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Military Industry Overview

The Soviet scientific and technological establishment consisted of a variety of organizations engaged in the research, development, and production of new products or processes. In general, each organization specialized in one phase of the process and in one sector of industry.

Many types of organizations were involved. Western specialists placed them in three broad categories: research institutions, design organizations, and production facilities. In the first category, the most numerous organizations were the scientific research institutes (nauchno-issledovatel'skie instituty-- NIIs), which focused on scientific research, both basic and applied. Each NII was headed by an appointed director, who oversaw a staff of researchers and technical personnel. Another type of research institution, the research laboratory (laboratoriia), operated independently or as a component of a larger NII or a production plant.

The second category, design organizations, included design bureaus (konstruktorskie biuro--KBs) and technological institutes (tekhnologicheskie instituty). Each of these encompassed a range of facilities with such titles as special design bureau (spetsial'noe konstruktorskoe biuro--SKB), central design bureau (tsentral'noe konstruktorskoe biuro), and project design and technology bureau (proektnokonstruktorskoe i tekhnologicheskoe biuro). Design bureaus planned new products and machines, although some also conducted research. Technological institutes had responsibility for designing new processes, installations, and machinery.

The research organizations are the heart of Russian military research and development. They take new weapons and military matériel projects from concept to prototype, then hand them off to the production enterprises. Production enterprises do prototype construction, production runs, and modifications.

The third category included production facilities that manufactured the new product or applied the process developed by the research and design facilities. The output and testing of industrial prototypes, industrial innovation processes, or smallbatch production prior to the stage of mass production occurred in experimental production or pilot plants (various Russian designations, e.g., opytnye zavody, opytnye stantsii). These functioned independently or were attached to production facilities, research institutions, or design organizations.

In addition to their categorization according to the research, development, and production phase in which they were most involved, these facilities were characterized according to their organizational affiliation: industrial ministries, university and higher education, or the Academy of Sciences system.

Industrial ministries controlled the majority of science and technology organizations, including all types of research institutions, design organizations, and production facilities. The precise number of facilities in 1989 was not available because the Soviet press stopped publishing such statistics about a decade earlier. Western specialists, however, reported that in 1973 there were 944 independent design organizations, and in 1974 there were 2,137 industrial NIIs. The number of production facilities undoubtedly exceeded both those figures.

Industrial science and technology organizations tended to concentrate on one broad area, such as communications equipment, machine tools, or automobiles. They were directly subordinate to the industrial ministry responsible for that sector . Science and technology work in ministries was directed by scientific-technical councils within the ministries; the councils comprised the ministry's leading scientists and engineers.

In the Soviet era, defense industries were created solely to arm the Soviet Union, and as such they had the highest national priority in the allocation of technology and talent. The complex regularly consumed 20 percent of the gross national product and 15 percent of the industrial labor force.

A Russian defense plant is also, in some ways, a throw-back to a US factory-town. The defense plant is really a mini-city in itself, with its own apartments, doctors, clinics, restaurants, and power plants. Outside of Moscow and St. Petersburg, defense plant employees usually live in company apartments, shop in company stores, and eat in company cafeterias. Up to 80 percent of a defense plant's budget goes to maintaining these social services. The plant manager is often as concerned with making deals to bring in potatoes and bread to feed his people as with joint venture agreements, and these and other transactions are often conducted on a barter-basis.

In 1987 an estimated 450 research and development organizations were working exclusively on military projects. Among top-priority projects were a multiministerial laser program, generation of radio-frequency energy, and particle-beam research--all applicable to future battlefield weapons. In addition, about fifty major weapons design bureaus and thousands of plants were making military items exclusively. Such plants had first priority in resource allocation to ensure that production goals were met. Most defense plants were in the European part of the Soviet Union, were well dispersed, and had duplicate backup plants. Some major aircraft plants were beyond the Urals, in Irkutsk, Novosibirsk, Tashkent, Komsomol'sk-na-Amure, and Ulan-Ude.

In making military equipment, the primary goals were simplicity and reliability; parts were standardized and kept to a minimum. New designs used as many existing parts as possible to maximize performance predictability. Because of these practices, the least experienced Soviet troops and troops of countries to which the equipment was sold could operate it. But the practices have also caused the Soviet military-industrial complex, despite having top priority, to suffer from outmoded equipment, much of which is left over from World War II. Western observers suggested that the dated "keep-it-simple" philosophy has been a psychological obstacle to introducing the sophisticated production systems needed for high-technology military equipment. Western experts assumed that without substantial overall economic expansion, this huge military-industrial complex would remain a serious resource drain on civilian industry--although the degree of that drain was difficult to establish. To ameliorate the situation, perestroika set a goal of sharply reducing the military share of machine- building and metal-working complex (MBMW) allocations (estimated at 60 percent in 1987) during the Twelfth Five-Year Plan. Civilian MBMW ministries were to receive an 80 percent investment increase by 1992. And emphasis was shifting to technology sharing by military designers with their civilian counterparts--breaking down the isolation in which the two sectors had traditionally worked.

