcause. In short, the affective commitment of these Lithuanian and Hungarian employees must have been substantially lower than that of their American counterparts to account for the lower levels of overall organizational commitment. TABLE 5.6 Organizational Commitmenta Studies

p Lithuania U.S. b

1993–1994 Lithuanian study and 1988 U.S. study

3.05

3.78

Hungary

U.S.

1989–1996 Hungarian longitudinal study and 1985 and 1988 U.S. studies

2.83

3.43

1989–1996 Hungarian longitudinal study

1990

1992

1993 1994

Specialty glass manufacturing

2.92

2.82

2.94

2.70

NS

Porcelain factory

2.87

—

2.89

3.07

NS

Elevator company

2.85

—

—

2.86

NS

c

< .01

< .01

a

Five-point Likert-type scales with “5” indicating high organizational commitment. Scale is the short form, taken from Mowday, Steers, and Porter (1979). Sample item includes “I am proud to tell others I am part of this organization.” b Comparison first reported in Pearce, Bigley, and Branyiczki, 1998. c Hungarian sample from 1990 questionnaire administration; comparison first reported in Pearce, Bigley, and Branyiczki, 2000. NS, not significant. Superscript indicates mean is significantly different than mean for indicated year: 0=1990, 2=1992, 3=1993, 4=1994.

Furthermore, according to the findings of the longitudinal study, organizational commitment did not change during the early years of the transition from communism in these Hungarian organizations (Table 5.6). Whereas trust in coworkers and even assumptions about others’ cheating in some cases responded to changes in ownership, strategy, and executive

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personnel, apparently organizational commitment did not. If the organization is simply a nexus of personal relationships, there really is no reason for anyone to have any commitment (or any other sentiment, positive or negative) about the organization as an entity. EXPLOITATION An attempt was made to test the exploitation of others observed and referred to by so many of the scholars listed in Table 5.1. Redding (1990) suggested that those outside one’s own personal network are assumed to be exploitative, and everyone is expected to share this assumption. As Zucker (1986) noted, clear rules reduce the fear of arbitrary attacks from those outside one’s own limited cluster. Banfield (1958) described an environment in which self-serving acts by those in power were expected (yet nevertheless resented). Finally, the distrust and wariness already observed in these organizations could reflect a fear of exploitation. Therefore, an effort was made to obtain any confirmation of this observation from employees’ own reports. There is no confirmation of this from the interviews: People did not often offer tales of their own exploitation of others, and seemed more willing to relate tales of others’ cheating than of their own victimization. Therefore, the analysis was approached in two ways. First, the employees were asked whether they thought their coworkers were exploitative. Employees in Lithuania and Hungary reported more exploitative by their coworkers than did their American counterparts (Table 5.7). Given all the previous reports of their distrust and assumptions that others are cheating, this is not surprising. It does support the argument that these employees under nonfacilitative government fear exploitation more than their counterparts in organizations under facilitative government, but are they actually more exploited? It would be useful to have more direct evidence that participants actually do exploit their fellows more in organizations dominated by personal relationships. One approach used in the most recent study of the author and her colleagues comparing the business relationships of Chinese and American managers in the executive education courses of 1997–1998 was to ask a question proposed to reflect an exploitative intent in their business relationships. In Table 5.7, these data are reported. It can be seen that the Chinese executives were significantly less likely to report that “no matter whether it would benefit me or not, I would continue to work with this associate” than the American executives, suggesting a more instrumental approach to others. Such an attitude certainly would provide the basis for subsequent exploitation. Although more data are needed, taken as a whole, these reports suggest that there was more exploitative intent in the building and use of personal relationships among the Chinese, and that this exploitative intent was widely perceived.

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TABLE 5.7 Exploitationa Studies

p a

“Coworkers are exploitative”

Lithuania U.S.

1993–1994 Lithuanian study and 1988 U.S. study

2.84

2.74

Hungary

U.S.

1989–1996 Hungarian longitudinal studyb and 1985 and 1988 U.S. studies

2.79

2.71

1989–1996 Hungarian longitudinal study

1990

1992 1993 1994

Specialty glass manufacturing

2.68

2.81 2.80 2.79

Porcelain factory

2.91

Elevator company 1997–1998 China—U.S. study

3

< .05

NS

0

NS

—

3.22 2.96

< .05

2.77

—

—

NS

China

U.S.

“No matter whether it would benefit me or not, I 3.32 would continue to work with this associate”c

3.97

2.66

< .01

a

Five-point Likert-type scales with “5” indicating high coworker exploitation. Sample item includes “Members of this group tend to ‘use’ other people.” b Hungarian sample from 1990 questionnaire administration. c Five-point Likert-type scales with “5” indicating high desire to continue the relationship whether it provides benefits or not. NS, non significant. Superscript indicates mean is significantly different than mean for indicated year: 0=1990, 3=1993.

DISSATISFACTION AND ALIENATION Finally, by way of summary, job satisfaction is examined. It has a long history in organizational behavior, representing employees’ overall reaction to their workplaces (Vroom, 1964). It is the term psychologists use to describe the obverse of the sociologists’ “alienation.” The preceding discussion would suggest that job satisfaction might be significantly lower among employees working in organizations dominated by personal relationships fostered by nonfacilitative government. Certainly, employees would not enjoy working with those they distrust and assume to be cheating. Few would welcome the need to hustle and toady for everything, or want to work in the expectation of being exploited. Furthermore, employees less committed to their organizations would probably find their jobs there unsatisfactory. Certainly, Putnam’s (1993) alienation is in

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many respects the reverse of job satisfaction, and Banfield’s (1958) reports of the melancholy among the villagers in his study appear to reflect dissatisfaction. Unsurprisingly, Table 5.8 shows that the employees working in organizations dominated by personal relationships under nonfacilitative governments were less satisfied with their jobs than comparable Americans. Furthermore, there was a decline in the job satisfaction among the Hungarian specialty glass and porcelain factory employees during the 1990–1994 period. This might have been expected. The comparative advantages of working in these struggling companies declined precipitously in the 1990s. Salaries stagnated relative to what was available in the private sector, and these organizations were financially precarious. Unfortunately, unemployment was soaring in the provincial towns where these two companies were located. Apparently, in 1994 many employees in some of the decaying quasi-state-owned companies were dissatisfied but felt trapped, either because their skills were not transferable (e.g., porcelain handpainting) or because a job change would require them to leave their family and community. Yet more generally, these employees’ overall evaluation of their workplaces reflects the preceding discussion: These are not pleasant places to work, and employees know it. TABLE 5.8 Job Satisfactiona Studies

p Lithuania U.S.

1993–1994 Lithuanian study and 1985 and 1988 U.S. studies

3.22

3.56

Hungary

U.S.

3.30

3.56

1989–1996 Hungarian longitudinal study 1990

1992

1993

1989–1996 Hungarian longitudinal studyb and 1985 and 1988 U.S. studies

< .01

< .01 1994

Specialty glass manufacturing

3.373,4

3.413,4

2.850,2 2.770,2 < .05

Porcelain factory

3.213,4

—

2.790

2.930

< .05

Elevator company

3.36

—

—

3.18

NS

a

Five-point Likert-type scales with “5” indicating high job satisfaction. Scale taken from Hackman and Oldham, 1980. Sample item includes “Generally speaking, I am very satisfied with this job.” b Hungarian sample from 1990 questionnaire administration. NS, non-significant. Superscript indicates mean is significantly different than mean for indicated year: 0=1990, 2=1992, 3=1993, 4=1994.

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DYSFUNCTIONAL ORGANIZATIONAL BEHAVIOR The preceding self-report data confirm the unhappy picture represented in the previous literature and reported in Table 5.1. Employees themselves reported greater distrust, cheating by their coworkers, obsequiousness, and greater importance of personal relationships in the distributions of organizational rewards and punishments. Seeing their organizations as unfair, they had concomitantly lower job satisfaction and lower commitment to their organizations than did comparable employees working under a more facilitative government. Although these comparisons cannot control for all the alternative explanations, nevertheless, the use of samples matched on organizational level, occupation, and industry type (see Appendix) including the sampling from three quite different countries with nonfacilitative governments provides some reassurance. With results so consistent, so overwhelmingly supportive of others’ previous observations in a wide variety of nonfacilitative settings, there would not seem to be much argument that under nonfacilitative government employees see that personal relationships dominate their organizations, and that they are unhappy with their coworkers and their workplaces. Numerous quotations from interviews and field notes lend credence to the claim that nonfacilitative government exacerbates and fosters these organizational practices and participant reactions. Earlier, it was seen that working in organizations dominated by personal relationships disempowers employees. Now it is seen that employees are aware of it and have the negative reactions to it that any student of organizational behavior might expect. This also reinforces an earlier suggestion that as alienating as bureaucracies may be for their members, the actual alternatives to bureaucracy can be worse.

6 Unpacking Culture The preceding chapter provided a snapshot of organizational behavior in the organizations operating under nonfacilitative government. The picture is the unhappy one of comparatively greater distrust, cheating, obsequiousness, and reliance on personal relationships in the distribution of organizational positions and rewards. Such observations beg elaboration. Although questionnaire-based comparisons are useful, alone they are an incomplete picture of organizational behavior under conditions of nonfacilitative government. In this chapter, observations, supplemented by participants’ reports, when possible, are used to explore several of the more complex behavioral syndromes in organizations that appear to be associated with nonfacilitative government. Each has been noted by observers and scholars, but they have tended to treat them as cultural facts to be described rather than explained. Although such patterns of behavior are of interest in their own right, they also are useful vehicles for exploring the concept of national culture as it affects organizational behavior. As such they deserve closer examination. These organizational behavior patterns have become part of the cultures of societies with nonfacilitative governments. They have evolved into taken-for-granted expectations, aspects of organizing in these settings that have become mutually reinforcing over time. In the field of organizational behavior, identifying differences in cultural patterns of behavior usually is an end in itself (Hofstede, 1980a). However, such static descriptions tell us little about which behaviors and expectations will respond to pressures for change and why. Governments do change, and the ways that those changes may affect expectations raise an important question that static labels cannot address. In this chapter the link between nonfacilitative government and certain cultural practices is described, and in the next chapter, the implications in these patterns of organizational behavior for changing organizations is developed. INSTITUTIONALIZED ADAPTATIONS TO DEPENDENCE ON PERSONAL RELATIONSHIPS In chapter 5, a case was made that participant attitudes, affects, and cognitions such as distrust, perceived injustice, fear, low commitment, and satisfaction, as well as behaviors such as obsequiousness, cheating, rule-breaking, and the exploitation of others arose from organizing that is dependent on personal 109

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relationships. In this chapter four more complex syndromes are proposed as adaptations to such circumstances: the dominance of bargaining in relationships, an emphasis on harmony in interpersonal relationships, upward gift-giving, and a characteristic quality of workplace authority relationships. Of the four, relationships dominated by bargaining and a concern for interpersonal harmony might appear to be polar opposites. After all, bargaining is characterized by opposition and haggling, and in the organizational settings under discussion, often by the harsh threats one Hungarian executive characterized as “blood-under-the-door bargaining.”1 In contrast, a preference for harmony in personal relationships involves avoiding aggressive interpersonal confrontations and supporting a respected social standing (face) for all participants. Yet both bargaining and harmony reflect the dependence on personal relationships found under nonfacilitative governments. Nonfacilitative government makes organizational participants more dependent on their personal relationships, but the balance and degree of dependence may vary widely. First, such dependence may be relatively mutual and balanced, each participant depending on the other for something important, with neither participant having attractive alternatives. Under these circumstances, aggressive, threat-based bargaining seems to dominate. Second, at the other extreme, those with power may have relatively unconstrained and broad-ranging power. Power among participants is unbalanced with one or a few participants having vastly more power than their counterparts and the low-power participants having no attractive alternatives. Certainly, as noted earlier, this breeds obsequiousness in the dependent participants, and, as detailed later, after centuries of such dependence, implicit normative expectations such as a preference for harmony in interpersonal interaction can develop. It appears that these patterns have become imbedded in cultural assumptions because in China, for example, imbalanced power relationships have been the norm for so long. In this discussion, the role of nonfacilitative government in supporting bargaining and concerns for harmony are explored. The third adaptation is the normative expectation regarding upward giftgiving practices. Gift-giving practices in particular countries have been studied in some depth, most prominently in Taiwan (Jacobs, 1980), China (Yang, 1994), and the Soviet Union (Berliner, 1957). The current author and her collaborators found practices similar to those described by these authors. These observations are described and linked to the dependence on personal relationships under nonfacilitative governments. 1

This is the expression Dr. Gábor Kornai used in 1989 when correcting the author’s implicit assumption that bargaining is a matter of exchanging good-for-good. He made the case that most of the bargaining he had witnessed consisted of trading threats, with the participant best able to make a credible claim to do more harm to the other gaining the upper hand.

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Fourth, the character of authority relationships within these organizations is addressed. Several features of these relationships, such as distrust, paternalism, and passivity, appear to arise under nonfacilitative governments and therefore are analyzed. RELATIONSHIPS DOMINATED BY BARGAINING Many of those who have written about the relationships between enterprise executives and government officials under reform communism and the transition from communism have noticed the prominence of bargaining. Bargaining means haggling over terms, going back and forth to reach an agreement. Kornai (1980, 1986, 1992) was among the first to note that an ostensibly command economy was characterized in practice by continuous bargaining between enterprise executives and government officials. He proposed that such bargaining arose because command economy officials, in seeking to rectify imbalances beyond the control of an individual enterprise, subsidized enterprises operating at a loss for public policy reasons (e.g., to keep train fares low), among other reasons. Officials maintained “soft budget constraints” by ex ante taking and then redistributing revenue among enterprises. This redistribution process was characterized by extensive bargaining among executives and officials. Executive-official bargaining in Hungary has been described in detail by AntalMokos (1998), in the Soviet Union by Gregory (1989), during the reform era in China (Walder, 1994), and during the transition in Hungary by Pearce & Branyiczki (1997) and Antal-Mokos (1998). Bargaining under communism has been widely documented, and it certainly was observed during the transition in the organizations studied. For example, in Hungary various subsidies and loans from the government were secured by the bargaining of the porcelain factory’s managing director and various board members, allowing this loss-making debt-defaulting company to remain in operation during the 1989–1996 study period. At three research sites selected for Hungary’s highly politicized and lengthy First Privatization Program, the executives were observed to be consumed by the rounds of bargaining characteristic of this program from 1992–1995. However, rather than merely add to accounts of executive-official bargaining already well described by Kornai (1992) and Antal-Mokos (1998), the focus in this chapter is first on explaining why such bargaining appears to be a byproduct of nonfacilitative government, and second on describing workplace bargaining, which also dominated many supervisor- subordinate relationships. Nonfacilitative Government and Bargaining As noted earlier, bargaining would seem to occur when the participants have relatively balanced dependence on one another and few attractive alternatives.

