REFORM AND THE REVOLUTION IN RUSSIAN DEFENSE ECONOMICS

Stephen J. Blank

May 19, 1995
ii

*******

The views expressed in this report are those of the author

and do not necessarily reflect the official policy or position of

the Department of the Army, Department of Defense, or the U.S.

Government. This report is approved for public release;

distribution is unlimited.

*******

Comments pertaining to this report are invited and should be

forwarded to: Director, Strategic Studies Institute, U.S. Army War

College, Carlisle Barracks, PA 17013-5050. Comments also may be

conveyed directly to the author by calling commercial (717) 245-

4085 or DSN 242-4085.
iii

FOREWORD

As Russia’s invasion of Chechnya shows, the Russian armed

forces are suffering from tremendous shortages of capable leaders

and soldiers. These problems, among others, relate directly to the

shortage of funds for the military. Yet Russia cannot afford to

spend more than it is now spending on the armed forces. This is

the crux of an abiding Russian strategic dilemma, namely the gap

between the state’s ambitions and objectives and the means of

realizing them. Until Russia resolves this dilemma by scaling back

its goals, tremendous pressure and impetus to revive a state

system in which military spending and the social forces that

benefit from a stress on such spending will prevail in politics.

This monograph examines the defense sector’s current crisis

which has come about due to the collapse of the Soviet Union and

of the Russian economy. Should Russia continue to fail to meet the

challenge of overcoming an economy excessively geared to defense,

prospects for the security of Russia’s neighbors and for Russia’s

democratization remain dim. In the final analysis, the crisis of

Russia’s defense economy is a vital part of the ongoing crisis of

the Russian State.

The Strategic Studies Institute is pleased to offer this

report as a contribution to the debate on the ongoing crisis in

the Russian economy.

WILLIAM W. ALLEN

Colonel, U.S. Army

Acting Director

Strategic Studies Institute
iv

BIOGRAPHICAL SKETCH OF THE AUTHOR

STEPHEN J. BLANK has been an Associate Professor of Russian/Soviet

Affairs at the Strategic Studies Institute since 1989. Prior to

this appointment, Dr. Blank was Associate Professor for Soviet

Studies at the Center for Aerospace Doctrine, Research, and

Education of Air University at Maxwell Air Force Base. Dr. Blank’s

M.A. and Ph.D. are in Russian history from the University of

Chicago. He has published numerous articles on Soviet/Russian

military and foreign policies, notably in the Third World, and is

the author of a recent study of the Soviet Commissariat of

Nationalities and editor of a book on the future of the Soviet

military.
v

SUMMARY

An excessively militarized economy was a crucial factor in

undermining the foundations of Soviet power. By the same token,

fundamental restructuring of that military economy, as well as

marketization, is essential if Russia is to become a prosperous,

stable, democratic, and even secure state. This study examines the

crisis that is challenging the so-called military economy

(Voennaia Ekonomika) and Russia’s ability to put its defense

economic policy into some sort of balance.

Unfortunately, the evidence through 1994 indicates a great

failure to understand the need for such a reform or to implement

it. Although the military economy is in crisis due to greatly

reduced production and unpaid government debts in the trillions of

rubles, the government still subsidizes many sectors of that

economy and shows little or no appreciation of the need to free

them from the heavy hand of state tutelage. Although the Soviet

command economy is dead and buried, other traditional Russian, and

even quasi-Fascist (e.g., Francoist models from Spain)

relationships are developing between the state and defense

industry.

Instead of reform that really demilitarizes the state,

partisans of the military economy are successfully reestablishing

a preeminent position and access to the state, and are pursuing an

agenda that perceives the West, and especially the United States,

as an enemy. They also are using arguments based on the primacy of

this threat and on the need to restore the defense economy as a

rationale for the reunification of the Commonwealth of Independent

States (CIS) from above. Continued success for their advice in the

counsels of power will mean a permanent barrier to Russia’s

democratization, stability, and the demilitarization of Russian

thinking and policy on security.

Accordingly, the failures of the military economy and of the

defense budget which reflect Russia’s inability to afford the kind

of armed forces these lobbies demand indicate the crises in the

Russian state’s incomplete democratic revolution, and in Russian

strategy. An excessively militarized economy distorts the state

and obstructs democratization. But the crisis of strategy reflects

the continuing disparity between the great ambitions and goals of

the state in defense policy, e.g., antagonism to the West, and the
vi

means at hand to sustain so grand a policy requirement. As long as

this gap is not overcome and the military economy is not

reformed, Russia will continue to be in crisis, and it will not

even be able to pay for the armed forces it now has. Those forces’

performance in Chechnya in 1994-95 illustrates their breakdown

precisely because strategic priorities are, to say it

euphemistically, misaligned. But if strong action is not taken

soon, the result will not be misalignment, but something more like

breakdown and those consequences will be unpredictable.
1

REFORM AND REVOLUTION IN RUSSIAN DEFENSE ECONOMICS

Russia’s specific conditions make any variant of

structural policy dependent on the defense sector.

Viktor Chernomyrdin

Prime Minister of Russia

Unquestionably one reason Soviet power collapsed was its

excessive militarization. This is not simply a question of too

much military spending. Rather the entire economy operated without

regard for real prices or costs; there were no penalties for

failure; and, in this economy of soft-budget constraints (i.e.,

continuing subsidies to industries operating at a loss that

reinforced failure), there were no fiscal or economic institutions

or markets to impose discipline. In defense spending, far from

what we earlier thought about the dominance of the uniformed

military and Ministry of Defense (MOD), in reality the MOD and

armed forces were no less victimized than other consumers by

shoddy equipment that they had to accept.1 In those cases,

however, the equipment, e.g., submarines, often became the

military consumers’ graves.

This abuse of economic power and of an unrestrained sellers’

market in armaments occurred within a context that the Polish

socialist Oskar Lange had called “a sui generis war economy.” This

abuse happened largely because the economy’s defining feature was

constant organization for war manifested in a permanent readiness

for large-scale war and a surge production capacity. Arguably, the

planned economy and state ownership that supposedly were the

economy’s distinguishing marks existed as much to foster this

perpetual mobilization capability known as “The Military Economy”

(Voennaia Ekonomika) as they did to realize a Marxist or

totalitarian rationale. Yet, paradoxically, this defense economic

system itself became a prime obstacle to the realization of Soviet

military and political leaders’ strategic vision concerning the

nature of modern war, the state’s strategic tasks, and defense

policy.

If Russia is to remain a stable, democratic, nonimperial,

nonmilitarized state, defense spending and industry must be reined

in and subjected to real institutional, legal, and fiscal controls

and to a strategic vision commensurate with Russia’s real
2

possibilities. Now that Parliament must pass on annual budgets,

the budgetary process as well as all aspects of defense economics

and strategy can be scrutinized and become important barometers of

the success of democratization and demilitarization of the economy

and state. Indeed, 1994’s budget crisis offers us an opportunity,

so to speak, to eavesdrop on the crisis of the military economy

and of Russian strategy and to assess prospects for overcoming the

past.

The struggle around the military economy is a major part of

the larger struggle to convert Russia’s economy to a truly

civilian system. This means more than merely producing for the

civilian market. It also means producing quality goods that people

and the armed forces actually want.2

 Two important consequences

flow from any successful conversion: that defense industrialists

do not have excessive leverage on the state and that the state

does not have excessive influence or control over defense

industry. Thus defense industry’s practical policy guidelines and

actual performance must be framed in the context of the real

challenges to security.

This is an exceedingly difficult challenge in the best of

times and today is certainly not one of those periods. As in the

1920-30s, a revolution in military affairs is sweeping everything

before it and the amazing technological potentials and realities

of our time pose the most profound challenges before states which

would retain a great power military and even economic status. This

challenge is very real to Russian elites. After all, in the 1960s

Soviet thinkers were among the first to postulate and analyze the

implications of what they called the revolution in military

affairs or the “scientific-technical revolution” (STR) or, in

Russian, Nauchnaya-Tekhnicheskaya Revoliutsiia (NTR).3 Ultimately

the consequences of this revolution, especially as developed in

the writings of Chief of Staff N.V. Ogarkov, imposed fundamental

challenges upon Soviet grand strategy and the regime’s basic

economic policies. The regime’s inability to meet those challenges

is what most observers believe underlaid Gorbachev’s calamitous

efforts to save Soviet power from itself.

