Dr. Peter Lock
European Association for Research on Transformation e.V.

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Dr. Peter Lock
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The role of high technology and co-operation for the efficiency of the defence sector

(Abridged version of an article prepared for the seminar on Foreign Experience of Defence Industry Conversion and Privatization in a Market Environment in Saint Petersburg, Oct. 29-31, 1996 by Peter Lock EART e.V. Hamburg Germany)

1. A fundamental change

The implosion of the Soviet Union is often regarded as a fundamental change in the international system. Indeed many parameters which put mankind into imminent danger of annihilation are in a process of being regulated rationally as is the case with nuclear and chemical weapons. With the end of the bi-polar confrontation political priorities are to be reset. The military factor has lost its overriding weight. In other words, in a world less dominated by competing ideologies manifesting themselves in military currency as was the case throughout the Cold War period, security has to be redefined and a new balance between the military and the economic dimensions has to be worked out.

It is not any longer feasible to preserve the defence-industrial base as a protected and isolated sector shielded from the imperative to become coherently integrated into the respective national strategies of economic growth. A continuation of the pre-existing pattern forgoes the growing potential of civil-military synergies; it would be viewed in ten or fifteen years as the "losing edge" and a missed window of opportunity. Given the extreme economic constraints Russia's defence planning is faced up with, optimising coherence between industrial policy and defence production will determine success or failure of the systemic transformation and of an efficient rationalisation of its military posture.

The extraordinary political events in recent years have absorbed the attention of the "strategic" communities debating implications for the formulation of new military security doctrines. It is possibly for this reason that the far reaching implications of an important secular trend in industrial innovation are not sufficiently reflected in the debates on the future defence-industrial base, particularly in Russia. The incremental process of changing the technological paradigm from military to civilian innovation has gained an irreversible momentum in the context of economic globalisation. Though this shift is not related to the end of the Cold War, the end of the bi-polar confrontation should make it easier to break up entrenched military-bureaucratic alliances and alleviate the defence burden through a full exploitation of civil-military synergies at all levels. But for the time being institutional rigidities (military specifications) and vested interests (sunk costs) in the military sector impede a full and timely absorption of innovation created in the globally operating civilian sectors of the economy. It is noteworthy that the globally most dynamic industrial sectors like information technology and telecommunication are focused around technologies which are in the process of changing if not revolutionising the character of warfare. Hence the composition of future military equipment will be dominated by these industrial sectors. While there may be some evidence that military research kicked off a number of information technologies, it is evident by now that the civilian markets are the driving force behind breathtakingly short innovation cycles in information technology which can not be matched by military research and development.

However, decision makers at government levels and within the military-industrial sector are slow in perceiving the new role and impact of industrial policy for the defence sector. They fail to recognise the innovative potential of market-driven civilian technologies for designing new affordable and efficient defence technology. The sources of innovative components required to produce efficient defence equipment at affordable costs tend to be global in nature. This fact has far-reaching implications for the future structure of national defence industrial bases.

2. The self-defeating seclusion

The VPK of the former Soviet Union was generally perceived as a hermetically secluded system. At the same time, however, the VPK was externally determined by the partially virtual and partially real competition with its counterpart, the military alliance dominated by the United States. In this sense the VPK was a reactive, rather than an autonomous system, most landmarks were set by the continued rearmament of the United States and the imperative of re-engineering superseded potentially emerging alternative paths of technology in all but a few fields[1].

Economically, however, the VPK operated in relative seclusion from global markets as a source of upstream supplies. The paranoia of secrecy, which dominates, often unfoundedly, the military culture, reinforced the existing systemic trend[2] of self-reliance at all levels from the firm[3] to the national economy. This pattern was virtually cemented by western strategies imbedded in the logic of CoCom. Inefficiencies and diseconomies of detrimental magnitudes were the consequence. Notwithstanding these drawbacks the Soviet VPK was also in charge of producing sophisticated civilian goods like TV sets etc. But the civilian production segment lacked market-driven dynamics of its own, it was merely a dependent spin-off. In the absence of adequate indigenous supplies it was often forced to rely on imported machine tools and even foreign licenses. Overall the so-called VPK was an industrial sector far less secluded than Western perceptions seemed to suggest at the time. Its limitations which impede a smooth transformation and in most cases conversion are more of a systemic nature.

