Shortly after Eastern Europe had become free, I thought it would be a great opportunity for me to travel to that part of the world and discuss business with officials in Hungary, Czechoslovakia, and Poland. It seemed like the best place to start was Budapest. With the new change in government, and new freedoms, I found Budapest to be more lively, its streets brighter and the people very motivated. I believe it is easier to do business here than in other parts of Eastern Europe, and you feel more in a Western atmosphere.

One of the projects I wanted to discuss was the idea of providing first class, Western-style office space, what we in the United States call "Executive Suites." We could create in Budapest a series of offices that could be rented out on a daily, weekly, or monthly basis to businessmen who are interested in just getting started. Our idea was to provide Westerners who have no place to conduct business a place with fax machines, photocopiers, and secretaries for as long as they wanted. We have set up a corporation here in Washington, Execuserve International, and we have purchased a building in Budapest to start operations. This would be a great place for corporations and entrepreneurs to create productive joint ventures. Our goal would be to help Western businessmen meet the right officials in the areas they are interested in, whether it be chemicals, engineering, etc.

As a businessman, what were your impressions about the change from Communism and its restrictions on trade, to a more free-market-oriented economy?

I remember when I first visited Warsaw, Prague, and Budapest in 1972 - I am amazed at the contrast now. The cities are much livelier, full of light and many more cars. The days of the stagnant communist system seem like a mirage as I walk through Hungary's old world courtyards. Every foot of the sidewalk space is now a little store, which means that every little courtyard is in effect a little shopping mall in Budapest.

The problem with heavy industries is a different story. Many are still state-run, with the government trying to sell them off. Sometimes a manager acts as if he owns the company when in actuality he is a state manager for the government. There have been cases where the managers have been caught selling factories as if they were their own, which would guarantee them a good position in a newly organized operation. The parliaments are supervising the sales a bit more closely. There is an old saying that was prevalent in the Communist era: "We pretend to work and they pretend to pay us." Now the East European governments are trying to manage these operations more efficiently. Now there is greater spontaneity, where before it was simply lacking. If you started your own business there was a good chance the state would steal it or you could simply not get supplies in the first place.

How did the philosophy of Communism influence economic life?

The striking thing about Communism as it has been practiced is that it is as all-inclusive as totalitarianism indicates. I would say in many ways it was more inclusive than Nazism. Under Communism you had to work for the state, vote for the state, and you had no political or economic freedom to accomplish anything productive. The only way for some was to become a Communist Party operative and be a kind of "wise guy," a "wheeler dealer" within the system, meting out and collecting favors. One result was that under communism these countries did not turn "red" but "grey" because there was very little spontaneity allowed. Now that the veil has been lifted, and the sun is now rising in the East, communism seems to have disappeared without a trace.

There are no Communists now because everyone who was a Communist two years ago is now a socialist. Yet they have left a legacy behind - 45 years of nothing but criminal stupidity. Decades of potential economic progress in these countries has been stifled, and it will take at least 10 to 15 - possibly more - years for them to be built back up. I heard a demonstrator in Leipzig shout: "Socialism, I don't even want to hear that word!" East Europeans want a return to capitalism and free market systems, however those terms might be understood.

Are you seeing more creativity and entrepreneurial activity in Hungary?

In Budapest there are many more cars on the streets, food in the stores, and restaurants which are now privately owned. However, the one great thing that Communism left behind as a last great gift to people is the recession and depression they have to get through to revive their economies. Capitalism does not guarantee jobs or save plants which make poor products. The state will not bail out these inefficient industries. People will lose their jobs, but the situation will get better. The Poles' turn was last year, the Hungarians' turn is this year, and so there is an undercurrent of unhappiness there.

