Conversion of the defense industry is a state-regulated process of transforming the defense industry for the purpose of complete or partial reorientation towards the production of civilian products. There is a cessation of production of military products and their replacement by the production of consumer goods and goods for industrial and technical purposes using the existing or replaced production apparatus.
In fact, the defense industry includes part of the branches of the mechanical engineering complex - aircraft manufacturing, radio engineering, certain transport engineering, electronics, shipbuilding; part of the fuel and energy sector is the nuclear industry; part of chemistry - the production of various types of fuels, explosives, etc. In a number of regions of Russia, defense enterprises produced more than half of industrial output. This applies to closed cities (Chelyabinsk-16, Krasnoyarsk-9, etc.), to medium and large ones (Kovrov, Korolev, Izhevsk, Novosibirsk, etc.) In general, in the USSR, according to some data, 15 -25% of GDP (for comparison, in the USA – 5-6%). Hypertrophied military production did not leave resources and funds for the qualitative development of civil engineering and the production of consumer goods.
The main goals of the conversion in the Russian Federation:
- ensuring technical re-equipment of industry based on the effective use of the potential of defense industry organizations;
- ensuring social protection of employees of converted enterprises;
- ensuring scientific and technological progress through the priority development of knowledge-intensive industries;
- development of the export potential of the defense industry;
- reducing economic dependence on imported products;
- creation of new competitive technologies, materials and equipment.
The modern type of conversion is carried out in accordance with the adopted law “On the conversion of the defense industry in the Russian Federation”. Every three years, federal targeted programs should be adopted, which specify the goals and objectives of the activities being carried out, and changes are made to the mechanism for re-profiling enterprises.
The past several stages of conversion lead to some alarming conclusions. Pragmatically minded experts call the technological reorganization of the defense industry the deindustrialization of the country. Defense enterprises, while producing unique military products, were unable to establish civilian production and were unable to find their place, their niche in the market.
Many defense industry enterprises tried to produce household appliances, but mass production of high-quality civilian products with minimal external control turned out to be no less difficult than the production of complex military equipment using high technology, but in limited quantities. The Government's promise to support conversion, unfortunately, turned out to be a declaration. If in 1989-1990. While the Union government partially financed the re-profiling of enterprises, the Russian authorities delegated this to specially created funds, credit and other structures, and real funds decreased with each stage of conversion.
At the beginning of 2002, the Russian defense industry numbered 1,500 enterprises, but within a year or two the number of executors of state defense orders is expected to increase to 500-600. The Government intends to provide targeted support to the remaining factories, but mainly to city-forming ones (currently there are about 130 of them). The reduction in defense orders resulted in the loss of more than 300 modern technologies. In addition, the transition to the production of civilian products in the defense industry is also complicated by the fact that the cost of one standard hour of military products was 5-6 times higher than in civilian production.
Regulatory documents and the legal framework for conversion are available in almost all regions. Privatized enterprises making the transition to the production of civilian products are almost all fragmented with a violation of technology and, like unique production facilities, are apparently lost, and some are simply stolen.
In July 2017, a report was published by the Expert Council of the Chairman of the Board of the Military-Industrial Commission of the Russian Federation entitled “Diversification of the defense industry: how to win in civilian markets.” The authors of the report are S. D. Rozmirovich, E. V. Manchenko, A. G. Mechanic, A. V. Liss. Oleg Ivanovich Bochkarev, Deputy Chairman of the Board of the Military-Industrial Commission of the Russian Federation; Russian economists, representatives of scientific institutes and defense industry enterprises.
The report notes that the State Armaments Programs for 2007–2015. and 2011–2020 (GPV-2015 and GPV-2020, respectively) gave impetus to a large-scale modernization of the military-industrial complex (DIC), which was implemented through a number of federal target programs (FTP) and, first of all, the federal target program for the development of the DIC for 2011–2020. However, the volume of government procurement within the framework of the state defense order (SDO) will be significantly reduced in the near future.
Russian President Vladimir Putin has set the goal of bringing the share of civilian products to 30% of the total production of the military-industrial complex (DIC) by 2025, and to 50% by 2030.
