Colloquium 1996 Panel III : Armed Forces and Defence Industry in Transition Economies: The Human Dimension

Comparative Overview of Human and Social Problems in Military Downsizing and Defense Industrial Restructuring in Cooperation Partner Countries Michael Brzoska Director of Research, Bonn International Center for Conversion, Germany Summary The dramatic reductions of armed forces, defense industries and military research and development institutions since the end of the Cold War have resulted in the release of more than 5 million persons for work in the civilian sector in Cooperation Partner countries - the majority of them in Russia. In addition, real income in the armed forces and defense industrial institutions has generally declined, sometimes to levels below minimum living standards. According to the little information available on the persons who left the defense sectors, they seem to have done comparatively well. On average, though, technical skills acquired earlier and used in the defense sector are not used extensively in civilian occupations. Persons still in defense industries and research and development institutions increasingly find it difficult to adapt to the new economic circumstances, due to their age, lack of mobility, etc. Defense institutions, such as large defense factories in CIS countries, are in danger of becoming social institutions, kept alive because of the social infrastructure they provide. Training programs, etc. have been limited. Despite the success of some programs, such as the ISTC, to keep "risk groups" such as nuclear scientists from moving to "risk countries", the dangers of migration have not gone away. Western aid has only had a limited role in alleviating the social problems of downsizing, for instance in the case of housing for soldiers in Russia and Ukraine.

Introduction Armed forces, military production and military research and development were massively downsized in the post-Cold War era, if one compares the numbers for the last years of the Warsaw Treaty Organization with those of Cooperation Partner Countries (CPC) today. In fact, a recent survey of global changes in military resource use over the last ten years shows that Eastern Europe and the countries of the former Soviet Union had the largest decreases in what has been termed the "Decade of Disarmament". On average, military sectors in Eastern Europe were reduced by 38 per cent over the last 10 years, and by 45 per cent in the CIS countries, while the worldwide decrease was 21 per cent.(1) One prominent feature of reductions has been the release of personnel from armed forces, arms industry and military research and development institutions. As is discussed in more detail below, not all countries have had decreases on such a large scale, and in a few countries even large relative reductions in military resource use did not have major economic or social impacts due to the small size of the military sectors. But in general, economic and social consequences have been quite dramatic, both because of the large numbers of persons involved and because of the concurrent difficulties in civilian sectors. Unfortunately, we lack good data on the labor market effects of military downsizing. Evidence from case studies, especially from Russia where the quantitative dimension of the problem is by far the largest, suggests that re-employment has been difficult. The military reductions have generally put additional pressure on already strained labor markets. Largely because of the labor market situation, decreases in expenditures on armed forces, procurement, and military research and development have not been fully translated into decreases in the number of persons employed in military sectors in most CPCs. Correspondingly, average incomes in the military sector have generally decreased. Again, there is a lack of comprehensive data. But the Russian example that is discussed in some detail below illustrates that income and living conditions in the armed forces and the defense industry have worsened considerably, with great differences among concerned groups. The worsening economic and social situation in defense industries, and especially in military research and development spending in the former Soviet Union, has raised fears that qualified personnel might migrate to countries of proliferation concern. Up to now, the publicly known record of emigration is remarkably void of such cases. Unfortunately, this may not remain the case, so efforts to employ scientists and engineers formerly or still working in the military sector in civilian science and, most importantly, industrial production projects are an important priority. Comparative Quantitative Data on Defense Sector Employment in CPCs Changes in armed forces personnel Table I provides some data on personnel in the armed forces. Unfortunately, in some cases the numbers are only rough estimates.(2) They indicate that for the CPCs as a group, the armed forces had 1.9 million fewer personnel in 1995 than in 1985, a decrease of 36 per cent. In absolute terms, decreases in Russia have been the largest, while in relative terms the Bulgarian armed forces have shrunk the most. Exceptions to the general trend are countries in conflict, such as Armenia and Azerbaijan, and some of the newly independent countries that began to build up indigenous forces more or less from scratch after the withdrawal of Russian troops, such as the Baltic states. Changes in employment in defense production Decreases in arms production employment have been even larger than those in the personnel of armed forces for the CPCs as a group (see table II). Between 1989 (the year with the highest value) and 1995 the number of persons working in the arms industries in CPCs dropped by about 3.8 million persons, or 56 per cent. Russia had by far the largest reductions in absolute terms with more than 2 million persons losing employment between Soviet times and early 1996. Military downsizing and labor markets Summing reductions in armed forces personnel and employment in defense industries gives an impression of the quantitative dimensions of