When Norwegian and U.S. scientists launched the Black Brant XII sounding rocket from a small island off Norway's northwest coast on January 25, 1995, they intended for it to harmlessly collect scientific data about the Northern Lights. But when Russia's early warning system radars detected the rocket, they generated an alarm that entered the nuclear forces command and control system and reached the highest levels of government. An accidental nuclear war was never a possibility--by the time the alarm reached Russian President Boris Yeltsin, the rocket had been properly identified--but the incident clearly demonstrated the dangers of a launch-on-warning posture.

A Cold War hangover, launch-on-warning was designed to provide additional protection to nuclear forces by ensuring that a retaliatory attack could be initiated before a first strike obliterated its targets. Implementing launch-on-warning required substantial investment into a network of early warning radars and satellites--plus a command and control system that would allow missiles to be on constant "hair-trigger alert." Its cost proved high enough that only two nuclear powers--the United States and Soviet Union--established a launch-on-warning capability. Nearly 15 years after the Soviet Union's collapse, neither the United States nor Russia have abandoned it.

Numerous proposals have tried to address launch-on-warning concerns. Most point to the Black Brant XII incident as evidence that the precipitous decline of the Russian early warning and command and control systems is the main problem. The argument is simple: If the early warning system was unreliable a decade ago when it was in relatively good shape, imagine how bad the situation is today, after years of decline. Accordingly, many believe the remedy lies in helping Russia compensate for the disrepair, either by creating arrangements that would allow Russia and the United States to share their early warning data, or by providing direct assistance to Russia that would allow it to upgrade its system. These proposals are misguided. Repairing the Russian early warning system would actually increase the danger of an accidental launch.

The reason for this is that the role of the Russian early warning system today is marginal at best. Even in its prime, the system could not provide the data necessary for a launch-on-warning strike. The radar network has always had serious gaps in coverage and the space-based segment of the system was not designed to detect sea-launched missiles. In addition to this, a series of problems plagued the system during its development and early deployment stages. As a result, the Soviet military learned to regard the alarms it generated with suspicion.

The system's deterioration has only added to doubts about its ability to provide a reliable warning. The breakup of the Soviet Union left most of the radars outside Russian territory. At present, Russia operates only three early warning satellites, while minimally reliable coverage of U.S. territory requires at least five. No second-generation satellites, which would expand coverage to the oceans, are operational today. This leaves Russia with an early warning system it can't really trust.

The lack of trust is exactly the reason why the decline of the system is much less dangerous that it may seem. The continued disrepair erodes confidence in the system's performance further and makes it much less likely that an alarm (whether real or false) would be acted upon. Attempts to repair or upgrade the system, on the other hand, would only increase the danger of miscalculation, since such actions would introduce new elements into an already complex system and boost confidence in its performance.

By the same logic, the United States should not be complacent about its early warning system simply because it is thought to be more robust and reliable than its Russian counterpart. High confidence in the U.S. system could make a technical malfunction--should one ever occur--an extremely dangerous event, since U.S. operators would be unlikely to question the information provided by the system.

The best way to deal with the dangers of accidental launch is to remove missiles from hair-trigger alert, for example by introducing physical barriers that would prevent a launch on warning. Technical solutions that have been suggested include removing warheads from missiles or limiting submarine patrol areas. None of these measures have been implemented, since they involve intrusive and cumbersome verification provisions that neither side is willing to accept. What these proposals don't take into account though is that the main goal of de-alerting--reducing the risk of accidental launch--does not require transparency or verification. If a missile does not have a warhead, it won't be able to leave a silo regardless of whether or not one can verify it. In this respect de-alerting is quite different from disarmament, where verification rightfully belongs.

Moreover, transparency could make de-alerting potentially dangerous. Reducing a missile's readiness for all the world to see could create instability during a crisis. If one country decides to bring its missiles back into operation, its counterpart might feel the need to do the same lest its forces remain unprepared for a launch. This might create a rush to re-alert forces, and the dangers associated with re-alerting could outweigh any de-alerting benefits. Ideally, de-alerting measures should be completely undetectable. This approach would remove missiles from the launch-on-warning equation while minimizing the instabilities associated with re-alerting.

With the verification hurdle removed, there is no reason why the United States and Russia should not make a public commitment to de-alert their strategic arsenals. They don't even need to do it together. De-alerting is beneficial even when done unilaterally. Of course, there will be plenty of questions about the value of commitments that are neither enforceable nor verifiable. But the value would be quite real--thousands of missiles would no longer be on hair-trigger alert. And the next time Norway launches a scientific sounding rocket, we can all breathe a little easier.

