Weapons, Culture, and Self-Interest

Kimberly Marten Zisk

Columbia University Press, New York

1997

3. Conglomerates, Lobbies, and Soviet Connections

 

The previous chapter described how the old Soviet defense enterprises survived with much of their existing structures intact in the new Russia, at least through 1995. In this chapter, I will show that many of the business partnerships cemented among these enterprises (and between enterprises and government authorities) in Soviet times also endured, although the pattern of endurance here is less strong. Some of these preexisting partnerships have been formalized into conglomerates called financial-industrial groups. Other partners formed new lobbying groups along old lines in order to obtain credits and other funding from the central government

Once again, I will match the rational self-interest and socialization approaches against each other to see which provides the most convincing explanation for why these old ties seem so strong today. Have defense enterprise directors turned to these networks primarily to uphold long-standing norms of mutual obligation? There was a long-established tradition of working together to bail each other out when hard times hit. The socialization approach argues that enterprise managers should have seen this method of business as being both appropriate and comfortable. The "circular guarantee" (krugovaia poruka ) would have continued to provide the basis for business trust and for new information in the uncertain environment of transitional Russia. From the socialization perspective, trust is the glue of relationships, and relationships are the basis for economic interaction

The rational self-interest approach argues, in contrast, that strong short-term material incentives must have stood behind any connections that were maintained in the new era. Self-interested defense enterprise directors should have chosen to collaborate with their former colleagues if and only if it suited their immediate interests. If former partners were maintained in the new climate, they must either have exercised some kind of power over the director's enterprise (as a monopoly supplier, for example, or as the controller of a key economic lever, such as advertising) or have had something of immediate value to offer the enterprise. Since trusting anyone was foolish and voluntary collective action was unlikely, the old network ties should otherwise have quickly faded away under new market pressures

Before turning to the evidence that can test these arguments, I will begin by showing that cooperation based on long-standing linkages at both the ministry and local levels has indeed been a common strategy used by Russian defense enterprises in the transition era

Conglomerates and Lobbies in Russian Defense Industry

Many of the business relationships maintained among defense enterprises in the Yeltsin era reflect connections that were established either within Soviet-era nationwide ministries or within a particular Soviet-era administrative region. One of the common forms that these relationships have taken is the so-called financial-industrial group (FIG). An enormous amount of space in the Russian press has been dedicated to discussion of FIGs, even though there seems to be general agreement that the term is so ill-defined as to be almost meaningless. ¹ The term refers to conglomerates of large enterprises and banks that have either purchased portions of each other's shares or formed a new, joint, independent legal entity (such as a holding company or association) with some sort of corporate oversight or investment responsibilities. Sometimes both kinds of conglomeration have been done simultaneously. While many FIGs are purely domestic, some stretch across the Russian border, drawing state-owned enterprises in Ukraine and other former Soviet republics into their fold. Such cross-state FIGs are usually designed to reestablish supply chains that were broken when the USSR collapsed. ²

A set of Russian state rules officially defines financial-industrial groups using very narrow and exclusive criteria and promises special state benefits (including tax breaks and credits) to conglomerates designed according to these strict guidelines. ³ Policy makers have provided a variety of justifications for state support of the formation of such FIGs. Some hope that they will convince enterprises to strive for international competitiveness and thereby attract bank investment. ⁴ Others instead portray them as a means for establishing a protectionist, import-substitution industrial policy that rewards domestic investment and production. ⁵ But most organizations that call themselves FIGs or fit the FIG description are springing up independently. Depending on how one counts them, there were by the end of 1995 somewhere between tens and hundreds of such conglomerates, many of them centered on enterprises from the defense industrial sector. ⁶ Most of them are making no effort to follow the federal rules to obtain the promised special federal benefits. Instead, defense managers are choosing to enter them for reasons of their own

Not all of these FIGs are based on preexisting networks. ⁷ Yet most defense enterprise FIGs do seem to be based on some kind of Soviet-era connection. Two patterns in particular stand out: those formed along the lines of the Soviet-era ministries and those formed among neighboring enterprises with investment by local and regional governments

Ministry-Based FIGs

Several of the former Soviet defense industrial ministries have supported the formation of their own FIGs, which unite privatized or privatizing enterprises into common holding companies. ⁸ People who held positions of authority within those ministries are often involved in running these FIGs today, even though the ministries themselves no longer exist. Perhaps the most famous example is the Aviaprom FIG, founded by Apollon S. Systov. Systov headed the Ministry of Aviation Industry (MinAviaProm, hence the name of the FIG) in Soviet times. ⁹

This pattern would appear to indicate that many independent defense enterprises have turned to those who held planning authority over them in the past for help in approaching the market. Some of these ministry-based FIGs were formed by enterprises situated along common production chains dating from Soviet times. ¹⁰ In other cases, FIG-like organizations that were formed along ministry lines (such as those for manufacturers of gas weapons and light aviation planes) appear to be constituted not for production reasons but as joint-stock companies designed to lobby the federal government for credits and other benefits. ¹¹

These ministry-based FIGs have retained significant ties with governmental authority figures in the Russian state, even though the ministries per se no longer exist. After the Soviet defense industrial ministries were disbanded in late 1991, a new state body was created in late 1992 to oversee Russian defense enterprises. There was a direct personnel pipeline between the old ministries and this new State Committee for Defense Industry (Goskomoboronprom), ¹² whose departmental structure replicated the former ministerial division of industrial oversight responsibility. Western analysts usually view Goskomoboronprom as the organization replacing the Soviet-era Military-Industrial Commission (VPK, in its Russian acronym), ¹³ the planning board that used to supervise the separate defense production ministries, whose membership included representatives from each of them. ¹⁴

Privatization has meant the end of official state control over many defense enterprises, so the FIGs that formed along former defense production ministry lines are not simply branches of the former Soviet ministries. Yet Goskomoboronprom kept close watch over these FIGs nonetheless. The committee (or in some cases, its transitional predecessor organization, the Committee on Defense Branches of the short-lived Russian Ministry of Industry) ¹⁵ actually created many of the FIGs itself. This process is worth describing in more detail

During 1992, before privatization had occurred, many ministerial FIGs were formed from above with participation by former ministry administrators who were then serving in the Ministry of Industry. ¹⁶ Systov, for example, began planning the Aviaprom FIG even before the Aviation Ministry was officially abolished. ¹⁷ As the reform era progressed, leaders of many of these new FIGs seemed to be motivated by the desire to keep administrative control over enterprise activity. Certainly, the Ministry of Industry's Committee on the Defense Branches and its Goskomoboronprom successor shared similar attitudes toward enterprise independence: both tried to maintain state ownership over a number of defense enterprises whose collectives proposed privatization. ¹⁸ Many Russian analysts believe that governmental authorities set up ministerial FIGs explicitly so that Goskomoboronprom departments (and hence the former defense industrial ministers or their associates) could regain control over privatized defense enterprises. ¹⁹

The functional and attitudinal similarities between the production ministries and Goskomoboronprom may be largely explained by the continuity in important personnel employed by these state agencies over time. For example, the deputy chairman of Goskomoboronprom in 1994 and the man in charge of Russian participation at international aviation exhibits, Anatolii G. Bratukhin, was deputy minister of aviation industry under Systov in the mid- to late 1980s. ²⁰ Reportedly, as of 1994 many of the same staff members from the ministries continued to occupy the same block of posh offices that they did in Soviet times. ²¹ And while there do not seem to be any published expositions of how personnel for Goskomoboronprom were chosen, we do know that a similar agency, Rosvooruzhenie (responsible for oversight of Russian arms exports), was intentionally constituted from "experienced and professionally trained personnel" whose pedigrees extended back through agencies responsible for Soviet arms exports during the 1950s and 1960s. ²² It thus seems likely that Goskomoboronprom personnel also had such long-standing pedigrees.

When the Aviaprom FIG began to be formed in late 1991, official government statements indicated that it would "liaise with the Russian Ministry of Industry, specifically its new department of aviation industry." ²³ Close links between state subsector authorities and the FIG were envisioned. Given that the head of the Aviaprom FIG used to supervise a Goskomoboronprom administrator who in turn oversaw the FIG and provided it with exhibition space and assistance at international shows, we can surmise that those close links endured. As late as 1994 Goskomoboronprom continued to be involved in creating new FIGs based on ministerial groupings. ²⁴ Long-standing Soviet-era business relationships were thereby maintained under a new guise.

Local and Regional Cooperation

Some FIG-like defense enterprise organizations formed at a regional rather than ministerial level. These FIGs acted as bridges across subsectors of the defense industry. A clear example of such a FIG is the Nizhnii Novgorod Banking House, created in July 1992. This bank was founded by fifty-nine of the largest enterprises in the Nizhnii Novgorod province, ²⁵ all of them having some kind of connection to defense industry. ²⁶ The gubernatorial administration of the province (oblast) came up with the idea for founding this bank. Its purpose was to give large, long-term, preferential loans to its founding enterprises, to allow them to pursue projects involving conversion to civilian production. ²⁷ The Russian government provided a special tax dispensation to the oblast administration for this purpose, allowing it to set aside half of the enterprises' taxes from 1992 into an extrabudgetary "Fund for Assistance to Conversion." This fund became the founding capital for the bank, ²⁸ and the Russian state continued to extend a similar tax privilege to the region in succeeding years. ²⁹ According to several knowledgeable officials, other provinces were envious of the deal Nizhnii Novgorod received, and there is speculation that Nizhnii Novgorod garnered special dispensations because President Yeltsin had obtained favors from its then-governor, Boris Nemtsov. ³⁰ Nemtsov was a strong ally of Yeltsin's during the attempted coup against Soviet president Gorbachev in August 1991; indeed, he reportedly negotiated the famous deal with the Taman Division of troops, who refused the coup leaders' order to march on Yeltsin at the Russian White House, where he stood on a tank defending Soviet constitutional order. ³¹

An investment council set up by the Nizhnii Novgorod oblast government makes the decisions about how the credits resulting from the tax dispensation are to be used. In September 1994 the chairman of the oblast's Directorate on Conversion and Military-Industrial Questions, Vladimir Bessarabov, described how the council works: The council includes representatives from the group of enterprise directors who founded the bank, from the labor unions attached to their factories, and from the oblast administration. Decisions are made jointly by this council, the provincial legislature, and the oblast administration. ³² In other words, managers, unions, and local officials sit down together to decide how state credits will be disbursed among the various enterprises benefiting from them

Regional FIGs are not the only evidence of the importance of local ties for conducting defense business in Russia today. Local and provincial governments in Russia have also obtained direct partial control over the financial decisions made by defense enterprises located on their territories. Sometimes this results from bargaining that follows regional intervention in an enterprise's federal financial relationships. For example, regional governments have often paid off back wages that the Russian Defense Ministry owed to enterprise workers for already completed weapons orders. Usually, such payments followed strikes or other labor actions at the enterprise level and involved some kind of compromise worked out between the provincial leaders and the federal government. Such payments have been documented in Sverdlovsk oblast, ³³ in Vladivostok, ³⁴ in Nizhnii Novgorod, ³⁵ and in the republic of Tatarstan. ³⁶

The city of Moscow, in cooperation with Goskomoboronprom, has perhaps gone the furthest to support its defense industries with direct financing. It reportedly invested over 61 billion rubles (approximately $12 million at the late-1994 exchange rate) of its own money in conversion projects proposed by over 300 local enterprises in a 1994 competition. ³⁷ In 1992 Moscow also offered a special credit to enterprises in its satellite electronics industry city of Zelenograd. ³⁸ One of the largest defense industrial FIGs, MAPO-MiG (now famous as the conglomerate chosen to supply eighteen MiG-29 fighter jets to Malaysia in 1994), turned to the Moscow city government for help in getting a bank to finance new housing construction for its workers. ³⁹ The city government has offered twelve special tax breaks to encourage the formation of FIGs on its territory, using a looser definition of what a FIG is than is officially condoned by the federal government. ⁴⁰

The Pattern: Paternalism

These regional programs were designed to keep as many old enterprises afloat as possible. But the fact that competition for the credits was involved, as in Nizhnii Novgorod and Moscow, probably indicates that local authorities were granted a substantial say in the design of the ownership structure and investment strategies followed by the subsidized enterprises. In other words, this aid limited the independence of enterprise managers. In Nizhnii Novgorod, for example, the power wielded by regional authorities over enterprises is unambiguous. Governor Boris Nemtsov repeatedly claimed that only those conversion proposals that were supported by good business plans would be funded by the region's Banking House. ⁴¹ A knowledgeable official within the regional government said that in 1992 the demand for credits from the fund totaled 17 billion rubles but that only 5 billion were available to disburse; he claimed that only those projects that seemed likely to bring a return within eighteen months were financed. ⁴²

At the same time, it seems likely that none of the enterprises that founded the Nizhnii Novgorod Banking House would be cut off from assistance. If founding members were excluded from the process, the bank would be weakened; its capital would shrink each year as members withdrew from the associated tax credit scheme, and battles would rage at council meetings. Credits are therefore probably offered to everyone in a bargained atmosphere, as in Soviet times, with conditions attached. Enterprises have the incentive to be responsive to regional authorities, and regional authorities have the incentive to help everyone out to one extent or another. Given what we know about the continuities in structure and personnel from the Soviet ministries to Goskomoboronprom, it is likely that some kind of similar pattern exists for the ministerial FIGs. Certainly, the heads of departments within Goskomoboronprom continued to pressure the federal government for aid to those enterprises that they oversaw when the ministries existed, ⁴³ even as they encouraged and supervised FIG formation

What needs to be explained, then, more than the fact of cooperation itself, is the continuation of this Soviet pattern of paternalism, where enterprises are aided by the authorities (either those in Goskomoboronprom or those from the local government) in return for their loyalty and at least partial subservience to them. For each of the two cases considered here--ministerial ties and local ties--I will first explore in more depth the Soviet cultural institutions that set the pattern for later interactions. Then for each case I will turn to the arguments from the two perspectives about why the patterns continued into the new Russia

Ministries as Institutions

From the late 1950s onward, Soviet leaders continuously tinkered with the state planning mechanism, instituting new structures and procedures in the hope of achieving cost savings and technological innovation. ⁴⁴ Yet despite the variety of reform programs put forth over the decades, control over defense enterprise planning remained, for the most part, in the hands of various centralized branch ministries. These branch ministries supervised dozens and sometimes hundreds of geographically dispersed design bureaus and production plants, all working on similar or related technologies

Several different defense production ministries, each with responsibility for a different subsector, existed side by side throughout the Soviet era, their number and titles varying over time. ⁴⁵ At one time, from the mid-1970s through the late 1980s, there were nine such ministries. By the end of the Soviet period, seven remained: the Ministry of Machine-building (responsible for design and construction of ammunition and explosives); the Ministry of General Machine-building (responsible for design and construction of missiles and space rockets); the Ministry of Aviation Industry (responsible for the design and construction of both military and civilian aircraft, including helicopters); the Ministry of the Shipbuilding Industry (responsible for the design and construction of both military and civilian vessels); the Ministry of Electronics Industry (responsible for the design and construction of a variety of advanced electronic systems); the Ministry of Radio Industry (responsible for the design and construction of radio and radar equipment); and the Ministry of Defense Industry (which despite its name was limited to responsibility for the design and construction of ground forces weapons and battle equipment). An eighth ministry, Medium Machine-building, had earlier had responsibility for the mining and processing of nuclear materials and the design and construction of nuclear warheads; in 1989 it was merged with another ministry (which earlier controlled civilian nuclear power production) and was renamed the Ministry of Atomic Energy. ⁴⁶ A ninth, the Communications Equipment Industry Ministry, was carved out of the Ministry of the Radio Industry in 1974; in 1989 it was merged with the Ministry of Communications (which was earlier responsible only for civilian communication matters, including the post office). ⁴⁷

From the early 1970s through the end of the Soviet era, the structural divisions among these ministries remained fairly constant (with some minor exceptions). Even the two ministries that were eliminated in 1989 retained their structural foundations in a new and expanded setting. Departmentalism was very strong, because there was little movement of personnel from one defense industrial subsector to another. ⁴⁸ Each of the ministries thus formed a fairly closed social system