Moreover, the inability of the old order’s leaders to achieve

a basic strategic reorganization of the system; their incapability

to “restructure” (Perestroit’) either the military economy or the

Soviet system as a whole drove home, for the second time in Soviet
3

history, a fundamental lesson that must be in the minds of those

who would respond to the revolution in military affairs. That

lesson is that while the revolution may begin with a new vision of

warfare based on new technological capabilities, that vision alone

is insufficient. For a state or military system to rise to the

occasion it must then develop new, viable operational concepts,

and new organizational transformations in the armed forces and

their supporting industries. These new synergies will then allow

those concepts and vision to be realized and tested in practice so

that what is misconceived can be jettisoned.4

Right up to the end of the Soviet epoch in 1991, Soviet

military writers gave profound and innovative accounts of the STR

and its impact upon warfare, the missions, and operations of the

armed forces. The first studies of OPERATION DESERT STORM showed

many analysts seriously trying to come to grips with the fact that

the United States realized in practice Soviet operational concepts

of the past generation and their future implications.5

 Yet despite

postulating that war as the model for future theater warfare,

these analysts, and especially their leaders, remained incapable

of grasping, let alone undertaking, the organizational

restructuring needed to make it possible for the USSR to fulfill

its ultimate argument–military competitiveness.6

 The current

operations in Chechnya, that began in December 1994, graphically

illustrate the Russian Army’s shortcomings.

Hence the system perished and a new one is being born amid

great travail. Yet the new military leadership continues its

effort to keep abreast of modern war, in both theory and practice,

to defend a rather expansive view of national interest.7

 As part

of that expansive view of national interests and of the dangers

and subsequent threats to it, the military doctrine published in

November 1993 calls for a defense economic program oriented

towards providing the armed forces with the most contemporary

platforms and weapons. It also calls for safeguarding Russia’s

defense economic independence and association with other CIS

members’ defense industries in a restructured and effective (if

not efficient) market economy with state regulation.8

In other words, it is now a matter of high policy that the

military economy be restructured to assure Russia’s military and

technological competitiveness particularly in theater conventional

or even nuclear war. But to date this has not happened. Though
4

defense orders and spending have greatly declined from the Soviet

period, there is no doubt that defense conversion, an essential

precondition for this transition to high-tech and to quality

armaments designed for modern war, as defined and practiced since

1988, has been a resounding failure. There are many reasons for

this failure, but the lack of a true state understanding of what

is needed and of fiscal support for it, and second the industry’s

lack of faith in it and successful determination to continue the

old system of dependence on state subsidies and soft-budget

constraints are crucial causes for that outcome.9 These subsidies

helped ignite the massive inflation that accelerated wildly after

1992 and paradoxically contributed to today’s situation where the

state cannot pay the defense industry for what it has bought and

owes just the defense sector at least 4 trillion rubles, if not

more. But perhaps the worst aspect of this failed conversion is

that the essence of the military economy remains intact. And while

that is the case, progress toward a viable and truly new order can

only be halting at best.

The Voennaia Ekonomika (Military Economy).

The major attribute of this military economy is no longer its

disproportionate size or the amount of its military production.

Its work force is shrinking rapidly as is the size of weapons

procurement and the percentage of its civilian production has

steadily risen since 1985. Rather the problem is that as a

perpetual war economy it must operate at mobilization capacity at

all times. The defense industry must always maintain enormous

stocks of raw materials, semifinished and finished goods, labor,

plant space, and so forth, so that it will not have to engage in

wartime spurts. Since capacity must be fully engaged at all times,

excess production capacity is increasingly diverted to civilian

production. But the mobilization stockpiles remain as do state

directions that they continue. Ex-Deputy Premier Aleksandr’

Shokhin, in late 1993, admitted that the state still obligated the

defense industry to maintain mobilization reserves at the 1986

level!10 This is despite everything that has happened since 1986

and the fact that even some defense industrialists resent this

order precisely because it hobbles their ability to compete in a

market environment because they bear the cost of these reserves.11

The Yeltsin government has greatly subsidized this system,

thereby reinforcing failure and stimulating the expectation that
5

it will continue to do so. Therefore, there has been little

incentive to undo the status quo. In 1992-93, the industry’s

expectations that it could not be allowed to fail were rewarded by

enormous subsidies, one trillion rubles in 1993 alone. And in

August 1994, subsidies resumed. Accordingly, enormous military and

defense industry pressure exists to continue this system even

though these industries are wholly illogical in economic terms.

Raw materials and all its goods and services are irrationally

priced and these industries remain, in Vitaly Shlykov’s words,

“value subtracting industries.”12

The pressure for continuing this system is tied to the

success of those who can get subsidies. Thus it is a paradoxical

support because legislation through 1994 has mandated retention of

the Voennaia Ekonomika but there is no state budget support for

it.13 Accordingly, the pressure for retaining the mobilization

system directly depends upon industry’s ability to organize as a

pressure group and extort subsidies from the regime. From the

evidence there is little doubt that the defense industrial sector

has effectively constituted itself as a key faction, or lobby, in

policymaking.14 Therefore, when the government began showing signs

of ending subsidies in 1994, this lobby went public, forecasting

the collapse of the defense sector and massive unemployment.

Such pressure gains results. Despite several months of tight

monetary and fiscal policy, in August 1994, the government caved

in to lobbies like agriculture and the military-industrial complex

(MIC) and began giving subsidies to them. The inflation rate began

to ascend once again. Prominent officials like Deputy Premier Oleg

Soskovets keep telling Russia’s defense industry that it will be

protected.15 The defense industry has responded by vastly

overproducing military goods and demanding credits from the 

government even during cuts of over two-thirds in procurement from

the 1991 baseline. Shlykov recounts that 1992 tank production was

26 times that year’s state order.16

More generally, Aleksandr Ozhegov reported that defense

industrialists began 1992 (when the reforms started) with a

skeptical attitude towards expected defense cuts. Since the

Ministry of Foreign Economic Relations also believed it could

vastly increase arms exports, some producers also accelerated

production. Though the government had decided on substantial

military cuts in January 1992, only in March did they give the
6

defense industry its orders, leaving it on its own for the first

quarter of the year. By then enterprises had produced 20,000

million rubles worth of equipment, three times the 6500 million

rubles foreseen in the first quarter’s defense budget for 1992.17

As a result, Russia was awash in military production for which

there was no customer. This situation had not changed appreciably

into 1994. In March 1994, Acting Finance Minister Sergei Dubinin

complained that the MOD had already placed orders for 28 trillion

rubles when the federal budget allocated 5 trillion for that

purpose for all 1994.18 Thus the military-industrial complex

continues to subvert rational economics and Russia’s economic

security.

Furthermore, as Aleksandr’ Ozhegov observed, conversion of

military to civilian production under the same roof and management

as before, where managers and owners are legally obligated to

assume the entire cost of the mobilization resources, fosters

still greater absurdities. Management until 1994 was not allowed

to do anything with those mobilization resources and until a

military doctrine was published in 1993, there was apparently no

coherent official guideline as to what must be produced.19

Naturally, too much was produced as a hedge against uncertainty.

That is, while procurement was drastically slashed, it is not so

clear how much production fell. These irrationalities have to do

with conversion and its funding. The federal program for

conversion has 14 sub-programs listing the future direction of

conversion and investment funds.

By 1995, in the so-called weak sectors: forestry, home

building, and roadbuilding, there will be almost no investment,

another sign of the traditional priority accorded to development

of militarily relevant technologies and industries in Russian

planning. As a result, many of the long-standing structural

imbalances that plague Russian industry will not be alleviated

even if one assumes the government will find the capital to invest

in the priority sectors, a very dubious assumption.20

A second concern outlined by Ozhegov is that although some of

these programs are market oriented, e.g., consumer durables, and

some are state-oriented, e.g., environmental and medical

production, the government funds them in the same way. “In each

case the defense enterprises try to get subsidies or low-interest

loans (normally 6 percent annual interest as compared with the
7

commercial banks’ 200 percent interest rates).”21 Whereas the

government pays defense enterprises only once in funding consumer

durables, in state programs it pays twice, once to advance the

subsidy to buy the equipment and a second time to buy the

production. “And as the defense enterprises’ overheads are very

high, due to their obligation to maintain the military production

lines (the mobilization capability) [of the military economyauthor], not only does the state have to pay doubly for the new

products, but the price is very high indeed.”22

Furthermore this policy has become law for certain kinds of

especially important products, thus vesting the Voennaia Ekonomika

and the subsidy relationship in law. Russia’s 1992 law on

conversion (Article 8, Paragraph 5) reads as follows,

Provision is made for enterprises undergoing conversion

that produce, under conversion programmes, equipment

and machinery for the needs of the agro-industrial

complex, to receive compensation for part of the

overhead, so as to ensure that the price levels are no

higher than those of the world market.23

Since this overhead also includes depreciation of equipment

in the military shops, the price is already on or close to the

world market price although the quality is nowhere near it.24

But the system’s vagaries do not end here. As Ozhegov also

observes, often efforts to fund the customers of finished products

directly rather than the military-industrial complex are pocketed

by the customer rather than being spent on MIC products. If the

Ministry of Agriculture gets funding to support conventional R&D

in defense enterprises, it could channel the funds to its

institutes instead. Thus, in 1992, it withheld nearly 1000 million

rubles from defense enterprises and the design bureaus for work

already carried out.25 And this was not an isolated example.

