Dozens of secret closed towns were set up that specialized in designing and producing sophisticated weapons systems. Millions of qualified workers and engineering staff worked in the companies of the military-industrial complex. Most of the think tanks of the USSR Academy of Sciences conducted research for the interests of the defense industry. The standards and quality of production in the Soviet defense industry were comparable to those of the defense sector in the West. The problem, however, was that these high standards were achieved by crippling the civilian branches of the economy and diverting most of the resources into the military field.

Yegor Gaidar’s radical reformist approach ignored the huge gap, inherited from the Soviet Union, between the highly advanced space and military systems and the underdeveloped consumer industries and agricultural sector. The end of the cold war presented the reformers with a unique opportunity to implement a large-scale conversion of the defense sector and to transform Russia’s military potential into economic might. The implementation of a defense conversion program of such magnitude required a substantial degree of centralized planning, investment, and management. “Shock therapy” methods were hardly compatible with a conversion of this kind.

At the same time, the government, starved of cash, made drastic cuts in military procurement. The blow to the defense industry was shattering. As a result, the civilian branches of industry failed to benefit from the resources, the know-how, and the skilled labor force of the converted military-industrial sector. Many enterprises of the light and machine-building industries were unable to modernize production and compete successfully with Western companies.

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