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Potemkin village of capitalism

Having returned to the land of hope and glory after almost two weeks of hectic holiday season and a limited access to internet, I have the need to blog of things I have seen.

I spent Christmas in Bratislava, the capital of Slovakia. After such splendid reviews of the town here on Samizdata.net, I was wondering whether it would live up to his impressions during the cold winter days. The Christmas markets in the centre of town, a tradition established in 1993, have a certain magic that increases with copious quantities of hot mead and wine.

Bratislava Xmas market.jpg

The crowds are impressive, with density matching that of any western shopping experience. There are many international brands present, many a multinational appearing in the ‘small town with big potential’. The most impressive sight, probably because most unexpected, was the vista alongside a new road by-pass relieving the centre of Bratislava of heavy traffic. The road is lined with enormous warehouses, hypermarkets, showrooms for car makers such as Mercedes-Benz, Porsche, Nissan, Audi, Jeep, Chrysler, there is Fuji Film and Coca-Cola. Driving along you could be in any western country. In the centre of town I have seen designer shops frequented mostly by the rich even in the West. I believe I caught a glimpse of Bang and Olufsen. Whatever you think of the brand, it is a huge leap for the design-conscious of Bratislava.

This all is very good and a superficial visitor might conclude that Bratislava represents a successful marriage of the charm of a small provincial city with a multinational presence and that Bratislava benefits from its proximity to Vienna without being reduced to a charmless suburb of its larger and more internationally renowned neighbour. Perhaps I should leave it at that and spread the good word without digging underneath the surface. Unfortunately, I stayed there long enough to encounter what lies beneath or, as we Samizdatistas would say, in the metacontext. What I found is that the whole edifice rests on very shaky foundations. I have two reasons for such a strong statement. One is cultural and the other legal. The first means that although individuals in former communist countries are entrepreneurial in ways that make western businessmen look as adventurous as bank clerks, there is very little of what in the West we understand by ‘commercial culture’ underpinning the markets. I suppose in Hayekian terms, this would be similar to the concept of “the extended order” – the impersonal relationships that allow culture and trade to flourish among strangers.

People set up their own companies or take over former state businesses without understanding where their livelihood is coming from – the markets, i.e. the customers. They are mostly after the status of a ‘businessman’ and of owning a business, without appreciating that the entire point of their existence is to meet a portion of market demand, that is, attract customers. Business seems to revolve around those who own them and their company’s business processes, such as they are, are designed to suit them, not the customer who seems to be almost an after-thought. Although there certainly are companies in the West that fit the above description, at the same time there is also an explicit understanding in the western business culture about what drives the markets. It is also a matter of degree and the proportion of the businesses that behave in the ‘non-commercial’ way.

One of my favourite examples can be found in a major department store in central Bratislava. The ground floor is arranged in a manner identical to a standard Western department store – cosmetics and perfumes. It is full of the leading brands exactly as in most western department stores. The decor and arrangement is indistinguishable. However, that is where the similarity ends. The service is non-existent – the shop assistants, if their attention can be attracted, are either unpleasant or overbearing, trying to force the overpriced goods on you. (In my experience most western goods are on average 1/3 more expensive that in the West. How any of the locals can afford to buy them on a regular basis given the average monthly wage of around £220 ($395) is a mystery I have not been able to solve.)

The bit that got to me most was the fact that the display and sample items were all tied to the counter with a wire! This was presumably to stop customers from stealing them and undoubtedly the managers saw this as a neat solution to the problem of disappearing sample bottles of expensive perfume and to erosion of their profit margins.

It would have been difficult to explain to the store managers that this is an unacceptable treatment of customers since it amounts to treating every customer as a potential thief. It would have been impossible to explain that it matters that they are not treated as such and that good will generated by a company is as important as the tangible product and service is sells. And it certainly would not make any sense to them if there were told that selling cosmetics and perfumes is about selling experience, impression and generally impressing a positive association on to the customer. Hence the emphasis on packaging, advertising, expensive poster campaigns etc, etc, etc.