These episodes offer a sense of how intrinsically

dysfunctional and militarily and economically irrational the

military economy is. Nevertheless, it is admirably structured for

covert raids upon both the state’s and society’s resources to

perpetuate a cozy institutional relationship between formally

private and public entities. But the reasons for the strength of

these relationships go beyond the opportunities they afford for
8

large concealed subsidies and rents.

We must also consider that many defense industries are

company towns with responsibilities for the full range of social

amenities that their workers and staffs enjoy. If they crashed due

to an explosion of economic rationality, massive unemployment and

immediate impoverishment would take place, undermining local

governments and Moscow. As one analyst of conversion observes,

Red ink in defense enterprises’ balances automatically

freezes the financing of critical local social

programs, including housing construction, development

of economic and social infrastructure, financial

assistance to the needy and so on.26

Since 1992 both labor unions and defense industrialists have

successfully intimidated the government with this specter and

threaten to do so again as the government and Parliament face

their demands for budget breaking defense expenditures and

subsidies.27

The armed forces and the government still seem wedded to the

old order’s mobilization requirements and perspectives. Shokhin’s

remarks confirm this. In June 1991, Chief of Staff General Mikhail

A. Moiseev demanded a mobilization capacity like that of World War

II, i.e., 12 million men, showing a complete loss of touch with

economic reality.28 The Russian military still uses the same Soviet

estimates of Western mobilization capacity. In addition, Yeltsin

decreed retention of that old mobilization system and threatened

violators with severe punishment. Third, when the Gaidar

Government cut defense procurement by two-thirds in 1992, it

increased industry’s mobilization capacities, especially tanks.

Fourth, as of late 1993, the privatization laws excluded those

industries that have mobilization plans.29 That exception conformed

to prior politically-motivated promises to key constituencies that

depend on the defense industry that they would not be privatized.30

Although this law, like all others, is not enforceable, it shows a

continuing economic ignorance and the strength of old thinking and

economic structures.

The armed forces’ viewpoint is no better even though they too

are obviously victimized by massive overproduction of useless

systems that are irrelevant to future wars and that weaken the
9

economic foundations of the country. They still apparently remain

wedded to the mobilization economy even when they espouse the

goals of conversion, i.e., a more civilian and more effective

economy. Thus Col. A.V. Piskunov writes in Voennaia Mysl’

(Military Thought), the main journal of the armed forces, that for

conversion to succeed, it is not enough to move to those goals.

The war fighting capability of the armed forces must not be

slighted.

From the military-economic point of view, conversion

can be made effective only provided that along with the

socio-economic principles [outlined above], the

following principles are also realized in its process:

an optimum combination of the interests of the

country’s social-economic development and the interests

of ensuring the requisite condition of the Armed

Forces: preservation of sufficient mobilization

readiness of enterprises undergoing conversion and also

the development of flexible conversion programs and

plans (to carry out possible reconversion projects

[i.e., back to war production-author]); and priority

orientation of conversion enterprises towards the

socio-economic needs of army servicemen.31(author’s

emphasis)

It never crossed his mind that these two conditions are basically

incompatible and thus nullify each other. The same affliction

affects Vitaly Tsygichko who, writing in the same issue, advocated

the following military-technical policy.

Highly effective weapons and electronic warfare

systems; technical command and control, intelligence

and communication systems based on a wide use of

computing facilities, latest achievements in the sphere

of information science and cybernetics, allowing

sharply to raise the effectiveness of weapons and

troops (forces); as ground and space based

infrastructure ensuring command and control,

intelligence and communications in peace time and war

time; the system of transport facilities and a

transport infrastructure enhancing the strategic,

operational, and tactical mobility of troops (forces);

mobile means and a comprehensive logistic service
10

infrastructure; a mobilizational deployments

infrastructure and technical facilities for training

troops (forces) and preparing the reserve.32

But in discussing the need for a mobilization system and

special infrastructure for rapid development of a large army in

case of a major war, Tsygichko advocates making the best possible

use of the existing infrastructure. He demands that it be saved

and become the material foundation for a new mobilization

deployment system.33

The requirement to preserve this state of affairs, as Deputy

Defense Minister Andrei Kokoshin, who oversees military-economic

policy, well knows, “distorted” the Soviet program.34 But not only

Kokoshin knows this. At least some naval officers fully grasp the

consequences, perhaps due to the disasters afflicting Soviet

submarines. Accordingly, Captain First Rank A.N. Zolotov, (Ret.),

a well-known naval author, recently wrote a scathing critique of

the effort to maintain the navy in constant readiness and

mobilization to the extent that its total operational readiness

was at least one order of magnitude if not two or three orders

less than that of the U.S. Navy.35 Under such circumstances parity

and combat readiness, or stability, efficiency, and a host of

other synonyms for those notions became meaningless.36 Zolotov

concluded by warning that unless a fundamental revision of

thinking on readiness, sufficiency, and related concepts takes

place, the state-of-the-art navy will be less combat ready than

Peter the Great’s or Anna Ioanovnna’s were.37 But his views

apparently do not reflect prevailing trends.

Thus conversion policy has been dogged all along by the

struggle of new and old political interests to implement either

state control and soft budgets, or alternatively state abdication

and letting the industry fend for itself even though that might

turn out to be politically unpalatable and unworkable.38 In

addition, as we shall see, in the entire struggle to restructure

and reform the defense economy, broader political agendas are in

contention. In 1994, Kokoshin had to defend the mobilization

system by saying that every state has one. Not only does it

preserve and modernize Russia’s defense potential, it is also as a

component part of national industrial policy.39

This defense showed that he accepted the MIC’s fundamental
11

idea that this sector is the pinnacle of Russian technology and

science and that in particular its science intensive and high-tech

capabilities must be protected as “locomotives” for the future

recovery of Russian industry.40 More likely, only 20 percent of

this industry can fairly be described this way and the rest are as

ineffective as other Soviet firms were.41 In May 1994, Kokoshin

told Nezavisimaya Gazeta (The Independent Newspaper) that,

The domestic economy has an acute need for ‘growth

areas’ with an active role of the state and private

capital. Such areas can be created primarily by

increasing state orders to diversifying enterprises in

the defense complex.42

He also accepts that closing defense industry’s company towns

would be profoundly destabilizing. Therefore, other means are

needed to convert them to the market, all of which are subsidies

from the state such as tax privileges and special export and

import tariffs.43 Among them is also the fact that the MOD, as

before, still subsidizes civilian technology even though that is

inherently wasteful.44 Kokoshin calls for creating and

concentrating production in financial-production cartels or

associations in an optimal number of specialized enterprises which

can produce the weapons of the future high-tech warfare and dual

use technologies.45

These complexes or, to be frank, vertically integrated

cartels, are also the vehicles for articulating a broader

political agenda relating to arms sales and the organization of

the CIS’ defense enterprises as a whole, not just the military

budget and Russian defense policy. In Piskunov’s terms, these

firms should be the core of a new defense complex that is a

territorially closed (within Russia or the CIS) technological

cycle for producing the most advanced equipment. Defense

industry’s second tier should then be joint-stock or mixed

production firms with mainly contracts for production. The

remaining enterprises should be granted full independence to

fulfill military orders on a contract basis. Piskunov also wants

to integrate defense production in the CIS as a whole based on

treaties but with the caution that political complications may

cause a break in inter-state (he writes inter-republican–a

significant clue to his true goals of restoring the Soviet system

of integrated defense economy) relations.46
12

Piskunov’s goal is shared throughout the MOD and MIC. Indeed,

an important objection to the nationality movements in 1991 by

military coup plotters like General Varennikov was precisely that

these movements shook the foundations of the union-wide integrated

military economy.47 Today the Deputy Chairman of Roskomoboronprom

(The Committee of Russian Defense Industries), who oversees all

these industries, estimates that, without inputs from the other

former Soviet republics, Russia can only produce 17 percent of the

finished military systems it requires.48 Thus, along with the

demand for state protection and guidance in a centralized policy

of arms sales comes the demand, echoed by leading spokesmen of the

arms industry, to reconstitute the CIS as an integrated single

military-industrial structure.49 This demand accords well with

efforts by the leaders of the CIS’ joint military staff, like

General Ivashov, to reconstitute the union in a CIS militarypolitical union that joins defense, politics, and industry

together in a single system.50

Tsygichko also favors such programs. He explicitly advocates

this military-political union under the Russian nuclear umbrella

and asserts the political-military utility of nuclear weapons in

this context. He writes that if Russia denuclearized, former

Soviet republics would gravitate to Turkey and Iran for security

guarantees.51 More pointedly, “Nuclear weapons appear as an

important factor of the Russian state’s integrity.”52 They also

guarantee that the West will not, as he believes it wants to if it

could, split up Russia, because that would lead to nuclear

proliferation. Moreover, he openly professes his threat assessment

which lies behind his earlier demand for the extensive

technological program based on the old system and thus

demonstrates that for large sections of the military, the demand

for so extensive a military-technical program derives from a

presumption of threat that is breathtaking in its implications.

