A hundred paces off Red Square, a symbol of Soviet power, a small kiosk sells soft drinks in red, white and blue bottles with the word Pepsi-Cola spelled out in Cyrillic characters. The tiny wooden refreshment booth is but one of thousands dispensing American-recipe cola in the land of Lenin.
About the same distance down LaSalle Street from the Chicago Board of Trade, a symbol of capitalist might, is a tavern like thousands of others in America that will mix you a screwdriver or a martini from a bottle of Stolichnaya, the elite vodka imported exclusively by Pepsi from the USSR.
This exchange has been a tasty and profitable mix for Pepsi-Cola and the Soviet Union, but it also illustrates the tenacious problems bedeviling East- West trade even in the era of new openness.
Russians pay for Pepsi-Cola with rubles. The ruble, whose value is set by the Kremlin and is not affected by laws of supply and demand, remains a funny money that is virtually worthless outside Soviet borders. As a result, Pepsi can make no profit from its sales in the USSR. So it cooked up a scheme to use its ruble profits to buy Soviet vodka that can then be sold for real dollars in the United States.
Thus, despite successes of some Western firms like Pepsi, there is little immediate promise that Soviet President Mikhail Gorbachev`s reforms will expand commercial ties to the extent needed to jump-start his stalled economy at home, or to bring East and West closer together as trading partners.
Under Pepsi-Cola`s guidance, 22 factories across the USSR today produce a river of cola for Soviet comsumers-35 million to 40 million cases a year-but the deal has involved ”some very innovative and creative countertrade,” said Barry Holt, director of public affairs for Pepsi-Cola International.
”It has been a terrific business for us,” Holt said, declining to specify the exact annual earnings from the deal.
But countertrade and barter, which harken back to the most primitive forms of early commerce, can take the Soviet Union only so far down the path to domestic prosperity and worldwide economic integration.
Gorbachev has emphatically told his countrymen that he intends to end principles that for generations quashed individual enterprise and led to an economic isolation that left the Soviet Union far behind the West and the newly industrialized nations of Asia.
To achieve his goal of economic restructuring, known as perestroika, Gorbachev now wants to build economic bridges to the West as the route to reform and modernization of a largely backward economy.
This presents opportunities and uncertainties for Western business and Western governments.
On one hand, Western businessmen see the vast Eastern market of more than 430 million people-locked out of the consumer economy for decades, thirsting for all the things the West can make, do and sell. On the other hand, they know by bitter experience that those sales may be more trouble than they`re worth.
”People may be talking about a gold rush through perestroika,” said Karl H. Fink, secretary general of the German East-West Trade Center in Cologne, West Germany. ”But they don`t know business. We see improvements, but it`ll be a long, long time. There`s no short-term big money to be made there.”
Beyond `containment`
The Soviets want and need what the West has to offer: management skills, industrial technology, consumer goods, investment money to build new factories or rebuild old ones, and membership in institutions they once scorned, like the World Bank and the International Monetary Fund.
These opportunities have been withheld from the Soviet Union to avoid strengthening the West`s most powerful and threatening adversary. What access the Soviets have to the world trading system has been handed out in small and selective measure as a reward for policies of which the West approves. Even public relations gambits like Gorbachev`s recent letter to the summit of the seven industrial powers meeting in Paris failed to pry loose new concessions. But President Bush joined the Western European leaders this spring in calling for new policies that go beyond ”containment,” the Western effort over much of the last four decades to use economic and military means to obstruct the spread of Soviet military power and communist ideology.
The question facing the West is, how far does it go?
Is it in the West`s interest to support Gorbachev`s perestroika in a country that will remain a fundamental challenge to Western ideals and Western security? Some ask an even tougher question: Is it even within the power of Western nations to further policy goals by intervening in the Soviet economy? Former U.S. Sen. Adlai Stevenson of Illinois, writing in a recent issue of the quarterly Foreign Affairs, said the West is being challenged to rethink its economic policies toward the Soviet Union.
”It is reasonable to argue,” he said, ”that a Soviet Union more engaged in the global economy would be less prone to backsliding in its economic and political evolution.”
But conservatives such as the Washington-based Heritage Foundation warn that a major infusion of Western capital, equipment and technology might not encourage Soviet change but instead provide a ”quick fix” that would lessen the need for more serious economic, military and political reform.
The administration and Congress are moving toward at least temporarily waiving the 1974 Jackson-Vanik Amendment, which deprived the USSR of tariff and credit privileges as punishment for restrictions on Jewish emigration.
And there is talk now about ways in which the U.S. and its Western European allies might begin lowering restrictions on the export of sensitive technology to the Soviet bloc, while continuing to withhold those advanced systems that have the most direct military applications.
Together, such measures would amount to a significant shift toward the Soviet Union and a major boost for U.S. trade with the Soviet bloc, inasmuch as export controls alone are estimated to cost U.S. firms as much as $9 billion a year in lost trade.
