Russia's military-financial policy.

Problem Statement

The breakup of the USSR made it necessary to reduce the Armed Forces and to reform the military system of Russia. The state of international relations allowed us to get down to a solution of these tasks. In other countries, some reduction in the armed forces caused by global trends was used to improve the equipment of troops with the latest types of weapons. In Russia the picture was different. The numerical strength of the Armed Forces was reduced from 4.8 million to 1.2 million (4 times); the number of tanks fell from 64 thousand to 7 thousand (over 9 times), guns from 67 thousand to 10 thousand (6.7 times), aircraft from 7 thousand to 2.5 thousand (almost 3 times), battleships from 437 to 100 (4.3 times), and submarines from 300 to 80 (almost 4 times). The resource status of our servicemen is 13.5 times lower than that of American servicemen and 3 times lower than that of Chinese servicemen. (1) To a certain extent, this situation can be explained by the extremely acute problem of financial and economic support for military organizational development in Russia in the reform period, particularly by inadequate appropriations. But there are other reasons as well.

As a result of incompetent conversion of military production, our country lost the opportunity to equip its Armed Forces and other troops with the latest arms and military equipment. From 1991 to 1997-1998, military production in the defense-industry complex (DIC) fell more than ten times (to 9.4%), and civilian production, more than five times (to 19.2%). (2) Instead of a transfer of high technology and skilled personnel to the civilian sector, there was a weakening (if not a disintegration) of schools of thought and a loss of a part of the intellectual potential (and property). The lack of an integrated and scientifically valid state scientific and technological policy and of minimum necessary financial and economic support, incompetent privatization and ceaseless reorganizations drained the Russian DIC of blood and resources. It lost its key system attribute: the intrasystem economic and administrative links between its constituent elements uniting them into a single whole were disrupted. This had a negative effect on military-economic security, on the implementation of state armament programs (SAPs) and, consequently, on the country's military security in general. Thus, the first Russian State Armament Program for 1996-2005 (GPV2005), approved in November 1996, could not be implemented owing to the economic crisis and insufficient defense appropriations. Actual funding of the state defense order (insignificant as it was) amounted to 37.6% of the budgeted figure in 1996, 19.6% in 1997, 11.8% in 1998, and 66.6% in 1999.*

By the beginning of this century, the global balance of national power and security indicators was most unfavorable to Russia, (3) and the system of economic support for the structures of military counteraction to national security threats that is taking shape on their basis can hardly meet the country's military-economic requirements. Being aware of this, the state's new authorities have adopted a number of documents laying down the guidelines for military organizational development and DIC reform (including the Basic Principles of RF Policy in the Field of the Defense-Industry Complex for the Period Until 2010 and for the Longer Term), which provide for the formation of integrated structures with a rigid management vertical of the holding company type. On 20 July, 2004, the RF Government adopted its Decision No. 369 "On Measures to Implement RF Presidential Decree No. 591 of 9 May, 2004, 'On the Development of the Open Joint Stock Company Takticheskoye Raketnoye Vooruzheniye (Tactical Missile Weapons) Corporation'," under which another eight DIC enterprises, such as OAO Salyut (Samara), OAO Gorizont (Moscow) and OAO Smolensky Aircraft Factory (Smolensk) became part of this corporation. As a result, it can now be included among the world's leading producers of precision weapons. Unfortunately, the creation of such structures is proceeding very slowly.

The situation has begun to improve. Whereas in 1996-2000 only 40 new AME models were adopted for service, in 2001 and 2002 the figure was 210, and in 2003, 120; in 2004, it was planned to adopt for service 250 AME models and to test 300 models, and in 2005 it is planned to complete 300 R & D projects and to adopt for service about 300 new AME models. According to Defense Minister Sergei Ivanov, an increase in the defense budget will enable the Defense Ministry to acquire four intercontinental ballistic missiles, nine new spacecraft, six launch vehicles and 50 armored personnel carriers BTR80. (4) Russia's Armed Forces are faced with new tasks: to prepare and start the serial production of new weapon models, to adopt and finance programs for retooling DIC production facilities, to change the structure of appropriations in favor in investment outlays, etc.

