For 25 years, the Soviets have attempted to confer the successes of their defense industry on its civilian counterparts through the transfer of defense managers and methods. Since early 1988, the Soviet Union has accelerated efforts to increase the civilian output of defense industry. This is a new policy that marks a break with past efforts to harness defense resources as well as its successes. The second phase of the evolving policy is the conversion of defense industry capacity to civilian purposes. This paper outlines aspects of Soviet military and civilian industry, discusses the conversion of defense industry capacity to civilian purposes, evaluates conversion, and outlines the traditional aspects of Soviet conversion policy. The author concludes that civilian output will benefit in the short run from the use of the high-quality resource base, experience, and management practices built up under the regime of defense industry privilege. It will also benefit from the absolute reallocation of resources. Over the longer run, the deep systemic problems of the Soviet economy will impose themselves in the defense industry's production of civilian items.