As experts note, the situation in the military-industrial complex of modern Russia is fundamentally different from that in the USSR. “On the one hand,” wrote Viktor Rassadin, “the prevalence of military goals over civilian ones led to a limitation in the range of civilian goods. For example, the species diversity of civil chemical products at the same plants depended, first of all, on the needs for military chemical products, which explained the bias in the structure of mineral fertilizers towards an excess of nitrogen-containing compounds. On the other hand, the level of technological and technical requirements for civilian production was significantly underestimated compared to military ones” (V. N. Rassadin, A. Sanchez-Andres. “Dual-use technologies in the defense industry and prospects for their use.” Forecasting problems, 2001 ).
“In Russia at present there is practically no excess military capacity,” notes Igor Frolov, “for example, front-line aircraft such as the Su-35 and Su-34 are produced about two dozen per year, this is less than a regiment, that is, quite a bit " We can say that at present the defense industry is almost optimal in both composition and scale.
Conversion, according to Frolov, “at present should not be a way of eliminating military production, but a way of preserving it and transforming the production and technological apparatus. Another thing is how to make it effective, and the civilian sector of the economy would also be developed.” And this is one of the main problems of modern conversion.
According to Vladimir Dovgiy, General Director of Interdepartmental Analytical Center OJSC, “the decisions taken by the president can hardly even be called another conversion. This is rather an attempt to solve, with a slight hint of conversion within the framework of state industrial policy, a very serious task of creating the actual future structure of the Russian economy. The current task of transforming the defense industry is no longer so much a task to unload the economy from everything that fell on Russia’s shoulders after the Soviet Union, as was the case in the 1990s, but rather a task consisting in, based on the current state of the defense industry, maneuver its forces, means, competencies, personnel in such a way as to make maximum use of the reserves that it has. What has been accumulated should not be lost, but what is not useful now for the production of military equipment should be found in better ways to use it. You just need to pay attention to increasing the experience of defense industry enterprises - not so much in technology, not so much in equipment, not so much in scientific and technical groundwork, but to very quickly and seriously build up competencies, work in market logic: there is an open market where you need to act market."
The Russian defense industry has an important feature that distinguishes it from the defense industry of other countries, which is that our complex has been in use since the late 1920s. was built as a purely military one. And at many factories our production of defense products ranges from 70 to 90%, and in some - 97–98%. And this makes it difficult to carry out such economic and technological maneuvers.
At most foreign defense industry companies, more than half of the output is civilian products. Therefore, it is much easier for them to increase the production of civilian goods when military orders are reduced, and this happens cyclically. “At the same time,” notes Igor Frolov, “costs within a single complex can be transferred from civilian production to military production and vice versa. As a rule, they try to transfer costs to civilian products, because the state constantly sets the task, as part of increasing military spending, to make the increase in prices for military products lower than real inflation. But this is possible in one-time contracts, but it is impossible even in the medium term for the entire product range. In reality, this leads to periodic surges in the increase in contract prices, which causes dissatisfaction with both the Ministry of Defense of the Russian Federation and the Military-Industrial Commission of the Russian Federation.”
All this created and continues to create serious difficulties during the transition of enterprises of the Russian defense industry to the production of civilian products.
Firstly, when establishing the production of civilian products by defense industry enterprises, the question of technical re-equipment inevitably arises (which, due to the narrow specialization of production facilities used in the manufacture of military products, may turn out to be either unprofitable or completely impossible).
Secondly, defense enterprises may not have the appropriate specialists - both in the engineering and design corps and in the marketing and management corps, which inevitably raises the question of retraining workers and engineering and technical workers, etc.
Thirdly, the production of civilian products requires technical documentation, which is sold in the form of patents and licenses; their purchase is a costly investment that is not available to every enterprise.
Fourth, the military and civilian sectors have developed two different technical and business cultures, the convergence of which is a separate challenge.
The task of diversifying the defense industry does not have a straightforward solution, which boils down to instructing each defense industry enterprise to organize the production of civilian products at its own facilities and bring it to the established share. As the practice of implementing conversion programs shows, this path leads to low efficiency of created industries and weak competitiveness of manufactured civilian products.
Differentiated approach to defense industry enterprises
To enhance the role of the defense industry in these areas, a differentiated approach to organizations operating in this sector is necessary. According to Viktor Ivanter, all defense industry enterprises in relation to conversion can and should be divided into three conditional groups.
