The Business of America/Gorby's Cash Grab
Stelzer, Irwin M.
THE BUSINESS OF AMERICA GORBY'S CASH GRAB ikhail Gorbachev is willing to let Ronald Reagan take the credit for such progress as there was at the Moscow summit; all he wants in return is...
...Unlike the USSR, we can afford guns and butter...
...it is an important component of his approach to Soviet national security...
...Fortunately, sober observers have begun to question the wisdom of President Reagan's statement to a group of Soviet students that "nothing will please my heart more than . . . to see a growing, exporting, exuberant Soviet Union...
...W hile two of Gorbachev's desires are being met—more joint ventures, some Western financing—his third wish, access to Western technology, is being thwarted, at least for now, by the United States...
...others need not apply...
...And the mess is getting steadily worse...
...Most important—and contrary to the impression created by press reports about the opening of mobile pizza parlors and McDon'Brookings Institution, $36.95...
...They really need Western help and they're reaching out for it," Hugel recently told reporters...
...There are three ways Gorbachev can finance this...
...He and others in the world's business and financial community have apparently forgotten Lenin's frank admission that cooperation with capitalists is to be pursued only so long as it contributes to their eventual destruction...
...Hammer also signed an agreement to build the Soviet Union's first golf course...
...The NEP didn't long survive Lenin, and the improvements it brought in economic performance were soon swamped by Stalinism and World War II...
...Abel Aganbegyan, his chief economic adviser (chairman of the Commission for the Study of Productive Forces and Resources, and head of the economics section of the Soviet Academy of Sciences), says that in 1981-85 "there was practically no economic growth...
...by Irwin M. Stelzer The first of these solutions is a real option only if the West continues to reduce its own defense establishment, something it is under no economic compulsion to do...
...The essence of NEP, in Theodore Draper's words, "was to use capitalists . . . against capitalism, to use capitalism against itself...
...Most members of the seventeen-nation Coordinating Committee for Multilateral Export Controls (Cocom) want to relax restrictions on the export of high-technology products to the Soviet Union, but the U.S...
...Those firms will undoubtedly also oppose Senator James McClure's effort to make the Soviets pay with political concessions for the cash and technology they so badly need...
...16.95 paper...
...Indeed, it was the inability of the Soviet economy to match Reagan's defense build-up that brought the USSR to the disarmament bargaining table, forced it to withdraw from Afghanistan, and is compelling it to reduce support of client states such as Cuba...
...Or he can borrow from foreign capitalists...
...Even Michael Milken, the Drexel Burnham partner who created the junk-bond market, is interested...
...That legislation, which ties preferential trade status for the Soviet Union to its emigration policies, is an increasing source of irritation to Gorbachev, and an increasing inconvenience to American firms who want to do business with his country...
...That the Soviet economy is in serious trouble there can be no doubt...
...American business is rushing to oblige...
...This comes as no surprise to anyone even vaguely familiar with the history of failed efforts by a succession of Soviet rulers to get the country's economy moving...
...The betting is, however, that the jovial atmosphere of the Moscow summit and the departure of hard-line Defense Secretary Caspar Weinberger will soften the American position...
...In January, the Soviets tested the waters with their first-ever trip to Western bond markets...
...One expert on the Soviet economy says that perestroika is "beginning to look like a disaster...
...I say "we" because without Western help its already-slim chances of success would be reduced to zero...
...Britain's Lloyds has lead-managed four Euromarket financings for Soviet institutions in recent years...
...and NatWest and Morgan Grenfell have Moscow representatives looking for deals...
...The real question is whether the West should oblige Gorbachev, and, if so, on what terms...
...As Lenin pointed out, "We are retreating . . . in order . . . to take a running start and make a bigger leap forward...
...thereafter...
...that's half of the plan's target rate...
...Since January 1986, when the new five-year plan was launched, growth is reported to have been about 2 percent per year...
...economy...
...Per capita income actually declined...
...Charles Hugel, the president of Combustion Engineering—which hopes to participate in perhaps $20 billion worth of chemical plants in Siberia—has begun to speak out for the repeal of the Jackson-Vanick amendment...
...36 THE AMERICAN SPECTATOR AUGUST 1988...
...Dresdner Bank and three other West German banks will be the lead managers...
...Gorbachev himself has conceded that the Soviet Union is suffering from "economic failures," "slowing economic growth," "a shortage of goods," and that its economy is one in which "the consumer found himself totally at the mercy of the producer...
...But most observers expect a steady increase in Soviet borrowing, with a dollar-denominated bond issue in London later this year and, the political climate permitting, a "Gorbibond" issue in the U.S...
...And can...
...But others are not far behind...
...Pressure for such relaxation is coming primarily from the French and West Germans, and order-hungry computer manufacturers of all nations...
...Lenin was himself the first "reformer": his New Economic Policy (NEP) was inaugurated in 1921 in response to widespread unrest among the starving peasants...
...Vladimir Kamentsey, deputy chairman of the Soviet Council of Ministers responsible for foreign trade, is quite specific in identifying the areas in which the Soviet Union will allow large-scale joint ventures: oil and gas production, instrument making, automotive construction, medical equipment (seen as a potential export market and hard-currency earner), and farm equipment...
...What has Western financiers drooling is that this may be only the beginning...
...aid's—the areas in which foreigners will be permitted to invest are those chosen by the Soviet government for their strategic importance to its economy and security...