However, these signs of an incipient recovery are no reason to be complacent: despite the growing threats, especially the threat of international terrorism, there has been no significant increase in security spending. Thus, the share of spending on National Defense is much lower than in 1998 and in previous years, although the Law on the Federal Budget for 2005 somewhat increased it to 2.84%. (5) In the process of their reform, the Armed Forces and other troops have virtually not received any new weapon models in place of obsolete and worn out weapons. The share of modern weapons is insignificant (just over 20%), and their scheduled increase is marginal.

So is there any real hope of a revival of Russia's former might and security? In our view, the objective basis for this as determined by Russia's potential still exists, although a certain part of it has been lost (hopefully, only for a time). And if such subjective factors as political will and ability are realized, Russia's might can be restored and augmented.

In our opinion, the processes of the 1990s that were negative for our national security were due not so much to the limited economic possibilities or the inadequate level of economic, political, military and military-economic theory as to the lack of demand for such theory on the part of the state authorities and to the resulting miscalculations in matters of strengthening the country's might and national security. "The Russian bureaucracy has proved to be poorly prepared to develop and implement the decisions our country needs today," Russian President Vladimir Putin noted in his Address to the RF Federal Assembly in 2003. "The ineffectiveness and weakness of the state," he went on, "cancel out the effects of economic and other reforms." (6) This applies, among other things, to military-financial policy, which, in our opinion, shows an underestimation of existing and potential threats to military security, inadequate competence and an inability to make correct use of income sources, which, incidentally, are not at the disposal or servicemen or DIC workers: they are in offshores at the disposal of illegal recipients of rent. The reform of the management system is designed to overcome these shortcomings.

Problem Resolution Requirements

From the standpoint of everyday thinking, we see two conditions for a solution of the problem: first, an increase in the share of security spending to the minimum necessary level; and second, enhancement of the efficiency of the system for economic support of security, of all its elements and functional units, including the military economy and military finance.

Share of National Defense Spending--3.5%. More? Less?

Ensuring national security requires a certain minimum of human, material and financial resources. The state's resource capabilities are always limited and insufficient for full satisfaction of all the needs of society, so that the state always has to decide which share of them should be used for a particular purpose. The funds allocated over the past few years for security purposes are obviously insufficient to remove or neutralize existing and potential threats. But there are not enough funds for a solution of other vital problem as well. So, is it possible to increase the share of security appropriations, and if so, to what extent? It is not easy to answer these questions.

As we know, the economy always addressed two fundamental tasks: ensuring reproduction and ensuring security. In the distant past, these two functions were inseparable, and primitive means of production (axe, bow and arrow, etc.) were simultaneously means of protection. With the passage of time each of these tasks was concretized. Social division of labor led to an increase in its productivity and to rise in the population's living standards, but this went hand in hand with an increase in internal and external threats to people's wellbeing and interests, which made it necessary to divert a growing share of the available resources for ensuring security. The problem of the ratio between spending on the reproduction of living conditions and on ensuring security came into sharper focus. The scientific and technological revolution led to a huge increase in the productive forces. But a significant part of them was used to prepare and wage world wars, which took tens of millions of human lives and destroyed a large part of accumulated national wealth. Thus, in the Great Patriotic War of 1941-1945 the Soviet Union lost 27 million lives and 30% of its national wealth.

In the past century, the question about the share of military spending manifested itself as a social problem: it was necessary to determine the limit of the increase in this share acceptable to the population. This problem is still relevant today, but now it has taken the form of an alternative facing the whole of mankind: to be or not to be. Such a statement of the problem is due, first, to the attainment of a critical mass of military force, whose use in a nuclear-missile war could result in the destruction of all life on Earth, and second, to the growing intensity of a number of nonmilitary threats (environmental, the threat of depletion of nonrenewable sources of energy, key mineral resources, etc.), which also aggravate the problem of mankind's survival. That is the need to ensure security has gained priority among all the other needs, and this is bound to affect the answer to the question about the share of resources allocated for national security and about their sources.

