Tag Archives: industrial base

Shipbuilding constraints drive downsized but potent Russian Navy

Russia Resurgent Topic Week

By Dmitry Gorenburg

Official announcements related to naval shipbuilding give the appearance of a Russian Navy that is undergoing a rapid revival. However, the reality is that many projects have faced lengthy delays and cost overruns. As a result, some of the most prominent naval procurement projects have been scaled back, while others have been postponed for years at a time. The delays and cost overruns are the result of a long-term decline in naval research and development, an inability to modernize the shipbuilding industry made worse by Western sanctions, and pre-existing budgetary constraints that have been exacerbated in recent years by Russia’s economic downturn. However, the Russian Navy has developed a strategy that compensates for these gaps by utilizing its strength in submarines and cruise missile technology to fulfill key maritime missions such as homeland defense and power projection in the face of a failure to build an adequate number of large combat ships.

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An obsolete industry

Russia’s current shipbuilding industry was primarily formed in the 1960s and 1970s, and its ship design capabilities have changed little since the early 1980s. As a result, Russian naval R&D has fallen several decades behind both Western and Asian capabilities in this sphere. Most Russian ship designs are less energy-efficient and more difficult to operate and maintain than comparable Western designs. Because of the lack of investment in modern technology, Russian design bureaus have been unable to transition to three-dimensional digital design, a process that was largely completed in Western shipbuilding in the 1990s. Lack of investment has also delayed the transition to assembly of hulls from large sections, a process that took place in the early 2000s in other countries’ shipyards.

Russian leaders recognized these problems in the late 2000s and sought to absorb Western knowledge through joint projects in both military and civilian shipbuilding. However, the freezing of military cooperation with NATO states in 2014 as a result of the Ukraine crisis has largely foreclosed the possibility of catching up by borrowing Western know-how. Russian naval R&D is therefore likely to remain significantly behind when compared to the Western state of the art.

Although it has improved somewhat in recent years, Russia’s shipbuilding industry is considered to be particularly outdated and poorly structured when compared to other sectors of Russian defense industry. United Shipbuilding Corporation (USC) is the least effective of all state corporations in Russia’s defense industry as a result of its excessive size, bloated management structures, and misguided efforts to combine military and civilian shipbuilding under a single corporate roof. Unlike the majority of shipyards in other countries, Russian shipyards function not just as assembly sites for ships but also manufacture many components and even machine tools used in shipbuilding. This makes the industry less efficient than its foreign counterparts. According to reports by Russian government officials in 2013, more than 70 percent of equipment at Russian shipyards was outdated and in need of replacement. Aged equipment has resulted in delays and cost overruns in the construction of naval ships designed along modern lines.

The impact of sanctions

Russian shipbuilding has suffered more than other defense industry sectors from the introduction of Western sanctions. The German company MTU has stopped supplying diesel engines for Project 20385 corvettes, leading the Russian Navy to delay production of the several ships model and revert to the older Project 20380 version, which uses less reliable domestically produced engines.

Ukraine has stopped supplying gas turbines for Russian ships, leading to significant delays in the production of Admiral Gorshkov and Admiral Grigorovich class frigates. According to the head of USC, efforts to substitute domestic gas turbines are currently under way, with a domestically produced sample turbine expected to be ready for testing no earlier than 2017. As a result of this shift to domestic production, only two Admiral Gorshkov and three Admiral Grigorovich class frigates will be commissioned before 2020. Other ships in both classes will be delayed by a minimum of three years.

Western sanctions have also resulted in major problems with the production of ship components, including electronics, sensors, pumps, and electric motors. Russian manufactured components are particularly lacking in the areas of navigation and communication equipment. Most of these components are not produced domestically in Russia, and the industry has long been dependent on imports from Europe for high quality components. Efforts to start domestic production are underway, but prices for domestic variants are relatively high while quality is relatively low. This situation has caused tension between USC and the Russian Navy. One option that is being actively considered is shifting to imports from China for some components.

Financial constraints

The State Armament Program (SAP) for 2011-2020 assigned five trillion rubles, a quarter of the total program expenditure, to military shipbuilding. This amount was almost double the amount allocated to the ground forces and airborne forces combined. At the same time, it has been shown that this level of expenditure was beyond the means of the Russian government even prior to the budget crisis that began in 2014. While the percentage of Russian GDP devoted to military spending increased from 1.5 percent in 2010 to 3.4 percent in 2014, that level of spending was still sustainable for the Russian economy. However, SAP-2020 was backloaded, so that 70 percent of the expenditures were scheduled for the second half of the ten-year program. In the context of slowing economic growth even prior to the crisis that began in 2014, fulfilling these plans would have required Russian military spending to increase to levels of eight percent of GDP under the most realistic economic growth scenario, something that the economy could not support.

