Perestroika Lets Western Businessmen Down : Bureaucracy, Economics Make It Tough for Europeans to Cash In on Reforms

A British businessman, on his first trip to Moscow, arrives somewhat the worse for drink, has an argument over his hotel and ends up staying miles from the city center.

Two days later, having failed to meet up with an elusive Soviet contact, he returns to London and reports to the chairman: “Doing deals in Moscow will be difficult.”

A West German businessman runs into a similar hotel mix-up but, with a smattering of Russian and judicious use of a bottle of whiskey, secures a city-center room. When his contact does not show up, he telexes home to say he is staying on a bit longer. Two months later he returns, the deal signed and sealed.

This modern commercial parable, told by the Confederation of British Industry’s Eastern bloc head Maurice Childs, illustrates two points--competition for business in Mikhail Gorbachev’s Soviet Union is fiercer than ever; and some Western countries are better at it than others.

With the blaze of publicity surrounding the Kremlin leader’s policy of perestroika, or restructuring, showing no signs of abating, businessmen throughout Western Europe are beating a path to Moscow and reassessing opportunities in the Eastern bloc.

Doubts Surface

But as doubts have surfaced in the Soviet Union over Gorbachev’s ability to usher in better living standards, expectations of a boom in East-West trade have not fully materialized.

“The problem is all the nations of the Eastern bloc are depressed by the lack of hard currency,” said Alan Smith, East-West trade specialist at London University. “The prospects for growth in trade are poor . . . or at least not good.”

That has partly been Gorbachev’s bad luck. For most of the time since he took office in 1985, the price of oil, one of the Soviet Union’s major hard currency earners, has been severely depressed. And dollars generated by oil exports now buy less in the West following the currency’s sharp decline.

But there are other reasons why hopes have yet to be fulfilled. Economists say reforms have been slow to bite and often run into entrenched opposition from bureaucrats.

“Reform is going ahead more slowly than may have been foreseen a year and a half ago,” said Prof. Stanislav Menshikov, a former adviser to the Soviet Communist Party’s central committee who visited London last week. “One of the reasons is . . . opposition from some conservative circles--not just one or two people, but the bureaucracy.”

Led to Confustion

In Moscow, one of the Kremlin’s top advisers, Leonid Abalkin, recently conceded that the effects of perestroika might not improve living standards until 1995.

Western businessmen say Moscow’s move to allow ministries or factories to trade directly with the West has led to confusion.

“It means some of our business partners have little experience in putting together big deals,” said Childs, who coordinates British industry’s drive into eastern Europe. “The old foreign trade organizations could be expected to conclude an agreement quite quickly. Business is slower now.”

Statistics tend to bear out the impression that expansion of trade between Western and Eastern Europe is very uneven.

“Soviet imports from the West are down by about one-third since 1985,” said the University of London’s Smith.

Figures from the Organization for Economic Cooperation and Development show European Community exports to Eastern European countries were running at a monthly rate of $2.07 billion in the second quarter of last year, a gain of 13% over the first quarter and 12% above 1987.

But the picture in individual European countries varies enormously: British exports were stagnant during the first half of 1988 at about $176 million per month, but West German exports rose 15% from the first to second quarters.

French exports fell 4% in that period, while Italian exports rose strongly.

Different Motives

Political analysts say the wide divergence can partly be explained by differing motives in stepping up trade with Moscow.

“The British have been very hesitant, very cautious dealing with Eastern Europeans,” said Hans Heino Kopietz, analyst at the International Institute for Strategic Studies in London. “Continental Europeans, especially the West Germans and Italians, are keen to get into the Eastern bloc in a big way. They feel that if they can give Gorbachev’s perestroika a helping hand, it will help push reforms through.”

Stanislav Rudcenko, economist at Bankers Trust Co. in London, put it another way: “The Germans say, ‘Let’s do something to help Gorbachev’; the Italians say, ‘Let’s do the deals and steal a march on the rest of Europe,’ and the French don’t want to miss out.”

The Munich-based IFO research institute forecasts that West German exports to the Soviet Union will top $5.4 billion in 1990, 30% more than in 1987 but still below 1983’s $6 billion.

The West now has about 130 joint ventures with the Soviet Union following a series of major forays to Moscow last year and a drive to provide export-promoting credit lines.

Chancellor Helmut Kohl of West Germany took about 50 top businessmen with him when he visited Moscow last November, and Italian Prime Minister Ciriaco De Mita led a delegation to a Moscow trade show called “Italia 2000” in October.

Fiat, which since 1968 has supplied the technology for the Soviet Union to manufacture Lada and Zhiguli cars, is talking with Moscow about doubling output. West German ventures range from power generation to training Soviet managers, while British industrialists will travel to the Soviet Union in May.