This is because communism succeeded in one thing – it made the countries under its yoke truly materialist. Things and object take on a far greater importance if you can barely afford them and have to work very long and hard to purchase them in the first place. Under such conditions they loom far more in such people’s lives then in a consumerist society that treats most products as disposable.

Marxism also managed to make its ‘theory of labour’ pervasive in the business metacontext or culture. Service and experience do not count in market transactions as they cannot be measured and therefore priced. By the same token human labour does not count for much either. Your time is not economically valuable and so service industry was non-existent under communism. It is now emerging under the influence of Western businesses but it does have a long way to go.

The second issue I have is with the legal framework. There seems to be very little reliance on the contract between transacting sides. The market exchanges do not seem to be underpinned by strong contracts, i.e. the contracts are there but when things go wrong, their effective enforcement is almost non-existent. It takes about 5 years to get a court hearing, which makes the legal redress irrelevant. This in turn, means there is very little legal experience in handling business disputes with law-making severely lagging behind. Legal infrastructure is increasingly influenced by the EU requirements, which is no foundation for a thriving free market. The inadequate legal provisions affect the labour market and employment relations that further undermine development of a sound commercial culture.

Now there is time for a disclaimer. I wrote the above paragraphs on the basis of my own impressions and knowledge. I know that there are individual businesses in Slovakia that are doing ‘everything right’. I know that there are many reasons why the situation is the way it is – such as the fact that Slovakia is more influenced by the Austrian and continental business practices that are rather different from the Anglo-Saxon entrepreneurial culture. The intention is not to be negative about Slovakia and its economic development. The regular readers may recall that I cheered the Slovak government’s decision to introduce 19% flat tax rate.

I am also not saying that Slovakia and other countries of Central and Eastern Europe are doomed because they fail to exhibit certain features that I consider crucial for economic development. What I am describing is the current situation as I see it in the context of my understanding of what makes free markets and free trade work – individual freedom, property rights, legal framework with effective contract enforcement and generating trust between strangers for complex market transactions. To my eyes the capitalism in Slovakia had all the trappings of the western sort. But without sound institutions and legal infrastructure supporting the entrepreneurial spirit of individuals in such countries, it will be a rather cardboard prosperity.

12 comments to Potemkin village of capitalism

  • Hey!! Isn’t it Samizdata tradition to post pictures of the local talent when returning from Bratislava?

    I feel cheated.

  • Kelli

    Gabriel (and all),
    Happy New Year!

    Can’t spend more than a few minutes on this, but felt the deep, burning need to set you right on a thing or two about the dynamics of shopping here in the uber-capitalist West. You suggest that merchants in Bratislava can take a cue from their western counterparts in customer service. Hah! More like we’ve been taking a page from them in recent years.

    Shopping for makeup in a big US department store is an hour in hell. Overmadeup mannequins stand behind a very wide glass counter and tsk tsk the poor state of your skin and the outdated nature of your cosmetics. Several hundred dollars will be required to remedy both situations and get you on the road to recovery.

    Sounds good, at least from a capitalist perspective, right? Except that the buyer’s remorse which then sets in puts an end for many months to any thought of visiting these counters of condescension. You pick up a tube or two or lipstick from the local drugstore, where the put-upon cashier has less of a tendency to sneer (and you really wouldn’t give a crap if he/she does).

    I have read that the high-end makeup and perfume mavens of the West are deeply worried about eroding sales, as the quality and price of drugstore brands has risen and the level of service in their establishments has sunk. It’s not Bratislava by a long shot, but it’s no capitalist paradise either.


  • Well, customer service seemed very slow compared to America. I thought its the same all over Europe. Sounds like Bratislava is a lot worse in that field. Looks beautiful though.

  • Joel Hammer

    I think that wiring down merchandise is not only in Bratislava.