labor market pressures resulting from post-Cold War defense reductions (for Russia, a minimum of 200.000 persons released from the defense research and development institutions has to be added). In absolute terms, these numbers are largest for Russia, the Ukraine and Poland (see table III). Not all the persons released from the military sector enter the labor market, with some living from pensions and others not seeking employment. Still, the shrinking of military sectors presents a significant labor market problem in a good number of countries. This becomes clear when reductions in armed forces personnel and arms industry employment are set into relation to total labor forces (table IV). Compared to the year with the largest share of military related employment in total labor force (1988) the military sector's claim on human resources has almost halved, from 6.4 per cent of the total labor force to 3.5 per cent. There are large variations among CPCs, both with respect to the share of military employment in the total labor forces and to changes of this share in the post-Cold War era. This number is comparatively high in Russia, the Ukraine, Estonia and Belarus. The same countries, on the other hand, are among those with the largest share of reductions in the last few years. In Bulgaria and the Russian Federation (adding R&D employment and considering the Soviet heritage) more than 3 per cent of the total labor force had to leave the military sector and find gainful employment in the civilian sector. This must be classified as severe labor market pressure. The reduction was larger than 1 per cent in Belarus, the Czech Republic (and previously, Czechoslovakia), Estonia, Hungary, Latvia, Poland, Romania, and the Ukraine, translating into substantial labor market pressure in these countries. Expenditures on defense sector personnel A number of CPCs continue to have sizable defense sectors, both in terms of armed forces and defense industries. What is the income and social situation in these military sectors? One indication is the average expenditures per person employed in the defense sectors (armed forces personnel and employees in defense sectors). Table V gives such data with the caveat that estimates of military expenditures are very rough in a number of cases (3). Absolute numbers are less reliable than trends. The data shows large reductions in expenditures per person in the defense sector in Bulgaria, Czechoslovakia, Hungary and Poland. In Russia, by contrast, reductions in per person military expenditures are comparatively modest. Social Conditions in the Russian Armed Forces and Among Demobilized Personnel The discussion now shifts to a specific case where problems are significant, namely Russia. The following information is far from complete but adds insights to the numbers reported above for an important, albeit not necessarily representative, case.(4) Armed forces personnel and demobilized soldiers Serving and demobilized soldiers face numerous social problems, caused mainly by low pay and pensions, as well as housing problems. Still, it can be argued that members of the officer corps are positioned better than other social and professional groups of the Russian population dependent on the federal budget in terms of both financing and legal guarantees. Demobilized officers and NCOs have fared worse, especially those who have not had a long career and therefore have limited entitlements. Some training programs have been instituted to alleviate the situation but they can only be used by a select group of the demobilized. Most demobilized seeking work seem to have found income in the formal or informal sector. Another problem group are wives of armed forces personnel. The group that currently faces the grimmest situation are most likely draft soldiers. Personnel expenditures for the Russian armed forces, including pensions, have gone down considerably with the decrease in military expenditures to less than 40% of the pre-1990 level. But as Table VI demonstrates, an increase in the share of personnel expenditures has partly offset this decrease. Personnel costs are the largest budget line with 10% of all expenditures of the Russian federal budget. Data in Table V for Russia also indicates that income losses of armed forces personnel have not been as large as is sometimes perceived. For a full assessment of the situation it has to be considered, though, that the Defense Ministry works on an insecure financial basis with irregular and often belated payments. It seems likely that difficulties are compounded by low financial discipline, bureaucratic barriers, and the territorial distribution of still large armed forces. While officers in service are comparatively well protected in social terms, their situation significantly worsens as soon as they are demobilized, especially if they are not entitled to or fail to receive housing, pensions or retraining. Entitlements of demobilized servicemen are regulated in the Law on the Status of Military Servicemen and Law on Pensions and several special decrees of the government. Depending on length of service and status prior to demobilization, demobilized officers and contracted ensigns receive pensions, retraining support and a subsidy for construction or purchase of housing (in early 1996: 75% of costs for service between 10-25 years and 100% for 25 years and more), or compensation of rent payments. In addition, local government services, fuel, electricity and telephone are to be subsidized. Unfortunately, legal rights are often not translated into reality. Housing subsidies for demobilized officers are to be budgeted locally in the place of permanent residence. Unfortunately such budgets often are in large deficit and are unable to meet obligations. A government Commission on the Social Problems of Demobilized Servicemen and Members of Their Families was established in early 1995 to press for an improvement in their situation. Conditions for the payment of pensions are fairly standard to those in other countries, i.e. there is a minimum age (45) and a minimum service requirement (20 years). Pensions begin at 50% of regular pay and increase with periods served (with special provisions for time in combat). Demobilized officers, who do not meet the criteria - recently a fairly large group - are not entitled to pensions. Such demobilized officers, and other servicemen, are to receive priority in retraining schemes. Retraining within official programs is basically free and participants receive pensions, social security grants, or salaries.