Each ministry and its associated enterprises also formed a krugovaia poruka , a circle of mutual aid and obligation. In Soviet times, the ministries directed both the supply chains and the type and volume of production of the enterprises they oversaw. Ministry administrators oversaw both the design and manufacturing of weapons performed within their purview, and in many cases these production functions were not integrated within a single enterprise. ⁴⁹ The ministry thus had to coordinate activities between the design bureaus and the factories that used their designs. (When the Soviet Union collapsed, a number of design bureaus and component parts manufacturers found themselves separated from the weapons production factories with which they had always cooperated, on opposite sides of sometimes unfriendly international borders.) ⁵⁰

Enterprises would engage in information exchange with their ministries as the state plan was being set, hoping to influence the shape the state directives took. Complex negotiations over planning details would then ensue between enterprise managers and ministerial representatives. ⁵¹ Both sides in the negotiations wanted to ensure a balance: goals had to be high enough to ensure the receipt of the bonuses that the state bestowed for continually increasing production but low enough so that enterprises could actually fulfill the plan. ⁵² The ministries probably knew that the use of illegal methods (including under-the-table barter between enterprises) was necessary for each enterprise to meet the plan and unofficially sanctioned such activities. ⁵³ Only if the plans were met and overfulfilled would both the involved enterprises and the associated ministry personnel obtain the bonuses the state handed out for good performance

Social networks were thus built between the enterprise and its ministry and among enterprises working under a common ministry. A unified Soviet military-industrial complex did not really exist (except, perhaps, at the apex of power), ⁵⁴ because enterprises pursued all their economic activity under the auspices of the separate defense industrial ministries. Managers of various enterprises within the ministry would get to know each other by attending administrative functions arranged by the ministry, by engaging in backdoor barter to get supplies for production and consumer goods for workers, and when they themselves were appointed to positions within the ministerial hierarchy. ⁵⁵ The tight personnel replacement hierarchies within enterprises, described in the previous chapter, would have meant that those appointed to positions in the ministries would have kept close contact with those who took their places in their home enterprises

Often, relations between the branch ministries and the enterprises were themselves mediated by what were known as branch associations, which monitored particular sets of enterprises within the branch and thereby encouraged the formation of even stronger personal connections among subsets of enterprise managers. ⁵⁶ (If an enterprise were unusually large, it might be named its own branch administration. This happened, for example, to the Svetlana defense industrial firm in St. Petersburg, whose managers expressed muted pleasure in escaping the extra layer of surveillance that the branch association had earlier placed over their activities.) ⁵⁷ In addition to these branch associations, another form of intermediary existed between the ministries and enterprises: the ministerial banks. In recent times, these have evolved to include both "channel banks," which were used by the ministries to funnel state funds to enterprises, and "agent banks," which were set up within enterprises themselves, essentially to act as corporate treasurers by performing and clearing day-to-day transactions. ⁵⁸ Many of these banks have reportedly been involved in forming FIGs. ⁵⁹

The relationship between enterprises and ministries was complex. Enterprise managers were largely dependent on the ministries for arranging the raw material and equipment supply networks they required in order to meet the plan. They also relied on them to negotiate plans that were actually possible to meet. The ministries would themselves be judged and receive resources from higher authorities based on how well the enterprises under their purview performed, so it was in their interests to act as advocates for their enterprises, to ensure that the resources received were adequate for the job. Because of this, Western analysts have sometimes argued that the interests of enterprises and ministries were "identical" and that together they acted as a unified pressure group on the center. ⁶⁰ This perception was reinforced in the case of the defense industrial ministries, because, as noted above, ministerial personnel tended to be drawn from the managerial corps of the group of enterprises under the specific ministry's supervision. ⁶¹

Yet there was also an underlying tension between managers and ministerial officials, because close ministerial oversight and the resulting bureaucratic red tape limited managers' freedom to meet the needs of their individual factories when unexpected contingencies arose. In the mid-1960s Soviet Prime Minister Aleksei Kosygin began to champion the notion that too much planning inhibited flexibility, and he encouraged managers to experiment independently to a limited degree. ⁶² The VPK participated in drawing up the Kosygin reforms, ⁶³ and many defense enterprise managers responded enthusiastically to the new policies. They wrote articles and books arguing that planning should be based on real cost indicators rather than on artificially mandated production volumes and stated that enterprises should be allowed to find their own suppliers and customers rather than being subject to ministerial control over these links. ⁶⁴ Too much control on the part of the ministries limited the ability of managers to achieve their primary goals, which were to keep both themselves and the enterprise collective economically and socially satisfied

Despite a lengthy history of connections within defense industrial subsectors, then, and despite the fact that the ministries had acted as funding and planning advocates for their enterprises for many years, managers would have entered the reform era with ambivalent feelings about the desirability of maintaining those old ministerial ties. The fact of the Kosygin reforms, along with their abandonment, implies that there had been some kind of contest, lasting at least a decade, over who would control the enterprises. Managers socialized into the Soviet system would have had reason to doubt the motives of their former supervisors in the new system. The opportunity finally to get out from under ministerial control might have been seen as a blessing

In view of all this, the socialization perspective cannot adequately explain why so many managers voluntarily sold shares of their enterprises and otherwise committed the economic future of their enterprises to the officials who used to supervise them. The Soviet-era networks may have been strong, but they were not based on a shared culture of trust. Tension marred the harmony of those connections. This leaves ample room for the rational self-interest school to propose a more cynical explanation for the appearance of ministerial FIGs

Rational Self-Interest and the Former Ministries

As I noted above, the defense industrial ministries were disbanded in 1991 and eventually replaced with Goskomoboronprom departments. Some analysts are convinced that this series of administrative changes was a slap in the face to defense industrialists and a downgrading of their status. ⁶⁵ (In an apparent attempt partially to restore the status of this sector, the State Committee for Defense Industry was eventually transformed into the Ministry of Defense Industry in 1996.)

If the old ministerial authorities had indeed lost all their power during the early transition era, then the rational self-interest school would have a hard time explaining why defense managers turned to them and their successors in the early 1990s, allowing former officials to supervise the formation of new FIGs. Especially if, as I argued in chapter 1, the economic environment discouraged people from trusting each other, then selling one's shares to a larger conglomerate would have been foolish, especially if there was already a history of conflict between the enterprise and the conglomerate supervisors. We know that at least some enterprises chafed against the fetters of the Ministry of Industry departments in 1992. For example, managers in the defense electronics city of Zelenograd complained that administrators from the former Ministry of the Electronics Industry were trying to convince the government to maintain a protectionist, self-sufficient national policy in supply and customer relations, thereby harming the ability of Russian microelectronics enterprises to become internationally competitive. ⁶⁶

Yet a deeper examination of the structural incentives involved in these relationships shows that self-serving motives did indeed support them. In spite of the federal government's decision to downgrade the status of the old defense industrial ministries by uniting them into a common committee, the remnants of those ministries received important administrative perks in the new system

The first set of perks relates to property ownership. The ministries had been the official legal owners of the sites occupied by defense enterprises in Soviet times. In the late 1980s private cooperatives began to be carved out of these state enterprises (a process discussed in detail in the following chapter). Because of their property ownership rights, it was the ministries who legally had the right to decide which cooperatives would be allowed to rent out space; ⁶⁷ they could even refuse to rent out space to entrepreneurs they disliked. As I will show in the next chapter, many of these cooperatives were used by enterprise managers as a way to obtain private income through the use (and sometimes abuse) of state property. It was therefore in the economic interests of managers to keep ministry administrators happy even as privatization began

Similar ministerial property rights then continued into the new Russia. Each defense enterprise privatization decision made by the Russian State Property Committee has been done in consultation with the relevant department from either the Ministry of Industry or its Goskomoboronprom successor. ⁶⁸ In other words, every instance of defense enterprise privatization occurred under the supervision of personnel from the former ministry. There have been numerous cases reported from 1992 through 1995 where defense enterprise privatization proposals were vetoed by Goskomoboronprom. ⁶⁹ In some of these cases, the State Property Committee or other reformist federal organizations overrode the Goskomoboronprom veto, but this happened only after sustained and costly lobbying efforts by the involved enterprise managers

Goskomoboronprom further retained the authority throughout the transition period either to dismiss or keep those managers of state-owned defense enterprises whose STKs gave them a vote of no confidence. ⁷⁰ In essence, this gave former ministry officials direct control over managerial appointments, and presumably they preferred managers who upheld sectoral interests. The case of Rybinskie Motors, the enterprise, discussed in the previous chapter, whose battle over the directorship involved death threats and hand grenades, is particularly instructive in this regard. Goskomoboronprom owned 37 percent of the shares in the semiprivatized Rybinskie enterprise. Such partial continuing state ownership of privatizing defense firms was quite common during this era. The man who oversaw the state-owned shares in Rybinskie was Valerii Voskoboinikov, deputy chief of the Aviation Industry Directorate within Goskomoboronprom. ⁷¹ Not surprisingly, it was the Ministry of Aviation Industry that had supervised Rybinskie in the past. Voskoboinikov used his shares to force the appointment in April 1995 of a new enterprise director. The new director, who was the former chief engineer of the enterprise, received Goskomoboronprom support because he was willing, unlike the former director, to have Rybinskie continue manufacturing airplane engines. (These engines had been made for years in cooperation with another enterprise from the Soviet Ministry of Aviation Industry, called Permskie Motors.) Voskoboinikov wanted Rybinskie to keep building both military aircraft engines for planes designed by the Tupolev and Iliushin design bureaus and PS-90 engines for the Tu-204 passenger airliner

The displaced director of Rybinskie, Valerii Anikin, who boasted that he had given investors a 300 percent return on their shares the year before, believed that concentrating on airplane engine construction would be economically foolish. The PS-90 engine in particular has had numerous safety and performance problems and is generally perceived to need substantial modifications in order to find use in the future. ⁷² Anikin had wanted Rybinskie to work instead with the U.S. firm General Electric to build turbines for natural gas extraction and had urged Goskomoboronprom to sell its state-owned shares to Gazprom, the privatized firm that used to be the Soviet Natural Gas Ministry. Gazprom was reportedly very interested in the turbines, which would replace expensive imported equipment. ⁷³ Goskomoboronprom refused to sell its shares, arguing that Rybinskie was a strategic enterprise that should be kept on the list of concerns prohibited from full privatization. ⁷⁴

Several rounds of battles ensued throughout 1995. Prime Minister Viktor Chernomyrdin, former minister of the Oil and Gas Ministry and founder of Gazprom, stepped in officially to strike Rybinskie from the "not-for-privatization" list, which would allow Gazprom to buy Goskomoboronprom's shares. ⁷⁵ But a subsequent attempt by the Russian State Bankruptcy Administration to remove the new, Goskomoboronprom-supported Rybinskie director from his office failed, even though physical force was used. This left Rybinskie's future privatization plans in doubt. ⁷⁶ Rumor had it that Goskomoboronprom's real motives in the case were to prevent a fully privatized Rybinskie from stealing the gas turbine market share of its old partner inside the ministry, Permskie Motors. Permskie Motors, located in Perm', was reportedly backed by Goskomoboronprom chief and Perm' native Viktor Glukhikh. ⁷⁷

This example makes it obvious that until all shares in privatized enterprises have been sold to private actors (keeping in mind that dozens or hundreds of defense enterprises will likely never be privatized), every general director and each enterprise collective has a strong incentive to stay on the good side of Goskomoboronprom officials from its former ministry. If personnel from the former ministry who are still connected to Goskomoboronprom view FIG formation or other forms of sectoral cooperation as a means for them to recapture private gain from enterprises that wiggled out of their control, it might very well be suicidal for managers in the midst of the privatization process to refuse to enter such conglomerates

Authorities from the former ministries retained other perks besides property ownership that could be used to reward or punish enterprises. For example, Goskomoboronprom retained some influence in this period over the allocation of state defense orders. ⁷⁸ In fact in early 1995 First Deputy Prime Minister Oleg Soskovets announced that future payment to defense enterprises for fulfillment of state orders would be made through Goskomoboronprom rather than through the Defense Ministry. ⁷⁹ In 1991 the Ministry of the Electronics Industry (and its follow-on Ministry of Industry department) had used its influence in allocating orders against enterprises with which it was annoyed. Enterprise managers in Zelenograd were especially angry at the predatory way this ministry managed defense orders. When some enterprises began trying to get out from under the control of the ministry, its administrators apparently retaliated by ensuring that state orders were directed elsewhere in the sector, depriving the independence-minded enterprises of income until they could find civilian orders on the market. ⁸⁰ This example should have been sufficient to demonstrate to managers the obstacles they would face if they disregarded ministerial wishes

Other more positive economic incentives might also have led enterprises to stick with their former ministries throughout this era. For example, organizations from within the former ministries played a key role in negotiating arms exports in Soviet times, giving them a knowledge base and set of international contacts that enterprises would want to utilize. In an era of murky property rights, when foreign purchasers did not know whom to trust in Russia and new Russian players lacked information about markets and prices, FIGs based on ministerial connections might have ended up playing a crucial role in obtaining arms sales deals. This has certainly been the case in the field of aviation, ⁸¹ arguably the area property ownership that could be used to reward or punish enterprin which Russia has the strongest chance of making headway in the competitive developing world weapons market

Former ministerial groupings also had the power to choose which enterprises would receive the most favorable advertising opportunities. For example, Goskomoboronprom was one of the sponsors of the Russian arms fair for international audiences, "Armaments, Military Technology, Conversion," held in Nizhnii Novgorod in September 1994. ⁸² Exhibit space at this fair was allocated to enterprises based on their departmental affiliations within Goskomoboronprom; in other words, by officials from their former ministries. ⁸³ Furthermore, a Goskomoboronprom affiliate, the All-Russian Scientific-Technical Institute of Interbranch Information, owns a marketing database, a consulting business in the preparation of television and newspaper advertisements, and an exhibition hall in Moscow for continuous display of conversion products to foreign visitors. ⁸⁴ Goskomoboronprom, at least as of late 1994, also had to preapprove all articles appearing in the slick new international advertising magazine for Russian weaponry Military Parade. ⁸⁵ Any enterprise that tried to fight its Goskomoboronprom department would have been unlikely to have its products well advertised; any enterprise that allowed well-connected personnel from the former ministries to buy its shares in the form of a FIG was likely to gain access to the spotlight

In addition to exercising direct power over enterprises, several former ministerial groupings within Goskomoboronprom (including the Electronics Industry Department) ⁸⁶ and subsectoral FIGs (including Aviaprom, ⁸⁷ the International Aviation Engines FIG, ⁸⁸ and the Russian Association of Conversion Enterprises and Manufacturers of Gas Weapons Joint Stock Co.) ⁸⁹ have all publicly lobbied the federal government for changes in state policy that would bring more credits for new civilian technology development to their members. It is interesting that in each case the basis for these lobbying efforts was some kind of joint-stock company, where members had to buy shares; indeed, there appear to have been no observable efforts by general-interest groups that were not joint-stock companies to engage in such sectoral lobbying. This means that personnel from the former ministries were able to provide selective incentives to those participating in the cooperative effort, because the joint-stock companies they founded received and distributed the state credits. Individual managers who chose not to join would not be on the official list of beneficiaries

At least one of these efforts appears to have been very successful: a joint-stock company sponsored by Aviaprom. Aviaprom organized a conference on small plane construction in December 1994, which led to the formation of yet another FIG, the Russian Association of Light Aviation. This association's purpose was to "represent the interests of [small-plane aircraft designers and manufacturers] in the design and implementation of the federal program" for development of civil aviation. ⁹⁰ In April 1995 the Russian federal government promised to invest $2 billion over four years in this program, ⁹¹ apparently in the form of loans from "extrabudgetary" sources. ⁹² A state-owned company was formed to finance this investment. ⁹³ As with much other so-called extrabudgetary financing by Russian government authorities, the precise methods used by this company are shrouded in mystery. ⁹⁴ Most likely, personnel associated with Goskomoboronprom retained financial resources that did not appear on paper

There were thus good reasons throughout the years following the collapse of the Soviet ministries for wealth-seeking managers of Russian defense enterprises to agree to form FIGs under the aegis of their former ministerial bosses. The rational self-interest school wins over the socialization school on this point; it does a better job of explaining why managers would sell shares to those who used to supervise them, in the absence of a history of trust. Personnel from the former ministries could provide selective incentives (including credits, advertising, career support, and privatization approval) to defense managers who chose to cooperate with them, while leaving those who crossed them out in the cold

What about a different argument that the socialization perspective might make: that networks formed between enterprise directors  within Soviet ministries should endure in the absence of state oversight? If social norms of mutual obligation were at work, then directors should have turned independently to their old friends in related enterprises to see them through rough times. Existing supply and purchase chains should have been maintained by managers entering the market. The available evidence, however, seems to indicate that the influence of such sectoral networks is declining with time. For example, Aleksandr Grigor'ev, general director of NPO Impuls' in Moscow, stated in 1994 that the horizontal ties that had previously linked enterprises within Soviet ministries had disintegrated. ⁹⁵ His production manager affirmed in an interview that considerations of cost and availability, not loyalty, now determine the enterprise's choice of business partners. ⁹⁶ (Note that Impuls' is not in a ministerial FIG, and its state-owned shares are controlled by the State Property Committee, not Goskomoboronprom. Based on the above discussion, this may mean that it has more freedom than some of its counterparts to choose its own business partners.)