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Under communism, officials and executives often were stuck with one another, with neither having enough power to prevail absolutely. Why were officials, representing the enterprises’ government owners and having sovereign coercive power as well, unable simply to command rather than haggle with their nominal underlings? In practice, although enterprise and executive dependence on the government was extensive (Kornai, 1992) who had the right to dictate to another often was ambiguous (Carroll, Goodstein, & Gyenes, 1988). The quotation in Box 6.1 from Kornai (1992) summarizes the situation faced by company executives. The changes of the transformation have by and large only made things worse because ambiguity has increased (Stark, 1989, 1996). As noted in Pearce and Branyiczki (1997), who had the legitimate right to set the direction and deploy the resources of organizations during the transition remained a deeply contested issue in these societies. When a facilitating government has established clear property rights and reliably enforces them, ownership of an organization confers power by means of the legitimacy granted to it to dictate how its property should be used. If ownership did not imply such legitimacy, socialists would have had no interest in state ownership of organizations. As Pearce and Branyiczki (1997) demonstrated, however, ownership legitimacy in Hungary was uncertain in the late stages of reform communism and became even more so during the transition. Claims of ownership set the stage for bargaining rather than clarifying legitimate authority. Box 6.1 Under the semiregulated market-socialist system, the flow of informal communications presents an amorphous picture. The relation between firms and superior organizations is full of vague, accidentally or intentionally ambiguous rules, improvisation, exceptional cases, and personal connections that evade the official “route.” Various authorities all have a say in a single firm at once, often working at cross purposes. A smart manager learns to maneuver among many superiors, playing them off against each other. (Kornai, The Socialist System: The Political Economy of Communism © 1992, Oxford: Clarendon UK, p. 487) Under communism, formal ownership often was dispersed among a collection of government, and sometimes party bodies. Enterprises could be owned by different ministries and national offices. Some enterprises were established by (or allocated to) regional or local municipalities, where the line control (how much of the things produced) was given to the municipality itself, leaving staff

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responsibilities (wage levels, accounting systems, export and import permissions, loans, and credits) to national offices such as the finance ministry. Furthermore, the party and various trade unions also had the right to approve certain personnel decisions, and also could have line control over certain organizations. These multiple owners of state-owned enterprises took their own rights of ownership very seriously. They expected their representatives to be at the table when important decisions needed to be negotiated. Hungary’s market-socialist reforms further strengthened the bargaining position of enterprise executives vis-à-vis government officials. During the reform era, there were several attempts to make enterprises and their managing directors responsible for the performance of their enterprises, to reward them for meeting certain financial objectives, and to provide them with greater discretion in decision making. (Kornai, 1992). In practice, however, these reforms exacerbated unpredictability, giving Hungarian enterprise executives an advantage in their bargaining with government officials. This occurred because the rules and constraints generated by the different components of the apparat were so complex and mutually contradictory that enterprise executives could credibly argue that their organizations’ performance problems were not their fault. Furthermore, government officials had so many companies to track in such different industries that they could not provide detailed supervision for most of these organizations. Although detailed accounting systems were intended to control enterprises, the complexity of the pricing, subsidies, and loans (for numerous different products and purposes) as well as lack of clear market tests in the communist trading block limited the usefulness of these figures (Kornai, 1992). Finally, government officials had their own careers to nurture, and, as any where else, careers are best advanced by demonstrating success and avoiding embarrassment. These government officials had no incentive to audit companies’ numbers carefully because the reporting system had so many distortions in so many layers that actual reality probably could never be uncovered by even the most heroic auditor. Besides, managing directors had their own good connections in the apparat, and careers in any society are rarely advanced by alienating those who are influential. Managing directors were well aware of officials’ motives and could threaten embarrassment (poor results, layoffs, social upheaval) if they did not get the resources they wanted. Thus, managers grew used to dealing with their nominal owners by engaging in negotiation via threats and blood-under-the-door bargaining. An assertive managing director often could gain an upper hand, and a self-respecting one would certainly try. Therefore, at the time of communism’s collapse, most managing directors in Hungary were people of considerable personal power relative to their government superiors. They were not completely autonomous. Even the most well-connected managing director needed to bargain continuously behind closed doors among a constantly shifting set of participants. But the primary constraint

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was the limit of their personal contacts, bargaining resources, and skills. Although new government initiatives and programs would come and go, they all amounted to yet another shift in the inherent complexity of the daily bargaining round. This complexity itself was valuable to managing directors because it increased the value of insider knowledge and served as a de facto barrier to entry, particularly for the poorly connected young and foreigners. Because these skills of hard bargaining had been so highly rewarded, successful Hungarian executives became quite adept at them. As would be expected, government weakness, and thus the bargaining power of officials, was exacerbated in the early stages of the transition. Property rights became even more blurred as Stark (1996) described in relation to Hungary, Burawoy, and Krotov (1992) in relation to Russia, and Hsing (1998) in relation to China. For example, Burawoy and Krotov (1992) suggested that the collapse of Soviet state socialism made barter and bargaining even more important, exaggerating these features of the old system in Russia. As Antal-Mokos (1998) described, during the transition in Hungary bargaining over privatization grew extremely complex, with hitherto excluded players (middle managers and nonmanagement employees) exercising their new political rights to enter the game. He also described the heavy cost to the Hungarian economy as privatization (and restructuring to adapt to the new market economy) was delayed by perpetual rounds of bargaining in which no party could sustain enough power long enough to prevail. Apparently, even bargaining requires sufficient stability to allow an agreement to reach resolution. Further exacerbating the dominance of bargaining was the uncertain control of resources. Under facilitative governments, there may be many claims and counterclaims to legitimacy, but clarity in control over resources for profitseeking organizations prevents protracted haggling. Individuals who can deliver or control access to resources are in a position to dictate their terms. Therefore, gaining power by contributing valued resources to the organization holds pride of place in theories of organizational power developed under facilitative governments (Hickson, Hinings, Lee, Schneck, & Pennings, 1971; Pfeffer & Salancik, 1978). Why then, did not government officials’ control over resources give them relative power over Hungarian enterprise executives? The reason is because scattered officials had influence over some resources, but rarely complete control. By the late 1980s in Hungary, state-owned companies were free to add other lines of business, especially exports that might earn convertible currency, and the government often encouraged certain activities via grants (called loans but never expected to be repaid) and other incentives. This led to some very eclectic organizations, for example, general construction companies exporting wine. Nonfacilitative government during the transition fostered official-executive bargaining by furthering ambiguity in control over resources in several ways. The transition in Hungary was characterized by ever-shifting laws and regulations. Complex requirements became ever more cumbersome, making

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clear accountability and responsibility increasingly elusive. First, ever more complex enterprise performance standards and incentive systems were imposed, providing much scope for executive bargaining with officials. During this period, enterprises were corporatized, providing fresh opportunities for bargaining over ownership and autonomy. Then privatization with its shifting requirements and changing cast of political players entered into the bargaining process. Complexity, unpredictability, and government weakness fostered a climate in which bargaining grew to become the dominant feature of executives’ work lives. Surprisingly, clarity in control over resources did not come with the introduction of market incentives. With the transition, sales became real (i.e., nominally, there were no more ex ante redistributions), and it might have been expected that managing directors would now focus their attention on increasing sales rather than on bargaining. However, in the sampled organizations, executives continued to be consumed by bargaining, still spending their days dashing off to a ministry office in Budapest, only they no longer were bargaining solely over redistribution payments (still available to some, but now called loans). Now they also bargained over privatization plans. This was what they were used to doing. It was what they were good at, and government policies made this an activity with higher potential personal payoff than the difficult, unfamiliar task of sales. Within-Organization Relationships Dominated by Bargaining These official-executive bargaining patterns were found to be replicated within the studied organizations under nonfacilitative governments. Power among supervisors and their employees was as balanced as official-executive power. In practice, employees had strong formal and informal job guarantees. In Hungary, the first reduction in employee head counts occurred in 1988. This layoff itself was a highly publicized, political act designed in an attempt to let enterprise executives know that government officials would no longer be cowered by the threat of layoffs. It was common in Hungarian organizations for many employees to take long breaks, leave early to work at their second jobs, and in other ways limit their contributions. With restrictions on staffing levels and salaries capped under communism, their supervisors feared that even a partial worker was better than none at all, because they never knew when an important rush job would descend and they would need all the labor they could get. Therefore, bargaining was an important component of managers’ relations with their subordinates and one another. Box 6.2 presents a discussion among managers during a training program. Higher level managers often did control valuable resources, but they were seen as capricious rather than calculating in their disbursement. To many, bargaining seemed to be the only way to influence what appeared to be

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otherwise arbitrary decisions. An example of the sense that higher level managers were capricious is reflected in the way county office managers from a computer company described the managerial problem for discussion in a training program (Box 6.3). Bargaining between supervisors and subordinates was particularly noteworthy. Bonuses, in particular, appeared to be a major arena for threats and deals. Box 6.4 contains an excerpt from an interview with the personnel director in 1989 for one of Hungary’s largest industrial combines. Box 6.2 A told a story about the perverse effects of a new law. Suppose, your company orders something (the example was a crane), and it is contracted to be delivered in September of year X. If problems occur (a likely occurrence), and it is not delivered until February of year X+1, the company is forbidden by law from paying the supplier. The managers said this is because the government claims all unspent money at the end of the year. Therefore, because managers cannot risk alienating a sole supplier on whom they depend, they find they must pay for the crane in delivery year X even though they haven’t received it yet. The supplier now places this order to the bottom of its pressing emergencies, and the representatives of the two companies now engage in endless haggling over this crane. (See Appendix; 1989–1996 Hungarian longitudinal study)

Box 6.3 They said that one of the problems they faced was that the central office did not make decisions based “on the best economic sense.” Then one manager offered the example of a recent allocation of a “big machine” to one of the county offices. M said, “The big mouths got it.” Another stated that at meetings managers tried to sit next to the decision maker to make their pitch for their office’s need for the big machine. Several mentioned that it depended on keeping “good relations” with decision makers in the central office. When pushed, they defined good relations as simple friendliness, having coffee with someone. When pressed [by the author] to analyze what the decision makers’ dependencies might be that were really driving their decisions, an older manager, who had been drinking heavily throughout the day, said, “Central depends on itself.” (See Appendix; 1989–1996 Hungarian longitudinal study)

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Box 6.4 He explained, “On top of the salary cap imposed by the government, managers can give their subordinates bonuses. These may range from 40% of a yearly salary for low-level workers to 200% of base salary for executives.” … He said he always kept some of the bonus money allocated for his subordinates “in his desk drawer” (i.e., he did not allocate the full amount). Why? If he needed a special project done he needed to pay something extra to those subordinates who worked on it. The example he gave was of the development of a performance appraisal system. He asked one of his subordinates, a personnel professional, to chair the crossfunctional task force to develop the system. She asked him, “How much will you pay me?” I asked, “Was she expected to work overtime?” “No, it was during normal hours.” They haggled until they came to agreement on a “price” (in bonus money) for this task. (See Appendix; 1989–1996 Hungarian longitudinal study) This pattern of supervisor-subordinate bargaining continued during the early transition. In the early stages of the transition, an acute labor shortage developed, reinforcing existing patterns of bargaining between supervisors and subordinates.Few state-owned or formerly state-owned companies had the resources to increase salaries and wages suddenly to market levels, so the haggling continued. Privatization added new resources over which to bargain. Antal-Mokos (1998) described how middle managers and other employees joined in competing privatization bids against their own supervising executives, adding to the complexity of within-organization bargaining. Bargaining so dominated supervisors’ relationships with their subordinates that in the managerial training the author conducted in late 1989 in Hungary, it was their chief complaint. Supervisors complained of having to “buy” even trivial levels of cooperation and detested spending so much time in emotionally draining, petty haggling. The ways in which the dominance of bargaining soured relationships between supervisors and subordinates are absent from our literature on bargaining and negotiation. Although the negative spillover effects of aggressive bargaining tactics are mentioned (Brislin & Rubin, 1995), the ways that continual bargaining might poison relationships among those who have to work together every day have not been addressed. The effects of continual bargaining did take their toll, and the study of this effect would seem to hold promise, particularly considering the increasing popularity of seminars and books on workplace negotiations. How generalizeable are the bargaining experiences of these studied companies to others under nonfacilitative governments? Certainly, reform-

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communist Hungary in transition had characteristics that facilitated bargaining: ambiguity and comparatively balanced power among participants for whom exit was difficult. However, as noted earlier, Gregory (1989) documented the assertiveness of enterprise managers in the Soviet Union during the 1980s, despite their relatively more complete incorporation in a command economy. Walder (1994) observed similar bargaining between Chinese enterprise executives and government officials, behavior he also attributed to the soft budget constraints of communist economic planning. However, he suggested that the economic changes in China have served to strengthen constraints and clarify incentives in ways that the early transition in Europe has not: While bargaining still characterizes relations between enterprise and government, the objects of bargaining have changed decisively over the years. Where the bargaining in the “traditional” system of central planning took place over output targets, supplies, investment projects, postreform bargaining takes place primarily over financial issues: the setting of effective tax rates, the evaluation of investment proposals for feasibility and creditworthiness, and the terms on which credit is offered. (Walder, 1994, p. 62) In summary, the erratic laws and regulations and the weak enforcement of nonfacilitative government do seemingly to contribute to ambiguity in legitimate authority, making it possible for nominal subordinates to bargain aggressively. Hostility to independent organizations makes exit difficult because establishing alternative organizations is so difficult. Government weakness means that it cannot be the entity with the power to impose its will. Uncertainty in property rights and enforcement means that there is much more scope for bargaining. There is organizational scholarship on negotiations originating in facilitative governments, but it rarely uses the term “bargaining.” Whereas most such work studies formal negotiations among separate legal entities (e.g., trade unions and employers), there is a growing study of informal workplace negotiations (Kolb & Bartunek, 1992; Lax & Sebenius, 1986). This analysis of workplace settings in which bargaining is dominant suggests some of the conditions that might cause informal negotiations to become frustrating, often resulting in acrimonious haggling. However, what is perhaps more interesting, it provides a picture of bargaining that is much less benign than what is represented in the literature developed under facilitative governments. Certainly, the constant need to haggle was frustrating to all of the participants interviewed for this research. These observations suggest that the work to spread and legitimize workplace negotiation and bargaining between supervisors and subordinates may not be one many would welcome in practice.

