Taking the Long View in the Midst of Chaos and Upheaval
The confused and ominous events in the Soviet Union are a setback for the long-suffering Soviet people and a blow to investment plans of U.S. business, but on the whole not a catastrophe--yet.
If there are fighting and bloodshed in the coming days, that assessment would change, of course.
But as of Monday, U.S. companies and experts on the Soviet economy were reacting coolly to the ouster of President Mikhail S. Gorbachev by forces including the Soviet military and KGB.
“It’s a setback to hopes raised during six years of Gorbachev and perestroika, no doubt about that,” said an official of one U.S. company. “But we’ve had setbacks before.”
The consensus of the roughly 300 U.S. companies currently investing and doing business in the Soviet Union was that political upheaval had not changed the Soviet economy’s enormous long-term potential--or its need for reform.
Indeed, some experts questioned whether the coup ultimately would succeed. The Soviet people, milling in the streets, are only too aware of food shortages and empty store shelves. But, they didn’t welcome the coup leaders’ promise of an end to economic chaos.
Rather, the people argued and pleaded with their own soldiers not to support the coup because they didn’t want hard-won political rights to local elections and freedom of expression eliminated. Even Soviet man doesn’t live by bread alone.
The reaction of U.S. experts and markets contrasted with fears overseas. Stock prices in Japan and Germany fell dramatically--almost 10% in Germany--while U.S. stock prices as measured by the Dow Jones average fell only 2.4%.
Some of the price declines reflected fears that the Soviet upheaval would further depress Western economies, which from the United States to Europe to Japan are now in or near recession.
But, such reaction was overemotional. The Soviet Union’s contacts with the global economy are too slight for it to have much impact. U.S.-Soviet trade, for example, totals only about $4 billion a year, half of it in U.S. grain sales.
So, although it may have made sense for Chicago grain markets to react sharply, fearing delay or cancellation of $600 million in new Soviet grain purchases, the tumble in most world stock markets was overdone.
Yet, even emotion has a silver lining, said Charles Clough, market strategist for Merrill Lynch. “The fact that markets fell due to loss of confidence could persuade central banks to further lower interest rates to spur economic recovery,” said Clough.
Still, the overthrow of Gorbachev arouses fears far beyond mere economics. In Germany, particularly, the fear is that Europe will return to the pattern of most years since World War II, when Germans built their houses close to the superhighway so as to be ready for a quick escape if Russian troops came over from the East.
But, most U.S. experts Monday saw no threat of troop movements. For one thing, they questioned whether an economically moribund Soviet Union could even contemplate a military offensive.
And, the experts also discounted the threat of civil war. The conservative forces that “gave Gorbachev health leave, but not (Russian Federation President Boris) Yeltsin” have to be careful, said Charles Wolf of RAND Corp., a longtime observer of the Soviet Union. “If they ordered troops to use force on Soviet citizens, they could not be sure of the soldiers’ reaction.”
The background is that the Soviet Union has tried to change from a centrally controlled, Communist economy to a more efficient one. But the initial result has been inflation, as politically determined prices have begun to change.
Still, the officials who overthrew Gorbachev pledged to continue economic reform. They recognize that the Soviet people want more consumer goods and a better life and that the vast nation of 280 million will need investment from the industrialized nations.
It’s unclear how large the Soviet economy is, but a good estimate is that its annual output of goods and services totals about $1 trillion--or less than that of Germany, even though the Soviet population is four times that of Germany.
But the Soviet Union has a lot to offer. Soviet science is widely respected--in space and in medicine. That’s one reason U.S. pharmaceutical firms are investing there.
It is one of the last great untapped markets, noted Richard Jacobs of Newstar, a Washington-based advisory firm on Soviet investment. And a market in which U.S. companies, which do about $30 billion of business annually in the Soviet Union, have an edge. A new Soviet air traffic system, for example, may be built by a consortium that includes General Electric, IBM, AT&T; and other U.S. giants.
Meanwhile, the spectacle of the Soviet system once again overthrowing its leader served as a reminder of how unstable most of the world can be. One result was that investors the world over clamored to buy the U.S. dollar--as they probably will do for the next few days as they watch events in the nation Winston Churchill called “a riddle wrapped in a mystery inside an enigma.”
