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Russian Defense Industry

Under Putin

Alla KassianovaHumanities and International

Studies Fellow, StanfordAlla Kassianova 2006 ©

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Outline

• Background: Defense industry in the Soviet Union and under Yeltsin in the 90s

• State policy towards defenseindustry under Putin: basic features

• Critical appraisal

• Whose policy?

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Soviet defense industry: “core” quality

• A “structurally militarized economy”

• Intertwined elites

• Defense production a positive project, source of purpose and pride

Andrei Sakharov: “With others, I believed that this was the only way to halt the third world war”

• Defense industry an integral part of the Soviet universe

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Gorbachev’s revolution

• Relieve the economy of the defense burden

• Conversion plans

• 1989, procurement stopped rising

and Yeltsin’s shock “therapy”

• 1992, procurement slashed 2/3

• Defense industry initially written off by Gaidar

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The 90s: gradual comeback

• 1993, defense industrial lobby starts to produce results

• Ongoing fight against privatization

• Mid-90s, defense industrial planning resumes

• Overall, efforts ineffective because of general weakness of the state and meager resources

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State of industry in the 90s

• Shrunk in size, degraded in materialand human assets, disintegrated

• priority rating shifted in favor of fuel/resource sectors

• complex ownership structure:25-35 percent privately owned

• civil production and exportkey sustaining factors

• from 1999, steady growth of exports

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The Return of the State: Reinstating responsibility

• Concept of state policy in the area of military and technical cooperation with foreign states up to 2010

• State Armaments Program, 2000-2010

• Reform and development of the defense –industrial complex, 2002-2006

• Global Navigation System 2002 – 2011

• National Technological Base, 2002 – 2006

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Reform and development of the defense –industrial complex

Objective:

• “create a new image of the defense-industrial complex through reforming it according to the tasks of military planning

…

• promote its sustainable development and production of domestically and internationally competitive hi-tech goods for military and civil purposes”.

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The Return of the State: Pumping resources

• Steep growth of federal funding

• Emphasis on R&D

• Capital investment through dedicated Federal Programs

YearDefense budget,

bln rubles

State Defense Order,

bln.rubles

2000 209 42

2004 411 137

2006 668 253

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Intervention: top-down restructuring

12 hundred into 40-50

a new industry makeup:

“integrated structures”, or “holdings”, manufacturing end products

fully budget-subsidized arsenal-type factories for ammunition

research centers and design bureaus

a network of specialized suppliers, including small and middle businesses

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Top-down restructuring: 3 out of 40

• January 2002 Takticheskoe Raketnoe Vooruzheniye(tactical missiles)

• April 2002 Almaz-Antei (air defense systems), 46 entities, about 100000 employees

• April 2004 Oboronprom (helicopters )

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De-privatization

• Distrust of private defense companies

• procurement contracts as leverage for conceding shares of stock to the state

• seating state representatives on the board of directors

• transfer of stock in exchange of intellectual property or land ownership rights

“Public form of ownership obliges to put the state’s interests first”

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Controlling exports

2000:

• “Only the Rosoboronexport State Corporation is entitled to supply to the international market the entire range of Russian armaments officially authorized for export.”

• 85-90 percent of exportOut of hundreds, only 3 +16 defense companies have independent access to the world market

• Federal Service for Military-Technical Cooperation awards export licenses and authorizes transfers

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Controlling exports

Arms Export

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1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

$ bi

llion

Export

Alla Kassianova 2006 ©

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The Return of the State: maximizing control

• 6 administrative reorganizations in 6 years: concentration of the state’s controlling powers

• Re-creation of the Military and Industrial Committee

• The ideal of the “President’s Vertical”, a highly centralized line of command seeking to maximize control over the areas considered “strategic” by the state

Bottom-line: “more state”

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Questions about policy

• Unknown correlation with the military doctrine and security strategy

• Closeness: State Armaments Program secret, defense spending nontransparent

• Sources of investment, international involvement unclear: international cooperation vs. “sovereign” capacity

• “Control” vs. “market”

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Obsession with “control”

• Ivanov, Defense Minister, August 2005: “…a small presence of state representatives in the company’s board of directors allows to control tens of billions of rubles of the state defense order”.

• Chemezov, Director of Rosoboronexport, January 2006: “… it is extremely important to control a company that is engaged in military and technical cooperation (i.e. weapons exports) via Rosobornexport”.

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Implementation: financing of procurement contracts

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Whose policy?

• ideology of “strong power” and symbols of strength

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Whose policy? People in charge

• Rosoboronexport: Sergei Chemezov, KGB intelligence division,worked with Putin in Dresden

• Federal Agency for State Defense Order: Andrey Belyaninov, KGB intelligence division,met Putin in GDR first Director of Rosoboronexport, later appointed to manage procurement order

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Whose policy? People in charge

• Federal Agency for Military and Technical Cooperation:Mikhail Dmitriev, KGB intelligence division,worked with Putin in GDR

• Almaz-Antei board of directors:Viktor Ivanov, Putin’s colleague in KGB, presently personalassistant to President

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Conclusion

• Defense industry is being appropriated by a set of narrow group interests by placing their trusted people at the positions giving control of enormous financial resources and extensive international connections.

• The current policy is thus devoid of public, and therefore, critical and reflective quality. This leaves present policy on a shaky foundation, despite a seeming revival of the industry.

Alla Kassianova 2006 ©