TIME: Almanac 1990/1990 Time Magazine Compact Almanac, The (1991)(Time).iso/time/120489/12048900.015

Text File | 1990-09-19 | 4KB | 67 lines

BUSINESS, Page 65

America Abroad

Go East, Young Man?

By Robert Ball


    We have just seen the most celebrated toppling of a wall since
Joshua took Jericho. More than any other event, it symbolizes the
rebirth of freedom in Eastern Europe. The amazing political changes
in what used to be called the Soviet bloc raise questions about
changes yet to come. Hasn't an economic barrier also fallen? Don't
new opportunities beckon? Shouldn't Western business pioneers be
packing their suitcases?

    The magic words "Marshall Plan" are already being heard. It
worked once, didn't it, on a continent ravaged by war? Since
Eastern Europe's factories and distribution systems are all intact,
if bedraggled, shouldn't a little pump priming bring forth a gusher
of goods?

    Here caution is indicated. Western Europe lay in ruins in 1945,
but attitudes and skills had survived. The invisible destruction
in Eastern Europe is worse than the visible devastation wrought by
war. Managerial talents have been blighted by a half-century under
an economic system that practiced pick-a-number pricing, taught
enterprises to hoard inventory and rewarded them for producing a
million left shoes. As Mikhail Gorbachev is discovering, it is much
easier to learn to use political freedoms than to revive a moribund
command economy. Casting secret ballots, speaking up in public,
banding together to advance common interests: all these come fairly
naturally. Instilling entrepreneurial spirit and managerial
efficiency on any level higher than selling lemonade at curbside
is a lot harder. Eastern Europe is littered with the wreckage of
previous attempts at economic reform.

    Granted, perestroika is crucially different in that it goes
hand in hand with profound political change. Maybe the plane's
engines can really be repaired in mid-flight, as the unreassuring
metaphor has it. But it will be an arduous process, requiring much
more than injections of cash.

    One of Eastern Europe's main problems is concealed inflation:
too much money chasing too few goods. West Germany's remarkable
postwar recovery was based on a brutal currency reform that in
1948, under Allied military government, destroyed all savings and,
by restoring the scarcity value of money, ended the barter economy.
Eastern Europe suffers from another economic distortion: the
incestuous trade patterns that are a legacy of the Stalinist years.
Trade under Comecon, the Council for Mutual Economic Assistance,
was based on a curious reverse mercantilism: the imperial country
(the Soviet Union) supplied energy and raw materials that the
colonies (the satellites) paid for in manufactured goods. Since the
Soviet Union was chronically short of almost everything, it was an
undemanding market, providing no incentive for East Europeans to
develop products for sophisticated customers. These bad habits will
not be shed overnight.

    All this means that it is much more of a challenge to Western
entrepreneurs to be there on the ground as participants in
perestroika than to stand outside and sell things to the East. What
advice should be given to the intrepid? Efforts must play to
Eastern Europe's limited strengths. There is nothing necessarily
wrong with the region's engineering and craft skills; it's the
managerial savvy that is lacking. Joint ventures sound attractive,
but their history provides many caveats. Licensing agreements may
be the best bet, if they don't require the import of components
that have to be paid for in scarce hard currency. In any case,
those aspiring to become the Armand Hammers of this generation may
recall that after five years, in 1930, Hammer sold his pencil
factory in Moscow and got out.