Though the American MIC and the Soviet VPK shared many common features, a closer look reveals some substantial structural differences. Even during the military spending spree in the United States under Reagan studies of the American defence-industrial base revealed, very much to the embarrassment of the defence establishment, that the United States were far from being self-reliant any longer in their military procurement of sophisticated military equipment (OTA 1991, OTA 1992a, OTA 1992b, Ziegler 1991). In spite of this finding however, there was a wide consensus that feasible strategies to reconstruct full autonomy were not available, because the price to be paid would be too high and have self-defeating effects on the quality of the defence posture.

In this situation the concept of dual-use and emerging technologies began to dominate the strategic debate. The concept of dual-use is fuzzy, however, various actors are using different concepts of dual-use technology.

A) From a strategic trade perspective all technologies which were suspected to enhance the Soviet economy and military production in particular were labelled dual-use, banned from export to the Warsaw Pact and controlled imperfectly though by means of the CoCom regime.

B) Another definition emerged in the context of increasing budgetary constraints. The relentless rise of costs in military research and development as well as manufacturing exceeded the financial capacity of West European nations in particular, making co-production of sophisticated weapon systems an imperative. But the military-industrial complex came also under pressure to seek commercial applications of its know-how. The governments and the often government controlled industries pretended that military research facilities commanded a wealth of high-tech knowledge waiting only to be released from the chains of exclusive military control. Cashing these assumed potential synergies of the huge investments in secluded military research would have eased the economic burden of the military sector. The British government under Thatcher acted as a precursor in this field, but very little, if any technology transfer from the military laboratories materialised, not surprisingly rather few technologies passed the military-civilian threshold. Yet with the apparent end of the Cold War virtually everywhere military industries proclaimed their intention to convert their production, very often by modifying an existing military technology, so it would meet perceived civilian needs. Though as a rule effective demand for such products did not emerge because the product, the design, the production costs, the marketing or more often a combination of these factors were deficient.

C) Yet the third concept of dual-use technology and possibly the most important one, was met with little enthusiasm by the military sector in general and the overextended procurement bureaucracies in particular. As the United States had discovered already in the eighties many technologies originating in the civilian sectors of the economy were efficiently integrated into military systems, they were of dual-use. A closer look at on-going production of military equipment including sophisticated weapon systems reveals that these 'civilian' dual-use components constitute a constantly increasing share of the value added. Thus, we observe a secular trend of overcoming the seclusion of military manufacturing. A combination of superior performance and a relentless pressure to constrain costs has brought about this structural change.

Following this diagnosis of technological trends defence production is to rely on global sourcing of components and subsystems of civilian origin in order to provide for cost-efficient procurement[4]. Under these circumstances the dominance and reach of state regulation tends to diminish. The acceptance or rather an active pursuit of an international division of labour at the upstream end of defence production constitutes the only viable strategy to actually procure value for money which aims at optimising the defensive posture under the given economic constraints.

Also for the first time national security will not any longer necessarily be based on imitatively reactive designs of the bi-polar period. Sufficiency and a purely defensive match of sophisticated military overinvestment elsewhere become realistic options. This reorientation has hardly begun, but it will nevertheless increasingly shape the defence-industrial bases of the future where rational choices are determined by clear and unavoidable economic parameters. Germany and Russia, at rather different levels though, are cases in point. Germany is struggling with the economic burden of unification and can not afford to pay for the military heritage of the Cold War, though vested interests have so far stopped the government to face reality. The single most expensive heritage is the Eurofighter designed for the Cold War scenario of dog fighting over the territory of Germany, preferably the over the former GDR. However, it also served to support the late-coming German aerospace industry and allowed it to participate on equal terms in this multi-lateral project. As budgetary pressures increase it becomes ever more difficult to maintain this poorly veiled, though rather expensive indirect subsidy for DASA. A continuation of this outrageously expensive weapon system will severely weaken the German defence posture given that strict limits of military expenditures exist. Thus, the continued participation in the Eurofighter-project would demonstrate the continued dominance of an alliance of corporate interests shaped during Cold War.

