Analyst: Russian Industry Faces Challenges Unique to 'Putin's Russia'

MOSCOW — The fall of the Soviet Union rocked Russia’s inherited defense industry to the core. With a government no longer able to bankroll massive defense procurements, Russian defense industry enterprises were forced to transform themselves into export-oriented businesses or die. This pivot has over the last two decades turned post-Soviet Russia into the world’s second largest arms exporter, trailing only steps behind the United States. In 2014, Russian exports hit new highs at $13.2 billion according to state arms export agency Rosobornexport. Meanwhile, the Russian government since 2011 has since 2011 been investing an unprecedented 20 trillion rubles (about US $350 billion at recent exchange rates) into defense procurements and industry modernization. The program is set to wrap up in 2020.

Defense News sat down with Ruslan Pukhov's privately owned think tank, the Center for the Analysis of Strategies and Technologies, has become a leading source of analysis on the Russian defense industry and military issues. As CAST's director, he is a one of the most prominent Russian observers of the evolution of the country's defense industry over the past 20 years, to talk about the state of Russia's arms industry, as well as the success of his privately owned think tank, the Center for the Analysis of Strategies and Technologies, which has become a leading source of analysis on Russian defense industry and military issues. Pukhov has carved out a niche for himself in Russia as is a member of the Russian Defense Ministry's Public Advisory Board and, more recently, as the head of a Russian analogue to the US National Rifle Association.

A. You know, The Russian defense industry is very close morally, physically and spiritually tied to the Russian way of waging war. The Russian armed forces, beginning with those founded by the first duke of Russia, Ivan the III — grandfather to Ivan the Terrible — adhere to one basic observation attributed to German Chancellor Bismarck: Russia is never as strong as it looks, and Russia is never as weak as it looks. 

Russia is strong but not almighty, and there are recent events that show this — such as the downing of nine aircraft since the beginning of June and the collapse of a barracks that killed over 20 soldiers. In some things, Russia does quite well and is quite developed, and the same goes for Russian technology. I used to joke with a professor I studied with at Case Western University, Stanton Court, that US fighter aircraft look like Swiss watches, but Russian fighters look like tanks. Would you prefer to fight with a tank or a Swiss watch? This is a joke, but there is some rationale to it. Russian equipment, be it indigenous indegenous or adopted form the West, is made in a way that less sophisticated machines could build them and less skilled and educated people could operate them. 

A. There are a whole series of challenges. Some of them are common to all defense industries, some unique to Russia itself, and I would say even unique for Putin's Russia. The common challenge is affordability, and what you outsource. 

Today, on top of all this, we have an open military conflict on our Western border in Ukraine. We now have hostile relations with NATO and we should take that into account, and plus there is a Russian perception that there is potential for a future war in the Arctic. 

A. You know, Like the majority of Soviet children, I was raised as a romantic militarist. Since the age of 10 or 11 I dreamt of joining the military, I even entered one of the [Soviet-era] Suvorov Military Academies — a type of school for boys in the last two years of high school aspiring to become military officers. That was in 1988, so it was the time of perestroika and there was a lot of bad publicity about the military, and after spending a few days at this school I took my papers back and returned home to my high school. 

Meanwhile, another student, my future business partner Konstantin Makienko, was interning at a French research center called CREST. He worked largely on issues of the defense industry and arms trade. Me and my partner were largely inspired by their model, and after four months at the embassy in Paris I was slightly disappointed by the foreign service. Then the Russian Foreign Ministry, at least in practice, was still very much the Soviet Foreign Ministry, and international relations, politics and economics were no longer going through the embassy, there were many other possible avenues, and so when both my friend and future business partner Konstantin Makienko and I returned to Russia we started working on creating our own research center similar to the French CREST. 