Analysts found much the same thing to be true in a range of enterprises in St. Petersburg in 1993: only the "essential few" contacts from previous times were maintained, while others fell away under cost pressures. ⁹⁷ Both the Positron enterprise in St. Petersburg and the Urals Electro-Mechanical Enterprise in Yekaterinburg have turned not merely to more cost-competitive suppliers but also to foreign suppliers, because the quality of their components is generally recognized to be superior. ⁹⁸ When former ministerial personnel are not applying pressure for enterprises to engage in FIG-related activity, managers are not choosing independently to retain old ties for their own sake

Analyst Kathryn Hendley notes that the supply manager of the Saratov Aviation Factory reported that 90 percent of the enterprise's fourteen hundred suppliers had not changed between 1991 and 1993. It turned out, however, that managers at the enterprise considered three-fourths of these partners to be monopoly suppliers. ⁹⁹ To their knowledge, then, they had no alternative except to maintain previous relationships. Hendley notes that it is possible that alternative suppliers did exist and managers at the Saratov factory simply didn't know about them. If this is the case, it might in fact support the arguments of the socialization school, because it would mean that these managers were following well-worn paths in their search for new contacts and new information rather than seizing the opportunity for an independent search for new possibilities

Yet given the absence of a developed business information infrastructure in Russia during this transition period, including the lack of public databases and the paucity of reliable assessments of the financial health of particular enterprises, turning to old networks for information may have been the only course available to those who wanted to lower their chances of being victimized by predatory behavior. While the networks themselves were no guarantee of reliability, they were better than nothing. It would have been foolish for directors whose enterprises might otherwise have gone broke to ignore the availability of this assistance, however flawed it might have been. The probability that this was the case is increased by evidence from other enterprises. In St. Petersburg, for example, researchers report that while old contacts between enterprises began to fall away in 1993, it was through preexisting networks that managers found new business partners and obtained information about their reliability. ¹⁰⁰

The fact that existing contacts were used as entrées to new partnerships and old networks were discarded with time indicates that the predictions of the rational self-interest perspective remain superior to those of the socialization school. Old ties were used when they benefited managers and discarded when they ceased to be optimal

What of the relationships between enterprises and ministerial banks? Perhaps here the socialization school could make a good argument that maintaining social networks still served to establish trust in the chaotic Russian business climate. Again, though, it seems likely that something other than pure trust was at work. According to a 1993 World Bank report, the "new ownership structure" of privatized banks in Russia is one where "banks are owned largely by enterprises," making "the practice of connected and insider lending common in the Russian banking system." ¹⁰¹ Enterprises may thus have turned to banks they knew not merely because they trusted them but because they owned them (or at least had significant ownership stakes in them). This would make the banks a source of constant low-cost loans, with no potentially embarrassing inquiries about credit worthiness or profitability

A claim has been made more recently that banks are now reversing the direction of control in these relationships, taking the reins away from the enterprises. According to the deputy director of Aviabank (the bank associated with the Aviaprom group, founded by thirty-seven aviation industry enterprises in 1990), "while the 'child' [bank] has grown and matured, the 'parents' [enterprises] have begun to age," allowing banks to buy up their capital. ¹⁰² Presumably, such capital purchases occur when the enterprise cannot repay its loans other than by granting shares to the bank. An additional form of increased bank control over enterprises has occurred when banks have acted as white knight investors when workers and managers have not been able to afford a sufficient number of shares during privatization to guarantee insider control. ¹⁰³ In fact, it is claimed that one of the reasons so many conglomerates are avoiding the federal FIG rules is that those rules limit banks to a mere 10 percent ownership stake in firms to which they are lending. For their part, banks oppose the rule because it deprives them of control over their operations. ¹⁰⁴

Currently, there is insufficient evidence to prove whether banks have truly managed to turn the tables on their founders. We do know, however, that bank managers and defense enterprise directors are not always different people, and thus the question may be a red herring. Banks that call in loans through share purchases may merely be a means for some enterprise directors to gain control over additional enterprises. An example of this occurred at Promstroibank-St. Petersburg, a bank that owned shares in several defense industrial enterprises. This bank chose as its chairman of the board Valerii V. Filippov, the general director of the Ferrit company, a defense industrial enterprise, ¹⁰⁵ and a member of the Association of Industrial Enterprises, ¹⁰⁶ a St. Petersburg defense industrial lobbying group. Promstroibank-St. Petersburg was the largest investor in the Baltiiskii Zavod military shipbuilding enterprise; Baltiiskii Zavod was in turn a minor shareholder in the bank. In 1994 Baltiiskii received a huge loan from the bank that it could not repay. As a result, the bank took over a dormitory on Baltiiskii's property, which it planned to refurbish as a hotel. ¹⁰⁷ One defense enterprise director in effect called in a debt from another

Further casting doubt on the image of defense enterprises as sacrificial lambs to their own banks is the fact that some defense industrial FIGs foundered when their associated banks were shut down by the authorities for insolvency. ¹⁰⁸ Since the manufacturing enterprises in these FIGs do not appear to have been shut down, this would indicate that enterprise managers may instead have used the banks as short-term cash cows. Thus while some banks may in fact have taken control away from opportunistic enterprise managers, clearly all have not done so

For the most part, then, networks linking managers in Soviet times seem to have been maintained after the collapse of the old system only if they were directly economically convenient for the enterprises involved and not out of loyalty. Some enterprise managers have been more clever than others and gained at others' expense. But there is little evidence that old ministerial networks are being maintained in the absence of material rewards. The rational self-interest approach has done the best job of the two perspectives in explaining the continuation of ministerial ties. The socialization approach makes a significant contribution, however, by pointing out that established social networks at the beginning of the reform process influenced the self-interested directions that were taken later. Still, managers seem to have adapted quickly to the rules of the new game, selecting which members of their old business networks to maintain based on a recognition of the direct economic costs and benefits involved and not on established norms of propriety

How has the second set of Soviet-era networks, those among local enterprises and authorities, withstood the transition era?

Soviet Culture: Local and Regional Connections

Like ministries, municipal and regional administrative councils (soviets , in the conventional English spelling) were also held responsible in Soviet times for the performance of enterprises. Those responsibilities were based on enterprises' locations, regardless of ministerial affiliations. Local governments, like ministries, would often act as advocates for "their" enterprises, lobbying higher authorities for more resources for them. ¹⁰⁹ They had good reason for doing so. In return for such advocacy, enterprises were expected to fulfill special tasks for their cities and regions when state budget allocations left local needs unmet. These tasks included sending out "volunteers" from the enterprise to help with the local harvest, often in deep mud and cold rain with primitive tools; diverting enterprise employees, equipment, and supplies from their normal uses in order to build roads and other local infrastructure; arranging for heavy industrial enterprises to produce consumer goods for the local market when insufficient items were received from the center; and helping out nearby enterprises that were experiencing production difficulties, so that the state plan could be met on time. ¹¹⁰

Defense enterprises, often representing a variety of subsectoral ministries, tended to be concentrated in specific local areas. ¹¹¹ A number of large cities were dominated by defense industry or defense research facilities. ¹¹² Some smaller towns were established solely as defense industrial or research bases; these were so closed to outsiders that residents had to lie to relatives about their domiciles and employment. ¹¹³ In each of these areas, defense enterprises would have dominated the concerns of local government

Ties between enterprises and regional (oblast) authorities were strengthened by the sovnarkhoz  reforms of 1957-1965. As part of continuing Soviet efforts to rationalize the economy, the central ministries in Moscow were temporarily denied some of their previous rights of control over enterprises, and planning responsibilities were given to oblast planning agencies instead. Although some Western analysts have traditionally believed that the sovnarkhoz  reforms did not have much of an impact on defense industrial enterprises, ¹¹⁴ we now know that there were some real administrative effects on the defense sector. Evidence made public by the partial opening of the Moscow archives of the Central Committee of the Communist Party proves that the regional planning agencies did oversee at least some defense industrial operations. ¹¹⁵ There was a "handing over of [defense branches of industry] to the sovnarkhozy  [regional administrations]." ¹¹⁶ Regional party administrations were reorganized at this time to oversee defense industry production in at least Leningrad and Novosibirsk (two defense-heavy regions), ¹¹⁷ and efforts were made to find new jobs for those let go from the ministries that oversaw aviation industry, radio-technology industry, shipbuilding, and electronics (presumably an indication that administrative employment in those ministries fell as their responsibilities were given to the regions). ¹¹⁸ In 1965, the year these reforms officially ended, enterprises in at least the shipbuilding and electronics sectors were transferred back to the ministries from the sovnarkhozy , ¹¹⁹ again indicating that administrative changes had been put into effect by the reforms

We also know that the local sovnarkhoz  was involved in drafting plans for the 1959-65 period at the Krasnoe Sormovo military shipbuilding plant in what was then called Gor'kii (now renamed Nizhnii Novgorod), ¹²⁰ indicating that it had some sort of supervisory role. Simultaneously, the Communist Youth League (Komsomol) organization at Krasnoe Sormovo worked on planning issues with its counterpart at the Dvigatel' Revoliutsii diesel ship plant in the same city, ¹²¹ again indicating strong local party ties among defense enterprises. In at least several defense-heavy regions and in at least several defense ministries, the sovnarkhozy  did have some administrative impact on planning and did appear to cement new ties between local enterprise personnel

In a number of major defense-heavy regions, including Moscow, Leningrad, Sverdlovsk, Gor'kii, and Novosibirsk, subsectoral administrations were set up inside the sovnarkhozy . ¹²² Little ministries were thus created at the regional level. This arrangement would probably not have fostered regional crossbranch contacts between defense and nondefense enterprises, given the departmentalism inherent in the Soviet ministerial structure. Aviation factories, for example, would not have been put under the same planning authority as pasta factories or even fuel processing plants. ¹²³ But the fact that regional branch administrations, not just national branch associations, were now involved in enterprise oversight meant that regionally based social and economic connections would have been built among managers within the defense sector. It was reported that at least in some defense-heavy regions, for example, local suppliers were found for machine-building enterprises that had earlier received long-distance supplies. ¹²⁴

While the sovnarkhoz  measures were temporary and are widely regarded as having failed to improve economic productivity in the Soviet Union, defense industrial enterprises would nonetheless have experienced an alternative model of economic association for almost ten years, strengthening their ties with their regional counterparts. (And regional branches of the VPK continued to operate throughout the Soviet period.) These regional ties would likely have expanded the information base available to managers and lowered their transaction costs for under-the-table barter deals and would hence have improved their abilities to negotiate workable plans with their ministries. It would have made sense, then, for managers to maintain such contacts even after the sovnarkhoz  reforms ended

Another mechanism also served throughout the Soviet era to develop networks among managers of different enterprises in the same locality. Directors of large or important enterprises tended to be given seats on the local and regional soviets by the vote of their collectives. ¹²⁵ In 1959, for example, the chairman of the Sormovo district soviet of Gor'kii and the "mayor" of the city of Gor'kii itself were both from the Krasnoe Sormovo shipyard. ¹²⁶ As noted above, these soviets were in turn partly responsible for oversight of the enterprises located on their territories. The directors of neighboring enterprises would thus have formed another example of a krugovaia poruka , a circle of mutual aid and obligation. When a soviet asked an enterprise for help with road construction, or the harvest, or consumer goods production for the city, as described above, it would not only have cemented feelings of mutual obligation between the city and the enterprise; it would also have simultaneously involved mutual obligations between one large enterprise director and another

This helps to explain why municipal and regional associations of defense industry managers appeared in many locations during the late 1980s and early 1990s, as the power of the central ministries declined and the market began to open. The managers forming these associations would already have known each other well. For example, the Association of Industrial Enterprises in St. Petersburg, formed in 1989 by nine local defense enterprise directors (and later growing to include thirty-one enterprises and two banks), was based on social contacts developed during the Soviet era. ¹²⁷ The ELANG Association was similarly independently created in Zelenograd in 1991 "for business purposes" by the leaders of five enterprises and production associations. ¹²⁸

A comparable association of enterprises was formed in Nizhnii Novgorod in 1990. ¹²⁹

Local authorities may have needed to take action early in the reform era to bridge the gaps between enterprises that had been under the supervision of different ministries. Yurii Solodovnikov, deputy director of the Military Industrial Complex and Conversion Commission in what was then the Leningrad City Soviet, wrote that his committee was instrumental in gathering information about local defense enterprises that had been in separate ministries, so that common conversion plans could be worked out. According to Solodovnikov, "in the first half of [1990], there was an attempt to assign the members of the commission as 'curators' of the enterprises, on the basis of what was already known to the deputies because of their previous work or domiciles." ¹³⁰ In other words, defense industrial representatives sat on the city council together and used it as a means for strengthening their cooperative relationship. (The fact that managers from different enterprises had previously worked together on city business would not have led them to share what would earlier have been considered classified details about each other's production profiles.)

Other defense-heavy regions also began the reform era with a high concentration of local politicians and policy makers coming from common defense-related backgrounds. For example in Nizhnii Novgorod, the governor, the chairman of the oblast soviet, the chairmen of both the oblast Committee on Economics and the Administration for Economic Prognosis, and the chairman of the board of the Nizhnii Novgorod Banking House (the local defense industry FIG described earlier) were all graduates (from one era or another) of the Nizhnii Novgorod Radio-Physics Institute. ¹³¹ This institute acted as a feeder of scientific personnel to a number of Nizhnii Novgorod defense plants, including Nitel, Krasnoe Sormovo, and the Popov Communications Equipment Enterprise. ¹³² While Governor Nemtsov himself did not join the defense complex, through his work as a physicist in the 1980s he met and befriended the father of the Soviet nuclear bomb, Andrei Sakharov, the well-known dissident and peace activist. ¹³³ Given his accomplishments, Sakharov would have been both acquainted with and respected by many defense scientists in the region where his former Arzamas-16 home was located, despite his dissident status. (And midway through the Gorbachev era, Sakharov was working actively with the support of the Soviet state once again, this time as an advocate of reform.) These networks would have served as an ideal platform for the Nizhnii Novgorod authorities to use to communicate with defense managers about conversion issues. Regardless of what we might assume were the differences in their political views, they all would have spoken a common technical language and shared a common base of work experience. As was mentioned above, Nemtsov has consistently acted as a strong advocate for local defense enterprises at the federal level. ¹³⁴

Obviously, as in the case of ministerial ties, the relationship between enterprises and regional governments would have cut two ways. The same kinds of pros and cons of paternalism would have been elements of the relationship. On the one hand, cities and regions lobbied the central government for resources for local enterprises; on the other hand, they demanded services from the enterprises in return. Local and regional authorities acted as one more set of enterprise interlopers, eager to interfere in management decisions. Sectoral ministries and local authorities existed in a state of constant tension with each other. ¹³⁵ Enterprises would have found themselves caught in the middle

Rational Self-Interest and Local Ties

The dual-faceted nature of this relationship is continuing today. Cities and regions have a direct interest in ensuring the health of the enterprises in their areas. This means that enterprises have a direct interest in maintaining good relations with the local authorities who come to their assistance

To some extent, the concern of regional authorities is financial. This has been especially true since 1992, when responsibility for social welfare payments began to fall increasingly on the shoulders of local governments. ¹³⁶ Cities and regions have good reason to help keep their factories open, through federal subsidization if need be, in order to avoid local unemployment. Simultaneously, the Russian federal government has shed its budgetary responsibilities, largely in response to demands by organizations such as the International Monetary Fund to cut federal spending, and has forced local governments to pick up its former budget items. For this reason, subnational governments now find themselves paying for the lion's share of enterprise subsidies. ¹³⁷ Local authorities thus have a strong stake in their enterprises doing well on their own