Still, Bush has gone further than Western European leaders in demanding that expanding trade links to the East depends on the continuation of economic and political liberalization in the Soviet bloc.
Seeking to advance ties
While the U.S. has been pondering its approach, Western Europeans have moved quickly with bank loans, joint ventures and other measures they hope will produce profit and a more stable European neighborhood.
And Gorbachev has sought to advance these European ties with his much-publicized visits to Western European capitals, such as this month`s trip to Paris, and his calls for a ”common European home” that downplay the postwar division of Europe-and America`s role on the continent.
Last year, commercial banks in West Germany, France, Italy and Britain said they would lend more than $9 billion to the Soviet Union to help modernize its economy and expand trade with the West. By comparison, East bloc neighbor Poland has $39 billion in loans on the ledgers from the industrial nations.
Such former European hard-liners as President Francois Mitterrand of France and Prime Minister Margaret Thatcher of Britain have expressed their support for improved trade ties with the Soviet Union and Eastern Europe, particularly countries like Poland and Hungary, which are moving ahead with political and economic reforms of their own.
And West Germany, the Soviet Union`s biggest Western trading partner, has sought to encourage this trade by providing financial guarantees to domestic firms that export to the Soviet Union, though the Western industrialized nations have pledged among themselves to keep business on sound terms and not to subsidize credit directly to the Soviet government.
By contrast, Judy Shelton, a research fellow at Stanford University`s Hoover Institution, vehemently opposes making loans or credits readily available to the USSR, especially if they are at favorable rates or with government guarantees.
Western loans and credits to Moscow ”grant the Kremlin a reprieve and would allow the Soviets to devote scarce internal resources to the military,” said Shelton, author of ”The Coming Soviet Crash: Gorbachev`s Desperate Pursuit of Credit in Western Financial Markets.”
Shelton accepts the premise that increased trade can serve as the tie that binds East to West, but she notes that entanglements work both ways. She cautions that Gorbachev`s strategy may be to accept large Western loans in part to induce the lenders to lobby their governments on behalf of his policies.
Sen. Bill Bradley (D., N.J.) worries that ”Gorbymania,” the enthusiasm for Gorbachev expressed during a recent visit to West Germany, will make the West too eager in building economic bridges with the Soviets.
Bradley cautions against showering Moscow with low-cost loans and other Western-subsidized deals in a misguided effort to help the first Soviet leader whose popularity abroad exceeded his approval at home.
”My general attitude is that we should applaud perestroika but not pay for it,” said Bradley, an influential voice in Congress on this issue.
Third World economy
What is often overlooked is just how limited are the economic ties between the Soviets and the West, and the degree to which the Soviet Union-outside its military sector-is really a backward Third World economy in that it seeks to export raw materials and import finished goods and technology.
While West Germany`s exports to the Soviet Union are up this year by more than 50 percent, they still add up to less than it sold the Soviet Union in 1984. The West Germans, as the Soviet Union`s biggest Western trading partner, do only 1.8 percent of their trade with the Soviets; they do three times as much trade with Denmark, and four times as much with tiny Switzerland.
U.S. trade with the USSR was about $3.1 billion last year, much of it accounted for by U.S. agricultural exports, which is a tiny figure considering that the Soviet Union`s economy, driven by its huge oil, gas and gold reserves, is the world`s second largest, with an estimated gross national product of $2.3 trillion.
But times are changing. Pizza Hut, McDonalds and Baskin-Robbins are opening in Moscow. Boeing just cracked the Eastern European airliner market, until now a captive of Russian Ilyushins and Tupolevs, by selling three 767s to Lot, the Polish airline.
Amid much publicity, the Soviets have joined in about 250 joint ventures with foreign firms, a strategy Moscow hopes will bring in needed new technology and skills at low cost to the government. But fewer than 50 are yet in full operation, and most are with small foreign businesses trying to test Soviet waters without risking a lot of money.
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While Western Europeans account for the largest number of the new East-West joint ventures, the biggest and most complex Western-Soviet trade deal so far was put together this year by a consortium of six major American companies: Archer-Daniels-Midland, Chevron, RJR Nabisco, Eastman Kodak, Johnson & Johnson, and the New York merchant bank Mercator.
They reached an agreement with Soviet authorities on a legal and business framework for as many as 25 joint ventures that could involve U.S. investment of $5 billion or more over 15 years.
For instance, Chevron is talking with the Soviets about joint oil and gas exploration, potentially the consortium`s biggest money earner, and Nabisco is discussing joint ventures to make crackers, biscuits, cereals and tobacco products.
Johnson & Johnson is discussing medical and pharmaceutical products, and Archer-Daniels-Midland, an Illinois-based agribusiness titan, is negotiating several food-processing projects.
Major hurdles
Still, the Soviet Union has major hurdles to overcome in trying to expand economic ties with the West.
First is the lack of money. The ruble and the currencies of East European communist nations are not convertible, that is, they are no good in the West. This limits their purchases abroad to the amount of convertible Western currency, like dollars or deutschemarks, that they have on hand or can get from their limited exports to the West.