Speaking of Russia’s nuclear weapons as by their very being posing

a serious threat to the West and U.S. leadership, he writes,

Hence the main military-political goal of the United

States–to reduce and to finally eliminate this threat–

remains invariable. The present situation in the

Russian Federation characterized by a prolonged

economic crisis and a considerable weakening of the

military-industrial complex, assists, in the best way
13

possible, the reaching of this objective toward which

the West’s economic and especially financial policy is

frankly directed. The acceptance of the terms on which

Western credits are proposed virtually leaves no

chances for the survival of the Russian Federation’s

military- industrial complex.53

Thus the political agenda of those who wish to maintain a

large, conservative military technical policy clearly emerges. It

comprises a breathtaking anti-Western threat perception to justify

the program and the hatred of the IMF and nativist resentment of

foreign investment that has become a rallying cry for the

political opposition.54 This is an agenda firmly in favor of the

economic-political-military reunification of the old Soviet

empire, even if under a new dispensation. Its proponents also

espouse the old infant industry and autarchy arguments that

figured so prominently in Stalinist policy, and call for a tightly

fused state-industrial management program of subsidies, credits,

and the like, either in the form of cartels as Kokoshin espouses

and/or retention of the Voennaia Ekonomika. As for democracy, that

comes second to empire and the ensuing remilitarization, if it

comes anywhere. Indeed, the very form of defense industrial

organization they and even Kokoshin espouse bears no resemblance

to democratic models and is inimical to democracy.

Kokoshin’s grand design is admittedly modelled after the

South Korean Chaebols, Francoist defense economies and other

authoritarian models.55 It also, probably not accidentally, is

heavily indebted to the relationship between Russian defense

industry and the state in the era of the Great Reforms under

Alexander II, 1855-81, e.g., the relationship between the navy and

industry which was not an auspicious one.56

And there are several other disturbing current and historical

parallels as well. First, the MOD has frequently acted to obstruct

privatization plans where civilian production units of defense

enterprises would become independent of state control. Now that

defense legislation makes the MOD, in theory at least, legally

able to determine what should be supplied and procured, it will

obviously seek to expand upon its discretion and not let firms out

of its purview. This is even more the case when we consider that

MOD orders are often financed from the profits from civilian

production since the budget allocations cover only a fraction.
14

Thus the MOD, desperate for funds, is unwilling to relinquish such

civilian subsidies of military production that it deems vital and

vetoes many privatization plans.57 In St. Petersburg the

privatization of Baltiyski Zavod was stalled because the

increasingly civilian orientation of the firm would undermine

military shipbuilding programs. For 1995 it has no orders to build

military and civilian units held together “just in case” as an

example of industrial policy.58

The Political Implications of Military Economic Policy.

Chernomyrdin’s observation, quoted at the beginning of this

monograph, underscores the intimate connection among defense

policy, reform, and overall economic policy. It also provides a

suitable context for thinking about the political and economic

implications of the MIC’s and Kokoshin’s programs. At the macrostrategic level, the demand for the weapons of high-tech and

theater war conceals a political assessment of the most likely

enemy as the United States and the West.59 This was as true of the

1993 doctrine as it was of the 1992 unofficial draft doctrine and

in both cases suggests a military looking in the wrong direction.

Second, the demand for vigorous arms export programs complete

with state subsidies is now almost exclusively couched in terms of

saving the defense industry, the “cream of Russian science and

technology.” Since this industry cannot produce enough for

domestic consumption it seeks state support to do so abroad. At

the same time the government evidently seeks to create a

condominium with the United States in arms sales even as its

leaders bitterly decry U.S. competition.60 This program ultimately

would tie Russian defense industry’s survival to foreign and state

 subsidies, factors that are inconstant and at odds with Russia’s

true security at this stage. For their part, the exponents of

cartellization, subsidies and arms exports increasingly reject

foreign investment–a cause that unites reform’s most vociferous

enemies–and advocate support for infant defense industries and

import substitution.61

Kuznetsov has developed the critique of their programs.

First, we know that infant industries tend to remain infantile

under such subsidy and tariff walls. Second, he argues that these

programs will be captured by interest groups, more precisely

branch interests growing from the old Soviet economic branch
15

structure, which will struggle against each other for control of

what passes for government.62 Indeed where four separate agencies

claim they should regulate or supervise the MIC, there is no true

government, rather endlessly rival bureaucratic oligarchies and

only bureaucratic politics.63 This pattern is endemic to the

government and directly continues Tsarist, if not Soviet

ministerial patterns of rivalry. Therefore any industrial policy

executed under these conditions would mean only the capture of

policy by any one particular bureaucracy.64 Worse yet are the

political implications of this program’s becoming policy.

Kokoshin’s financial-industrial groups are not only the MIC’s

future, but Russia’s. In that case,

There is a risk that such groups may capture the

government and follow a Latin American pattern. The

problem with this is not that they would produce more

arms for export or influence the military doctrine in

the direction of increased arms production, but that

there would be a continued high rate of inflation and a

continued stagnation in the economy, leading to popular

unrest. A more favorable development would be an EastAsian variant, i.e., they would develop in response to

a weak market infrastructure, substitute for the nonexisting capital market, and go for export.65

Western analysts express the same concerns. Julian Cooper

worries that these financial-industrial enterprises cannot act as

“locomotives” of dual-use technology because the Russian domestic

market for the latter has collapsed and these firms are not

competitive abroad. For several years they can only function as

major claimants of state subsidies, thereby locking in the

uncompetitive and inward-looking economic structure Kuznetsov

outlined.66 Politically, the model of Hohenzollern Germany, a

dirigiste, authoritarian, militarist, and nationalist modernizing

regime from the top down may turn out once again to be relevant to

Russia and to Europe, as Jack Snyder suggests.67 A third

alternative is a return, conscious or not, to some form of the

heavy-handed state tutelage and aversion to true market

relationships in the defense industry character of late Tsarism as

defined in detail by Peter Gattrell.68 Here not only was there the

state direction we have discussed, but also a commensurate

inability to fashion a defense strategy with any sense of 

Russia’s real interests, resources, or priorities. Therefore the
16

government tried to have it all on land and sea and only brought

itself to ruin.69 If, as we suggest, a comparable incoherence and

covert political agenda lies behind current defense economic

policy that cannot be sustained, the results could be just as

profound, if hopefully not as violent.

Finally there are other alternative outcomes, e.g., those

implicit in a recent CIA study that the Yeltsin government cannot

stop the sale, smuggling, or transfer of technologies used in

weapons of mass destruction or missile technologies that violate

the Missile Technology Control Regime.70 When one includes the fact

that there is no true civilian control of the military that is

pervasively corrupt, a meaningful and strategically controlled

defense economic program becomes virtually impossible. But in all

these cases there is no true basis for a liberal, democratic,

truly “civilian” state.

Current Policy Trends.

Today the struggle goes on between the forces who want to

perpetuate the close state-director-entrepreneur relationship

outlined by Kokoshin or revert backwards to one still more closely

tied to the past and those who want real progress and the

abolition of the old Military Economy. In July 1994, Yeltsin

decreed its abolition, but at the same time current trends in

military policy point to the logic of policies based on the older

series of relationships or Kokoshin’s dangerous plans. These

trends demanding broad state support for defense industry found

expression in the November 1993 Basic Provisions of the Russian

Military Doctrine. Along with the high-sounding phrases about the

need to reform and update the military economy to the demands of

the present and future high-tech age and market economics is the

requirement to develop defense-industrial potential by a package

of measures to be elaborated and implemented “to ensure the

mobilization readiness of the economy and the creation of state

mobilization reserves.”71 This document also stressed the “priority

significance” of restoring mutually advantageous ties with the

defense industry and R&D sectors of other CIS states.72 Conversion

is mentioned only in passing and the weight of the section on

defense economics falls on devising a rational way to minimize the

move to markets. One way is the projected reintegration of the CIS

and the other is through the mass sale of arms abroad.73 What is

still more disturbing in this context is Defense Minister
17

Grachev’s reiteration of the Soviet claim that this is a normative

document whose recommendations approach juridical law and should

therefore be binding on all state organs including the economic

ones, a clear sign of an MOD effort to take control over all

aspects of policy and further elude civilian control.74

Though Kokoshin and Grachev claim that they significantly

reduced mobilization assignments in 1992 and will do so again in

1994, it is not clear that this process can succeed over time,

which is the only way it can work.75 After all, the cartellization

and subsidy relationship, over time, will grow stronger and more

resistant to countervailing trends. Both Shlykov and Dubinin show

how colossal overproduction continues.76

Unless Yeltsin’s recent decree on reducing mobilization

capacities and reserves is for real, that situation will continue

since many such decrees routinely go unfulfilled.77 Implementing

Yeltsin’s decree would mean the government is ready to face the

mass unemployment and bankruptcies entailed in such decrees and

the socio-political pressure from labor and management. However,

the recent decrees on bankruptcy, whose aim is precisely to avoid

unemployment and subsidies to unprofitable industries, suggest an

opposite conclusion.78

Yeltsin’s decree of July 13, 1994, called for a new

mobilization plan on the basis of a dramatic reduction in the

existing one by a “multiple factor in comparison with the existing

one.” The new plan would also include a narrow range of critical

military production, not a comprehensive plan for all output. It

would additionally withdraw industries whose output has a lengthy

production cycle from the economy’s mobilization plan. The

government will also establish a procedure for removing previously

established tasks to reduce mobilization reserves whose

maintenance is inexpedient. New mobilization requirements will be

announced to industry as a state order.