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HARMONY IN INTERPERSONAL RELATIONSHIPS Harmony has long been recognized as a feature of Asian interpersonal interaction that is less apparent in Western societies. Harmony is the English word by which East Asians have characterized their own interpersonal normative expectations for relationships that involve avoidance of overt confrontation with others and a marked display of deference and politeness (Ho, 1976; Hu, 1944). By contrast, Western normative expectations encourage comparatively more open confrontation of differences of opinion or conflicting objectives, with the expression of politeness and deference never so marked that it makes any of the parties appear servile or degraded. A concern for harmony is similar to Goffman’s (1959) “facework,” yet whereas Goffman was referring to actions directly intended to repair or support the role another has claimed, harmony is not necessarily so task-focused or consciously utilitarian. Rather, it is a culturally imbedded stance toward others that many in East Asian societies implicitly assume and consider the right thing to do. Since the pioneering work of Hu (1944) and Ho (1976), a renewed interest has developed in the East Asian normative preference for harmony in interactions. Earley (1997), among others, have argued that East Asians, in particular the Chinese, interact in ways more likely to preserve harmony in their relationships than the ways of Westerners. Wolfson and Norden (1984) proposed that this concern for harmony was intended to keep people from destroying the social fabric by damaging another’s social standing or face. Doucet and Jehn (1997) found that Americans working with Chinese managers in Chinese joint ventures were less hostile, aggressive, and emotional in their interactions with their Chinese colleagues than with their American ones. Hwang (1987) and Kirkbride, Tang, and Westwood (1991) all proposed that Chinese value saving face and avoiding direct conflict. In the current studies it was found that Chinese executives were relatively more concerned with maintaining harmony in their relationships with their business connections than their American counterparts. For example, in their 1992–1993 China—U.S. study of executives’ relationships with their most important business relationships, Katherine Xin and the author found that Chinese executives reported less open conflict. When asked, “Have you ever had an open conflict with [this important connection],” only 4% of the Chinese executives answered, “yes,” whereas 44% of the American executives affirmed an open conflict (p<.01). Nevertheless, despite the role of harmony as an implicit assumption regarding interaction, actual actions facilitating and supporting harmony are not universal among East Asians in all their interpersonal interactions, nor entirely absent among Westerners. People everywhere can become angry, careless, or scared, or wish to demonstrate respect and consideration for another in their interactions. In fact, it was a close analysis of just such violations of societal normative

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expectations in China and the United States that led to the development of the argument that normative expectations of harmony are the result of a longstanding adaptation to high levels of imbalanced dependence on one’s personal relationships for protection (Xin & Pearce, 2000). The author’s group proposed that the East Asian preference for harmonious interpersonal relationships reflect the long-standing expectation of dependence on personal relationships. This cross-cultural difference in normative expectations about interpersonal behavior can be understood as the result of relatively stable and centuries-long differences in personal dependencies. In particular, the great dependence of Chinese executives on personal relationships with the powerful and the expectations of dependence on their personal relationships that all Chinese have had over the centuries have become reflected in a cultural preference for harmony. Certainly, within any society we observe that individuals treat those on whom they depend quite differently than they do those who are dependent on them. People in both China and the United States are often observed behaving in an openly hostile and aggressive manner toward highly dependent supplicants. Similarly, even crude individualists can be pleasant and ingratiating to those on whom they depend for a favor. Centuries of differences in expectations for dependence on others’ favors would be expected to show in childrearing practices, normative expectations, and deeply implicit assumptions about the way one should interact with others. It seems plausible that such long and stable dependence on personal relationships should be reflected in adaptations reinforced by extensive social supports such as etiquette rules and childrearing practices. Others have observed that circumstances can elicit and reinforce practices that become imbedded in national cultures. Dore (1964) studied the effects of differences in geography on Japanese and Latin American practices. He said of Japan that the long absence of any culturally comfortable exile “was a powerful teacher of compromise” (Dore, 1964, p. 238). In contrast, he proposed that Latin American aggression was more easily accommodated because exit was easier: Exiles in a neighboring country would find familiar practices, language, books and styles of living. In interpersonal interactions, the Japanese developed a culture adapted to a situation with greater dependence on others in that social milieu: No other society was similar enough for emigrants comfort (Hirschman, 1970). Certainly, north as well as south, Americans have had spacious frontiers and neighboring countries with identical languages and similar cultures usually welcoming immigrants from neighboring lands. Therefore, North and South Americans have long been less dependent on particular others or social groups, and thus less concerned with any damage they may do to their social fabric. Over so many centuries, such differences in circumstances could be reflected in differing cultural practices.

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As people evolve cultural practices in response to geographic opportunities and constraints, so might they evolve cultural practices in response to centurieslong differences in government practices. If nonfacilitative government has long made dependence on personal relationships a requirement for survival and prosperity, parents would be concerned to socialize their children with the skills and habits suited to such personal dependence. Under circumstances of imbalanced dependence, without possibility of exit, certainly the less powerful party will tend to be more ingratiating and more concerned with building trust, sustaining the relationship, and avoiding actions that could lead the other to sever the relationship. That is, the participants will be more concerned with maintaining a harmonious relationship. Greater dependence on others over long periods of time would be reflected in interactional practices that reduce the likelihood of aggressive confrontation. When differences do occur in close personal relationships, the participants would be expected to find solutions that, if not truly collaborative, at least do not place one partner in the role of defeated opponent. Over such a long period, such practices and assumptions become enculturated. Whereas nonfacilitating governments may provide a good reason for developing normative expectations of harmony in interpersonal relationships, are they necessary to sustain it? It would seem that because the assumed necessity of supporting others’ face in social interaction is useful in a wide variety of settings, it probably is one cultural practice that does not need the continuation of nonfacilitative governments to sustain it. The example of Japan, where personal relationships remain important (Maruyama, 1996) but are no longer critical to personal security, serves as a natural experiment. Normative expectations supporting harmony and face are still significantly stronger there than in Western societies. Whether they have lessened in that society over time as widespread dependence on personal relationships with government officials has waned would provide an informative test of these arguments. UPWARD GIFT-GIVING Gift-giving is ubiquitous in organizational settings, yet its role in modern workplace interpersonal relationships has not been explored, perhaps because under facilitative governments, gift-giving among business associates is a relatively minor adjunct to their relationship. When gifts are given, they tend to be given downwardly (from a boss to a secretary, at holiday parties hosted by supervisors for their subordinates) and involve only token gifts. By contrast, there is substantial upward gift-giving under nonfacilitative governments (gifts to supervisors and others on whom one depends). Furthermore, the gifts in this case are judged by their value, and givers and receivers expect gifts to incur an obligation to repay the favor at some future time.

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Gifts are given for many reasons. Malinowski (1922) was the first to describe a form of gift-giving that existed to support social relationships and was not intended for economic gain. Gifts also may be given to secure open-ended future obligations (Blau, 1964; Homans, 1961; Zelizer, 1994), or they can symbolize the nature of a relationship, as when Christmas gifts are exchanged among close friends or family members. Alternatively, gift-giving may be an attempt to ingratiate oneself. Although gifts by definition entail no explicit quid pro quo, nevertheless, gift-giving may range from the purely symbolic representation of a social relationship through increasing levels of obligation understood to have been incurred by the recipient (Ekeh, 1974; Rose-Ackerman, 1999). Perhaps the role of gift-giving in organizational behavior has been so little studied because it is immersed in ambiguous and often ill-understood implicit expectation that can vary a great deal from setting to setting. Yang (1994) and Jacobs (1980) provided persuasive evidence that gift-giving is central to business relationships in China and Taiwan. The author and colleagues also found from their studies that Chinese executives reported more gift-giving to their business connections than their American counterparts. They answered the following question in their 1992–1993 China—U.S. Study interviews: “People in business relationships often give one another gifts. Could you categorize these relationships by the form of gift-giving between you and the other?” Three variables were created: one for mutual gift-giving, a second for giving nonreciprocated gifts, and a third for receiving nonreciprocated gifts, all coded 1 (yes) or 0 (no). No differences were found between the Chinese and American executives in their mutual gift-giving to those with whom they had their most important business relationships. However, the Chinese executives were significantly more likely to give their important contacts nonreciprocated gifts (Chinese executives, .37 vs. American executives, .05; p<.01), whereas the Americans were more likely to receive nonreciprocated gifts from their most important business connections (Chinese executives, .07 vs. American executives, .17; p<.01). Because these are the relationships on which these executives most depend for the success of their organization and their personal career, this reflects considerably more upward gift-giving among Chinese executives, with more downward gift-giving among their American counterparts. Yet the research of the author and her collaborators indicates that in China, despite the importance of gift-giving, it is a practice that is confusing and dangerous even for seasoned participants. A flavor of this difficulty is reflected in the account by the chief executive of a large provincially owned silk group appearing given in Box 6.5.

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Box 6.5 If people are new, they are expected to make contact with the higher ranking people they want to have good relations with. Ideally, the outgoing person will introduce his or her replacement around. Because this is the expectation, when a new person has not been introduced or does not approach people of higher rank, they get nervous: “I have to watch him, to investigate him. Does he intend to harm me?” If I find out that he is just an introvert, then I forgive him. In China, we have special seasons when we concentrate on guanxi. One of these is the Spring Festival. This year it was early, January 27, and from January 10 to 251 did not eat a single dinner at home. If I am inviting people, I invite people who know each other—at a table of eight only two at most can be new people. These dinners are mixed official-private guanxi. Of course, they appear to be official. These kinds of guanxi consist of two categories: In the first, it is more official than private. An example of the first is that I might invite the provincial finance bureau division leaders to dinner; at another dinner I might have the division leaders of the planning and economic bureau, at another the tax bureau—I don’t mix departments. This kind of guanxi has a specific target—for example, after the dinner I will send one of my people to call on the officials with a loan proposal. This kind of guanxi is the most important—it is needed to solve current and future problems…. In the second category—more private than official—there could be people from eight different departments. They all know each other, no new faces. We are friends; we exchange experiences. They could be useful later on; these are private friends, but still business…. Gift-giving is also important, but more difficult. Banquets are no problem anywhere, but a gift can get you into trouble. Of course, I give gifts in the first category of guanxi, but these would never cost more than 800 renminbi (~U.S.$100) usually about 300 renminbi, and they give me gifts of about the same value, so there is no embarrassment. In the second category, sometimes we give no gifts at all; we are just friends. If I gave one of them a valuable gift, he would get nervous—it would be a strong signal that I wanted something from him, probably something a little risky. If I get a valuable gift from one of them, I will say, “Do you have any request? Tell me! I don’t need this gift to do you a favor.” This gift would signal that they see the relationship as more distant than friendship, and that they want something very risky. Factory directors [these are several levels below the speaker in the hierarchy] have given me gifts. I have to be very vigilant. I cannot possibly give the gift back—this would immediately end the relationship Also to

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give me the gift, they will want my home address, to come to my home. They are trying to build good guanxi too quick; I prefer to build good guanxi on a good basis. If over 5 years a factory director has been reliable, has performed well, then we can develop closer guanxi. After 5 years I have full confidence. Certainly we have regulations on accepting gifts. If I get an inappropriate gift from someone with whom I want to keep a good relationship, I will give it to the company and will “be busy” when he invites me to a banquet. This way I protect myself. If he makes a request, I say, “Let me consider it,” which means “No.” Sometimes it is a test; they want to see if they can capture you. A friend of mine did not know how to handle these relations well. No one tells you; you just have to observe. My friend received an air conditioner unit from someone. He didn’t install it, but didn’t know what to do with it. Now his supervisor is investigating and he is in big trouble. Of course, some people are just greedy…. No one tells you how to do guanxi; you just have to watch. Guanxi has become so associated with corruption that no one wants to be known as an “expert in guanxi”; no one gives people advice because it would be like giving advice in corruption. (See Appendix; 1997–1998 China—U.S. comparative study) The confusion reported by this executive seems to have been exacerbated by the secret nature of gift-giving practices in China. Walder (1986) and, more recently, Yang (1994) have described how the political climate in China fostered a widespread fear of informers. In such environments, anyone who you do not know very well poses a risk. If others know how an executive maintains the kinds of protection described earlier, they can endanger the connection and the executive. Ambiguity is more than useful; it is necessary. It should be recalled that the favors being asked often are those that involve bending or ignoring laws and regulations. If openly publicized, such activities pose grave risks to all participants. Secrecy is, and long has been, an important feature of social relations in China (Yang, 1994). In contrast, the notion that an important interorganizational relationship might be kept secret is ludicrous to most executives who have always worked under facilitative governments. It is rare for these executives to ask their connections for legal dispensations or to give or expect valuable gifts to maintain a close relationship. Business connections are met publicly and openly; there is no reason to do otherwise. As reported in chapter 4, the Chinese executives in the 1992–1993 study of the author and her colleagues were significantly more likely to keep their most important relationships secret. Upward gift-giving would seem to be a natural response to dependence. Gifts are a way to build closer relationships with those on whom one depends. Yang

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(1994) quoted a Chinese saying that is difficult to harden your mouth against someone who has fed you. It is noteworthy that she and the silk-group executive remarked that there is no need to give gifts to family members and close friends because a close relationship of mutual obligation can be assumed. Rather, gifts are reserved for attempts to strengthen relationships with more distant others on whom one depends in order to appropriate or possess them (Yang, 1994, p. 197). If nonfacilitative governments foster greater dependence on personal relationships, particularly personal relationships with government officials, they can be said to foster upward gift-giving as one way of managing that dependence. Such upward gift-giving looks a lot like corruption, the misuse of public power for private gain. Rose-Ackerman (1999) provided a well-argued case that systemic corruption is fostered by weak and incapable government. Under weak governments, the governments’ principals (the general public) are unable to maintain strong surveillance and control over their agents (government officials), allowing these agents scope to use their governmental positions for public gain. Certainly, the reported differences in upward gift-giving between the executives working under the nonfacilitative government (China) and the more facilitative one (United States), as well as the silk executives’ concerns about coming under the control of others and fear of the negative social stigma of being seen as an expert in guanxi, all suggest that upward gift-giving is seen by members of that society as possible corruption. Finally, similar to the pattern observed for other attitudes and behaviors, the pattern of gift-giving by enterprise executives to secure the support of government officials permeates and becomes prevalent within organizations as well. For example, the silk-group executive reported his worry about becoming captured by his subordinate factory managers. This suggests that future research on the role of workplace gift-giving, managing gift-giving, and managing perceptions of one’s gift-giving could prove to be a fruitful area for gleaning insights into workplace organizational behavior. SUPERVISOR-SUBORDINATE RELATIONSHIPS In the studied organizations, it appeared that formal authority mattered very little because the organizations were dominated by personal relationships. Holding a position of authority or being a supervisor provides little legitimacy in itself, because all influence is dominated by personal relationships. This is because supervisors’ nominal subordinates may have personal connections with the powerful and so cannot be made subordinate to them. Of course, supervisors may themselves have powerful connections or control substantial resources, and thus would be in good bargaining positions vis-à-vis their subordinates, but this is personal power. This lack of legitimate authority may be the reason why

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communist-era workplace authorities relied so heavily on bonuses in an attempt to buy compliance. Yet again, the buying of compliance with money is not the exercise of legitimate authority, but influence based on the control of rewards or sanctions. The bargaining described earlier in this chapter reflects the weakness of legitimate authority. In some respects, it is the natural consequence of the insufficient bureaucratization described in chapters 3 and 4. This weakness in the legitimate authority of supervisors appeared to affect the quality of workplace supervisor-subordinate relationships in the studied organizations in several ways. First, was the dominance of bargaining between supervisors and subordinates described earlier. If subordinates accept commands and direction as legitimate, they do not haggle over terms. Second, as would be expected from earlier discussions, these relationships also were often characterized by distrust. In previous chapters, the distrust of peers was described. Here, an analysis of supervisor distrust of subordinates is presented. Third, despite the general distrust common in these workplaces, because supervisor-subordinate relationships are face-to-face, some supervisors were observed to have built mutually trusting relationships with their subordinates by drawing on the traditional authority patterns of paternalism. Finally, the author addresses the most oft-voiced complaint of supervisors working under the studied nonfacilitative governments: subordinate passivity. Distrust of Subordinates Reflecting the widespread distrust in the organizations operating under nonfacilitative governments, many supervisors distrusted and feared their own subordinates, something virtually unheard of in the sample of organizations operating under facilitative governments. Although this distrust was not universal in these settings, it nevertheless was common enough to merit exploration. The quotation in Box 6.6 illustrates the issue. As another illustration, in teaching a midcareer manager Master’s in Business Administration class in Hungary in late 1989, the author used a case written by a doctoral student who presented his observations of a factory work group for his doctoral dissertation in sociology. Although these students’ analyses of the interpersonal dynamics was excellent, one of the students suggested that the case writer was clearly informing on the informal leader of this work group. There was no evidence to support this view in the case, and the author had never heard a manager or student working under facilitative governments express this view. Apparently, they expected that, as a matter of course, anyone who wrote of their workplace observations must be a spy for company executives or political officials. When managers seek to withhold information from their subordinates, as described in the quotation in Box 6.6, the ability to coordinate work and plan are seriously undermined. The efficiencies of decentralization are impossible if

