ISSN 1075-7007, Studies on Russian Economic Development, 2007, Vol. 18, No. 5, pp. 466–476. © Pleiades Publishing, Ltd.
, 2007.
Original Russian Text © D.I. Makarenko, E.Yu. Khrustalev, 2007.
INDUSTRIES AND INTERINDUSTRY
COMPLEXES
A Qualitative Approach to Forecasting and Controlling
the Development of the Defense–Industrial Complex
D. I. Makarenko and E. Yu. Khrustalev
Abstract—A cognitive modeling method based on “soft” computation procedure was used to investigate stra-
tegic control processes and to build scenario forecasts of development. The proposed method is shown to ensure
a qualitative description of semistructured systems, which include Russia’s defense–industrial complex.
DOI: 10.1134/S1075700707050036
The contemporary geopolitical situation is dynami-
cally transforming the international relations due to the
keen struggle for resources and markets, as well as the
ambitions of a number of states to bolster their influ-
ence on world politics, including the use of military
power.
The world’s leading powers and Russia do not rule
out the use of armed forces (AF) to ensure their security
and protection of national interests [1–3], trying to
improve their military strength and military potential
[4, 5], which are largely determined by the condition of
the military economy [6–9] and the defense–industrial
complex (DIC) [10, 11] and by their ability to produce
modern weapons and combat equipment (WCE) [12].
Taking into account the above trends, as well as
Russia’s geopolitical position and national interests, the
characteristics of the modern structure of the Russian
economy, and the DIC’s present condition and pros-
pects for development, the problems of forecasting the
DIC’s development become increasingly important for
Russia. However, so far there has been no proper con-
ceptual support for the development of the DIC as the
most crucial component of the national economy, that
is, a concept of the development of the DIC as a specific
sector of the economy, which is simultaneously to
ensure the country’s defense, improve the technologi-
cal level of its economic development, yield export
incomes, and solve many social problems. There is nei-
ther a single methodology that would consistently
embrace all stages of the DIC’s strategic control and
forecasting.
The above predetermines the topicality of research
into an economic–mathematical concept and tools for
the Russian DIC’s strategic control and forecasting. To
achieve this goal, the following main objectives should
be attained: to conduct the systems analysis of the Rus-
sian DIC’s conditions and functional mechanism; to
define the essence and content of the DIC’s strategic
control; to structure the knowledge about the Russian
DIC, and to design a system of models and conduct
their structural analysis; and to construct the scenario
forecasts of the DIC’s strategic development.
466
The DIC’s strategic control concept. Analysis of
the available approaches to strategic control allows us
to construct a system of notions that reveal its essence
(Fig. 1).
Note that the definition of strategic goals and strate-
gic design are implemented with regard to not only the
DIC itself but also its environment (geopolitical, socio-
economic, etc.).
It is justifiable to define the DIC as a totality of
enterprises and organizations whose output is to meet
the country’s military needs and exports. Owing to its
close interrelations with all vital spheres of the country,
the DIC is a complex semistructured system with a
number of qualities, such as uniqueness, poor formaliz-
ability, uncertainty, inability of full description, dyna-
mism, etc. At the same time, the environment in which
the DIC functions is increasingly changing, and arising
situations are practically unpredictable and have no
analogs in the past. Therefore, the methods of the DIC’s
strategic control must match the development goals of
the defense industry: they must support the formation
of the concept of achieving the DIC’s strategic develop-
ment goals; take into account the heterogeneous factors
of the DIC’s functioning and development; study the
DIC under the deficit of information on processes that
affect its development; and lead to obvious, observable,
and informative results.
Many attempts to formalize semistructured pro-
cesses by traditional (for example, operational) meth-
ods resulted in models that, being too abstract, inade-
quately reflected reality. Moreover, pursuit of accuracy
limits research, i.e., targets it towards problems that
need strict mathematical solutions. As a result, many
classes of important problems, which are too complex
or defy strict mathematical analysis, remain unex-
plored. To investigate and solve such problems effi-
ciently, it is necessary to abandon the requirements of
strictness and use approximate results.
Recently, the methods of logical–linguistic model-
ing [17], based on “soft” computational procedures,
have been used widely in systems analysis to study
semistructured systems and situations and describe
 A QUALITATIVE APPROACH TO FORECASTING 467

DIC's strategic control

DIC's development strategy
design and implementation

DIC's development strategy

DIC's main development trend and
its implementation concept

DIC's development trend Concept

sequence of improved principles and main methods of
goals of DIC's functioning achieving the DIC's functional goals

Stages of strategic control

Definition of strategic goals Strategic design

Justification and formation Development of principles and

of DIC's functional goals main methods of achieving DIC's
functional goals

Fig. 1. The system of notions that reveal the essence of the DIC’s strategic control.