...And Defense Secretary Frank Carlucci, hardly a hard-liner, had this reaction to the summit's rosy glow: "If the end result is that . . . the Soviet Union modernizes its industrial and technological base, and if sometime in the 1990s it...
...Lord Carrington, the departing NATO secretary general, speaking at the NATO Council's spring meeting, warned that "the Soviet . . . military machine is still, so far, operating at exactly the same level as it was in the days before perestroika and glasnost...
...McClure would link trade concessions not only to the Soviet Union's willingness to let its imprisoned Jewish population emigrate, but to its compliance with the Helsinki agreement on human rights...
...The share of foreign capital may not exceed 49 percent...
...Although only some forty-six joint ventures worth only $30 million have been concluded since the beginning of 1987 (the figure comes from Ivan Ivanov, the number-two Soviet foreign trade official), more are in the works, some 300 if the Soviets are to be believed...
...For Gorbachev, a dramatic improvement in Soviet economic performance is not only good politics...
...Four subsequent efforts at reform—by Khrushchev (1957), Kosygin (1965), and Brezhnev (1973 and 1979)—all "proved disappointing," according to Ed Hewitt, author of the just-published Reforming the Soviet Economy.' A nd now we have perestroika...
...In addition, the Soviet Union plans to step up its own investment, particularly in machine building and metal working...
...Hewitt is on target when he points out, "Gorbachev knows full well that military and economic capabilities are intertwined...
...Western bankers are eager to finance this strengthening of the Soviet economy...
...There are, of course, skeptics—some of whom remember the Bolsheviks' repudiation of the $75 million debt run up by the czars, and others of whom won't play until the Soviets publish sufTHE AMERICAN SPECTATOR AUGUST 1988 35 ficient financial information to permit them and the rating agencies to appraise the so-called Red Notes...
...This was the rationale for inviting foreign capitalism into Soviet Russia in the form of mixed enterprises and economic concessions...
...Forgotten, too, is the simple fact that poorer, backward countries are, after all, less dangerous adversaries than richer, advanced ones...
...The Soviet Union has already increased its debt to the West from $15 billion in 1983 to twice that level...
...Colin Powell, Reagan's national securityadviser, also cautioned the West not to help the USSR modernize its economy until there is hard evidence that it had cut defense expenditures...
...Barclay's has set up a trade-finance subsidiary...
...all he wants in return is cash...
...Capitalists willing to serve the purposes of the Soviet state are welcome...
...Gorbachev needs foreign businessmen to invest in his country's factories, so that he can have goods to export and to sell to the Soviet workers he hopes will now work harder (they won't, unless they can buy something with the incentive wages they will receive...
...And they plan soon to sell a DM500 million ($294 million) issue carrying something like a 7 percent interest rate...
...The factory investment will have to be in the form of joint ventures with the Soviet state (only one of the ways in which perestroika borrows from NEP), and on stiff terms...
...But the West's capitalists are blinded by the prospects for huge profits...
...Indeed, the Germans are the most active in beating the Russian bushes for business...
...He can divert resources from his country's enormous arms program and costly foreign adventures...
...He suggested to Gorbachev that resource-rich Russia issue bonds backed by gold or oil...
...And the newly formed American Trade Consortium, which numbers among its members RJR Nabisco, Ford, Eastman Kodak, Johnson & Johnson, Chevron, and Archer Daniels Midland, expects at least a dozen joint ventures...
...and he needs Western technology, especially computers...
...Profits will be taxed at a rate of 30 percent, with an additional 20 percent taken if they are transferred abroad...
...they sold an issue totaling SFr100 million ($71 million) with ease—it was sold out in just four days...
...So borrow Gorbachev must...
...The manager of the enterprise must be a Soviet citizen...
...can produce enormous quantities of weapons even more effectively than it does today, then we will have made an enormous miscalculation...
...has held out...
...Their long-time favorite industrialist, Occidental's Armand Hammer, has announced a number of big new oil and petrochemical projects, including a plastics facility in Western Siberia, this to be financed by a new multi-national chemical consortium...
...It included many of the features we now associate with Gorbachev's perestroika—greater reliance on markets, joint ventures between the Soviet state and foreign capitalists, encouragement of cooperatives...
...A leading Soviet economist, Nikolai Shmelev, estimated in a recent article in Moscow News that the Soviet Union could, over the next few years, safely borrow $35-$50 billion to support perestroika...
...He can forcibly raise the rate of domestic savings by cutting workers' already miserable consumption levels...
...he needs hard-currency loans to finance the purchase of state-of-the-art Western machinery and capital goods...
...Without foreign financing of his perestroika, Gorbachev will be under even greater pressure to make concessions on arms control in order to lighten his military burdens...
...To this list Aganbegyan adds chemicals...
...Clearly, Gorbachev understands that a stronger Soviet economy means a stronger military machine...
...But it most definitely did not include a permanent abandonment of authoritarian, central direction of the Irwin M Stelzer, TAS's monthly business correspondent, is director of the Energy and Environmental Policy Center of the John E Kennedy School Harvard University, and an American correspondent for the London Sunday Times...
...At the moment, the Soviet Union is spending about twice as much of its shriveled GNP on arms as the U.S...
...The second—reducing workers' living standards—is risky: there are already rumblings of discontent at the below-Third World living standards experienced by most Soviets...
Vol. 21 • August 1988 • No. 8