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supervisors, all the way up the organization, seek to withhold as much information from their subordinates as possible. Furthermore, such distrust is apparent to those who are distrusted, further exacerbating the workplace distrust described in previous chapters. Box 6.6 [During a leadership training seminar] one manager said he withheld information from his subordinates “because they couldn’t handle it,” and several other managers chimed in their agreement…. Later during dinner, when pressed to explain their distrust of their subordinates, these managers said some of their subordinates were “paid enemies,” “spies,” and “blackmailers.” [Detailed descriptions of how managers needed to break rules and regulations to meet their production targets in Hungary’s shortage economy are omitted.] Apparently, once a manager has broken rules, he or she is subject to blackmail, and fear of blackmail increases his or her desire to keep as much information as possible secret and to restrict the communication of work-related information to subordinates. As one manager said, “Because of these paid enemies among my subordinates, I need to distrust even the good ones.” (See Appendix; 1989–1996 Hungarian longitudinal study) The existence of paid spies and informers is directly and indirectly fostered by nonfacilitative government. This climate may result directly from government surveillance of its citizens, as reflected in Yang’s (1994) description of the People’s Republic of China’s system of encouraging informers. Yet, even in the absence of such government policies a reliance on personal relationships fosters such fears. Subordinates seeking influence, or any other benefit such as security or an easy work load, would want to build personal relationships with the powerful, as noted earlier. One way to do this would be to serve as a loyal reporter of what others are saying and doing that might be of use to the powerful person. When everyone depends on personal relationships, the temptation to build relationships with the powerful in this way is strong, and so would be the commensurate fear that others may be doing so. Such distrust and its associated withholding of information do not depend on direct experience as an informer’s victim, but need only be based on reports of such betrayals and the knowledge that others could reap advantages from it. Nevertheless, such a climate of mutually reinforcing withdrawal and distrust did not always develop in the studied organizations. The author observed supervisors adopting practices to prevent this climate of distrust from

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developing. They built warm and supportive relationships with their subordinates by drawing on traditional models of the benevolent parent. Paternalism Communist workplaces were neotraditional, relying on many of the behavior patterns more characteristic of traditional societies than modern ones (Walder, 1986). One of these traditional patterns was the use of paternalism. Under paternalism, supervisors act the role of benevolent parent. The supervisor’s actions are intended to benefit and protect his or her subordinates, but to do so independently of the subordinate/child’s own wishes (Jackman, 1994; Kultgen, 1992). It is a way of controlling others by drawing on family imagery (Kerfoot & Knights, 1993). Paternalism therefore has two components: caring for the subordinate as a person and controlling the subordinate. It is the behavioral reflection of the patron-client pattern of relationships described in chapter 2. After all, there was less differentiation of subsystems under communism, and other forms of nonfacilitative government, so it seemed quite natural to all that good authority figures would adopt the protective (if controlling) behavior of a good parent. Researchers working under facilitative governments have tended to focus on the controlling aspects of paternalism (Kerfoot & Knights, 1993; Kultgen, 1992; Padavic & Earnest, 1994). However, as Sayles (1989) noted, personalized consideration from supervisors, particularly a willingness to bend the rules when needed, is recognized by many subordinates as one of the most valuable characteristics of a good boss. This is because subordinates in any setting recognize that the future is uncertain, as emergencies arise, and they would like the security of knowing that their supervisors would try to help them if they really needed it. Certainly, the unpredictability of organizations dependent on personal relationships under nonfacilitative government means that many would welcome a benevolent and protecting parent. In the studied organizations, many managers took great pride in their role as benevolent parent. Box 6.7 reports one example. As Kostera, Proppé, and Szatkowsli (1995) noted for Poland, supervisors could attain respect and admiration by playing the part of the benevolent paternalist. Many based their self- and social-esteem on taking care of their subordinates, maintaining jobs for them and helping them personally in any way they could. Similarly, in Hungary, the author observed many examples of paternalism. For example, it was not unusual for paternalistic high-level executive to receive the wife of a subordinate in his or her office, who might complain about marital or financial difficulties. The executive would then try to help her solve the problem by admonishing the wayward husband or providing funds from the company accounts. It is difficult to imagine an American

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executive of a large corporation acting in such a paternalistic, or as they would call it, meddling, way. Interestingly, the executives who tried to carry out the painful transition restructurings as paternalistically as they could were quite successful. For example, the specialty glass manufacturer was faced with its first layoffs in living memory in 1991. However, the management worked hard to make sure that these layoffs were done as sensitively as possible by, among others things, making sure that only one employee in each family was let go. Furthermore, a parent-child relationship provided a basis for being more influential than was possible when an executive was trying to buy every subordinate action with bonus money. Thus, paternalism provided an attractive role for supervisors and executives, but it fostered a passivity among subordinates that proved to be a major irritant. Box 6.7 The managing director of the Czech gas equipment manufacturer was widely admired by his subordinates because he had been able to prevent bloodshed between local members of the People’s Militia and Civic Forum during the Velvet Revolution by continuous shuttling between the parties, helping to cool tempers and talking them out of obeying orders from the capital to take up weapons and attack. Later, he continued in his esteemed paternalistic role by finding a foreign company to acquire the company (the foreign company was viewed by all parties in the early 1990s as a rich patron intending to spend lots of money to save their jobs and buy them shiny new equipment) and by remaining with the company trying to “save it” rather than taking a higher paid job at the many foreign consulting firms that had moved in after the revolution. He held a highly respected position in his small city, in large measure because of general opinion regarding his skills and sacrifices to save the company and the many people who depended on it. (See Appendix; Czechoslovak case study)

Subordinate Passivity Subordinates’ passivity was the most prominent complaint of supervisors. In much the same way that the field of organizational behavior has long sought to address supervisors’ concerns for their subordinates’ productivity and commitment in their modernist workplaces, the concerns of managers operating under nonfacilitative governments deserve attention. Their complaints echo Banfield’s (1958) description of widespread passivity in his southern Italian village, and are illustrated with the Hungarian example in Box 6.8.

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Subordinate passivity was not confined to low-level employees. Executives and middle managers often assumed they could do nothing on their own. As a manager of a regional office of a large company said concerning the changes anticipated in late 1989, “All I can do is hope that things will get better.” Although such assumptions that they can and should do nothing but wait for direction were not universal among managers in the studied organizations operating under nonfacilitative governments, they were substantially more prevalent and at much higher organizational levels than would be the norm in the comparison organizations under facilitative governments. Paternalism and subordinate passivity are far from unique to Hungary. Martinez (1999) analyzed the prevalence of paternalistic management styles in Mexico, and not surprisingly, in Mexico there is the common saying: “Obedesco pero no cumplo” (I obey but do not comply). Box 6.8 A group of managers at a leadership training retreat for a large computer service company selected the supervisory problem they all thought most difficult: The one they picked was “motivate user-contact programmers to be more responsible.” Now that the company is doing more work servicing personal computers, programmers have more direct contact with customers; when their work was solely with large machines, only supervisors had customer contact. The problem they chose to work on was described: The boss, K, had made an appointment for programmer J and an assistant to meet the customer at 1:30. The program was a simple one; all the programmer had to do was change the name of the client company to its new one at the top of the payroll program’s displays [all laugh]. K came into the workroom at 2:00 and found the programmer and assistant there. K said, “Why are you still here when you are supposed to be at the client’s?” J said, “I just called a cab and am just finishing the program now.” K reported chastising J and said, “Why didn’t you call them?” J said, “I tried but the lines are all dead” [all laugh]. K said she asked, “Why didn’t you tell me so I could go to another location and call them?” Later K followed by asking whether the programmer thought K should be there too, and asking which train J planned to take for a later visit to another client. (See Appendix; 1989–1996 Hungarian longitudinal study) Clearly, passivity is a sensible course of action when participants expect that they will not be able to take effective action, when any active course runs the risk of punishment. Yet passivity and avoidance entail no serious consequences. Certainly, many of these features may be peculiar to the incentive systems under

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communism. Nevertheless, they also reflect a consequence of organization based on personal relationships. As observed in chapter 5, personal connections, not meritocratic performance, were believed to be the way to organizational rewards. For those who do not have many options to build good connections, or who simply do not have the stamina to try, passivity and avoidance of responsibility are sensible adaptations. Similarly, passivity would appear to be the natural by-product of paternalism. Paternalists, after all, make decisions for their subordinates. As the quotation in Box 6.8 indicates, this manager complained about her subordinate’s passivity, but then proceeded to make decisions and dictate his behavior, down to suggesting train times to him. Her close surveillance, detailed directions regarding his activities, and avoidance of administering meaningful negative consequences for his missing the meeting with the client meant that, whatever her complaints, she was in fact shaping and rewarding exactly the behavior about which she complained. Paternalists require subordinate dependency and passivity, so it should not be too surprising that passivity and its corollary, avoidance of responsibility, are produced by it. CULTURAL ADAPTATIONS TO NONFACILITATIVE GOVERNMENTS An analysis of these complex practices provides a particularly useful reflection on the relationship between governments and culture. This is because the adaptations described here varied in terms of how implicit, how taken-forgranted, these practices were in their organizations. At one extreme, harmony is a cultural practice deeply embedded in Chinese culture: It is truly a taken-forgranted expectation reflected in unquestioned normative expectations and childrearing practices. When cosmopolitan Chinese learn how Westerners violate the basic expectations of support for harmony, they are quick to enlighten these outsiders about this important cultural value. Similarly, paternalism is a widely admired management style in China, Hungary, the Czech Republic, and Lithuania.’ By contrast, subordinate passivity, although widely practiced, also was widely denigrated. It was seen as a defect that needed correcting, an embarrassment. Passivity was not the taken-for-granted expectation that harmony has become in Chinese culture. The numerous complaints about the practice among Hungarian managers indicate that it was not an implicit expectation. Yet it was a widespread and common practice, one that has been slow to change with the introduction of a market economy. This nonacceptance of a widespread practice may reflect the fact that governmental nonfacilitation was newer in Hungary, less than a generation old, compared with the thousands of years that dependence on personal relationships has existed in China. Passivity thus could be considered an example of a cultural

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feature in the making. Passivity became common practice because it was functional under the circumstances, but socialization and commonly held values had not yet adjusted. As such, passivity becomes a useful vehicle for unpacking the concept of culture, as culture is usually understood in organizational behavior. It suggests that not all common practices are the implicit normative assumptions expected of cultural values. This raises the question whether all differences among groups of people should be considered differences in cultural values. The complex adaptations described in this discussion are characteristic behaviors that make sense for those doing organizational work under nonfacilitative government. They appear to be adaptive responses to the circumstances that such environments present to organizational participants. As Poortinga and van de Vijver (1987) suggested, the best approach to understanding cultural differences is to unpack culture by specifying the underlying variables that may account for any observed differences. Although the role of governments in cultures can never be isolated from other historical events with complete confidence, the author hopes that these accounts of how nonfacilitative governments appear to support these recurrent behavioral patterns will stimulate readers’ own explorations of culture and noncultural explanations of interactional and intergroup differences. Heretofore, the widely noted differences in the ways business relationships are conducted in different countries have been attributed to the psychological states or values of the participants (among the most prominent in the long list of researchers are Adler, 1991; Hofstede, 1980a; and Trompears, 1994). Unfortunately, this labeling of cultural differences as values differences explains nothing. In order to unpack culture and better understand cultural differences I have proposed and tested the possible use of these actions in the different societies wherein they have become institutionalized. While such functionalism has its own risks (Roy, 1990), it also can provide a basis for understanding how behavior may change as circumstances change. It is true that psychological approaches to understanding cross-national differences in organizational behavior have provided many valuable insights. Nevertheless, this individualizing of cross-national organizational behavior is limiting. First, the concept of culture is itself vague. Smircich (1983) described different ways that researchers use the concept of culture. For example, some researchers see culture as an independent variable affecting organizational practices (Crozier, 1964), whereas others see different organizations as having cultures affected by managerial action (Schein, 1985). Still others see cultures as nonrational expressive forms. Relying on such a vague term as a key explanatory variable invites confusion. Second, such analyses mislabel what are known to be highly changeable expectations as the stable values of personality theory. After all, values are relatively enduring estimates of the worth of things. Therefore, they are more

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than mere preferences. If cultural differences are represented solely by values, all the organizational and managerial changes in response to importation of foreign personnel and practices observed in this study would not be found. Such an approach that characterizes cross-national differences solely as stable personality characteristics does not take into account nor try to explain the changes in expectations and behavior that occur in response to political, economic, and technological changes. As Sunstein (1997) noted in Box 6.9, it is misleading to assume that all behavioral differences derive from differences in values or other psychological states. This reduction of culture to psychology is by no means characteristic of the classic anthropologic work in culture. For example, Tylor (1924 [1871]) suggested that culture was a complex whole characterized not just by belief, but also by knowledge, law, and custom. Geertz (1973, p. 30) noted “the danger that cultural analysis, in the search of all-too-deep-lying turtles, will lose touch with the hard surfaces of life—with the political, economic, stratificatory realities within which men are everywhere constrained” (p. 30). Why international management and organizational behavior should have been confined solely to studies of psychology is a mystery, one that this work suggests has cost us our understanding. The organizations dominated by personal relationships under nonfacilitative governments are not just unpleasant places for their participants to work. They also foster distinctive, institutionalized patterns of working relationships. Four of these patterns are analyzed in this chapter. First, the continuous bargaining between executives and government officials is observed within organizations, as supervisors found they needed to bargain and try to “buy” compliance from their subordinates. Such continuous haggling was a chief complaint of supervisors in the studied organizations. Box 6.9 Choices are a function of context. If someone takes a job that includes a certain danger, or chooses not to recycle on a Tuesday in March, or discriminates against a certain female job applicant, we cannot infer a great deal about what he “prefers” or “values.” All of these choices might be different in a different context. Our discriminator may support a law banning discrimination; people who do not recycle in March may recycle in May or June, and they may well support laws that mandate recycling. Economists and economically oriented analysts of law sometimes think that they can derive from particular choices, large-scale or acontextual accounts, how people value certain goods. This is a mistake involving extravagant inferences from modest findings. (Sunstein, Free Markets and Social Justice, 1997, p. 6 © Oxford University Press. Reprinted with permission.)

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Second, the normative expectation that harmony should govern interpersonal relationships, more characteristic of East Asian than Western cultures, is discussed as reflecting an adaptation to centuries of greater dependence on personal relationships. When such dependence has been assumed for so long, the politeness and ingratiation useful in managing such dependencies can become incorporated into socialization practices and implicit expectations. Third, the more extensive practice of upward gift giving under nonfacilitative governments, and its corollary, corruption, is seen as a practical response to dependence on personal relationships that becomes incorporated into expectations over time. Fourth, supervisor-subordinate relations under these circumstances are characterized by paternalism and subordinate passivity. A paternalistic leadership style has the advantages of building subordinate trust and extending supervisory influence, with the disadvantage of breeding subordinate passivity. Yet, although these patterns were embedded in expectations, not all of them reflected the participants’ values. Such reduction of cross-national descriptions to differences in values may work reasonably well in the relatively stable circumstances of slow institutional change. However, the past decade has witnessed unprecedented changes in governments, changes that have opened a window onto the role of governments in attitudes and behavior, including those composing organizational behavior. Managerial and organizational systems assuming facilitative governments have been imported into countries with nonfacilitative governments, creating powerful pressures for change. In the next, concluding, chapter, the ways that organizations and organizational behavior have responded to pressures for change in governments resulting from the transformation from communism are explored.