MODELS

material ideal

physical analog signed intuitive

(semiotic) (conceptual)

descriptive formal formalized

(verbal) (logical-linguistic)

Fig. 2. Classification of models.

them qualitatively [13–15]. The main advantage of the
methods of logical–linguistic modeling is their greater,
compared to the languages of classical mathematics,
capacity to describe real-world situations, although
they are less suitable for formally equivalent transfor-
mations of their constructions [16].
Models created with the linguistic means of “soft”
calculations (Fig. 2) have a number of characteristic
features:
—variables in such models are not quantitative but
qualitative (or linguistic; i.e., their values are not num-
bers but words);
—relations between variables are expressed by not
mathematical but linguistic equations as well—with the
help of linguistic expressions; and
—efficiency criteria are not formed as a functional
but are described by qualitative recommendations of
preference, infeasibility, or advisability of solutions.
Logical–linguistic models are, as a rule, used at the
strategic or conceptual level of control and solution
development (Fig. 3).
Taking into account the stated characteristics, it is
advisable to study the DIC’s functional and develop-
mental processes with cognitive models (cognitive
models) that belong to the class of logical–linguistic

STUDIES ON RUSSIAN ECONOMIC DEVELOPMENT Vol. 18 No. 5 2007

468 MAKARENKO, KHRUSTALEV

strategic goal statement and formation

or of general concept of their implementation
conceptual

tactical goal particularizations, problem

or statements, and operations planning
operational

operating choice of techniques ensuring the

or most efficient implementation of operations
elemental

Fig. 3. Key levels of control and solution development.

Cognitive modeling
method of investigating situations,
which is based on the study (analysis
and dynamic modeling) of their cognitive maps

Cognitive map (model)

a structure (network) of causal relations between

the elements of the model under study and its environment,
which of a given system's structure and functions

elements of a cognitive map

Basic factors Causal relations

notions that characterize, between basic factors.
according to an individual, Presented as arrows
the system under study and connecting basic factors
its environment

Fig. 4. The system of notions that characterize the cognitive approach.

models. In a broader sense, a cognitive model is the
schematic and simplified description of a specific prob-
lem-related fragment of the world’s picture of an indi-
vidual. The system of notions that characterize the cog-
nitive approach to control and forecasting is shown in
Fig. 4.
Similar to the cognitive approach in economic mod-
eling is the method of “plus–minus factors,” which was
borrowed from radio engineering and which represents
a way of drawing schemes that describe causal relations
between different factors.
The specific feature of the cognitive modeling
method, which distinguishes it from traditional operat-
ing methods, is the use of linguistic variables and fuzzy
algorithms for the efficient study of the behavior of
complex and hard-to-formalize systems, which defy
exact mathematical analysis. Fuzzy logic, graph theory,
and the theory of matrices are used for the mathemati-
cal formalization and study of cognitive maps. Cogni-
tive maps were used to study socioeconomic, military–
political, foreign-policy, environmental, and other situ-
ations [18–21].
The cognitive analysis and modeling of the DIC’s
strategic development consist of five main stages.
Stage 1: cognitive structuring. This stage is the cog-
nitive structuring of information about the DIC’s func-
tions and trends in the development of (socioeconomic,
foreign- and domestic-policy, etc.) processes that affect
the DIC. This stage includes data acquisition, analysis,
and synthesis (structuring) and cognitive mapping to
describe the mechanism and conditions of DIC perfor-
mance.
Information structuring is carried out to form a set
of basic factors X = {x1, x2, ..., xn} and to determine
causal relations between them.
For each factor, its trend is determined: a growth-
rate index that characterizes an object, a phenomenon,
or process associated with this factor. The nature (pos-
itive or negative) and bond strength between the basic
factors are determined for the causal relations. The val-