During the Soviet era the various institutional components of military research and development interacted in a way that generally was far more productive than that of the civilian sector. The defense sector more often succeeded in seeing a scientific idea through the various development stages into production. Many of those ideas may not have represented a leading-edge technology (Soviet military research and development were thought to be more evolutionary than revolutionary), but at least they were carried through into production.

One of the reasons Soviet military research and development fared better than the non-military sector was the high priority given to it by the regime. The defense sector received not only more funds but also better resources and the best personnel. Perhaps most important in terms of priority was the level of political commitment. Maintaining a strong military capable of matching United States military strength has been a high priority for Soviet political leaders. This translated into a strong commitment to ensure that military science and technology developed and functioned to support the Soviet military. High priority was not the only factor explaining the military sector's superior performance. Another factor was that the defense sector had better access to development facilities. Research projects in the military tended not to "die" because of lack of research facilities' access to development facilities.

Another factor affecting military research and development was that the defense sector was not so heavily attuned to production quantity rather than quality. Civilian production enterprises often were reluctant to innovate because of the time needed to adjust a plant's operations to the production of the new item or use of the new process. Such adjustments have been viewed in the civilian sector as interruptions because they cut into the time needed to meet a plant's production quotas. Military production facilities, which had rigorous quality-control measures, faced less pressure to meet a specified production goal.

Finally, coordination among military research and development establishments, while problematic, was more effective than that in the civilian sector. Facilities involved in the various phases of the military researchto -production cycle were more inclined to interact with one another. Furthermore, design facilities in the defense establishment tended to be larger and more capable of developing a research idea further through the research-to-production cycle. Design organizations in the military also tended to generate better design documentation for production plants to implement. Some of the administrative barriers encountered in the civilian sector were overcome in the military sector, in part by giving lead institutes the power to coordinate efforts for specific programs.

During the Brezhnev era, the Soviet government turned to its defense plants for production of needed civilian products. During the Gorbachev era, specific defense sectors were directed to focus on commercial sectors. For example, biological weapons plants were told to focus on medicines, and enterprises of the space complex started producing sailboats, microwaves and other consumer goods. Beginning in the late Gorbachev era, planners mistakenly expected to achieve conversion by a Soviet-style centralized program and without additional funding to support the lengthy, stagewise conversion process.

With the end of the Cold War, Russian defense plants lost nearly 80 percent of their funding from the Russian government. At the same time, defense plants have lost export earnings due to loss of traditional Soviet bloc markets and the general decline in the world arms market. During the 1990s the Russian defense budget dropped to levels that were a fraction of those of the Soviet era, and manifestly insufficient to support all or even many of the existing defense industry firms.

The Russian defense industry consisted of over 1,700 firms and in 1997 employed some 2.5 million workers. While defense enterprises are found throughout the country, a significant portion is concentrated in twelve cities and regions, where over one-third of the labor force works in defense. The industry needs modernization and many defense enterprise managers are eager to learn about the basics of marketing, finance, and modern business practices.

The Russian defense industry underwent changes which included a shift from production of military to commercial goods; the restructuring of firms into a mixture of holding companies, joint ventures, and small spin-offs; and a shift towards integration into the world economy.

Since the early 1990s one of the principal thrust areas of restructuring has been the formation of new corporate structures that would unite design and manufacturing facilities into financial-industrial groups (FIGs). Deputy Defense Minister Andrei Kokoshin actively advocated this policy beginning in 1992, and the creation of financial-industrial groups was authorized by Presidential Decree no. 2096 (adopted on December 5, 1993). The intent was to integrated corporations on the pattern of Western companies, or the South Korean Chaebols, to replace the Soviet centralised defence industrial structure. These new entities would span multiple enterprises, though on a scale smaller than the entire industrial sector encompassed by the Soviet-era ministries.

The Russian government at one time planned to privatize about three-fourths of its more than 2000 defense enterprises by the end of 1994. Four categories of enterprises were created:

  1. fully privatised facilities that no longer engaged in military work
  2. fully privatised enterprises that were still engaged in military work
  3. joint-stock companies in which the state held a stake
  4. fully state-owned enterprises that remained directly subordinate to state
About 700 of Russia's defense enterprises have to some degree been privatized although the government retains a significant if not controlling interest. By 1995 only 21 percent of the enterprises in the aviation industry were fully state owned; the armaments industry had 35 percent state ownership; the shipbuilding industry was 40 percent; 54 per cent in the missile-space industry, and 82 per cent in the munitions and special chemicals industry.

