Military science and the market economy.

In the new economic conditions, the issue of financing activities in the field of military science has become very pressing. In order to raise the effectiveness of military science and to go on developing the military-science complex of the RF Defense Ministry it is necessary, in my view, to make more intensive use of the scientific potential of research organizations and military institutions of higher education for the development and marketing of scientific and technical products (STP) as a commodity.

This will make it necessary, first and foremost, to settle matters relating to the legal support of the activities of Defense Ministry organizations on the STP market, since the existing legal framework cannot regulate these activities. In particular, provisions specifying the mechanism for marketing scientific and technical products must be developed and introduced into directive documents.

The marketing of STP (in view of their diversity) should evidently be arranged on the level of the Services. For the purpose of promoting STP sales, marketing divisions must be set up within the staff establishment of the military-science committees of the Services. Their tasks should be:

first, forecasting of demand for STP in the given Service through constant market research and analysis of information on the priority lines of research being conducted in Defense Ministry organizations;

second, management of demand for STP by stimulating, promoting and regulating sales and services. Demand for these specific products and services may be promoted through targeted advertising campaigns directed at concrete groups of potential customers (arrangement of scientific and technical conferences on problems of dual-purpose technology and services, preparation of advertising booklets and brochures listing the advantages of the given STP in a specific area of technology or services). The personnel of research organizations and higher educational institutions in the given Service may be drawn into the search for potential customers through incentives in the form of payment for such activities:

third, pricing of STP and services offered by research organizations and higher educational institutions of the given Service.

To ensure efficient operation of the marketing network of a given Service, it is necessary to introduce at each higher educational institution, within the staff establishment of the military-technical information department or the scientific-research department (and at research organizations, within the staff establishment of the planning department), two or three staff units of STP and services marketing managers (for example, instead of engineers or junior research associates). Practice has already compelled higher educational institutions to engage in elements of marketing, and in some of them such matters have been entrusted to specially authorized research associates. STP and services marketing specialists for Defense Ministry organizations could be trained on the basis of the Military Finance and Economics University.

In their initial efforts to master the market in realizing their scientific potential, the Defense Ministry's higher educational institutions and research organizations will probably be unable to arrange due advertising of STP as a commercial product or to establish a proper sales network. That is why the main scientific and technical products offered by such organizations as a commodity could include: scientific, technical and organizational ideas and proposals; consultations and feasibility studies for projects and proposals advanced by outside organizations; and paid educational services (teaching at preparatory courses, training of specialists for other ministries and departments, holding of candidate degree examinations, approval of dissertations and consultations for persons who are not employees of the given higher educational institution or research organization).

The establishment of a legal framework for regulating the new economic relations taking shape in the STP market fully applies to questions of creating a mechanism for financing R&D performed by the Defense Ministry's higher educational institutions and research organizations under plan assignments given to them by higher bodies.

The Regulations on Scientific Work in the RF Armed Forces, enacted by RF Defense Minister's Order No. 140 of 2000, specifies who must pay for STP and what kind of funds may be used as a source of additional finance for the Defense Ministry's research organizations and higher educational institutions, but does not specify the mechanism for funding R&D being conducted, in particular, by the higher educational institutions of the Defense Ministry. Meanwhile, in view of some conservatism intrinsic to the Armed Forces, our transition to a market economy is mostly verbal. In actual fact, the directive-instructions system of managing scientific research in the Services is still largely intact. For example, it is still believed that the main thing in managing science is to find contractors and associate contractors for research and problem resolution, with little attention being paid to the economic aspect of scientific research, primarily to the actual allocation of financial resources going to pay for such research , their amount and disbursement procedures.

One of the main tasks, apart from the above, is to elaborate a set of methods and techniques for pricing STP. These matters were dealt with in an article entitled "Cost Estimation of Military Scientific and Technical Products," published in the third issue of the journal for 2001 (V.M. Burenok, GA. Lavrinov, A.G Podolskiy). By way of development of some methodological premises and ideas set forth in that article, one may suggest the following approach to estimating the cost of R&D performed by Defense Ministry research organizations and higher educational institutions and to R&D funding procedures.

In my view, in determining (calculating) the cost of R&D/STP, one should distinguish between R&D of an experimental nature, i.e., that requiring relatively large outlays on equipment, instruments and materials, and theoretical R&D, in which a large proportion of all outlays goes to remunerate R&D performers. In my opinion, labor costs in the case of experimental R&D should constitute up to 40% of its total cost, while labor costs in theoretical R&D should constitute up to 60% of the total.

So, the intradepartmental cost of STP (which equals the price for budget-funded organizations of the Defense Ministry) can be determined as follows:

C = [C.sub.l]+q[C.sub.l], (1)

where C is the intradepartmental cost of STP,

C1 is the cost of labor for the given STP, and q is the coefficient taking into account the share of expenditures on equipment, instruments and materials (q = 0.7 for theoretical R&D, q = 1.5 for R&D/STP of an experimental nature).

The price of R&D/STP at the conclusion of contracts with other departments inside the country must be determined from the condition of the receipt of average (standard) profit, for example, a profit of 15% for the STP designer (development engineer).

Consequently, this price must be determined as follows:

P=l.15C. (2)

At the sale of STP to other countries (on the international market), one should bear in mind that labor costs in countries with a developed market economy are higher than in Russia by an order of magnitude. On that assumption, and given that we have taken labor costs as a basic variable in calculating STP prices, the price of STP on the international market must be established within a definite range and calculated according to the formula:

[P.sup.i]=K(1.15C), (3)

where [P.sup.i] is the price of STP on the international market, and K is the coefficient taking into account the state of the market for the given kind of STP in the given country (K 10-30).

Funds for the performance of R&D/STP must not be disbursed to the performer organizations only at year-end (without adjustment for inflation), as was the practice in the recent past. In my view, around 50% of expenditures under various items of estimated R&D/STP costs (except performers' pay) must be received by the performer organizations in January-February as an advance payment. The remaining 50% of the funds must be transferred not later than the third quarter of the same year duly adjusted for inflation.

This technical approach may be used in estimating the costs of R&D performed by Defense Ministry research organizations and higher educational institutions under orders placed by higher bodies as part of plan assignments.