1. Enterprises that fundamentally do not fit into the civilian product markets (nuclear weapons complex, missile systems, special ammunition).
2. Enterprises that are easy to diversify and already operate in civilian markets. First of all, these are enterprises that traditionally produce more than 25% of high-tech civilian and dual-use products; they have created divisions specializing in organizing the production and promotion of such products, for example:
- United Aircraft Corporation, UAC (civil aviation aircraft);
- United Engine Corporation, UEC (gas turbine power plants and gas pumping units, engines for civil aircraft and helicopters);
- United Shipbuilding Corporation, USC (civil sea and river vessels, icebreakers, equipment for shelf development);
- "Russian Helicopters" (civil helicopters);
- "Concern "Almaz-Antey" (air traffic control systems, telecommunications equipment);
- "Concern "Shvabe"" (medical equipment, instruments for scientific research, energy-saving lighting technology).
Enterprises of this group are certainly capable of independently increasing the production of high-tech civilian products.
3. Enterprises that traditionally have a small share of civilian products do not exceed 10% of the total volume of production and sales.
It is possible to diversify in these enterprises, but at great cost and major reorganization. And such enterprises are the majority in the defense industry. “In essence, the government of the Russian Federation,” explains Igor Frolov, “proposes developing some kind of civilian production at defense enterprises, using the accumulated working capital of past years, including from export contracts, as well as released production capacities. And the state must co-finance the projects. But this is a dead end. This already happened in the 1980s and 1990s, and defense industry workers, of course, perceive this development of the situation negatively.”
For enterprises forming the third group, independent entry into the market of high-tech civilian products is very problematic.
Difficulties accompanying the entry of the defense industry into the civilian market
The generalized results of an analysis of the experience (mostly negative) of activities in the field of production and sale of civilian (non-core) products of that group of enterprises of the military-industrial complex, in which the share of military products reaches 90% or more (that is, enterprises of the third group), show the following.
1. There are great difficulties in positioning and promoting civilian products, in particular due to the unknown nature of manufacturers and the lack of brands.
2. Significant capital investments and resource expenditures are required to overcome barriers to entry into markets with new products.
3. Limited capabilities do not allow us to act even at the regional level, and even more so does not allow us to realize the market potential of an all-Russian scale, which a significant part of innovative civilian products may have if they are commercially developed.
4. There is a need to constantly improve the technical appearance and design of products, reduce costs (labor intensity and overhead), establish effective service in the context of the dynamic displacement of obsolete products from markets and the difficulties of re-entering markets.
5. The work is carried out in conditions of high competition with domestic and foreign specialized manufacturers of similar products. At the same time, defense industry enterprises are not able to respond as quickly to changes in market demands and price scales as competitors do.
6. The production and sale of a number of products is chronically unprofitable due to the inconsistency of the existing production system with the level of real effective demand.
7. There are facts of unproductive competition between enterprises within the integrated structures of the defense industry in attempts to become “finalists”, to develop and produce identical civilian products or products of the same product line.
8. The structure of scientific, technical and production complexes involved at enterprises in the production of civilian non-core products is developing on a residual basis in relation to the state defense order, which determines the containment of production volumes of products in demand on the market.
9. The lack of personnel, financial, information and other resources for the non-stop implementation of promising non-core civil developments has an extremely negative impact on the time it takes for products to be ready for market entry, their functional and quality indicators.
10. There is a lack of clarity in setting priorities while simultaneously developing a range of areas of non-core civilian products at enterprises, and there is also a lack of concentration of financial flows for their implementation; in some cases, real market needs are actually ignored, etc.
The above circumstances indicate that for a significant proportion of defense industry enterprises, against the backdrop of dynamic progressive processes in core activities and steady growth in product output in non-core areas, negative trends have gained strength, characterizing the threat of a systemic crisis.
The causes of the crisis are due to the following circumstances
For most enterprise managers, due to established stereotypes, the processes of development, production and sale of non-core civilian innovative products that require large-scale investments still remain secondary. The production of non-core civilian products for general industrial purposes is organized and carried out against the background of the main core activities. Compared to profitable military orders carried out in the core area, income from the sale of non-core products is small and, therefore, unattractive, especially taking into account the fact that a significantly greater expenditure of resources is required to develop these businesses and position themselves in new markets in conditions of strong external competition.