A. You know, we were very young at that time, I was 23 and my business partner Konstantin was 28. We wanted to create this think tank, but since we were still young Soviets we didn't know how the economy worked. We saw only how the French center functioned, but we didn't know where the money came from. Eventually we understood that they got over two-thirds of their money via direct or indirect contributions from the French government or state-run defense companies like Thales or Dassault, and that only 20 to 25 percent of that money was earned by selling expensive bulletins on a weekly basis. We understood that we couldn't do that, but we could do a monthly publication about the defense industry and arms trade — mainly about the Russian one, but also a partially about the foreign ones — so we launched it and were relatively successful at the beginning. 

We decided we would create a trade publication for people who were either producing and selling arms legally, like state-run trade, or those who wanted to learn more about it — such as a foreign defense attaché in Moscow, or the owner of a transportation company, or bank interested in giving a loan to a Russian enterprise and get the investment back once the contract is fulfilled. So we thought about what was interesting for our clients, not interesting for us, and we published our fist issue of Eksport Vooruzheniy [Weapons Exports] in April 1996 and sent out something like 300 copies that we made on printers. I remember that I killed several cartridges in my friends' offices, but we only had two subscribers subsribers at first — the Czech Air Force attaché and the South Korean Air Force attaché. 

A. For the first three or four years CAST only had the publishing program, and it consumed a lot of our time. The research program, and the so-called analtyics-on-demand — business intelligence, if you wish — appeared in a natural way several years later. After reading our magazine, some of our subscribers started coming to us and saying, 'We like this article. Can you write for us a mini-research piece, a kind of analytical paper, but exclusively for us and not for others?' So it was derived from our publishing program. Sometimes it could be just like an article for the magazine that we only give to one client. They never asked for technical reports, it was always kind of interdisciplinary. 

Another reason that I think people started coming to us was because from the beginning, we worked actively with the media. The expert community in Russia at that time wasn't very big and could be broken down into three big categories: retired military and intelligence people, who weren't eager to talk to journalists; people at the Russian Academy of Science who knew about international relations but not the arms trade or defense industry; and journalists who were quite proficient in defense industry affairs, but journalists don't like to cite other journalists. So we insisted on the fact that We were young experts ready to work with the media, and we always avoided the temptation to comment on other issues. Sometimes journalists would ask us to comment on nuclear non-proliferation or about the war in Chechnya, but those weren't our fields of expertise so we refused. It was hard to say no, or that I don't know, but at that time journalists valued those responses and saw them as mature and professional. 

A. At a certain point we understood that we are specialists in international relations and Russia was opening up, that we should do an English-language publication, and for 11 years we have published Moscow Defense Brief. It is different from Export Vooruzheniy, which is kind of a trade publication for arms producers and arms traders in Russian. With Moscow Defense Brief we quickly understood that we should go broader than the arms trade, but since we were not famous experts in issues that weren't our own, we started looking for experts to write in this magazine, and we developed a cadre of what we call "Sunday defense analysts" — people who are very knowledgeable but not necessarily part of the establishment, but know their subject very well. We always ask them to write small pieces, which makes it different than EV, which is a thick product. Moscow Defense Brief has smaller articles, and sometimes they can just be things like a table of combat crashes in Chechnya, or accidents with submarines in the 1990s, and so we gather open-source information for people to use in their work. Moscow Defense Brief is in a sense raw material that people can use as a primary source, and that's why some of the subscribers are academics, like Georgetown University or the people at Rand. 

A. We confess to using an old strategy based on the motto of Russia's most famous general, Alexander Suvorov from the 18th century — "I am not asking to serve, but I will not refuse service." We have never been proactive in courting the Russian government agencies, but since we are out there, they contacted us after a certain time. For example, at a public seminar we met with the now late Gen. Vladimir Popovkin, who used to be first deputy head of the Defense Ministry for procurement before going to head up Roscosmos, and I remember he said our work was interesting and he wanted to hire us for some jobs. 

Now we are in our third year of a research contract with the Ministry of Defense. This is not a direct contract since we aren't cleared for classified information, but we are subcontractors through the 46th Central Research Institute, which focuses on the Russian defense industry. For example, one of our tasks is looking at how to substitute imported components cut off by international sanctions by outsourcing their development to developed countries that are not technically part of the western world — such as Israel, Singapore, China and also South Korea, maybe even Mexico.