A concentrated expression not of declared, but of actually implemented state priorities is the state budget and its structure. The budget determines the overall amount and main lines of spending on society's vital needs, including national defense, law enforcement, state security, etc. That is why the main task of military-financial policy is a justification of the overall amount of military spending and their share in the total expenditures of the state budget, which presupposes a deep understanding of and due regard for the requirements of objective economic laws, economic support for military and other kinds of security, the existing relationships between security structures and the possible changes in these relationships in the foreseeable future.

The first decade of Russian statehood was marked by a renunciation of the indisputable priority of defense needs. This resulted in a huge gap between the real needs of the state's military organization and actual allocations for their satisfaction. The establishment in 1998 of the minimum share of military spending in relation to GDP (3.5% for defense and 1.6% for law enforcement activities and ensuring security) could have played a positive role, at least by revealing the degree of adequacy (or inadequacy) of such a share in the changing conditions, but it was not observed in any of the state budgets approved after its establishment: in 1998, allocations for national defense amounted to 2.97% of GDP, and in subsequent years the figure was even smaller. Such "compliance" on the part of the government authorities not only widened the aforesaid gap, but nullified the results of the target-program approach in military organizational development. This approach requires the Defense Ministry to make well-founded estimates and submit to the Government its data on the resources required to perform programs enabling the country to counter real military threats. In actual fact, the Finance Ministry starts from the existing financial possibilities and makes much smaller allocations, which, moreover, are underfunded. As a result, budgeting cancels out planning and programming in military organizational development. Of course, it is not simply a matter of taking the Finance Ministry "in hand," because the problem is much more complicated.

Military-economic history and theory have known different variants of justification of military requirements and actual military-economic pressure, both in Russia and in other countries. The range is very wide: from 1% of the population mobilized into the army (justified by Adam Smith 250 years ago) to an actual degree of militarization of the economy of more than 50% reached in Germany and the Soviet Union during World War II. According to another "discovery," from two-thirds to three-quarters of industrial production in the Soviet Union allegedly worked for defense during the Cold War as well. (7) True, Mikhail Gorbachev estimated this level at 18%.

The scientific approach to the solution of this problem implies an objective analysis of the historical experience of one's own country compared to the experience of other states, an unbiased assessment of the balance of interests and power in the world and of existing and potential threats to national security, and also an assessment of the economic possibilities and priorities of government strategy in the period under review. Historically speaking, there is a steady trend toward an increase in the share of GDP allocated to ensure security. An objective basis for this trend is provided, on the one hand, by labor productivity growth and, on the other, by the growing intensity and diversity of security threats. Since the economic possibilities of various countries and the real internal and external threats to their security differ, the scale and structure of their security systems and, consequently, the shares of GDP used for these purposes differ as well. A great deal depends on the international situation.

In our opinion, the present state in Russia's development is similar in many respects to those periods in its history when the question of the state's very existence came to the fore, pushing all other vitally important tasks into the background. This is the crucial argument for determining the share of security spending. Today it should be larger than in the usual conditions of our state's development and, of course, larger than in the major countries of the world. Their continued use of double standards toward Russia is another weighty argument. All of this should be taken into account in the military-financial policy of the government authorities, in their activities to determine the lines and methods of financial-economic support for ensuring the state's military security. Of course, security depends on military, economic and financial policies and on the inevitable contradictions between them, and should therefore be more acting, exerting a reciprocal influence on them in the interests of mutual adjustment and certain achievement of the desired result at the lowest possible cost.

Questions relating to priorities, the share of resources allocated to meet the various needs of the state and their sources are within the competence of the highest body of state power. It is a matter of producing and distributing national income. We can only express our opinion on the social aspect of this problem. It amounts to the need to drastically reduce the decile ratio, i.e., the ratio between the incomes of the richest 10% and the poorest 10% of the population. In Russia, the income of the top 10% of the population is 14 times higher than that of the bottom 10%, whereas in the richest countries of the world this figure is not higher than 8 times. A further widening of this gap is believed to be socially dangerous.