Local authorities may also have a direct personal stake in the well-being of local defense workers. As noted in the previous chapter, a wildcat strike of defense industrial workers at the Mashinostroenie plant in Nizhnii Novgorod in July 1994 included an apparently drunken threat that workers would march to the regional kremlin to beat up municipal and regional conversion authorities. In another instance, in Izhevsk, the capital of defense-heavy Udmurtiia (and itself a newly reclosed city because of fears of weapons leakage to foreigners or the mafia), ¹³⁸ the mayor actually was beaten up in June 1995, when he went out to talk to irate demonstrators who were angry that the city had raised the rent on their apartments at a time of delayed wage payments, in order to fund the construction of new luxury homes. ¹³⁹

Not surprisingly, then, for both economic and social stability reasons, local and regional authorities have acted as federal lobbyists for the defense enterprises located on their territories. One particular sore point raised in these lobbying efforts has been delays in federal wage payments to those working on Defense Ministry contracts. The amount of back wages owed to defense workers has become staggering. This is reportedly in part because the Defense Ministry placed orders for weapons without paying much attention to its actual budget. ¹⁴⁰ According to Defense Ministry representatives, it may also be because the Finance Ministry, the banks, and Goskomoboronprom refused to release funds that had been allocated for wage payments. ¹⁴¹ No unified set of figures defines the limits of the defense budget--the precise share of military expenditures in Russia has reportedly remained unknown even to the legislature that approves the federal budget every year--and there have been numerous complaints about this lack of transparency from both parliamentarians and concerned outside advisers. ¹⁴²

Several local governments in defense-heavy regions have done an excellent job of convincing the state to cough up back wages (as well as subsidies) for local enterprises by using a uniquely powerful political tool: tax withholding. This is possible because the taxation system in Russia is based on what is called "upward transfer sharing." Federal taxes are collected at the local level by inspectors whose salaries come from Moscow but whose nonsalary benefits (including housing) come from local governments. (According to the World Bank, some estimates indicate that salaries account for only 30 to 40 percent of the overall compensation package received by state tax service employees.) ¹⁴³ In theory, the federal government receives these transfers from local inspectors and then returns a set portion of the revenues to local governments for their own use. However, the portion returned to the local governments varies significantly across regions and is set arbitrarily through ongoing negotiations. ¹⁴⁴ Unhappy regional leaders can use tax withholding as a tool in these negotiations. Because tax service employees are dependent on local governments for benefits, they can be convinced to collude in the decision not to send on the full measure of taxes owed to Moscow. There is little Moscow can do to collect these arrears. In one analyst's words, the system is "ad hoc, bargained, [and] nontransparent." ¹⁴⁵

Since 1992 at least thirty regions in Russia have used the tax-withholding tool to try to influence federal policy. ¹⁴⁶ Efforts in the regions of Tatarstan and Omsk have led directly to new federal funding for defense conversion. ¹⁴⁷ Several county-level cases of tax withholding have also been reported in defense-heavy Nizhnii Novgorod. ¹⁴⁸

The Republic of Tatarstan represents a particularly significant case in this regard. ¹⁴⁹ This republic, with a large Muslim population, is famous for having been the first Russian region to get special federal concessions, in February 1994, over its constitutional status, at least in part because of its use of the tax-withholding weapon. ¹⁵⁰ Throughout 1994 and into 1995 Tatarstan continued to bargain successfully with federal authorities, primarily Prime Minister Viktor Chernomyrdin and First Deputy Prime Minister Oleg Soskovets, in order to obtain special conversion credits, tax preferences, long-term state orders, and an independent affiliate of the state arms export agency, Rosvooruzhenie, for its defense industrial enterprises. ¹⁵¹ (Nizhnii Novgorod oblast had been the first region to negotiate successfully an independent Rosvooruzhenie affiliate, in 1994.) ¹⁵² Tatarstan remained unsatisfied with the conduct of federal defense industrial policy despite these successes. In July 1995, after Prime Minister Chernomyrdin failed to respond to the republican leadership's requests for Defense Ministry debts to be paid off, Tatarstan once more began withholding its tax payments. This time authorities announced that they would save all the funds they owed to the federal government and send them directly to the republic's defense industry workers instead. ¹⁵³

Like the former ministries, local governments also have the power to threaten their enterprises with negative incentives. A December 1993 presidential decree gave regions the right to impose their own taxes on local enterprises as they see fit, without central government oversight. ¹⁵⁴ Because enterprises lack capital mobility, managers find themselves caught in whatever tax structure their region hands down to them. (There is no evidence that anything has emerged in Russia that resembles the U.S. system of competition between states to attract businesses to relocate.) Furthermore (as was noted in the previous chapter), in the new system enterprises depend on subnational governments to assume their Soviet-era housing and social infrastructure burdens. Relief from expenditures on housing can mean the difference between enterprise survival and bankruptcy

Since it is in the interests of regions to maintain as much employment as possible to avoid social welfare payments and social instability, it is unlikely that threats of induced bankruptcy will be used at the local level. Managers share with local and regional officials an interest in the endurance of enterprises, and thus there is every rational economic incentive to continue to work together. Even so, as in Soviet times, local and regional authorities continue to extract favors from the enterprises they assist. In particular, enterprises have faced pressures to give "donations" of resources to local governments. ¹⁵⁵ Sometimes, these donations include cash loans, ¹⁵⁶ something managers probably provide with gritted teeth during this era of scarce funds. Enterprises and local authorities depend on each other's success; the krugovaia poruka  reasserts itself

A Special Case of Self-Interested Behavior: St. Petersburg

There are some cases where local authorities and enterprises have not seen eye to eye, however. In St. Petersburg, for example, the mayor during the immediate post-Soviet era, Anatolii Sobchak, had a more ambivalent attitude toward his city's defense enterprise directors than that held by leaders in Moscow, Nizhnii Novgorod, or Tatarstan. Sobchak had the reputation in some circles of preferring to develop the city's potential as a tourist spot rather than trying to salvage its ailing high-tech defense enterprises. ¹⁵⁷ A number of defense enterprise directors reportedly said in 1993 that Sobchak "regarded the survival of defense industry as irrelevant." ¹⁵⁸ City officials early in the reform period in fact encouraged the formation of new small businesses as a means for countering pressures from the old state enterprises for bailouts to keep the city economy functioning. ¹⁵⁹ In June 1994 Sobchak accused enterprise directors of prospering at the expense of their workers, which not surprisingly caused directors to respond with outrage and claims of unfairness. ¹⁶⁰ In the 1995 words of one analyst, "The military-industrial complex doesn't love him." ¹⁶¹

Although an article in one of the city's newspapers in January 1995 praised Sobchak for deciding to give city support to military-industrial enterprises, ¹⁶² it seems that this support came only in response to harsh pressure from an alliance uniting local defense industrialists, trade union leaders, and, in a surprise move early on in the reform process, federal authorities. The problem began in January 1993. The St. Petersburg city government announced that 70 percent of a credit package it was to receive from the Russian federal government for economic restructuring had already been allocated. The money would go to light industrial and food production firms that had solid plans for the future. A newspaper report said, "Enterprises of the MIC [military-industrial complex] and heavy industry still have not presented such programs. Therefore, for them to receive a part of the credit is problematic." ¹⁶³ Apparently, defense industry was scheduled to receive only 400 million rubles from a 9.5 billion ruble program, ¹⁶⁴ even though it was claimed that 35 percent of the local working population was employed in defense industrial enterprises. ¹⁶⁵

By early February, it had been discovered that the proposed federal credit to St. Petersburg had been frozen, apparently by the Russian Central Bank and Ministry of Finance. An article in a local newspaper explicitly linked this credit freeze to the disappointment of defense enterprises, saying that they "used (in this case with frozen credits) their lobby in the government. Now it is hoped that there will be a revision of the existing order for disbursing credits." ¹⁶⁶ The first deputy mayor for industry of St. Petersburg, Dmitrii Sergeev, went to Moscow to argue with Prime Minister Chernomyrdin, and it was subsequently announced that the Central Bank had decided to unfreeze the credits. Once again, city leaders emphasized that the credit was to be used to support concrete production, not for debt relief for ailing enterprises. ¹⁶⁷ Within a week, however, the promise to unfreeze the credits still had not been fulfilled. Chernomyrdin at this point publicly stated, perhaps coincidentally, that four areas were to be given credit preference throughout Russia: oil and gas production, the social sphere, science, and the defense industry. ¹⁶⁸ The prime minister refused several invitations to visit the city to negotiate with local authorities; when his deputy for economics, Boris Federov, did visit St. Petersburg, he announced, "We don't have the resources to finance even the most important directions. . . . There will be no more credits." ¹⁶⁹

After several more invitations to visit the city, Chernomyrdin finally arrived in April 1993, apparently at least in part on the invitation of the Association of Industrial Enterprises in St. Petersburg (a defense managers' lobbying group). While he was touring the shopfloor at one defense enterprise, according to a newspaper report, the Association directors got together to "agree on a position." They prepared a request to the government, asking for more budgetary support and describing as "very complicated" the social situation in the city, where "every new day a social explosion threatens [to occur]." ¹⁷⁰ Chernomyrdin was reportedly "disappointed" after his meeting with the defense directors, telling them they had to do more to adapt to the market, but he repeated during this visit his earlier statement about the four sectors--among them, the defense industry--that were to receive credit priority. He is reported to have said that he would provide means for the support of the St. Petersburg economy if city leaders could present a "complex program" for using such funds. ¹⁷¹ In mid-April, the government finally gave the credits to the city, which announced that they would be used for two purposes: defense industry conversion programs and housing construction. ¹⁷²

It is clear that the Association of Industrial Enterprises must have used a federal connection to pressure the local government. Only such a connection could explain the freezing and unfreezing of the credits, the visit of Chernomyrdin, and the redirection of credits toward enterprises that the mayor did not wish to support. One key individual probably played an important role

Georgii Khizha had been the general director of the Svetlana Association military production facilities and was the man responsible for founding the Association of Industrial Enterprises in 1989. ¹⁷³ In May 1992 Yeltsin appointed him deputy prime minister of Russia, with responsibility for both industry and arms sales. Up to that point, Khizha had been deputy mayor of St. Petersburg under Sobchak, and he had the reputation for being a skillful go-between who was able to bridge the often yawning gap between the mayor and local defense enterprise directors. ¹⁷⁴ After Khizha went to Moscow, the organization he founded expanded from nine to thirty-one enterprises. While no direct evidence is available on this point, it makes sense that selective incentives favoring lobbying activity would have played a role in this expansion. Khizha viewed it as his "duty" to support defense industrial interests ¹⁷⁵ and was thus likely to do all he could to help out members of "his" Association

The story of relations between the mayor and defense enterprises didn't end in April 1993. Within a month, Khizha had been fired by Yeltsin. Although an apparently unsubstantiated rumor circulated that he was implicated in an arms-smuggling scheme, ¹⁷⁶ the standard explanation for his removal was that he was not reform-minded enough for the Russian leadership. ¹⁷⁷ While there is no direct evidence on this point, it is always possible that Khizha's intervention in St. Petersburg finances played a role in his departure, given that Yeltsin and Sobchak were reported to be close friends

The conversion credits that Moscow had promised to enterprises in St. Petersburg, like those promised everywhere else, were delayed by the ongoing Russian defense budget crisis and only began arriving in late spring 1994. ¹⁷⁸ In February 1994 the Association of Industrial Enterprises sent appeals to Yeltsin, Chernomyrdin, both houses of parliament, and the Federal Security Council on the matter. The Association approached Sobchak and asked him to join their appeal, but he responded that he was too busy and sent his deputy Dmitrii Sergeev in his place. ¹⁷⁹ Shortly thereafter, the local affiliates of the Federation of Independent Trade Unions of Russia (FNPR, in its Russian abbreviation), the follow-on organization to the official Communist Party-controlled "trade unions" of Soviet times, formed a strike committee that united the labor forces of thirty of the largest enterprises in the city. They held their meetings at the Kirovskii tank factory. Complaints about the back wages owed to defense workers--and the unresponsiveness of city authorities to this situation--were central to their concerns. ¹⁸⁰ At the end of April 1994 the FNPR began sending representatives to picket the Smol'nyi, the building that served as the head offices of the city administration. ¹⁸¹ These pickets continued throughout the summer

In October 1994, the local FNPR chairman, Yevgenii I. Makarov, said that unless the city fulfilled its obligations to local workers, "a series of sharp conflicts may follow in a host of enterprises in the city." ¹⁸² He explicitly cited "tense situations" at a number of defense factories. ¹⁸³ One week later, a national FNPR strike and demonstration was held in cities throughout Russia, to protest the direction of economic reforms. This action had been planned far in advance, and despite FNPR claims about the effect it might have, most Russian authorities did not appear to be anxious on the eve of the event. It was assumed that participation rates would be low

Yet Makarov managed to get somewhere between forty and seventy thousand demonstrators out on the streets of St. Petersburg, ¹⁸⁴ dwarfing the protests held elsewhere (for comparative purposes, only four to five thousand demonstrators turned out in Moscow, even though the FNPR had expected seventy thousand there, too). ¹⁸⁵ A few days later, Makarov reminded city authorities of the FNPR's earlier demands for a city program of industrial support, complete with tax relief, credits, and loans. ¹⁸⁶ By the start of the new year, Sobchak announced the formation of a new St. Petersburg Fund for Support of Industry, ¹⁸⁷ which gave defense enterprises a 15 billion ruble tax break and sent a matching amount of money to local electricity and water supply companies to pay off defense enterprises' utility debts. ¹⁸⁸ A couple of months later, Sobchak invested city funds in a new defense conversion joint venture for the manufacture of city buses. The home of this joint venture was the Kirovskii factory, ¹⁸⁹ the point of origin for the FNPR strike activity. In the words of one press report, "Credit for the fact that the situation has not become even worse, in the opinion of [industrialists], belongs to the city's mayor." ¹⁹⁰ He just needed a little push

In this second half of the St. Petersburg saga, it is not clear why the city authorities gave in. Khizha was long gone from the corridors of power, and there was no evidence of federal involvement in Sobchak's decision to create the support fund or aid the Kirovskii venture. Furthermore, St. Petersburg has had a sufficient influx of market activity, including foreign investment, that it is unlikely that its overall economy is truly dependent on the health of defense enterprises. In addition, Sobchak demonstrated that at least in early 1995 he had nothing to fear from local elections. In October 1993 Yeltsin disbanded local soviets throughout Russia for reelection following the national parliamentary crisis of that same month. At that time, Sobchak effectively transferred all real power over policy to the mayor's office. Robert Orttung claims that a fax Yeltsin sent announcing the closure of the soviet's meeting hall was actually written by Sobchak for Yeltsin to sign. ¹⁹¹ Later, St. Petersburg repeatedly made the national news because throughout 1994 it was only with difficulty that voting in the new local parliamentary elections achieved the 25 percent participation rate necessary to have the results declared valid. ¹⁹²

Because neither federal intervention nor immediate electoral pressure appears adequate to explain Sobchak's move and because he withstood pressure from the local defense industrial lobby for so long before agreeing to help them, it is probable that it took the show of strength made by the FNPR at the October 1994 rally to persuade Sobchak to give in to defense industrialists' demands. Perhaps he, like the Nizhnii Novgorod authorities, feared the possibility of social unrest and violence. St. Petersburg newspapers throughout 1994 stated that at various defense enterprises "the situation in the collective is such that there are sufficient sparks to set off a fire" (referring to the Baltiiskii Shipbuilding Factory) and "the production areas literally boil with passion in spontaneous meetings" (regarding Svetlana). ¹⁹³ Perhaps it merely took Sobchak several years and uncounted battles to understand the political lay of his own land. By the end of 1995 he was facing a summer 1996 electoral battle against Viacheslav Shcherbakov, the former head of the regional division of the state arms export agency Rosvooruzhenie and a man closely connected to St. Petersburg's trade unions. ¹⁹⁴ And in fact in June 1996 Sobchak lost his reelection bid for the newly titled position of governor of St. Petersburg. Shcherbakov had withdrawn from the race in favor of the winner, Vladimir Yakovlev, but Yakovlev then appointed Shcherbakov as his chief deputy. ¹⁹⁵

As the experience of St. Petersburg makes clear, local lobbying and conglomeration in Russian defense industry are not merely a result of pressure emanating from local authorities. Sometimes, local enterprise networking is pursued as a means for influencing those authorities rather than being a tool influenced by them

Rational Self-Interest or Socialization?