7 Implications for Theory and Organizational Change This work began with the statement that governments are important to organizations, and then proceeded to detail some specific ways that nonfacilitative governments are important to management, organizations, and the organizational behavior of participants. Governments are critical to understanding organizations, not just because they may impose a regulation or tax that increases costs, but because they establish the framework on which all organizations in their jurisdictions are built. This is a framework with both direct and indirect consequences for these organizations and their participants. This work focused on the situation in which the government framework is hostile, erratic, or weak, in other words nonfacilitative of independent organization. This is by no means the only way of approaching government effects, but it is a place to start. In this chapter, these ideas are brought together, and several of their implications for theory and practice are described. Although these ideas have many implications, only a handful of the theoretical and practical implications are developed in this chapter. BRINGING GOVERNMENTS INTO AN UNDERSTANDING OF ORGANIZATION AND MANAGEMENT It was proposed that organizing under nonfacilitative governments is dominated by dependence on personal relationships, with this dominance having pervasive effects on organizations and organizational behavior. Relying on personal relationships, the traditional means of ensuring that one is not cheated or exploited in business relationships, proved to be the primary available means of coping with nonfacilitative governments. Personal relationships with the powerful provide protection, and information about who is reliable, helping those working under nonfacilitative governments to manage their critical dependencies on governments that might be weak, unpredictable, or potentially hostile. Even those without connections to the powerful can build a modicum of protection and information by developing deeper or more extensive personal relationships with others. Under nonfacilitative governments, life is simply too uncertain and dangerous to risk 135

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standing alone. The necessity of relying on personal relationships when left without the support of nonfacilitative government has had a profound effect on organizational form and the organizational behavior of participants. Negative Effects of Dependence on Personal Relationships Observation of how such relationships have operated in practice suggests that this dependence on personal relationships involved much more than simply doing business with friends and family. Because relationships are so important to one’s life chances and basic security under nonfacilitative governments, few people passively accepted the connections life gave them. Many organizational participants actively worked to build relationships with the powerful. Thus, obsequiousness, supplication, and exploitation were prevalent in these organizations, as participants sought to build useful relationships or took advantage of their favorable positions. In turn, those in powerful positions feared being captured by those who offered them valuable gifts, then used threats of exposing corruption to make the powerful person dependent on them. Therefore, it should not surprise anyone that the questionnaire and interview data from employees working under these circumstance found that fear and suspicion of coworkers and their possible secret connections were widespread. Not only business relationships, but coworker relationships within organizations were poisoned by an atmosphere of attempts to bind others to you, either through friendship or threats. Consequently, although personal relationships were the basis for organization under nonfacilitative government, no one who has observed how these relationships actually worked would characterize them as relationships of trust. Such dependence was linked with many different effects, in the organizational structure and design of organizations, the policies and practices in organizations, and in the behavior, expectations, and attitudes of their participants. For example, when organizations are dominated by personal relationships, they assume forms different from those of organizations relying more on impersonal bureaucratic universalism. The former organizations are smaller, because people can have the kinds of deep personal relationships required by these threatening environments only with a limited number of people. Furthermore, these organizations are highly centralized because their chief executives dare not delegate decisions to those who do not understand the web of personal relationships supporting them and their organizations. Yet theories of organizational form and design developed under facilitative governments have ignored the effects of governments. Theorists have treated governments anecdotally in the international management literature, for example, by noting a government requirement that foreigners may not own more than 49% of an organization in certain industries. However, these simple facts are left unanalyzed and unexplored. To take just this example, corporations

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forced to cede control of their subsidiaries to local parties may well keep certain functions (e.g., research and development, finance) more centralized in corporate headquarters than they would if these were governed solely by task requirements. Governments in general are associated with important features of organizational form, so the role of governments in organizational design more broadly would appear to deserve as much attention as tasks or strategies. Furthermore, this dependence on personal relationships in the studied organizations under nonfacilitative governments had a profound effect on the participants’ reactions to their workplaces. In these organizations, employees reported greater distrust, fear of exploitation, and lower levels of organizational commitment and job satisfaction than did their counterparts working under facilitative governments. Organizations under nonfacilitative governments are not pleasant places to work; the employees knew it and did not like it. If employee attitudes are important, and much in the field of organizational behavior and such widespread managerial practices as organizational development and leadership training suggests that they are, then the consistently negative attitudes documented here bode ill for those who work with, work in, or buy the products and services of organizations operating under nonfacilitative governments. These implications need elaboration. Bureaucracy, Meritocracy, and Employee Empowerment Encouraging the establishment of personal relationships dominates scholarly organizational behavior, as well as practical leadership training. This study suggests that those so advocating may need to become more cognizant of how personal relationships inherently undermine the impersonality necessary to meritocracy. Personal relationships, if they do become authentic, are not easily subordinated to organizational demands for impersonal performance-based treatment. Such performance demands place supervisors and other decision makers with personal relationships in potentially painful contradictions, that they may resolve in favor of their personal relationships more commonly than acknowledged in the literature. A more nuanced understanding of how personal relationships and their obligations actually operate in organizations is needed, particularly how they are integrated into performance demands. Given the centrality of team building, leadership, and sensitivity training in organizational behavior, we need to work harder to understand how personal relationships and performance demands are reconciled. In the studied organizations, dependence on personal relationships appeared not only to undermine meritocracy in interpersonal relationships, but also to undermine organizational policies and practices as well. Those with networks of powerful connections have little interest in seeing their investments decline in value by developing and enforcing policies supporting impersonal meritocracy. This process is best illustrated in the distortions to professional human resource

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management departments in organizations dominated by personal relationships. Without meritocratic goals to support human resource departments, they became formalistic and, under communism, served as the primary agents of governments’ political control of employees. With so much written about human resources policies, practices, and the operations of the departments themselves, it is surprising that so few have considered how the larger context in which they operate affects them. This is not the familiar admonition that human resources practices should be supportive of organizations’ business strategies. Rather, it suggests that human resource departments are already giving the powerful what those in power really want. A more complete understanding of what organizational owners, executives, and other powerful actors really want from their human resources departments is needed, as well as how attempts to meet these demands affect human resources policies and practices. This study proposed that the rise of bureaucracy in independent organizations is dependent on the empowerment of employees and also contributes to it. Bureaucratic aims, the rational pursuit of formally stated goals based on the universal application of meritocratic criteria, provide a much more secure basis for employees than dependence on the whims of particular persons. Unfortunately, management and organizational scholars’ inattention to how alternatives to bureaucracy actually operate has caused the importance of legalrational bureaucracies for employees’ welfare to be neglected. Many employees working in bureaucracies may be alienated, but this work suggests that such alienation may not arise from legal-rational impersonalism so much as from other unexplored aspects of the workplace. These could be loss of control, oppressive working conditions, or a hostile and nonsupportive approach to employees, none of which are any more characteristic of bureaucracies than any other kind of organization. Certainly, in the studies described here, the organizations that were least bureaucratic had the most alienated employees. Those concerned with employee welfare might want to revisit the role of bureaucracy in employee welfare and empowerment in light of the real, existing alternatives to bureaucracy. Patron-Clientelism and Paternalism When personal relationships dominated in the studied organizations, authority relationships were characterized by patron-client relationships and paternalism. It was observed that the patron-clientelism documented under communism by Walder (1986) continued during the transition because governments had not yet become strong and predictable enough to provide the facilitation that would make dependence on personal relationships unnecessary. The negative aspects of patron-clientelism, such as self-reinforcing pathologic distrust, corruption, arrogance from those in power, exploitation, obsequiousness, and alienation,

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have been described by Banfield (1958), Putnam (1993), and Redding (1990) and documented in the studies reported here. However, although patron-clientelism has many well-known negative consequences, the practice of paternalism within the studied organizations served to overcome, at least partially, potentially debilitating distrust and continuous bargaining, allowing these organizations sufficient cooperation to operate. The unpredictability and riskiness of working under nonfacilitative governments made a benevolent and protecting parent or patron valuable, and in many cases, necessary. Often, those in positions of authority found that they could earn their subordinates’ esteem and cooperation by protecting and fighting for them. Patron-clientelism without paternalism is harsh indeed. Under patronclientelism, paternalism may be the only leadership style that works for both supervisors and subordinates. Yet paternalism as a leadership style remains unexplored. Certainly paternalism is not confined to countries with nonfacilitative governments. The leadership styles that have received the most attention all focus on employees’ roles in decision making (Vroom & Yetton, 1973), but give very little attention to employees’ needs for protection, trust, and support in unpredictable and threatening environments. Concern for leader consideration was central to early theories of leadership (Stogdill, 1948), but recent studies no longer acknowledge the dependence-fostered needs of employees. Attention to the very threatening workplaces under nonfacilitative governments can help remind us that employees can be quite dependent and worried about gaining the support of the powerful in any uncertain environment. Deconstructing Culture A focus on the effects of government changes in societies making the transition from communism provided an approach to understanding cultural differences. For example, the East Asian preference for harmony in interpersonal interactions was traced to centuries of adaptation to dependence on personal relationships. Such an implicit assumption that interpersonal interactions should be conducted in ways that support the dignity and social standing of the participants reflects the dominance of personal relationships. This analysis of one cultural difference, a concern for harmony, suggests that much more could be done to explore these “hard surfaces of life.” These observations formed the basis for an argument that cultures are not merely differences in values, and that it can be misleading to conceptualize cultural differences as solely psychological. This approach labels highly changeable expectations and assumptions as more stable and immutable than they necessarily are. It also masks the role of settings in the making and unmaking of cultural differences. Certainly, researchers would not think of reducing the study of organizational behavior in domestic settings to the study of

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individual differences in values. They need to pay as much attention to social processes, incentives, and relationships in their cross-national work. The Invisible Influence of Governments Finally, this close observation of government effects that are hostile, erratic, or weak also illuminates the important role of governments that are supportive, predictable, and strong. It provides a confirmation of North (1990), Fligstein (1996), and Redding’s (1990) arguments about how governments facilitate complex organization. Opportunities to cheat rise with increasing scope and complexity, and these studies provided ample indication that cheating does take place in the complex organizations operating under nonfacilitative governments. Without legal systems able to constrain local officials predictably and handle complex property rights claims, participants conducted only those businesses and pursued only those careers that could be protected by their personal relationships. Economic activity was certainly less extensive as performance languished under incomplete authority and the web of personal relationships that took primacy over performance. Incapable government proved costly in terms of organizational and personal performance levels that were not high enough to support participants’ aspirations to the affluence of their neighbors working under facilitative governments. When the only organizational processes studied occur under facilitative government, the role of the framework developed here is virtually invisible. Under such conditions, observed differences are easier to attribute to stable cultural values. For example, Putnam (1993) contended that organizations adapt to stable local expectations for institutions. In contrast, this study proposes that governments themselves can have independent effects on organizations and organizational behavior. In Putnam’s (1993) comparison of regional governments in southern and northern Italy, both government facilitation and the expectations of the people were stable and different in the two regions. In the transition societies described here, government facilitation was changing, most clearly in Hungary. Revolutionary political changes had unhinged expectations and, particularly for those living in Europe, most were ready to adopt the institutions, systems, and practices of the facilitative governments of wealthier western Europe. Although the temptations to continue with traditional patterns were strong, the attractions of “joining Europe” have been pushing governmental changes ahead of institutionalized practice. Hollingsworth and Boyer (1997) contend that change in any one societal feature can drive adjustments in the others. Because the current author contends that governments are a dominating influence, and that if they become reliably facilitative, organizational practices and organizational behavior will follow, it follows that these transitional governmental changes, if

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they increase government facilitation, should bring changes in organizational form and participant behavior in their wake. This argument also has implications for the study of multinational enterprises. To this point, the argument has implied that organizations are under the jurisdiction of only one government, whereas multinational enterprises are suggested to “transcend” governmental boundaries by virtue of their operation in several different nation-states. These observations and arguments suggest that the these organizations would not transcend their embrace of government by coming under the jurisdiction of more than one government. Rather, government facilitation would be expected to influence any imported organizations. Any organization operating under nonfacilitative government would need to worry about securing the support of the powerful. Sometimes the multinational enterprise may be so politically important to the government that the central authorities act to protect it from local officials’ interference (as occurred with the first McDonald’s restaurant established in the last years of the Soviet Union). Similarly, if less commonly, executives used to operating under nonfacilitative governments would need to learn that tax and environmental laws may be real rather than formalistic under facilitative governments, and that a friendship with the local mayor will not protect them from flagrant violations. In either case, the degree of government facilitation will still matter to organizational policies and practices. With the influence of governments no longer invisible, the way is open for research into the degree to which local divisions of multinational enterprises adapt to differences in government facilitation. A close study of how differences in government facilitation affect the local operations of multinational enterprises should prove useful to those who must adjust to careers under differing governments. Expanding Organizational Behavior Many new directions for theory and research in the fields of organization theory and behavior have been suggested. Existing theory, constructed almost exclusively under facilitative governments, has missed major influences on organizations and organizational behavior, and in some cases has developed theories that are incomplete in misleading ways. For example, these fields are dominated by advocates of increasing and deepening personal relationships among those who work together, yet are silent on the risks of personal relationships to meritocracy and trust. Similarly, there is little theorizing on how dependence is managed. Those studying interlocking directorates have noted their role in managing dependence, but no one has tried to develop general theoretical perspectives on how dependence is managed at either the organizational or individual level. Furthermore, leadership styles, such as paternalism, adopted to manage dependence in the absence of constraining legitimate authority, needs more attention. Cross-national studies need to expand

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beyond a focus on individual differences to include settings and incentives. Finally, governments are important to organizations, and their influence on organizational theory and behavior is something the author hopes this study will begin to rectify. Furthermore, this work suggests three flaws in previous approaches to the study of organizational theory and behavior. First, theorists in organizational behavior have assumed that only proximal organizational incentives or interpersonal interactions affect the expectations, attitudes, or behaviors of individuals in organizations. In these studies, evidence from a wide variety of sources indicates that more distant forces can have substantial effects. Although it may never be possible to link phenomena at such different levels of analysis with causal certainty, this limitation should not prevent researchers from trying to understand what may be important explanatory factors. Differences in government facilitation were analyzed in these studies, but no doubt there are other nonproximal phenomena worthy of study. Second, the focus on task and technology as drivers of organizational form reflects an assumption of unambiguous customer dependence and efficiencyconscious owners, characteristics of for-profit businesses in competitive markets. Thus, overpowering market pressures for efficiency are assumed, yet it is known that such circumstances are not universal (Meyer & Rowan, 1988). Just as a desire for legitimacy may drive many organizational forms, so too may other concerns, government facilitation being just one. For example, in such organizations, the need to maintain secrecy, given the role of personal relationships under nonfacilitative government, was associated with high levels of centralization. That is, centralization may derive as much from a desire for secrecy as from any technical reason related to the task. If the desire to decentralize decisions to provide more speedy service fosters greater information sharing, so too the desire for secrecy, for whatever reason, would foster centralization. Therefore, as much as the narrowness of economic analyses may be decried, economists’ implicit assumptions of competitive markets pervade theories of organizational behavior in ways that researchers may be only beginning to understand. Third, this work lays bare a scholarly focus on managers’ questions and concerns. Although this is commendable in many ways, it runs the risk of ignoring processes that managers may enjoy but that may be damaging to their organizations or societies. Few managers worry that their subordinates are too obsequious or supplicant, or that they are exploited. Yet these subordinates can be quite dysfunctional for organizational performance, especially performance that relies on fast-paced flexibility and initiative. Under nonfacilitative governments, such behaviors appeared in stark and visible forms rather than the subtler forms in other settings. In the studied organizations, the dysfunctions of toadying, secrecy, and particularism were all too apparent. Yet subtle enactment of such behaviors also can prove dysfunctional. Thus, a fresh examination

