Introduction to business with historicall palnned economies
Introduction to business with historicall palnned economies
The demolition of the Berlin Wall and the overthrow of European communist dictatorships in 1989 brought renewed Western interest in the possibility of conducting business in countries that had heretofore been considered off limits. The countries that sparked this interest were those that had been commonly called communist, nonmarket economies (NMEs), centrally planned economies (CPEs), Second World countries, or the Eastern bloc. (This latter term was political rather than geographic; that is, East-West trade referred to business between communist and noncommunist countries rather than between the Eastern and Western Hemispheres.) The changes were so unforeseen and have occurred (and continue to occur) so rapidly that one risks making statements that will quickly become obsolete. Nevertheless, because of the changes taking place within many of these countries, the old terminology no longer seems appropriate for them. At the same time, there has been a growing realization that some other countries also have had strong elements of fairly recent central planning, even though they have not usually been grouped with the CPE countries. Although old terms and classifications will continue to be used, there is clearly a need for a new and more meaningful terminology.
The term historically planned economies (HPEs) refers to countries that since World War II have adhered for some time and to some degree to some type of Marxist-Leninist political principles, have undertaken a centrally planned approach to economic development, and have maintained certain economic conditions associated with CPEs. Among HPEs, countries differ in whether their political bodies have or have not made a commitment to become a market economy. For example, the Czech and Slovak Federal Republic, Hungary, and Poland have made such a commitment, but Bulgaria, Romania, and China maintain that a combination of central planning and market economy is possible.2 Countries also differ in how far they have moved to date. Algeria, for example, has already moved far from its earlier CPE doctrines and policies; Poland has made a commitment to transform to a market economy, but has not yet had time to complete the change; China has embarked on some reforms, while adhering to communistic and centrally planned principles; and Cuba has committed neither to a market transformation nor to reforms.
But why do these changes bring renewed Western interest in business with HPEs? The answer is partly political. Along with reforms and transformation has come a thawing of Cold War tensions that brings with it the hope created by changing political attitudes. McDonald's began negotiation of entry into the former USSR in 1976 without significant progress until the former USSR enacted joint venture legislation in 1987, whereupon negotiation and start-up came quickly. Changes sometimes have been in response to unpopular actions by HPEs (such as the Soviet invasion of Afghanistan), to cooperation against a common enemy (such as the alliance against Germany in World War II), or to the ascendancy of different political decision makers in the East or those in the West who hold different philosophies about business interactions with dictatorships and/or countries with central planning (for example, President Reagan's trade sanctions against Nicaragua).
Although the post-1989 period has been marked by more congenial relations between most HPEs and the Western industrialized countries, there are still risks of future sanctions. In 1991 the Soviet military opened fire against protestors in Lithuania, and China convicted human rights advocates in the Tiananmen movement for "counterrevolutionary propaganda." Had these events occurred under a different scenario, the U.S. reaction might have been different. For example, had a strong human rights advocate, such as Carter, been the U.S. president at a time when the United States was not being supported by the former Soviet Union and China for its military actions to liberate Kuwait, the "light switch" might have been put on "off" or "dim."
The change in decision makers sometimes has been the result of elections, but not always. Within the United States there have always been differences of opinion about economic sanctions. These have occurred within Congress, among White House administrations, and between the legislative and executive branches of government. The differences have been characterized as: "There are theological positions on both sides. To the hawks, any trade helps the Russians and zero is already too much. To the doves, trade leads politics, and more trade will improve relations."4 After the 1989 changes in European HPEs, the U.S. Congress eased, but nonetheless, maintained strategic export controls to the former Soviet bloc and disallowed subsidiaries of U.S. firms to trade with Cuba.5 Apparently, there is still considerable opinion that (1) the threat from certain HPEs still exists, (2) non-threatening HPEs will transfer technology to threatening nations, and/or (3) HPEs can be coerced into further liberalization.
