The entrance hall at the Russaya was huge, and it was only one of four with exactly the same design. The hotel had been built as a monstrous quadrangle, four separate but equal wings, each containing well over a thousand rooms. A Byzantine Hilton of bizarre proportions. The lines at the desk were long. It was almost as difficult to check into a Russian hotel as it was to check out of an American. But this was also not his problem.
“Comrade Melekov, the head of the German delegation is expecting you on the second floor.”
Melekov’s waiting assistant led the way to the elevators. After five minutes one arrived. Three giggling American girls and one slightly drunken Russian emerged.
The spread of dollars and decadence seem to go hand in hand, thought Melekov, as he rode the lift up to the second floor. The suite which he entered was Slavic Holiday Inn. Now Americans could also travel to Russia without ever having to touch foreign soil.
Hans Klausen, managing director of the Rhein-Ruhr Stahlwerk, greeted Melekov profusely in gutteral English. Melekov knew German very well, but he would still be at a disadvantage in that language. Klausen pretended no knowledge of Russian, which was of course not true. Like so many other Germans he had learned Russian the hard way, courtesy of the military genius of Adolf Hitler. Klausen’s English was decent, but not as good as Melekov’s. So although the advantage was slight, it was there. Melekov had learned long ago never to seek to negotiate in a language he had not completely mastered.
“My dear Herr Klausen, my people tell me that all the technical aspects of the agreement have been settled and that the contract is ready for signature,” said Melekov, as he settled opposite the German on the barbarous piece of foam rubber and steel which served as a chair.
“Jawohl, Herr Melekov,” replied the German. He was just under sixty, and known as the most aggressive man in the steel business in Europe. A self-made man. A man with no political opinions. A man who worked day and night, not for the glory of Germany, but solely for the success of the Rhein-Ruhr Stahlwerk.
“All that remains to be finalized are the financial arrangements. Even there during the past weeks we have worked out a draft agreement with your people at the Foreign Trade Bank, and both sides now feel the results are most acceptable.”
He handed Melekov a twenty-page document—ten pages each in German and Russian; Russian would be the binding text. Melekov settled back, as best one could with the furniture available, and began to read.
The basic elements of the transaction had been under negotiation for almost two years. It involved the purchase of just under $2 billion worth of large diameter steel pipe from the Rhein-Ruhr Stahlwerk, the biggest foreign purchase in the history of the Soviet Union. The reason for this transaction was simple. Russia’s energy needs were climbing as rapidly as those in the West—doubling every ten years. Huge quantities of energy, in the form of crude petroleum and natural gas, were available in the eastern half of Russia. But these had to be brought to the refineries and to industry—and they were concentrated in the western regions of that vast country, this side of the Urals. Once brought to European Russia, there was no reason why a good part of the oil and gas could not be sent just a bit farther into Western Europe which was desperately seeking to reduce its dependency upon Libya for petroleum. Thus oil and gas could provide the answer to two essential Soviet needs—for energy and foreign exchange. Since both needs had become acute, a crash program was decided upon. Intensive calculations, part of the most detailed project planning yet achieved in the Soviet Union, had shown that during the next five years the building program would require an enormous amount of pipe for the dual lines which had to be put in. But they had also demonstrated beyond any doubt that thereafter demand would settle back to a level which just about matched the existing capacity of domestic producers. The conclusion: It did not make economic sense to build up Russian large-diameter pipe capacity to meet a temporary peak need. The investment required would be enormous, and the long-term return highly doubtful, unless a large proportion of output could be sold in world markets in the 1980s. A very expensive study, done for the Russians by Britain’s leading market research organization, proved that competition from producers in Western Europe, the United States, and Japan would preclude this. So the answer was: Meet the unique high-peak need for pipe during the next five years through imports.
The problem had then reduced itself to the supplier. Which country would get this big fat contract? Everybody, of course, got into the act. All ramifications were considered: political, military, financial, technical. But this time, in contrast to earlier deals involving Cuban sugar or Egyptian cotton, the cool logic of the technocrats, who now ruled the country, had prevailed. Reciprocal trade potential, quality, speed, punctuality of delivery, price, and financial terms—these were to be the criteria upon which the decision was to be based—in exactly that descending order. The Americans out of Milwaukee would have won hands down on speed; the Italians from Genoa on financial terms; the British on price; the Japanese on punctuality. But only the Germans got high points in all six areas—first in quality, overwhelmingly first where potential reciprocal trade was concerned since they could probably absorb all the Russian gas and crude that would be offered and pay for it in hard cash, and second in all the rest.
The Soviets recognized that Germany once more had the most efficient industrial machines in the world. The country was just one big modern factory, led by men who attacked markets with the efficiency of Prussian generals, supported by engineers and technicians who were perfectionists and manned by workers who had no equivalent for devotion to duty, quality of work, and identification with their company, their products, and the success of both. He was a Marxian nightmare, this German worker with his Volkswagen, his colour TV, his vacations in Spain.
“I see really only one area that does not seem to be perfectly regulated,” said Melekov finally, breaking the twenty-minute silence which had settled over the room as he studied the financial part of the contract.
The German stiffened. He did not like this—at all. He and his people had now spent almost seven months of hard work, haggling over the most minute details, often with second-rate bureaucrats who would not have been offered any greater responsibility than driving a streetcar if they lived in Düsseldorf. In spite of this, the entire 700-page agreement, not to speak of the thousands of items in the appendices, was already initialled, ready for final signature. Except for these last ten pages.
“What area are you referring to?” was Klausen’s response. The man was obviously having difficulty.
“The mode of payment.”
“But, Herr Melekov, we have discussed this matter at least a dozen times with your people. This, finally, is your draft, not ours.”
“I am not speaking of the terms. Ten years is satisfactory. Nor am I referring to the rate of interest. Eight percent seems correct. Finally, I am not referring either to the takedown conditions or the amortization plan. What has been worked out there is quite acceptable. No, I am referring solely to the currency. We desire that the transaction be made in United States dollars and not in German marks. That’s all.”
Klausen had regained his cool. He did not twitch an eyebrow.
“That’s all?”
“That’s all,” restated Melekov.
“But you surely realize that this is not just a slight change. The entire credit scheme is based upon a most complex set of arrangements between ourselves and a consortium involving the five largest bank groups in our country. Our banks are German banks. Our currency is the mark. Our product is based upon German costs, mark costs. Therefore the entire transaction must done in marks.”