    I just went shopping at Target’s, right here in Maryland, and in the toothbrush section, all the displays of expensive brushes (those replacements for electric modiels), were wired down tight.

    I don’t think that shop keepers trust anyone anywhere in the world. You do understand that the cash register is there mainly so the cashiers can’t rob their employer?


  • I was not comparing shopping in Bratislava to any shopping experience in the West. I was talking about shopping experience in an equivalent of Saks Fifth Avenue in New York or Selfridges in London. Examples of lousy shopping experience in the West have nothing to do with the point I am trying to make about the lack of sound commercial culture in former communist countries.

  • bc

    Absolutely on target. I was in former Yugoslavia in a semi-official capacity a few years ago, and the attitudes you describe as to service and customer-experience are precisely accurate. The cluelessness runs so deep it is not susceptible to re-training, IMO. Mercantile life is calculated to serve only those behind the counter, relying on a customer base with huge pent-up demand, conditioned to be afraid to complain, and with no alternatives.

    Good luck, Tito! The world is changing.

    As to securing displays from theft, you’re correct about what it does to the experience. But it may be necessary. Shortages seem so to have seared away from Eastern European sensibilities the optimism that necessities can be found when they are needed. Rather than a sense of things held in common, ala the socialist ideal, anything loose disappears to be hoarded. I used to donate a daily toilet paper roll to my paperless office facility shared by maybe 4 locals, and it would disappear (not be used up–disappear) in about 5 minutes. After the initial gesture, I did it for a number of days as an experiment.

    There is a strong Balkan and European tradition of courtesy and proper behavior, and even assistance to the stranger, but positively Zero willingness to altruisticly allocate energy to one’s fellow man, present enough in America, and sometimes in the UK, one only notices when it is so glaringly absent in some other places.

    Contemptous shopping experiences in the West are annoying, but very different from what you astutely describe. For one thing, someone, somewhere in the enterprise, does care what customers think. The uninvitingly haughty or inefficient clerk is crosswise the norm.

    After the former-Yugoslavian experience, I had a heightened awareness of the genuinely human bond fostered by the attitude and behavior of e.g. the clerk at the grocery store, and how it redounds to the success and ease of our lives and enterprises. For starters, she will wait on me even if she would rather be reading, even if I am not her cousin, even if nobody prestigious has introduced us. The market system has its dark side, but its robust non-material contribution to community has not been adequately appreciated.

  • Doug Collins

    I would think that normal competitive pressures would, over time, correct the problem of businesses taking their customers for granted.

    Except that they may not have time. This looks like a tremendous opportunity for a Wal-Mart or Tesco.

  • Doug Collins: Tesco is the main department store in the center of town. All the major brands are there already and it makes not much difference to the local shop owners. The competitive pressures are not all that they are cracked out to be. If you do not have the right market institutions, even the Western companies start behaving differently i.e. not as nice as in the West. They do not need to as they end up being much ‘nicer’ than the locals are used to anyway and do not have to be as ‘nice’ as to their Western customers….

  • Michael Farris

    I can’t speak for Slovakia, but I’ve lived long enough in Poland (over 10 years) and feel qualified to make a point or two. Slovakia and Poland differ in lots of ways, but they also share a lot of regional cultural features.

    Poles are not generally looking for human bonds when they go shopping and are liable to treat the idea with boisterous contempt.

    Salespeople who are “too” friendly (similar to default levels in small town America) are looked at with suspicion (politeness in most of Europe is about respecting distance rather than treating strangers like long lost friends).
    The ideal salesperson in Poland knows what they’re selling (can answer questions) and is a little bossy. warning: don’t ask salespeople how you look in something if you’re not interested in their blunt opinion.

    If the salespeople aren’t especially polite, you’re under no obligation to be polite either. This can be liberating, though it’s usually a pretty high psychological hurdle for anglophones. Just remember, they’re not likely to hold a grudge over a few sharp words, so don’t hold a grudge if they don’t seem eager to serve you. As an extra attraction, if you make a big scene, passersby are liable to join in and take sides.

