U.S. Companies Can Cash In on Soviet Reforms
Abel Aganbegyan, chief economic adviser to Soviet leader Mikhail S. Gorbachev, has been touring the United States for two weeks, wpromoting the idea that economic reform in the Soviet Union spells opportunity for U.S. business.
In Chicago, Los Angeles, San Francisco and New York he has been asking U.S. firms to consider joint ventures with Soviet enterprises, in which they would sell 80% of the venture’s output in the Soviet Union but collect their profit by selling 20% of the goods on world markets. He even promises that future laws will allow American firms majority ownership in such ventures.
Aganbegyan’s sales pitch is disarmingly frank. Where Soviets used to bluster, “We will bury you,” Gorbachev’s man Aganbegyan asks Western business to help the Soviets bring sense to a Marx Brothers economy. “We raised the price of vodka to discourage drinking,” he said last week at a meeting with U.S. business people in Los Angeles, “So sugar became scarce because moonshiners use it to make illegal liquor.” Sugar has had to be rationed as a consequence.
Aganbegyan describes an economy in which there is too much of some things and too little of others because government decrees, not supply and demand, set prices. For example, oil is priced too low, so (as used to happen in U.S. industry) machinery is designed as if energy costs don’t matter. People pile up rubles because there is nothing to buy, and the ruble is not convertible into other currencies. “We cannot buy anything inside the country for rubles, there are not enough goods, so what would outsiders buy?” exclaims Aganbegyan.
The brutal fact is that three years after Gorbachev started the economic restructuring called perestroika , the Soviet economy is slower than before. The many and complex reasons, some of them dating to czarist times, include the lack of a tradition of enterprise, the Soviet people’s suspicion of change and the inertia of a 70-year-old system of state control. Even supplies of potatoes and vegetables are lagging. Scholars of the Soviet Union, such as Marshall Goldman of the Russian Research Center at Harvard, say that unless Gorbachev can deliver a better life soon, he’ll be replaced.
Enormous Potential
In another country, such melodrama would be poignant or amusing. But the Soviet Union has two qualities that make it hard to dismiss with a smirk. The first, of course, is military strength (the massive military budget is untouched by any reforms of perestroika ), and Aganbegyan reminds his U.S. business audiences of that power. “Is there a political issue in the world that can be resolved without the U.S.S.R.?” he asks.
But the Soviet Union also is a market of enormous potential: 284 million people spread over 8.6 million square miles (a bit larger in population than the United States, 2 1/2 times larger in area).
Those people are longing for consumer goods, and it is to meet their need that Aganbegyan and Gorbachev are now asking other nations for loans and investment. In the last month, the U.S.S.R. has received $6 billion in credits from banks in West Germany, Britain, France and Italy.
Should U.S. companies play? In a world in which other nations offer cheaper production and convertible currency, are Soviet opportunities attractive? The answer, says a U.S. chemical executive, is that opportunities are there if you pick your spots. The Soviet Union has an abundance of raw materials, so a U.S. firm can profit by negotiating a hefty discount on local minerals or oil, thus making a venture’s finished product competitive on world markets.
Japanese firms do that on lumber from Siberia, bargaining a price with Soviet timber authorities that overcomes artificial valuations for the ruble.
What kind of consumer goods do the Soviets want? All kinds, said a U.S. businessman last week, but especially children’s clothing. And there would seem to be a lot of room for dealing in a country where the ruble is worth $1.65 at the official rate, 20 to 30 cents in black market dealing on the street, and even 12 to 14 cents in quotations from some Western banks.
European companies have been doing business in the Soviet Union for years while, aside from grain sales, the United States does very little. And there is hesitation today. Sen. Bill Bradley (D-N.J.) has asked U.S. firms and banks to hold back until the government can consult with its allies on commercial dealings with the Soviet Union. But James Verrant, senior vice president of Honeywell International--which has been doing business in the Soviet Union since 1974--says if U.S. companies wait, others will do the business.
But what if Gorbachev fails? Some predict a return to tight controls inside the Soviet Union and Cold War outside it. On the other hand, it’s hard to put the genie back in the bottle. The Soviet people want consumer goods, want to enjoy some fruits of their labor whether Gorbachev is there or not. Perestroika spells long-term business opportunity for someone.