Russia is burdened with an outsized army and military-industrial sector which the economy can not sustain and even less so under the constraints of systemic transformation. The layout of how to bring the Russian military potential into proper proportion with its economic capability has not yet been drawn. But unfailingly spreading the resources too thinly creates profound inefficiencies, not only in the field of military research and development. The maintenance of large under-utilised manufacturing capacities also continues sapping valuable resources urgently needed to rationalise the Russian defence industrial base. Unfortunately the process of adaptation to the new economic horizon is painfully slow and a partial stalemate confronting rather diverse vested interests within the VPK retards the necessary political decisions.

3. The European dimension

Russia's future military doctrine is necessarily co-determined by the European context. If the creation of a new line of confrontation at the border of Russia is to be avoided in Europe, the conceptional interdependence between military doctrines in Europe including Russia must translate into co-operative programs and eventually create some interdependence in procurement. A proper understanding of the on-going restructuring of the defence-industrial bases throughout Europe will help to identify the industrial areas where Russia and other European nations can exploit synergies emanating from co-operation. In the seventies the majority of the military production in Western Europe was carried out in the state sector of the economy. Only in the FRG the private sector dominated, though even there the aerospace sector became fully privatised at the end of the eighties only. However, starting with Great Britain under the Thatcher government full privatisation and consolidation of the outsized European defence industrial base has now gained full momentum. Though governments still attempt to keep some control through 'golden shares' (France Thomson) or the insistence that consolidation should be restricted to the national context only (Great Britain - Plessey; Germany - Atlas Electronic). The private sector, however, clearly envisions a consolidation in a wider European context as several transnational acquisitions and mergers testify.

At the level of subcomponents like engines, gear boxes, electronic devices and many other items certain specialised producers have won already a hegemonic market position throughout Europe. MTU (tank engines, maritime diesel propulsion), Renk (heavy gear boxes), Signaal Aparaten (=Thomson) (maritime navigation systems) are the most visible cases of a broad range of suppliers (Dowty-Messier, LITEF, Martin-Baker, Bosch, Siemens, GE, Zeiss, Honeywell, Rohde & Schwartz etc. ) having a dominant market position as upstream suppliers of the nationally still separated system integrating manufacturers in Europe. It is important to note that most of these market leaders in subsystems have a strong position in the global civilian market of the respective technology.

This pattern of arms production in Europe might be described as indirect transnationalisation. Though the system integration is still in the hands of the various national 'champions', an analysis of the value added reveals a significant and increasing share of transnational i.e. foreign inputs. Even the centralised planning of the defence sector in France by the Délegation Général d' Armement aiming at securing national independence could not stop the trend. Single national defence budgets could not sustain the needed broad range of manufacturing capacities required to produce a major weapon system and if imposed for political reasons only at the price of lower quality[5]. While the collusion between national industry and defence bureaucracy can conceal for some time the qualitative loss caused by imposed national sourcing, export customers are quality minded and require products based on the best available subsystems. Thus, manufacturers are forced to offer 'internationalised' versions of their products containing subsystems produced by the respective international market leaders to win export orders. The French Leclerc battle tank, for example, had to be equipped with a MTU-engine to enter competitions in Sweden and the UAE and Russian weapon systems are equipped with imported electronic systems to become exportable, to name just two prominent examples.

At present the national military-industrial lobbies begin to lose out and the logic of transnational consolidation is breaking its path, so far up to just below the level of system integration. As the colossal diseconomies of Eurofighter, which will be produced at four different sites, demonstrate, some national champions still command sufficient political influence to secure national strategies at the level of system integration, even in the case of multilateral projects. However, the heritage of these nationally segmented strategies can not any longer be sustained economically, given the financial constraints and costs enormously escalating with each weapon generation and consolidation is finally on the agenda. A case in point is the production of fighter aircraft. Out of eight production lines world-wide producing (or planning to produce) an air defence/air superiority fighter seven will be located in Europe: France (Rafale), Germany (Eurofighter), Italy (Eurofighter), Russia (MiG 29), Sweden (Gripen), Spain (Eurofighter), United Kingdom (Eurofighter), the only other fighter is produced in the United States. While it is difficult to quantify with precision the enormous waste involved, the need to consolidate is obvious, though the political poker continues, but most likely not for long. Bringing Russia and the other states of CEE(Central and Eastern Europe) into the European scenario is not an easy task, but taking a few economic parameters into account will help. The gap between Russia's potential and its actual economic performance is enormous. It is not yet clear when the process of successfully closing this gap will gain momentum. For the next years Russia's economic potential to support a military security doctrine will not exceed the British, French, or German capacity by a wide margin. Taking official budget figures and prevailing exchange rates, however distorting this may be, gives an orientation: Russia ranks fourth in Europe behind France, Great Britain, and Germany. Though the existing 'military capital stock' still reflects the status of a military superpower, its depreciation will accelerate and put increasing demand on the current economic capacity. Under these circumstances it is of utmost priority to rationalise the Russian defence-industrial base without delay. But as the experience of the three large economies in Western Europe France, Germany, and United Kingdom has clearly demonstrated, an economy of this size can not single-handedly subscribe to the costs of the full range of efficient military industries. Western European nations responded, however imperfectly, by sharing of research and development costs and international sourcing, though sometimes only tacitly. Equally Russia will not be able to maintain an efficient defensive industry without pursuing co-operative projects, most likely with other European nations. At the same time international sourcing in its defence production becomes an imperative lest in the long run only second-class equipment will be produced.

