Table Of ContentMilitary R&D after the Coid War
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Series 4: Science and Technology Policy - Vol. 6
Military R&D after
the Cold War
Conversion and Technology Transfer in
Eastern and Western Europe
edited by
Philip Gummett
University of Manchester,
Manchester, U.K.
Mikhail Boutoussov
UNIDO,
Vienna, Austria
Janos Farkas
Technical University of Budapest,
Budapest, Hungary
and
Arie Rip
University of Twente,
Enschede, The Netherlands
Kluwer Academic Publishers
Dordrecht / Boston / London
Published in cooperation with NATO Scientific Affairs Division
Proceedings of the NATO Advanced Research Workshop on
Military R&D after the Cold War: Conversion and Technology Transfer in
Eastern and Western Europe
Budapest, Hungary
27-31 August, 1994
A C.I.P. Catalogue record for this book is available from the Library of Congress.
ISBN-l3: 978-94-010-7275-5 e-ISBN-13: 978-94-009-1730-9
DOl: 10.1007/978-94-009-1730-9
Published by Kluwer Academic Publishers,
P.O. Box 17, 3300 AA Dordrecht, The Netherlands.
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Table of Contents
Preface vii
Part 1: Analytical Approaches and Context
Chapter 1 Conversion Strategies in Eastern Europe and the former
USSR: a thematic overview 1
Mikhail Boutoussov
Chapter 2 West European defence industrial policy after the Cold
War 33
Philip Gummett
Chapter 3 Concepts of Military Technology: Contesting the
boundaries between the civilian and the military 51
Tarja Cronberg
Chapter 4 New Challenges after the Cold War 63
Hmos Farkas
Chapter 5 Shock Therapy -is there really no alternative? 73
Paul Redfern
Chapter 6 Innovation and technology policy in the East European
transformation -the Hungarian case 93
Pal Tamas
Part 2: Cases and Experiences
Chapter 7 Critical technologies, policy and security in a middle
power country: a case of avionics and systems
integration in Canada 107
John de la Mothe and Gilles Paquet
Chapter 8 Beyond the frontier: the convergence of military and
civilian R&D in the United States 119
Henry Etzkowitz
vi
Chapter 9 Procurement policies and military R&D in the Nordic
countries 137
HansSkoie
Chapter 10 Transfer of technology and managerial skills: the
possible role of foreign direct investment in the
development of the East 147
Jean-Alain Heraud
Chapter 11 The European Union's contribution to the R&ID
capacities of the countries of Central and Eastern
Europe and the former Soviet Union 153
Gordon Lake
Chapter 12 Conversion in the Ukrainian military R&D at the
beginning of the 1990s: some results and problems 163
Igor Egorov
Chapter 13 Study of the requirements and experience of utilisation
of knowledge and results of military researchers: case
study of the Medical Research Institute in Ukraine 169
Galina A. Karas
Chapter 14 Establishment of a technology transfer centre in
Bratislava 175
Heinz Semerad
Chapter IS Conversion in Bulgaria: some contextual problems 183
Kostadinka Simeonova
Chapter 16 Observations on the socio-political and cultural context
of military conversion: a Polish view 191
Lech W. Zacher
Index 199
Preface
Countries establish defence industries for various reasons. Chief among these are
usually a concern with national security, and a desire to be as independent as possible
in the supply of the armaments which they believe they need.
But defence industries are different from most other industries. Their customer is
governments. Their product is intended to safeguard the most vital interests of the state. The
effectiveness of these products (in the real, rather than the experimental sense) is not
normally tested at the time of purchase. If, or when, it is tested, many other factors (such as
the quality of political and military leadership) enter into the equation, so complicating
judgments about the quality of the armaments, and about the reliability of the promises made
by the manufacturers.
All of these features make the defence sector an unusually political industrial sector.
This has been true in both the command economies of the former Soviet Union and its
satellites, and in the market or mixed economies of the west. In both cases, to speak only a
little over-generally, the defence sector has been particularly privileged and particularly
protected from the usual economic vicissitudes. In both cases, too, its centrality to the
perceived vital interests of the state has given it an unusual degree of political access and
support. The result has been the build-up, since the Second World War, of formidable
capacities for the development, design and construction of armaments, closely interlocked
with major political, bureaucratic and military interests. It is against that background that,
loosely following former US president Eisenhower, we can speak of the build-up in a
number of countries of military-industrial complexes (MIC).
