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Rosoboroneksport: Arms Sales and the Structure of Russian Defense Industry

Authored by Dr. Stephen J. Blank. | January 2007

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SUMMARY

This monograph focuses on the relationships between the state and Russia?s defense industrial sector, particularly Rosoboroneks port (ROE), the main state agency for arms sales. ROE is more than a seller of weapons; rather, it has become an industrial behemoth that is monopolizing whole sectors of this industry on behalf of the state. Its activities reflect the fundamental nature of the Russian state?s relationship to the economy, which increasingly is regressing to tsarist or even Soviet models in some respects. In this respect, defense, like energy, is a vital sector of the Russian economy that the state intends to control directly. And the Putin regime has implemented a conscious strategy of increasing state control over more and more branches of industry beyond those two sectors.

The parallels between these two sectors and the leadership?s views of them strikingly reflect this regression to patrimonial forms of management and ownership. Yet, it remains unclear whether or not the moves towards greater state control can really bring the defense industry out of the prolonged crisis it has endured. Because the Union of Soviet Socialist Republics (USSR) was in effect a military-industrial complex writ large with a militarized economy, since 1991 this sector consistently has failed to deliver to Russia?s forces the needed weapons and technologies. That failure is the root cause of the attempts by the state to take over that sector and use ROE as a major actor in the process. Arms sales also are a major, if not the major, source of funding for all research and development (R&D) and procurement.

Yet, even as arms sales revenue grows and ROE takes over more and more of the defense sector on behalf of the state, it is by no means clear that such procedures can either restore the defense industrial sector?s capability or that Russia?s arms can continue to be competitive with those of foreign rivals. Nor is it certain that arms sales revenues can keep growing, for it appears that those sales may soon reach a plateau as India opens up its weapons market to Russia?s competitors, and China?s technological capability improves. At the same time, ROE is a key player in a foreign and defense policy that is increasingly anti-American and anti-capitalist, or anti-liberal. ROE and the progress of the defense sector as a whole, therefore, are key indicators of the continuing trajectory of both Russian domestic and foreign policies, including defense policy.

Introduction.

Russia?s regression to an authoritarian, even autocratic, system, a so-called ?managed democracy? or, more recently, ?sovereign democracy,? is an established and recognized fact. Not accidentally, this regression has also gone hand in hand with an increasingly adversarial policy towards the United States. One element of this adversarial policy is the conspicuous sale of weapons to states who are openly or potentially anti-American, e.g., Venezuela, Iran, Syria, and perhaps even China. Russia makes these sales in order to strike at U.S. interests while simultaneously advancing its own interests, which include obtaining a foothold in the target states? defense and foreign policies and acquisition of revenues along with market share from these defense sales. Therefore its anti-American policy thrust is by no means the only reason for such arms sales.

Until now, precisely because the state would not or could not procure sufficient weapons for its armed forces, the defense industry could not survive without exports and the revenue gained thereby. This point holds true across the board except for firms that are classified as strategic and which therefore are being subsidized fully.1 But even those firms labeled as strategic need to export in order to gain foreign revenue (apart from the government?s other foreign and defense policy gains) and to continue funding research and development (R&D) and the development of newer, more modern weapons, as well as their serial production. So while this anti-American motive certainly figures in those transactions, other and deeper motives relating to Russia?s political-economic structure are at work in this sector.

Arms sales policies and the organization of defense industry in all states link together both domestic and foreign policy interests and processes. In other words, study of Russia?s defense industry not only points to the states targeted by Moscow as potential buyers of its weapons, it also illuminates key aspects of Russia?s regression to autocracy, i.e., its domestic political economy. Hence the study of the structures of these particular organizations provides considerable insight into the overall organization of Russian defense industry, defense and foreign policy, and overall political economy.

While the foreign policy interests involved in the selling to these aforementioned states seem relatively easy to understand, there has been little, if any, study of the domestic organization of Russian defense industry in the last few years by Western authors or published in Western journals and books.2 This neglect is undeserved not only because the Russian government has made major efforts at reforming this sector, but also because the issues and structures involved in those sales are self-evidently important for international security. And as Russia?s defense machine revives, thanks to the infusion of cash derived from the sale of oil and gas, the nature and direction of Russian defense industrial policy and arms sales also become considerably more topical. It certainly is not coincidental that the revival of arms sales to states antagonistic to the United States has accompanied the accelerating regression to autocracy in Russia.

For this reason, this monograph focuses on the domestic role of ROE, Russia?s main arms sales organization, in Russia?s politics and economics. While obviously this is only one part of ROE?s story, this aspect of ROE and of defense industrial policy offers analysts the possibility of obtaining vital insights into Russia?s overall political economy and national security policy.