The Hungarians are unbelievably interested in joint ventures. I visited one research institute in Budapest and within five minutes they asked me if I would like to enter into a joint venture with them. I am beginning to think that Hungarians are born entrepreneurs. They are all interested in doing business with the United States. American technology is popular there; in fact, Levi Strauss has a major factory in Hungary. Half of the building where the factory is located still houses a state-run clothing factory while the other half is owned by Levi. At the Levi section there is a group of relatively happy workers, working eight hours a day in a well lit factory turning out lots of clothing. The other half is dingy, run down, short of supplies, and it's only a matter of time until the other half fails altogether. So all the American products and methods of operation are popular here.

It's a trite saying, but America held the torch of freedom for 45 years while they were suffering, and they all thank God we were here to keep it alive. There are many East Europeans who have relatives in the United States, and for anyone who is reading this and is in business I would say that we would be foolish not to get involved in working with the East Europeans. They are enthusiastic, well-educated, and although they may need a little retraining in work discipline, once they figure out they can work eight hours and make good money they will do it.

How about the variety of choices you had under the Communist system, as far as buying products in the store or in terms of the country producing everything?

It seemed to me that it was possible for the Soviet Union to maintain some degree of self-sufficiency. However, a country like Hungary or Czechoslovakia could not produce everything. It is ridiculous that Hungary should have both a steel and watch plant or a farm system that produce everything for themselves. A country like Switzerland does not have a steel plant, but it makes the best watches in the world. These countries have to move their economies toward the law of comparative advantage - to produce what they do best and start marketing it around the globe. If Germans invest in what was formerly East Germany, they may end up with the most modem industrial plants in Europe.

As far as freedom of choice in the marketplace, if you had a choice of the East German Trabant car or nothing, you would take the Trabant. Why did you need to chose between 35 different models, as in the West. The Communists felt one should be happy with the Trabant or Wartburg, while Erich Honecker drove a Volvo. There was no need for advertising. This is one of the things businesses are learning now - promotion. There was no need for it before because there was only one product on the market - it was usually domestically produced and not particularly good. With comparative advantage, everyone's choices increase because trade barriers are reduced. Communism had its own trading system with eight or ten countries, which also included China, Libya, and North Korea for a while. There was very little contact with the West, and then suddenly they discovered they were 20 or 30 years behind, and that the West did not want their shoddy products. So they had a hard time acquiring Western capital to modernize their industries. Here in America we have the choice to buy products from around the world. It allows for competition and greater efficiency.

Businessmen need to travel to see what the competition is doing and what the consumers want. Freedom of information is one of the most important aspects for business. These freedoms were absent in these communist countries. Moreover, their communications networks were backwards, and it took financial networks weeks to clear a check. There was a man from Poland who imported electronic products from Singapore. He had to go to Singapore himself to pay his supplier in cash because he could not transmit checks through the Polish checking system. What Execuserve International wants to do is to provide the best possible communications for our clients. Businessmen have started a cellular phone system in Hungary that will cover the country in a relatively short period of time.

Do you feel that American businessmen will be able to trade effectively in Eastern Europe?

There are an overwhelming number of American businessmen interested in doing business in Eastern Europe. However, because of its proximity and for a variety of other reasons, Germany will conduct very strong trade with these countries. Yet, the East Europeans like to do business with Americans; they like our technology, they like us. I have spoken to Germans and they have said that we are definitely behind in investing in East Germany. I do not think we are behind the curve but we had better get at it. I think it would be foolish to miss this opportunity. I think it is going to be like the "Pacific Rim" was in the 1980s; however, the East Europeans want as much American engagement as possible. It is in our national interest to do so. A dollar spent in Budapest is worth a lot more than a dollar spent on a tank in what was known as West Germany. The stronger these states are economically, the less likely there will be instability and unrest.

Do you think there is the potential that the Communists may return to power if the economic situation deteriorates in these new democracies?

Although it is unlikely that the people will vote the Communists back in, they do remember the security blanket that they had under the Communists. As the price of oil has risen in Eastern Europe because of the Gulf Crisis, and with the Soviets no longer supplying them with discounted oil, the countries are in for high oil prices. This has created a ripple effect in their economies, creating higher inflation.