Within the ideology of a restrictive trade position, three different motives sometimes have been pursued. The first is a defensive or punitive one, focusing on controls to weaken an unfriendly country economically and militarily in a type of economic warfare. The second is to try to remedy a situation through the withholding of trade, such as trying to coerce the former Soviet Union into allowing the emigration of more Jews to Israel. The third is to make a public declaration in order to register displeasure over certain activities, for example, the shooting down of a Korean passenger plane by the former Soviet Union.6
Within the ideology of a more liberal trade position in the United States it is argued that (1) restrictions merely penalize U.S. exporters and help firms created by changing political attitudes. McDonald's began negotiation of entry into the former USSR in 1976 without significant progress until the former USSR enacted joint venture legislation in 1987, whereupon negotiation and start-up came quickly. Changes sometimes have been in response to unpopular actions by HPEs (such as the Soviet invasion of Afghanistan), to cooperation against a common enemy (such as the alliance against Germany in World War II), or to the ascendancy of different political decision makers in the East or those in the West who hold different philosophies about business interactions with dictatorships and/or countries with central planning (for example, President Reagan's trade sanctions against Nicaragua).
Although the post-1989 period has been marked by more congenial relations between most HPEs and the Western industrialized countries, there are still risks of future sanctions. In 1991 the Soviet military opened fire against protestors in Lithuania, and China convicted human rights advocates in the Tiananmen movement for "counterrevolutionary propaganda." Had these events occurred under a different scenario, the U.S. reaction might have been different. For example, had a strong human rights advocate, such as Carter, been the U.S. president at a time when the United States was not being supported by the former Soviet Union and China for its military actions to liberate Kuwait, the "light switch" might have been put on "off" or "dim."
The change in decision makers sometimes has been the result of elections, but not always. Within the United States there have always been differences of opinion about economic sanctions. These have occurred within Congress, among White House administrations, and between the legislative and executive branches of government. The differences have been characterized as: "There are theological positions on both sides. To the hawks, any trade helps the Russians and zero is already too much. To the doves, trade leads politics, and more trade will improve relations."4 After the 1989 changes in European HPEs, the U.S. Congress eased, but nonetheless, maintained strategic export controls to the former Soviet bloc and disallowed subsidiaries of U.S. firms to trade with Cuba.5 Apparently, there is still considerable opinion that (1) the threat from certain HPEs still exists, (2) non-threatening HPEs will transfer technology to threatening nations, and/or (3) HPEs can be coerced into further liberalization.
Within the ideology of a restrictive trade position, three different motives sometimes have been pursued. The first is a defensive or punitive one, focusing on controls to weaken an unfriendly country economically and militarily in a type of economic warfare. The second is to try to remedy a situation through the withholding of trade, such as trying to coerce the former Soviet Union into allowing the emigration of more Jews to Israel. The third is to make a public declaration in order to register displeasure over certain activities, for example, the shooting down of a Korean passenger plane by the former Soviet Union.6
Within the ideology of a more liberal trade position in the United States it is argued that (1) restrictions merely penalize U.S. exporters and help firms from other Western countries, (2) the benefits to HPEs from getting more U.S. products is of limited strategic benefit to them anyway, and (3) closer economic ties will lessen political tensions.
It is not only the policies of Western countries that cause shifts in East-West business relations. Communist countries also have altered their attitudes and practices substantially. In both the former Soviet Union and the People's Republic of China, for example, changes in leadership and planning cycles have resulted in wide swings in how much each country depends on foreign business, with whom the foreign business occurs, what products are involved, and what forms of business are allowed.
Most companies prefer to invest their capital and human resources in endeavors that are expected to continue for a long period of time. Because there is still considerable uncertainty about the future of political relations with some HPEs, some firms hesitate to commit their resources to development of business with HPEs. On the one hand, Western businesses have witnessed increased peaceful political interactions. On the other hand, they also realize that past experience shows how rapidly business can change because of politics and how it can continue to fluctuate over time.
