East-bloc traders tote an ideological burden
A decade ago Hungary was the first nation in Comecon -- the Soviet-bloc trading community -- to make a move toward industrial cooperation with Western capitals.
Romania followed, legalizing domestic joint ventures with guarantees for foreign capital and repatriation of profits. A tentative start in Poland followed.
But in concrete terms, ideology has limited joing-investment ventures and still holds back meaningful development. The communist states have failed to offer investment conditions that are truly encouraging.
Governments in Bucharest, Warsaw, and even Budapest -- the most "venture minded" of all -- are still nervous about the latitude capitalist partners might be allowed.
And the "capitalists" are still skeptical of possible political hazards, the scope of government interference in communist centralized economies, and many limitations on normal freedom of operation and management controls in any joint-equity undertaking.
Both sides have preferred the license system. For the East Europeans it means access to superior technology -- their primary concern. For the foreign investor, licenses may mean smaller profits, but the course avoids the uncertainties of more ambitious ventures.
Only one communist country, in fact, has so far really accepted the essential implications of capitalist partnership. That is Yugoslavia. Since quitting the Soviet bloc 30 years ago, it has prospered increasingly with its market-oriented socialist economy.
When it legislated for equity sharing with Western partners in 1967, there were problems for both sides in the Yugoslav self-management system. This theoretically gives the workers full control in all economic units. But the legislation spelled political difficulties for the Yugoslavs, and Western businessmen feared conflicts between their legitimate desire for an effective share in management and the "self-managers" of Yugoslav communism.
Year by year, however, Belgrade realistically modified the regulations, including, recently, granting major tax and other concessions regarding quality controls and a greater voice on joint-management boards to foreign partners.
The country now counts nearly 200 equity ventures will Western companies, adding up to between $300 million and $400 million in foreign investment. Approximately half is American.
The Yugoslavs would like more. They frankly concede that more relaxed conditions still are necessary to give Western investors full confidence. But theirs is a substantial success story which the pragmatists in the bloc would like to emulate.
World recession and the energy crisis have brought all the East European economies to a critical stage quite apart from the prospect of a net decline in the Soviet Union's possible assistance.
Continued growth now depends as much as anything on modernization and significant inputs of Western technology superior to almost anything that they themselves or the Soviets are developing.
Yet Czechoslovakia -- probably the most needy of all in this field -- and East Germany remain dogmatically opposed to any admittance of foreign capital. So, too, is Bulgaria thus far. This small Balkan country started industrializing only after the last war. Lately, however, it has shown a surprisingly open mind toward Western economic links and has hinted at the mondification of the present bar to foreign capital.
Among the other East Europeans, Hungary has built up a wide spectrum of cooperation with some of the Western multi- nationals. So far it is seen mostly in agreements or joint ventures in trading and marketing production generated by new technology under license.
But last year negotiations opened for equity sharing with 30 companies from five countries. Recent indications are that Hungary may be more flexible, and, indeed, 1979 marked the opening in Budapest of a bank partnership between the Hungarian national bank and a Western consortium -- five European banks and a Japanese bank. The arrangement will fund investment projects in Hungary -- and elsewhere in Eastern Europe.
The consortium holds 66 percent of the equity in what is the first East-West banking venture in the communist bloc as well as the first of any kind with majority Western holding.
Romania currently counts eight joint-equity enterprises -- one with US capital. Generally the built-in restrictions are so many that foreign-investor interest has flagged. The same applies to Poland, whose follow-up has been half-hearted. The more favorable legislation hinted at a year ago is still awaited.
The grave problems ahead of all the East Europeans in this next decade, however, could spur greater realism. But Western investors -- as even Yugoslavia's successful experience shows -- will need more guarantees and better conditions than offered so far