Efficiency of the Financial-Economic Security Support System

The importance of a significant increase in the efficiency of the financial-economic security support system is hard to overestimate. In the context of the recent celebration of the 60th anniversary of the Victory in the Great Patriotic War, one could recall the following historical fact. The Soviet Union's war economy, while resting on a much smaller volume of production in the basic industries compared to that of Germany together with the countries it had occupied, produced during the war almost twice as many basic weapons and military equipment: tanks, guns and aircraft, and five times as many mortars. The high efficiency of the Soviet war economy, including military-financial policy, was the material basis for our victory in the war.

More efficient use of available resources amounts to an absolute increase in these resources, and this increase may be very significant. That is why the President's call for higher efficiency in the operation of all units of the state system deserves nationwide support. Efficiency is a complicated phenomenon consisting of many elements which are in definite system relationships with each other and which should be taken into account in practical activity. "When taken out of the context of the entire set of problems facing us today, not a single issue, even such a currently important one as ensuring the security of citizens and the state, can be solved effectively," the RF President emphasized at an enlarged government meeting on 13 September 2004. (8) He paid special attention to matters of unity, both of the country as a whole and of the system of executive power, and to the need to mobilize all resources. He also suggested the idea of forming a public chamber for conducting public examinations of key state decisions.

Speeches by the chairman of the Government are also focused on matters of efficiency. In particular, he points out that budget reform should consist in a transition from management of resources to management of budget results, with an orientation toward economic development. One would like to think that this will make it possible to fully implement the target-program principle, obstructed by previous budgeting procedures.

Unfortunately, the perfectly intelligible ideas about enhancing efficiency are not easy to put into effect. The point is that high efficiency presupposes, apart from an ardent desire, a number of conditions. These include the necessary scientific, technological and organizational level of the economy, which is crucial to equipping military and security agencies with the latest weapons and military equipment; a high degree of servicemen's combat skills; a developed military-economic infrastructure; and military-economic competence not only of military financiers, but also of all other personnel involved in economic support for military organizational development. Today things are not going very well in this area.

The moral factor--strong sociopolitical unity of society, enthusiasm, selflessness, discipline, etc.--is also of great importance. Alas, these qualities are so far in short supply. Here is only one example. Everyone knows about the three strategic priority tasks put forward by the Russian President: doubling of GDP, eradication of poverty and modernization of the Armed Forces. This would seem to be a good basis for the consolidation of the whole society, for a surge of enthusiasm and a powerful push forward in the economy. But the task of doubling GDP has met with a mixed response in government structures: with enthusiasm in some and with various reservations in others, especially those in charge of the preparation of current, medium-term and long-term programs. As a result, the development of such programs is being delayed.

Publications in the press show a desire to keep to the inertial-market road in the economy, to forecast the probable results of the activities of the market's "invisible hand" alone, without making the slightest effort to lift the other hand, known as effective economic policy. But the policy of stabilization has already exhausted itself. "It must be replaced with a policy oriented toward the future," the RF President said in his Address to the Federal Assembly of the Russian Federation, "and for that we must have an efficient state." (9)

Main Condition: Restoration of Economic Might

The growth of GDP and real household incomes and some improvement in economic support for the Armed Forces in the first few years of the 21st century show that objective conditions are being created for a solution of qualitatively new tasks in the field of economic and military organizational development. But we should also see the other side of the problem. Our economic foundation is still unstable and very weak. Most branches of the economy are noncompetitive, the population continues to shrink, and poverty is receding very slowly. As regards military organizational development, the resources allocated for it and their distribution fall short of requirements. This aggravates the problem of ensuring the country's national security. So what is the way out?

In search of an answer to this question, one should not confine oneself to the solution of current problems, however pressing. All the tasks facing the state at a given stage are systemically interconnected, because they reflect society's real needs. In order to address these tasks, it is necessary to make a correct assessment of their interdependence, the degree of their importance and order of priority. It is particularly important to understand the interconnections between immediate and long-term tasks, and this calls for long-term, as well as short- and medium-term, forecasts, plans and programs. During the years of reform there have been many such programs. But they have not achieved their goal because of inadequate funding and because they have not been part of a single program--such a program simply did not exist. This applies both to programs for conversion of military production, to state armament programs and to other programs in the field of military organizational development.