STUDIES ON RUSSIAN ECONOMIC DEVELOPMENT Vol. 18 No. 5 2007

 A QUALITATIVE APPROACH TO FORECASTING 469

Values of linguistic variables

The “trend” variable’s linguistic values
Very poor growth (fall)
Poor growth (fall)
Moderate growth (fall)
Strong growth (fall)
Very strong growth (fall)
Linguistic values of the variable that
Numeric values of the variables
characterizes relations between basic factors
Very poor amplification (attenuation) 0.1; 0.2 (–0.1; –0.2)
Poor amplification (attenuation) 0.3; 0.4 (–0.3; –0.4)
Moderate amplification (attenuation) 0.5; 0.6 (–0.5; –0.6)
Strong amplification (attenuation) 0.7; 0.8 (–0.7; –0.8)
Very strong amplification (attenuation) 0.9; 1 (–0.9; –1)

ues of relevant variables are assigned on a linguistic
scale; each of them is assigned a number between –1
and +1 (table).
The results of text analysis of the database and the
polls and interviews of experts and decision makers
yield results that determine multiple basic factors,
causal relations between them, and the parameters of
factors and relations. Special automated techniques and
heuristic principles (for example, content analysis,
semantic analysis, etc.) may be used to code texts.
The cognitive mapping of a situation. Formally, a
cognitive map is a weighed oriented graph G = (X, A) in
which X is a set of nodes that bijectively corresponds to
a set of basic factors, A is a set of arcs that reflect the
direct impacts of factors on one another [22].
Each arc that links factor xi with factor xj has weight
aij, which reflects the nature and impact force of factor
xi on factor xj. If aij is a positive value, then, with a
change in value xi, value xj changes in the same direc-
tion; if aij is negative, then, with a change in value xi,
value xj changes in the opposite direction. The module
of value aij characterizes the impact force of factor xi on
factor xj.
Adjacency matrix Ag is associated with graph G.
Element aij of matrix Ag, which is at the intersection of
the ith line and the jth column, characterizes the impact
of factor xi on factor xj (Fig. 5).
At this stage, from the set of the basic factors of a
situation, we assign subsets of target Y = {y1, y2, ..., ym}
and control U = {u1, u2, .... up} factors and a vector of
initial trends of the basic factors x(t) = (x1(t), x2(t), ...,
xn(t)); t = 0.
We choose as control factors those that belong to the
controlled object or the environment on which the con-
trol agent (the federal government in the case of the
DIC) can possibly influence. We choose as target fac-
tors those that characterize to the maximum the control
object’s condition and goals.
Stage 2: the structural analysis of the cognitive
map. For more efficient situation management, it is nec-
essary to understand its structural properties, i.e., the
causal relations between basic factors. The structural
analysis of a cognitive map is aimed to investigate such
properties by analyzing control goals for consistency,
control factors for consistency with goals, and the effi-
ciency of the integral impact of control factors on target
factors. In order to make the structural analysis of a
cognitive map, the goal definition hypothesis is used,
according to which a decision maker (DM) may indi-
cate a direction that is regarded as a desirable (prefera-
ble) change in basic factors [23].
The desirable direction of change in factor xi is
determined by indicator r xi , which assumes a value of
+1 if an increase in the value of this factor is desirable,

basic
factor
x1 x1 x2 ... xn

x1 a12 a1n
a1n a12 casual
relation
between x2 a2n
basic
factors ...

xn x2 xn
a2n
Fragment of graph G=(X, A) Adjacency matrix Ag
of graph G=(X, A)

Fig. 5. The formal representation of a cognitive map.

