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Panel Discusses Conversion to Market Economics

It may take two generations for Russia to convert to a market economy, a Russian minister said last Friday during a session on defense conversion at The Industry Summit.

Boris G. Saltykov, minister of science, higher education and technological policy in Russia, joined representatives from the federal and Massachusetts governments as well as a major defense-related company in addressing the sharp decline in defense monies since the end of the Cold War and how their respective organizations are adapting.

At the federal level, Institute Professor John M. Deutch, currently US Undersecretary of Defense for Acquisition and Technology, described two basic changes. First, he said that the government will "sharply change the distribution of R&D resources" by making a "major investment" into dual-use technologies, or technologies that could have payoffs in both the commercial and military sectors.

Second, he noted that the procurement system for the Department of Defense will change. "It is absolutely clear that.the defense establishment can no longer afford to have a sort of `defense industry' serving its needs," Dr. Deutch said. "We must rely vastly more on normal business practices with the commercial sector."

Similarly, Dr. Saltykov said that until recently "the defense industry in Russia was fully closed to the civilian industry," to such an extent that "in higher education we even had an institution that only trained [people] for the defense industry."

As a result, Dr. Saltykov said, "now when we start to convert such an industry, we [find] that these people don't understand the market at all."

Nevertheless, when asked about his personal view of how the market-oriented system is progressing in Russia, Dr. Saltykov replied that "in spite of the crisis, it is very evident that part of the economy is following market rules, and this is a source of hope." However, he noted that while "it is evident that the normal term for transition is one generation, in our very big country with [its] lack of infrastructure, it may take two generations."

From the industry perspective on defense conversion, Raytheon chairman and CEO Dennis J. Picard stressed that "we can absorb [the necessary defense cuts], but we need time." That theme was echoed by Massachusetts Governor William F. Weld.

To adjust to the new economy Raytheon, a major defense supplier, is not only expanding into other industries like high-speed rail, but is also developing the commercial applications of dual-use technologies. As an example, Dr. Picard noted that "air traffic control is a direct outgrowth of military technology."

However, while Dr. Picard said that such commercial activities "are of great importance," he emphasized that we must also preserve the defense manufacturing base. That base, he said, is needed "for the security of the US and our allies."

Governor Weld, for his part, discussed the role of local government in aiding the transition to a peacetime economy. Retraining programs, for example, "are going to be much more important in the future," he said. He also noted that "we can help [affected] companies expand into other countries."

A version of this article appeared in the September 15, 1993 issue of MIT Tech Talk (Volume 38, Number 6).

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