The restoration of Russia's might presupposes, in the first place, a restoration of the country's economic might, but not in its former, pre-reform structure, let alone in its present structure, which has worsened considerably during the years of reform. Structural policy should be geared to the priority development of high technology industries, and also to the implementation of the latest technologies in the mining, processing and fuel-and-energy industries, which will make it possible to effectively realize the country's enormous potential. A doubling of GDP is not a mechanical two-fold increase in the output of each enterprise and industry, as some specialists mistakenly think. Such a doubling would destroy all hope of a revival, turning the country into a raw material appendage of the world economy. We believe that a doubling of GDP will yield the desired result only given a qualitative change in the structure of the economy based on a manifold increase in high technology production. And the pursuit of such a course is closely connected with a revival of the defense-industry complex as the focus of high technologies and the material basis of national security today. This provides a point of support for the effectiveness of the state's entire financial, including financial-economic policy. It is time to overcome the passively redistributive approach to this matter and the seemingly naive propaganda of turning the armament economy into an economy of disarmament.

This is undoubtedly the most urgent and real task facing Russian scientists, statesmen and businessmen. It is necessary to adopt a long-term development strategy for at least the first half of the current century. In this connection, there are two fairly distinct alternatives. The first--inertial-market--strategy is based on the ideology of neoliberalism and market fundamentalism, pinning its hopes on the all-powerful market with a passive role for the state. The second--innovative-breakthrough--strategy concentrates the efforts of the people, the state and the business community on active development of fundamentally new and competitive technologies and products (see Table).

As the Table shows, the inertial-market scenario does not ensure an acceleration of economic growth, innovative modernization of fixed assets, competitiveness of manufactured products or a doubling of GDP within the decade. Its inevitable result is a possible degradation of the economic structure. The country may be thrown back in its development, and its economy will become an object of exploitation by transnational corporation in alliance with comprador capital. Social contradictions will intensify, the threat of political instability will increase, and Russia's military-economic security will be lost for good.

The innovative-breakthrough scenario is based on an innovative renewal of technologies and products, industrial application of scientific achievements and inventions, significant fixed capital investment, partner relations between the state, business people, creative individuals and society, and development of an effective mechanism for implementing the innovative-breakthrough strategy. This scenario ensures faster and accelerating average annual GDP growth, progressive changes in the economic structure, much faster growth of household income, and a reduction in the decile ratio from 14 to 6 times. By the middle of the next decade, real household income will recover its pre-crisis level, and by the middle of the century it will increase two or three times. Structural changes in the economy will have a most favorable effect on economic support for national security.

The innovative-breakthrough scenario is not simply a better-devised combination of indicators. It is the result of new thinking based on the cognition of the qualitative changes taking place in all spheres of life. "The essence of technological innovations," the authors of this scenario believe, "is use of scientific and technical ideas to enhance production efficiency. The tide of basic innovations that determine the content of an innovation breakthrough is preceded and accompanied by a revolution in science, by the formation of a new scientific paradigm or a qualitatively new stage in its development. An integration of these two streams determines the essence of the scientific and technological revolution in the world and in Russia in the first decades of the 21st century, with the emergence of a scientific paradigm and a technological mode of production adequate to the postindustrial society, to the next world civilization." (11)

In our view, this scenario is acceptable for all social strata of Russian society and, consequently, helps to unify it. But the problem should not be oversimplified. An extraordinary meeting of scientists notes in its address to academic circles and the RF President that the proposals of the Ministry of Education and Science on matters of governing state organizations operating in the field of science "instead of the clearly formulated government policy in the field of science and technology approved by the President of Russia--a transition to the innovative way of the country's development based on selected priorities--suggests a different set of strategic goals with the obvious intention of temporizing and sidestepping the problem." (12)