STUDIES ON RUSSIAN ECONOMIC DEVELOPMENT Vol. 18 No. 5 2007

470
–1 if a decrease in the factor value is desirable, and 0 if
the DM is unable to indicate the desirable factor dynamics.
Indicator r xi is called the attitude to factor xi dynamics.
The essence of assigning a consistent goal vector is
to exclude undesirable changes in certain target factors
due to desirable changes in other target factors. Thus,
target vector y is regarded consistent if the achievement
of one goal does not hinder the achievement of other
goals [23]:
r y j × r yi = signq ji , ∀ y j , y i ∈ y,
where qij is the element of matrix Qg = En + Ag + A g +
n
... + A g
(En – Ag)–1; i.e., matrix Qg results from the
transitive closure of matrix Ag and contains the values
of integral, i.e., direct and all indirect impacts of basic
factors on one another, En is an identity matrix of order
n.
Situation control is such a change in control factors
that brings desirable changes in target factors, i.e., their
changes in the desirable direction. In connection with
this, it is necessary to analyze control factors for consis-
tency with goals and the efficiency of their impact on
target factors.
The consistency of control factors with the goal vec-
tor is where no change in control factors would cause
changes in any goal in the undesirable direction [23]. In
other words, control vector u is consistent with goal
vector y if, for each control vector coordinate, it is pos-
sible to indicate such a sign that for resultant signed
vector sign u
r yi = signq ij × signu j , ∀ y i ∈ y, ∀ u j ∈ u.
The efficiency of the control vector is in its strength
and nature of impact on target factors. Formally, effi-
ciency index E(ui) of control factor ui (i.e., the maxi-
mum positive effect of the change in factor ui) is the
absolute sum of the coefficients of integral influence of
this control factor on target factors multiplied by the
dynamics evaluation of target factors [23]:
m
E ( ui ) = ∑q ij r y j , i = 1, ..., p.
j=1
Stage 3: scenario modeling of situation develop-
ment. Modeling may be conducted in two modes: self-
development and controlled development.
Modeling on a cognitive map is a dynamic process.
The value of the trend variable of factor xi at time (t +
1) is determined as follows:
xi ( t + 1 ) = xi ( t ) + ∑q j
ji ( x j ( t )
i = 1, ..., n,
STUDIES ON RUSSIAN ECONOMIC DEVELOPMENT
MAKARENKO, KHRUSTALEV
where qij is an element of matrix Qg, and the values of
basic factors at time (t < 0) are assumed to be zero (xi(t)
= 0 at t < 0 for i = 1, ..., n).
This ratio in a matrix form looks like this:
X ( t + 1 ) = X ( t ) ( E n + Q g ) – X ( t – 1 )Q g .
The factor trend value at each moment of time is
determined as the sum of the factor trend value at the
previous moment and all impacts on behalf of the
“neighboring” factors.
Stage 4: the evaluation and interpretation of model-
ing results. To evaluate the efficiency of managerial
2 decisions, a system of indices has been developed,
whose indices show the following:
—the extent of goal achievement, the goal achieve-
ment index;
—the extent of the opportuneness of a situation for
the decision maker, the situation opportuneness index;
—the volume and value of resources necessary for
the implementation of a managerial decision, the
resource intensity of managerial decisions; and
—the managerial decision efficiency index charac-
terizes a ratio of the extent of goal achievement to the
volume and value of resources necessary to implement
a relevant managerial decision.
Stage 5: the cognitive monitoring of a situation. If
the current situation changes at the final stage, the cog-
nitive map is updated, and the processes of structural–
target analysis and development modeling are repeated
for the new situation.
Cognitive analysis and modeling results and sce-
nario forecast of development. As a result of the struc-
turing of information about the current situation in the
Russian DIC and its functional mechanisms, the fol-
lowing basic factors of the complex of DIC cognitive
models have been formulated:
Factor
(1) AF combativeness
(2) Armed conflict/war probability and intensity
(3) Nonbudgetary funds
(4) Russia’s geopolitical influence
(5) Government financing of R&D
(6) Government procurement of WCE
(7) Government expenditures on AF supplies
tion
(8) Government expenditures on WCE repairs and moderniza-
(9) Fixed assets workload
(10) Employment
(11) R&D costs of DIC enterprises
(12) Production costs of DIC enterprises
(13) DIC’s investment attractiveness
(14) DIC’s investment potential
(15) DIC’s investment risk
(16) Intensity of military–technical cooperation
– x j ( t – 1 ) ), (17) Intensity of dual-purpose technology transfers
(18) Qualifications of researchers at DIC enterprises
(19) Qualifications of production workers at DIC enterprises
(20) Number of skilled researchers at DIC enterprises
Vol. 18 No. 5 2007
 A QUALITATIVE APPROACH TO FORECASTING
(21) Number of skilled production workers at DIC enterprises
(22) Competitiveness of DIC’s civil products
(23) R&D plant
(24) DIC’s scientific and engineering potential
(25) Scientific and technological backup of DIC enterprises
(26) Total industrial output
(27) Total outward investments
(28) R&D scope and intensity
(29) WCE output
(30) Civil output
(31) Scope of WCE repairs and modernization
(32) Availability of modern WCE in AF