The intent here is to subject future production to the actual

needs of the armed forces, not producers’ wishes. Yeltsin’s decree

also aims to overcome the Soviet legacy by channelling state

orders to dual-use production and to repudiate the practice by

which large defense plants, to amortize their costs, produced all

kinds of civilian technology as well, but did so shoddily.

Enterprises under the mobilization system’s military production
18

plan can now cancel tasks linked with preserving mobilization

capacities as the mobilization reserve declines and is changed

into a state order. Similarly, those enterprises in the current

plan can discontinue holding capabilities for production lines

that were terminated in 1991. And they can sell the assets freed

as a result of the decline of the reserve to gain capital and free

themselves of the cost of maintaining those assets. Finally, after

repayment by these firms of bank credits with the proceeds of

these sales, the proceeds will go to replenish the defense firms

and be credited to the federal budget.79

It is too early to tell how this is working since it is only

a call for a plan to terminate the old system and switch over to

the new guidelines. But while it is laudatory in intention, it is

not clear if it can be implemented since the state has defaulted

on trillions of rubles it owes to the defense industry already or

has resorted to constant sequestration of budgetary funds to avoid

paying its obligations. It is of little avail to recast the whole

system at a much reduced magnitude and as a state order if the

government cannot and will not pay for those orders. Therefore, it

is not clear that if enterprises do successfully recapitalize

themselves under this guideline, they will then return to defense

production or that they can, on the other hand, produce quality

dual-use goods for both civilian and defense industries. That

would then bring Cooper’s concerns, cited above, to realization.

Accordingly, even if this decree’s implementation is relatively

good (a dubious assumption), it is not clear that enterprises will

be either sufficiently flexible or capitalized or willing to

provide Russia with the defense industry its doctrine calls for.

This outcome would, in its own way, underscore the disparity

between means and ends that has bedeviled Russian strategy.

Bereft of state funding, defense enterprises will soon face

the so-called “brutal” conversion stemming from two sources. These

are the reduction in procurement and the fact that the government

does not pay them either allocated budget expenditures or debts

for orders such as those Dubinin cited. Nonetheless, since 1992

they have continued producing in excess of orders through the use

of these unaccountable and uncalled-for mobilization reserves and

through the expectation of credits, bailouts, and the like.80 Even

before this decree, which would terminate subsidies if the

government is consistent, there were cries that many firms are

collapsing and cannot produce for the state. And while sale of
19

these assets is to be welcomed, it is neither clear that there is

a market for them or that firms, once their debts are paid, can

then turn around and produce as the government expects. In other

words, to be healthy the defense economic program must go beyond

reforming the mobilization system to stabilize the budgetary

process and a growing market economy. Then and only then can

Russia surmount its traditional disparity of too many strategic

priorities and enemies and an inadequate resource base. To solve

the defense economy’s crisis the government must now solve the

current budget crisis.

The Budget Crisis.

By mid-1994 the debt problem and the government’s inability

to spend more on the defense industry lest it retrigger a massive

inflation and forfeit IMF support brought the defense industry to

a major crisis. Under conditions of stringent deflation to limit

state spending and meet foreign targets for low inflation, the

government submitted and the lower house of the Parliament passed

a tight military budget of 40 trillion rubles in June 1994. The

MOD had asked for 87 trillion in its budget request and

consistently raised the specter that defense industries will

collapse and the armed forces mutiny if this budget goes through.

That is because procurement will be further slashed to make way

for the armed forces’ main budgetary outlays, housing and social

spending on the men, including contract recruits. As Pavel

Felgengauer writes, the new budget will leave an army of only

half-starved conscripts; close down the MIC without any sort of

conversion; and means the disintegration of the army, loss of

fighting capability, and perhaps, most important, its

manageability.81 In this context, the disintegrating but ongoing

situation in the military economy has added to pressure for

outside sources of support, salvation, and, to be frank, corrupt

acquisition of foreign currency through arms sales.

Since the government owes defense industry four trillion

rubles (at the time of this writing), further spending cuts

without subsidies could mean that industry’s collapse with the

social catastrophes inherent in the breakdown of a vast system of

attached labor and industry that can only trigger demands for

massive inflationary spending. Thus, Kokoshin recently observed

that unless this nonpayment problem is overcome, industrial

decline and the decline in government revenues from taxes on
20

industry that go to finance defense cannot be surmounted.82 But the

government cannot spend this money and meet its budget caps that

are imposed by the need to fight inflation and comply with the

IMF. As Kokoshin noted in March 1994,

For example, a government decision was made previously

that the defense state order for 1994 and for the

subsequent two years will remain at the 1993 level. But

now we have received instructions to make an additional

correction, inasmuch as keeping the state order at the

1993 level under conditions of a further drop in the

level of the GNP and of industrial production will

signify an increase in the proportion of the defense

order, which the government cannot undertake. You can

imagine what a wave of problems again faces us.83

This crisis has galvanized the entire Russian political

community, particularly the defense industrial sector. Industry

and its spokesmen bitterly decry the previous failures in

conversion, the inability to fund it, the maladministration that

plagued it and so on. These failures date back to the start of the

reform program in 1992 when, according to A. Shulunov, President

of the Enterprise Assistance League, 70-80 percent of credits and

funds for conversions in 1992-93 came at the end of the year or

never reached the enterprises. Essentially these credits went to

form and consolidate commercial banks.84 Likewise, not a single

federally targeted conversion program was funded normally.85 As a

result the defense industry was a shambles by 1994. His answer is

that the state must assume responsibility for retooling

industries, import substitution, introduction of energy and

resource conserving equipment, and transfer of dual-use

technologies to the civilian sector.86

But given the government’s record to date and prevailing

economic conditions, this recommendation, like those before it,

betrays Russian elites’ continuing inability to overcome the

shackles of statism and economic utopianism. More prosaically, as

well, the continuing struggle and budget crisis both point to the

failure to devise a defense program commensurate with Russia’s

real economic position. This failure pervades modern Russian

history, Tsarist and Soviet. But if it remains unchecked, it will

lead to a revival of the past tendencies to strategic utopianism

regarding Russia’s capabilities and statist forms of defense and
21

general economic administration. In that case at the very least

the current crisis will be further protracted.

However, that does not deter the utopianists. One of these is

Mikhail Maley, a former advisor to Yeltsin and now Chairman of the

Security Council’s Inter-Departmental Commission for Defense

Industry and Scientific Issues. Maley’s position obviously makes

him an insider on these issues. Previously, Maley bitterly

criticized the confusion and incoherence of past policies and

strongly advocated state control as embodied in the newly formed

Rosvooruzhenie, the new state arms sales organization. He

acknowledged that only 25 percent of current capacity in the

defense industry is needed. But if Russia let the rest of it

submit to the market’s criteria, an enormous tragedy would occur.

