Westward ho! East bloc sinks billions into free market
For several decades in the middle of London's busy financial district, the Moscow Narodny Bank Ltd. has been conspicuous as a somewhat isolated Marxist presence in the capitalist world.
But what was once a lonely communist outpost in this marketplace has been joined by hundreds of other unusual Soviet-bloc ventures with billions of dollars at stake in the international economy.
From New York to Singapore, by way of Western Europe's most active business, industrial, and shipping centers, more and more such unexpected ''red multinationals'' are joining their outside counterparts in the hectic competition for a share of world trade and technological know-how.
Most of these communist ventures in the West and the developing world are devoted to arranging export sales of domestic raw materials and products. Some have become such fierce competitors for business that their tactics have evoked cries of foul play from their Western rivals.
In addition, they have acquired the image of possible havens of espionage and intelligence agents. They also act as important magnets of hard currency earnings for their communist economies.
The earliest ventures in the outside world after the Communist Revolution in the Soviet Union date back to the 1920s, when the Narodny Bank and the Soviet timber agency were established in London, and other firms were created in neighbors like Mongolia.
But it was in the 1970s that the pace of establishing East-bloc multinationals accelerated dramatically, according to Western experts who are studying the phenomenon with increasing interest. In recent months the subject has been aired at international conferences in Paris and at NATO headquarters in Brussels.
According to Prof. Carl McMillan of Carleton University in Canada, who participated in the NATO East-West symposium, there are some 400 such companies with a Soviet or East European financial interest in the 23 industrialized members of the Organization for Economic Cooperation and Development.
He and others place the worldwide total of such firms at over 500. But some experts disagree about the number, with the discrepancy in a country like West Germany ranging from 61 by one account to 130 according to another.
According to a Carleton University survey published this year, West Germany, with 63 companies, and Britain, with 59, were the most popular locations for such communist-bloc implantations. France with 39, Austria with 34, and the United States with 32 were next in the West.
It was also estimated that assets of all these firms topped $10 billion, with most in the industrialized countries aimed at marketing communist goods or services and an increasing minority engaged in production. But a large share in the developing world are involved in mining and other production.
Some 111 of these investments in the West are of Soviet origin. Polish-based interests follow close behind with 95, and Hungarian outlets are in third place with 68 companies.
East-bloc countries try to maintain full ownership of the companies, although there are a number with 50-50 East-West ownership or even a minority Eastern interest.
Examples of this new type of multinational activity by the East European Council of Mutual Economic Assistance (Comecon) state enterprises include:
* A Soviet-owned bank in Luxembourg to operate more advantageously in international currency markets.
* A Budapest-based firm, in a Delaware-based partnership with a major American multinational, to market Hungarian coal-industry technology internationally.
* A Warsaw-based commercial company with equity holdings in 30 firms in the West.
* A Czech firm in Montreal with subsidiaries in Chile and Mexico.
* A Bulgarian enterprise - the world's largest producer of forklift trucks - bidding to take over France's leading manufacturing firm in this field.
''Before the war, [the spread of communist multinationals] was an insignificant phenomenon,'' comments Eugene Zaleski, director of research at France's National Center for Scientific Research. ''By the early 1970s it had become a major phenomenon. So, it will raise serious economic and political problems for Western countries in the near future.''
These problems have already become evident. First of all, Western rivals have complained bitterly that some of these noncommercial enterprises compete unfairly in the international marketplace by offering goods and services at prices below actual cost, which profit-oriented firms cannot match or underbid. This has been the case in a wide range of situations from Lada automobiles and chemicals to machinery and cargo shipping rates.
On the political side, there is evidence of covert industrial espionage or partisan involvement. There have been numerous examples that officials from these firms in Europe have tried to surreptitously obtain all types of industrial secrets.
The best-known success has been the Soviet ability to develop a virtual carbon copy of the Anglo-French Concorde aircraft through acquiring secret plans , according to widespread reports. And a recent failure emerged in Belgium late last year when two employees of Elorg, a Dutch-Soviet firm, were expelled for trying to buy secret computer designs.
Professor McMillan, however, tends to discount such activities as a major problem.
''Comecon subsidiaries have not been shown to be more prone to such activity than the subsidiaries of Western firms,'' he notes. ''These foreign investments are of too great economic importance to the Comecon countries, especially the more foreign-trade-dependent among them, to be placed at risk so long as alternative intelligence channels exist.''
He adds that in general these firms ''enjoy solid reputations'' and that ''there appears to have been a concerted effort to avoid spurious activities and dubious associations.''
A number of such firms have considerable business contacts with the commercial companies run by domestic European communist parties. And in some instances there have been allegations of direct funding of West European communist parties. Belgium in the mid-1970s expelled two employees of the Transworld Marine Agency, a shipping firm in Antwerp, after reports the company had channeled funds to the Portuguese Communist Party shortly after the revolution in that country.
Most experts agree that while these firms are a presence to be reckoned with in both economic and security terms, they do not constitute an unacceptable threat in either area, despite their expected growth.
But Professor McMillan does note that these operations may be in their infancy and that the differing economic and ideological interests of the host and home countries increase the risk of conflict.