However, the implications of the economic reality were not yet allowed to truly enter the Russian debate on defence. At the same time the debate about the consolidation of the European industrial-defence base does not yet take notice of the fact that the Cold War has ended and that CEE is part of Europe. The combination of the two misperceptions does not forebode well for the chances to enhance a stable and peaceful order in Europe and the creation of an efficient defence industrial base.

4. The limits of conversion

Europe as a whole is burdened with excess capacities in the military sector. In Russia, however, this excess capacity has truly dramatic dimensions. The former Soviet VPK has ceased to exist in its former composition. This web can not simply be reignited, though military planners within NATO sometimes insinuate such a possibility to back up their own demands for continued high levels of military provisions. In Russia as well, proponents of a reinvigorated military posture live with the illusion that the VPK could be reawakened. But neither can Russia economically support such a sector any longer nor would a simply reinstituted VPK - being structurally separated from global innovation systems - be able to supply the armed forces with worthy equipment. As a result large industrial sectors formerly employed with military production are to seek new markets through conversion. Political rhetoric and illusions within the United Nations, particularly in the annual Human Development Report of UNDP and during the Gorbatchev period have been replaced by the recognition that the conversion of defence-industrial capacities poses great, often insurmountable difficulties. An early harsh predicament[6] that conversion is the futile attempt of retrieving 'sunk' investments both in human and fixed capital was largely born out by what happened in Russia. But the failure of conversion at the plant level is by no means a 'Russian' phenomenon. In Germany the management clearly expressed the view that conversion at the factory level is not a viable option, because all conceivable markets are taken and market entry costs are prohibitive (f.e. Cremer, CEO Rheinmetall). Long before the Cold War ended leading arms manufacturers reduced their defence dependence by diversifying through the acquisition of firms already well established in civilian markets. Shareholders were not prepared to provide risk capital for converting military plants because the existing cost structures and the required investments did not add up to viable business plans. In Great Britain entire regions in the North became deserted because of defence downsizing and the failure to develop civilian production in replacement. In France the downsizing was much delayed, but is presently gaining momentum.

On the positive side a limited number of small high-tech companies managed to spin-off and establish themselves in civilian niche markets, in these cases public seed money was often available. Conversion of existing plants was successful only in special cases where a company was acquired or a joint venture formed which commanded already an established position in the civilian market allowing for expansion. The role of the state is limited to offering retraining of workers and to subsidising credit and venture capital for start-up companies. But more and more defence downsizing is seen as nothing special and particular to this sector. Restructuring currently prevails in many industrial sectors with similar consequences. As a result the state is rather reluctant to privilege the defence sector. Regional economic initiatives appear to be the only viable response, programs of the European Union have adopted the regional approach, the Konver program is specifically targeted to small regions suffering from defence cuts.

In the process of restructuring the defence sector in response to the reduced demand defence contractors concentrated on their core capabilities, sold other product lines and selectively acquired specialised defence firms whose product range matches their respective core activity. The process continues and such acquisitions take place at the national level as well as at the international level. The aim is to realise economies of scale and to become a dominant force in the respective market segment at the European level. The result of this on-going process is an acceleration of the indirect transnationalisation of the Western European defence industrial base. A key question with respect to a broader European integration will be to what extent the defence sector in CEE will eventually take part in the dynamics of this restructuring.

