Co-production deals between Western enterprises and East European governments are becoming big business and attract a lot of notice in the press. These deals now represent 10 per cent of East-West trade and are rapidly growing in number and importance.
Co-production is distinct from normal East-West trade, which is handicapped by the fact that it doesn’t allow the Eastern bloc to buy all it needs. The West doesn’t want payment for exports in roubles or other Eastern currencies as these are practically worthless. Russia has been paying for much of its imports with large amounts of gold but as this tends to reduce its price then Russia’s trading position simply worsens, while other Eastern countries have little or no gold anyway.
Barter deals are hopelessly inadequate as Western exporters rarely want the commodities being offered in exchange. Even so, barter does exist. Pepsi-Cola, long reviled by communist propagandists as a “monopolist”, has built a plant in Russia capable of producing 74 million bottles a year for Russian consumption. Since Pepsi wouldn’t take roubles and Russia needed its gold for American wheat, payment is made in Vodka and Pepsi were given the monopoly for selling Russian wines in the USA.
Despite Kruschev’s boast that Russia would surpass the West economically within 15 years, she has fallen further behind and the gap is widening all the time. To catch up, Russia and her satellites need Western technology but cannot acquire enough of it for the reasons given. Also, they already owe the West such a staggering debt (at least 80 billion dollars) that they cannot count on extended credit forever.
However, steps are being taken to rescue the Eastern bloc from its predicament, for a price, by none other than Western big business —the very “multinationals” who are supposed to be the mortal enemies of “international communism”. Just how and why this is being done is explained in a new book, Vodka Cola, by Charles Levinson. (Gordon and Cremonesi, £7.90.)
In the book Levinson lays bare the reasons for the current “detente” between the West and the Eastern bloc. This has nothing to do with either side learning to love the other but is dictated by their respective economic needs. The East must modernise its industry in order to keep its population passive. After all, expectations of a better life must be met someday. For Western big business there is the glittering prospect of a potential new market of 400 million people, plus the opportunity to switch its production away from a unionised, high-wage, strike-prone labour force to one which is state regimented, low-wage and forbidden to strike.
So the last thing the multinationals want to do is disturb the status quo behind the Iron Curtain. Any growth of political freedom there would produce genuine trade unions and the inevitable inroads into profit margins. Hence their enthusiasm for detente. Levinson also points out that the agreements signed by Eastern and Western politicians are only political window dressing. It was the businessmen of both sides who made the real breakthrough and all the politicians have done is merely help smooth the way for future deals. When it comes down to it, ideological differences are demolished by economic realities.
These co-production deals enable the West to sell the East what it needs and get paid, not in dud currencies or shoddy, inferior products, but in cheap Eastern made goods manufactured to Western standards which can be sold on the world market at a fat profit.
Co-production takes a variety of forms:
LICENCING: until the early 1960s only a few licences to use Western technology were purchased in the East. Now there are several thousand. These were previously paid for in scarce hard currency but now payment is likely to be in the products being made under licence. For example, Fiat, Volkswagen and British Leyland have been paid for their licences in vehicles and parts.
BUY-BACK: this means that industrial giants like Renault of France and Montedison of Italy will supply—in this case Russia—with an entire car factory and chemical plant and be paid in cars and chemicals for sale throughout the world. The Eastern partner is also helped to market its share of production through distribution companies specially set up for the purpose. In this way much needed hard currency flows back to the East to enable it to buy more of what it requires.
LEASING: the Eastern bloc also uses equipment rented from Western companies. So far this has not happened within Russia itself, but its merchant fleet has leased thousands of cargo containers and other equipment from the West, so privately owned means of production and distribution exist in part of the Russian economy. Levinson’s view is that leasing will increase because of the advantages it offers the East, among which is the acquiring of modem technology without spending huge amounts of hard currency. He predicts that it is only a matter of time until leasing will be allowed within Russia.
The list of “monopolists” involved in co-production deals makes fascinating reading: General Motors, Exxon (Esso), Ford, Unilever, IBM, Krupp, ITT (played a leading part in setting up Pinochet’s regime in Chile), Coca-Cola, Du Pont, Westinghouse, ICI, Union Carbide, Fiat . . . Many of them are bitter opponents of trade unionism in their own plants and all of them, needless to say, collect their share of the surplus value created by the Eastern workers employed in the various projects.