As a rule, the non-core civilian product being mastered is maximally adapted to the existing organization and production technologies at the enterprise, changes to which are considered unacceptable. Secondary status undermines the competitiveness and commercial efficiency of the created non-core civil production. This is one of the most important management problems of a strategic nature, which predetermines the emergence of a systemic crisis.
The consequence of secondary importance is the corresponding attitude towards the resource provision of non-core areas, carried out on a residual basis. As a result, this direction is much more acute than others, experiencing, for example, a shortage of managers, a lack of qualified workers, design specialties, etc.
There are often no objective autonomous assessments of the effectiveness of non-core activities (businesses), which leads to opacity of costs, the impossibility of managing them, the formation of additional cost centers within enterprises and integrated structures of the defense industry as a whole and, ultimately, to uncompetitive prices for the bulk of products, etc. . d.
Non-core civil production at enterprises is characterized by two extremes - two polar organizational and economic models. The first model assumes an automatic transfer of the cost structure (including significant semi-fixed costs and overhead costs) of core production to non-core production. The result is an uncompetitive price for civilian products.
The second model, on the contrary, for the sake of maintaining the competitiveness of products, allows for the transfer of costs of non-core products to core defense products.
Both of these models are unacceptable for the influx of non-state investment in innovation and the development of production of high-tech civilian products at defense industry enterprises.
The second organizational and economic model in recent years has given rise to another problem, which consists in maintaining problematic and crisis-producing production of non-core civilian products at the expense of successful defense ones, as well as through investments from the federal budget. At the heart of this problem is the thesis about the unconditional preservation and expansion of the existing scientific and production potential of the enterprise without a proper assessment of economic feasibility. It is believed that the solution to the problem is to subsidize the activities of problematic industries by redistributing income from profitable contracts within the enterprise. In this regard, the only reasonable alternative is to promote as a strategic line of support only successful high-tech non-core areas, the growth of which will allow the organization of new jobs and types of production.
The enterprises themselves, overwhelmingly concentrated on the production of military products, as almost 20 years of experience have shown, objectively do not have the ability to independently overcome the systemic crisis due to its sectoral structural nature.
It is necessary to improve regulatory regulation in terms of technology transfer and commercialization of the results of intellectual activity (RIA) created in defense industry organizations. Moreover, it is necessary to remove unnecessary barriers not only in connection with the use of technologies created in the defense industry for the purpose of producing military-technical products. Many difficulties still arise for the use in the defense industry of technologies and products developed and used in the civilian sectors.
At the same time, failure to take measures to eliminate the listed problems (business-as-usual scenario) will most likely lead to the following consequences.
At the enterprises of the military-industrial complex group, in which the share of military products reaches 90% or more, there will be a gradual loss of economic feasibility for developing the production of high-tech non-core products for civilian use. This is despite the fact that large foreign military-industrial companies, often operating in more favorable financial and economic conditions, consider it too risky to be involved in any one direction and purposefully diversify their business in the field of civilian products.
Due to a decrease in state defense orders in the absence of compensation through an increase in the production of high-tech non-core civilian products, the inevitable freezing in such conditions of the technological level of production and the gradual obsolescence and depreciation of fixed production assets, including those created in recent years with a decisive share of Federal Target Program funds, will begin. Large personnel losses will begin - both in quantitative terms and in terms of possession of modern design and production skills. Degradation processes will give rise to social problems, which are especially acute at city-forming enterprises.
This scenario is unacceptable for defense industry enterprises.
Meeting of the Board of Directors of defense industry enterprises of the Moscow region / Photo: NPO Energomash
A meeting of the Board of Directors of military-industrial complex organizations located in the Moscow region was held at NPO Energomash JSC. The meeting was attended by Deputy Minister of Industry and Trade of the Russian Federation Oleg Ryazantsev, as well as First Deputy Minister of Investment and Innovation of the Moscow Region Vadim Khromov.
