Publication: Monitor Volume: 7 Issue: 83

Intensifying Russian efforts to peddle arms abroad (see the Monitor, April 26), are but one part of a broader program to revitalize Russia’s underfunded and increasingly decrepit defense industrial sector. And just as the Kremlin has launched plans in recent months aimed at restructuring the country’s arms export hierarchy, so Deputy Prime Minister Ilya Klebanov has been tasked with drafting a more ambitious and wide-ranging plan which, in theory at least, will reshape and restructure Russia’s vast complex of defense production plants, design bureaus and research facilities. Only about a month into this effort, however, Klebanov’s proposals appear to have generated at least some criticism from virtually every group associated with the effort, from independent defense analysts, to leaders of regions with heavy concentrations of defense enterprises, to enterprise directors themselves, and even to the newly formed Russian state arms trading company Rosoboroneksport. If Russian newspaper reports are at all accurate in their analyses of reaction to the Klebanov plan, then the Kremlin appears to be risking the creation of fresh tensions between the central government and Russia’s regions. But some of these same sources suggest that this may not be a major concern of the Kremlin leadership. These reports portray the defense industrial reorganization plan as just one more aspect of President Vladimir Putin’s broader effort to recentralize political authority in Russia under the Kremlin’s control.

As earlier reports have made clear, the essentials–but apparently not the details–of Klebanov’s defense industrial restructuring plan were first laid out during a March 22 meeting of the Presidium of the Russian State Council, an advisory body made up of governors drawn from Russia’s regions. Those essentials are aimed at orienting Russian arms development policies through the years 2010-2015, and are centered on the idea of consolidating Russia’s estimated 1,700 defense sector enterprises under the control of thirty to forty production complexes or holdings. These holdings would themselves be organized into three groups on the basis of what they produce. About a dozen complexes, for example, would include producers of final products, while another dozen or so would include makers of armament systems, with the final group being composed of producers of other components. Ultimately, all state funding for arms procurement and development would be distributed through these complexes, and enterprises judged to be insufficiently promising would therefore be neither included in the holdings nor eligible for state funding. Estimates suggest that about one-third of Russia’s 1,700 defense enterprises would fall into this category (see the Monitor, April 3).

Centralized control, in other words, clearly seems to lie at the heart of Klebanov’s plan. More recent reports have indicated, moreover, that enterprises which have not yet been turned into joint-stock companies, and which are to be included in the holdings, will be transformed in this way. Controlling interest in each of these companies will remain in the hands of the central government. The program therefore appears to be a recipe for ending privatization–and promoting renationalization–within the defense industrial sector. The large holding companies, meanwhile, will apparently be put under the jurisdiction of a host of government bureaucracies whose precise responsibilities and areas of authority do not appear to have yet been spelled out.

Some independent analysts who have examined Klebanov’s defense industrial reform program point out in this context that there is actually nothing new in Klebanov’s ideas. State officials, they observe, have been calling for the creation of holdings along arms-sector lines since the controlling Soviet defense industrial ministries were abolished in the early 1990s. They also point out that the current plan seems expressly designed not so much to streamline and rationalize the functioning of the defense sector, as Klebanov would have observers believe, but rather to manufacture a justification for the maintenance of a huge and economically draining defense industrial state bureaucracy atop it. And they suggest that bureaucratic “clans” are at this very moment battling fiercely for control over the soon-to-be formed holdings. Indeed, in one particularly devastating critique of Klebanov’s proposals and of Russian defense industrial policy more generally, the analyst Vitaly Shlykov argues that it is precisely those defense enterprises which have most effectively restructured themselves over the past decade which will do the most to scuttle Klebanov’s program. “Who in their right mind would want to transfer all revenues to some holding in Moscow?” he asks. More broadly, Shlykov treats Klebanov’s program as a sort of elaborate scam, one which ignores what he says is the most fundamental truth of the current state of Russia’s defense industrial sector: that it has on the whole collapsed entirely, and that there can be no salvation for hundreds of enterprises which may exist on paper but which are currently incapable of functioning (Itogi, No. 14, April; The Russia Journal, April 11).