Soviets May Let Foreign Firms Own Businesses

Prime Minister Valentin S. Pavlov introduced radical legislation Wednesday that would let foreign investors operate and own businesses in the Soviet Union as part of the nation’s sweeping economic reforms.

Only with massive injections of foreign capital--and the advanced technology and business know-how that such investment would bring--can the Soviet Union hope to modernize its industry and thus stem its economic collapse, Pavlov told the Supreme Soviet, the national legislature.

The measure--which won preliminary approval, 291 to 11, with 21 abstentions--reverses more than six decades of ideologically rooted Kremlin policy that regarded any form of domestic capitalism as an abomination and prohibited wholly owned foreign enterprises as an even greater departure from socialism.

To lure foreign investment, the Soviet Union would permit 100% foreign ownership, the transfer of profits, concessions for development of natural resources, lower taxes on exported goods and protection from nationalization.

Also, the introduction of foreign capital should force the Soviet economy to shed those measures--notably state-set prices, government subsidies and low interest rates--that keep most of the country’s factories enslaved to a system that dictates what they produce, what materials they buy, what wages they pay and what prices they charge.

Foreign firms have been able to invest in the Soviet Union in recent years in joint ventures. But until recently, they had been prohibited from establishing wholly owned ventures or even holding majority ownership.

As a result, of more than 3,000 such companies established over the last three years, fewer than 500 were involved in industrial production. And they have played a minimal economic role.

The proposed law is intended to meet Western demands for full ownership and management rights and the ability to withdraw profits in a convertible currency, such as American dollars or German marks. Soviet President Mikhail S. Gorbachev used his emergency powers last fall to authorize such investments, and temporary legislation was adopted in December.

But foreign firms continued to insist on full legislation, and the proposal became a key part of the broader economic reforms that Pavlov pledged to undertake.

“Western businessmen are entitled to all the rights and responsibilities that apply to Soviet enterprises,” Nikolai I. Denisenko, the prime minister’s special adviser on foreign trade, said as he explained the legislation earlier this month. “There will be restrictions for them only in the sectors of the economy associated, for example, with national security or prompted by ecological considerations.”

Still, the measure drew a strong objection from Yefrem E. Sokolov, the former Communist Party leader in Byelorussia, who contended that the draft law would “lead to disintegration of our economy and the transformation of our country into a colony or semi-colony” of Western capitalism.

Foreign companies, Sokolov complained, would quickly buy up everything, then begin to dismiss virtually everyone.

But the government had, even three years ago, decided in principle to use the prospect of private property and the profits that would follow to revive the economy and raise living standards.

The proposed law, first outlined last August but redrafted several times, is a key element in the latest stage of Gorbachev’s economic reforms, which are intended to transform an economy based on state ownership, central planning and government administration into one driven by market forces with private entrepreneurs competing with state enterprises.

Although the measure received overwhelming support Wednesday, sharp debates could follow in the Supreme Soviet’s committees as it moves toward enactment.

Yet even some conservatives spoke in support of the legislation. Yuri Blokhin, a leader of the Soyuz bloc in the legislature, and Alexei Boyko, another Soyuz deputy, both endorsed the measure as necessary for the country’s entry into the world economy and as no diminution of the country’s socialist orientation.

Although Moscow is seeking Western assistance on an unprecedented scale--a figure of as much as $150 billion over five years has been suggested by some American economists--Pavlov said the Soviet Union needs perhaps five or six times that sum in new capital investment and that the government would make unprecedented concessions to get it.

“Foreign investment is not just money,” Pavlov told the lawmakers. “Together with it comes more modern technology, intellectual potential and managerial experience. . . . World experience and the state of our economy dictate the promotion of foreign investment in every way.”

Since the Bolshevik Revolution in 1917, state ownership of industry has been the rule, and only during the 1920s, when the Communist Party was struggling to rebuild the economy after World War I and the civil war here, were a few foreigners granted “concessions,” largely to exploit timber, oil and other natural resources.

Before the revolution, however, the czars had granted large-scale concessions to establish the oil industry in Azerbaijan, to develop the Donbass coal-mining region in the Ukraine and to build many of the country’s railways, including the line across Siberia.

The country’s economic problems are so severe, Pavlov told the lawmakers, that 42% of its industrial assets, roughly 500 billion rubles or about $850 billion at the official rate of exchange, need to be replaced--and 10% of that immediately.

“Foreign investments could play an important role in the structural reorganization of the Soviet economy and in its demilitarization,” Pavlov said.

He added that private investment should also help promote Soviet exports as foreign firms seek to sell their products abroad.