A Few Words on Scientific Support for Military-Financial Policy

In 2003, the RF President approved the Basic Principles of Military-Technical Policy for the Period Until 2005 and for the Longer Term. The main content of this document is to ensure conceptual, organizational and technical integrity of the armament system and the defense-industry and scientific-technical complexes, and military-technical cooperation with foreign states based on target-program planning. Work is underway to form a single system of source data, to make a comprehensive forecast of military-technical cooperation, to draw up a list of basic and critical military technologies, to determine AME development trends and to predict the development of science and technology in the interests of the country's defense and security. It is planned to calculate the full costs for the entire AME life cycle. Simultaneously with the State Armament Program (SAP), work is in progress to draw up a number of other programs and plans connected with it and to develop target programs for key AME models. All of this is a sign of positive changes in the field of military-economic policy and of greater demand for the achievements of military-economic theory. But significant results can be expected only given proper budgeting. How do things stand in this area?

According to the amended Federal budget for 2004, (13) the share of national defense spending was 2.65% of GDP, or even less than in previous years. As regards efficiency in the use of funds, specialists believe that the existence of 23 awarding authorities (3,400 R & D projects are funded only along Defense Ministry lines) made it difficult to rule out duplication and to concentrate budget resources in priority areas. The cumbersome system for managing the state defense order without a clear and finalized vertical that was in operation until recently did not serve to enhance efficiency either. That is why there were many inconsistencies. Finances, the key instrument in running the DIC, were in the hands of the Finance Ministry, the General Staff had to plan the technical equipment of the Armed Forces based on military requirements, but SAPs were developed not so much on their basis as on the basis of funding forecasts divorced from these requirements. None of the Federal agencies was responsible for the DIC as a whole. The uncompleted DIC management vertical enabled those government officials whom the RF President in his above-mentioned Address called an exclusive and often arrogant caste which regards government service as an alternative form of business, to privatize government functions for the purpose of their own enrichment. Hopefully, these problems will be resolved in the process of the administrative reform.

The problem of rearmament of the Russian Army is extremely acute, since the share of the latest AME models in the Armed Forces in 2003 was only 20%. Serial procurement of new weapons under the current SAP will start after 2007. By 2010, this figure could reach 35% (given a rearmament rate of 5% per year), and by 2015, 45% (given a rate of increase of 2% per year). But by that time 70-80% of old, Soviet-built weapon models will be fully obsolete and worn out. As a result, the military organization will be almost half unarmed, and its reequipment will be completed only by 2025. (14)

Of course, the most urgent tasks should be addressed without delay, even if the prospects are not quite clear. Mistakes here are quite possible, but they will not be very significant if we are able to fulfill the main condition: to prevent a lag in our understanding of the rapid and ceaseless qualitative changes in every sphere of life. The demographic challenge, the environmental imperative, technological revolutions, transformations in political and state-legal relations, and fundamental changes in the system of international relations have induced a search for new scientific paradigms. The economy, military science and its economic support are also involved in this process. Significant transformations are underway in the sphere of the economy, and problems of economic security (resource, energy, demographic, etc.) have become very severe. In military science, the role of military strength tends to change as it reaches a critical point. The world is faced with the danger of the continued existence of old generations of wars and the emergence of new ones. Qualitative changes have taken place in the relationship between economic, military-economic and military might, and the potential military impact on the economy has reached a degree incompatible with its very survival. These and other military-economic phenomena call for new approaches going beyond the framework of existing scientific notions in the solution of both traditional and newly arising problems. In Russia, all of this is supplemented by problems associated with a systemic crisis unprecedented in depth and duration, with a reform of the entire system of socioeconomic, political and military relations and agencies. That is why the Armed Forces are at the center of processes leading to the formation of a new national security paradigm for the Russian Federation. (15)

The problem of developing a new paradigm increasingly attracts the attention of military economists. In particular, the scientific school of military economic theory is engaged in its development. (16) We are interested, among others, in matters connected with a significant increase in the role of military finance within the system of military-economic relations during the transition to a market economy. The transformation of the socialist economy into a mixed market economy is reflected in science. In economic theory, there is a kind of symbiosis between socialist political economy and capitalist economics. Without going into the details of this complicated problem, let us merely emphasize that any solution of this problem (just as failure to resolve it) will have a certain effect on theoretical notions, and also on military-economic and military-financial policy. Let us take a look at some manifestations of this process.