The economic crisis may result in further cuts to naval procurement. According to Russian analysts, fulfilling all currently announced naval procurement plans would require the amount of spending on military shipbuilding to increase to 6-7 trillion rubles for the next SAP. Initially, the military requested a total of 56 trillion rubles for new procurement for 2015-2025, though recognition of limits on the government’s financial resources resulted in cuts and a final request of 30 trillion rubles. Some reports suggested that even further cuts might be made, with the total program being potentially limited to only 14-15 trillion rubles. Furthermore, Russian media indicated that as a result of the unfavorable budget situation the next program may be postponed altogether.

The Russian Navy in a constrained resource environment

These financial constraints will result in Russia not being able to fulfill its goal of recapitalizing its navy with a new generation of large combat ships. Russia is unlikely to complete any new destroyers in the next ten years and will be able to complete only a small number of new frigates. At the same time, its legacy Soviet-era large combat ships will become less reliable as they age. The extent to which the Russian Navy can successfully modernize these ships will determine its ability to continue out-of-area deployments in numbers and frequency comparable to present-day rates – i.e. task groups of 2-5 ships – until the next generation of destroyers is ready in the late 2020s. If modernization programs are fulfilled only partially or not at all, by 2025 the Russian Navy will have few if any large combat ships capable of deploying regularly outside their bases’ immediate vicinity.

The Russian Navy will seek to ameliorate these limitations by focusing on developing its already formidable cruise missile strike capability. Post-Soviet innovations in precision-guided munitions, specifically tactical missile systems, are at the heart of Russia’s naval modernization. Moscow regards these systems – universal VLS armed with the latest anti-ship and land-attack cruise missiles – as potent force multipliers capable of offsetting Russian shortfalls in both the numbers and quality of ships in its fleets.

Their advent has allowed the Russian Navy to create true multi-mission platforms, capable of providing combat-credible force across several warfare areas. This innovation will allow Russia to substitute its diminishing number of large combatants with smaller ships that have limited suitability for expeditionary, blue water operations, but can nonetheless support defense and deterrence goals from seas adjacent to Russia’s littoral spaces. This focus will be combined with limited power projection based primarily on submarine that will be armed with similar cruise missiles.

Together, the combination of 30-40 small combat ships (frigates and corvettes) and 15-20 nuclear and diesel powered submarines – all armed with cruise missiles – will allow the Russian Navy to maintain its ability to protect its coastline and to threaten neighboring states. While it will not be able to project power globally, Russia’s naval capabilities will be sufficient to achieve its main maritime goals.

Dmitry Gorenburg is a senior research scientist in the Strategic Studies division of CNA, a not-for-profit research and analysis organization, where he has worked since 2000. He holds a Ph.D in political science from Harvard University and a B.A. in international relations from Princeton University. He blogs on issues related to the Russian military at http://russiamil.wordpress.com.

Read other contributions to Russia Resurgent Topic Week.

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Defense Industrial Base: A Personal Theory of Power

This essay is the third in the Personal Theories of Power series, a joint Bridge-CIMSEC project which asked a group of national security professionals to provide their theory of power and its application. We hope this launches a long and insightful debate that may one day shape policy.


Defense industrial base [hereafter “industrial base” or “defense industry”] issues are almost always discussed in a contextual vacuum — as if their history begins with World War II factories or with President Eisenhower’s 1961 warning of a growing industrial complex. But manufacturing materiel is as ancient as war itself. This essay attempts to first set a historical narrative for the defense industry and then to propose a theory of its power.

Marching through history

In 1528, Charles V of Spain hired a Genoese firm to supply and operate a fleet of galleys to help control the Italian coast. Due to their increased size and sophistication, the price of galleys grew. By 1570, this led his son Philip II to experiment with having court administrators operate seventy percent of Spain’s fleet. They failed to recruit experienced oarsmen or to provision equipment efficiently. The price of operating galleys doubled without any vessel improvements before the policy was reversed to private enterprise.[i]

In 1603, Charles’s grandson, Philip III paid 6.3 million ducats to Gonzalo Vaz Countinho, a private merchant, for 40 ships and 6,392 men. This eight year contract supplied Spain with its entire Atlantic fleet. Twenty-five years later, Philip IV contracted a Liège company to build cast-iron cannon and shot. By 1640, 1,171 canons and 250,000 shot were built. Until the end of the eighteenth century Spain was self-sufficient in iron guns.[ii]