(33) Political stability
(34) Profits of DIC enterprises
(35) Attractiveness of DIC research work
(36) Attractiveness of DIC production work
(37) Productive potential of DIC enterprises
(38) Federal budget size
(39) Equity of DIC enterprises
(40) Ratio of the real-to-nominal ruble rate
(41) Condition of the fixed assets of DIC enterprises
(42) DIC’s ability to produce modern products
(43) Demand for DIC’s civil products
(44) Cost of energy resources
(45) DIC researchers' compensation level
(46) DIC production worker’s compensation level
(47) WCE’s level and quality
(48) Economic stability
(49) Economic growth
(50) WCE export
The DIC cognitive complex consists of the follow-
ing models: DIC’s scientific-engineering, DIC’s pro-
duction (Fig. 6),1 the military–political situation, and
the socioeconomic situation.
Structural analysis. Goal consistency analysis and
the analysis of control factors for consistency with
goals have shown that the goal vector is consistent and
the control vector agrees with the goal vector.
The analysis of the efficiency of the integral impact
of control factors on target factors has shown that the
factor “Government expenditures on AF supplies” has
the strongest impact on goals.
The second strongest factor in its impact on goals is
the “Intensity of military–technical cooperation,”
because WCE export is the main income and equity
source for DIC enterprises.
The factor “Total outward investments” comes next
in its efficient influence on target factors, which is
explained by the important role that investments play in
the recovery and accumulation of the defense indus-
try’s scientific and productive potential. No less impor-
tant are the investment-related factors: “Investment
potential,” “Investment risk,” and “Investment attrac-
tiveness.”
Situation self-development implies preservation of
the existing factor trends and is, in fact, an extrapolation
1 For the sake of illustration, some model factors are given more
than once in Fig. 6. The echo factors are in dotted ellipses.
STUDIES ON RUSSIAN ECONOMIC DEVELOPMENT
471
of the current situation with the reciprocal impacts of
the basic factors. When determining the resultant value
of a factor trend, we took into account both the trends
of impact factors and the strength of their impacts.
The DIC’s self-development forecast (Fig. 7)2 (sce-
nario 1) shows that the preservation of the current
favorable trends of the majority of factors would lead to
a noticeable, at first sight, improvement of the situation.
For example, this would improve the AF combat readi-
ness, the workload of the fixed assets of DIC enter-
prises, and the investment attractiveness of the defense
industry; increase the total industrial output of DIC
enterprises and total outward investments; and boost
the profits and equities of DIC enterprises.
However, a more thorough analysis of modeling
results shows that practically all factors that character-
ize the defense industry’s potential (the productive
potential of DIC enterprises, the DIC’s scientific and
engineering potential, the DIC’s ability to produce
modern products, and the number of skilled employees
at DIC enterprises) become worse and even acquire
negative trends. The WCE’s level and quality do not
change. This allows us to make a conclusion that the
relative improvement of the situation in the DIC and AF
has been achieved due to a physical increase in output
and consumption and not due to the improved con-
sumer qualities of these products. The improvement is
due to the use of the accumulated backup and utiliza-
tion of the idle productive capacities of DIC enter-
prises. At the same time, new backup is not being cre-
ated.
Thus, the preservation of the current favorable
trends would only lead to a short-term (or medium-
term) improvement of the situation, which would inev-
itably worsen under other conditions being equal.
The situation favorability coefficient for this sce-
nario is 0.2, which indicates a very slow approach to the
goals. This means that the existing trends do not
encourage the favorable development of the situation.
Controlled situation development. The controlled
development of the situation implies a targeted impact
on a factor (factors); i.e., a change in the current trend
of one factor for another (see the table) controls
changes in a chain of impacts.
From the potential vector of controls (government
expenditures on AF supplies, the R&D and production
2 The absence of a histogram element with the value of a source,
target, or resultant trend in Fig. 7 means that the corresponding
value is zero. For each factor, three trends are given in the graph:
(in the order of their appearance) source, target, and resultant.
The source trend is the current growth rate of an index that char-
acterizes the object (a phenomenon or process) associated with
this basic factor. The resultant trend represents changes in a factor
affected by all impact factors. The target trend shows the desir-
able change in this factor. The values of the trend variable are
given in the table. The factors of the complex of cognitive models
shown on the graph were selected to reflect most vividly the
financial–economic and industrial–technological aspects of the
DIC performance and its role in the national economy.
Vol. 18 No. 5 2007
472 MAKARENKO, KHRUSTALEV

