Capital Proposition

As they make clear that they are more and more ready to adopt the methods of Western capitalism, the development-minded countries of Communist Europe are actually following Yugoslavia's lead. Yugoslavia was first to slacken party control of industry, first to bow to the efficiencies of the profit system, first actively to seek competition in world markets. Now it is first in the Bloc again--this time with a hard-sell invitation to Western capital to set up shop in conjunction with state-owned Yugoslavian firms.

Under a new, precedent-breaking foreign-investment code, Western firms will be allowed to provide up to 50% of a Yugoslavian company's capital. Foreign partners will be guaranteed not only their share of profits but also the right to pull out when they see fit. Almost apologetically, Yugoslavian Federal Assembly President Edvard Kardelj assures his Communist colleagues that the investment code was the only alternative to "becoming an economic and political appendage of the more developed countries."

No Status, No Seat. Prosperous on its own and already privy to such Western money sources as the International Monetary Fund (of which it is the only Communist member), Yugoslavia is not after cash so much as other kinds of capital. To compete in export markets, Yugoslavian companies sorely need Western patents, processes, sales contacts and simple managerial know-how.

The new law is expected to be rubber-stamped by Parliament before July, and the country is already appealing for partnerships, particularly in chemicals, electronics and plastics.

Western businessmen may still be wary. Yugoslavian firms are unalterably state-owned, run by managers vaguely responsible to "supervisory councils" of workers elected by the rank and file. Foreign partners will receive no legal ownership status--not even a seat on the often obstreperous workers' councils, which have been known to vote themselves unconscionable wage increases. As far as a voice in management goes, investors can lay down policy guidelines when they sign initial contracts with individual Yugoslav companies; thereafter they will be pretty much limited to keeping unofficial advisers at the Yugoslavian managers' elbows.

For all that, many Westerners are eager to make use of Yugoslavia's cheap labor and get in on the growing East European market for Western goods. Several Swedish firms have announced that they are looking for Yugoslav partners "on the condition that business risk be shared, as well as profits." West Germany's Volkswagen is so anxious to set up an assembly plant with Yugoslavia's Dalmaciya Auto that it is offering a full 49% of the necessary cash as investment capital under the code and the remaining 51% as a long-term loan.

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