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focused on aspects of organizations and organizational behavior that managers enjoy may be a genuine service to the larger society. BETTER PRACTICE: ORGANIZATIONAL CHANGE This volume began with a promise to introduce a framework that could provide practical assistance with the difficult work of organizing in a country not one’s own. For those who have always lived under nonfacilitative governments, the practical value of this argument primarily is to articulate many of the practices already in use, however implicitly. What needs to be done is already known— build relationships of mutual dependence with the powerful—although why this should be so and its unintended effects may have been less clear. This framework has greater utility for those who know only facilitative government organizations but find themselves now about to work in nonfacilitative settings. First and foremost is the implication that practical organizing requires building personal relationships with the powerful, and this takes a lot of time and attention. There is the corollary implication that if outlanders rely on local partners who do not expect an expatriate career in the foreign organization, they should be forewarned that the maintenance and enhancement of local relationships will overwhelm any organizational loyalty. Certainly, there are other implications for practice,1 however, but the author focuses on the implications for organizational change. This work provides insights into making radical organizational changes, and change is of practical interest to those seeking to transform organizations or establish new organizations in countries with nonfacilitative governments. Changing Organizations Under Nonfacilitative Governments The organizations tracked during the 1989–1996 Hungarian longitudinal study all attempted restructurings and changes that undoubtedly would be considered radical organizational changes (Newman & Nollen, 1998). Such radical organizational change was in some respects easier and in others more difficult than in organizations operating under the facilitative governments described in 1 This work is not intended primarily for a practitioner audience, so the numerous implications for practice are not discussed in detail here. However, it is worth noting in passing that there are extensive implications for practice. For example, those seeking to do work in countries with nonfacilitative governments would need to recognize the role of personal relationships in supporting basic security. It is not a kind of preference that is easily dispensed with if it is too time-consuming or inconvenient. It also suggests that those wishing to foster investment in societies with nonfacilitative governments might be advised to establish and support honest brokers who can arrange introductions and serve in other ways to establish and support good connections among the reliable.

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the conventional organizational change literature. On one hand, those attempting to change these organizations had one great advantage: in the earliest stages of the transition, virtually everyone wanted to change. All the participants knew that many of their operational procedures were dysfunctional (if not always which ones and why), and they expected changes. Everything was a candidate for change, as the Czech managing director noted in Box 7.1. On the other hand, change was more difficult because of the great fear, wariness, distrust, and passivity described earlier. Furthermore, in Hungary, a history of frequent announcements of reform initiatives that were formalistic, and ultimately meaningless at the workplace level, had led to widespread assumptions that management change initiatives were futile. Box 7.1 In other companies, the whole management was changed after the revolution, and those companies have had lots of difficulties. Often, they put researchers or design engineers in charge who are smart people but don’t really know how to run a company. They believed that all the old contacts and relations would be useless, and that people needed to be replaced because they could not change their behavior. The people expected big changes. We changed the government, why not change the management? (See Appendix; 1991 Czechoslovak case study) Yet, there was a more troublesome impediment to change in these organizations. Unfortunately, because executives were consumed with bargaining, privatization discussions, and building relationships with the newly powerful, very few had the time to turn their attention to organizational change. In some cases, middle managers seized the opportunity to make the changes they thought sensible, with no understanding of what was needed in a market economy. For example, early in the transition (1990) the specialty glass manufacturer’s first reorganization after the election of the first noncommunist government involved making each of its divisions autonomous limited-liability companies. All the division heads welcomed this autonomy, and the longstanding managing director, the leading communist party official, was retiring, leaving no one strong enough to contradict their plans. Unfortunately, many of these divisions were essentially workshops led by foremen without any idea of how to begin selling products in a market economy, or to forecast or track costs. Any customers interested in buying products from one of these shops had to wander around the factory floor to find the shop floor manager/managing director. The customers would describe the products they wanted, and the manager would say whether it could be done and when he thought he might

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have it ready. Nothing existed in writing. Revenues collapsed, and the missed delivery dates, disputes over prices, and payments were so disruptive that this these limited-liability companies were reintegrated several months later. In contrast to most Western change literature, for these organizations, the biggest initial hurdle to change was not employee resistance to change, but a managing director (necessarily in these highly centralized organizations) with an idea of what to change. In the Hungarian longitudinal study, there was great variance in the organizational changes undertaken, their timing, and their successful implementation. As to why some managing directors were more successful in initiating and implementing change, it appeared that those who implemented changes with an assumption that everything needed to be negotiated and who used a paternalistic style were more effective than those who took a more impersonal approach. (For more detail on the process of deciding what to change, see Pearce, Ramirez, & Branyiczki, 2001). This most emphatically does not mean that those who were more successful at making changes were nicer and better listeners than those who did not. As noted earlier, these relationship-based organizations were not particularly warm and supportive. Rather, the expected pattern was one of close supervision and hard bargaining characterized by threats and counter threats. Significant changes were made in the two foreign–Hungarian collaborations when the foreigners most closely mimicked the expected patterns of threats and hard bargaining. For the porcelain factory, it was a relationship with a German company. Their contract contained punitive penalty clauses for late delivery or quality problems. The Hungarians saw such clauses as necessary, and as demonstrating an admirable sophistication on the part of the Germans; “They understand our mentality. They are doing the right thing” (—Field Notes, July 1995, 1989–1996 Hungarian longitudinal study). Similarly, the advertising agency had an alliance with a West European advertising agency in which the Hungarian agency was the subcontractor for their multinational consumer product clients. As the creative director reported in Box 7.2. In contrast, in a third international collaboration, the West European partner owned a majority interest in the elevator company. Here, the new owners did not shout or threaten, but quietly and persistently asked the managing director for a plan that would bring the company back to profitability under the current adverse economic circumstances. The owners assumed that their controlling ownership in the company would provide all the amplification their request required. However, the managing director continued to maintain that the current recession was not his personal fault and did not realize that he was expected to maintain profitability even under unfavorable environmental circumstances. After three consecutive quarters in which the corporate parent did not receive the requested recovery plan, the corporate executive fired the managing director and several deputies.

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Box 7.2 Now we have gotten to know one another, and we have real problems. They sent us accounts from [a major international consumer-products company that wishes to sell its products in the newly opened Hungarian markets]. We had prepared a presentation for [this client], and [the alliance partner] was unhappy. We received a fax from [a West European capital city] saying that [the managing director] WILL be in here for a day-long meeting this Thursday…. They were very honest and a little bit rude…. They send us the accounts, and they do not want to ruin their own reputations with these accounts. We need them. In many things they are right and we need to be trained; everyone is happy to have the training. But in others, they don’t understand that we cannot produce the information they are used to. For example, in media planning in the West, you just call up the television station and ask for ratings and viewer demographics for certain shows. Our television stations don’t provide this information, nothing. (See Appendix; 1989–1996 Hungarian longitudinal study) The three preceding vignettes suggest that the hard bargaining and close supervision, patterns of influence the Hungarians expected, appeared to be more effective. The assumption in the elevator company that decisions could be delegated and progress monitored through periodic written reports was alien and ineffective. Certainly, these organizations continued to struggle with change. Their improvisational, particularistic approach meant that good ideas were not extended to other areas. Problems were solved in an ad hoc manner in response to the specific demands of a powerful actor. The changes often were adopted in isolation, creating self-contradictory partial bureaucracies. An excerpt in Box 7.3 from the field notes taken at the Czech gas products company in late 1991 illustrates this phenomenon. On the one hand, therefore, radical organizational change was possible if it was conducted by powerful people on whom all others in the organization depended who personally pressed for change. When employees depend on maintaining a good relationship with their powerful patron, they are in no position to mount significant resistance to change. Thus, Redding’s (1990) small owner-operated overseas Chinese companies are remarkably flexible. However, change programs imposed with the assumption of impersonal management and control systems were less successful. Organizational change, when successful in the studied Hungarian organizations, closely mimicked prevailing organizational practices. As illustrated by this extended discussion of organizational change, practical organizational work can benefit from a broader understanding of how and why

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organizations operate as they do under nonfacilitative governments. Personal relationships with the powerful are not a dispensable frill. Hard bargaining and threats gained attention and moved behavior. At all levels, participants expected to be either the controlling, interfering parent or subject to a controlling, interfering parent. It is especially important to recognize that those accustomed to facilitative governments, who may not be used to managing in this way, need to understand what makes these patterns necessary. A clear understanding of their roles is the only basis for any hope of changing them. Box 7.3 [From an interview with the Commercial Director] One new customer, a Japanese company, is making a purchase from us. Their representatives have just made their ninth visit to the plant in 4 months; they come twice a month. This company has very detailed rules for technical requirements. They require more detailed production plans and that these plans be provided very rapidly. I have to put pressure on the technical department to get us information quickly. Pressure from my department affects all areas. For this big Japanese project, after we had a firm order, I called a meeting of all the directors. Previously, this was completely unheard of. I wanted them to know that this was an important order. [In response to my question asking whether they have extended these new operating procedures to other orders], I was told, “No, we have not made these same changes for our old customers; we treat their orders as we always have.” (See Appendix; Czechoslovak case study)

CONCLUSION The preceding discussion leads to one of the most important practical change questions: If nonfacilitative governments foster and sustain certain organizational forms, expectations, and behaviors among participants, then would an improvement in government facilitation lead to changes in organizations and organizational behavior. Unfortunately, this question cannot be tested directly with the data collected, because none of the sampled nonfacilitative governments had become much more facilitative during the study period. Communism was nonfacilitative largely through its hostility to independent organization. When the hostility was removed, without a doubt in Hungary, substantially less so in China, the erratic and unpredictable enactment and implementation of laws and highly politicized privatizations during the early transitions covered here meant that for those seeking to organize, governments remained largely nonfacilitative. Consistent with this lack of change in

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government facilitation, in the Hungarian longitudinal study, employee reports of reward distribution as well as their attitudes and expectations changed little. Similar reports of slow change were reported by Newman and Nollen (1998) in their comprehensive study of Czech companies during the transition. This is in contrast to the rapid changes expected from a conversion to market economies. In the studied countries, early transition advisers with experience only in facilitative governments focused on changing the incentives for managers. As observed in Hungary, where heroic attempts were made during the reform communist period to mimic market incentives for enterprise managing directors, this shift to market sources of revenue, under conditions of continuing nonfacilitative government, only exacerbated complexity and encouraged yet more bargaining behavior. Certainly, incentives did change. Markets became the primary source of revenue for all of the organizations in the Lithuanian, Czech, and Hungarian studies by the end of the study periods. Yet, these shifts in sources of revenues occurred within a context of erratic and unpredictable government. Without sufficient government facilitation, executives and all other participants still needed to provide for their security first and foremost. They did so by focusing on developing and sustaining their networks of personal relationships with the powerful. The numerous unpredictable events meant that even more attention had to be devoted to relationship building with an ever changing cast of players. Therefore, in the immediate transition period, government remained nonfacilitative. A failure to understand the importance of supportive, predictable, and strong governments by those advising and implementing public policies during these transitions has proved costly. As long as governments are nonfacilitative, it is unreasonable to expect participants to do anything other than give their personal relationships the priority they require. Those who have worked only under facilitative governments need to understand that this does not necessarily result from any particular psychological value or old-system mentality. It is a practical response to the organizational problems faced by all in those circumstances. Governments are important to organization. Some of the ways they are important have been described here. However, governments also are important to our understandings of organizations, understandings that have practical implications for those who do organizational work. Neglect of the role that government facilitation plays in theories of organization, management, and organizational behavior has resulted in incomplete and misleading theory and advice. These incomplete understandings may be rather academic to those who conduct all their work under facilitative governments and have no interest in the way organizations operate in the rest of the world. A fish does not need to know it lives in fresh water as long as there is plenty of it around. Yet most water is salty, and ponds dry up. If researchers are to continue couching their theories in universal language, they need to ground them in a more universal experience.

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Appendix Study Methods The research data are drawn from nine different studies conducted in five different countries. Four of the countries had nonfacilitative governments. The situations in countries with nonfacilitative governments is described, to be followed by data collection procedures. SAMPLING NONFACILITATIVE AND FACILITATIVE GOVERNMENTS Organizations from the nonfacilitative governments, Hungary, Czechoslovakia, Lithuania, and China, were sampled. The first organizations under a nonfacilitative government to be sampled were from Hungary. During the communist era Hungary was a pioneer in establishing reforms that provided greater autonomy for enterprise managing directors (the European equivalent of a chief executive officers) and experiments using monetary incentives for meeting performance targets, generating hard currency (sales outside the Sovietcontrolled COMECON group of countries), and strategic planning, among many others. Also, during this period political constraints slowly loosened with more foreign travel allowed and less threat of political retaliation for opposition political views and for those who kept out of the public eye. This is in contrast to other countries, such as Czechoslovakia and Romania, where people and enterprises remained more extensively constrained until the political transformations of late 1989. In Hungary this period—1968 to 1989—is referred to as the period of reform communism. At the time of data collection, Czechoslovakia had undergone a much more profound economic and political upheaval than had Hungary. After the Prague Spring of 1968 Czechoslovaks were much more comprehensively constrained than were Hungarians. For example, foreign travel was restricted. To help illustrate the difference, by the mid-1980s Hungary had flourishing university programs and private consultants in management while the Czechoslovaks were still forbidden to use the term management because it implied a we-they

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distinction in the workplace that, by definition, did not exist in the worker’s paradise that was officially proclaimed.1 Lithuania has a unique national language and identity despite its occupation and control by Germans, Poles and Russians, in rotating order, over the centuries. At the time of data collection, Lithuania had only recently succeeded in its long struggle to be independent of the Soviet Union; however, in 1993 it had inherited Soviet institutions and was still deeply interdependent with other components of the old Soviet command economy (an economy now spread across independent republics). It had serious problems of government weakness and unpredictability during the study period. The final representative of nonfacilitative government is China. It has been undergoing massive economic reforms in the past several decades while government leaders seek to maintain communist party political control. China slowly introduced market reforms, first in agriculture, then allowing small-scale communally owned manufacture to absorb the excess labor resulting from agricultural efficiencies. Recently, purely private independent organizations have been allowed, some growing quite large. Nevertheless, government is much more extensively interpenetrated in all organizations than in any of the formerly communist European countries (Hsing., 1998; Nee, 1992). During the study period the government allowed increasing private activity in construction, machinery, but banking remained state-owned with the banks viewed as vehicles of government policy. As a practical matter all but the smallest private companies would have some involvement with government officials (most often as joint venture partners or with officials’ relatives maintaining participation stakes) while communal- and state-owned enterprises were being forced to rely on markets for every greater shares of their revenue. The fifth country, representative of comparatively facilitative governments, is the United States of America. It has had a stable government for over two hundred years with no foreign wars fought on its territories for nearly as long. Its laws change slowly, often preceded by years and even decades of public debate. Among the rich developed countries it is considered to have one of the most supportive governments for independent organizations (what is popularly called a pro-business government). Of course, the United States differs from the other countries in many ways. Nevertheless, there really can be no doubt that the government of the United States is more supportive of independent organization, more predictable and stronger than it counter-parts in Hungary, Czechoslovakia, Lithuania and China at the time of data collection.

