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. Last Updated: 07/27/2016

Ivanov on a White Horse

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When a commander goes into battle, he needs to hold back a portion of his troops for deployment at a critical juncture. President Vladimir Putin's strategic reserve goes by the name of Sergei Ivanov. After the Kursk tragedy, when it became clear that the top brass were brazenly lying to their commander-in-chief and deliberately dragging their feet on military reform, Putin sent in Ivanov to sort things out.

Now the president has sent his closest friend into the fray once again. Ivanov has been appointed deputy prime minister while retaining his job as defense minister. The move was spurred by a comment that General Yury Baluyevsky, chief of the General Staff, made during a recent meeting of the military leadership. Baluyevsky announced that plans to rearm the military were being undermined by a lack of coordination between the military and other government agencies and the defense industry.

Baluyevsky's concerns are fully justified. The government spent 187 billion rubles ($6.47 billion) on defense procurement in 2005, and next year that figure will rise to 237 billion rubles. Yet the volume of defense production has not risen proportionately. Annual output amounts to six or seven Topol-M intercontinental ballistic missiles, a few dozen tanks and armored fighting vehicles and fewer than a dozen airplanes and helicopters. At this rate, rearming the military will take decades.

Ivanov has expressed outrage at the fact that increases in defense procurement spending have been negated by a sharp rise in the cost of new hardware. By some estimates the price tag of the Topol-M has skyrocketed by 350 percent in recent years.

Boris Alyoshin, head of the Federal Industry Agency, faults the Defense Ministry for attempting to retain the old Soviet pricing mechanism. "The Defense Ministry factors in an average wage figure of 3,500 rubles per month and calculates overhead and taxes paid by the producer," Alyoshin said. As a result, defense enterprises don't have the wherewithal to purchase new equipment or to attract qualified staff. Yury Solomonov, chief designer at the Moscow Institute of Thermal Technology, which produces the Topol, has warned that delivery of the missiles could be threatened as subcontractors lose workers to higher-paying jobs in the retail sector.

In response, Ivanov announced the creation of a new agency tasked with increasing the efficiency of the defense industry. It's not exactly clear why the government's Commission on Military-Industrial Issues, headed by Prime Minister Mikhail Fradkov, hasn't been able to get the job done. And what has the Federal Service for Defense Contracts under Andrei Belyaninov been doing all this time? Not to mention the Federal Industry Agency, and Alexei Moskovsky, the deputy defense minister in charge of armaments, and Alexander Burutin, Putin's adviser on the defense industry and arms procurement. The problem is obviously not a lack of coordination or leadership. The problem is that the military-industrial complex long ago ceased to be a unified system. Now there are from 900 to 1,700 defense-related enterprises that make only a symbolic number of weapons; the old network of high-tech defense subcontractors has fallen apart. These companies have mostly gone public and shifted to consumer goods. The task now is to re-integrate them into the defense industry.

Doing so will not be easy because the Defense Ministry has resisted setting clear procurement priorities, preferring instead to spread its procurement budget thinly over the entire industry. The small orders placed by the ministry are not profitable for defense subcontractors, which have to devote an entire production line to these items. To cover their costs, subcontractors are forced to raise prices. Prime contractors then pass this increase along to the government in the form of more expensive weapons.

The government must also figure out how to insure stable defense production in the face of a steady rise in the cost of fuel, natural gas, electricity and shipping. In short, the task ahead is to restructure the defense industry so that it can function in a market economy.

Another blue-ribbon panel won't get the job done. Revamping the defense industry will require thousands of qualified workers. The military establishment itself must be reformed from the ground up. But the Kremlin isn't up to the job. Rather than make a real attempt, Putin has shifted a few bureaucrats.

When Ivanov was named defense minister, he was tasked with real military reform. Now he has been given the job of reforming the defense industry. The result will no doubt be just as impressive.

Alexander Golts is deputy editor of the online newspaper Yezhednevny Zhurnal.