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. Last Updated: 07/27/2016

A Plan to Tame The Economy's Biggest Beast

As strange as it may seem, until now the most powerful sector of the Russian economy -- the military-industrial complex -- has not had any well-organized political lobbyists.


It is hard to say why this is. Perhaps the generals of the military-industrial complex were not used to fighting to get their programs financed. Or maybe they never really believed in the demilitarization of the economy, and they have been waiting in confusion for the authorities "to come to their senses" and resume feeding the defense beast.


Be that as it may, thanks to a certain confusion and a lack of political organization on the part of the representatives of the military-industrial complex, the government has managed over the last three years to cut state defense orders by at least 80 percent. In the budget proposal for next year, the Defense Ministry will get 40 trillion rubles ($1.25 trillion), although it had requested 87 trillion. The Defense Industry Cooperation League estimates that the new budget allows for only 68 percent as much defense production as the 1994 budget.


As a result, it is no exaggeration to say that the leaders of the military-industrial complex are nearly hysterical. So far, however, the only concrete collective action that they have managed to put together is a letter with a proposal to restructure the entire military-industrial complex. This letter was sent at the end of October, but there has not been any response so far. However, it would be only fair to say that there is a lot of sense in the League's proposal.


The League's president, Alexei Shulunov, the general director of a major military radio-technology plant, suggests that the government take a look at the distribution of state defense orders. He claims that 24 percent of Russia's defense enterprises received no orders last year. Thirty-nine percent have state orders worth between 0.1 percent and 25 percent of their total production; 18 percent have orders equal to between 25 and 50 percent of their production. Only 10 percent of defense enterprises have orders between 50 and 75 percent of their capacity, while 9 percent have orders that account for between 75 and 100 percent of their total output.


Shulunov has proposed that all 1500 enterprises with military orders accounting for less than 25 percent of their output no longer be considered part of the military-industrial complex. Their military orders, Shulunov says, should be distributed among the remaining plants, allowing the government to concentrate its resources in enterprises that are truly the backbone of Russia's defense production.


Shulunov thinks that maintaining the huge number of defense enterprises and the workers they employ is both unnecessary and economically impossible. For example, if the Omsk tank factory, which produces only five tanks per year, is considered to be a defense plant in its entirety, including all the costs of maintaining its huge staff, then it is easy to see that the actual production cost of those five tanks is absurdly high.


By leaving the military-industrial monster unoccupied but unable to convert itself, the government is playing with fire. The military-industrial generals are already close to the point of forming their own political organization. And if the leaders of the military-industrial complex are able to act in concert, and if they are able to pick up the support of Russia's military leadership, then they will be in a position as early as next year to take such a big piece of the budget pie that the other sectors of the economy will simply be reduced to poverty.