DIC's scientific- Ratio of the real-

engineering to-nominal
potential ruble rate

+1 –0.6

0.4 DIC's productive

Fixed assets potential +1 +0.6
DIC's ability to
workload produce modern Competitiveness
products of DIC's civil
products
+0.8
+0.6 +0.8
Total industrial Condition of DIC production
output the fixed assets worker's
of DIC enterprises compensation
Number of level
skilled production
workers at DIC
enterprises +0.4
+0.4
+0.4
Attractiveness of +0.8 Production
DIC production +0.6 +0.6
costs of DIC
work enterprises
+0.8 Cost of energy
Total outward resources
investments
+0.6
–0.6
Equity of DIC +0.6
enterprises
Qualifications
+0.8 of production
workers at DIC Profits of DIC Demand for
enterprises +0.8 enterprises DIC's civil
products
Total industry
+0.4 output

DIC production +0.6 +0.8

worker's +0.4
compensation +0.4
level +0.6 Civil output

Scope of WCE Intensity of

repairs and military-technical
WCE output modernization +0.4 cooperation
+0.4

+0.6 +0.8 +0.6 Government

+0.2
expenditures on
WCE repairs and
Government modernization
procurement WCE export
of WCE R&D scope
and intensity

+0.8

Fig. 6. The cognitive model of the DIC’s production.

costs of DIC enterprises, the DIC’s investment attrac-
tiveness, the DIC’s investment risk, the intensity of mil-
itary–technical cooperation, the intensity of dual-pur-
pose technology transfers, the competitiveness of
DIC’s civil products, total outward investments, the
attractiveness of DIC research work, and the attractive-
ness of DIC production work), which was considered
during structural analysis, we choose a factor with the
most efficient impact on the vector of goals (the AF
combativeness, the DIC’s scientific and engineering
potential, the availability of modern WCE in the AF, the
productive potential of DIC enterprises, the equity of
DIC enterprises, the DIC’s ability to produce modern
products, and WCE’s level and quality), which is the
“Government expenditures on AF supplies.” Consider-
ing the current level of increase in the above expendi-
tures, let us evaluate the probability of their increase as
moderate (+0.6). The DIC development forecast with
the use of this control is presented in Fig. 8 (scenario 2).
Analysis has shown that a moderate increase in gov-
ernment expenditures on AF supplies does not lead to a

STUDIES ON RUSSIAN ECONOMIC DEVELOPMENT Vol. 18 No. 5 2007

 A QUALITATIVE APPROACH TO FORECASTING 473

Trend
1.0

0.8

0.6

0.4

0.2

–0.2

–0.4

–0.6

–0.8

–1.0
1 9 13 14 20 21 22 24 26 27 29 30 32 34 37 39 41 42 43 47
Factors

Fig. 7. DIC’s self-development forecast (scenario 1):( ) the source trend, the target trend, and ( ) the resultant trend.

Trend
1.0

0.8

0.6

0.4

0.2

–0.2
1 24 32 37 39 42 47
Factors

Fig. 8. The DIC’s controlled development forecast according to scenario 2 (control owing to a moderate increase in government
expenditures on AF supplies): ( ) The source trend ( ), the target trend, and ( ) the resultant trend.

