The Croatian journalist Slavenka Drakulic has written that communist governments failed because they could not supply their citizens with consumer goods like toothpaste and toilet Paper. With the dismantling of the Berlin Wall in 1989, Western business entertained visions of a truly global market economy that would stretch from New York to Novosibirsk and beyond.
The lingering residue of communist economic principles throughout the former Soviet bloc, however, has forced corporate investors to ask whether their expectations were prematurely euphoric. Is investment in Eastern Europe an opportunity for creative marketing or is it a gamble?
First, the good news, and it is considerable. The end of communism brought 410 million people into the worldwide consumer market. Many of them are well-educated, interested in Western culture, and hungry for consumer goods. While the process of change from a centrally planned economy to an open market has been challenging, and consumption levels remain low, American-based corporations nevertheless see this vast, potential market as a key to long-term business revenues.
The bad news, however, is sobering. First, balkanization has returned to Eastern Europe with a vengeance. Ethnic wars in the former federated Yugoslavia, for example, do not bode well for future investment. Neither do internal divisions in Czechoslovakia, which culminated last July in the resignation of free-market advocate President Vaclav Havel. Meanwhile, the governments of Albania and Bulgaria are threatened by faltering economies. Romania, a nation of deteriorated mass housing and wide, empty boulevards, still suffers from the fallout of the brutal Ceauceascu regime.
Second, the shift from centrally planned to free-market economies has neither rid the region of consumer shortages nor brought about capital improvements. In fact, declines in productivity are part of a pattern in every post-communist country. After decades of neglect, industrial plants, streets, and bridges are in need of repair. Hyperinflation and devaluation accompany free-market prices. Several currencies are nonconvertible, and hard currency is scarce. Except for Romania, all countries carry formidable debt burdens. Unemployment, previously unknown and distinctly unwelcome, is now a fact of life.
To their credit, the new market-oriented nations have welcomed foreign investment. They have offered provisions for majority control and granted guarantees on initial...