The Payoff in Making Soviets Our Customers

Amid reports of economic and political turmoil, prominent Americans are streaming to the Soviet Union. Alan Greenspan, chairman of the Federal Reserve Board goes this weekend to advise Soviet leaders on reforms for their sclerotic economy.

Then next week, 142 U.S. companies will open a giant commercial exhibition in Moscow, to run Oct. 17-25. Organizations as varied as Monsanto chemicals, Estee Lauder cosmetics and the California almond growers will seek new business--or look to expand their already considerable, but little noticed, business in the Soviet market.

That may seem like bad timing. The explosions of freedom have come so fast to Eastern Europe that the fear now is of tanks rolling to keep East Germans from fleeing to the West, or Poles from governing themselves or even to overthrow President Mikhail S. Gorbachev and put an end to his economic reforms. However, things are not always what they seem.

Logic Favors Gorbachev

Logic says the tanks won’t roll and that Gorbachev won’t be overthrown either. Think about it. If the tanks roll, the Soviet Union would have to increase support for its East European satellites--even the best of which, East Germany, is kept afloat today only by billions of dollars slipped in from West Germany. The Soviet Union doesn’t have enough these days to help itself, not to mention Poland.

And logic also favors Gorbachev because he’s the guy who stands for change, and young Soviets in all parts of the economy, including the military, want change. The immediate problem is that after decades of paying people whether they worked or not, the economy doesn’t produce enough goods for people to buy, and rubles are piling up. Money that can’t buy anything loses its value--which is why the ruble is now worth less than 6 cents on the black market, compared to $1.62 officially.

Simply put, the Soviet Union can’t turn back the clock, because economically there is nothing to turn back to. Therefore it must modernize and move into the world economy. And one way Gorbachev proposes to do that is to bring in foreign expertise and capital. There will be a great welcome in Moscow for the U.S. companies next week.

And the companies are eager to be there, because the Soviet Union is already good business. By the estimate of a U.S. business expert, 300 American companies do from $20 million to $200 million each in annual sales in the Soviet Union. That means total business might be $30 billion a year and more--almost equal to U.S. exports to Japan.

Why haven’t you heard about that? Because the official trade figures show only the $2 billion or so of Russian grain purchases. The real story, though, is that trade figures no longer reflect the global economy. The goods and services that the Soviets buy are not exported from the United States but are supplied by foreign divisions of U.S. global companies. The Soviets pay with hard currency earned by selling lumber or oil or other raw materials.

Joint Ventures

Inevitably, however, the lack of convertible currency limits the business. That’s why U.S. firms are interested in joint ventures: By helping Soviet customers upgrade their economy, they may enlarge the market.

Some ventures are already working. Combustion Engineering, of Stamford, Conn., is helping chemical plants in western Siberia increase their output by supplying instrumentation and software. It gets paid a percentage of the increased production. Honeywell Inc.’s Austrian subsidiary is supplying process controls for ammonia fertilizer plants.

In a venture dating to 1972, Pepsi Cola now sells 35 million cases of Pepsi in the Soviet Union. It gets paid in Stolichnaya vodka, which it sells at a premium price in U.S. liquor stores.

A newer wrinkle, still, is Monsanto’s laboratory where Soviet scientists do biotechnology research in joint operation with Monsanto. The venture represents a $500,000 research expenditure for the St. Louis-based company, and helps cement a relationship that brings in roughly $100 million in annual sales of other chemicals.

Ventures in biotechnology indicate the reach of Gorbachev’s ambitions. He wants an advanced economy, skilled in computers and information sciences, that in 10 years will be able to stand on its own feet as a global competitor--instead of the cripple that it is today. Note: In no sense is he stepping back from a long-term rivalry with the United States.

Question: Should U.S. companies and the government help today’s cripple? Our response, says Sen. Bill Bradley, (D-N.J.), should be that of a rational capitalist, calculating what is in our interest.

And on balance, Soviet economic progress is the lesser of two evils. The Soviet economy today, says Prof. Jeffrey Sachs of Harvard, “is near chaos--and we’ve never had a chaotic superpower. The gross unpredictability of such a country would be a grave danger.” So, better a competitor that is playing by our rules. With peristroika , in other words, we may not lose an adversary, but we could gain a customer.