(5) Several government agencies and local authorities offer retraining schemes. These activities are coordinated by an Interdepartmental Commission. The number of persons in government sponsored retraining schemes has increased from only 318 men in 1993 (at this time only one center in St. Petersburg functioned), to 1,016 men in 1994 and 6,044 men in 1995. An additional 14,500 persons received retraining in a program administered by the Western group of the Russian army. The total number of former officers graduating from retraining schools was 21,878 by January 1996 (Krasnaya Zvezda, 2 March 1996). Re-employment perspectives for young demobilized officers are relatively high because of their technical education and skill in coping with personnel. Preferred occupations include tax police, private security agencies and private business. Especially in the latter sector, informal networks of former officers are helpful. There are efforts to institutionalize these informal networks in a formal labor exchange (for instance in St. Petersburg). In addition to the Russian programs, there are at least two major internationally financed retraining programs for Russian demobilized officers, one financed by the German government (10 retraining centers) and one financed through the European Union (16 retraining centers). Both programs focus on commercial skills (see table VII). Another problem is the employment of women married to army officers, who serve far away from cities with established economic and business infrastructure. This issue is important for the social situation in the armed forces, since a wife's income can compensate for the shortfalls and delays in the payments to officers (they themselves have fewer opportunities to supplement their income with additional jobs than most other occupational groups). The situation is especially severe in the 2,400 or so "closed towns" subordinated to the Defense Ministry, in which the unemployment rate is especially high among women. More than one million families live in such towns (Krasnaya Zvezda, 2 March 1996). The least socially protected category of armed forces personnel are conscripts (60% of the personnel of the armed forces), who remain badly salaried, poorly fed and subjected to humiliation and violence. The popularity of the proposal to abolish the draft has an important root in this painful societal issue. As mentioned earlier, the housing problem is probably the most vexing among the social problems of Russian officers, whether active or retired. In early 1996, the number of homeless officers in service was reported as 300,000. A total of 150,000 demobilized soldiers were counted as homeless (6). Despite considerable financial commitment to housing programs for active and demobilized officers from foreign sources, such as the German government, and from within Russia (18.8 trillion rubles for 1996/7 corresponding, at the exchange rate of early 1996, to about US $3.9 billion) the outcome remains unsatisfactory. One reason is that commitments from Russian sources are not met. In the previous program for 1993-1995 only 20% of commitments were financed. Even partial financing makes this the largest construction program in Russia. Social Situation of Employees and Former Employees of the Russian Defense Industry and Military Research and Development Institutes In Soviet times, the defense industry was the largest sector of manufacturing, with special privileges for employees, both in terms of salaries and social services. This has changed drastically, with salaries in defense industries now substantially below average in Russian industry (see table VIII). Even more of a problem has been the large-scale release of personnel from the industry.(7) Between 1991 and 1995 more than 2 million people were released from defense industrial enterprises. Before 1994, most separations were voluntary in search for a better paying job. As a result the most skillful workers and engineers left. Remaining employees at defense enterprises tended to be above average age with low mobility. Since 1994, managers have started enforced firing, though still at a slower pace than warranted by the decline in output. This is partly because of considerations of the social implications of separation from defense enterprises. Unfortunately this creates the danger that enterprises are kept alive because of their social functions. The most vulnerable groups among current defense industry employees are: women (75% of unemployed in Russia) engineers, as the most vulnerable profession regionally the most vulnerable social group of defense dependent workers are those situated in especially depressed economic regions, in which defense build down is combined with particular economic depression functionally those defense employees who were highly dependent on social services provided by defense enterprises (housing, healthcare, kindergarten) Unemployed workers are subjected to the general rules of unemployment insurance support, provided by the Federal Labor Service. The income provided for the unemployed is modest and only covers short-term survival needs. Defense-related unemployed persons are also entitled to additional support: the government decree "On the measures to stabilize the economic situation of enterprises of the defense complex" of December 19, 1994 gives employees of defense companies early pension rights (two years in advance) if their enterprises are closed or reduced in size and capacity as the result of conversion the new State Conversion Program for 1995-1997 includes provisions for state subsidies for retraining of employees and severance payments for unemployed.. The Program also includes state subsidies to maintain the social assets of defense enterprises (Rosisskaya gazeta, 10 February 1996) These programs are small and under-financed. The prospects for former employees from the defense industry in a crowded labor market are not getting better. Training schemes are limited and administered within general industry related programs, with some outside support such as through the European Union's TACIS program.. The Russian government seems currently more concerned with keeping the remaining personnel in the defense enterprises than with re-employment support.