Ukrainian Military-Industrial Complex in Free Fall

Our conversion was in fact doomed to failure. Although there were programs and efforts to put military-industrial complex (MIC) structures on a peacetime footing, priorities in this matter changed from time to time. We failed to do the main thing: to separate the massive MIC body from the nucleus of enterprises really connected with the economic and military security of the state. There should have been not more than ten of them at most to preserve the status of state-run facilities. The rest should have had to face the test of the market, i.e., to become joint stock companies, be privatized, find investors, or, if necessary, change the range of products they made. Conversion programs were not funded. MIC factories identified at their discretion and risk the range of goods to be converted. For example, both the Dnipropetrovsk-based Pivdenmash and Kyiv's Antonov Aviation Research and Production Complex decided to manufacture trolleys. Both factories opted for a small lot experimental, and hence expensive, products.

Time was lost. Conversion went out of control, often accompanied by the disintegration of certain directions in MIC work. Those who really survived were such giants as the Antonov Complex, the Kharkiv-based Malyshev Industrial Association, or the Zaporizhzhia-based Motor-Sich. While others had already fallen, these were only staggering.

The Ministry of Defense also suffered a pratfall over conversion. The Armed Forces are served by almost 170 enterprises of various profiles, employing 50,000 workers. In 1998 these enterprises earned UAH 200 million, and it is planned to increase this figure by 8 million in 1999. When conversion was popular, factory managers envisioned lucrative prospect to convert their enterprises into tasty tidbits at best or to find a way to make ends meet at worst. However, it turned out they had nothing to offer on the civilian market. It sometimes reached the point of absurdity: one of the repair factories began to produce horse harnesses and carts. It did not prosper. Then the tax pressure came, pushing the military business to the brink of criminality. For there is still no legislation which would allow the military to play fair. No status of military property has been identified, i.e., who owns and disposes of it. No procedure has yet been adopted for the corporatization and privatization of state-run defense enterprises. So the latter are now in a kind limbo: the Defense Ministry does not place orders with them but, at the same time, can let none of them taste the freedom of a market economy for want of the requisite legislation.