How do you think the change in economic freedom will affect the way they do business in Eastern Europe?

Well, in the past, the governments in these countries were ambiguous towards America. They liked our Western currency and gadgetry but they did not like Western ideas. Now, everyone is enthusiastically pro-Western. It is also becoming easier on a technical basis to do business with these nations because they realize they have to modernize. They realize that they have to improve their communications and financial systems to move information faster and to invest wisely in growth areas. It is also easier in a bureaucratic fashion because in the past you had to deal with a Communist foreign trade organization, which would control all imports and exports to and from the country. The Communists wanted to control all economic activity; this gave them real power over the distribution of wealth, and they established a spoils system out of this. Now, with democracy, you can go directly to the end user or to the producer in order to trade with these nations. This is really exciting for Western businessmen, it opens a thousand different doors for business, for freedom to conduct business. This is the best way for the West to start productive trade directly with the producer in beautiful downtown Budapest, in other large cities, and in smaller towns across Eastern Europe. They are very happy to conduct business with Americans, and they are so enthusiastic that they will go out of their way to make a profitable agreement for both sides.

I will give you two examples of organizations that I have personally dealt with in Hungary. One of them is called Copen Dator. "Dator" stands for "data organization" because it provides economic information. It was once part of the government and is probably equivalent to our Commerce Department. Well, it is now being privatized. It cannot be totally subsidized by the government anymore, which means they have to be more energetic in trying to dig up new business.

Another company called Toodar is in the software field and, up until now as a government agency, has the job of distributing computers to all of the schools, as many as they can afford in Hungary. Hungarians are very keen on computers and they are very good in creating computer graphics software. Both of the companies are interested in conducting joint ventures with Execuserve International. One of them would provide economic data to our American and Western clients as well as providing some of the equipment that we want to have available - such as fax machines and photocopiers. The other one would provide word processing back-up for us, for instance. Toodar is going to be de-nationalized altogether, so they really have to fend for themselves. It may be half as big in the next few years. Some companies may go bankrupt because the government cannot support them. They may say, "Democracy and capitalism are great except when I lose my job," as a result of these changes. Most of the people theoretically know they have to go through this trial period with a lot of delay, yet a lot of people do not want to go through it personally if they can avoid it.

I think in the next ten years Eastern Europe will be a growth area in the world of business. The West Europeans see it as kind of a backward, semi-developed area, probably the same way the Americans see Central and South America. So they will probably set up factories to produce for Western markets there. It is just a matter of time, I'd say, until they catch up to Western standards - East Germany, seven or eight years, whereas in other East European countries it may take 15-20 years because they do not have a "big brother" to help them. They are all Western in orientation.

Poles like to draw lines crossing from one part of Europe to the other, north and south, so that it crosses in Poland, not in Germany or Belgium. This is the way they are thinking now. They are not anti-Russian, they are just anti-communist. They are concerned as anybody about helping the Russian people out, yet they have suffered long enough under Communist rule. They know the Russians have suffered under the communist economic system twice as long. Eastern Europe is worried about the possibility of civil war or the destruction of the Soviet Union. They are interested in progress and very much want to catch up with the West. But the reality is that they are forty years behind us.

In other words they want to build a better life for themselves?

They want to build a better life for themselves and their children. I talked to one woman in Budapest last year who has been visiting Hungary every year since 1970. She said the last twenty years have been meaningless until recently. This is the way any East European feels. Democracy means economic liberation. Many East Europeans are willing, eager, and enthusiastic to join the West economically and, as I said before, it is in our national interest to assist them in doing so.

Patrick Murphy, vice president of Execuserve International, a Washington, D.C. firm. discussed with the U.S. Center for Soviet-American Relations his impressions about the changes in East European economies after their recent transition to democratic rule.