One could with some justice call the lobbies and bureaucratic factions that are active in this sphere of Russian policy (including the relationship between them and policymakers) a military-industrial complex (MIC). However, with regard to Russia, that term is somewhat simplistic, or even misleading. For example, the Soviet Union, as we have long known, did not have an MIC, rather it was one. It was a mobilization economy built in the expectation of an ultimate major war and subordinated to that expectation. Thus its defining quality was its structural militarization.3 Contemporary Russian firms and state organizations active in defense industry and arms sales originated in that system and bear the marks of that origin as bureaucratic state agencies in their continuing closeness to the state, even as they have evolved through 15 years of convulsive, unending, and visibly unsuccessful changes. Accordingly, this monograph concerns itself with the relationship of ROE, the key arms sales organization, to the state, to defense industrial policy, and to defense industry. These relationships reveal much that is important, if not crucial, to understanding Russia?s politics and economics.

Much if not all of Russian politics, especially in the defense industrial sector, is bureaucratic politics, i.e., rivalries between competing factions and lobbies within increasingly state-directed or coordinated bureaucracies for favor, resources, and political turf bestowed from above. It follows that ROE?s relationship to them is the subject of unceasing and vigorous bureaucratic rivalry and interest. Due to these rivalries, and to the ever more visibly statist and controlling ideology that animates the current Russian political leadership, ROE increasingly oversees not just arms sales but also the whole defense industrial sector, as well as a rising share of civilian industry. Thus, a recent report observed that:

Russia?s arms export agency is seeking partial control in every new major industrial conglomerate, a move seen by analysts as part of a Kremlin drive to increase its sway over strategic and lucrative economic sectors.4

Not surprisingly, Maxim Pyadushkin, editor of Russia/CIS Observer, described this process as a tool for nationalizing the sectors that the Kremlin seeks to control: aviation, shipbuilding, metals, machine building, arms production, and, we might add, energy.5 Consequently, control of ROE, its subordinate agencies, and industrial firms is truly a mouth-watering prize and thus the object of much bureaucratic wrangling and maneuvering.

ENDNOTES

1. It should be noted that the number of such firms and the scope of such so-called strategic enterprises are expanding to include not only defense firms, but even newspapers and other media, thereby extending the reach of the state?s financial control over their activities, another sign of the developments referred to in the body of this monograph.

2. Stephen Blank, ?Russian Defense Industry in an Age of Globalization,? Defense Industry Globalization: A Compendium of Papers Presented at a Conference on Defense Industry Globalization, Washington, DC, November 16, 2001, Atlantic Council of the United States, Washington, DC, 2002, pp. 43-88; Stephen Blank, Reform and the Revolution in Russian Defense Economics, Carlisle Barracks, PA: Strategic Studies Institute, U.S. Army War College, May 1995, also published in The Journal of Slavic Military Studies, Vol. VIII, No. 4, December 1995, pp. 690-717; Stephen Blank ?Challenging the New World Order: The Arms Transfer Policy of the Russian Republic,? Carlisle Barracks, PA: Strategic Studies Institute, U.S. Army War College, 1993, also published in the Journal of Slavic Military Studies, Vol. VI, No. 2, June 1993, pp. 234-261; Vitaly Shlykov, ?The Economics of Defense in Russia and the Legacy of Structural Militarization,? in Steven E. Miller and Dmitri Trenin, eds., The Russian Military: Power and Purpose, Cambridge, MA: MIT Press, 2004, pp. 160-182; Vitaly Shlykov, ?The Anti-Oligarchy Campaign and Its Implications for Russia?s Security,? European Security, Vol. XVII, No. 2, 2004, pp. 111-128. See also Irina Isakova, Russian Defense Reform: Current Trends,Carlisle Barracks, PA: Strategic Studies Institute, U.S. Army War College, October 2006.

3. Peter Almquist, Red Forge: Soviet Military Industry Since 1965, New York: Columbia University Press, 1992; Vitaly Shlykov, ?Back Into the Future, or Cold War Lessons for Russia,? Russia in Global Affairs, No. 2, 2006, eng.globalaffairs.ru/numbers/15/1018.html;Structural Militarization,? pp. 160-182. Shlykov, ?The Economics of Defense in Russia and the Legacy of

4. Nabi Abdullaev, ?Russia Revamps Industrial Strategy: Arms-Export Agency Seeks Sway Beyond Defense Sectors,? www. defensenews.com, July 3, 2006.

5. Ibid.