America Abroad

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.