Who is Vladimir Putin?

Since the rise to power in Russia of this obscure bureaucrat and former KGB agent in the fall of 1999, two groups in the West have answered this question very differently.

For some bankers, investors and diplomats, Russian President Vladimir Putin was a godsend. On his watch, Russia's 1998 devaluation and rising oil prices began to fuel economic growth for the first time since the collapse of the Soviet Union. If not personally responsible for the turnaround, Mr. Putin did initiate reforms designed to sustain it over the long haul. He replaced the personal income tax with a 13% flat tax, cut corporate taxes, balanced the budget, paid foreign debts, legalized land ownership, supported the restructuring of the big monopolies, and even began to tackle sensitive social services reforms. Compared with the last years of Boris Yeltsin, Mr. Putin looked like a dedicated proponent of capitalism.

In parallel to this storyline of Vladimir Putin as hero, a more sinister subplot emerged. As liberal tax reforms sailed through the Russian parliament, Mr. Putin's team was implementing illiberal political changes. During the Putin era, all national television networks effectively came back under the state control. The closing of TVS last month was the final blow. Russian soldiers have continued to abuse the human rights of Russian citizens living in Chechnya. (To be sure, Chechen fighters have practiced similar inhumane tactics, but two wrongs don't make a right.) Human rights organizations have been harassed, journalists imprisoned, and Western aid workers thrown out of the country. Of course, Mr. Putin personally rarely intervened in these rollbacks of democracy. But that's the point: he did nothing to stop these obvious steps toward authoritarian rule.

These two Vladimir Putins -- economic reformer and democratic backslider -- have lived side-by-side without meeting. Business people brushed aside the crackdown on the media as a necessary response to the anarchy unleashed during the Yeltsin era. The apologists claim Vladimir Gusinsky and Boris Berezovsky, the two media magnates who were forced to flee the country to avoid jail, got what they deserved: Mr. Putin wasn't suppressing freedom of the press, only limiting the power of corrupt oligarchs. Some bold voices in the business community even championed interim dictatorship in Russia as the only way to provide the stability for investment and economic growth.

For their part, critics of Mr. Putin's anti-democratic policies undermined the punch of their analysis by exaggerating the Russian president's ruthlessness and failing to recognize his accomplishments in other sphere. They cast Mr. Putin as a new dictator who has more in common with Stalin than Boris Yeltsin or Mikhail Gorbachev.

Last week, the arrest of billionaire Platon Lebedev brought the two Vladimir Putins together. Mr. Lebedev runs Menatep, the bank for the Yukos financial-industrial group headed by Mikhail Khodorkovsky, Russia's richest man. Like Mr. Lebedev and others in the Yukos-Menatep organization, he made his fortune by using personal relationships with government bureaucrats to acquire state assets -- in this case, oil and mineral companies -- for a song.

When Mr. Putin first came to power, many billionaires worried the new Russian president would redistribute property rights once again, this time to a new set of cronies. Instead, Mr. Putin implicitly offered the oligarchs a deal: you keep what you had before as long you run your companies without looking for government handouts and get out of politics.

Unlike Vladimir Gusinsky or Boris Berezovsky, Mr. Khodorkovsky eagerly accepted this bargain. He and his team kept out of jail and built Yukos into one of Russia's most profitable, most transparent, and most Westernized companies. He grew to be first among equals among Russia's other oligarchs. He also began to operate differently than the rest, establishing his own foundations, charitable causes, and think tanks. In this election year, he also openly donated money to two of Russia's largest political parties, Yabloko and the Communists. Mr. Khodorkovsky calculated that all this fell within the bounds of the implicit pact between the Putin administration and the oligarchs.

Last week's arrest, and the police questioning of Mr. Khodorkovsky, suggest that the Russian president interprets the pact differently. Mr. Khodorkovsky's economic power and political ambitions threatened Mr. Putin. So the president changed the rules of the game. Economic deals of the past once thought to be beyond scrutiny are now suddenly in question. If there are now new rules, then the alleged claim against Mr. Lebedev -- that he illegally acquired assets in the 1994 privatization of the Apatit fertilizer company -- or similar ones, could be leveled against nearly every businessman who operated in Russia since the early 1990s.

If these new informal rules are being remade to scare Mr. Khodorkovsky away from politics, then the arrest of Platon Lebedev is even more sobering. It means that Russians are not allowed to try to influence electoral outcomes -- an essential feature of even the most minimal democracy. Of course, oil tycoons should not be allowed to deploy their financial resources to skew the electoral playing field. But the enforcement of campaign finance laws is the tool that most democracies use to address this problem, not random arrest.

