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Saturday, May 5, 2012

I wish for a defense alliance of the 'good guys'

The Russian government has recently announced its $680+bn pledge to the across-the-board rearmament of the national Army and Navy over the next eight years. The Kremlin airs belief that rekindling demand for new weapons and equipment will give a good boost to Russia’s industrial growth. Russia might also bet on an increase in war armaments exports as a way to achieve the growth. I just heard colleagues argue if it is the right path for a country like Russia to follow in developing its economy. Let me share with you a few ideas on this.    

For me, I’m not very happy to see any nation selling war armaments internationally. I’m an economist; I look at everything from a business perspective. This is the framework which I come from.

However, looking at this from a historical perspective, we should not forget that Russia’s legacy is being part of the Soviet Union, which as a block was diametrically opposed philosophically and economically to the Western world. For the last twenty years Russia has been restructuring itself, and has achieved a certain level of stability. It is now joining the WTO as a friendly partner on our very small globally integrated planet.

Friendly trading nations don’t go to war with one another—as simple as that. We’re all working together towards improving the standards of living in the global economy. There’s no conflict between Russia and other nations.

At the same time, Russia has to choose how to modernize itself. Political choices have to be made in how to utilize and leverage the historical investments which have been made in Russia’s economy. And there are two foundation pillars of this economy. One is oil and natural resources extraction and sale of commodities globally; and the other, for better or worse, is defense and military.

So, I personally believe it would not be logical for Russia to choose not to modernize this sector of the economy. Russia needs to integrate its system into the global system. In this context, Russia purchasing the Mistral class helicopter carrier from France is a great example.

As a leading country Russia cannot afford to be passive. In any situation, military strength is a sign and signal of economic strength. The ability to defend one’s borders from any threats is a right of every nation. While being on friendly terms with most other nations, Russia still has to protect its national interests and those of its partners, so the government is restructuring this sector.

Just as the U.S. relies on very large global-level corporations which make armaments, those same companies use government subsidies to make new military aircraft and simultaneously utilize the technology created with those subsidies in developing new commercial aircraft.

In fact, even most advanced sectors of the economy using the most advanced technologies cannot be driven by purely commercial interest alone. The role of the government to stimulate modernization through investing in the defense sector is understandable and quite acceptable, but the main aim should be to help restructure these defense companies to develop, in parallel, their commercial assets.

Look at Boeing: it has its military aircraft and uses this technology and subsidy from the government to make new and highly competitive commercial aircraft. The same applies to General Electric, Siemens and any other companies.

Russia’s defense system needs to be diversified to be able to use the support of the government to develop military products and at the same time draw on this technology to improve its competitiveness for developing the commercial arm. Otherwise companies themselves—which are, in most cases, 100% defense-focused—cannot compete without government money, creating a catch 22 situation when defense companies cannot modernize themselves to make commercial products, and eventually face dying.

So, this is absolutely logical that this will be a priority for the government in an effort to diversify the economy. But I’m sending another message here. I would be very, very, very happy to see the development of a strong alliance with Russia and the U.S. and NATO; to see integration in jointly developing new defense systems for our planet against ‘rogue’ nations, against the ‘bad guys.’ General Electric, Siemens, Boeing—they will all be delighted to work with Russian companies and develop joint projects, being part of the ‘good guys’ with responsible global business working to shield the planet from those who want to stick their fork into our side.

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