Both sectoral and regional cooperation among defense enterprises and government authorities seem to be strongly supported by self-interested motives. Through cooperation, enterprises gain subsidies, lobbying support, and access to marketing and advertising services. In turn, former ministry officials get ownership shares in privatized enterprises and continuing control over the decisions of those that remain state-owned. Local and regional officials in defense-heavy areas gain both popularity among the citizenry and relief from social support service payments that they would otherwise face

It would seem that local governments and enterprise directors had more genuine interest in each other's well-being than did Goskomoboronprom and the ministerial FIGs. If the ministerial authorities were to disappear, only the least innovative managers would likely mourn their passing, given that these authorities have had a tendency to interfere in privatization and reprofiling plans. But the healthier the regional economy is, the more credits and subsidies may be available to local enterprises now that the federal government has shed its responsibilities in that arena. The healthier local enterprises are, the fewer resources the local government will have to spend on unemployment compensation and poverty relief. This means that local and regional defense enterprise connections are likely to remain politically important into the future. This mutual dependence clearly results from Russia's reform-era economic and legal structures. The rational self-interest perspective is correct in pointing to objective environmental institutions as the source for behavioral incentives. Everyone participating in these reconstituted networks gains great benefit from them

Yet it must be recognized that actors at the local and regional levels have used existing, long-standing relationships to take advantage of this structure rather than merely being constrained by it. Soviet patterns of network interaction and mutual help, especially the pattern ensuring that enterprise directors would form a local elite network in defense-heavy areas, helped to determine which economic incentives would be important in the new system. In the words of one socialization theorist, "Economic institutions do not emerge automatically in response to economic needs. Rather, they are constructed by individuals whose action is both facilitated and constrained by the structure and resources available in the social networks in which they are embedded." ¹⁹⁶ Continuity in old norms and networks caused the emergence of the particular structural pattern that appears to be dominating defense industrial lobbying and conglomeration activities today

The socialization perspective did not do a good job of explaining the pattern of ministerial links in the reform era. Managers should have distrusted the ministries but trusted each other, if history was their guide. Networks with suppliers and buyers should have been maintained even as networks with former planning supervisors were severed. Instead, the opposite occurred: as new market opportunities presented themselves, managers turned away from enterprises with which they had traditional production links but joined FIGs headed by former ministry authorities. Rational self-interested motives explain their actions better than do cultural norms or habits

Yet the reform-era pattern of enhanced local and regional ties is best explained when both material interests and cultural norms are considered. Self-interest and socialization reinforce each other here, making locally based social and economic institutions even more powerful. As a result, Russia finds itself in a unique situation. Arguably, the most important political-economic decisions made in Russia today are not the national laws officially passed by the federal government. Nor are they the declarations of sovereignty and other acts passed by regional governments acting in isolation, given that few Russian regions today can survive without a strong economic connection to Moscow. (And considering the reaction of Moscow to events in Chechnia, future violent attempts to obtain regional sovereignty seem unlikely.) Instead, it is the bargained nexus between federal and local government policies that matters most, on issues ranging from the budget to foreign policy design.

With time, the remnants of the former ministries are likely to matter less and less in the decisions that defense industrial managers make. Privatized enterprises, especially those that have developed independent international business contacts as reforms have progressed, are less likely to retreat into ministerial relationships in the future. Their independence will be sealed as competent independent advertising agencies and other business services spring up for them to use. Defense enterprise issues should come more and more to be seen as local affairs rather than national sectoral ones. (The two major exceptions here may be aviation industry, where ministerial FIGs seem to have solidified and to be exerting effective lobbying pressure on the state, and the defense nuclear science and production complex, which is still under the control of the Ministry of Atomic Energy.) What will localization of most defense industrial interests mean for Russian stability and international security?

Think Locally, Act Globally

Local governments have already been able to obtain payment of federal back wages, special subsidies, and arms export administrative preferences for defense enterprises located on their territories. In addition to the examples cited earlier, the region of Sverdlovsk signed an agreement with the federal government in January 1996 to allow federal taxes collected there to be diverted directly into conversion projects at local plants. ¹⁹⁷ In mid-1995, Tatarstan appeared to be pushing the envelope even further. The vice premier, Ravil' Muratov, visited Baghdad and announced that Tatarstan planned to begin limited trade with Iraq by the end of the year. According to one report, he declared that this would happen whether or not Russia continued officially to abide by the United Nations economic embargo against Iraq. ¹⁹⁸ According to another report, Muratov interpreted the UN sanctions to mean that a variety of products could legally be shipped to Iraq even with the sanctions in place. ¹⁹⁹ Both reports agree that Muratov said that this trade shipment would include sales of two hundred KamAZ trucks

While there has been no public mention that any military goods might be involved in this trade, it should be kept in mind that KamAZ trucks have been used as troop carriers. In 1980 the U.S. Commerce Department forced the cancellation of 250 détente-era private business contracts with KamAZ after photographs indicated that KamAZ trucks were used in the Soviet invasion of Afghanistan. ²⁰⁰ Even if no military-use items were traded in this case, however, Muratov's statement provides evidence that local authorities have started to challenge Moscow's control over Russian diplomacy in order to help defense-related enterprises. Tatarstan's boldness may reflect a sentiment prevalent in Russia's arms export community: Russia should try to convince the United Nations to lift all embargoes against both Iraq and Libya and should break Yeltsin's September 1994 promise to the United States not to sell more arms to Iran. ²⁰¹

So far, Rosvooruzhenie, the state arms export agency, appears to have maintained control over legal  arms exports in Russia (illegal arms exports have been frequently reported). The regional affiliates of Rosvooruzhenie, including those established in Nizhnii Novgorod and Tatarstan, are administratively subordinate to the agency, although they are separate corporations. Directorates within both the Foreign Ministry and Defense Ministry in Russia have veto power over extending any weapons export permission. ²⁰² Since May 1994 it has been legal for individual enterprises to seek the right to bargain with foreign arms purchasers on their own; ²⁰³ MAPO-MiG, the FIG receiving support from Moscow city authorities, was the first private actor to be granted this right, in October 1994. ²⁰⁴ The enterprise, however, must get a license through normal channels for any deals ensuing from such negotiations. The right to independent bargaining (or to use a regional affiliate) merely saves the enterprise Rosvooruzhenie's standard 5 to 10 percent middleman fee and payments delay ²⁰⁵ and overcomes weaknesses that enterprises have perceived in Rosvooruzhenie's choice of markets for deal making. ²⁰⁶ Given the indictment of various Rosvooruzhenie functionaries on currency and tax fraud charges in the spring of 1995, the ability to avoid using that agency as a middleman is an asset indeed. ²⁰⁷

Yet if the Tatarstan trend of independent province-level diplomacy continues, then the current loosening of Rosvooruzhenie procedures means that an administrative framework (complete with independent advertising and direct international contacts) has been created for authorities in several defense-heavy regions--Tatarstan, Nizhnii Novgorod, and the city of Moscow (through MAPO-MiG), at a minimum--to assume control over the arms export process. It is impossible to predict with any certainty what such regional control might mean; there is no evidence that regional leaders would want to foster uncontrolled proliferation any more than the central authorities do. (Tatarstan, in particular, is potentially both geographically and ethnically vulnerable if its arms fuel conflicts in the Caucasus or Central Asia.) It would definitely mean, however, that any future international arms embargoes or arms transfer control agreements would have to be negotiated with several semi-independent Russian players rather than with one state alone. This would be bound to make such agreements harder to reach, which in and of itself could make proliferation more likely

Whether or not defense industrial regionalism has an effect on arms exports, it certainly has a negative effect on the ability of the Russian state to control the federal budget. This is especially true because tax rates and credits are on the bargaining table, not just back wages. And even the issue of back wages may threaten the promises Russian officials have made, to organizations such as the International Monetary Fund, of tighter federal budgets to control inflation, because such wages may not be adequately budgeted. Then-defense minister Pavel Grachev revealed this when he said, in an interview at the Nizhnii Novgorod arms fair in September 1994, "There is no money, and we will not pay. . . . I await extrabudgetary resources, in order to transfer them to the places where strikes because of wage debt have begun in MIC (military-industrial complex) enterprises." ²⁰⁸ The president of the Russian Weapons Corporation stated at almost the same time, in August 1994, that extrabudgetary funds for the defense complex included such things as (unspecified) credits and private capital generated by FIGs, which were coordinated by government authorities. ²⁰⁹ Some federal wage payments do not originate in the official budget, in other words; they, like conversion credits and tax relief, come from the shadowy extrabudgetary sources that are not under parliamentary oversight

When elections loom, tight federal budgets are likely to come under particular threat. In part, this is because regional interests dominate the Federation Council (Russia's upper house of parliament) by design. In part, it is precisely because the legislature does not have complete control over the budget. In 1994 and 1995 regional bargaining with central authorities was always done through the office of Prime Minister Viktor Chernomyrdin, who had meanwhile founded his own political bloc ("Russia Is Our Home"). Speculation was rife that Chernomyrdin's favors to regional administrations were granted only with the expectation of political payback in return. ²¹⁰

This means that the power of uncompetitive defense enterprises in certain Russian regions indirectly threatens the ability of the Russian state to use fiscal measures to control inflation. Because tax rates, credits, and wage payment levels are bargained on the fly, the official budget adopted by the legislature and signed by the president may bear little resemblance to actual income and expenditures. This feeds the cycle of low domestic investment levels and doubts about the future, because it threatens economic stability. The fact of regional opportunism encourages more short-term thinking and predation, further undermining the establishment of the rule of law and contract in Russian business

At the beginning of the reform process in Russia, many observers saw cooperation between dynamic regional authorities and established high-technology enterprises as a means for accelerating the establishment of stable markets and long-term investments. Certainly, regional influence is obvious in many of the success stories emerging from Russian defense industry. The NITEL corporation in Nizhnii Novgorod is building VCRs with the Sharp Electronics corporation of Japan, using credits from the local Banking House, and selling them at a profit on the world market. ²¹¹ The KamAZ enterprise in Tatarstan has attracted significant investment from the Cummins corporation of the United States and is widely regarded to be capable of becoming a competitive international truck manufacturer. ²¹² MAPO-MiG in Moscow is capturing a wide export market for its jet fighters

Yet the success of these firms and others like them may have come at a price. The institutionalization of provincial influence over Russian taxation, credit, and trade policy may actually undermine Russia's long-term political and economic stability. As regions compete against each other for more budgetary and extrabudgetary favors, as well as for more diplomatic independence, the fragility of the Russian constitution is highlighted. If the Russian state is decapitated, and dozens of regions find themselves fighting for a place in a system that is never institutionalized, then the result will not be prosperity for Russia or integration into the developed world economy. Instead, it will be the reestablishment of a kind of feudalism

Regional authorities by definition have fewer resources than a unified state does, and disagreement between regions and the federal government is likely to continue over who has responsibility for what. This means that organized crime and a general absence of rule of law are more likely to endure in a quasi-feudal system than in a strong and unified state. Consider, for example, how much more difficult local and state tax collection would be in the United States in the absence of the Internal Revenue Service database or how hard it would be to interdict drug dealers or terrorists without the Federal Bureau of Investigation or the Bureau of Alcohol, Tobacco, and Firearms. National coordination makes it easier both to control crime and to implement a successful fiscal policy. An efficient set of unified economic and legal institutions is unlikely to be established otherwise. Continuing competition among regions for dominance over resources may also lead to festering civil conflict in a time of widespread poverty. In short, regionalism is in and of itself dangerous.

But feudalism in Russia may be more dangerous and more costly this time around than it was in the Middle Ages. Defense enterprise collectives will continue to agitate for more resources, and the local "lords" will discover that they have the ability to manufacture and sell advanced weaponry and mass-destruction materials. If control by the the Russian state continues to evaporate, outside monitoring of national stocks of weapons and materials will become increasingly difficult. In fact, as I will show in the next chapter, the Russian state may already have lost the ability to control proliferation from Russian defense enterprises

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Endnotes

Note 1: See Ol'ga Romanova, "Finansovo-promyshlennye gruppy: Net zakona, net problemy" (Financial-industrial groups: No laws, no problem), Segodnia , June 6, 1995. Back.

Note 2: Anna Ostapchuk, "Deputaty chetyrekh respublik sozdali 'ekonomicheskii souiz' " (Deputies of four republics have created an "economic union"), Nezavisimaia Gazeta , Oct. 7, 1994. Back.

Note 3: In these official groups, the founders cannot own shares in each other's separate companies; banks are limited to ownership of 10 percent of the FIG stock; and monopoly enterprises, or those with more than 25,000 employees, cannot belong. See "Chto takoe finansovo-promyshlennye gruppy?" (What are financial-industrial groups?), Ekonomicheskie Novosti , no. 15 (Aug. 1994): 6; and "Proekt Programmy: Finansovo-promyshlennye Gruppy" (Draft program: Financial-industrial groups), Rossiiskaia Gazeta , Oct. 29, 1994. Back.

Note 4: Aleksandr Bekker, interview with Andrei Kokoshin, "Andrei Kokoshin: Yesli promyshlennost' umret Segodnia , banki skonchaiutsia zavtra" (Andrei Kokoshin: If industry dies today, banks will die tomorrow), Segodnia , Sept. 14, 1993. Back.

Note 5: Oleg Soskovets, "Rozhdaetsia promyshlennaia politika Rossia" (An industrial policy for Russia is born), Inzhenernaia Gazeta , no. 131 (Nov. 1993). Back.

Note 6: A September 1994 estimate claimed that there were eleven FIGs planned in Russian defense industry (Mikhail Kuprianov, "VPK sozdaet mezhgosudarstvennye korporatsii" [The military-industrial complex is creating interstate corporations], Segodnia , Sept. 15, 1994), but an August 1994 estimate claimed that forty had already been created in the defense industry (Yulii Lebedev, "Finansovo-promyshlennye gruppy kak novyi instrument integratsii" [Financial-industrial groups as a new instrument of integration], Nezavisimaia Gazeta , Aug. 27, 1994). This is undoubtedly due to the lack of precision used in defining the term. Back.

Note 7: Jane E. Prokop provides the example of the PAKT FIG in Primorskii Krai. See her "Industrial Conglomerates, Risk Spreading and the Transition in Russia," Communist Economies and Economic Transformation  7, no. 1 (Mar. 1995): 35-50. Back.

Note 8: A. B. Voiakina, "Sozdanie novykh krupnykh organizatsionnykh form osnovnykh khoziastvennykh zven'ev oboronnogo kompleksa" (Creation of new large organizational forms from the basic economic links of the defense complex), Voprosy Ekonomiki i Konversii , 1992, no. 4: 110; and Kuprianov, "VPK sozdaet mezhgosudarstvennye korporatsii." Back.

Note 9: G. Bruce Knecht, "From Soviet Minister to Corporate Chief," New York Times Sunday Magazine , Jan. 26, 1992. Back.

Note 10: Kevin O'Prey, "Coping with Crisis: Enterprise Adaptation in the Russian Defense Sector," Soviet Defense Notes  (MIT) 5, no. 2 (June 1993): 5-6. One example in this category is the Russian Aviation Corporation, which unites the Aeroflot airline company with the manufacturers of its Tu-204 planes and their suppliers of engines and parts; see Yevgenii Ostapov and Leonid Zavarskii, "Aviazalozhniki ob'edinilis' v proforganizatsiiu" (Avia-hostages have united into a union), Kommersant-Daily , June 8, 1995. Another example is the Volzhsko-Kamskaia FIG, which unites the military truck maker KamAZ, the AvtoVAZ auto production factory, and many of their suppliers. See Lev Ambinder, "Finansovo-promyshlennaia gruppa obrastaet postavshchikami" (Financial-industrial group surrounds itself with suppliers), Kommersant-Daily , Mar. 14, 1995. This FIG is headed by Vitalii Poliakov, former Soviet minister of the automobile industry; like the Aviaprom case mentioned above, the creation of this FIG suggests that those who held state authority in the past are now being granted financial authority by the enterprises they supervised. See Konstantin Lange and Yevgenii Ostapov, "AvtoVAZ i KamAZ okonchatel'no oformili svoi souiz" (AvtoVAZ and KamAZ finally formalize their union), Kommersant-Daily , Jan. 12, 1995. Back.

Note 11: Examples include the Russian Association of Conversion Enterprises and Manufacturers of Gas Weapons ("Entrepreneurs Dispute Weapons for Civilian Use," Moscow News , Sept. 10, 1993) and the Light Aviation of Russia Interbranch Association (Leonid Kostrov and Valentina Kulakova, "Maloi aviatsii pora na bol'shuiu dorogu" [It is time for small aviation to set out on the big road], Segodnia , Dec. 17, 1994). Back.