Cyrus Eaton, the American multimillionaire, revealed how it is done when he explained his 40 million dollar 50/50 deal for building a tyre factory in the East in 1970. The communist state partner would own and operate the plant. Eaton’s half would be in tax-haven Switzerland and would market the tyres in the West. Eaton says
“This enabled the Eastern country to earn hard currency and because of lower labour costs the venture can sell tyres cheaper than Western countries can. The plant in the East sells the tyres to the marketing subsidiary at cost —thus leaving profits to the joint marketing subsidiary.” (p. 87.)
Nice one, Cyrus.
All of this must have its effect on Western jobs. Naturally, the co-production partners deny this and claim that the increased trade will provide the West with 2 million new jobs. But the Eastern products, because they are made by low-wage labour, consistently undercut similar Western products. Indeed Western manufacturers and trade unions are forever protesting about “dumping” on Western markets. In Britain the footwear, textile, tailoring, motor car and TV tube industries, to name a few, have been badly hit by cheap imports from many countries and thousands of jobs have been lost. So while the British Communist Party demands action to “fight unemployment” their Eastern counterparts are busily contribute: it.
Unfortunately for the Eastern bloc the present type of co-production deal cannot fully solve their problem. The technology they are buying tends to be second rate and outmoded by Western standards. The West will not hand over the latest developments because it feels it does not have sufficient safeguards as things stand. For example, equipment and know-how supplied under one deal can easily be pirated and used by the East for other projects of its own, so Western companies are increasingly demanding a 50/50 share in the ownership of the plants as well as the products and profits. Because the Russians have refused to allow this they have failed to clinch several important deals. The Russian government’s refusal stems from an unwillingness to lose face: how would it be able to explain away such a blatant example of private, as opposed to state, ownership of part of “socialist industry?
Hungary and Rumania have gone some way towards meeting this problem. Although not allowing Western-owned plants, they do permit Western companies to own a large share of the profits of the joint venture (payable of course in hard currency). Volvo of Sweden has an agreement with Hungary for the assembly of Volvo cars with 48 per cent of the profits going to Volvo shareholders. This represents legal ownership of part of Hungary’s means of production. In Poland the government has gone all the way; foreign companies can legally own the entire project and if the deal is terminated then company can take out its original investment plus its share of capital gains.
The pressure on Russia to come some sort of compromise is enormous. Russia apparently needs the latest in mini computers but IBM and other suppliers are refusing to provide them. They want to protect their technology by retaining control over its use and means joint ownership of the project where it is being used. Only in this way can the company prevent its technology being applied outside of the contract.
Levinson frequently refers to the theories of Karl Marx and seems to have understood these better than most writers. For example, he says
“The end result of co-production operations is profits for the capitalists, and this means that the socialist enterprises are involved in creating the surplus value which Marxism regards as the basis of the capitalist class’s exploitation of the worker.” (p. 261.)
If the words “Eastern state capitalist” had been substituted for “socialist” then we couldn’t have put it better. He mistakenly attributes the failure of Russian nationalisation to “Marxist ideas” but continues
“Nobody (in Russia), unfortunately, had raised the minor question, ‘Whether the business be private or nationalised, how does it profit the worker who is subjected to the same authoritarian labour methods in either case?’ ” (p. 224.)
Although the book contains several other mistakes regarding Marx’s views, these cannot obscure the value of Levinson’s work as an aid to understanding how business, East and West, operates and what its priorities are. And we cannot help noticing that the analysis of modern society by Levinson, and many others outside our ranks, is very similar to our own. Nowadays, you don’t have to be a socialist to be struck by capitalism’s glaring contradictions and antisocial nature.
Vic Vanni
Blogger's Notes:
Charles Levinson replied to this review in the March 1980 issue of the Socialist Standard.
In connection to Levinson's book, the following might be of interest to some readers. In 1981, there was a fictional adaptation of the book entitled Beloved Enemy. Directed by Alan Clarke (who also directed Scum, The Firm and Elephant) and adapted for television by David Leland, it was transmitted on the BBC as part of the Play for Today series of dramas.
Beloved Enemy is available to watch on YouTube:










