Prepared Statement on "The Administration’s Proposed Bail-Out for Russia"
U.S. House of Representatives
Committee on Science
October 7, 1998
Judyth L. Twigg
Assistant Professor
Virginia Commonwealth University
Richmond, VA
(804)828-8051
jtwigg@saturn.vcu.edu
Mr. Chairman, Members of the Committee, thank you for inviting me here to
testify about
the International Space Station. You asked that I focus my testimony on the
state of the
Russian space program, the health of its aerospace industry, and its ability
to
meet its
obligations to the International Space Station program. I am testifying today
as
an
individual, representing no government or private agency. I am employed as a
full-time
member of the Political Science faculty at Virginia Commonwealth University.
My
interests
are simply as an observer of Russian politics and economics for the past 15
years, and
more specifically as a student of the Soviet and now Russian defense and
aerospace sector
for 10 of those 15 years.
Many Western observers and Russians alike have, for several years, warned of
the
imminent collapse of Russia's space operations. The faltering, and now clearly
failed,
post-Soviet reform effort has taken its toll. Attempts to create a stable
ruble
economy and
balance the government budget have resulted in dramatic cuts of resources to
the
space
sector, catastrophically affecting both industry and operations. The politics
of
democracy-building and industrial restructuring have held Russian space
institutions
captive to prevailing political winds, and to the uncertainties of reform
processes whose
only constant is their inconsistency.
The common wisdom regarding Russia's difficulties in space is that the issue
is
money. The
argument is this: their technical capability is intact, and if only the
Russian
government, or
someone else, were to provide full and reliable funding, then Russia could
rapidly resume
meeting its own national goals and its international obligations. But there is
ample evidence
that questions the validity of that assessment. It is more likely that the
events of the last
decade have produced degradation of both operational and industrial
capability,
to the
point that even a substantial infusion of new funding could not renew previous
levels of
activity in the short or medium term. In other words, money is a necessary,
but
not a
sufficient, short-term fix.
"Brain Drain"
This is true for two reasons. One is the departure of key scientific and
technical personnel,
better known as the "brain drain" problem. Employment in Russia's space sector
is down
by almost 50% from its peak in 1990. Delays in government funding for space
have
meant
that space institutes and enterprises routinely lay off most of their
remaining
employees
during the summer, rehiring those still interested and available after fall
financial
installments have been received. By this time, the youngest, most energetic
and
creative
members of the space industrial workforce have joined the more lucrative
commercial or
financial sectors, applying their talents to subjects far removed from space
and
decimating
aerospace research and design teams which took years to train and assemble.
The
senior
engineer who designed Russia's manned maneuvering unit, for example, is
driving
a cab.
One Russian report indicates that more than half of the research and design
personnel in
the aerospace sector are now over the age of 55; about a third are 45-55 years
old; and
only one percent are under the age of 35. Even those who remain often spend
only
a few
hours a day at the workplace before turning to second jobs, or to the constant
hunt for food
and supplies. Wages in the space production sector are only three-quarters of
the national
average. Vital intergenerational transfers of knowledge about space industry
and
operations are not systematically taking place.
Neglect of Infrastructure
The second reason that money cannot quickly solve Russia's problems is the
ongoing
decay of its material infrastructure. Russia has slashed its financing of the
aerospace
industry over the last decade. From 1990 to 1995 alone, Russian civilian space
programs
suffered government funding reductions of 80 percent, and military space
programs were
cut by 90 percent. In addition, the Russian government routinely does not give
final
approval to the current calendar year budget until mid-spring, which leaves
all
agencies,
including military and civilian space, forced to survive on a series of
month-by-month
handouts based on the previous year's allocations. Lower-tier subcontractors
are
most
affected by these payment delays, and many of them are now demanding payment
in
advance for delivery of goods, resulting in further production stoppages at
the
prime
contractor level. Furthermore, state funds can be unexpectedly diverted to
other
uses as
national emergencies arise; RSA's 1994-1995 budget reportedly suffered because
of the
need to pay for the war in Chechnya, and it is likely that money is currently
being
channeled toward politically charged payments of back wages to striking coal
miners and
other workers. Of course, these funding dynamics enormously complicate
attempts
at
long-term planning and investment.
The bulk of scarce government funding has gone to current operations likely to
attract
foreign cash, such as commercial launch activity. Funding for aerospace
programs
is
sufficiently tight and spasmodic that pipelines for research and procurement
have been
stretched out almost indefinitely for the few new projects that remain;
according to one
Russian source, strict funding priority has been assigned to "space systems
which can be
activated in the near future." This emphasis on current operating costs and
procurement of
hardware near the end of the pipeline is most certainly taking place at the
expense of
investment in infrastructure and research and development. The diversion of
scarce
resources toward current operations and away from long-term investments
carries
serious
long-term consequences. The cumulative impact of years of neglect has been a
severely
eroded research and development capability and a significant degradation of
physical plant.
Lack of Modernization Potential
These two factors -- the loss of key personnel, and the corrosion of important
infrastructure -- exacerbate another problem, the basic level of technological
sophistication
of the Russian space industry. Much of Russia's current exploration and use of
space is
made possible primarily by inertia carried over from the Soviet period,
although
there is
evidence that even those warehoused stockpiles of products, components, and
R&D
are
coming to an end. The Soviet aerospace industries were held captive to the
same
perverse
incentives that plagued the rest of the Soviet economy, incentives which
rewarded quantity
or gross output of production rather than quality, output assortment, or
technological
innovation. The haphazard process of Russian industrial reform has not enabled
the space
industry to overcome this Soviet legacy. As a result, modernization programs
which would
make Russia competitive with other space-faring nations are scarce and
frequently
unsuccessful.
Other Specific Causes of ISS Funding Delays
Many analysts, both Western and Russian, have speculated on other causes of
the
repeated funding crises and resultant delays in space station component
construction and
delivery. The most obvious is simply that the Russian economy has collapsed,
and
fulfilling
obligations to the space station project has not been, perhaps understandably,
a
consistently high priority. But a deeper and more nuanced look at the Russian
political
situation over the last several years, at both Russian domestic politics and
foreign policy,
provides a series of potential additional explanations. One is that the
Russian
government
has forced the delays intentionally, either as an expression of
dissatisfaction
or even
punishment over plans for NATO expansion, or as a tactic to delay the
abandonment of the
revenue-generating Mir. Another factor may be Russian political and industrial
culture,
which traditionally has not taken schedules and deadlines seriously. In the
words of one
anonymous source within the Russian space program, "The shuttle's late, every
major
program is late. That's the nature of the beast. I'm fascinated by this
preoccupation by the
American side on an exact date."
Russian public opinion has not always assigned the highest priority to
participation in the
station. Some Russian commentators have denounced Russia's involvement in the
project,
fearing that the country's domestic space infrastructure will suffer as a
result
and fretting
over the implied degradation of Russia's superpower status. Observing that,
unlike the Mir
follow-on which had been scheduled for lift-off in 1997, the international
station will not fly
over all of Russia's territory, Russian naysayers complain that the United
States is getting
the better part of Russian technology at bargain basement prices and that
valuable design
and production work is being taken away from Russia and assigned instead to
Western
contractors. One prominent Russian newspaper commentator recently complained,
"Russian know-how will save Americans at least $10 billion and three years,
but
the U.S.
will actually pay Russia only $400 million. Is it fair?" Another Russian
analyst
sounded the
same theme: "We get the impression that the United States would like to use
Russia as a
kind of cab driver. We put the American spacecraft into orbit, and then --
good
bye! They
are aiming to manufacture all the special-purpose high-tech equipment
themselves. If this
is how things turn out, there will be little left of our high-tech industry."
In
other words,
many Russian perceptions of the politics of the International Space Station
partnership are
quite different from those in the United States.
Finally, the politics of the Russian budgetary process itself are important.
The
situation
with Russian funding of its space station commitments is fundamentally
political
as much as
it is financial. The Ministry of Economics, which controls significant
government budget
disbursements for space, has in recent years has been vocally hostile toward
the
manned
space program, suggesting that there is "no coherent scientific program" for
Russia's
participation in the space station. This means that, without direct
intervention
directly from
the highest levels, the regular grind of the political process may continue to
result in
financial problems for space industry and operations.
It was precisely this kind of intervention, in the form of former Prime
Minister
Victor
Chernomyrdin and the force of the Gore-Chernomyrdin partnership, that gave
space
station funding the infusions it has received, prompt or delayed, over the
last
several
years. Now that Chernomyrdin is gone and two new governments have struggled
with
Russia's worst financial crisis since independence throughout the spring and
summer of
1998, the prospects for space funding are not bright. With the International
Monetary Fund
insisting that the state budget be tightened before it will disburse
desperately
needed
loans, major privatization deals for huge Russian natural resource
conglomerates
falling
through (depriving the budget of over a billion dollars in expected revenues),
and tax
collections throughout the country still falling far below expectations, belts
are being
tightened in Russia's budget sector more than ever before. This is likely to
translate into a
familiar pattern: scarce rubles for the space sector will be channeled into
projects with the
greatest promise for short-term revenue generation, a set of priorities which
is
unlikely to
include the International Space Station.
Future Prospects
The vast majority of the scientists and engineers remaining in the Russian
aerospace
sector are talented, creative, honest professionals. But they are trapped
within
an obsolete,
decaying infrastructure that leaves them little room to translate their
knowledge and
experience into innovative, functioning products. It would take years' worth
of
restored
political priority, resulting in full, consistent streams of funding, as well
as
a stable political
and economic business environment within which to operate, for Russian space
industry
once again to develop the capacity for activity it demonstrated during the
Soviet period.
Until that unlikely scenario takes place, Russian space operations will
continue
to be
plagued with the kind of accidents and mishaps that have become familiar over
the last
several years, and probably at an accelerating rate. Whatever activity
continues
will result
from the marketing of Russia's space capability to paying customers, most of
them
non-Russian, looking for a good deal on cheap technology and manpower. In
order
to
generate this desperately needed revenue, the Russian government will continue
to
allocate whatever scarce resources it can spare on space to current operations
for those
projects which demonstrate the best promise in attracting foreign cash.
Inertia
generated
by Soviet-era activity -- the inherited ground support infrastructure, the use
of accumulated
reserves, the availability of skilled labor at low wages -- may continue to
support this
marketing effort. But, in essence, Russia is very close to becoming nothing
but
a
contractor for other countries' space programs. Basic research and
development,
which
cannot be translated into an immediately saleable product, will continue to
suffer, as will
long-term investment and planning for whatever uniquely Russian priorities
exist
in the
realm of space. As this trend continues, it will become increasingly difficult
for Russia to
meets its obligations even to paying customers or to partners in international
cooperative
space endeavors.
Can this disaster be reversed? The answer to that question lies in an
examination of just
how far Russia has come since the collapse of the Soviet Union. Clifford Gaddy
and Barry
Ickes have recently described the Russian economy not as a functioning or even
a
developing market, not as capitalist or socialist, but as a new type of
economy:
"virtual." It
earns this label because it is based almost entirely on illusion or pretense
about almost
every important parameter of economic activity – prices, sales, wages, taxes,
and budgets.
In this respect, it differs little from the practice of Soviet central
planning,
where prices
were ad-hoc constructs, functioning as artificial accounting tools after the
planners
allocated resources primarily in terms of material balances, and where
official
data on
production, inter-enterprise trade, and sales comprised a web of lies
disguising
widespread
barter, unfulfilled quotas, overproduction of shoddy, unusable goods, and
diversion of state
property. Major enterprises continue literally to subtract value as part of
their ongoing
industrial activity, acquiring inputs through barter and other forms of non-
cash
exchange,
hiring but not paying workers (at least not in cash), and churning out
worthless
end
products. This dynamic is sustained by a political process still unwilling to
tolerate the
sudden, dramatic leaps in unemployment that would result from the closing
and/or
genuine
restructuring of these industrial behemoths, and by direct and indirect
subsidies made
possible by those enterprises, mostly in the natural resources sector, which
genuinely do
produce value, including hard currency.
This "virtual" economy cannot exist side by side with a stable, developing
industrial
market – it will inevitably infect it. It provides ample opportunity for
rampant
corruption, as
recent experience has illustrated. And the Russian state cannot function
effectively if it
cannot find a way to tax a substantial part, if not a majority, of economic
exchange taking
place through barter. In other words, despite the gleaming new high-rise
office
towers and
apartment buildings altering the landscape of downtown Moscow, despite the
progress
implied by a newly functioning Russian stock market, despite the proliferation
of German
luxury cars and cell phones among Russia’s new class of elite young
businessmen
– despite
all of this, in important ways, Russia has not progressed very far at all
since
Mikhail
Gorbachev took his place on the world stage in 1985. Money alone is not the
solution.
Bailouts from the West may, in fact, serve only to prolong the agony before
Russia is
forced to face the real work of significant financial and industrial
restructuring.
The Russian space program does not exist in a vacuum. It depends on, indeed
stems from,
a wide variety of supporting elements in the society surrounding it:
education,
industry at
all levels, finance, and government. Until some rationality and stability is
achieved in some
or all of these areas, the trajectory of Russian space industry and operations
will continue
along its current path. And, unfortunately for Russia and for the rest of the
world, it
appears at though that rationality and stability will not be achieved in the
foreseeable
future.
In closing, I would like to say that I am an enthusiastic proponent of manned
space activity.
I very much hope that the International Space Station succeeds. I also very
much
hope that
the Russian reform effort succeeds. But there are many reasons to question
whether
NASA's current proposal to provide more money to Russia will further either of
these
goals. Thank you, Mr. Chairman.