| Analysts have discounted the feasibility of effective defense conversion in Russia based not only on the poor record of defense conversion in the West but also on the overshadowing handicap of having to operate within the volatility and uncertainty of an economy in transition. This study takes a comparative approach to the issue by examining the competitive gap that exists in both the US and Russia between defense and civilian enterprises. The study poses the question: Given significant defense cuts, are Russian defense-related enterprises at less of a competitive disadvantage relative to other Russian civilian enterprises, than US defense-related firms are when compared to their civilian counterparts in the US?;The central hypothesis forwarded states, that the competitive gap existing between defense and civilian firms is, in fact, smaller in Russia than it is in the US, indicating that Russian defense-related resources (capital and labor) possess a relative advantage in terms of the ability to convert to civilian production when compared to Western defense-related resources that must face intensive market competition from efficient incumbent civilian firms. A formal illustration is forwarded to examine the firm-level conversion decision in both market and transitioning economies. The theoretical and empirical results of the study indicate that Russian defense-related enterprises are at less of a competitive disadvantage relative to Russian civilian enterprises, than US defense-related firms are when compared to their civilian counterparts in the US.;This in turn implies that Russian enterprises are relatively better positioned than US firms to withstand the significant defense cuts of the post-Cold War era, despite confusing signals from government conversion policies. These results have important policy implications for the remaining defense industrial sector and the industrial base as a whole in Russia. |