The demolition of the Berlin Wall and the overthrow of European communist dictatorships in 1989 brought renewed Western interest in the possibility of conducting business in countries that had heretofore been considered off limits. The countries that sparked this interest were those that had been commonly called communist, nonmarket economies (NMEs), centrally planned economies (CPEs), Second World countries, or the Eastern bloc. (This latter term was political rather than geographic; that is, East-West trade referred to business between communist and noncommunist countries rather than between the Eastern and Western Hemispheres.) The changes were so unforeseen and have occurred (and continue to occur) so rapidly that one risks making statements that will quickly become obsolete. Nevertheless, because of the changes taking place within many of these countries, the old terminology no longer seems appropriate for them. At the same time, there has been a growing realization that some other countries also have had strong elements of fairly recent central planning, even though they have not usually been grouped with the CPE countries. Although old terms and classifications will continue to be used, there is clearly a need for a new and more meaningful terminology.
The term historically planned economies (HPEs) refers to countries that since World War II have adhered for some time and to some degree to some type of Marxist-Leninist political principles, have undertaken a centrally planned approach to economic development, and have maintained certain economic conditions associated with CPEs. Among HPEs, countries differ in whether their political bodies have or have not made a commitment to become a market economy. For example, the Czech and Slovak Federal Republic, Hungary, and Poland have made such a commitment, but Bulgaria, Romania, and China maintain that a combination of central planning and market economy is possible.2 Countries also differ in how far they have moved to date. Algeria, for example, has already moved far from its earlier CPE doctrines and policies; Poland has made a commitment to transform to a market economy, but has not yet had time to complete the change; China has embarked on some reforms, while adhering to communistic and centrally planned principles; and Cuba has committed neither to a market transformation nor to reforms.
But why do these changes bring renewed Western interest in business with HPEs? The answer is partly political. Along with reforms and transformation has come a thawing of Cold War tensions that brings with it the hope created by changing political attitudes. McDonald's began negotiation of entry into the former USSR in 1976 without significant progress until the former USSR enacted joint venture legislation in 1987, whereupon negotiation and start-up came quickly. Changes sometimes have been in response to unpopular actions by HPEs (such as the Soviet invasion of Afghanistan), to cooperation against a common enemy (such as the alliance against Germany in World War II), or to the ascendancy of different political decision makers in the East or those in the West who hold different philosophies about business interactions with dictatorships and/or countries with central planning (for example, President Reagan's trade sanctions against Nicaragua).
Although the post-1989 period has been marked by more congenial relations between most HPEs and the Western industrialized countries, there are still risks of future sanctions. In 1991 the Soviet military opened fire against protestors in Lithuania, and China convicted human rights advocates in the Tiananmen movement for "counterrevolutionary propaganda." Had these events occurred under a different scenario, the U.S. reaction might have been different. For example, had a strong human rights advocate, such as Carter, been the U.S. president at a time when the United States was not being supported by the former Soviet Union and China for its military actions to liberate Kuwait, the "light switch" might have been put on "off" or "dim."
The change in decision makers sometimes has been the result of elections, but not always. Within the United States there have always been differences of opinion about economic sanctions. These have occurred within Congress, among White House administrations, and between the legislative and executive branches of government. The differences have been characterized as: "There are theological positions on both sides. To the hawks, any trade helps the Russians and zero is already too much. To the doves, trade leads politics, and more trade will improve relations."4 After the 1989 changes in European HPEs, the U.S. Congress eased, but nonetheless, maintained strategic export controls to the former Soviet bloc and disallowed subsidiaries of U.S. firms to trade with Cuba.5 Apparently, there is still considerable opinion that (1) the threat from certain HPEs still exists, (2) non-threatening HPEs will transfer technology to threatening nations, and/or (3) HPEs can be coerced into further liberalization.
