This paper deals with defense conversion (broadly interpreted) in the newly independent states (NIS) of the former Soviet Union (FSU), with emphasis on the situation in Russia. Our premise is that economic progress is a sine qua non for political stability and the growth of democratic institutions, and hence for international security. Therefore it is in the best interests of all countries, and primarily the United States, to assist the economic reforms in the NIS. We further believe that the efficient use of a considerable portion of the assets of the military-industrial complex is necessary if the economic reforms are to succeed.

In this paper we analyze some of the major barriers to conversion, and the incentives and problems involved in providing external assistance for this conversion, as well as steps that can only be accomplished internally. The paper includes a description of a project on conversion in the Soviet Union and later in Russia, undertaken in early 1990, at the Center for International Security and Arms Control (CISAC). The work has included interactions between Soviet and Russian industrialists, government officials, and scholars with their counterparts, as well as with members of the legal and financial communities, in the United States. The report also contains a case study of conversion and privatization at one enterprise, the Saratov Aviation Plant. The report concludes with recommendations (summarized below) to both industry and government in the United States and in the NIS. This work has been supported by the Carnegie Corporation of New York.

Since this paper was drafted many of our recommendations have been adopted through policy statements; however, in many cases, realization of these policies is still subject to final congressional action, administrative implementation, IMF negotiations with the governments of the NIS, and legislation by the NIS.