1 Personal communication from Dr. Michal Čakrt, who with a few colleagues had run an underground management consulting service in the late 1980s—customers and consultants (and their superiors in their employing institute) taking grave personal risks to talk through ideas in strategic management and organizational development.

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Data Collection Procedures 1989–1996 Hungarian Longitudinal Study In collaboration with my colleague, Dr. Imre Branyiczki, then of the Faculty of Business Administration, Karl Marx (now Budapest) University of Economic Sciences, we conducted a longitudinal study consisting of structured and unstructured interviews, collected archival and popular press reports and employee self-report questionnaire data from 1989 to 1996. The organizations were selected to provide as much variance as possible on the dimensions of service/manufacturing, foreign partner/domestic, capital city/outlying regions while keeping the sample size small enough for in-depth data collection. Data were collected in an elevator company, a porcelain factory, a glass factory, an advertising agency and two small private companies that left the study early (one because the new management did not welcome the research and the other because it went bankrupt). Employee questionnaires were administered in the last few months of the communist’s party’s rule before its defeat in the contested elections of late Spring 1990, and then again in 1992, 1993, and 1994. The Elevator Company manufactured, installed, and serviced elevators for the Hungarian market. In January 1990, the elevator company signed a jointventure agreement with a West European elevator company in which virtually all of its operating functions were to be transferred to joint venture between it and the state-owned elevator company by the end of that year. The West European company owned 75% of the venture, buying the remain 25% at the end of the study period. A random sample of 136 professional and managerial employees were given questionnaires with a cover letter from Dr. Branyiczki; 24 usable responses were returned to a box in the personnel department. The Porcelain Factory was founded in 1777 by a count on his remote estate near what is now the Slovakian border. It is one of the three prominent Hungarian porcelain manufacturers, valued for its historic line of hand-painted porcelain. In 1990 about 80% of its revenue came from the domestic market, with sales through the state retail distribution network and a few of its own small shops. In 1992 it was taken over by a consortium of state-owned banks, finding new business under contract to manufacture the porcelain of a German company in 1994. Questionnaires were distributed to 124 professional and administrative employees through company internal mail (with an introductory letter from Dr. Branyiczki), resulting in 37 usable responses received. The Specialty Glass Manufacturer made drawn plate glass, laminated security and heat-insulated glass products in a medium-sized city in northern Hungary. The glass factory’s primary customers were domestic construction and vehicle manufacturers, with about 15% of its sales from exports to the West. Company psychologists distributed surveys (with cover letters from Dr. Branyiczki) to a random sample of administrative and professional employees and received 84

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usable surveys. Three state-owned banks took ownership (in lieu of unpaid debts) in 1992 and the main glass manufacturing plant was shut down (there was no money to replace the aged equipment) and the specialty treatment divisions sold to private parties in 1996. Finally, the Advertising Agency was one of the two such agencies created during the Hungarian economic reforms of the late 1960s. Its primary customers were state-owned companies who exhibited their products in the domestic and foreign trade fairs run by the agency’s parent combine. Usable surveys were received from 27 employees surveyed. In 1991 the agency entered into an alliance with a large West-European advertising agency that later tried to acquire the agency from its parent. However, the parent was embroiled in a very politicized privatization and would not approve the sale. Eventually the partner established a wholly owned agency hiring many of professionals and managers from the Agency. I was living in Hungary in 1989 and thereafter visited at least three times a year to conduct interviews, revise and administer questionnaires and collaborate with Dr. Branyiczki on interpreting and drafting the results. I took extensive field notes during those visits, and sometimes quote from them to illustrate arguments. In addition to this collaborative project I conducted interviews and kept field notes during my time as a visiting professor at the International Management Center in Budapest Hungary from April 1989 through the end of that year. Quotations from these field notes and stories told by managers during this period are used throughout. 1991 Czechoslovak Case Study Dr. Michal Čakrt, then with the Czechoslovak Management Center, and I spent several days in late 1991 at the company interviewing managers in Ferox, a manufacturer of large tanks and piping systems used by gas companies. In early 1991 the company began a joint venture with the American company that planed to buy them as part of the Czech Republic’s first wave of privatizations (quotations from the British manager of that joint venture appear in the book). The case was published as Pearce and Čakrt (1994). 1992–1993 China—U.S. Comparative Study Katherine Xin, then a doctoral student at the University of California, Irvine, and I began a series of comparative studies in 1992. The sample for the first study was composed of managers in various industries from state-owned, collective-hybrid, and private companies in an interior Chinese city with a population of a half million people in late 1992. Executives were selected as representative of a wide variety of industries in the three types of company ownership possible in China in 1992. The sample included heads of

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organizations or directors of key functional units such as operations, finance, or marketing from financial services, industrial manufacturing, textile manufacturing, transport, retail and wholesale trade. Structured interviews were conducted in 15 state-owned companies, 8 collective-hybrid companies, and 9 private companies. The comparison sample consisted of executives from the United States, matching the Chinese sample as closely as possible by industry and executive’s position (that is, a proportional number of presidents/managing directors and vice presidents, finance/deputy directors). The 20 American executives selected for this study were from 20 different organizations in Southern California. Ten of the American executives were from private companies, 6 were from publicly traded private companies, and the rest were from non-profit organizations. As a result of the 52 interviews, data were obtained for 411 dyadic business connections, out of which 256 were reported by executives in China, and 155 were reported by executives in the United States. 1993–1994 Lithuanian Study From 1992–1993 Dr. Arunas Kuras was a visiting scholar at the University of California, Irvine, when we planned a questionnaire and interview study at a television company, one of the largest manufacturing companies in Lithuania. The company had been privatized, sold to a group of Lithuanian importexporters just a few months before data collection. All data used for these tests were taken from anonymous questionnaires (n=690). As in all companies these managers were provided with summary questionnaire feedback (provided in a way that no one in the company could be individually identified) and in this case the feedback was accompanied by three days of managerial training (and additional interviewing). 1997–1998 China-United States Comparative Study Professor Katherine Xin (by this time at the University of Southern California) and I decided to conduct a follow-up comparison to investigate certain issues in greater depth and obtain a broader sample by using questionnaires, accompanied by unstructured interviews. Ninety-seven managers attending an executive education program taught, in part by Professor Xin, completed questionnaires. Their responses were compared to a sample of 181 American managers attending an executive MBA program at a California university. The Chinese managers, on average, were ten years older, with 90% working in state-owned enterprises, with only a handful of Americans working for educational or social services owned by the state.

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American Comparisons In addition to the research on the effects of nonfacilitative governments I had also been conducting research with various American colleagues on noncomparative organizational behavior questions. In several cases, I could extract comparative sub-samples and use scales from those studies for facilitative vs. nonfacilitative tests. These sub-samples are briefly described below (with more complete descriptive information from the cited sources). 1985 United States Study. This was a study using unstructured and structured interviews, and questionnaires in a large multinational accounting and consulting firm, a regional office of a one of the largest international accounting firms. In 1985, all non-partner accountants and consultants received a questionnaire with a letter from me through company internal mail (following an introductory letter from the office’s managing partner). Sixty-two usable questionnaire responses were obtained. More complete methodological information is available from Pearce et al. (1994). 1987 United States Study. With Dr. Khalid Al-Aiban, then a doctoral student at the University of California, Irvine, unstructured and structured interviews and questionnaires were administered to a sample of American and Saudi Arabian managers working in government agencies and private-sector companies (only the American data are used here for the comparative tests). This sample consisted of managers working in three federal government agencies and private financial services companies in and around Washington, D.C. Thirty-four useable questionnaires were received. A more detailed methods description can be found in Al-Aiban and Pearce (1993). 1988 United States Study. Questionnaires, unstructured and structured interviews were conducted in the aerospace components division of a large American manufacturing facility. The aerospace engineering manufacturer was the aerospace engineering component of a Fortune 50 manufacturing company. At the time of data collection in 1988, the company received 60% of its revenue from governmental contracts (defense and space) and 40% from commercial aircraft manufacturers. A census of the engineers and engineering technicians in three departments received the surveys administered in group settings, with a resultant 225 respondents from this company. Additional methods information can be found in Pearce (1993). 1992 United States Study. A comparative sub-sample of four electronics companies were American offices of large international electronics companies (all American-owned but with world-wide operations and sales) that was drawn from a larger study I conducted with Professors Lyman Porter and Anne Tsui

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(then of the University of California, Irvine) of employee-organization relationships and human resources management practices in companies operating in hyper-competitive product markets (funded by a United States’ National Science Foundation grant #SES-89123). The questionnaires, identified as research by the principal investigators, were distributed in company mail, with completed forms mailed directly to the university by engineers and other professionals, technicians and administrative employees. The first company sold computers internationally (n=128 questionnaire responses), the second sold computer components primarily to military agencies (n =151), the third sold computer components internationally (n=498), and the fourth company also sold certain computer components internationally, with 142 useable questionnaires. A more detailed description of the methods can be found in Tsui et al. (1997). Measures Structured Interviews The 1992–1993 China—U.S. Study consisted of structured interviews. Data were collected by means of a structured interview developed first in English. In line with Brislin’s (1986) recommendations, the instrument was translated into Chinese and back-translated into English to assure accuracy of translation. Two field tests of the translation with MBA students from China were conducted to insure up-to-date terminology and correct meaning of each item. Each interview, which lasted sixty to ninety minutes, started with the following statement: We are interested in learning how managers develop their businesses and solve problems. In particular, this study focuses on ways managers work with others outside their organizations to get things done…. You and your organization will be completely anonymous. Then descriptive information about the managers and their companies (e.g. enterprise ownership, age, size) was obtained. Next, each respondent was told: All managers rely on help from others outside their ‘unit’ Managers deal with non-subordinates, or those they have no hierarchical authority over, in efforts to develop their organizations as well as solve day-to-day problems. We all know the importance of building relationships with key individuals, but it seems that for cultural and other reasons, this is not discussed much. Therefore, for the following questions, please be brutally honest. Your information will be used solely for academic research. Think of 8 to 10 individuals who are most useful in

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helping you succeed in this job. Think of those who are useful for day-to-day problems of your current job and those who are helpful to your long-run career success. These individuals are not necessarily the ones you ‘like’ the most, or are close friends with, but those most necessary to your job and career success. After 8 to 10 business connections were identified on a piece of paper, the interviewee was asked a series questions about each relationship (only measures relevant to this test are reported here). Interviewees were asked to sort each of the “relationships” (the 8 to 10 cards in their hands) into appropriate categories (e.g., trust this individual not at all, somewhat, very much) in response to each of the questions. Interviewees sometimes elaborated on an individual relationship with examples and comments. Questionnaires All other numerical data were taken multi-item questionnaire scales. All questionnaire items were constructed first in English. They were initially translated into either Hungarian, Lithuanian or Chinese by my collaborator. This translation was back-translated into English by a professional translator following the procedure recommended by Brislin (1986). Each collaborator and I reviewed and discussed the back translation in depth, making any final decisions regarding wording. When possible, scales widely used in the literature were used. This is the case for Organizational Commitment (Mowday, Porter and Steers, 1979) and Job Satisfaction (Hackman and Oldham, 1980). However, most of the concepts discussed here required the development of new measures. All of these scales were subjected to confirmation using principal components analysis, with varimax rotation. All scales had items loading at least .40 on the hypothesized factor and a loading less than .10 than on any other factor. Next, all scales were re-factor analyzed, separately for both language-samples, to check their convergent and discriminant validity. As Poortinga and Van de Vijver (1987) stated, the question of separating substantive differences from bias in comparing cross-cultural responses poses a serious dilemma. When comparing only a few cultures (as is done here) any systematic component can affect bias, and item analysis alone cannot untangle the two. Nevertheless, we attempted to at least eliminate serious problems in scale meaning by factor analyzing the items separately for each country-sample (Adler, Campbell & Laurent, 1989). Because all items loaded on the same scales in the separate language-samples, we retain some confidence that the scales retained similar core meanings to the Hungarian,

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Lithuanian, Chinese2 and English language groups. Sample items for each of the scales are reported with the results in the text or table. Reporting the Results The tabular results of tests are reported in a more simplified form than is standard for scholarly journals. The tables do not report standard deviations, sums of squares, or effect sizes, nor are the complete intercorrelations among measures for each sample reported. Since many readers of this book may not have had extensive training in statistics, I chose to report the data in a form that would not be intimidating. Those interested in conducting secondary analyses on these data are referred to the cited scholarly papers which contain more complete reports of the statistical tests in the tables.

2

Because characters were used in Chinese questionnaires for the 1997–1998 China— U.S. Study, the different dialects (in this case Cantonese and Mandarin) were not relevant.

Author Index A Adler, N.J., 120, 152 Al-Aiban, K.M., 83, 84, 150 Alexander, S., 80 Antal-Mokos, Z., 19, 21, 101, 104, 107 Argyris, C., 75 Arrow, K., 34, 36, 70 B Bakacsi, G., 49, 68, 150 Banfield, E.C., 10, 15, 65, 78, 81, 86, 87, 90, 92, 94, 96, 118, 127 Bartunek, J., 108 Bentson, C., 62 Berliner, J.S., 101 Biggart, N.W., 10 Bigley, G.A., 34, 81, 89, 91, 93 Blau, P.M., 111 Boisot, M., 19 Boyer, R., 128 Bradach, J.L., 34, 36, 40 Branyiczki, I., 49, 53, 68, 81, 91, 93, 101, 102, 133, 150 Brislin, R.W., 107, 151, 152 Brockner, J., 80 Burawoy, M., 17, 19, 104 C Čakrt, M., 146, 148 Campbell, N., 152 Carroll, G.R., 102 Chan, K.B., 39 Chan, W., 37 Chandler, A., 58 Chiang, S.C., 39 Child, J., 19 Clegg, S.R., 62 Coleman, J.S., 14, 80 Collins, R., 14 Comte, A., 14

Conger, J.A., 62 Cooper-Schneider, R., 80 Crozier, M., 120 Czaban, L., 52, 53 D Davies, H., 38, 39, 45 Deresky, H., 40 Deutsche, M., 88 Dickson, W.J., 63 Donaldson, L., 62 Dore, R.P., 109 Doucet, L., 108 Dunkerley, D., 62 E Earley, P.C., 108 Earnest, W.R., 116 Eccles, R.G., 34, 36, 40 Ekeh, P.P., 111 Estrin, S., 21 F Fallers, L.A., 66 Ferguson, K.E., 62 Feuerwerker, A., 37 Fligstein, N., 13, 14, 15, 24, 27, 33, 128 Folger, R., 80, 93 Freeman, J., 62 G Gambetta, D., 34, 42, 64, 78, 81, 87 Gaugler, B.B., 62 Geertz, C., 10, 27, 28, 121 Gessin, M., 25 Goffman, E., 108 Goodstein, J., 102 Granovetter, M.S., 1, 34 Gregory, P.R., 49, 57, 90, 101, 107 167