The basic objective of the MIC is to serve the political goals of a country or a group
of countries with particular reference to defence goals. Our concern in this book is with what
happens to that complex, and particularly to its industrial and scientific and technological
components, when the international environment changes radically, so altering the defence
goals of the state, and hence the access to economic resources and political power of the
industrial interests within the MIC. Just such a change occurred, of course, in the late 1980s
and early 1990s with the end of the Cold War, the dissolution of the Warsaw Pact, and the
breakup of the Soviet Union into independent republics.
Leaving aside the argument that investment in defence industries represents a wise
'insurance policy' by states, there have traditionally been three groups of arguments which
have sought to establish the economic significance of military industries:
• Military industries create well-paid and highly skilled jobs, and reduce unemployment;
• Military industries originate technologies which can be used for civil applications (the
'spin-off' argument);
• Armaments exports may generate a substantial income for the exporting country.
Against this, it has often argued that the overall social value of military products is
negative -that is, that they do not increase the quality of life in the broader sense of this
phrase.
viii
The first argument above has often been invoked in those political situations where
the share of national wealth enjoyed by the MIC is called into question. The second, while
frequently heard, has been at best problematic, it having been claimed in particular that the
argument does not apply to economies in stagnation or to only slowly developing economies,
which is to say, to the majority of countries in the world. And while the international arms
trade may be indeed a source of income for a given country, a more complete cost-benefit
analysis, taking political as well as economic dimensions into account, can identify off
setting disadvantages, such as putting at risk the availability of international economic aid,
or increasing the level of political instability in that country's own region of the world.
With the end of the Cold War, coinciding with the global economic recession of the
1980s-90s, defence budgets in many countries have been sharply reduced. These budgetary
cuts have transposed some of the earlier political arguments about disarmament and arms
control into economic arguments about the future of defence industries. The key questions
have become: what to keep (and how); and what to do about the unwanted remainder? From
the latter question sterns the subject of this book, namely, that special case of industrial
restructuring known as defence conversion.
Conversion should be viewed as a long-term process, requiring careful policy
preparation, and with implications for overall economic performance which are not
straightforward to assess. At the same time, the released economic potential is huge, with
military e>.:penditures in the NATO countries, for example, falling by 15 per cent in real
terms between 1985 and 1994. For the Eastern European and Commonwealth of
Independent States (CIS) countries, the situation is less clear, basically due to a lack of
reliable figures. Russia is overwhelmingly the major country among this group. Some
estimates put military related eX"penditure at between 25 and 50 per cent of GNP during the
final years of the USSR; other, NATO, sources put the figure at 17% at the beginning of the
1980s, falling to 12% in the early 1990s. In terms of jobs, the Soviet MIC employed over 6
million people in the mid-1980s, about 72% of whom were in Russia and 18% in Ukraine,
with the corresponding figures for the USA and Western Europe being about 3 million and
1.5 million. These figures show clearly the greater magnitude of the conversion problem for
the countries of the Eastern Europe and the former Soviet Union than for western countries,
even if for the latter, as we shall see, the difficulties are extremely acute in certain regions.
The scale of the problem, and the disparities between east and west, make the problem of
conversion a major issue for the economic, political and social balance and stability of
Europe in its entirety, and for the countries of North America.
WHAT IS CONVERSION?
Conversion is here understood as a set of measures enabling a country to transform its
formerly military-oriented industries and R&D institutions into commercially viable,
competitive and civil oriented entities. In different countries, the scope and diversity of
conversion processes depend upon several factors:
• the degree of'militarisation' of the national economy;
• the level of development and overall stability of the national economy;
• the social and political situation including relations with foreign countries;
ix
• the indigenous experience and availability of expertise in industrial restructuring at
different operational levels, viz., policy, institutional, and enterprise levels.
The experience of conversion activities in many countries, as we shall see, shows
that strenuous but isolated efforts at each of the above operational levels rarely lead to
success. For example, a realistic and cost-effective conversion program designed for a given
enterprise may fail if not supported by adequate measures at higher levels. Similarly,
political decisions on the de-militarisation of the national economy cannot, by themselves,
initiate efficient conversion of individual enterprises and secure their success. This was
clearly demonstrated in Russia in 1992 when, after a radical decision taken by Mr. Y.