Most of what is made in the East is too shabby to be sold elsewhere. So sales to the West are limited to specific items-Soviet vodka, Hungarian salami or Polish ham-or raw materials like Soviet gas and oil.
The Soviet ruble is not convertible because all prices are set by bureaucratic order, not by market forces, so nobody knows what the ruble is really worth. The value of the ruble is set by the government at about $1.60, a gross overvaluation. On Moscow`s illegal black market, the ruble sells for a dime.
Another major factor that hampers Soviet entry into international trade is the drastic need for price reform.
Because the USSR lacks a free market, prices are set by government dictate. Some prices are kept artificially low, subsidies are poured into inefficient industries, and the budget deficit grows.
Gorbachev has talked for four years about the need for price reform, but he has repeatedly pulled back from the brink, fearful of the social unrest that dramatic rises in prices would cause.
To overcome the Soviet shortage of hard currencies, some trade goes on by barter. Western companies accept Soviet goods in payment and then try to sell these goods somewhere to get their money.
One wild example is the American businessman who says his firm was offered 100 falcons as payment for electronic office equipment; another was offered tangerines.
”There`s no country in Eastern Europe where we can expand rapidly,”
said Fink of the German East-West Trade Center. ”They have very little to offer in marketable goods, and they`re so short of hard currency.”
COMPARING LIVING STANDARDS.
USSR
Gross national product per capita, in U.S. dollars, 1986 $8,370
Grain production per capita, in pounds, 1986 1,654
Meat production per capita, in pounds, 1987 143
Auto registrations per 1,000 persons, 1986 42
Energy consumption, in barrels of oil equivalency per person, 1986 34
Life expectancy, in years, 1987 69
Bulgaria
Gross national product per capita, in U.S. dollars, 1986 $6,800
Grain production per capita, in pounds, 1986 1,918
Meat production per capita, in pounds, 1987 214
Auto registrations per 1,000 persons, 1986 120
Energy consumption, in barrels of oil equivalency per person, 1986 29
Life expectancy, in years, 1987 71
Czechoslovakia
Gross national product per capita, in U.S. dollars, 1986 $9,280
Grain production per capita, in pounds, 1986 1,544
Meat production per capita, in pounds, 1987 265
Auto registrations per 1,000 persons, 1986 173
Energy consumption, in barrels of oil equivalency per person, 1986 36
Life expectancy, in years, 1987 71
East Germany
Gross national product per capita, in U.S. dollars, 1986 $11,300
Grain production per capita, in pounds, 1986 1,544
Meat production per capita, in pounds, 1987 284+
Auto registrations per 1,000 persons, 1986 209
Energy consumption, in barrels of oil equivalency per person, 1986 44
Life expectancy, in years, 1987 73
Hungary
Gross national product per capita, in U.S. dollars, 1986 $7,920
Grain production per capita, in pounds, 1986 2,602
Meat production per capita, in pounds, 1987 370
Auto registrations per 1,000 persons, 1986 145
Energy consumption, in barrels of oil equivalency per person, 1986 22
Life expectancy, in years, 1987 69
Poland
Gross national product per capita, in U.S. dollars, 1986 $6,930
Grain production per capita, in pounds, 1986 1,455
Meat production per capita, in pounds, 1987 187+
Auto registrations per 1,000 persons, 1986 105
Energy consumption, in barrels of oil equivalency per person, 1986 24
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Life expectancy, in years, 1987 70
Romania
Gross national product per capita, in U.S. dollars, 1986 $6,030
Grain production per capita, in pounds, 1986 2,448
Meat production per capita, in pounds, 1987 179+
Auto registrations per 1,000 persons, 1986 11
Energy consumption, in barrels of oil equivalency per person, 1986 23
Life expectancy, in years, 1987 70
China
Gross national product per capita, in U.S. dollars, 1986 $260
Grain production per capita, in pounds, 1986 816
Meat production per capita, in pounds, 1987 40
Auto registrations per 1,000 persons, 1986 Neg.
Energy consumption, in barrels of oil equivalency per person, 1986 4
Life expectancy, in years, 1987 68
Yugoslavia
Gross national product per capita, in U.S. dollars, 1986 $6,220
Grain production per capita, in pounds, 1986 1,676
Meat production per capita, in pounds, 1987 132
Auto registrations per 1,000 persons, 1986 125
Energy consumption, in barrels of oil equivalency per person, 1986 15
Life expectancy, in years, 1987 71
United States
Gross national product per capita, in U.S. dollars, 1986 $17,220
Grain production per capita, in pounds, 1986 2,889
Meat production per capita, in pounds, 1987 238+
Auto registrations per 1,000 persons, 1986 557
Energy consumption, in barrels of oil equivalency per person, 1986 55
Life expectancy, in years, 1987 75
Note: Figures are latest available Neg.
negligible +1986 figure
baiduhai Graphic; Source: CIA Handbook of Economic Statistics.
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