168

Guillén, M.F., 1 Guttman, A., 72 Gyenes, A., 102 H Hackman, J.R., 96, 152 Hamilton, G.G., 10 Hannan, M.T., 62 Haraszti, M., 41, 87, 88, 89 Hardin, R., 88 Henderson, G.R., 34 Henderson, J., 52, 53 Hickson, D.J., 56, 61, 104 Hinings, C.R., 56, 61, 104 Hirschman, A.O., 110 Ho, D.Y., 108 Hofstede, G., 1, 10, 99, 120 Hollingsworth, J.R., 128 Homans, G.C., 111 House, R.J., 62 Hsing, Y., 19, 22, 49, 104, 146 Hu, H.C., 108 Hwang, K., 108 J Jackman, M.R., 116 Jacobs, J.B., 39, 44, 50, 101, 111 Jacoby, S.M., 69, 72, 80 Jardine, L., 37 Jehn, K.A., 108 Jensen, M.C., 24 K Kahn, R.L., 23, 24, 42 Kanungo, R.N., 62 Katz, D., 23, 42 Kee, H.W., 34 Kerfoot, D., 116 Khanna, T., 42, 43, 45, 55, 57 Kirkbride, P.S., 108 Knights, D., 116 Knox, R.E., 34 Kohli, S., 35 Kolb, D.M., 108 Konovsky, M.A., 80, 93 Kornai, J., 19, 22, 57, 100, 101, 102, 103

AUTHOR INDEX

Kostera, M., 117 Kramer, R.M., 36 Krotov, P., 17, 19, 104 Kultgen, J., 116 L Larson, A., 44 Laurens W., 108 Laurent, A., 152 Lax, D.A., 108 Lee, C.A., 104 Lengyel, G., 52, 53 Leventhal, G.S., 80 Lipset, S.M., 8, 10, 30, 78 Litwack, J.M., 17, 30, 79, 90 Luhmann, N., 34 Luthans, F., 68 M Macaulay, S., 37 Malinowski, B., 111 Mars, G., 90 Martinez, P.G., 118 Maruyama, M., 110 McAllister, D.J., 88 McFarlin, D.B., 80, 93 McKinnon, R.I., 49 Meckling, W.H., 24 Meyer, J.W., 130 Mill, J.S., 58, 74 Mintzberg, H., 62, 64 Morgan, G., 64 Mowday, R.T., 93, 152 N Nee, V., 8, 24, 25, 45, 146 Newman, K.L., 49, 57, 131, 135 Nollen, S.D., 49, 57, 131, 135 Norden, M., 108 North, D.C., 12, 14, 15, 23, 27, 33, 45, 128 Nove, A., 22, 67 O O’Reilly, C.A., 2 Oldham, G.R., 96, 152 Ouchi, W., 34, 36, 40

AUTHOR INDEX

P Padavic, I., 116 Pagden, A., 65, 87 Palepu, K., 42, 43, 45, 55, 57 Parsons, T., 2, 14, 18, 64 Pearce, J.L., 19, 24, 34, 45, 46, 47, 49, 53, 67, 68, 81, 83, 84, 85, 88, 89, 91, 93, 101, 102, 109, 133, 148, 150, 151 Pennings, J.M., 44, 104 Perrow, C., 58, 62, 65 Pfeffer, J., 43, 104 Polányi, K., 1 Poortinga, Y.H., 120, 152 Porter, L.W., 93, 151, 152 Proppé, M., 117 Puffer, S.M., 68 Pugh, D.S., 56, 61 Putnam, R.D., 10, 14, 15, 41, 78, 81, 83, 85, 87, 96, 127, 128 Q Quinn, R.P., 24 R Ramirez, R.R., 133 Redding, S.G., 4, 6, 26, 37, 38, 39, 40, 45, 50, 55, 56, 78, 81, 87, 90, 92, 94, 127, 128, 134 Riggs, F.W., 66, 78, 90 Roethlisberger, F.J., 63 Rose-Ackerman, S., 27, 111, 113 Rosenthal, D.B., 62 Rosenthal, R.A., 24 Rotter, J.B., 86 Rowan, B., 130 Roy, W.G., 120 Rubin, J.Z., 107 Ruderman, M., 80 S Sabel, C., 36 Salancik, G.R., 43, 92, 104 Sayles, L.R., 63, 115 Schein, E.H., 120 Schneck, R.E., 104

169

Sebenius, J.K., 108 Seligman, M.E.P., 24 Shapiro, S.P., 27, 34 Silverman, D., 62 Simis, K.M., 17, 68, 69, 78, 83, 85 Sit, V.F.S., 39 Smelser, N.J., 2, 14, 18 Smircich, L., 120 Snoek, J.D., 24 Sommer, S.M., 68 Stark, D., 17, 19, 21, 24, 25, 26, 53, 67, 102, 104 Steers, R.M., 93, 152 Stogdill, R.M., 127 Sunstein, C.R., 121 Sweeney, P.D., 80, 93 Szatkowski, M., 117 T Tang, S.F.Y., 108 Thibaut, J.W., 80 Thompson, J.D., 23 Thornton, G.C., 62 Tocqueville, A.de, 8, 10 Toennies, F., 14 Tripoli, A.M., 151 Trompears, F., 120 Tsang, E., 39 Tsui, A.S., 151 Turner, C., 56, 61 Tyler, T.R., 59, 80, 90 Tylor, E.B., 121 V Vaksberg, A., 30 Van Creveld, M., 13 Van de Vijver, F.J., 120, 152 Varese, F., 42 Voslensky, M., 17, 19, 41, 70, 78, 83, 85 Vroom, V.H., 95, 127 W Wade, R., 28 Walder, A.G., 14, 16, 17, 19, 67, 68, 70, 78, 83, 85, 88, 101, 104, 113, 116, 126

170

Weber, M., 2, 8, 10, 14, 28, 57, 59, 61, 62, 68, 75, 80 Welsh, D.H.B., 68 Westwood, R.I., 108 Whitley, R., 52, 53 Wilson, J.Q., 58 Wilson, R.W., 67 Wolfe, D.M., 24 Wolfson, K., 108 Wong, S.L., 39 Wu, C., 39 Wu, Y.L., 39

AUTHOR INDEX

X Xin, K., 19, 45, 46, 47, 109, 148 Y Yang, M.M., 39, 40, 50, 87, 88, 89, 101, 111, 113, 116 Yetton, P.W., 127 Yeung, H.W., 39 Z Zeitlin, J., 36 Zelizer, S., 111 Zucker, L.G., 34, 35, 62, 78, 80, 94

Subject Index A Alienation, see Job satisfaction Amoral familism, 15, 65–66, 78 Authority relations, see also Ingratiation, 55–75, 78–79, 100–108, 111, 113–118, 126–127 B Bargaining, 7, 19, 39, 100–108, 113, 133, 135 and soft budget constraints, 101, 107 continuous, 101, 106–108, 121 Bonuses, see Reward distribution/allocation Bribes, see Corruption Bureaucracy, 2, 57–75, 80–81, 97, 113, 125–126 Bantu Bureaucracy, 66–69 formalistic bureaucracy, 66–69 pseudo-bureaucracy, 6, 57, 62–69, 74 Business groups, 42–43, 45, 57 C Centralization of decision making, 6, 55–57, 74, 85–86, 124–125, 130 Change, 122, 123, 131–136 cultural, 8, 99, 118–119 governmental, see Erratic government organizational, 8, 116–117, 131–135 resistance to, 131–132, 134 Cheating, 7, 13, 64–65, 79, 90–92, 97, 128

China, 22, 25, 37–41, 45–51, 55–56, 81, 94–95, 109, 111–113, 118–119, 146, 148–149 Imperial, 37–38 Overseas Chinese, 37, 38–40 Communally-owned enterprises, 45–47 Communism, 2, 16–19, 21–23, 25–26, 57, 65–71, 115, 118–119 Compliance, buying, 105–108, 113, 121 Confrontation, 108–110 Connections, 6, 38–41, 45–51, 53, 63–65, 67–68, 80–85, 87–88, 102–108, 111–113, 124, 126, 131 Control, see Authority relations, Bargaining, Bureaucracy and Critical resource dependencies Corruption, 28, 56, 61, 67–68, 75, 86, 112–113, 121, 124 Critical resource dependencies, 21–22, 43–54, 56–57, 65, 104 Culture, 99–122, 127–128 change, 8, 99, 118–119 cultural differences, 7, 108–110 values, 118–122, 127–128 Czechoslovakia, 22, 26, 71, 81, 116, 131–132, 134, 146, 148 D Deference, see Authority Relations, Obsequiousness and Supplication Delegation, see Centralization Dependence, see Personal relationships Design, organizational, see Form, organizational Differentiated societal subsystems, 2, 14–15, 18–19, 115

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Distress, 24, 27 Distrust, see Trust E Empowerment, employee, 6, 55, 69, 72–74, 125–126 Erratic government, 5, 14, 20–27, 30–31, 41–53, 67–68, 102–105, 107–108, 116, 135 Exploitation, 7, 72–74, 79, 86–90, 94–95, 124, 130 F Face, 100, 108–110 Facework, see Face Favoritism, 16–19, 78–79, 109, 111 Fear, 7, 24, 36–42, 44, 55–56, 65, 78–79, 86–90, 111–115, 124–125 Form, organizational, 6, 24, 55–75, 130 Formalism, (written records), 25–26, 56, 61, 73–74, 80–82 Formalistic, 62, 65–71, 75, 126 G Gift giving, 7, 100–101, 110–113, 121 Government Facilitation, see Non facilitative government Guanxi, see Connections H Haggling, see Bargaining Half-policies, see Weak Government Harmony, 7, 100–101, 108–110, 118, 121, 127 Hostile government, 5, 20–23, 30–31, 37–38, 107–108 Human resources management, 7, 55, 69–71, 86 labor and safety law enforcement, 70, 73 personnel specialists, 70–71, 106 policies and practices, 69–71, 94–95, 102, 105, 126 Hungary, 18, 21, 25, 52–53, 69–71, 81–97, 101, 105–108, 114, 116–119, 131–134, 145, 147–148

SUBJECT INDEX

I Impersonal relationships, 13, 33, 56, 59–60, 63–65, 71–72, 125 Impersonal transactions, see Impersonal relationships Independent organizations, 11–14 Information, withholding, 114 Informers, 87–88, 112, 114–115 Ingratiation, 78, 84–86, 88, 111–113 Insecurity, see Fear Interlocking directorates, 43–44, 129 J Job satisfaction, 7, 24, 78–79, 89, 92, 95–97, 125 L Law codification, 13, 25, 37–38 enforcement, 13, 27–30, 68, 81–82 illegality, 16–19, 30, 56, 67–68, 79, 90 legal infrastructure, 26–27, 48–49, 69 property rights, 24–25, 38, 44, 102, 104, 108 rule-of-law, 29–30, 69 secret laws, see Secrecy vague, 17–18, 25–27, 50–51, 82, 104, 108 Legal-rational authority, see Bureaucracy Legitimacy, 102–105, 113 Lithuania, 67–68, 81–85, 90–91, 93, 94–95, 146, 149 M Merit principle, see Meritocracy Meritocracy, 55, 59–60, 62–75, 81, 125–126 Modernism, 2, 14–19, 35–37, 44, 58 Multinational enterprises, 129 Mutual hostage taking, 6, 41, 47 N Negotiating, see Bargaining Neo-traditionalism, 16–19

SUBJECT INDEX

Nepotism, see Corruption Networks, see Connections Noncompliance, see Compliance Nonfacilitative government, 11–31, 35–37, 42–44, 48–54, 64, 70–72, 74–75, 77–80, 87–89, 94, 100, 110, 112–113, 123–124, 128–129, 135–136 O Obsequiousness, 7, 78, 85–86, 97, 100, 109, 124, 130 Office selling, see Patronage Officials, governmental arbitrary, 26–51 dependence on, 22–23, 25, 42–53, 56, 75, 112 discretion of, 25–27, 37–38, 49–50, 60–61, 67, 81 predatory, 28, 37–38 Organizational behavior, 38–42, 45–53, 72–122, 124–130 Organizational commitment, 7, 74, 79–80, 92–94, 97, 125 P Particularism, 16–19, 64, 78, 80–85, 134 Passivity, 7, 101, 114, 116–118, 121, 126–127 Paternalism, 7, 101, 113, 115–116, 118, 121, 126–127, 132–133 Patronage, 17, 28, 65, 87, 116 Performance, 55–75, 79–85, 125 goal attainment, 60, 62, 71–72 job performance, 61–62, 64, 71–72, 80–85, 91 performance objectives, 56, 68, 70–72, 80, 104 performance-focused organization, 55–75, 80, 89 Personal relationships, 6, 19, 33–54, 63–65, 68, 80–82, 88, 96 asymmetric dependence, 16–18, 69–70, 100, 109–113 building, 85–86, 112, 115, 124, 131

173

business based on, 38–39, 48–51 dependence management, 38–53, 43–54, 109–110 dependence on, 6–8, 22, 38–54, 78, 84–85, 93, 100, 109–110, 120–122 for information, 42–44 for protection, 28–29, 42, 44–54, 65 mutual interdependence, 41, 44, 53–54, 87, 100 organizing based on, 6, 34–54, 63–75, 80–85, 92–97, 113–118, 123–127, 133–135 undermine meritocracy, 71–72, 80–85 use for competitive advantage, 42–43, 49, 103 Personnel, see Human resources management Politeness, see Face Political objectives, 12, 48–49, 57, 67, 70, 72–74, 101, 105 Power, 62, 64–65, 69, 72–75, 85–86, 94, 100, 102–105, 107 alternatives and, 100, 102, 107 balanced, 100, 102, 105, 107 clarity and, 85, 104–106 influence, 64–65, 72–75, 103, 105, 113–118, 126 Predictable government, see Erratic government Procedural justice, 7, 64, 80–82, 90–93, 97 Protection, 42, 46–51, 56, 60, 64–65, 70, 72–74 R Regulations, see Law Relationship-based organizing, see Personal relationships Responsibility, avoidance of, 117–118 Reward distributions/allocations, 70, 80–85, 87, 90–92, 97, 105–108, 113, 118 Role ambiguity, 24, 27, 102 Rule-breaking (Law-breaking), 7, 66–67, 90–92, 112, 115

174

S Secrecy, 25, 56, 65, 70, 85, 87, 111–115, 130 Size, organizational, 56–57, 74, 124 Stress, see Distress Strong government, see Weak government Supervisor-subordinate relations, see Authority relations Supplication, 79, 85–86 Supportive, government, see Hostile government T Tension, see Distress Threats, 37–42, 46–51, 87–90, 94–95, 100, 102–108 Traditionalism, 14–19 Transition, political and economic, 19, 25–29, 45–46, 101, 104–107, 128, 135–136 Trust, 6, 7, 34–54, 65–66, 78–79, 80, 86–90, 94, 97, 113–115, 121, 124–125

SUBJECT INDEX

betrayal, 34, 40 characteristic-based, 35–37, 41 impersonal, 6, 33–37, 44, 66, 71, 80–81 institutional, 34–37, 63 personal, 34–37, 39–54, 66, 71–72 process-based, 35–57, 41 U Unpredictable government, see Erratic government V Vulnerability, see Fear and Personal relationships W Wariness, 7, 37–41, 50, 53–54, 56, 79, 86–90, 94 Weak government, 6, 14, 20, 27–31, 37–38, 42, 45–46, 60, 73, 104–105, 107–108, 112–113