Within the ideology of a restrictive trade position, three different motives sometimes have been pursued. The first is a defensive or punitive one, focusing on controls to weaken an unfriendly country economically and militarily in a type of economic warfare. The second is to try to remedy a situation through the withholding of trade, such as trying to coerce the former Soviet Union into allowing the emigration of more Jews to Israel. The third is to make a public declaration in order to register displeasure over certain activities, for example, the shooting down of a Korean passenger plane by the former Soviet Union.6
Within the ideology of a more liberal trade position in the United States it is argued that (1) restrictions merely penalize U.S. exporters and help firms created by changing political attitudes. McDonald's began negotiation of entry into the former USSR in 1976 without significant progress until the former USSR enacted joint venture legislation in 1987, whereupon negotiation and start-up came quickly. Changes sometimes have been in response to unpopular actions by HPEs (such as the Soviet invasion of Afghanistan), to cooperation against a common enemy (such as the alliance against Germany in World War II), or to the ascendancy of different political decision makers in the East or those in the West who hold different philosophies about business interactions with dictatorships and/or countries with central planning (for example, President Reagan's trade sanctions against Nicaragua).
Although the post-1989 period has been marked by more congenial relations between most HPEs and the Western industrialized countries, there are still risks of future sanctions. In 1991 the Soviet military opened fire against protestors in Lithuania, and China convicted human rights advocates in the Tiananmen movement for "counterrevolutionary propaganda." Had these events occurred under a different scenario, the U.S. reaction might have been different. For example, had a strong human rights advocate, such as Carter, been the U.S. president at a time when the United States was not being supported by the former Soviet Union and China for its military actions to liberate Kuwait, the "light switch" might have been put on "off" or "dim."
The change in decision makers sometimes has been the result of elections, but not always. Within the United States there have always been differences of opinion about economic sanctions. These have occurred within Congress, among White House administrations, and between the legislative and executive branches of government. The differences have been characterized as: "There are theological positions on both sides. To the hawks, any trade helps the Russians and zero is already too much. To the doves, trade leads politics, and more trade will improve relations."4 After the 1989 changes in European HPEs, the U.S. Congress eased, but nonetheless, maintained strategic export controls to the former Soviet bloc and disallowed subsidiaries of U.S. firms to trade with Cuba.5 Apparently, there is still considerable opinion that (1) the threat from certain HPEs still exists, (2) non-threatening HPEs will transfer technology to threatening nations, and/or (3) HPEs can be coerced into further liberalization.
Within the ideology of a restrictive trade position, three different motives sometimes have been pursued. The first is a defensive or punitive one, focusing on controls to weaken an unfriendly country economically and militarily in a type of economic warfare. The second is to try to remedy a situation through the withholding of trade, such as trying to coerce the former Soviet Union into allowing the emigration of more Jews to Israel. The third is to make a public declaration in order to register displeasure over certain activities, for example, the shooting down of a Korean passenger plane by the former Soviet Union.6
Within the ideology of a more liberal trade position in the United States it is argued that (1) restrictions merely penalize U.S. exporters and help firms from other Western countries, (2) the benefits to HPEs from getting more U.S. products is of limited strategic benefit to them anyway, and (3) closer economic ties will lessen political tensions.
It is not only the policies of Western countries that cause shifts in East-West business relations. Communist countries also have altered their attitudes and practices substantially. In both the former Soviet Union and the People's Republic of China, for example, changes in leadership and planning cycles have resulted in wide swings in how much each country depends on foreign business, with whom the foreign business occurs, what products are involved, and what forms of business are allowed.
Most companies prefer to invest their capital and human resources in endeavors that are expected to continue for a long period of time. Because there is still considerable uncertainty about the future of political relations with some HPEs, some firms hesitate to commit their resources to development of business with HPEs. On the one hand, Western businesses have witnessed increased peaceful political interactions. On the other hand, they also realize that past experience shows how rapidly business can change because of politics and how it can continue to fluctuate over time.
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