Even so, arms will be the second source of hard currency for the

state. After the petroleum complex (in which this industry is also

heavily involved-author) the defense industry’s annual potential

is $8-12 billion in cash. Because it only needs $6-7 billion of

this sum, it could transfer annually $2-4 billion to the

treasury!87 Meanwhile Maley claims this industry is arming the

armed forces and Russia will always outstrip other armies in the

quality and quantity of arms–and at no charge to the MOD since it

will be at the expense of foreign defense ministries who buy the

weapons.88 He is also a staunch believer in a presidential regime

and is not shy about using outright economic warfare against other

CIS republics to reintegrate their defense economies with

Russia’s.89

It is simply unbelievable that such delusions are given wide

public support, expression, and credence at this date. For

example, a top-secret Foreign Intelligence Service memorandum from

1992 by the FIS’ director Nikolai Golushko admitted that Russia’s

submarine fleet is not combat effective. Thus U.S. SSBNs had and

still have tremendous superiority over Soviet/Russian ASW, (antisubmarine warfare) to the degree where they can deliver strikes

and remain undetected. In 1992 Golushko observed,

The seriousness of the matter lies not only in the fact

that the Ministry of the Shipbuilding Industry is

removing the urgency of struggling for acoustic

superiority of our submarines. It is disorienting the

levels of authority, reporting the approximate equality

of the noise level of our third-and fourth-generation
22

nuclear-powered submarines being built and being

designed with U.S. Navy nuclear-powered submarines, and

thereby is misleading them about the actual combat

capabilities of our maritime strategic nuclear

systems.90

This deliberate misinformation or disinformation of the

leadership apparently continues as Maley’s remarks indicate (who,

after all would buy such weapons?). And the editor of Stolitsa,

which ran similar articles, complained that it is impossible for

people independent of the MIC to express themselves in “their”

military journals and papers.91 Indeed, Yeltsin’s belief that

defense exports can save the defense industry and armed forces,

which are also competitors in the arms market, led him to rebuke

the MOD and Grachev publicly when they complained that defense was

not getting sufficient budget authority. Yeltsin rebuffed their

warnings of catastrophe and told them to get money from arms

sales, from non-budget sources, and cut manpower and procurement.92

But it remains to be seen who will prevail here, for how long, and

how.

The budget issue is not only a question of a trial of

strength between the Parliament and the military-industrial

complex or between the inflationary forces in Russia and the IMF.

Rather it cuts to the heart of the failure to reform the MIC

sufficiently. Because Russia can no longer support its militarypolitical and even imperial pretensions, a fundamental crisis will

ensue however this decision is resolved. Inflation has been kept

down simply by not paying people’s salaries and hoping that they

will find their way into privatized employment. Yet even those

firms cannot survive confiscatory taxation, rampant corruption,

and the breakdown of suppliers’ links as production continues to

fall. For instance, in education, as of June 1994, the government

has only paid for 10 percent of the research expenses for which it

has contracted, a situation that resembles that of military

procurement discussed above. Either it pays the money to those

whom it owes, stimulating a massive inflationary explosion, or the

government refuses to grant the money that the military

legitimately believes is coming to it. Either alternative risks a

total crash. In either fashion the masses will be fundamentally

expropriated from above, a not unfamiliar phenomenon in Russian

history, and what Vladimir Zhirinovsky calls the government of

swindlers will be exposed for either having run Russia into
23

inflation and depression and/or destroying its military might.

This is what is at stake in the struggle over the budget and the

perpetuation of the Voennaia Ekonomika through the mirage of arms

sales, subsidies, and the chronic overproduction at irrationally

high costs and prices.

The Crisis of Russian Strategy.

It is not enough to observe that the passage of the budget

means that Parliament is not responsive to defense lobbies.93

Indeed, the defense outlays do not cover the whole of military

spending. Rather the issue is what kind of defense industry and

establishment can Russia afford if reform is to have a chance? In

that context several factors, including defense spending, become

apparent. First, this budget is quite unrealistic and cannot be

maintained. Second, good reasons exist to believe that substantial

hidden military expenditures lie elsewhere in that budget. Third,

by any standard, Russia is still excessively militarized. A

disproportionate number of people are under arms relative to its

population, and its economy still suffers from the old

mobilization system. Fourth, the previous three aspects of

Russia’s budget and defense economic policies strongly suggest

that Russia has not yet reconciled its military aspirations and

needs with its economic realities. And fifth, if Russia is unable

to balance these two needs, it will mean the obstruction of

general reform. In that case the prognosis for democratization and

demilitarization also remains guarded at best.

That the budget is unrealistic seems indubitable. The budget

resolution obligated the government to keep the deficit to 10

percent of GNP. But the tax revenues collected through March 1994

were only 20 percent of that period’s GDP, down from 33.3 percent

in 1993. Thus central revenues fell by over a third. Inflation

fell in the first half of the year mainly because people,

including officers and soldiers as well as workers and the defense

industry, were not paid (a classic anti-labor deflationary

strategy). This clearly cannot go on. In fact, it had already

begun to change in the spring of 1994 when the regime put more

monies into the economy, raising the inflation rate and government

deficits. This inflation led to counter- responses of excessive

interest rates, a lack of confidence which inhibits investment,

and rampant tax evasion. Since the commodities market is now

dropping and Russian export revenues depend on that, in effect the
24

budget is already based on a series of fictitious premises. And

when the Duma passed the budget, the budget target for inflation

was already fictional since the deficit was already 11 percent of

GDP. Inevitably inflation will soon run upwards again.94 In fact,

it climbed spectacularly in the last four months of 1994 and will

keep climbing due to the Chechnya invasion. Therefore, current

trends also retard a revival of domestic investment, civilian or

military.

Second, despite the MOD’s complaints that soldiers will

mutiny and that social unrest will grow due to the refusal to

spend over 40 trillion rubles in the budget, other sources,

including military men, admit that substantial sums are hidden

elsewhere in the budget or by non-budgetary appropriations, i.e.,

they are off the books. Arms sales will or could cover the gap.

Therefore the sales will not go for conversion which will be

pushed back further, thereby perpetuating (inevitably) the old

mobilization system.95 One analyst who went through the budget

clocked up 80 trillion rubles in hidden items that directly

pertain to the military and military industrial sector of the

economy, a figure equalling 65 percent of the projected revenue of

the state budget (which, as we have seen, cannot be in any way

realized).96 And this figure does not include the upkeep of

military commissariats, severance pay for draftees into the army,

training at colleges, of reservists who are workers in and trained

at defense enterprises, or the income from sales of military

property.97

It should be noted that some of these critics are themselves

officers who conclude that military reform, as it was understood,

has not really taken place. Instead the country remains

overmilitarized. Yeltsin and the Chief of Staff, Col. General

Kolesnikov, have on separate occasions recently calculated 3 or 4

million men currently under arms in all branches of service: Army,

Navy, Air Force, Border Troops, Strategic Nuclear Forces, MVD

Troops, Railroad troops, etc.98 This is being supported by a

population of 147 million that is shrinking! Yet defense

capability is not being enhanced. The usable military force of all

these people is probably no more than 250,000 for all of Russia

and the CIS as draft rates plummet and shipbuilding has almost

totally come to a halt.

For all its military and defense investment, Russia still
25

gets a miserable return in terms of improved military quality or

capability. Yet the government apparently sees no way out other

than to postpone conversion yet again, maintain crushing

expenditure levels, and refrain from truly marketizing its defense

industrial sector to produce high-quality goods that civilians and

military purchasers alike will want. Although Yeltsin demanded

just that of the MOD by telling it to cut procurement and

manpower, the fact remains that it cannot even meet the subsequent

manpower target of 1.9 million men in the army.99

Plainly Russia cannot even afford the reduced military power

it now has. Further reform is essential if the society’s

productive forces are to be optimized to their full potential. And

that is the only way economic and political reform will take

place. Only when the state is not organized to be the defense

industry’s cash cow and when it no longer sees itself as obliged

constantly to prepare for war, will it overcome this eternal

Russian dilemma. Right now, despite the MOD’s complaints, it funds

civilian research in technology–an inherently wasteful procedure

especially in peacetime.100 But there is no way out since research

funding cannot be found elsewhere.

On the other hand, there is little time to lose. In September

1994 the Moscow electric authorities suspended all power to the

national Strategic Nuclear Missile Command for nonpayment of

bills, monies the MOD claims it cannot afford to pay.101 There had

been warnings by Kokoshin a month earlier that something along the

lines of this farcical and dangerous contingency were imminent,

but nothing was done.102 The incident has given added fervor to the

MOD’s cries of despair which now include an inability to pay for

international disarmament commitments, collapsing defense

industries, and further technological decline in defense relative

to other states.103 But while there are signs of increased

government sympathy for the MOD and MIC, their appetite shows no

sign of slackening.104 Even though preliminary figures for 1995’s

budget shows state revenues falling by about a half, Kokoshin

proposed a 60 trillion ruble allocation for 1995, 50 percent more

than in 1994, to stem this technological decline. Others, like

Petr Shirsov, Head of the Upper House (The Federation Committee)

of Parliament’s Defense Committee, advocated an 80 trillion ruble

allocation.105 Thus, if anything, the interaction between efforts

to control the armed forces and defense industry and to create a

strategy that balances objectives against real resources will grow
26

more acute. And the consequences of that dual struggle will be

more profound.