Note 12: As the Soviet state began to collapse and Russian authorities assumed control over the economy, the seven defense industrial ministries in existence at that time went into limbo; for a few months, it was unclear exactly who was in charge of supervising defense industrial orders. See Peter Almquist, "Arms Producers Struggle to Survive as Defense Orders Shrink," RFE/RL Research Report 2, no. 25 (June 18, 1993): 34. When the Russian state took over Soviet administrative functions, those seven former ministries were first designated departments of the Russian Ministry of Industry. For an example of this, see "Naval Equipment Manufacturers Reorganize," Ekonomika i Zhizn , Dec. 14, 1991, as reported by Reuter Textline. Later, that ministry itself was abolished, and all the remaining former defense industrial ministries became departments of the newly formed Goskomoboronprom. See Adam N. Stulberg, "The High Politics of Arming Russia," RFE/RL Research Report  2, no. 49 (Dec. 10, 1993): 3. Viktor Glukhikh served initially as the first deputy minister of industry in charge of defense industry and later as the founding chairman of Goskomoboronprom. See A. Dolgikh, "Russian Federation Committee for Defense Sectors of Industry Created," Krasnaia Zvezda , Nov. 26, 1992, as reported in BBC Summary of World Broadcasts , SU/1551/C3/1, Nov. 30, 1992. Back.

Note 13: Almquist, "Arms Producers Struggle," p. 37; Laure Després, "Financing the Conversion of the Military-Industrial Complex in Russia: Problems of Data," Communist Economies and Economic Transformation  7, no. 3 (1995): 333. Back.

Note 14: Peter Almquist, Red Forge: Soviet Military Industry since 1965  (New York: Columbia University Press, 1990), pp. 23-24. Back.

Note 15: In 1996 a new version of this ministry was re-created. Back.

Note 16: For an example, see Voiakina, "Sozdanie novykh krupnykh organizatsionnykh form," p. 110. Back.

Note 17: Knecht, "From Soviet Minister to Corporate Chief." Back.

Note 18: The Committee on the Defense Branches drew up the original "not-for-privatization" list that Goskomoboronprom later enforced; see Anna Shcherbakova, "Sud'ba sudostroitel'nogo zavoda poka ne reshena" (The fate of the shipbuilding factory is still not decided), Kommersant-Daily , Jan. 28, 1993. Furthermore, many articles published by the Scientific Research Institute of Economics and Conversion, which was associated first with the VPK and later with Goskomoboronprom, indicate a continuing desire by former central planners to map out the "correct" future paths for Russian defense enterprise activity, even as privatization was well under way. For example, an article sent to press in November 1993 used mathematical models to analyze production by enterprises in market conditions with disparities between supply and demand, in order to "predict the dynamic of enterprise development [and] its economic indicators, [and] to choose the most rational path for development in the presence of alternative variants for both civilian and defense enterprises," particularly as it related to government agencies providing "measures for economic stimulation . . . of the given enterprise" (B. M. Bogdanov and A. P. Kotov, "Modelirovanie razvitiia predpriiatiia v usloviizkh neravnoveshogo rynka" [Modeling of enterprise development in conditions of market disequilibrium], Voprosy Ekonomiki i Konversii , 1993, no. 4: 48). The format and content of the article parallel the structure of those appearing in state planning journals during Soviet times. Back.

Note 19: For examples, see Aleksandr Bekker, "The Government Is Putting Everything on the Altar of the Fatherland," Segodnia , May 12, 1993, as reported in Current Digest of the Post-Soviet Press  45, no. 19 (June 9, 1993): 7; and "Usloviia formirovaniia promyshlennoi politiki (obzor)" (Conditions for the formation of industrial policy [Review]), Ekonomist , no. 2 (Feb. 1994): 11. Back.

Note 20: George Lysenko, "Market Manages the Ball," Military Parade  (Moscow), Nov./Dec. 1994, 62; and Almquist, Red Forge , p. 153. Back.

Note 21: Author's interview, Aug. 1994, with a Moscow sociologist who himself interviewed many defense complex representatives between 1990 and 1994. Back.

Note 22: See Sergei Oslikovsky, "On the Way to Increasing Effectiveness of Military-Technical Cooperation," Military Parade , Nov./Dec. 1994, 13; and Victor Samoilov, "Russian Arms Trading," Military Parade , May/June 1994: 14-17. Back.

Note 23: "USSR: Aviation Ministry Abolished," Izvestiia , Oct. 19, 1991, as reported in Reuter Textline. Back.

Note 24: Kuprianov, "VPK sozdaet mezhgosudarstvennye korporatsii." Back.

Note 25: "Bankirskii dom--otkryt" (The banking house is open), Nizhegorodskie Novosti , Aug. 6, 1992. Back.

Note 26: Aleksandr Blagov, "Milliony na konversiiu" (Millions for conversion), Gorod i Gorozhane  (Nizhnii Novgorod), no. 33 (Aug. 22-28, 1992). Back.

Note 27: Ibid. Back.

Note 28: Aleksandr Fedotov (procurator for the Nizhnii Novgorod oblast), "Prokuror oblasti kommentiruet . . ." (The oblast procurator comments . . .), Birzha  (Nizhnii Novgorod), no. 7 (Feb. 1993). Back.

Note 29: Vladimir Ulyanov, "Tax Credits to Munitions Factories," Delovoi Mir/Business World Weekly , Aug. 29, 1994. Back.

Note 30: U.S. Department of Commerce, Russian Defense Business Directory , 3d installment (Washington, D.C.: National Technical Information Services, 1993), p. 8-1. Back.

Note 31: Rustam Arifdzhanov and Anatolii Yershov, "Nizhnii Reform: A Less 'Liberal' Alternative?" Izvestiia , Mar. 29, 1994, as reported in Current Digest of the Post-Soviet Press  46, no. 13 (Apr. 27, 1994): 2. Back.

Note 32: Vladimir Bessarabov, speech delivered at the Vooruzhenie, Voennaia Tekhnika, Konversiia (Armaments, military technology, conversion) Fair, Nizhnii Novgorod Fairgrounds, Sept. 13, 1994, as observed and noted by the author. Back.

Note 33: Irina Vladykina, "Profkom '333' golodaet bessrochno" (Trade union committee 333 is quickly starving), Segodnia , Nov. 17, 1994; and idem, "Golodovka na 'Spetstekhnike' priostanovlena" (The hunger strike at the Spetstekhnia plant has been halted), Segodnia , Dec. 15, 1994. Back.

Note 34: Doug Clarke, "Far Eastern Military Shipyard Workers Get Some Back Pay," OMRI Daily Digest , no. 143 (July 25, 1995). Back.

Note 35: V. Seryi, "Kogda vydadut zarplatu?!" (When will you give out our pay?!), Nizhegorodskie Novosti , July 28, 1994. Back.

Note 36: Tatarstan has paid defense workers back wages out of its own tax money earmarked for the federal government. I say more about this below. See Robert Orttung, "Tatarstan Stops Payments to Federal Budget," OMRI Daily Digest , no. 152 (Aug. 7, 1995). Back.

Note 37: "V Moskve provoditsia programma 'Konversiia-gorod' " (In Moscow the "City Conversion" program is implemented), Segodnia , Dec. 1, 1994. Back.

Note 38: S. Fastov, "Zhizn'--kak zebra--polosata" (Life is like a zebra--striped), Sorok Odin  (Zelenograd), no. 47 (Nov. 23-30, 1992). Back.

Note 39: N. Figurovskii, interview with Irina M. Rukina, chairman of the Moscow City Duma Committee on Economic Reform and Property, "Otechestvennaia promyshlennost' ne mozhet ne vozrodit'sia" (Domestic industry must be revived), Ekonomika i Zhizn'--Vash Partner  (Moscow Edition), no. 12 (June 1994). Back.

Note 40: The contribution of V. A. Teleshov (deputy director of the Moscow City Administration Department of Industry) in "Sila FPG--V ob'edinenii struktur, raznykh po knarakhteru deiatel'nosti" (The strength of the FIG--In a unified structure, different activities), Ekonomika i Zhizn'--Vash Partner  (Moscow Edition), no. 18 (Sept. 1994). Back.

Note 41: Kathryn Brown, "Nizhnii Novgorod: A Regional Solution to National Problems?" Radio Free Europe/Radio Liberty Research Report  2, no. 5 (Jan. 19, 1993): 22; Boris Nemtsov, "Initsiativnykh podderzhivaem" (We Will Support Those with Initiative), Predprinimatel ', no. 3 (Sept. 1994). Back.

Note 42: Interview conducted by the author in the Nizhnii Novgorod Kremlin, Sept. 1994. Back.

Note 43: For example, Anatolii Andreev, chief of the Main Administration for Electronics Industry in Goskomoboronprom, has been a vocal and successful advocate for state debt relief and subsidies to electronics enterprises in Zelenograd. See "Gosudarstvo zadolzhalo predpriiatiam elektronnoi promyshlennosti 150 mlrd rublei" (The state owes electronics industry enterprises 150 billion rubles), Segodnia , Nov. 11, 1994. Back.

Note 44: See George Breslauer, "Soviet Economic Reforms Since Stalin: Ideology, Politics, and Learning," Soviet Economy  6 (July-Sept. 1990): 252-80; and Peter Rutland, "The Dynamics of the Soviet Economic Mechanism: Insights from Reform Debates, 1977-1987," in Political Implications of Economic Reform in Communist Systems: Communist Dialectic , ed. Donna L. Bahry and Joel C. Moses (New York: New York University Press, 1990). Back.

Note 45: David Holloway, The Soviet Union and the Arms Race  (New Haven: Yale University Press, 1983), p. 118; also idem, "Soviet Military R&D: Managing the 'Research-Production Cycle,' " in Soviet Science and Technology: Domestic and Foreign Perspectives , ed. John R. Thomas and Ursula M. Kruse-Vaucienne, National Science Foundation Report NSF-GWU-77-1 (Washington, D.C.: George Washington University, 1977), pp. 195-97. Back.

Note 46: This list is drawn from Julian Cooper, "The Defense Industry and Civil-Military Relations," in Soldiers and the Soviet State: Civil-Military Relations from Brezhnev to Gorbachev , ed. Timothy J. Colton and Thane Gustafson (Princeton: Princeton University Press, 1990), p. 164; idem, "The Civilian Production of the Soviet Defence Industry," in Technical Progress and Soviet Economic Development , ed. Ronald Amann and Julian Cooper (New York: Basil Blackwell, 1986), p. 32; and Holloway, Soviet Union and Arms Race , p. 120. Back.

Note 47: Julian Cooper, The Soviet Defence Industry: Conversion and Economic Reform , Chatham House Papers (New York: Council on Foreign Relations Press, 1991), p. 10. Back.

Note 48: Arthur J. Alexander, Decision-Making in Soviet Weapons Procurement , Adelphi Papers 147/8 (London: International Institute for Strategic Studies, 1978), p. 26. Back.

Note 49: Ibid., p. 23; Holloway, Soviet Union and Arms Race , pp. 140-41; Matthew Evangelista, Innovation and the Arms Race: How the United States and the Soviet Union Develop New Military Technologies  (Ithaca, N.Y.: Cornell University Press, 1988), p. 42. Back.

Note 50: For examples of complaints about this separation, see Bekker, "Andrei Kokoshin"; Valentin Pashin (director of the Krylov Central Scientific Research Institute), "Ostanetsia li Rossiia velikoi morskoi derzhvoi?" (Will Russia remain a great naval power?), Nezavisimaia Gazeta , Oct. 13, 1994; Anatolii Ladin, "When the Locomotive Grinds to a Halt, the Cars Stop Too," Krasnaia Zvezda , Mar. 4, 1995, as reported in Foreign Broadcast Information Service Daily Report--Central Eurasia (FBIS-SOV) , Mar. 7, 1995, p. 74; and Tamara Ivanova and Viacheslav Anichkov, "Russian, Ukrainian Defense Officials Meet at Arms Fair," ITAR-TASS in English, Mar. 20, 1995, as reported in FBIS-SOV , Mar. 21, 1995, p. 13. Back.

Note 51: Janos Kornai dubs this process "vertical bargaining." See The Socialist System: The Political Economy of Communism  (Princeton: Princeton University Press, 1992), pp. 122-24. Back.

Note 52: This is also noted in Almquist, Red Forge , p. 33. Back.

Note 53: Ed A. Hewett, Reforming the Soviet Economy: Equality Versus Efficiency  (Washington, D.C.: Brookings, 1988), pp. 176-78. Back.

Note 54: Alexander notes that the Military-Industrial Commission of the Soviet Council of Ministers was the one place where interchange among ministries would have occurred; the issues considered at this level were probably limited to those not involving day-to-day operations of the enterprises and may not even have included questions regarding trade-offs in weapons purchase decisions; see Decision-Making in Soviet Weapons Procurement , p. 26. Back.

Note 55: In Red Forge , p. 101, Almquist notes that a common career path for enterprise managers was promotion to a position in the ministry that supervised their enterprises. Back.

Note 56: For a useful explanation of this system, see Hewett, Reforming the Soviet Economy , pp. 104-51. Back.

Note 57: P. Bol'shakov, "Khozraschet ob'edineniia" (Cost-accounting of the association), Plannovoe Khoziastvo , no. 5 (1969): 21-28. Back.

Note 58: Ruben Lamdany, Russia: The Banking System During Transition  (country study) (Washington, D.C.: World Bank, 1993), p. 16. Back.

Note 59: Andrei Grigor'ev, "Promyshlennost' i banki: Integratsiia na kommercheski vygodnykh usloviiakh" (Industry and banks: Integration in commercially profitable conditions), Segodnia , Nov. 22, 1994. Back.

Note 60: See, for example, Joseph S. Berliner, Factory and Manager in the USSR  (Cambridge: Harvard University Press, 1957), p. 260. Back.

Note 61: Almquist, Red Forge , p. 101. Back.

Note 62: For useful reviews of these policies, see Jan Ake Dellenbrant, "Reformists and Traditionalists: A Study of Soviet Discussions About Economic Reform, 1960-1965," Publications of the Political Science Association in Uppsala , no. 63 (Stockholm: Raben and Sjogren, 1972); and Sergei Freidzon, Patterns of Soviet Economic Decision-Making: An Inside View of the 1965 Reform  (Falls Church, Va.: Delphic Associations, 1987). Back.

Note 63: Freidzon, Patterns of Soviet Economic Decision-Making , pp. 30-31. Back.

Note 64: For examples, see M. Alekseev (director of the Red October Machine-building Factory in Odessa), "Khozraschet, priamye sviazi, effektivnost' proizvodstvennykh fondov" (Cost-accounting, direct ties, and effectiveness of the production funds), Plannovoe Khoziaistvo  no. 4 (1965): 55-58; I. Kurtynin (director of the Moscow Factory of Thermal Automatics), "Podgotovka predpriiatiia k rabote po-novomu" (Preparation of enterprises to work in the new style), Plannovoe Khoziaistvo , no. 5 (1966): 70-74; Bol'shakov, "Khozraschet ob'edineniia"; and P. F. Derunov (director of the Rybinskii Engine Construction Plant), with A. A. Baklankin and V. A. Mazal'son, Nauchnaia Organizatsiia Proizvodstva Truda i Upravleniia  (Scientific organization of labor productivity and management) (Moscow: Izdatel'stvo Ekonomika, 1968), pp. 220-27. Back.

Note 65: Stulberg, "High Politics of Arming Russia," pp. 1, 3. Also see Mikhail D. Malei, "VPK mozhet stat' detonatorom sotsial'nykh bur' " (The military-industrial complex may become the detonator of a social storm), Sankt-Peterburgskie Vedomosti , Aug. 30, 1994. Back.

Note 66: Ye. Zubatov, "Direktora neispravimy; polozhenie nado ispravliat!" (The directors are incorrigible; they must correct the situation!), Sorok Odin , no. 29 (Aug. 1992): 4. Back.

Note 67: Yu. A. Filimonov, "Kooperativy v mashinostroenii" (The cooperatives in the machine-building sector), Mashinostroitel ', no. 11 (Nov. 1990). Back.

Note 68: Sergei Markov, "Reform of Property Rights: The History, the Players, the Issues," Conversion: Report on Russia's Defense Industry  (Stanford Center for International Security and Arms Control), no. 2 (Aug. 3, 1993): 3. Back.

