Russian President Vladimir Putin held a pair of important conferences on the strategic dimensions of economic policy, on Friday, Aug. 31. As Russian Government and State Duma deliberations resume this month on next year's budget, under enormous monetarist pressures for budget-cutting because of the world economic crisis, Putin focussed on the absolute priority of restoring Russia's military-industrial sector. Thus these sessions on military economic policy served to underscore the tense international military-strategic situation.
Addressing an expanded session of the Russian Security Council, Putin presented the military modernization plans as "ambitious" and cited the "record amounts of money" to be invested in defense procurement and modernization: 23 trillion rubles ($750 billion) over ten years. He acknowledged that "many of our companies are still in the past century, technologically speaking," and that in the course of over three decades the defense production plants "have missed out on several modernization cycles." Later in the day, Putin met with Deputy Prime Minister Dmitri Rogozin and Roscosmos head Vladimir Popovkin to discuss personnel changes to address the recent rocket launch failures. Putin's decree dismissing Vladimir Nesterov as director of the Khrunichev State Research and Production Space Center was officially published Monday.
At the Security Council meeting, Putin also emphasized the idea often stated by Rogozin, that the military-industrial sector should function as a locomotive to pull the whole economy along — or, at the very least, serve as a safe haven where engineering and other skilled personnel might be preserved, even as domestic industry as a whole comes under new pressures such as competition from foreign imports now that Russia has joined the WTO, and budget cuts in the so-called "state order" (government contracts). Regarding this potential interface between the defense industry and the economy as a whole, the problem that bedeviled Soviet planners throughout the Cold War, Putin said:
"Our position is that by creating a modernized and effective defence industry we can ensure a big growth potential for the entire national economy. The bulk of our advanced technology is in the defence industry, and civilian goods account for more than 30 percent of the sector's total output. There is steady demand for these goods in the energy, metals, machine-building, communications and other industries. This is not some discovery we have made in this country, but is the way things work all around the world. The defence industry has always been an engine pulling the other manufacturing sectors along behind it. Of course, a stable and effective defence industry is also crucial for the prosperity and prospects in life for thousands of skilled workers, engineers, and designers. The defence industry brings together 1,353 organisations and companies in 64 regions of the country, and employs more than 2 million people. Just think how many that makes if you add their families and the people working in related sectors and so on."
Summarizing, Putin made a startling comparison with the period of the first Five-Year Plans: "In short, we will have to modernize the entire defense industry and the way it works, and carry out the same kind of comprehensive and powerful modernization drive that was achieved in the 1930s." The implications were not drawn out in this presentation, but such a "mobilization economy" is very different from the nostrums about privatizatoin and "improving the investment climate," which are otherwise being repeated constantly by Russian officials, including Putin. He did also discuss attempting to attract private investment to the defense sector. Putin said Russia should not hesitate to imitate foreign defense technologies, but having only assembly plants using imported components would be a "dead end," so Russia "should develop complete production cycles, from development through to mass production and spare parts supply, here in Russia. This is the guarantee of our national, technological, and defense security."