If the past is a sign for the future, demilitarization of the

economy faces a rocky and halting future. In that case, the failed

reform of the old mobilization and soft-budget economy will

inevitably strengthen the MOD and MIC lobbies. Failure to reform

the old system will make them preeminent political forces in

Russian society that would have uniquely privileged access to the

state’s revenues and assets. Those interests will then remain a

constant force for expanding the state to the old Soviet borders,

another tragic delusion. At the same time this system will not

enable Russia to keep up with the revolution in military affairs;

thus it will fail to make Russia militarily competitive, its

ultimate rationale. To prevent this outcome tough institutional,

fiscal, and legal controls on those sectors must emerge in tandem

with an end to the subsidies, credits, and privileges that allow

them to extract billions from Russia but return an inferior

military machine. The continuance of this state of affairs and of

this sector’s primacy inevitably distorts the state’s preferences,

policy, and posture and not in favor of democracy and peace. Four

years after Gorbachev, Russia’s demilitarization remains a

fundamental but unachieved objective and prerequisite of lasting

reform. As long as the MIC and the MOD grip the state’s

imagination, Russia’s abiding strategic dilemma of a claim to a

role that it cannot sustain will continue. While that remains the

case, neither Russians nor their neighbors can claim security or

democracy.

ENDNOTES

1. Peter Almquist, Red Forge, New York: Columbia University

Press, 1993.

2. Thierry Malleret, Conversion of the Defense Industry in

the Former Soviet Union, New York: Institute for East-West

Security Studies, Occasional Paper Series, No. 23, 1992, pp. 16-

17.

3. John Erickson, Edward L. Crowley, and Nikolai Gabai, eds.,

The Military-Technical Revolution: Its Impact on Strategy and

Foreign Policy, New York: Frederick A. Praeger Publishers, 1966;

William R. Kintner and Harriet Fast Scott, eds., Trans.,
27

Introduction, and Commentary, The Nuclear Revolution in Soviet

Military Affairs, Norman Oklahoma: University of Oklahoma Press,

1968.

4. Paul Bracken, “Future Directions for the Army”, in Paul

Bracken and Raoul Henri Alcala, Whither the RMA: Two Perspectives

on Tomorrow’s Army, Carlisle Barracks, PA: Strategic Studies

Institute, U.S. Army War College, 1994; and Jeffrey R. Cooper,

Another View of the Revolution in Military Affairs, Carlisle

Barracks, PA: Strategic Studies Institute, U.S. Army War College,

1994, both focus on this theme throughout their studies.

5. See the Soviet General Staff Study of OPERATION DESERT

STORM published by the Defense Intelligence Agency, Soviet

Analysis of Operation Desert Storm and Operation Desert Shield,

Washington: U.S. Defense Intelligence Agency, October 28, 1991.

6. Stephen Blank, “New Strategists Who Demand the Old

Economy,” Orbis, Vol. XXXVI, No. 3, Summer 1992, pp. 365-378.

7. “Osnovnye Polozheniia Voennoi Doktriny Rossiiskoi

Federatsii,” Rossiiskie Vesti, November 19, 1993, pp. 3-8. For an

English Language Edition, see “Basic Provisions of the Military

Doctrine of the Russian Federation,” Jane’s Intelligence Review,

Special Report, January 1994.

8. Ibid., pp. 11-12; “Osnovnye Polozheniia,” pp. 7-8.

9. Many sources confirm this. One is Igor Khirpunov,

“Delusions Vs. Conversion,” The Bulletin of the Atomic Scientists,

July-August 1994, pp. 11-13.

10. “Shokhin on Reforms, Social Consequences,” Foreign

Broadcast Information Service-Central Eurasia (formerly Soviet

Union, henceforth FBIS-SOV), December 8, 1993, p. 25.

11. Ibid.; Margaret Chapman, Kathryn Wittneben, “American

Business Involvement in Defense Conversion in the Former Soviet

Union: Opportunities, Constraints, and Recommendations,” American

Committee on U.S.-C.I.S. Relations, December 1992, p. 31.

12. Vitaly Shlykov, “The Defense Industry and Democracy in

Russia: The Interplay,” paper presented to the Conference on
28

Russo-Ukrainian Security Issues, Monterrey, CA, November 15-17,

1993, pp. 3-5.

 13. Julian Cooper, “The Soviet Defence Industry Heritage and

Economic Restructuring in Russia,” in Lars B. Wallin, ed.,

Proceedings of the FOA Symposium: The Post-Soviet MilitaryIndustrial Complex, Stockholm: Swedish National Defence Research

Establishment, 1994, p. 45.

14. Stephen Blank, Challenging the New World Order: The Arms

Transfer Policies of the Russian Federation, Carlisle Barracks,

PA: Strategic Studies Institute, U.S. Army War College, 1993, pp.

8-33; Kimberly Marten Zisk, “The Foreign Policy Preferences of

Russian Defense Industrialists: Integration or Isolation?,” paper

presented to the International Studies Association National

Meeting, Washington, DC, March 30, 1994, especially pp. 9-14.

15. “Soskovets Tour of Udmurtia, Bashkiria, Ulyanovsk

Reviewed,” Foreign Broadcast Information Service, Central Eurasia,

FBIS Report, (henceforth FBIS-USR), June 20, 1994, pp. 70-71;

“Soskovets: Government to Subsidize Defense Industry,” FBIS-SOV,

August 29, 1994, p. 18.

16. Shlykov, p. 8.

17. Alexander Ozhegov, “Conversion and Russia’s Regions,” in

Wallin, ed., Proceedings of the FOA Symposium: The Post-Soviet

Military- Industrial Complex, Stockholm: Swedish National Defence

Research Establishment, 1994, p. 53.

18. Keith Bush, “Aspects of Military Conversion in Russia,”

RFE/RL Research Report, III, No. 14, April 8, 1994, p. 32;

“Military To Receive More Funds Irrespective of Budget,” FBIS-SOV,

May 12, 1994, p. 30.

19. Ozhegov, p. 53.

20. Ibid., p. 55

21. Ibid., p. 56.

22. Ibid.
29

23. Ibid.

24. Ibid., pp. 56-57.

25. Ibid., p. 57.

26. Vladimir V. Kachalin, “Defense Industry Conversion In the

Russian Federation: A Case Study of Kaluga Region,” Harriman

Institute Forum, Vol. VI, No. 10, June 1993, p. 3.

27. See Philip Hanson, Elizabeth Teague, “The Industrialists

and Russian Economic Reform,” Radio Free Europe/Radio Liberty,

RFE/RL Report, May 8, 1992, pp. 1-7, for an early example of this

continuing trend and more recently, “TU Leader: Defense Industry

in ‘Terrible Plight’,” FBIS-SOV, June 21, 1994, p. A11.

28. “General Staff’s Moiseyev on Military Reform,” FBIS-SOV,

June 14, 1991, p. 37.

29. Shlykov, pp. 6-11.

30. “Defense Enterprises Not To Be Privatized,” FBIS-SOV,

April 23, 1993, p. 38.

31. Col. A.V. Piskunov, “Konversiia i Ekonomicheskaia

Bezopasnost’ Rossii,” Voennaia Mysl’ (Military Thought), No. 12,

December 1993, p. 9; see also Julian Cooper, “Transforming

Russia’s Defence Industrial Base,” Survival, Vol. XXXV, No. 4,

Winter 1993, pp. 154-155.

32. Col. V.N. Tsygichko, (Ret.), “Osnovnye Prioritety VoennoTekhnicheskoi Politiki Rossii, Voennaia Mysl’ (Military Thought),

December 1993, p. 58.

33. Ibid., pp. 58-59.

34. Andrei Kokoshin, “Defense Industry Conversion in the

Russian Federation,” in Steven E. Miller, Teresa Pelton Johnson,

eds., Russian Security After the Cold War: Seven Views From

Moscow, Washington, DC: Brassey’s for the Center for Science and

International Affairs of the John F. Kennedy School of

International Affairs, Harvard University, Cambridge, MA, 1994, p.

56.
30

35. Col. First Rank A.N. Zolotov, (Ret.), “O Vidoizmenenii

Poniatiia ‘Boevaia Gotovnost’ v VMF," Voennaia Mysl’ (Military

Thought), No. 3, March 1994, pp. 67-68.

36. Ibid., pp. 68-71.

37. Ibid., p. 72.

38. Kokoshin, p. 59; Blank, Challenging the New World Order,

pp. 8-33.

39. A.A. Kokoshin, “Contradictions of Formation and Paths of

Development of Russian Military-Technical Policy,” Joint

Publications Research Service, Military Thought, No. 2, February

1993, (Voennaia Mysl’), (henceforth JPRS-UMT), 93-005-L, May 18,

1993, p. 4; “Kokoshin: Preparing for Local Wars, Terrorism,” Joint

Publications Research Service Military Affairs, (henceforth JPRSUMA), 94-010, March 16, 1994, p. 19.

40. “Kokoshin on Need for National Industrial Policy,” JPRSUMA, 92-040, November 11, 1992, p. 44.