Contracting was not limited to the House of Habsburg. Governments have always relied on industry to provide materiel. It is not surprising then that in Michael Howard’s classic War in European History private enterprise plays a prominent role. Knights, mercenaries, merchants, and technologists shaped the history of Europe and thus its wars.[iii]

An industry is born

For centuries supply caravans traveled with armies and small, decentralized, enterprises such as blacksmiths were ubiquitous. To profit, merchants repurposed equipment on commercial markets. Other proprietors assumed financial loss for military titles or, when victorious, profited from the spoils of war.[iv]

The Thirty Years’ War (1618-1648) changed the scale of conflict and the materiel required to conduct it. At last there were “large-scale profits to be made” from the “business of war”.[v] In Genoa, Hamburg, and Amsterdam centers comprised of weapons manufacturers emerged alongside merchants that specialized in capital, financing, and market access. A multinational arms industry was born that “cut across not just national, but confessional, and indeed military boundaries.”[vi]

Berlin based Splitgerber & Daum was one firm born from this system. Formed in 1712, its two proprietors began as commissioned agents. They raised capital to supply munitions first to local arsenals in Saxony and eventually the Prussian army itself. Their growth can be attributed to an early observation: that success in their business “could be achieved only within the framework of a strictly organized mercantilist economy.”[vii] Patriotism became a marketing tool.

By 1722, Splitgerber & Daum was manufacturing “gun barrels, swords, daggers, and bayonets” at Spandau and assembling guns at Potsdam.[viii] By mid-century it was a conglomerate. Frederick the Great, unlike his grandfather the “mercenary king,” was not an admirer of contractors. But after the Seven Years’ War ended in 1763 he guaranteed the company a “regular flow of government orders” as long as it remained loyal to Prussian interests.[ix] He understood that in order to “raise Prussia to the status of great power required the services of merchants, manufacturers, and bankers.”[x]

Pouvoirs régaliens

Twenty-six years later, the French Revolution would change Europe. Until then, states were the property of absolute sovereigns; after they became “instruments of powerful forces dedicated to such abstract concepts as Liberty, Nationality, or Revolution.”[xi] As the nature of the State changed, so did its wars. French armies were now comprised of conscripts. In 1794, France attempted a planned economy. It reasoned that if people could be conscripted so could resources. The experiment failed due to inefficiency; manufacturing reverted back to private enterprise before the year’s end.

Battle of Waterloo by William Sadler

Industry would flourish during the Napoleonic Wars. From 1783 to 1815 two thirds of Britain’s naval tonnage was produced by private shipyards. And the Royal Navy began to experiment with managing industry. It sacrificed deals with large lower-cost providers to bolster small contractors that it considered to be more flexible. In the nineteenth century, the birth of nations launched state industries: private, but British shipyards; private, but German steelmakers.

Krupp would embody this development. Founded in 1811 in Essen (by then Prussia), it would first develop steel. By 1851 it became the primary provider of Prussian arms and, after German unification, the country’s preeminent defense firm. By 1902, Krupp managed the shipyards in Kiel, produced Nassau-class dreadnought armor, and employed 40,000 people.[xii]

Defense Industrial Base Power

Defense industries evolved from distributed providers, to unaligned enterprises, and finally to state-managed industries. They became consortiums of private or government-owned entities that translate the natural, economic, and human capital resources of a state into materiel.[xiii]

Krupp’s steel plant in Essen as captured during The Great War

World War II stretched this logic to its absolute; all state resources were translated into the machinery of war. In 1940 the US only built 2,900 bombers and fighters; by 1944 it built 74,000 on the back of industry. From 1941 until the war’s end 2,711 Liberty ships were built; welded together from 250,000 parts, which were manufactured all over the country. And from 1942 to 1946, 49,324 Sherman tanks were built by 11 separate companies such as Ford and American Locomotive — built by the “arsenal of democracy.”[xiv]

After the war, all countries began to balance national security objectives with resources via defense industrial base policies. A country’s industrial base capability could be measured as a combination of its scope (how many different cross-domain technologies it could develop), scale (at what quantity), and quality (battlefield performance).

The path to independence

National resources limit capability. Less capable countries are more dependent on allies than more capable ones (see Figure 1). As countries develop an industrial base their level of dependence decreases, but never goes away. This can be best understood through industry itself. Prime contractors rely on their supply chains. But a widget supplier is more dependent on its customer, than its customer is on it.

Figure 1: Interdependence in the International System

Reflects a manufacturing view of the defense industrial base. Information technology capabilities (i.e., data PED or cyber) have made industrial base capabilities more accessible to smaller countries with less national resources. How this impacts the curve or a nation’s independence is worth further exploration.

 

Industry developed a science for managing the inherent risk of dependence — supply chain management. However, corporate practices do not translate to international politics. Country A may find new allies; Country B may seek to act on its own. And all countries shift along the curve depending on their level of investment.

