Russia / Soviet Military Industry

In the Soviet era, defense industries were created to arm the Soviet Union, and as
such they had the highest national priority in the allocation of technology and
talent. By some estimates, the complex regularly consumed 20 percent of the gross
national product and 15 percent of the industrial labor force. Almost all defense
plants duplicated each other: Uralvagonzavod (Nizhny Tagil) and Transmash (Omsk)
in the tank industry, the Irkutsk aircraft plant and the Komsomolsk-on-Amur aircraft
plant in the aircraft industry, and the Baltic Plant and Severnaya Verf in the
shipbuilding sector.

Defense industry suffered from many of the features -- the Tyranny of the Producers
-- that characterized the centrally planned Soviet economy generally. Each
enterprise had an annual plan that specified what and how much it was to produce
and where to send its product. Similarly, its supply problem was solved centrally.
The centralized, fairly rigid, long term allocation of supplies may have worked
reasonably well for the production of simple commodities, such as wheat or steel.
But it did not cope well with the unanticipated problems associated with design
changes and the correction of errors that are an inherent part of the quality control
process for non-commodity products, such as aircraft. Incentives and bonuses were
based on overfulfillment of a quantitative quota, and one year's successful output
ran the risk of becoming the next year's quota. Bonuses were calculated in ways
that an enterprise director often prefered to remain with the same technology and
to produce only a little more than the assigned quantity. Quality control was often
poor, and most complaints disappeared into bureaucratic oblivion. The time scale
for resolving complaint was long compared to the planning periods. So a
manufacturer could find itself the recipient of poor quality inputs from suppliers
over which it had little control.

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 also caused the Soviet
military-industrial complex, despite having top priority, to suffer from outmoded
equipment, much of which by the 1980s was left over from World War II. Western
observers suggested that the dated "keep-it-simple" philosophy had 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.

During the Soviet era the various institutional components of military research and
development interacted in a way that generally was 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.

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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 state and party. 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 was 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.

The Russian Federation inherited the largest and most productive share of the
former Soviet defense industry, employing as many as 9 million workers in 1,125 to
1,500 research, design, and production facilities. Russian defense industry wage
increases had not kept pace with inflation, meaning that most Russian defense
enterprises had steadily lost their best workers (estimates ranged from 800,000 to 1
million lost per year) to Western companies or the emerging Russian private sector.
In 1997 the Russian defense industry consisted of over 1,700 firms and nominally
employed some 2.5 million workers.

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While defense enterprises were found throughout the country, a significant portion
was concentrated in a dozen cities and regions, where over one-third of the labor
force worked in defense. Those installations were concentrated in particular regions,
whose economies tend to be heavily dependent on the industry; in the Republic of
Udmurtia, for example, more than two-thirds of workers and industrial capacity
were attached to defense in some way in the early 1990s. Moscow has large plants
for air force and missile components, and St. Petersburg specializes in naval design
and production as well as infantry weapons.

A Russian defense plant was, in some ways, a throw-back to a US factory-town. A

"town-forming enterprise" completely provides for urban activity and permanently
participates in different programs of social purposes. Such a 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 frequently
live in company apartments, shop in company stores, and eat in company
cafeterias. In the 1990s up to 80 percent of a defense plant's budget went to
maintaining these social services. The plant manager was 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 were often conducted on a barter-
basis.

In a town-forming enterprise, the life and prosperity of citizens depended on stable

work for the enterprise. A town-forming enterprise concerns itself with creation of
more jobs, and so would establish productions line outside the mainstream
business. In the 1990s plant managers often attempted to maintain production even
without budget authority to keep workers busy. This led to an excess inventory of
weapons, which plant managers tried to sell, even as the downsizing armed forces
also sought to sell off now surplus military equipment.

By the mid-1990s most Russian defense enterprises would have been 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. The industry needed modernization and many defense
enterprise managers were eager to learn about the basics of marketing, finance,
and modern business practices. Many defense plants reduced operations to only a
few days per week at most.

The Thirteenth Five-Year Plan of the Soviet Union covered the period 1991-1995.
The Sixteenth Five-Year Plan would have covered 2006-2010, and the Seventeenth
Five-Year Plan would have covered 2011-2015. It would appear that the demise of
the Soviet Union did not erase the penchant for Five Year Plans, since both the
Yeltsin and Putin governments released new long range plans every five years,
coinciding with the intervals that would have been covered by the Soviet Five-Year
Plan. In the United States, the conterpart activity is the Quadrennial Defense
Review, on four year centers.

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