Samara’s Defense Industry Moves Reluctantly
Toward the Free Market
Old Habits Persist in Russian Military Complex,
as Managers Still shy From Converting Factories or Even Marketing
Their Highly Competitive Rockets.
Burke, Justin. "Samara’s Defense Industry Moves Reluctantly Toward the Free Market." Christian Science Monitor, 9 September 1993, 8-9.
In the decades before the 1917 Bolshevik seizure of power, commerce
defined this Volga River city.
The trade of grain, wool, and leather goods largely drove the local
economy, allowing merchants to dominate cultural life. Amassing
small fortunes, they built fancy mansions in the city center and
filled them with fabulous art collections.
The Bolsheviks’ attempt to remake society put an abrupt end
to the merchants’ golden age here, as the free market gave
way to Communist planning. The overhaul extended to the city’s
name, which in 1935 was changed from Samara to Kuibyshev in honor
of an old Bolshevik leader.
The most drastic changes did not come until World War II. Early
in the war, with factories being evacuated westward as Nazi troops
advanced into European Russia, this city almost overnight, metamorphosed
into a vital military production center. It also briefly became
the Soviet Union’s capital.
The cold-war era saw Samara cemented into the Soviet Union’s
military-industrial complex. And national security concerns dictated
that all-important Soviet military-industrial centers, including
Samara, become "closed cities," meaning they had little,
if any, contact with foreigners.
Secrecy shrouded Samara until only recently, when the Soviet system
came unglued and the Communist Party was swept from power. Over
the past few years the city has opened up again and gotten its original
name back. In addition, "conversion" has become a buzzword,
with Russia’s new leadership stressing the retooling of military
enterprises for civilian-oriented production.
But as this city tries to reorient itself, communism’s 70-year
legacy – especially its former closed-city status –
is proving difficult to overcome. A significant problem is the inability
to draw upon past experience. The communist assault on the entrepreneurial
mentality was so thorough that many contemporary industrial managers
here appear at a loss when it comes to market skills.
"They don’t have any idea of what they don’t
know," says Richard Pierce, a US Peace Corps volunteer in
Samara who provides market transition advice.
"Closed-city status retarded market thinking," adds
David Lawrence, another Peace Corps volunteer. "Since this
was a military center, people think it’s a natural place for
investment. But that isn’t true…there’s competition
for investment dollars, and if they don’t encourage them,
they won’t come."
Since former Soviet President Mikhail Gorbachev first started talking
about military conversion in 1988, the effort has suffered from
two deficiencies: the lack of a comprehensive plan and a shortage
of funds. A few nationwide conversion blueprints have been formulated
over the last five years, but they only outlined broad strategic
aims, containing a few tactical specifics. Also, the money outlook
remains bleak, given Russia’s economic crisis.
As a result, conversion is having problem gaining momentum. And
in Samara, there is no shortage of complaints by conversion officials.
Vladimir Moskovsky, Samara’s deputy mayor in charge of conversion,
bemoans the city’s industrialization experience. Back in 1941,
when the Soviet Union was desperately trying to fight off the Nazis,
plants here were quickly thrown up in the middle of fields, with
some producing munitions even before roofs were finished, Mr. Moskovsky
says. No consideration was given to human needs such as housing,
transport, and sewage.
"This unbalanced character concerning the organization of
industry and housing still exists," he says.
Yuri Motkov, chief of the Conversion Department for the Samara
Regional Administration, criticizes the federal government for its
rapid and deep cuts in defense spending. The drastic approach, Mr.
Motkov says, deprived many defense plants of the means to reorient.
What city officials have not complained much about, however, is
Samara’s former closed status. Moskovsky maintains the former
restrictions have benefited the city’s market transition.
"The closed-city status protected us against the market revolution,
and this is good because revolutions never lead to anything good,"
he says, referring to Moscow’s crash reform program implemented
in early 1992. Those reforms, engineered by former Prime Minister
Yegor Gaidar, lifted state price controls in many economic spheres,
spurring massive inflation that is still running between 20 and
30 percent monthly.
But some Samara residents argue that the city’s closed status
hindered development of adequate communications. There is a huge
waiting list to receive a telephone, they add, and even if there
were phones, lines to Moscow and other cities are frequently unavailable.
Infrastructure-related conversion problems, such as the telephone
shortage, could be solved if officials had a proper plan and the
cash to implement it. As for the successful reorientation of plants
themselves, Peace Corps volunteers say that something more than
concrete tactics and money will be needed: the desire of factory
directors to change their thinking.
Mr. Motkov admits that many directors stubbornly cling to outmoded
Soviet business practices, stressing obligations, not profitability.
"They aren’t able to use state credits effectively,"
Motkov says of many directors. Rather than laying off workers and
using credits to improve the factory’s efficiency, "they
use them to pay workers, and that’s about all."
Although there has been a drastic slump here in military production
– including a drop of about 50 percent in 1992 compared with
1991 – unemployment is still surprisingly low. "The
last thing a manager will do is let workers go. It’s all connected
to their mentality," Motkov says.
The so-called "old-thinking" is not just hindering
efficient conversion but is holding back those defense plants that
are capable of competing in the world arms market, says Mr. Lawrence
of the Peace Corps. The Progress factory, which produces rockets
that lift Russian spacecraft and satellites into space, is a case
in point, he says.
"This company’s product could compete, if only they
had adequate marketing and financial operations," Lawrence
The Soyuz rocket produced by Progress should be an attractive option
in the highly competitive and lucrative commercial satellite launch
business. It is capable of boosting a payload of almost 7 tons into
orbit and has a reliable track record of more than 1,000 successful
launches. Perhaps more important for potential customers, it costs
far less than its major competitors, including the rocket produced
by European consortium Arianespace.
Other Russian rocket masters, working through the Russian space
agency Glavkosmos, are starting to conclude lucrative deals. A Russian
Cyclon rocket, for example, recently lifted a German satellite into
But according to Lawrence, Progress has yet to make inroads into
the commercial launch market because managers do not take advantage
of the company’s strengths.
"The one thing they have going for them is low costs, but
they try to charge as much as the competition," he says.
At the Progress plant on Samara’s dusty outskirts, company
officials do not appear to be fully aware of the profit potential
of the Soyuz rocket. Yuri Grushin, a deputy factory director, talked
about conversion plans to turn out bread cutters, furniture, and
baby carriages, instead of rockets.
"I wouldn’t say rockets are the most profitable. No
one needs them," Mr. Grushin says. He declined to grant journalists
permission to observe baby-carriage assembly operations, citing
security regulations relating to the rocket production.
"The secrecy regulations haven’t been entirely lifted,"
he says. "The rocket itself isn’t a secret, but the
machines used to produce them are… It really doesn’t
depend on us."
The Progress factory is developing a marketing department, Grushin
says, but it lacks the funds to send employees abroad for training.
He also complains that the West, and the US in particular, restricts
Russian entry into the launch market.
The US and European Community, anxious to protect their satellite-launch
market share, recently came to an understanding with Moscow that
would limit Russia to 12 commercial launches with its Proton rocket
"We consider the Americans to be our friends," Grushin
says. "But we do feel some pressure from them."
Social benefits in the balance: Alexander Mironov, a retiree from the Progress
missile plant, sits outside his factory-provided apartment.
Observers criticize managers’ current use of state credits
to pay for social benefits, rather than to improve the factory’s
Volga beach: Bathers
in Samara enjoy the evening warmth along the river. Before
1917, this city was a commercial center, with wealthy merchants
selling grain, wool, and leather goods. The communists made
it a military 'closed city.'
Reprinted with permission of the Christian Science