5. Technological changes and restructuring of the defence sector

Many valid examples of military research and the ensuing technology provide sound evidence that in the past military investment has imparted the evolutionary path of civilian technology. This is not surprising as, at the time, no private risk capital would have invested sums in R & D comparable to what military budgets availed to the large research laboratories and a small group of established defence contractors. Only nominal controlling parameters of productivity were applied. The most conspicuous example, of course, is nuclear energy. But interestingly the economic development of industrial nations also shows that the competitive benefits of this military path exploration have not been harvested by the nations focusing on military research. The secretiveness of the military sector and its institutional pattern did not provide for a shrewd exploitation of the inherent civilian applications and a broad diffusion of the technology, while Japan rather successfully brought technologies to civilian markets whose hotbed was military r & d in the United States.

However, the rapid evolution of global corporate networks during the last fifteen years has created a global economy where competitiveness is defined by the speed and efficiency to bring innovation to civilian, mostly consumer markets at global levels. This process generates R & D investments within corporate networks and their alliances which belittle the amounts national defence laboratories or traditional high-tech contractors can hope to mobilise within the framework of national defence budgets.

As a result the rate of product and process innovation in civilian markets has accelerated at an unprecedented scale. Technological development is determined by the "pull of the global market" for civilian products. Increasingly new technologies require the command of several fields of technology which combine into "super-technologies". New products and process technologies have short life times as the global competition puts enormous pressure on every actor in the market to speed technological development. Globally acting corporations react to the challenge of the shrinking half times of their innovation with broadening their technological base through diversification and the formation of strategic alliances allowing an efficient expansion of production and instant coverage of the global market. In this process the volume of private risk capital invested in R & D continues to increase in scale as a result of competition. This is one major reason why military research and product development has begun to lose track of available innovation. Another reason rests with the fact that the most advanced modules can not be produced as customised items any longer. Leading edge innovation is only available on the basis of global factories which require one billion US $ investment, as is the case with chips. Only a broadly generic product with a huge mass market has a chance to bring returns on a one billion US $ investment in the short life or half time of the innovative product. By implication any product incorporating advanced chips for example requires a flexible architecture allowing the absorption of each new generation of innovation without complete redesign by the widest possible range of products.

Hence, a military design can incorporate leading edge technology if and only if the design architecture is as flexible as is nowadays civilian technology, almost by definition. Therefore the extraordinary speed of civilian innovation global corporate networks generate will impose eventually new orientations and a reorganisation of military R & D. Future affordable production of military equipment requires basic changes of its implicit design architecture, in order to provide for sufficient flexibility required to absorb technological innovation the civilian sector creates in ever shorter intervals. The on-going, though barely admitted "civilianisation" of military production in terms of value-added content and organisation of production is to be explored and systematically expanded.

If such changes will be blocked by the entrenched lobbies of the national bureaucratic-industrial networks presently controlling procurement, reasonable military defence will become unaffordable for democratic societies. But more importantly, scarce resources will be wasted for isolated military research with no civilian spin-off and diminish the capacity of the respective nation to invest in the generic modernisation of its economy, a necessary precondition to afford a sufficient defence posture.

A closer look at the relative success of a private German shipyard in the crisis-ridden naval sector illustrates the described trend: The German ship yard Blohm & Voss developed the so-called Meko-frigate outside traditional government sponsored contracts and managed to win large shares of the global market. The attraction of this design is the great variability of integrating components and modules. The design provides for standardised modules for most of the functions of the ship. By adapting a logic of design which is established in civilian markets Blohm & Voss freed itself from implicitly imposed national upstream supply links and was able to provide customised frigates to the respective clients on the basis of world-wide sourcing and gained the flexibility to consider suppliers favoured by the customer. This product architecture also allowed for a significant reduction of construction time as complex subsystems are manufactured in parallel before the modules integrated in standardised containers are installed during the last stage of construction.