A government decree of 13 July 1996 approved a total number of 480 industries that would not be subject to privatization. Over 450 enterprises, mainly research institutes and design bureaus, were to remain government-owned. Of these, 45 were in the aviation industry, 60 in the missile-space industry, 60 in the armaments industry, 93 in the munitions and special chemicals industry, 54 in shipbuilding industry, and 168 in the communications and electronics industry.

In the drive for privatization after the fall of communism, Russian planners initially believed that this, the best supplied and most efficient of Russian industries, could be converted easily to production for the civilian market and thereafter would become an engine of economic growth. Such optimism obscured the complex's total lack of a civilian market for its products and its inexperience in developing and selling goods in a competitive marketplace. Russian defense firms, while strong in engineering and manufacturing, still lack expertise in marketing, management, and financial analysis.

Most defense plants reside in old, deteriorated buildings and rely on obsolescent and often worn equipment. Defense industry pay is often in arrears, by up to 10 months in some cases. When paid, it has not kept up with inflation and many engineers and production workers have left defense firms for small technology firms or the private sector. Many work in the retail sector, operate kiosks, or drive taxis.

The Russian economy is plagued by a serious non-payments problem, and inefficient and decaying infrastructure, severe environmental problems, inadequate housing, and poor quality consumer goods. These were compounded by the financial crisis that developed in 1998, which worsened an already existing wage arrears and tax revenue problem. It is doubtful that the government will have the resources to meet its obligations to the defense plants for past years, to fund any conversion plans, or even to place significant new orders for defense equipment.

According to recent analysis, the total production capacity of Russian aviation engine manufacturing plants exceeds that of the whole world. Considering relatively inexpensive and highly skilled labor, these factories may become attractive for the long-term investment or joint ventures once they are privatized and new management takes the necessary but extremely unpopular decision of cutting down the excessive workforce.

During the Soviet era aircraft such as the Tupolev Tu-154 or the Ilyushin Il-62 were transferred from one government department, the Ministry of Aviation Industry (MAI) to another, the Ministry of Civil Aviation (MCA), for a national value of one million roubles (approximately $150,000 at the then [unofficial] rate of exchange widely available). The Ministry of Civil Aviation then allocated it to an Aeroflot unit, which regarded the aircraft as being 'free of charge'. As such, it did not much matter if the aircraft sat, unused, on the ramp for months on end.

During the 1980s 70% of the output of the ten major airframe design bureaux and the 20 major production factories was for the military. During the 1990s the reduction in military budgets effectivly ended military aircraft procurement. The remaining 30% was civil, for Aeroflot and some foreign airlines, and represented approximately 100+ jet and turboprop airliners and airfreighters per year - plus several hundred helicopters. By 1997 even this 30% had fallen -- just five airliners plus seven helicopters were delivered to Russian airlines and about the same to foreign customers.

While the Russian government considered aviation a strategically important sector of economy and erects considerable protectionist barriers to aircraft import and investment, it also lacked the resources to support aerospace industry, provide subsidies, finance big orders and allow it to adjust to a competitive market economy. In 1999 aircraft manufacturing companies in Russia planned to produce a total of 23 airliners. This number included ten Tu-204, which will be built at the Ulyanovsk aviation plant; three Tu-214 airliners, to be built in Kazan; three Il-96-300, production of which is underway in Voronezh; and three Tu-154M, to be manufactured at the Samara aviation plant. According to the analysis published in "Aviation Week", "Russia may lose both Air force modernization and the industrial capability to rebuild the military... The nation could skip a generation in aircraft development. The result of this technological pause could be unparalleled aerial supremacy for the U.S." (April, 1997)

Most Russian defense enterprises would be considered bankrupt in Western terms, and the situation worsened after the financial collapse of 1998. The Ministry of Economy reported that 400 defense enterprises were unable to pay their debts. Plant managers have often attempted to maintain production even without budget authority to keep workers busy. This has led to an excess inventory of weapons, which plant managers try to sell, even as the downsizing armed forces also sought to sell off now surplus military equipment. Many defense plants have reduced operations to only a few days per week at most. Russian defense industry wage increases have not kept pace with inflation, meaning that most Russian defense enterprises have steadily lost their best workers (estimates range from 800,000 to 1 million lost per year) to Western companies or the emerging Russian private sector.

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