Arbitrary rule by the state is not only undemocratic. It's bad for business. A state that isn't constrained by checks and balances, the rule of law, the scrutiny of an independent media, or the will of the voters is unpredictable at best, predatory at worst. Two weeks ago, Mr. Lebedev probably would have argued that President Putin's economic accomplishments outweighed its democratic failures. Today, he probably has a different view. So should the rest of us.

Following the end of the Cold War, the United States and its allies recognized that it was in their vital security interests to promote stable transitions in the countries of Central and Eastern Europe (CEE) and the New Independent States (NIS) of the former Soviet Union. For the most part, such transitions would depend on the efforts of the states in transition themselves, including many that had been newly formed. However, one way in which the Western nations could help was by economic assistance -- both financial and technical.

The most abundant and efficacious form of financing will eventually be direct investment by Western private industry combined with indigenous investment in the countries; however, many of the transitioning countries, particularly those of the NIS did not have many attractive investment targets, with the possible exception of the natural resources sector. Recognizing this, the Western countries established a variety of unilateral and multilateral mechanisms to provide interim financing. These mechanisms utilized existing multilateral institutions such as the World Bank Group and the International Monetary Fund as well as existing unilateral institutions such as the United States' Export-Import Bank, the Overseas Private Investment Corporation, and the Trade and Development Agency. The charters and agendas of several existing institutions were expanded to address the specific issues in CEE/NIS. In addition, they established new multilateral institutions such as the European Bank for Reconstruction and Development and unilateral institutions such as several enterprise funds set up by the United States and TACIS (Technical Assistance to the Commonwealth of Independent States) set up by the European Union.

In conjunction with these sources of finance the Western countries also initiated an extensive series of programs designed to address specific economic development and security issues in the region. These programs provided their own funding for projects, provided extensive technical assistance, and in some cases were designed to attract and work with Western private industry. One such program is the Nuclear Cities Initiative (NCI), which is managed by the U.S. Department of Energy. NCI's primary objective is to help prevent the flow of critical weapons technology and personnel from Russia to countries aspiring to acquire nuclear weapons. NCI's approach is to assist Russia in downsizing its nuclear weapons complex by creating sustainable, non-military employment for nuclear weapon specialists in Russia's closed nuclear cities. NCI is designed to build infrastructure necessary to attract private investment and to facilitate the efforts of private investors, thereby leveraging NCI's own budget.

Many of the sources of finance cited herein require a Western company as a strategic partner and co-investor. Thus the missions of NCI and these financial sources are highly complementary. Recognizing this, Stanford's Center for International Security and Cooperation, under contract to NCI and under subcontract to the University of California Lawrence Livermore National Laboratory, undertook a project to assemble information on many sources of finance that were applicable to NCI's mission, particularly those that are at least partially capitalized by the United States Government (USG). The intent was to make this information available to NCI partners to facilitate the establishment of ventures co-financed by NCI, the Russian Federation, private Western industry, and the sources described herein. While this research was performed for the purposes of NCI, much of the data are generally applicable to other projects seeking financing in Russia.

The Global Diffusion of the Internet Project was initiated in 1997 to study the diffusion and absorption of the Internet to, and within, many diverse countries. This research has resulted in an ongoing series of reports and articles that have developed an analytic framework for evaluating the Internet within countries and applied it to more than 25 countries. (See http://mosaic.unomaha.edu/gdi.html for links to some of these reports and articles.)

The current report applies the analytic framework to compare and contrast the Internet experiences of Turkey and Pakistan, through mid-2000. Although historically these countries have not been closely related, there are significant parallels between the two that make them well suited for a comparative study of the absorption of the Internet. Turkey and Pakistan are among the largest non-Arab Muslim countries in the world. In contrast to most of their Arab counterparts, their governments were founded as secular, parliamentary democracies. Both countries have had stormy political histories, however, with periodic coups and authoritarian governments. Each country has firmly entrenched bureaucracies with closed and, to varying degrees, corrupt processes.

Their economies have been similarly troubled, with periods of relative hopefulness punctuated by stagnation and decline. Both countries have suffered from erratic growth rates, high inflation, and high deficits. For most of their histories, their economies were rather closed and autarkic.

In recent decades, each country has taken substantial steps to move toward a more open, market-oriented economy and made expansion of the telecommunications infrastructure a high priority. Each country has sought, less successfully than had been hoped, to attract foreign investment and integrate itself more fully with the global economy.