Note 69: See "Firme otkazano v privatizatsii" (A firm is refused privatization), Kommersant-Daily , Nov. 4, 1992; Steven Erlanger, "Capitalists Short of Capital, Russian Managers Privatize at a Time of Scarcity," New York Times , Aug. 19, 1992; Shcherbakova, "Sud'ba sudostroitel'nogo zavoda"; and Yekaterina Zapodinskaia, "Soskovets ne razreshil Chubaisu privatizirovat' aviazavod" (Soskovets did not allow Chubais to privatize an aviation factory), Kommersant-Daily , Jan. 14, 1995. Back.

Note 70: For a statement indicating that Goskomoboronprom is the primary authority on this issue, see Irina Vladykina, "Ob'edinenie 'Avtomatika' dobilos' vyplaty zarplaty" (The Avtomatika Association obtained wage payments), Segodnia , Nov. 29, 1994. Back.

Note 71: Andrei Serov, " 'Rybinskie Motory' kak dvigatel' privatizatsii VPK" (Rybinskie Motors as an engine for privatization of the defense sector), Kommersant-Daily , Aug. 19, 1995. Back.

Note 72: Aleksandr Tsvetkov and Yevgenii Ostapov, "Polet v budushchee planiruetsia na ustarevshikh dvigateliakh" (Flight into the future is planned on obsolete engines), Kommersant-Daily , June 23, 1995; Aleksandr Volzhskii, "Rybinskie Motory chuvstvuiut sebia ne kak ryba v vode" (Rybinskie Motors feels like a fish out of water), Kommersant-Daily , July 26, 1995; and Serov, " 'Rybinskie Motory' kak dvigatel.'" Back.

Note 73: Aleksandr Tsvetkov and Yevgenii Ostapov, "Valerii Anikin ukhodit s ringa" (Valerii Anikin exits the ring), Kommersant-Daily , Apr. 11, 1995. Back.

Note 74: Volzhskii, "Rybinskie Motory chuvstvuiut sebia." Back.

Note 75: "Dosrochno prodaetsia gosudarstvennyi paket aktsii AO 'Rybinskie Motory' " (The state packet of Rybinskie Motors stock will be sold early), Kommersant-Daily , Aug. 8, 1995. Back.

Note 76: Serov, " 'Rybinskie Motory' kak dvigatel.'" Back.

Note 77: Ibid. Back.

Note 78: While by late 1994 it was unclear to what extent the Defense Ministry continued to consult with Goskomoboronprom before placing armaments orders, Defense Ministry and Goskomoboronprom personnel did continue to work together through a variety of interdepartmental bureaucratic councils, including one that supervised arms exports. The Interdepartmental Commission on Military-Technical Cooperation with Foreign Countries, which was responsible for approving all arms exports, included representatives from both the Defense Ministry and Goskomoboronprom. See Colonel General Vladimir Zhurbenko, first deputy chief of the General Staff, interviewed by Valentin Rudenko, in "Interesy gosudarstvo prevyshe vsego" (The interests of the state above all else), Krasnaia Zvezda , Aug. 27, 1994. Back.

Note 79: Viktor Ivanov, "Minoborony mogut' osvobodit' ot platy za vooruzhenie" (The Defense Ministry may be freed from paying for weapons), Kommersant-Daily , Feb. 15, 1995. Back.

Note 80: L. Ivaniutin, B. Sedunov, and V. Sokolov, "Na oblomkakh mikroelektronnoi imperii" (In the clouds of the microelectronics empire), Sorok Odin , no. 32 (Nov. 1991): 1. Back.

Note 81: Aleksandr Voinov, director of the Russian section of the Aviaeksport joint-stock company, pointed out in 1993 that this "company" "has over thirty-five years' experience of supplying aviation equipment abroad and has assumed all organizational work to form the Russian section and ensure the participation of Russia's aircraft builders in the [United Arab Emirates air] show" (interviewed with Valentin Rudenko, "Russian Aircraft Builders Leaving for Dubai not for Sensations but for Contracts," Krasnaia Zvezda , Oct. 19, 1993, as reported in FBIS-SOV , Oct. 20, 1993, pp. 15-16). Back.

Note 82: "Nizhny's Trade Fair Holds Russia's Largest Armaments Show," Nizhny Novgorod Times , Sept. 28, 1994. Back.

Note 83: S. Tselibeev, "Vozlagaiutsia bol'shie nadezhdy" (Many hopes are being raised), Kapital Nizhnii Novgorod , Sept. 5-12, 1994. Back.

Note 84: From an advertisement in Tekhnika i Vooruzhenie , no. 1-2 (Jan. 1994), inside front cover. Back.

Note 85: Vladimir Klimov, "Byli by sekrety, a prodavets naidetsia" (These had been secrets, but the salesman is hopeful), Rossiiskaia Gazeta , Oct. 29, 1994. Back.

Note 86: Anatolii Andreev, as cited in "Gosudarstvo zadolzhalo predpriiatiam elektronnoi promyshlennosti 150 mlrd rublei" (The state is indebted to electronics industry enterprises for 150 billion rubles), Segodnia , Nov. 11, 1994. Back.

Note 87: Leonid Kostrov and Valentina Kulakova, "Maloi aviatsii pora na bol'hsuiu dorogu" (It is time for small aviation to set out on the big road), Segodnia , Dec. 17, 1994. Back.

Note 88: Leonid Zavarskii, "Stroiteli aviadvigatelei reshili zakliuchit' 'semeinyi soiuz' " (Aviation engine builders have decided to create a "family union"), Kommersant-Daily , Sept. 28, 1994. Back.

Note 89: "Entrepreneurs Dispute Weapons for Civilian Use," Moscow News , Sept. 10, 1993. Back.

Note 90: Kostrov and Kulakova, "Maloi aviatsii." Back.

Note 91: "Russia Needs $550 Million to Rescue Airlines," Reuters, Apr. 27, 1995. Back.

Note 92: Andrei Viktorov, "Malaia aviatsiia poluchila sobstvennuiu programmu razvitiia" (Small aviation received its own development program), Segodnia , June 7, 1995. Back.

Note 93: Victor Anoshkin, "Russian Planemakers Seek New Markets in West," Reuters, July 16, 1995. Back.

Note 94: Ibid. For useful discussions of the nontransparent nature of Russian extrabudgetary financing in general, see Christine I. Wallich, "Intergovernmental Finances: Stabilization, Privatization, and Growth," in Russia and the Challenge of Fiscal Federalism , ed. Christine I. Wallich (Washington, D.C.: World Bank, 1994), pp. 85-87; and Natal'ia Olenich, "Vnebiudzhetnye fondy riskuiut popast' pod gosudarstvennyi kontrol' " (Extrabudgetary funds risk falling under state control), Segodnia , June 7, 1995. Back.

Note 95: A. V. Grigor'ev, as cited by Leonid Kosals and Rozalina Ryvkina, in "Gosudarstvennoi politiki v sfere VPK net" (There is no state policy in the sphere of the military-industrial complex), Segodnia , Oct. 18, 1994. Back.

Note 96: Interview conducted by the author with members of the CISAC group at Impuls', Sept. 1994. Back.

Note 97: Oleg Kharkhordin and Theodore P. Gerber, "Russian Directors' Business Ethic: A Study of Industrial Enterprises in St. Petersburg, 1993," Europe-Asia Studies  46, no. 7 (1994): 1077. Back.

Note 98: Elena Denezhkina, "Is There a Future for Russia's Defence Industry? Conversion in the Context of Current Economic Reforms," Lectures and Contributions to East European Studies at the Swedish National Defense Research Establishment , no. 7 (Aug. 30, 1994): pp. 30-31. Back.

Note 99: Kathryn Hendley, "The Spillover Effects of Privatization on Russian Legal Culture," Transnational Law and Contemporary Problems  4, no. 1 (spring 1995). Back.

Note 100: Kharkhordin and Gerber, "Russian Directors' Business Ethic," pp. 1078, 1080, 1081. Back.

Note 101: Lamdany, Russia: The Banking System , p. 13. Back.

Note 102: Aleksandr Kuznetsov, "Torgovyi kapital perekhodit v promyshlennost' " (Trading capital is moving into industry), Finansovye Izvestiia , no. 42 (Sept. 22-28, 1994). Back.

Note 103: L. V. Gorbatova (of the Institute of the Economic Problems of the Transition Era), "Banki i promyshlennost': Nekotorye aspekty vzaimodeistviia" (Banks and industry: Some aspects of their cooperation), EKO, no. 11 (1994): 77. Back.

Note 104: Maksim Zarezin, "Telega dlia lapy" (A cart for the hand), Rossiiskaia Gazeta , Oct. 29, 1994; Kuznetsov, "Torgovyi kapital." Back.

Note 105: Interview with Filippov, "Promstroibank Sankt-Peterburg nameren usiilit' svoe vliianie v evrope" (Promstroibank St. Petersburg intends to strengthen its influence in Europe), Sankt-Peterburgskie Vedomosti , June 7, 1994. Back.

Note 106: Valerii V. Filippov, "The Managers' Perspective: Star Wars to High-Tech Consumer Goods," in After the Cold War: Russian-American Defense Conversion for Economic Renewal  (New York: New York University Press, 1993). Back.

Note 107: Konstantin Zbarovskii, "Zavod khochet podruzhit'sia s moskovskimi bankirami" (A factory wants to make friends with Moscow bankers), Kommersant-Daily , May 3, 1995. Back.

Note 108: Romanova, "Finansovo-promyshlennye gruppy." Back.

Note 109: Jerry F. Hough, The Soviet Prefects: The Local Party Organs in Industrial Decision-Making  (Cambridge: Harvard University Press, 1969), esp. pp. 257-65; and Hewett, Reforming the Soviet Economy , pp. 165-68. Back.

Note 110: Hough, Soviet Prefects, pp. 235-242; Blair A. Ruble, Leningrad: Shaping a Soviet City  (Berkeley: University of California Press, 1990), p. 10; and Markov, "Reform of Property Rights," p. 2. Back.

Note 111: Julian Cooper discovered through demographic analysis that in terms of employment levels, the top ten defense areas in the USSR were all located on Russian territory: the cities of Leningrad (now St. Petersburg) and Moscow; the oblasts of Gor'kii (now Nizhnii Novgorod), Moscow, Novosibirsk, Perm', Samara (now Kuibyshev), and Sverdlovsk; and the republics of Tatarstan and Udmurtiia. See Cooper, Soviet Defence Industry , p. 22. Back.

Note 112: These included, among others, the cities of Cheliabinsk, Izhevsk, Nizhnii Novgorod, Novosibirsk, Perm', Sverdlovsk (now Yekaterinburg), and Tula. See Cooper, Soviet Defence Industry , pp. 22-24. Back.

Note 113: These included towns such as Zelenograd, the electronics industry satellite city outside of Moscow. Back.

Note 114: See, for example, Roy A. Medvedev and Zhores A. Medvedev, Khrushchev: The Years in Power , trans. Andrew R. Durkin (New York: Columbia University Press, 1976), p. 104; Almquist, Red Forge , p. 190 n. 23; and Bruce Parrott, Politics and Technology in the Soviet Union  (Cambridge, Mass.: MIT Press, 1983), pp. 174-75. Back.

Note 115: While the actual documents of the Defense Industry Department of the Central Committee remain classified and closed, the opisi  (finding aids) of the department from 1954 through 1974 are open to foreign scholars, or at least were in fall 1992. Each item in the finding aids is a paragraph summarizing approximately 50 to 150 pages of documents. Back.

Note 116: Fond 5, opis' 39, Otdel Oboronnoi Promyshlennosti TsK KPSS, 1954-1966, p. iv. Back.

Note 117: Ibid., podriadkovyi 56, p. 18. Back.

Note 118: Ibid., podriadkovyi 61, p. 19; podriadkovyi 67, p. 21; podriadkovyi 71, p. 23; and podriadkovyi 72, p. 23. Back.

Note 119: Ibid., podriadkovyi 317, p. 102; and podriadkovyi 332, p. 108. Back.

Note 120: Nikolai Anishchenkov, A Soviet Factory: Past, Present and Future , Soviet Booklet no. 59 (London: Soviet Booklets, 1959), p. 12. Back.

Note 121: Yu. G. Belenko, et al., Gor'kovskii Dizel'nyi: Ocherki Istorii Zavod 'Dvigatel' Revoliutsii  (The Gorkii diesel workers: Historical notes on the Dvigatel' Revoliutsii factory) (Moscow: Mysl', 1985), p. 117. Back.

Note 122: A. Polukhin, "Struktura i organizatsiia raboty Sovetov narodnogo khoziaistva" (Structure and organization of work of the sovnarkhozy ), Plannovoe Khoziaistvo , no. 8 (1957): 34-42, esp. p. 39. Back.

Note 123: Elena Denezhkina argues that military and civilian enterprises throughout the Soviet era "would be neighbors in the same street and yet have no contact." See Denezhkina, "Is There a Future for Russia's Defence Industry?" p. 20. Back.

Note 124: B. Khomiakov, "Opyt raboty Sverdlovskogo sovnarkhoza" (Work experience of the Sverdlovsk sovnarkhoz ), Plannovoe Khoziaistvo , no. 11 (1957): 65-73, esp. p. 69. Back.

Note 125: Markov, "Reform of Property Rights," p. 2; Paul R. Lawrence and Charalambo A. Vlachoutsicos, eds., Behind the Factory Walls: Decision Making in Soviet and U.S. Enterprises  (Boston: Harvard Business School Press, 1990), p. 104. Back.

Note 126: Anishchenkov, A Soviet Factory , p. 9. Back.

Note 127: Kharkhordin and Gerber, "Russian Directors' Business Ethic," p. 1085. Back.

Note 128: Vladislav Tarasov, "Assotsiatsiia 'ELANG'--Novoe ob'edinenie starykh predpriiatii" (The ELANG Association--A new association of old enterprises), Sorok Odin , no. 35/36 (1991). Back.

Note 129: Kathryn Elizabeth Stoner-Weiss, "Local Heroes: Political Exchange and Government Performance in Provincial Russia," doctoral dissertation, Dept. of Government, Harvard University, Nov. 1994, p. 251. Back.

Note 130: Yu. E. Solodovnikov, "Osnovye printsipy raboty Komissii Lensoveta pri Vzaimodestvii s Konversiruemymi Predpriiatiiami Oboronnogo Kompleksa Leningrada" (Basic working principles of the Lensovet Commission on Cooperation with Converting Enterprises of the Defense Complex in Leningrad), in Dostizheniia Nauchno-Tekhnicheskogo Progressa--Leningradskim Predpriiatiiam  (Achievements of scientific-technological progress by Leningrad enterprises), seminar of chief engineers of the Leningrad House of Scientific-Technical Propaganda (St. Petersburg: "Znanie" Society of the RSFSR, 1991), pp. 4-5. Back.

Note 131: Stoner-Weiss, "Local Heroes," p. 255. Back.

Note 132: Ibid., p. 256. Back.

Note 133: Vladimir Ionov, "Personalities: Boris Nemtsov," Moscow News , July 30, 1992; and May McGrory, "Dollars for Democracy," Washington Post , May 27, 1993. Back.

Note 134: This continued through 1995. See Vladislav Borodulin, "Pravitel'stvo prodemonstirovalo sposobnost' k novatsiiam" (The government demonstrated its capacity for innovations), Kommersant-Daily , Jan. 13, 1995. Back.

Note 135: Ruble, Leningrad , p. 10. Back.

Note 136: Christine I. Wallich, Fiscal Decentralization: Intergovernmental Relations in Russia , Studies of Economies in Transition Paper 6 (Washington, D.C.: World Bank, 1992), p. 5; and Wallich, Russia and the Challenge of Fiscal Federalism , p. 76. Back.

Note 137: It has been reported by the Institute of Economic Analysis that federal subsidization of "unprofitable enterprises" totaled 3 percent of the Russian gross domestic product (GDP) in 1994, while similar subnational government subsidization totaled 8 percent. See Aleksandr Bekker, "Eksperty schitaiut, chto biudzhetnyi defitsit mozhno svesti k nuliu v budushchem godu" (Experts believe that the budget deficit may approach zero next year), Segodnia , May 19, 1995. Back.

Note 138: Yelena Viktorova, "V Rossii snova poiavutsia 'zakrytye goroda' " (In Russia, "closed cities" are reappearing), Segodnia , Nov. 12, 1994. Back.

