Some years ago, never mind how long precisely, a group of us MBA types decided to wander about in Eastern Europe and see a bit of the ex-communist part of the world. We were young, brilliant, and armed with the latest in motivational and management techinques, and on the other hand, here were several thousand miles of virgin territory where run-down factories could be bought for bargain prices only to be saved by Angels of Capitalism like ourselves. We would bring the know how, the American way of doing things, the derring-do. They would bring the old rusty equipment and cheap labor (who, nevertheless would discover a whole new meaning to their lives because of our brilliant intervention). As the leader of this Quixotic crowd, I bought a small, local car, promptly nicknamed Rosamunde, and zipped off from city to city in Eastern Europe until I discovered a small, unknown porcelain company nestled in a pleasant, 8,00 year old town with Crumbling Industry by the Bucketload for anyone interested.
Buying it was an adventure in itself - there was a sleazy Italian company mainly interested in the place to launder money and the shares had been given to the population, so they were spread out over about 15 villages and had to be bought from local mayors or priests, but after a few months of battle we gathered enough shares to be in effective control of the plant, showed up with insufferably arrogant smiles at the General Shareholder's Assembly and nominated ourselves as the board of directors of the plant, squeezing out all the old state bureaucrats who were about to get a lesson in free market capitalism.
The next day, I went up to the General Director's office and asked him to give me the costs of all the products we were selling. "We don't have that information." he said. I asked, naively, how we could possibly run a factory without knowing the cost of what we produced. He said, "but the official figures we use are all wrong anyway, you know that, because of the fake profits, that the Union makes us register." About ten seconds later, when he realized that I had no idea what he was talking about, he fled the room. The economic director told me he didn't know anything and should I please talk to the general director, and the marketing director told me he only knew what other people told HIM, and whether there were fake profits or not was none of his business anyway because he was just the marketing director.
The obvious solution here was to find the Union leader. He was kept in a small, freezing room at the other end of the factory, near the coloring plant, with a rotary dial phone on a rickety wooden table, and a "Library for Union Members" filled with educational books about things like the history of the Hittites and the botany of Southeastern Italy. The leader, who I will refer to using the management's nickname, The Black Prince looked almost exactly like a slavonic Yasser Arafat down to the four day growth of beard. He smiled, welcomed me with a home brewn cup of coffee, and thanked me for investing in the plant. When I asked him my question, he ruminated. "Fake profits? Fake profits? Oh, yes, there were such things under the previous management but there aren't any more. Not a bit of it. You know, the people like to get paid on piece work and sometimes when there weren't enough orders the union boys would (apologetic smile) put a little pressure on the financial department to make some orders we wanted to turn away worth doing, but that all finished now. Why don't you go to Germany and sell some of our products to the wholesalers?"
So began a four year war with the black prince. The second day, the Ministry of Labor came and pointed out that the company hadn't paid it's Social Security Taxes in six years, and no, they didn't know why it wasn't on the books, ask the economic director, but in the meantime, could we please wire all our cash to them? Actually, we didn't need to wire them anything since the law gave them the right to wire the money directly out of our account, leaving us with nothing - no money to buy raw materials, nothing to pay the wages, not even enough money to buy ourselves a cup of coffee (or with the way things were going, a cheap bottle of vodka) at the local comissary.
Of course, this is where the fake profits were going - the company had simply not paid any taxes for years and not recorded it on the books, thus selling goods for under their manufacturing cost to keep the workers fully employed, and showing a nice profit. The government damn their eyes, had no reason to stop this as long as THEY controlled the factory, but if a bunch of idiots from the United States wanted to buy it, well, it was about time the tax bill came due. At this point, staring in dull shock at a bank statement that was telling me that I needed 100,000 USD in three days to pay 400 blue collar workers the miserable 200 a month (plus taxes) they needed to stay alive, money I had no way to get, the Black Prince showed up to save the day. He had heard what happened, he told me. He felt bad. The Union wanted to help us. After all, this isn't the US, where the Unions and the Bosses scream at each other. This was The New Europe and all of our Union Representatives had had plenty of training in France in something I had never heard of called Le Dialogue Sociale, and in this case, with the company out of money and the workers in their right to leave us at the mercy of the government, he proposed a Deal....We would get three months to pay everyone, and then everyone would get double the salary. I ran through the numbers with him on graph paper. "We currently make a plate for 50 cents and sell it for 40. If we paid everyone double we would start to make it for 60 and sell it for 40, and that would just hasten the end..." At this point the Black Prince cut me off. "You're from America, you have plenty of money. Just invest it in the plant. I'm sure you'll think of something.". Needless to say, the conversation began to deteriorate, and by the end I was calling him a Marxist and he was calling me a rotten adventurier who had come here to make everyone's lives miserable, and that while he would tell everyone the government had taken the money no one would believe it and the next day the whole town would accuse me of having taken everyone's salaries to live my opulent capitalist lifestyle while the workers starve.
The next day I was greeted by a demonstration at the front gate, of workers that had heard that we had no more money and demanded to know whether or not we were going to make payroll.. I was indignant. I wasn't going to stand for this - why, this was BLACKMAIL! This was HIGHWAY ROBERRY! I was going to gather the workforce and just - tell them what a bunch of crooks were in control of their destiny! I called in the firm lawyer and told her to gather everyone in the big meeting room as they were finally going to get a lesson from an owner who told them the truth...
It would be embarassing to recall here the next couple of hours, my frantic attempts to call the police, our rescue by a local vigilante group that really wanted me to hire a bodyguard from their local security company, the insults and humiliations hurled at us from an enraged workforce egged on by their Union Leader who showed up, like Garibaldi wearing a red shirt. The next day, we cut the deal with the Unions on the salaries, mainly in order to get them to persuade the workers to get back into our own plant...But like any villain, we were determined that, at the right place and time, we would get our revenge...and in the meantime, we were well on the way to becoming the bleached set of bones Kipling says is the fate of any fool who tries to sucker the East.