Only after its implosion the former Soviet Union and Russia were fully exposed to the dynamics of this evolution. The harshest message the transformation process brought home to the military-scientific and military-industrial establishment in Russia was that the technological achievements valued most in the process of Soviet planning were not easily convertible into the market. As the market gauges a technology in terms of its contribution to dynamic efficiency defined as the speed with which an economy develops and uses new technologies[7], the technological culture fostered in four decades of socialist achievements was not amenable to live up to the criteria ruling the world market. Thus, the ex-Soviet research institutes were suddenly confronted with a market whose rules and prices they were not acquainted with. On the one hand ruthless speculators scrutinised the existing technologies and hoped for undervalued occasions and on the other hand the Russian directors sustained totally unrealistic illusions about the market value of the technologies in the process of being readied on their drawing boards. The ensuing adaptation and the development of normal commercial relations is a still on-going grim experience because it takes place in a fragile regulatory environment.

The geographical and organisational layout of the ex-Soviet VPK was characterised by a separation of research and development and production. The profound revolution of design, testing and production which is conditioned by the computerisation of the entire design work through sophisticated simulation software (f.e. Catia of Dassault Electronique) imposes a complete reorganisation of defence production knitting together research and production organisationally if not geographically. MAPO may be a role model for this imperative restructuring which accounts for a technology-induced integration of all stages of generating a weapon system.

Two major changes impose a far-reaching adjustment of the defence-industrial culture. The dominant flow of innovation which provides for efficient military equipment will at ever larger scales emanate from the civilian sectors. The innovative technologies are generic, almost by definition. The process technology to produce customised items in the tradition of military designs will become increasingly difficult to find at affordable costs. The computerisation of all dimensions of an engineers' work imposes vertical integration of all stages of production. A restructuring of the Russian defence industrial base which fails to take these two aspects into account is doomed to fail.

6. Conditions for an efficient defence-industrial base

The economic expansion after World War II was led by the United States whose economy managed a smooth return to predominantly civilian economy. However, the emerging Cold War provided for a continuation of military R & D at unprecedentedly high levels. As a result military R & D contributed to the opening new directions of innovation which were ultimately spun successfully into the civilian economy like nuclear energy and numerically controlled machine-tools. But the lessons of the past are not any longer a reliable guide. Military r & d has lost its role as a precursor of civilian innovation. Extensive studies exploring the factors which favour national competitiveness in the context of a rapidly globalising economy provide cumulative evidence that the rate of innovation in the civilian sectors of the economy has accelerated so much that the military sector has to borrow heavily new technology from the civilian sectors.

At present the extraordinarily valuable human capital of Russia is far from realising its potential. This is certainly the case in the civilian economy, but also as far as military technology is concerned. As a few subsectors of the former VPK like the space launch industry demonstrate, integration into strategic alliances at the global level offers the breathing space needed to consolidate the Russian potential in new structures. In terms of defence production this international business helps to conserve technological options which would otherwise eventually be lost to the Russian defence-industrial base. A realistic estimate of the economic parameters limiting the Russian defence-industrial base is a precondition for avoiding diseconomies caused by an overextension of scarce resources. The consolidation and restructuring of the Russian defence-industrial base must also account for the new industrial organisation imposed by the computer-based integration of all stages of development and manufacturing at the plant level. Weapon systems and military equipment can not be built competitively without applying advanced software and simulation. Many test beds, building and testing of models and pre-serial products are in the process of becoming redundant as computation and simulation take their place.

