The Largest European Army in Business: The Case of Russia

Abstract

The build-up of military commercialism in Russia first began in the early 1990s. The Army was encouraged to exploit its new freedom and earn additional revenue parallel to a dramatic reduction of military expenditures in the federal budget, large-scale force demobilization and redeployment across Russian regions and other countries of the former Soviet Union, and the withdrawal of troops from Eastern Europe and Mongolia. The previous history of development, plus favorable factor markets provided significant advantages to military businesses in terms of location and infrastructure. The forces became de facto owners of large assets, including land, cheap labor and the surplus of released inventories, which they were allowed to exploit for their own economic interests. The Russian Army’s previous size and structure made it a large enterprise that produced many products and services for internal use. Opening this enterprise to external clients and the sale of released assets is a relatively new phenomenon, the consequences of which are still uncertain.