One of these is a deeper understanding of the phenomenon of the American "planning-programming-budgeting system" (PPBS) and our target-program principle, of the reasons for the successful functioning of the former and malfunctioning of the latter. This is where plan and market meet. Moreover, this is a very complicated question of world outlook, whose correct understanding provides a key to the solution not only of the given problem, but also of more important issues going beyond the scope of this article.

Another manifestation is connected with an understanding of the essence and functions of finance, including finance in the military sphere. This question, which was widely debated in Soviet times as well, remains open to discussion. The functions of finance are roughly interpreted as follows: distributive function, with emphasis on economic efficiency (including the efficiency of the military economy); control function, whose purpose is not merely to ensure compliance with the budget, but to do this with due regard for the requirements of economic efficiency (including the efficiency of economic support for military organizational development); and administrative (management) function, whose content includes sustainable economic development and assurance of national security. In the interpretation of the control function, the focus is shifted from static and a posteriori control to mostly dynamic and a priori control, which implies a priori estimates of budget feasibility and responsibility for the adoption of unrealistic projects, and this requires a budget model based on macroeconomic relationships.

In order to enhance the efficiency of financial-economic activities, the RF President's budget message to the Federal Assembly and the Government proposes a shift of emphasis in the budget process from cost management to management of results. It draws attention to the need to increase the responsibility of the Cabinet, other state agencies and individual officials for the final results of activity. In the future, the message says, the budget will be formulated based on the goals and projected results of budget policy, the number of budget authorities will be reduced from 111 to 32, and the introduction of new budgeting principles will enhance budget efficiency by 20-30%. (17)

As we see it, a theoretical understanding of the large-scale qualitative changes in the mode of economic support for security, their reflection in theory, including military-economic and military-financial theory, is a most imperative task. All of this is of great importance for evolving an effective military-financial policy. At the same time, we should continue to address current problems connected with legal and regulatory support for activity, with organization, compliance and financial standards. This included, among other things, a correct solution of the problem of combining the general and the specific in the organization of management. We have the necessary documents, such as the RF Budget Code and others laying down the general norms, rules and procedures of financial activity. But their use in concrete areas of financial-economic activity makes it necessary to take into account the specific features of these areas. This applies, in the first place, to the defense sector. Neglect of its specific features leads to deplorable results. In order to rule out many negative phenomena caused by this, it is necessary to adopt a special law on defense (military) spending, which should take into account the specific features of classification, financial planning, funding, accounting, control and other aspects of this large sector of the economy.

In discussing the question of scientific support for military-financial policy, we unwittingly touch upon wider problems of military-economic, military and economic science and policy, because here we cannot do without a systems approach either. For example, we need a special examination of the social aspect of military-financial policy, since the absurdity of a state of affairs where officers and DIC personnel occupy the lowest rung of the social ladder is evident to all. It is highly important to raise the entire military-scientific complex and higher military education to a new level. So far, unfortunately, we have been unable to achieve this. Moreover, losses in this area are very significant in view of inadequate funding, unresolved social security problems and incompetent decision-making in the process of reform. The material and technical base has been undermined, a considerable part of researchers and highly skilled professorial and teaching staff has been lost, and there is no systems approach to organizing the activities of the military-scientific complex and military education. Unless these problems are quickly resolved and an interagency (conjugate) system is created for training military personnel for the Armed Forces, other troops, military formations and agencies, there will soon be nobody to create modern arms and military equipment and nobody to use them when they are supplied to the troops. We are badly in need of sufficiently full and official military-economic information, because we cannot keep referring our readers to SIPRI and other foreign sources.

