Defense and the Soviet Economy

This Note examines the defense sector's role in the former Soviet economy. It argues that despite the changes that have occurred in Europe since 1989, it is still useful to understand the size and composition of the military economy of the former Soviet Union. Accurate assessment of military forces, spending, and technology continues to be important because the Russian military establishment has inherited most of these elements, and Russia remains a significant factor in the international balance of power. Also, the military sector of the former Soviet Union plays a significant role in that economy. This prominence is a contributing factor in the laggard performance of the republics' economies. If this trend is to be reversed, it is important to move toward a smaller defense sector whose resource allocations are acquired through a more transparent and accountable process than in the past. Finally, the military's access to scarce resources is a significant reflection of its political role, as well as a contributor to it. The status of the defense sector indicates the relative domestic political strength of the heretofore powerful interests associated with it. This Note is divided into six parts: (1) methods for estimating the size of the Soviet economy and its performance; (2) effects of Perestroika on the defense sector; (3) Soviet allocative choices as between the military and other sectors; (4) effects of foreign trade on the Soviet defense sector; (5) monetary aspects of the contemporary Soviet economy; and (6) conversion of Soviet defense industry.