“The meeting participants presented their decisions and projects that are being implemented at enterprises as part of the diversification of production and increasing the share of civilian products”
The main topic of the meeting was consideration of issues related to the transition of organizations of the military-industrial complex to the production of civilian products throughout the Russian Federation.
“The Moscow region is one of the most important centers of our defense industry. 110 enterprises of the military-industrial complex are located here,” Oleg Ryazantsev said in his speech.
He noted that the current workload of defense industry enterprises will be primarily determined by the priority execution of state defense orders. “But by 2020 we must reach 17 percent of civilian production, by 2025 – already 30 percent and by 2030 – at least 50 percent,” he recalled.
“NPO Energomash, without exaggeration, is the world leader in rocket engine manufacturing. But today NPO Energomash is also the management company of the Integrated Rocket Engine Manufacturing Structure, whose enterprises are located throughout the country,” said Igor Arbuzov, General Director of NPO Energomash JSC, in his report.
According to him, today the area of international cooperation is actively developing, primarily with the BRICS countries - Brazil, India and China. “There are serious prerequisites for developing cooperation with South Korea,” added Igor Arbuzov.
He spoke about the diversification of production at ISRD enterprises. In particular, in Perm PJSC Proton-PM, the first experience in the production of machine tools has been developed, a modern stand for testing gas turbine units has been created, gas turbine power plants are being assembled, and the issue of production of gas piston units and gas-air heat generators is being considered.
Referring to the Voronezh Mechanical Plant, he said that the share of civilian products at the enterprise is about 30 percent. The main customers are Russian Railways and companies in the oil and gas sector.
Other meeting participants also presented their decisions and projects that are being implemented at enterprises as part of diversifying production and increasing the share of civilian products.
During the meeting, a list of candidates for employees of defense industry enterprises was also approved to participate in the “Social Mortgage” subprogram of the Moscow Region state program “Housing”. In 2017, 50 young unique specialists can receive subsidies.
MOSCOW, press service of JSC NPO Energomash
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The military-industrial complex (DIC) of the Russian Federation has tripled, and this is a real record among sectors of the domestic economy,” said Russian President Vladimir Vladimirovich Putin at the congress of the Union of Russian Mechanical Engineers. Such an impressive increase in labor productivity can be explained by the annual increase in funding for state defense orders from only 300 billion rubles in 2007 to 1.8-1.9 trillion in 2014-2015. However, there is no point in expecting new growth in productivity—financing for defense orders will begin to decline in 2018.
Putin is already suggesting that the defense industry begin to diversify production: “The peak utilization of the defense industry within the framework of the state defense order will occur in 2017 and then will gradually decline. I hope that defense enterprises will use the accumulated potential for conversion and diversification of production. We need to think about this today and take the necessary steps for this,” the president said. He is confident that the defense industry can organize the production of competitive high-tech products for civilian use. “The volume of state defense orders will not last forever, nor will it be as large as it is today. And there is already a slight decline, although for our corporation we have not felt this yet,” said Sergei Chemezov, head of the Rostec corporation.
The question is what kind of civilian products can our military-industrial complex develop? There was already one unsuccessful conversion attempt in the early 90s. Military-industrial complex enterprises then realized that the problem of switching to civilian products did not lie in production capacity or qualified personnel, but in the experience of forming and satisfying market demand and the necessary investments. However, Dmitry Rogozin is confident that the defense industry will cope: “We requested information from customs. We became convinced of how much money we spend on purchasing medical equipment abroad. This is unacceptable either economically or politically. Defense and machine builders are ready to do all this themselves. The creation of an institute of general designers and general technologists will be a powerful help in answering all complex questions.”
First Vice-President of the Russian Union of Engineers Ivan Andrievsky believes that the transition of the defense industry to the production of civilian products, on the contrary, may become a new incentive for the development of defense products of the future: “It is likely that in the future the need for military equipment and weapons in developed and developing countries will be decline following the development of public institutions and a market economy. There will be a demand for smart, high-precision, autonomous weapons. And if half a century ago military developments caused the emergence of the Internet and computers, then why not assume that today’s mass market for civilian consumer electronics with the advent of Big Data will not completely change the military developments of the future.”
The sphere of technology has always been the engine of progress and development of society. In this article we will look at the system of the military-industrial complex, its impact on the Russian economy, structure and other important points.