We also want to call attention to the urgent need to resolve pressing problems of military-financial science and training of highly skilled military economists and financiers specializing in different areas: for military R & D, the central staff, headquarters, awarding authorities, production units, for all military and security agencies, and for the financial and economic support of all echelons of the national security economy. These specialists should have not only a higher financial-economic, but also a higher military education, a knowledge of military economic theory and the specific features of various spheres of financial-economic support for military organizational development; they should be able to make creative use of wide theoretical knowledge in practical activity in order to achieve the desired military results at the lowest possible cost in terms of resources. Such personnel are necessary in all echelons of the national security system and, naturally, in the highest government bodies in charge of ensuring the country's national security. Unfortunately, a proper understanding of this truth and appropriate efforts in this direction are still lacking in our country.

NOTES:

1. "Put' k sovremennoi armii," Voennaia reforma, Moscow, 1997, p. 174.

2. Yearbook SIPRI-2000, Nauka Publishers, Moscow, 2002, p. 376.

3. Voennaia mysl', No. 2, 2003, p. 54.

4. Rossiiskaia gazeta, 29 September 2004.

5. Ibid., 28 December 2004.

6. Ibid., 17 May 2003.

7. A.N. Yakovlev, Predislovie. Obval. Posleslovie, Novosti Publishers, Moscow, 1992, p. 175.

8. Rosiiskaia gazeta, 14 September 2004.

9. Ibid., 26 April 2005.

10. B.N. Kuzyk, Yu.V. Yakovets, Rossia-2050: strategia innovatsionnogo proryva, ZAO Economika Publishers, Moscow, pp. 129-130.

11. Ibid., p. 154.

12. Sovetskaia Rossia, 7 October 2004.

13. Rossiiskaia gazeta, 13 November 2004.

14. Voenno-promyshlennyi kurier, 17-23 March 2004.

15. "Aktual'nye zadachi razvitia Vooruzhennykh Sil Rossiiskoi Federatsii," Krasnaya zvezda, 11 October 2003.

16. Voennaia mysl', No. 12, 2004, pp. 51-57.

17. Rossiiskaia gazeta, 16 April 2004.

Col. Gen. V.V. VOROBYOV

Doctor of Economic Sciences

Capt. 1st Rank A.I. POZHAROV (Ret.)

Doctor of Economic Sciences

* A.V. Suvorov's book Nauka pobezhdat was written sometime in 1795-1797 and published in 1806 (see: Voenno-entsiklopedicheskiy slovar, Voenizdat Publishers, Moscow, 1983, p. 479).

Forecast of Russia's Main Macroeconomic Indicators for the Period Until
2050 (10)

                                        Years
Indicator        2001-2010  2011-2020  2021-2030  2031-2040  2041-2050

Average annual
growth rate, %:
GDP
  a               6.0       5.2        6.5        7.0        6.6
  b               4.6       3.2        3.0        3.8        3.6
GDP per capita
  a               6.2       5.4        6.7        7.2        6.7
  b               3.8       3.4        3.2        4.0        4.2
Fixed capital
investment
  a              10.2       9.8        8.6        7.5        6.5
  b               7.0       5.0        4.5        4.2        3.2
Replacement of
fixed assets
  a               4.6       4.2        4.0        3.8        3.4
  b               2.1       2.2        2.5        2.4        2.2
Real household
disposable
income
  a               6.5       5.6        5.4        5.8        5.4
  b               5.4       3.7        3.0        3.5        3.0

                                           Years
Indicator                   2000   2010  2020  2030  2040  2050

Share of reproduction
sectors in GDP structure:
  personal consumption
    a                        22     26    28    30    31    32
    b                               22    22    22    22    22
  innovative investment
    a                        18     22    25    27    29    30
    b                               18    19    20    19    19
  energy and raw materials
    a                        24     21    19    18    17    16
    b                               24    24    23    23    23
  infrastructure
    a                        34     29    26    23    21    20
    b                               34    33    33    24    34
Decile ratio (ratio
between the incomes of the
top and bottom 10% of the
population)
  a                          13.9   12    10     8     7     6
  b                                 15    14    13    13    12
Ratio of exports to
imports, %
  a                                182   170   160   155   150
  b                         235    127   110   102    98    92

Note: a -- under the innovative-breakthrough scenario; b -- under the
inertial-market scenario.