Note 139: "Mer Izhevska izbit piketshikami" (The mayor of Izhevsk is beaten up by picketers), Kommersant-Daily , June 28, 1995. Back.

Note 140: There have been numerous complaints that defense orders have not been subject to contract law and that the Defense Ministry can thus place orders without paying for them without suffering any consequences. See Colonel Yu. Chirkov (senior officer of the Center of Operational-Rear Services Research of the Rear Services of the Armed Forces), "Obespechenie vooruzhennykh sil i ekonomika Rossii" (Providing for the armed forces and the Russian economy), Voenno-ekonomicheskii Zhurnal , no. 6 (June 1994): 12-16; and Yu. Kolbakov and O. N. Dmitriev, "Kontseptsiia gosudarstvennogo regulairovaniia kontraktatsii na postavku voennoi produktsii" (The concept of state regulation of contracting for procurement of military products), Voennaia Mysl' , no. 8 (Sept./Oct. 1994): 71-75. Back.

Note 141: Valerii Baberdin, "It's Nearly July, but There's Still No Clarity," Krasnaia Zvezda , June 23, 1995, as reported in FBIS-SOV, June 28, 1995, pp. 27-30. Back.

Note 142: Author's interviews with advisers to a member of the Duma and a member of the Federation Council, Oct. 1994, Moscow. Also see Yefim Ya. Liuboshits (a retired officer from the Scientific Institute of the Rocket Forces), "Kak udalit' zhir iz oboronnogo buidzheta?" (How can the fat be removed from the defense budget?), Segodnia , Oct. 16, 1993; John W. R. Lepingwell, "A Sudden Fall from Grace," Transition (OMRI) , Feb. 15, 1995, 26; and Doug Clarke, "Expert Calls for Reform of Military Budget System," OMRI Daily Digest , no. 154 (Aug. 9, 1995). Back.

Note 143: Wallich, Russia and the Challenge of Fiscal Federalism , p. 27. Back.

Note 144: T. Boiko and A. Lavrov, "Biudzhetnye otnosheniia v Rossii" (Budget relations in Russia), EKO , no. 1 (1995): 162-78; for a specific example, see the discussion of the Perm' oblast legislature's actions in "Protest prodolzhaetsia" (The protest continues), Sankt-Peterburgskie Vedomosti , Oct. 21, 1994. Back.

Note 145: Wallich, Fiscal Decentralization , p. 7. Back.

Note 146: Wallich, Russia and the Challenge of Fiscal Federalism , p. 57. Back.

Note 147: See V. Fedorov, V. Shirshov, and S. Boiko, "Struktura i mekhanizm nalogovoi sistemy" (Structure and mechanism of the tax system), Ekonomist , no. 11 (Nov. 1994): 25-37; and "Front 'budzhetnoi voiny' protianulsia ot Omska do Vladivostoka" (The budget war front extends from Omsk to Vladivostok), Sibirskaia Gazeta , no. 36 (Sept. 1993). Back.

Note 148: Roy Bahl, "Revenues and Revenue Assignment: Intergovernmental Fiscal Relations in the Russian Federation," in Russia and the Challenge of Fiscal Federalism , p. 143. Back.

Note 149: I am grateful to Roy Allison for having suggested to me that Tatarstan might be a case where defense industry played a role in federal bargaining. Back.

Note 150: See Radik Batyrshin, "Tatarstan Has 'United' with Russia," Nezavisimaia Gazeta , Feb. 16, 1994, as reported in Current Digest of the Post-Soviet Press  46, no. 7 (1994): 11. Back.

Note 151: R. Rashitov, "Defense Industry Problems at the Center of Attention," Respublika Tatarstan , June 2, 1994, as reported in FBIS-SOV , June 6, 1994, p. 31; Tamara Zamiatina, "Russia-Tatarstan Treaty: Key to Political Stabilization," Rossiiskaia Gazeta , June 3, 1994, as reported in FBIS-SOV , June 6, 1994, pp. 20-21; Moscow Interfax, Sept. 27, 1994, as reported in FBIS-SOV , Sept. 18, 1994, p. 38; Yevgenii Ostapov, "Committee on the Defense Industry Collegium in Kazan," Kommersant-Daily , Sept. 28, 1994, as reported in FBIS-SOV , Sept. 29, 1994, p. 42; and Dmitrii Lukashov, "Prem'er-ministr Tatarii posle sta dnei u vlasti" (The prime minister of Tatarstan after 100 days in power), Segodnia , May 6, 1995. Back.

Note 152: Anatolii Yershov, "V nizhnem snova oruzheinaia yarmarka" (A weapons fair once more in Nizhnii), Izvestiia , Sept. 10, 1994. Back.

Note 153: Robert Orttung, "Tatarstan Has Stopped Making Payments to the Russian Budget," OMRI Daily Digest , no. 135 (July 13, 1995); and Orttung, "Tatarstan Stops Payments to Federal Budget." Back.

Note 154: Fedorov, Shirshov, and Boiko, "Struktura i mekhanizm nalogovoi systemy." Back.

Note 155: Wallich, Russia and the Challenge of Fisal Federalism , pp. 30, 38, 82, 85. Back.

Note 156: Peter Kirkow, "Regional Politics and Market Reform in Russia: The Case of Altai," Europe-Asia Studies  46, no. 7 (1994): 1176, notes that in the defense-heavy region of Altai, the item on the regional budget labeled "credits" was in fact loans from enterprises. Back.

Note 157: "Profsoiuzy sozdaiut stachkom" (The trade unions are creating a strike committee), Sankt-Peterburgskie Vedomosti , Mar. 17, 1994. Back.

Note 158: Denezhkina, "Is There a Future for Russia's Defence Industry?" p. 32. Back.

Note 159: Kharkhordin and Gerber, "Russian Directors' Business Ethic," p. 1086. Back.

Note 160: Aleksei Vorob'ev, "Sobchak obeshchal, chto 'izbieniia' direktorov ne budet" (Sobchak promised that there would not be a "slaughter" of directors), Nevskoe Vremia , June 18, 1994. Back.

Note 161: "Kto vy, doktor Sobchak?" (Who are you, Dr. Sobchak?), Kommersant-Daily , Mar. 17, 1995. Back.

Note 162: Valentina Shestakova, "Vlasti ne ostaviat 'oboronku' v bede" (The authorities have not left the defense complex in a calamity), Nevskoe Vremia , Jan. 14, 1995. Back.

Note 163: Dmitrii Gromadin, "Indiiskaia partiia peterburgskogo VPK" (The Indian Party of the St. Petersburg military-industrial complex), Nevskoe Vremia , Jan. 30, 1993. Back.

Note 164: Dmitrii Gromadin, "Kreditnye stradaniia" (Credit suffering), Nevskoe Vremia , Feb. 5, 1993. Back.

Note 165: Vadim Nesvizhskii, "V Peterburge prodolzhaetsia spad proizvodstva" (In St. Petersburg, the production fall continues), Segodnia , Feb. 26, 1994. This is higher than the 25 percent cited in Cooper, The Soviet Defence Industry , p. 24, based on information he found in a 1990 Leningradskaia Pravda  article. Back.

Note 166: Gromadin, "Kreditnye stradaniia." Back.

Note 167: "Kredit 'razmorozhen' " (The credit is unfrozen), Nevskoe Vremia , Feb. 16, 1993. Back.

Note 168: Dmitrii Gromadin, "Novye igry pravitel'stva" (New games of the government), Nevskoe Vremia , Feb. 23, 1993. Back.

Note 169: Vadim Tiagniriadno, "Segodnia  my perezhivaem finansovniui katastrofu" (Today we are living through a financial catastrophe), Nevskoe Vremia , Feb. 27, 1993. Back.

Note 170: Vadim Tiagniriadno, "Ne po obshchim zakonam" (Not by general law), Nevskoe Vremia , Apr. 2, 1993. Back.

Note 171: Ibid. Back.

Note 172: "Mer ne teriaet optimizma" (The mayor hasn't lost his optimism), Nevskoe Vremia , Apr. 21, 1993. Back.

Note 173: Kharkhordin and Gerber, "Russian Directors' Business Ethic," p. 1085. Back.

Note 174: Radio Rossii, May 22, 1992, as reported in FBIS-SOV , May 27, 1992, pp. 26-27. Back.

Note 175: Sergei Kraiukhin, "Georgii Khizha: 'I Represent Major Industrial Interests,' " Izvestiia , May 25, 1992, as reported in FBIS-SOV , May 27, 1992, p. 27. Back.

Note 176: ITAR-TASS World Service in Russian, May 19, 1993, as reported in FBIS-SOV , May 20, 1993, p. 24. Back.

Note 177: Almquist, "Arms Producers Struggle," p. 37; and Anders Aslund, How Russia Became a Market Economy  (Washington, D.C.: Brookings, 1995), pp. 305-6. For some reason, Aslund reports that Khizha was sacked in December 1992, which does not accord with press reports about his career. Back.

Note 178: Aleksandr Bekker, "Krupneishee predpriiatie VPK vykhodit iz gossobstvennosti" (The largest military-industrial enterprises are leaving state ownership), Segodnia , Nov. 2, 1993; and Nesvizhskii, "V Peterburge prodolzhaetsia spad proizvodstva." Back.

Note 179: Vadim Stasov, " 'Oboronka' narushaet obet molchanii" (The defense complex is violating the vow of silence), Nevskoe Vremia , Feb. 23, 1994. Back.

Note 180: "Profsoiuzy sozdaiut stachkom." Back.

Note 181: Andrei Vermishev, "Profsoiuzy vnov' piketiruiut smol'nyi" (The trade unions are picketing the Smol'nyi anew), Nevskoe Vremia , June 8, 1994. Back.

Note 182: A. Vorob'ev, "Vlasti dolzhnyi vypolnit' obeshchannoe" (The authorities should fulfill what has been promised), Sankt-Peterburgskie Vedomosti , Oct. 20, 1994. Back.

Note 183: Ibid. Back.

Note 184: The higher figure was provided by the trade union; the lower one by the police. See "Takogo Dvortsovaia davno ne videla," (Palace Square hasn't seen such a thing for a long time), Sankt-Peterburgskie Vedomosti , Oct. 28, 1994. Back.

Note 185: "Lozungi na Teatral'noi" (Slogans on Theater Square), Sankt-Peterburgskie Vedomosti , Oct. 28, 1994. Back.

Note 186: O. Steshenko, interview with Makarov, "K partnerstvu--cherez piketu" (Toward partnership through picketing), Sankt-Peterburgskie Vedomosti , Nov. 4, 1994. Back.

Note 187: "Ofitsilan'no" (Officially), Sankt-Peterburgskie Vedomosti , Jan. 6, 1995. Back.

Note 188: Shestakova, "Vlasti ne ostaviat 'oboronku' v bede." Back.

Note 189: "Kirovskii zavod gotovitsia k proizvodstvu avtobusov" (Kirovskii Factory prepares for production of buses), Kommersant-Daily , Mar. 15, 1995. Back.

Note 190: "VPK prodolzhaet gibnut' " (The military-industrial complex continues to perish), Segodnia , Jan. 18, 1995. Back.

Note 191: Robert W. Orttung, "A Government Divided Against Itself," Transition  (OMRI), May 12, 1995, pp. 48-51. Back.

Note 192: See ITAR-TASS World Service in Russian, Mar. 24, 1994, as reported in FBIS-SOV , Mar. 24, 1994, p. 2021; State Duma Decree no. 99-1, "On Elections to the St. Petersburg City Assembly," Rossiiskaia Gazeta , Apr. 30, 1994, as reported in FBIS-SOV , May 4, 1994, pp. 17-18; and "City Assembly Finally Complete," Sankt-Peterburgskie Vedomosti , Nov. 1, 1994, as reported in FBIS-SOV , Nov. 8, 1994, pp. 29-30. Back.

Note 193: O. Steshenko, "Liudi razuverili' vo vsem" (People have lost faith in everything), Sankt-Peterburgskie Vedomosti , Apr. 27, 1994; idem, "Poka . . . nedoverie direktoru" (Still . . . no confidence in the director), Sankt-Peterburgskie Vedomosti , June 1, 1994. Back.

Note 194: Igor' Arkhipov, "Na kreslo Sobchaka t'ma pretendentov" (The ignorance of candidates to Sobchak's seat), Kommersant-Daily , July 8, 1995; and idem, "Democrats Prepare to Take Smolny," Kommersant-Daily , Feb. 15, 1996, reported in Current Digest of the Post-Soviet Press  48, no. 7 (Mar. 13, 1996): 12. Back.

Note 195: Anna Paretskaya, "St. Petersburg Governor Appoints Deputy," OMRI Daily Digest , no. 111 (June 7, 1996). Back.

Note 196: Mark Granovetter, "The Social Construction of Economic Institutions," in Socio-Economics: Toward a New Synthesis , ed. Amitai Etzioni and Paul R. Lawrence (Armonk, N.Y.: Sharpe, 1991), p. 78. Back.

Note 197: Peter Rutland, "Defense Conversion Hopes in Sverdlovsk," OMRI Daily Digest , no. 27 (Feb. 27, 1996). Back.

Note 198: "Provintsial'naia khronika" (Provincial chronicle), Segodnia , June 29, 1995. Back.

Note 199: Galina Pechilina, ". . . i milost' k padshim prizyval" (. . . and called for mercy to the fallen), Kommersant-Daily , June 29, 1995. Back.

Note 200: See John M. Goshko and George C. Wilson, "U.S. Escalates Countermoves to Afghan Invasion," Washington Post , Jan. 22, 1980; and Serge Schmemann, "Brezhnev Souvenir: Vast, Limping Truck Factory," New York Times , Feb. 4, 1983. Back.

Note 201: General Sergei Oslikovskii, first deputy director of Rosvooruzhenie, has made this argument; see Pavel Fel'gengaeur, "Yeltsin obeshchaet ne prodavat' oruzhie Iranu" (Yeltsin promises not to sell weapons to Iran), Segodnia , Sept. 29, 1994. Back.

Note 202: Author's interview with representative of the Russian Foreign Ministry Directorate on Conversion and Export Control, Sept. 1994, Moscow. Back.

Note 203: Leonid Zavarskii, " 'Rosvooruzhenie' Company Press Conference," Kommersant-Daily , May 21, 1994, as reported in FBIS-SOV , May 23, 1994, pp. 37-38. Back.

Note 204: Yurii Golotiuk, "Izgotoviteli MiGov proryvaiutsia na mirovoi oruzheinyi rynok" (The builders of MiGs breach the world weapons market)," Segodnia , Oct. 29, 1994. Back.

Note 205: Leonid Zavarskii, "Proizvoditeli oruzhiia pritselilis' v trekh zaitsev" (Weapons producers have aimed at three rabbits)," Kommersant-Daily , Sept. 24, 1994. Back.

Note 206: Pavel Fel'gengauer, "Rossiiskie 'stvoly' ishchut investerov" (Russian "gun barrels" are looking for investors), Segodnia , Sept. 24, 1994. Back.

Note 207: Doug Clarke, "Legal Problems of Arms Company Delays [sic ] Exports," OMRI Daily Digest , no. 104 (May 30, 1995). Back.

Note 208: Viacheslav Chebanov, "Pavlu Grachevu trebuetsia 80 trillionov rublei v god, no on soglasen i na 60" (Pavel Grachev demands 80 trillion rubles a year but has agreed to 60), Segodnia , Sept. 15, 1994. Back.

Note 209: Aleksandr Temerko, interviewed by Valentin Rudenko, in "Finansovyi tupik" (Financial dead-end), Krasnaia Zvezda , Aug. 17, 1994. Back.

Note 210: See " 'Separatist' Regions Support Chernomyrdin Bloc," Monitor  (Jamestown Foundation) 1, no. 66 (Aug. 3, 1995). Back.

Note 211: Mikhail Lantsman, "Predpriiatiia VPK stroiat kapitalizm s chelovecheskom litsom" (Enterprises of the military-industrial complex build capitalism with a human face), Segodnia , Oct. 16, 1993; and Konstantin Cheremnykh, "Nizhegorodskii balans" (The Nizhnii Novgorod balance sheet), Sankt-Peterburgskie Vedomosti , Aug. 10, 1994. Back.

Note 212: Boris Bronshtein, "KamAZ: One Year after the Fire," Izvestiia , Apr. 13, 1994, as reported in Current Digest of the Post-Soviet Press  46, no. 15 (1994): 23; and "Provintsial'naia Khronika" (Provincial chronicle), Segodnia , June 14, 1995. Back.