For example, Saudi Arabia and the United Arab Emirates have invested into defense since the first Gulf War. They are now capable of “manufacturing and modernizing military vehicles, communication systems, aerial drones, and more.”[xv] Through offset agreements and foreign partnerships they have acquired “advanced defense industrial knowledge and technology” and are expected to rely on their “own manpower and arms production capabilities to address national security needs” by 2030.[xvi]

To borrow from Henry John Temple — Britain’s Prime Minister from 1859 to 1865 — in the international system, states have temporary friends, but permanent interests.[xvii] Over time, it is thus in the interest of each country to increase its independence by investing into defense capabilities (see Figure 2).

Figure 2: Ability to Achieve Political Objectives Over Time

Without such investment, Country Z capabilities erode. Country Y may attempt to sustain its capabilities, but as other countries develop new technologies, sustainment also leads to capability erosion. Only countries that invest into industrial bases over time are able to achieve political objectives independently.

One more supper

The United States has never shown, over a sustained period of time, “a coherent long-term strategy for maintaining a healthy domestic defense industry.”[xviii] American defense budgets are cyclical; they have contracted after every war. Every time, the Pentagon intervened with reactionary strategies to manage industry. And each time, as one former Deputy Assistant Secretary of Defense noted, the Pentagon got it wrong.[xix]

This was most evident in 1993 when the Pentagon held a dinner, known as the “Last Supper,” with top defense executives. It told them that after the Cold War, America no longer needed nor could it afford the same volume of materiel. But it left it up to industry to decide its overcapacity problem. Industry began to consolidate, based on rational business sense, but not a national strategy.

The 1990s were focused on consolidation, commercialization, and dual-use technology. Today, as budgets are again tightened, new strategies such as increased competition and international expansion have emerged. This may help save some companies, but how will it impact our ability to act independently over time?

In 2003, after decades of following a similar industrial base approach, the UK realized that it no longer had the design expertise to complete development of its Astute-class nuclear submarine.[xx] And in 2010 the UK’s Strategic Defence and Security Review, by listing the capabilities it will have, spelled out what it can no longer accomplish independently. Although the UK received American support for its submarine, what would happen if it did not?

As the US argues over budgets or program cuts, a theory of defense industrial base power could help set priorities. Commercial diversification or international expansion are tactics by which defense firms gain new revenues to save themselves in a downturn. We need a national defense industrial base strategy to maintain our capability for independent action.


[i] Parrott, David. The Business of War: Military Enterprise and Military Revolution in Early Modern Europe. New York: Cambridge University Press. 2012.

[ii] Ibid.

[iii] Howard, Michael. War in European History. New York: Oxford University Press. 1976.

[iv] Parker, Geoffrey. The Military Revolution: Military Innovation and the Rise of the West, 1500-1800 (2nd Edition). Cambridge. Cambridge University Press. 1996.

[v] Parrot, The Business of War.

[vi] Howard, War in European History.

[vii] Henderson, W.O. Studies in the Economic Policy of Frederick the Great. Oxon: Routledge. 1963.

[viii] Ibid.

[ix] Clark, Christopher. Iron Kingdom: The Rise and Downfall of Prussia, 1600-1947. Cambridge. Harvard University Press. 2006.

[x] Henderson, Studies in the Economic Policy.

[xi] Howard, War in European History.

[xii] James, Harold. Krupp: A History of the Legendary German Firm. Princeton: Princeton University Press. 2012.

[xiii] Peck, Merton J. and Frederic Scherer M. The Weapons Acquisition Process: An Economic Analysis. Boston. Harvard University. 1962.

[xiv] Gansler, Jacques S. Democracy’s Arsenal: Creating a Twenty-First-Century Defense Industry. Cambridge. The MIT Press. 2011.

[xv] Saab, Bilal Y. “Arms and Influence in the Gulf: Riyadh and Abu Dhabi Get to Work.” Foreign Affairs, accessed May 5, 2014.

[xvi] Ibid.

[xvii] Gartzke, Erik and Alex Weisiger. “Permanent Friends? Dynamic Difference and the Democratic Peace.” International Studies Quarterly (2012): 1-15

[xviii] Harrison, Todd and Barry Watts D. “Sustaining Critical Sectors of the U.S. Defense Industrial Base.” Center for Strategic and Budgetary Assessments. 2011.

[xix] Marshall C. Tyrone Jr. “Pentagon Revamps Approach to Industrial Base, Official Says.” American Forces Press Service. February, 20 2013, accessed May 16, 2013.

[xx] Harrison, Sustaining Critical Sectors.