(8) There are no studies showing whether and where released defense employees are re-employed. It is possible to suggest that the main absorbers of released personnel are the informal economy, service sector and emerging private business. The social situation of persons in military research and development institutions is comparable to that in the defense industry. There are few programs to support them. Salaries in military R&D institutions have dropped below average salaries in research and development. These salaries in turn have dropped drastically (researchers within MINATOM are an exception). Because of their location in towns often isolated from other economic activities chances for alternative employment are limited. It is this social situation which provides the background for many Western fears about the dangers of "brain drain proliferation" of experts on weapons of mass destruction and their delivery systems to countries of proliferation concern. Despite the success of some programs, such as the International Science and Technology Center (ISTC) in Moscow and the Ukrainian Center for Science and Technology in Kiev (STCU), to keep "risk groups" such as nuclear scientists from moving to "risk countries", the dangers of migration have not gone away. Conclusions Human and social problems of military downsizing are immense in some CPC countries-though not in all of them. Russia stands out, because of the absolute numbers of persons released to civilian labor markets, but in relative terms other CPC states are also severely affected. At least in Russia, members of the armed forces seem to have fared relatively better than many demobilized persons. Those still working in the defense industry continue to have some social privileges over those dismissed from defense industries, though the latter group probably has a higher level of income. The difficulties of those leaving or dismissed from the military sector are part of the general economic problems in Russia, which make re-employment, even if successful, not necessarily a rewarding economic activity. With a healthier economy in general, the human and social situation of those currently or formerly in the military sector would likely be less of a concern. Tables Personnel in the Armed Forces Selected countries, in 1000s Percentage change between value for 1995 and most differing value between 1985 and 1995 Arms Industry Employment Selected countries, in 1000s Percentage change between value for 1995 and most differing value between 1985 and 1995 Sum of Personnel in the Armed Forces and Employment in Arms Industries Selected countries, in 1000s Maximum difference between value for 1995 and most differing value between 1985 and 1995 Percentage change between value for 1995 and most differing value between 1985 and 1995 Sum of Personnel in the Armed Forces and Employment in Arms Industries as percentage share of total labor force Selected countries, in % Percentage change between value for 1995 and most differing value between 1985 and 1995 Military expenditures divided by sum of Personnel in the Armed Forces and Employment in Arms Industries Selected countries, in thousands of US dollar purchasing power equivalents, prices of 1994 The share of personnel and O&M costs and pensions in the defense budget in 1989-1995 Professional structure of students at the retraining centers financed by the German government Pay hierarchy in the defense industries in 1995 (November) Footnotes The reported numbers are for the BIC3D Index. The BIC3D Index is aggregated from data for military expenditures, holdings of major weapons, armed forces personnel and employment in defense industries. For the full data set and explanation of the methodology see Bonn International Center for Conversion, Conversion Survey 1996 (London: Oxford University Press), pp. 254-279 Main sources for the data are the US Arms Control and Disarmament Agency's World Military Expenditures and Arms Transfers and the IISSs Military Balance. In addition, information from government publications, press cuttings, research reports, etc. was used. For more discussion on the methodology and a global set of figures see BICC (note 1), pp. 256, 267-271 Basic data comes from the US Arms Control and Disarmament Agency. Dollar values are based on Purchasing Power Parity estimates. The information was collected by Ksenia Gonchar as background information for a BICC publication. Instruction to the Order of the Defense Minister on the Procedure of Retraining to Civilian Profession of Military Servicemen, who are Employed in the Army on Contract Basis and Members of Their Families in 1994-1995, as reported in Economics I Zhizn, No.43, October 1994, p.7 State Targeted Program of Housing Construction for Servicemen, Demobilized Officers and Members of their Families for 1996-1997. Krasnaya zvesda, 16 February 1996. These figures include not only the armed forces, but the uniformed personnel of the ministry of internal affairs and other ministries, which have uniformed personnel. See K. Gonchar, Employment Aspects of Defense Industry Conversion in Russia, in: Joseph DiChiaro III, Conversion of the Defense Industry in Russia and Eastern Europe, BICC Report 3 (Bonn: Bonn International Center for Conversion, 1995), pp. 56-63 In the State Conversion Program for 1995-1997 it is suggested that federal monies should be mostly targeted toward high skilled personnel in the defense enterprises to counter the decline in the number of qualified employees critical for continued advanced military production.