In a continuing scandal, Russian President Dimitry Medvedev is relieving senior officers who forced their subordinates to pay kickbacks for extra payments made to them as rewards for superior service. An Internet site was created through which personnel could report such practices, regardless of their rank. Whether or not the reports are warranted, such a website must be extremely destructive to military discipline. The Russian press suggests that the leadership limited the scandal in hopes it could avoid the reality that such corruption is virtually universal. An enraged retired lieutenant colonel of the Russian strategic rocket forces wrote that kickbacks were so widespread “it would be possible to jail all commanders of all units in Russia in good conscience” (italics in the original).
This would not be the first indication of serious trouble in the post-Soviet armed forces, and the colonel’s comment may be a reflection of the way the current Russian military functions. It is not clear that the Russians themselves completely understood what happened when they exchanged the Soviet-era command economy for a Westernized one based on cash. Under the Soviet system, political loyalty at all levels was rewarded, and rewards included envelopes of cash. However, the value of the cash depended on whether it could be spent in special shops. If not, cash was not terribly valuable.
To the extent that the Soviet military was permeated by secret informers, military discipline was compromised; no senior officer could ever be sure that disciplining a subordinate would not result in a false and devastating report to control organizations, particularly the KGB. Perhaps most important, rewards were based on loyalty to the ruling party, not (at least in theory) to one’s commanding officer. Among many reports of problems within the Soviet-era military, the one not typically heard was that of gross personal corruption by senior officers at the expense of subordinates.
Politics also affected what the military bought, but there seems to have been a general belief that most of the time the authorities were honest. The main exceptions brought out in post-Soviet memoirs were that Tupolev was sometimes able to sell the Soviet forces inferior aircraft (and it was not always obvious that they were inferior) and that under Premier Nikita Khrushchev, Vladimir Chelomey gained excess power within the missile world (he lost much of that power later, and there seems to have been few subsequent complaints).
Since pricing was more or less meaningless, defense decision-making became badly distorted. For example, some years ago, shortly after the end of the Cold War, the director of the Sukhoi design bureau held a press conference at the Paris Air Show. It emerged that the Soviet air force had been paying exactly the same price for his Su-27 as for a MiG-29, a fighter of the same generation, although the Su-27 was enormously more sophisticated (not to mention, considerably heavier), and therefore cost a great deal more to manufacture. On that basis it was extremely difficult for the Soviet air force to decide how to trade off production of the two fighters.
Under the Soviet system, every enterprise (e.g., factory) had to make a profit, but all that meant was that the nominal value of what was produced had to exceed the nominal value of what went in. All enterprises produced both military and civilian goods, partly so that there always was industrial fat that could be converted to military muscle in the event of a World War II-style mobilization. The real effect of this system was that the cost of military goods whose prices the military controlled (as in the case of the two fighters) was transferred in an unmeasurable way to the civilian side of contractors and sub-contractors. Although in theory the system was defined by the need to add value (hence to make profitable products), profit was meaningless because, under the command system, a factory never actually had to sell anything. Ironically, to some extent this disaster to the civilian economy resulted from Khrushchev’s demand in the 1960s that military producers lower their prices so that he could shrink his military budget in favor of consumer goods.
The effect of switching to cash was to widen access to the limited amount of Russian-produced goods; everyone needed more money. That is where stories of air force units in Germany selling off MiG-25s for $100,000 each originated. Much of the Soviet fleet was sold for scrap at sacrificial prices. Such sales provided not merely money, but also money that could be exchanged for Western goods. The situation within Russia is better now, in that exports of raw materials have provided enough hard currency to make it possible for Russia to import consumer goods. This in turn makes Russian currency worth having, and thus makes it worthwhile both to reward military personnel for their good work and to steal some of that reward.
Buddy, Can You Spare a Ruble?
In a cash economy, the government no longer has the power simply to command an organization—say, a design bureau—to produce something. It has to supply cash, because the organization must pay for what it needs. Now the design bureau pays what everyone else pays for things like food and housing. Most important, it has to compete with the rest of the economy for talent, because a ruble paid for, say, designing a new lamp is the same as a ruble paid for designing a new missile.
In the Soviet era, the government could command, for example, a food ministry to supply food to a design bureau instead of to consumers in Moscow. It could, similarly, command those producing metals or transistors to supply what was needed by the design bureau or by the military. The government could not (or at least did not) compel talented individuals to work at military design organizations, but by commanding the supply of resources it could make those organizations overwhelmingly attractive.
Rubles were used for accounting purposes, but the ruble spent by the design bureau or by the navy was not at all the ruble that someone standing in line for meat was using. Now all consumers have exactly the same kind of rubles. It does not matter where they come from, so what a general gets in illegal kickbacks buys the same sorts of things that oligarchs get with their cash. Obviously there are some differences, but they are minor. Because most Russians are grossly underpaid, kickbacks and corruption have become necessities for too many of them.
Moreover, when the command system was turned off, employment at design bureaus became substantially less attractive to exactly those the system needed, the young engineers who were most creative. Many design organizations bled themselves white. That is one reason why the Russians seem to offer much the same products at military shows year after year.
There seems to be a widespread belief that everything in the country is more or less up for sale, or at least is determined by cronyism. The navy’s strategic missiles are a case in point. For some time the Bulava solid-fuel submarine-launched strategic missile has been failing its tests. Despite its problems, work has continued on submarines that apparently cannot be modified to fire any alternative weapon. The decision in favor of Bulava was explained by the need to achieve a degree of commonality with a major land-based missile, the mobile Topol. That may or may not have been a wise decision, but the attempt at commonality is familiar to Westerners. Russian resources are limited, and the military-industrial complex that survived Soviet times is probably far too large to be affordable.
Bulava was developed by the Moscow Thermal Institute, which had not developed any earlier naval missiles, but had developed the lightweight Topol and its predecessors (SS-16 and -19 in NATO parlance). The selection of Bulava as the navy’s only future strategic missile had devastating implications for the Makayev Design Bureau, which had developed previous navy liquid-fueled strategic missiles.
The Russian press is open enough (or divided enough when it is not commenting on the central government) that Makayev’s partisans were able to charge that Bulava was the result of corruption. Makayev has continued to develop versions of the SS-N-23 liquid-fueled missile so that the existing Delta-class strategic submarines can be modernized. This effort began with a version called Sineva, and recently a new Layner (Liner) follow-on has been successfully tested. According to Makayev, it has a greatly improved ability to penetrate the (limited) anti-missile defense the United States is erecting.
To anyone brought up during the Cold War, it is bizarre to see the Russian press touting competing weapon systems in hopes of convincing those in the government to buy one or the other. This kind of advertising is worthwhile because the Russian government really is compelled to make choices, and it cannot afford to support design or other organizations that fail to win contracts. None of the Cold War design organizations has disappeared altogether, but many of them are now skeletal, and some have been forced to merge. The corruption scandal and the public competition for defense money are two sides of the same coin.