    When I first began living here, I had many of the same complaints about customer service but mostly I’m used to it, if it were a real problem for locals, it would change. Actually, it _has_ changed a lot from communist times, but the type of customer service that satisfies Central Europeans will never be that much like US service (and I can’t think of a good reason it should be).

    I do agree that the legal systems of CE leave a lot to be desired in terms of transparency and simplicity and that business ‘culture’ often resembles a prison rodeo more than anything in Adam Smith. But again a lot of residents are too and things are changing, if fitfully and not always for the better (the usual pattern seems to be three steps forward, one back, one to the side).

    It’s also worth remembering that Slovakia lags somewhat behind Poland, Hungary and the Czech Republic in their enthusiasm for certain kinds of western ideas. They flirted with Byelorussian style nouveau Sovietism in the early 90’s. By all accounts they’ve come a long way in a relatively short period of time.

  • When McDonald’s first opened stores in Hong Kong, they had great difficulty providing paper napkins for customers. Adult people (many of who had come from rural China) had a tendency to essentially take all the napkins from the dispensor, put them in their bags, and take them home. McDonald’s did the equivalent of tying the perfume bottles down – they kept the napkins behind the counter and customers had to ask for them.

    This doesn’t really happen any more. One big factor in this is that children who knew only Hong Kong (simply by living in a more open and urban society than their parents) did pick up a better idea of civil society. Parents stopped taking all the napkins at least partly because their children would look at them with expressions of acute embarassment when they did things like this. Hong Kong today is full of stores selling western brands and products and people who have a relatively western attitude to these things. I very much doubt the perfume bottles are tied down in Hong Kong today, but it wouldn’t surprise me much if they were in 1980.

    My point is simply that civil society and the rule of law can develop from not terribly promising circumstances. It doesn’t have to, and it doesn’t do so overnight, but these things can change. As to whether they are changing, looking at which things that 15 years olds find embarassing about their parents strikes me as a very good indicator.

  • Michael Bradshaw

    Yes Gabriel I feel you have nailed it completly regarding capitalism and Eastern Europe. Slovakia in particular.

    While not having spent considerable time in Eastern Europe my partner is form Czech Republic and I have friends from Czech and Slovak republic here in Sydney. One on my house-mates is Slovakian.

    Communism may have ended half a century ago but the thinking that type of regime generated is not going to disappear overnight.
    A visit the Museum of Communism in Prague will testify to that

    There is great potential for these countries and the people are open to new ideas as long as they are not imposed on them as “being better”

    Interestingly enough Steve Forbes editor in chief of Forbes magazine sees great potential for Slovakia calling it the next “Ireland”

    “In the August issue of Forbes magazine, Steve Forbes suggested that Slovakia is set to become the world’s next Hong Kong or Ireland (i.e. a small place that is an economic powerhouse). In the improved economic environment, Forbes reported that foreign investment in Slovakia has risen dramatically — from $2 billion to $10 billion since 1999.”

    (see scroll down to heading “Investors’ Paradise” )

    There will be some pain before gain though. I remember the economic rationalizations of the 1980’s. However in Australia we have had 12 years of growth. 4% average. Double most OECD countries. It was necessary and worth it.

    I’m no economist but if Eastern Europe countries are willing to adapt there is great potential although the ride will get bumpy and success is not guaranteed

    I will visit Slovakia this year and see the wonderful countryside and mountains.
    Natural beauty beyond any economic and political ideas and theory’s o:)

    Thanks …. and happy 2004 for all

  • R. C. Dean

    Business seems to revolve around those who own them and their company’s business processes, such as they are, are designed to suit them, not the customer who seems to be almost an after-thought.

    Sounds remarkably like a French company that I dealt with a few years ago, not to mention half a dozen US companies that I know of. I suspect this mindset is a potential pitfall nearly anywhere.