41. Khirpunov, p. 12.

42. “Defense Security Commission Urges More Funding,” FBISSOV, May 2, 1994, p. 31.

43. Kokoshin, pp. 72-73.

44. “Kokoshin Promotes Military Cooperation With China,”

FBIS-SOV, June 3, 1994, p. 10.

45. “Industrial Policy To Boost Exports,” FBIS-USR, June 11,

1993, pp. 1-3; Craig Covault, “Yeltsin to Review Russian Aerospace

Plea,” Aviation Week & Space Technology, May 24, 1993, p. 22;

“Kokoshin on Plans for Military Industry,” FBIS-SOV, July 27,

1993, pp. 33-34; Kokoshin, “Contradictions of Formation and Paths

of Development of Russian Military-Technical Policy,” p. 2;

Cooper, “Transforming Russia’s Defence Industrial Base,” pp. 149-

151.

46. “Conversion and National Security,” JPRS-UMA, 94-010,
31

March 16, 1994, pp. 61-64.

47. “Defense Ministry Interviewed on Referendum,” FBIS-SOV,

March 14, 1991, p. 50.

48. Keith Bush, “Conversion and Privatization of Defense

Enterprises in Russia,” RFE/RL Research Report, Vol. III, No. 17,

April 29, 1994, p. 21.

49. Ibid.; Mary Mycio and Sonni Efron, “Ukraine Will Try to

Revive Arms Industry, Lawmakers Say,” Los Angeles Times,

Washington Edition, July 13 1994, p. 2.

50. “Russia’s Ivashov Favors CIS ‘Single Armed Forces’,”

FBIS-SOV, June 20, 1994, p. 1.

51. Col. V.N. Tsygichko, (Ret.), “Geopoliticheskie Aspekty

Formirovaniia Iadernoi Politiki Rossii,” Voennaia Mysl’ (Military

Thought), No. 3, March 1994, p. 6.

52. Ibid.

53. Ibid.

54. Ibid., pp. 2-9; Fred Hiatt, “Yeltsin’s Opponents

Demanding Curbs on Foreign Investment,” Washington Post, September

30, 1994, p. A33.

55. Blank, Challenging the New World Order, p. 20; “Kokoshin

On Plans for Military Industry,” pp. 33-34.

56. Jacob W. Kipp, “The Russian Navy and the Problem of

Technological Transfer: Technological Backwardness and MilitaryIndustrial Development, 1853-1876,” in Ben Eklof, John Bushnell,

Larisa Zakharova, eds., Russia’s Great Reforms, 1855-1881,

Bloomington, IN: Indiana University Press, 1994, pp. 115-138. See

also Peter Gattrell, Government, Industry, and Rearmament in

Russia 1900-1914, Cambridge: Cambridge University Press, 1994.

57. Yevgeny Kuznetsov, “Enterprise Adjustment and Interest

Groups Within the MIC,” in Wallin, ed., Proceedings of the FOA

Symposium: The Post-Soviet Military-Industrial Complex, Stockholm:

Swedish National Defence Research Establishment, 1994, pp. 76-77.
32

58. Ibid., p. 77.

59. Stuart Kaufman, “Lessons From the 1991 Gulf War and

Russian Military Doctrine,” Journal of Slavic Military Studies,

Vol. VI, No. 3, September 1993, p. 390.

60. Rowland Evans and Robert Novak, “Russian Bombs,”

Washington Post, August 4, 1994, p. A31.

61. Hiatt, p. A33; Kuznetsov, pp. 70-71.

62. Ibid.

63. Ibid., pp. 71-72.

64. Ibid.

65. Ibid., p. 73.

66. Cooper, “The Soviet Defence Industry Heritage"; Ibid.,

pp. 46-47.

67. Jack Snyder, “Russian Backwardness and the Future of

Europe,” Daedalus, Vol. CXXIII, No. 2, Spring 1994, pp. 187-192.

68. Gattrell, passim.

69. Ibid., pp. 320-329.

70. Bill Gertz, “Yeltsin Can’t Curtail Arms Spread,”

Washington Times, September 27, 1994, p. 3.

71. Osnovnye Polozheniia, pp. 6-8; for an English Language

Edition see, “Basic Provisions,” pp. 11-12.

72. Ibidem.

73. Ibid.

74. “Grachev Gives Overview of Military Doctrine,” FBIS-SOV,

June 10, 1994, p. 21.
33

75. “Kokoshin ”Preparing for Local Wars, Terrorism," p. 5.

76. Shlykov, pp. 3-11; Bush, “Aspects of Military

Conversion,” p. 32.

77. “Yeltsin To Cut State Order to Defense Industry,” FBISSOV, June 20, 1994, p. 26; “Defense Ministry Proposes New Industry

Concept,” FBIS-SOV, June 6, 1994, p. 27; “Edict Reducing

Mobilization Capacity, Mobilization Reserves,” JPRS-UMA, 94-030,

July 27, 1994, p. 1.

78. “New Bankruptcy Procedure Aims to Save Jobs,” Current

Digest of the Post-Soviet Press, (henceforth CDPP), Vol. XLVI, No.

22, June 29, 1994, pp. 11-12.

79. “Edict Reducing Mobilization Capacity,” p. 1.

80. Shlykov, pp. 3-11; Bush, “Aspects of Military

Conversion,” p. 32.

81. “Military Affairs: A Carefully Planned Military-Budget

Disaster,” CDPP, Vol. XLVI, No. 20, June 15, 1994, p. 19.

 82. “Kokoshin Speaks to Military Finance Officers,” JPRSUMA, 94-020, May 25, 1994, p. 2.

83. “Kokoshin: Preparing for Local Wars and Terrorism,” p. 5.

84. “Shulunov: ‘New Approaches to Conversion’,” JPRS-UMA, 94-

020, May 25, 1994, p. 40.

85. Ibid.

86. Ibid.

87. “Maley: Future Role of Defense Industry in Economy,”

JPRS-UMA, 94-020, May 25, 1994, pp. 38-39.

88. Ibid., p. 39.

89. “Military Lobbyist Views Military Production,” FBIS-SOV,

January 5, 1994, p. 45.
34

90. “Submarine Fleet Said Not To Be Combat Ready,” JPRS-UMA,

94-020, May 25, 1994, p. 14. Emphasis in original.

91. “Chernavin Accused on Lack of Readiness of Submarine

Fleet,” JPRS-UMA, 94-020, May 25, 1994, p. 16.

92. “Yeltsin Independence Day News Conference,” FBIS-SOV,

June 13, 1994, p. 24.

93. “Those for, Against Defense Budget Cuts Listed,” FBISSOV, June 20, 1994, p. 35.

94. “Welcome to Capitalism,” The Economist, July 9, 1994, pp.

11-12; “Don’t Forget the Generals,” The Economist, July 16, 1994,

pp. 45-46; Keith Bush, “Russia’s Cliffhanger Budget,” Post-Soviet

Prospects, CSIS, Washington, DC, Vol. II, No. 2, July, 1994; and

“The Russian Economy in September 1994,” Post-Soviet Prospects,

Vol. II, No. 4, September 1994.

95. “Yeltsin Independence Day News Conference,” p. 24.

96. “Columnist Criticizes Concealed Military Spending,” JPRSUMA, 94-025, June 8, 1994, pp. 6-7.

97. Ibid.

98. “Yeltsin Independence Day News Conference,” p. 24;

“Military Spending: Too Much or Too Little?,” CDPP, Vol. XLVI, No.

21, June 22, 1994, pp. 13, 24; “Columnist Criticizes Concealed

Military Spending,” RFE/RL, Daily Report, May 26, 1994, pp. 6-7.

99. RFE/RL Daily Report, June 14, 1994.

100. “Kokoshin Promotes Military Cooperation With China,” p.

10.

101. Michael Specter, “Russia’s Poor Army! Now Power Is Cut

Off to Rocket Forces,” New York Times, September 23, 1994, p. 3.

The same is now happening with oil companies who refuse to supply

the army due to nonpayment, “Russian Army’s Fuel Cut–for

Nonpayment,” Baltimore Sun, October 7, 1994, p. 6.

102. “Nonpayments: The Military-Industrial Complex Accuses
35

the Fuel and Energy Complex,” CDPP, Vol. XLVI, No. 34, September

21, 1994, p. 18.

103. John Lloyd, “Russian Budget Under Fire From Military,”

Financial Times, September 27, 1994, p. 3.

 104. “Soskovets: Government to Subsidize Defense Industry,”

p. 18; RFE/RL, Daily Report, September 23, 1994.

105. John Lloyd, “Russian State Revenue to Fall Short by

Half,” Financial Times, September 24-25, 1994, p. 2; RFE/RL Daily

Report, July 26, 1994.
U.S. ARMY WAR COLLEGE

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