Each country has a number of national security concerns. Turkey and Pakistan both have histories of serious domestic terrorism and persistent conflict with a non-Muslim neighbor.

In spite of the macro-similarities, there are numerous differences between the two countries. Pakistan is considerably poorer and less developed than Turkey; it has had more coups and assassinations, deeper economic troughs, greater heterogeneity within its population, and more endemic corruption.

The Soviet Union placed a high priority on science and technology and built a huge assembly of research institutes, educational programs, design bureaus, and production enterprises embodying some measure of science and/or technology. This assembly concentrated overwhelmingly on military applications. Approximately three-quarters of this complex was located in Russia, but essential elements of many programs were located in other republics.

Starting in the Gorbachev regime there was a recognition that the economy was deteriorating and that it was necessary to reduce military expenditures and increase the civilian economy. A major element of this has been the attempt to direct a much greater effort toward the development of commercial products and services based upon technologies and skills developed in the military-industrial complex (MIC). This commercialization of Soviet and Russian military technology has been attempted by the Russians both independently, through conversion programs, and in cooperation with foreign partners. The conversion programs have had very limited success. The success of attempts at cooperative commercialization by U.S. companies and Russian enterprises have also been modest, but they illustrate workable models that could be utilized by other cooperative ventures. These cooperative commercialization ventures are the primary subject of this report.

This research is based primarily on the study of several cases of cooperative attempts by U.S. companies and Russian enterprises to commercialize Russian technology. Additional information has been gathered through participation in workshops and conferences including sessions or presentations on technology commercialization. There is no attempt to determine the total amount of such activity, but foreign investment of all types in Russia has been very small. These cases may not be representative of what is going on at many defense enterprises, especially those that do not have foreign partners. They do, however, show models of what can be achieved, as well as some of the problems encountered in technology commercialization.

Has the rapid ownership transformation in Russia had an impact on enterprise performance or on worker behavior and attitudes? This paper investigates this issue using data from a nationwide survey of 1,176 Russian workers conducted in April 1995. We focus on the two primary types of ownership change in Russia: the privatization of existing state-owned enterprises, and the creation (de novo) of new, private organizations. Examining such types of firm behavior as restructuring of product lines, investment in new equipment, changes in internal organization, influences on decision-making, and labor market behavior, we find large and significant differences between privatized and state- owned enterprises, and between new private and all old organizations, controlling for other firm characteristics. Differences in the labor market behavior and attitudes of workers are significant when comparing new and old firms, but less so when comparing privatized to state enterprises. Finally, we analyze the relationship between the ownership of the firm in which an individual works and her political attitudes and voting intentions, finding that employees of the privatized companies tend to be the most anti-reform group while those in new private firms are the most pro-reform.

This report is an expanded version of the executive summary of a much larger report, "Defense Industry Restructuring in Russia: Case Studies and Analysis." Many people contributed to that report, and to the underlying research. In writing that report, we did not attempt to reach consensus among the authors on the interpretations to be drawn from the data.

In this study we have looked at some of the most important elements of restructuring involved in the attempt to generate a viable civilian industrial sector from the assets of the military-industrial complex. Many other reform activities must be implemented at the national level to create the environment and infrastructure necessary for the functioning of a restructured industrial sector. Although not addressed here, they are important and difficult to implement. Another issue that we have not addressed is the pandemic presence of organized crime, which is a huge financial "tax" on economic activity as well as a disincentive to entrepreneurship and investment. I join those who believe that this is the largest single problem threatening the economic stability of Russia today.

The Soviet Union's economy was overindustrialized and highly militarized, with a disproportionate share of the military industry located in the Russian Republic. It is therefore not surprising that industrial production, including military production, has dropped sharply in the economic environment of the last few years. Many enterprises are shrinking, but few are failing completely or going into bankruptcy, and there is little disaggregation of large enterprises into smaller legal entities. Thus, with the exception of privatization, the general profile of Russian industry has not changed greatly.

The creation of new entrants (new business entities), to the extent that it is occurring, is one of the more promising aspects of the economic transition. However, the managers of many of the large enterprises resist divesting themselves of segments of their business. They fear that subsequent capitalization will result in a major reduction of value of the parent because the parent's contribution to the capitalized spin-off will not command much equity. Directors recognize the need for decentralization of management and financial responsibility, but many of them prefer to create divisions rather than subsidiaries. They also try to bring outside investment into the entire large enterprise rather than into a subsidiary. It is difficult for small groups of employees to simply leave and form a new (start-up) corporation because of the lack of commercial and social services infrastructure, especially capital markets, and the lack of rights to use state facilities.