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

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 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.