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. Last Updated: 07/27/2016

More Complex Production

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Thanks to unprecedented oil prices, the Kremlin has tons of money. It is now trying to use this windfall to modernize the country and has given tasks to both of the likely presidential successors. First Deputy Prime Minister Dmitry Medvedev has been assigned the four national projects, but it is becoming clearer there that the money is simply going to go to the bureaucrats.

Now Defense Minister Sergei Ivanov is also at work. In speech after speech, Ivanov has been insisting the military-industrial complex can drive the Russian economy. As proof, he has noted that defense industries account for more than 70 percent of all high-tech products and employ more than 50 percent of the country's scientists. Ivanov also maintains that by 2115 Russian defense industries will devote more than 70 percent of their production capacity to the manufacture of civilian goods.

The country's leaders suddenly are beginning to see the military-industrial complex as a source of technological innovation. Recent Security Council discussions testify to this. President Vladimir Putin, Prime Minister Mikhail Fradkov and Ivanov have agreed that Russia desperately needs a technological breakthrough to give it an appropriate place among world economic leaders. This breakthrough could come, they maintain, in military technology.

This is true -- in theory. Defense spending is the softest form of state economic incentive: It is allocated over time, tightly controlled and not likely to lead to inflation. As a result, the country also gets the modern tanks, submarines, aircraft and missiles it needs. Defense spending may also lead to an innovation that could serve as the basis for stable growth. This is what happened with former U.S. President Ronald Reagan's "Star Wars" program. It ultimately failed to produce a viable weapon, but it did produce hundreds of advanced technological innovations.

But can Ivanov provide this kind of economic growth? I don't think so. To turn defense industries into a driving force for the economy would require a major revamping of the entire system. During the Soviet and post-Soviet periods, there were attempts to use military technology in civilian industries. All we got were shovels and titanium pots.

Even today, attempts to produce domestic goods are continuing at defense factories. This is the re-creation, of the Stalinist industrial model, in which the civilian and military sectors are inextricably linked.

Paradoxically, in order to introduce advanced technologies successfully, the civilian and military sectors must be strictly separated. Only this removes the temptation to create universal parts that can be used to make both weapons and consumer goods -- there's an old joke about the worker who tried to assemble a sewing machine and kept getting a machine gun. In order to use advanced technology in the civilian sector a product has to be inexpensive, widely used and mass-produced. In the early 1980s, the Americans put defense production in private hands, which facilitated the rapid use of advanced technologies in the civilian sector.

But Russia is going in the opposite direction. It is trying to fit relatively efficient defense companies in the aviation and shipbuilding industries into holding companies with strict top-to-bottom command structures. But the use of advanced technologies is impossible within structures managed by bureaucrats.

By creating specialized holding companies for particular kinds of military equipment the state is producing monopolies. With stable state funding (300 billion rubles, or $11 billion, next year), these monopolies have no incentive to use advanced technologies for the production of civilian goods, let alone to develop the new technologyies in the first place. By copying the organizational principles of the Soviet military-industrial complex, Ivanov is ensuring the samer Soviet-era stagnation -- where the resultss will never justify the spending.

For months now, Ivanov has been sounding the alarm about constant price hikes for military supplies, but he doesn't seem to understand that the ministry is the hostage of the monopolies it created. Even now, instead of new weapons, they are foisting off warheads that were developed 20 years ago and a fighter plane that was test flown a decade ago.

There's no point even mentioning competitive civilian products. Monopolies that are milking the government dry don't need to produce consumer goods. Talk about innovation will remain just that: talk. Meanwhile, billions of rubles spent on the defense industry will disappear without providing so much as a nudge to the economy.

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