First of all, new technologies appear in the military industry. Modern computers, advanced instruments and other equipment have been fully funded by the state for many years. Subsequently, the development companies were able to diversify their technologies for civil society. The Russian Federation is no exception in this matter, just like its predecessor the USSR. A well-known fact: cigarettes in the USSR were the same diameter as gun cartridges. This trend led to an increase in the size of purchases in the military-industrial complex, after which enterprises were able to significantly expand the scope of their activities.
The development of the peaceful atom in general is the merit of the technology race in creating the atomic bomb. Defense technologies are still at the forefront of science.
What is OPK?
The defense industrial complex is a collection of enterprises and institutions that specialize in the production and development of equipment and military equipment.
Structure of the defense industry:
- research centers whose main task is theoretical research;
- design bureaus - create mock-ups and test samples based on the submitted documentation of the above-described institutions;
- laboratories and testing grounds that are designed to test new developments;
- enterprises engaged in the wide production of tested and approved samples.
Highlights of the military-industrial complex
- Boundaries for placing objects. As a rule, all such enterprises and institutions are located far from the central regions of the state. Such measures are necessary for the safety of ordinary citizens and maintaining confidentiality.
- Rule of secrecy. All important objects are always well guarded; the cities in which they are located do not even appear on the map. They have no name and are simply numbered with a serial number.
- Enterprises that are part of the Russian military-industrial complex necessarily have backups located chaotically in different parts of the country.
Defense industry specialization
- Construction complex: production of concrete slabs, floors and other materials.
- Chemical industry: the production of reagents, toxic substances that, for example, can be sprayed into the air, hitting the enemy at a long distance.
- MShK: supplies missiles, ships, cars, aircraft and armored vehicles, produces communications equipment, etc.
- FEC: engaged in the production of nuclear fuel.
- Light industry: tailoring of uniforms, production of various types of technical fabrics.
complex of Russia
We list several strategically important enterprises:
- Plant named after M.L. Mil, specializing in the production of helicopters, located in the Moscow region.
- PKO "Heat Exchanger" is located in the city of Nizhny Novgorod.
- Central Research Institute of Precision Engineering, built in Klimovsk.
- NPP "Rubin", operates in Penza.
- STC "Plant Leninets", located in St. Petersburg.
A breakthrough in artificial intelligence technology
It would seem that just recently, transcendental artificial intelligence technologies were used only in modern developments by the world's leading engineers in the field of targeting and identifying targets. Innovative discoveries by institutions of the military-industrial complex made it possible to create a special device to increase the mass of the cargo carried and to facilitate the movement of soldiers - an exoskeleton. A similar technology has been used for several years to restore patients who are unable to walk and move without assistance. The exoskeleton is an advanced development in most countries of the world in the field of defense technology. Its use will significantly increase the abilities of the human body.
Discoveries in the field of microelectronics
Developments in the field of microelectronics have long been the prerogative of defense companies around the world. Many secret devices saw the light of day as civilian products many years after their invention. The motion sensors used in the smart homes that are so popular today have long been the basis of the defense capabilities of many countries. They were used to protect borders from intruders and promptly respond to state border crossings. And now such sensors are used on modern technology to detect approaching objects. It is worth noting that this equipment can be used both in the military and consumer spheres.
Unmanned Drones: A Brief Introduction
Unmanned drones are the basis of modern military reconnaissance. They are intended for exploring the area. High-quality images and information obtained almost instantly allow you to calculate and determine the exact location of the enemy and their infrastructure structures.
For some time now, unmanned devices have been used in civilian industries. An example would be shooting of entertainment events or celebrations from a bird's eye view, as well as geodetic surveying of the area, etc.
Purpose and application of military-industrial complex in the civilian sphere
Developments within the military-industrial complex make it possible to simplify the difficult task of researchers, archaeologists, and historians. Deep-sea vehicles, originally designed to assist submarines, clear mines and other similar activities, are now being used to explore the depths of the sea and search for new species of living creatures at depths that scientists could not previously approach.
In conclusion, we can say that defense technologies have been the engine of progress throughout the existence of mankind. Many activities that were previously intended for attack or defense have become firmly established in everyday life.