The secular changes within the defence-industrial base of Western Europe serve as a indispensable role model for the future of Russia's defence industry to the extent that certain tacit imperatives also apply. The parameters in Europe are closer to the Russian reality than the 'imperial' defence establishment of the United States. Defence production in Western Europe takes place in nationally protected sectors which are exempted from EU-integration under article 223 of the Rome treaty. However, this protection is deeply eroded by a process of indirect transnationalisation where international sourcing at the level of subsystems is becoming the rule. Economics of scale and technological specialisation can not any longer be realised within the limits of one country only. And most importantly modern weapon systems rely increasingly on spinning-in civilian technology. This outsourcing draws on global players in the civilian economy for their unrivalled competence to deliver reliable innovative technology at affordable cost. Unthinkable only a decade ago the small German air-transportable armoured car ('Wiesel') will be equipped with a tdi-Diesel-engine from the serial production at Volkswagen. The origin of such supplies is determined by the global organisation of civilian high-tech corporations rather than by political preferences. Today, with the possible exception of the imperially isolated US-American military-industrial complex, the organisation of effective defence requires industrial structures being able to draw globally on civilian 'spin-in' components as well as rational forms of co-operation and division of labour in the manufacture of purely military items (canon tubes, EMP-protection, special materials, stealthy coating etc.). The implications for Russia's industrial policy and its military-industrial sector are far-reaching. Russia's high-tech sector must prepare itself to enter the global innovation networks where large corporations form alliances to market aggressively their innovations. Russia has to offer a large potential market and qualified manpower. To realise this potential seems to be among others a question of courageous corporate concentration within Russia capable of joining the big global 'players'. Any attempt to seek a 'late-comer' path shielded by protectionist policy would be self-defeating because the volumes of risk capital which are internationally invested in innovation are several magnitudes larger than any late-comer can hope for under the best circumstances. Russia's defence sector urgently needs the industrial background which will eventually allow to exploit the potential of civil-military synergies which other comparable countries increasingly rely upon. Siemens of Germany is a case in point; it excels in certain military niche markets resulting from spin-offs of its strong civilian high-tech competence. And finally the sharpest break with the past: Russia will have to rely on international division of labour in its defence procurement, if a balance between a stable and growing economy and effective military procurement shall be maintained. Though admittedly this step requires not only in Russia a change of political attitudes and of the techno-political culture in the defence sector.


European Commission, The European Report on Science and Technology, Indicators 1994.

Gansler, Jacques S., Defense Conversion, Washington D.C. 1995.

Lock, Peter, Obstacles to the Transformation in the Militarised Rim of the Eastern Baltic Sea, in: Grundmann, Martin ed. Transformation and Arms Conversion in the Baltic Sea Region and in Russia, Hamburg 1996

OECD/TEP, Technology and the Economy, The Key Relationships, Paris 1992.

Office of Technology Assessment, Redesigning Defense: Planning the Transition to the Future U.S. Defense Industrial Base, Washington DC. GPO 1991.

Office of Technology Assessment, Building Future Security Strategies for Restructuring the Defense Technology and Industrial Base, Washington DC. GPO 1992b.

Office of Technology Assessment, After the Cold War Living with Lower Defense Spending, Washington DC. 1992a.

Sapir, Jacques, L'economie mobilisée, Paris 1990 (also in German: Logik der sowjetischen Ökonomie oder die permanente Kriegswissenschaft, Hamburg 1992 (enlarged and updated).

Science Technology Industry Review (OECD) various issues Ziegler,

Nicholas J., Semiconductors, in: Daedalus, Vol.120, No.4 Fall 1991, pp.155-182.

Address: Dr. Peter Lock c/o EART e.V. Auf der Koppel 40 D - 22399 Hamburg Tel./Fax ..49 40 602 7975 e-mail: eartpl@oln.comlink.apc.org


[1] Missile propulsion and some space technologies are examples where the imperative of re-engineering never applied. Valuable lessons might possibly be learnt from carefully studying the long evolution of these technologies in the Soviet Union.

[2] For an excellent analysis of this intrinsic logic see: Jacques Sapir, L' economie mobilisée, Paris 1990 (also in German: Logik der sowjetischen Ökonomie oder die permanente Kriegswirtschaft, Hamburg 1992).

[3] Segmentation and vertical integration of production at the firm level resulted in often absurd levels of underutilisation of scarce production factors like imported sophisticated machine tools in high-priority military production with machine downtime of 300 or more days per year.

[4] Even a product conceived under the old paradigm of secluded military production like the Eurofighter relies on several dozens of standard 80386 chips for its flight control software (unstable design). It should be noted that a purchaser of a PC long since shuns to buy a PC equipped with this chip generation.

[5] It is worth noting that the so-called Levene reform of procurement in Britain proclaimed to secure that the government would get value for money by opening up the British market, which by implication was an admission that under the regime of strictly national procurement this is not what a government gets.

[6] Christopher Smart in: Brunn, A., Baehr, L., Karpe, H.-J. (eds.) Conversion, Berlin 1992 (Springer) pp. 392-405.

[7] This definition follows: Margaret Sharp and Keith Pavitt 'Technology Policy in the 1990s: Old Trends and New Realities', in: Journal of Common Market Studies, Vol.31, No.2, June 1993, p.139.