Gaidar's government to reduce military procurement by 80010, only a few successful
conversion projects began.
In order to overcome the multiple economic, managerial, financial and technological
problems that hinder conversion activities, constructive coordination of efforts is needed
between the three operational levels listed above. At the enterprise level, it is important to
relate the implementation of concrete conversion projects to dynamic changes in global and
national economies (such as technology trends, markets, investment opportunities etc.). At
the same time, any positive results from projects at the enterprise level should be reflected at
the policy and institutional levels, as also should the lessons from any negative e"."periences.
OBJECTIVES AND STRUCTURE OF THE BOOK
The aim of this book is to summarise intemational experiences in conversion gained at
the three operational levels, to offer some conceptual analyses that may help in the
construction of policy frameworks, and to identify some practical possibilities and
proposals for decision makers and managers of conversion projects. By these means,
we hope to contribute towards increasing the effectiveness of conversion, reducing the
investment risk, and, particularly in the countries of central and eastern Europe and
the former Soviet Union, contributing to the overall success of the transformation of
their economic circumstances.
The book arises from papers presented at a NATO Advanced Research Workshop in
Budapest in August 1994, organised by the: editors. It begins with two thematic chapters
which address, respectively, developments irl Eastern and Western countries. Four chapters
then follow which further elaborate analytical approaches and empirical conte:>.1 relevant to
our subject. Part Two of the book offers substantive empirical discussions of developments
in a variety of western and eastern countries.
The editors are grateful to the NATO Scientific Committee, and the Scientific Affairs
Divison, for the award of the grant that made the Workshop possible, and for their patience
in awaiting the publication of this volume, itself a learning e:>.-perience in East-West
cooperation. We are also grateful to all the participants in the Workshop, both those whose
papers are reproduced here, and those whose papers, for one reason or another, it has
regrettably proved impossible to include. Special thanks are also due to Mrs Christine
Brown for coming to terms so rapidly with the intricacies of camera-ready copy.
Conversion Strategies in Eastern Europe and
the former USSR: a thematic overview
MIKHAIL BOUTOUSSOV
United Nations Industrial Development Organisation
Vienna, Austria
INTRODUCTION
This is the first of two thematic chapters which introduce perspectives on the subject of
defence conversion from the East and the West. The plan of this chapter is as follows:
First, a systems representation of an enterprise is introduced. This helps us to analyse
how conversion affects the main subsystems of a fonner militaty enterprise. The elements of
the system that will be addressed are the goal setting subsystem, the technology base, the
human resource base, the structure, and the management.
Second, this approach is used to analyse and compare different conversion concepts and
strategies proposed in recent years.
Third, various possible ways to elaborate a sound conversion project at the enterprise
level are discussed. Three specific domains in conversion project design/implementation are
described. These concern the inter-relations between potential markets, necessary
investments and the 'technological gap' between available militaty technology and its
potential civil analogues.
Fourth, concrete conversion activities are described and analysed, drawing principally
upon experience from Russia, but with observations from other countries. Examples are
presented based upon regional policy in the conversion of militaty industries and institutions
in St. Petersburg; conversion support infrastructures in Bratislava and St.Petersburg; and
e:\:perience of Gennan and Russian participants in conversion projects.
Finally, the role of international cooperation and foreign investment in conversion is
considered, once more on the basis of concrete examples.
Source material for the chapter is taken from various papers that were presented at the
NATO ARW in Budapest, some of which are reproduced in full later in this volume, others
of which are not. It is convenient here, then, and also a pleasure, to acknowledge the
contributions of Prof. T. Cronberg, Ms. K. Vassilopoulos, Mr. K. Kamnarczyk, Mr. H
Schmidt-Bischoffshausen, Mr. S. Naryshkin, Mr. G. Altshuler, Mr. V. Ivanov, Ms. K.
Simeonova, Ms. G. Karas, Prof. M. 1. De Meirleir, and Mr. H. Semerad.
P. Gummett et al. (eds.), Military R&D after the Cold War, 1-32.
It' 1996 Kluwer Academic Publishers.
