RUSSIAN DEFENSE INDUSTRY: DOWN BUT NOT OUT.

After seven years of steep decline, Russian defense plants have regrouped and are now poised to seek new markets for their products, civil and military. This was the main conclusion of a talk by Julian Cooper, a professor at England’s Birmingham University, at Harvard on December 10.

Russia’s defense spending has fallen to about one-third of its 1990 level, and total employment in defense plants shrank from eight million in 1990 to 2.3 million in 1997. Output in the sector fell to 19 percent of the 1991 level, with military products dropping to nine percent of the old level and civilian production to 27 percent. Thus, for example, from 1990 to 1996 the annual production of main battle tanks fell from 1,600 to five, that of armored infantry vehicles from 3,400 to 250, ICBMs from 115 to ten, and submarines from 12 to two. This production data does not include the atomic energy ministry, which, in contrast, has seen production actually increase.

By defense industry is meant those plants that used to be under the jurisdiction of the Soviet "military industrial complex" (VPK). Although this term is used by Russian officials, Cooper finds the expression misleading, since the defense sector was not a unified complex but was split into rival ministries and into competing firms within the ministries. Unity was provided only through tight vertical controls, with ministries and firms answering to the Communist Party and not to industrial planners. Most of this power had been concentrated in the hands of the former Soviet defense minister, Dmitry Ustinov, who had personally overseen the doubling of the defense sector during the Brezhnev era. Gorbachev’s reforms (initiated after Ustinov’s death) and the subsequent Soviet collapse shattered these vertical controls, leaving defense plants at the mercy of budget cuts and the raw winds of the market economy. Over the past seven years defense plants have been struggling to build new horizontal links from scratch.

The Russian Committee on Defense Industry, formed in 1991, was later upgraded to a state committee and then, in 1996, to a ministry. But in the spring of 1997, it was folded into the Ministry of Economy, where 600 of the ministry’s 2,600 staff supervise the defense industry. Just over half (990) of the country’s 1,700 defense plants have been privatized, but in practice even the plants that are nominally state-owned are left to their own devices. Efforts to create new conglomerates from above (such as the MiG and Sukhoi holding companies created in 1996) have largely failed because of rivalries between individual plants and design bureaus. Now some plants are cautiously trying to create financial-industrial groups from below.

Given the cutbacks in defense procurement, the future for many plants lies in boosting exports, military or civilian. Military exports reached $3.5 billion last year and civilian exports $730 million (not counting $2 billion in uranium and atomic technology). Exports are heavily concentrated in a few sectors, such as aviation and armaments, and only about 30 plants are serious exporters. Cooper expects further cuts in the 600,000 workforce in the aviation sector, which has been slower to downsize than the others (such as radio electronics or communications).

The Monitor continues its survey of Ukraine’s political parties and blocs in the runup to parliamentary elections.

Ukraine’s Political Landscape: the Hromada Union.