| |||||||||
 |
 |
UNITED NATIONS -- What a difference a decade can make. Ten years ago, the former Soviet dominated East Bloc presented a paradigm of falsified production rates, sluggish growth, and selective foreign investment. Today, despite an often bumpy road of socio-economic reforms in the wake of communism's collapse, key countries of the former socialist era "Comecon" are now reaping the benefits of Western foreign investment.
Last year, nearly $19 billion of foreign investment flowed into Central Europe according to the UN's Conference on Trade and Development (UNCTAD). The Geneva-based agency added that while Poland, the Czech Republic, Hungary, and Romania led the list for investments, similar inflows into the Russian Federation plummeted by 65 percent.
The UNCTAD Report adds that in 1998 Poland registered just over $5 billion in investment while the Czech Republic landed $2.5 billion. Hungary gained just under $2 billion and Romania just over $2 billion. Despite investment inflows, overall economic growth remains anemic except in Poland.
Naturally the 1998 Russian economic meltdown evaporated investment, and needless to say, confidence too. Investment into Russia which amounted to $6.2 billion in 1997 fell to $2.2 billion last year.
Yet, there's a special problem with the Russian figures beyond a wobbling Ruble and the latest fiscal hijinks of Moscow's political merry-go-round.
Recently American investors in Russia were dealt a chilling blow when a St. Petersburg court ruled that an U.S. share in the Lomonosov porcelain factory be renationalized. A holding group called International Porcelain invested $4 million for a 25 percent share of the prestigious Lomonosov porcelain hoping to bring back the luster to the former Imperial porcelain works from a period of slipshod Soviet era decline.
Funding came for the U.S. Congress-subsidized "US Russia Investment Fund" which has so far pumped $240 million into various Russian projects. Needless to say the Lomonosov "renationalization" sends precisely the wrong message to foreign investors who for the most part will look warily on doing business in Russia.
According to the World Investment Report 1999, foreign investment into the Central Europe "is dominated by investors from the European Union accounting for two- thirds of the total. United States investors accounted for fifteen percent."
The entire concept of foreign investment has long been controversial in many lands be they the former socialist states or for that matter Third World countries toying with socialism. Not a generation ago, foreign investment was often taboo throughout so much of the developing world--that's why many of those countries are still developing and not in league with South Korea or Singapore.
An UNCTAD Report opines, "A generation ago, many governments saw Transnationals (TNC's) as part of the development problem and they sought to restrict the flow of foreign direct investment. Today, TNC's are seen as part of the solution." Still UNCTAD warns, "Governments of developing countries must address the problems of corruption and reduce excessive bureaucratic red tape that can dissuade TNC's from investing." Importantly transnational firms usually pay higher wages to workers than comparative local companies.
Tragically there's a special problem facing the "privatization" of many state run firms throughout Central Europe has little to do with genuine free markets and more with a free ride for the former ruling nomenklatura who went from communist politics to crony capitalism. In other words, selloffs of deliberately undervalued state property to communist era cronies has created yet another "new class" vested in "bizness."
Ironically, the intellectual debate over the benefits of foreign investment and free markets was resoundingly won during the era of Margaret Thatcher and Ronald Reagan. Rare is there a country today that does not try to attract, cajole, or to encourage the once "evil" foreign investors with a host of fiscal incentives. Sadly for the people of these lands, their governments have awakened a generation too late.
John J. Metzler is a U.N. correspondent covering diplomatic and defense issues who writes weekly for World Tribune.com.
