Gorbachev Courts Corporate America to Form Ventures

Two years ago, when he first mentioned it, Mikhail S. Gorbachev seemed only to be musing.

Then in January a Soviet law legalized it.

Ever since, Moscow officials have been collaring American businessmen and attempting to enlist them in the unthinkable: joint ventures between U.S. firms and the Soviet government--but with hardly any success.

Now a haymaker has landed.

On his final day in Washington, Gorbachev himself climbed into the trenches of commerce.

The Soviet leader delivered to a convocation at the Soviet embassy of more than 50 leading U.S. corporate and banking executives a strong pitch to establish joint ventures with Soviet partners on Soviet soil.

“Let’s (have) real action,” a participant in the meeting quoted the Soviet leader as saying. The way Gorbachev put it--saying it was time to go beyond the concept stage because “concepts take forever”--he was not only exhorting corporate America. He was also telling Soviet bureaucracy to get on the stick.

Thus blessed by the leader in a semi-public forum, the quest for joint U.S.-Soviet ventures obviously is in earnest and almost certainly will become a paramount theme in the economic relationship between Moscow and Washington.

As such, it will join two other dominant themes: U.S. import barriers to Soviet products (imposed by the Jackson-Vanik amendment, which withdrew the Soviet Union’s most-favored-nation status as a result of Soviet restrictions on Jewish emigration), and U.S. export controls (designed to limit shipment to the Soviet Bloc of high-technology equipment that has military, as well as commercial, application).

To buttress the joint venture drive, Abel G. Abanbegyan, Gorbachev’s top economic adviser and a member of his summit party, plans a return to the United States in February and early March that will include the West Coast as well as a follow-up with businessmen on the East Coast.

Except for U.S. grain sales, Soviet-American trade is almost nil.

To the U.S. executives invited to hear Gorbachev, his invitation to set up joint ventures may have sounded similar to proposals from dozens of Third World countries, which over the years have sought direct U.S. investment, technology and know-how.

But the problem is far more complex.

As political adversaries, the United States and the Soviet Union have conflicting national interests that already limit their ability to adjust policies such as those that impose export controls and import barriers. These conflicts could easily strain joint ventures.

In the Soviet Union, opposition comes from influential bureaucrats and theoreticians with the traditional Marxist view of capitalism. They see joint ventures with American companies as an invitation to subversion and corruption.

“For these people, the idea of joint ventures is a radical departure from the norm,” said Marshall Goldman, associate director of the Russian Research Center at Harvard University and a close follower of the Soviet economy.

“Ideologically, they view the Soviet Union as the keeper of the flame, and joint ventures are just too much for them.”

If these opponents can slow down the joint venture drive, they probably will, Goldman said. “They will stay on, as bureaucrats tend to do, and, if Gorbachev goes, they know they will have to answer to his successor.”

Only Gorbachev, of course, can deal with that problem.

Among American companies, resistance arises mainly from pragmatic reasons.

First, joint ventures of any kind are a delicate form of business structure and international joint ventures even more so because they involve the melding not only of corporate outlooks but of national cultures.

Second, Americans who have engaged in business with Soviet bureaucracy are likely to have experienced such slowness and obduracy as to be reluctant to enter a commitment as deep as a long-term partnership with Soviet opposite numbers.

Third, it appears that the deck would be stacked in advance against the Western partner, which would be limited to 49% of ownership and unable to name the managing director of the enterprise.

Beyond that, many questions remain unanswered: How would profits be repatriated, labor disputes settled and internal authority distributed?

Only two American companies thus far have signed joint venture agreements, Combustion Engineering of Stamford, Conn., and Occidental Petroleum, headquartered in Los Angeles. A third, Monsanto of St. Louis, is reported close to an agreement. About 10 Western European companies have agreed.

All the Western partners have previous Soviet experience, and the joint ventures seem to be part of their own overall Soviet business strategy.

“Monsanto has sold products to the Soviet Union for over 25 years, and we hope through establishing a joint venture in the Soviet Union to move closer to the decision makers and explore wider ranges,” said Michael Petrilli, the company’s manager of international development.

Throughout negotiations for the joint venture--which will manufacture herbicides--Monsanto found its other lines of business with the Soviet Union improving, Petrilli said.

“I would suspect there is a link,” he said, “a message to us and to others that a company entering into a joint venture will find all kinds of other benefits.”

As time passes, the enticements grow more attractive. In his 90-minute meeting with American executives last Thursday, Gorbachev said profits from joint ventures would not be taxed for the first two years. He also said investors’ property would be protected.

The great lure for Americans, of course, is the untapped market of 280 million Soviet citizens.

To Gorbachev, the concept of joint ventures offers a logical fit into plans to restructure the entire Soviet economy, which suffers nearly every malfunction an economy can endure.

Through joint ventures, he undoubtedly hopes, the Soviet Union may gain at least some of the technology and know-how required for a place in the global economy suited to a superpower.

Although joint ventures alone cannot solve the nation’s principal economic problem--a declining growth rate--Gorbachev cannot help but notice his neighbor, China.

During the past decade China’s economy has been revitalized. It also has authorized the establishment of 7,800 joint ventures with foreigners.