noticeable improvement of the situation. The produc-
tive potential of DIC enterprises continues to decrease,
and their scientific and engineering potential develops
slowly. The situation favorability coefficient for sce-
nario 2 is 0.3, which indicates a very poor approach to
the goals.
The modeling and evaluation of the principal proba-
bility to improve the situation by significantly increasing
government expenditures on AF supplies (scenario 3)
show that even this is unable to reverse the DIC’s neg-
ative trends. The situation favorability coefficient for
scenario 3 is 0.6, which indicates a moderate approach
to the goals. Thus, we should bring into play additional
control levers in order to reach the set goals.
The investigation of the forecast of controlled situa-
tion development with a control vector that includes
eight factors (government expenditures on AF supplies,
the R&D and production costs of DIC enterprises, the
intensity of military–technical cooperation, the inten-
sity of dual-purpose technology transfers, total outward
investments, the attractiveness of DIC research work,
and the attractiveness of DIC production work) (sce-

STUDIES ON RUSSIAN ECONOMIC DEVELOPMENT Vol. 18 No. 5 2007

474 MAKARENKO, KHRUSTALEV

Trend
1.0
0.8
0.6

0.4
0.2
0
1 24 32 37 39 42 47
Factors

Fig. 9. The forecast of the DIC’s controlled development according to scenario 4 (with eight control factors):
(
) The source trend, ( ) the target trend, and ( ) the resultant trend.

Trend
1.0
0.8
0.6

0.4
0.2
0
1 24 32 37 39 42 47
Factors

Fig. 10. The forecast of the DIC’s controlled development (scenario 5) (all factors of the control vector are used):
( ) The source trend, ( ) the target trend, and ( )the resultant trend.

nario 4) allows us to make a conclusion about the sig-
nificant improvement of the situation (the situation
favorability coefficient is 0.8, which indicates a strong
approach to the goals) owing to the complex nature of
measures within the framework of the selected control
vector (Fig. 9). This complex may include benefits for
DIC investors, government guarantees for DIC lenders,
the introduction of efficient dual-purpose technology
transfer mechanisms, increased direct government
investments into the DIC, benefits and additional
opportunities for DIC employees, etc.
The chosen control vector does not affect the
defense industry’s civil output and does not contain
macroeconomic leverage to influence the DIC. Note
that the main method of supporting the necessary level
of equity and risk insurance related to the execution of
government military contracts is the diversification of
products. The key factor that determines the success of
such activities is demand for the DIC’s civil output.
Boosting this demand is also a way to improve the sit-
uation in the defense industry. Here, preferential cus-
toms policy, new control technologies, etc., may also
protect the manufacturers of high-tech and science-
intensive products.
Among macroeconomic levers, we may name the
DIC’s investment risk and investment attractiveness. A
favorable change in these factors would lead to
improved investment ratings of DIC enterprises and,
consequently, to increased investments into the defense
industry. A relevant complex of measures may include
benefits for DIC investors, government guarantees for
DIC lenders, etc. [24].
The DIC’s development forecast according to sce-
nario 5 (all factors of the control vector are used) is pre-
sented in Fig. 10.
The situation favorability coefficient for scenario 5
is 1, which indicates the achievement of the goals.
The comparison of the efficiency of control deci-
sions by scenario is given in Fig. 11.
***
Summing up the said above, we would like to note
that the danger of modern wars and armed conflicts
makes it vitally necessary to take comprehensive mea-
sures to control and prevent them. For this reason, Rus-
sia must have modern and efficient armed forces in
order to integrate effectively and painlessly into the
system of international relations now under construc-
tion.

STUDIES ON RUSSIAN ECONOMIC DEVELOPMENT Vol. 18 No. 5 2007

 A QUALITATIVE APPROACH TO FORECASTING
Coefficient value
1.00
0.75
0.50
0.25
0 0
1 2 3 4
Fig. 11. The comparison of efficiency (
) the situation favorability coefficient, () theresource intensity of the control decision (left
diagram), and () the efficiency of the control decision (right diagramm).
DIC problems are integral to the common problems
of reforming the Russian economy. The situation in
which the defense industry finds itself at present is a
consequence of the general socioeconomic processes of
the past decade. It is impossible to solve DIC problems
without mitigating the problems of macroeconomic
regulation. Many problems of reforming the economy
at its macrolevel have not been solved over the reform
decade, and the socioeconomic results indicate this.
The DIC is a relatively independent system, but its
functioning is impossible without close intersystem
relations with foreign policy, the national economy,
military organization, etc. Processes that are under way
in these vital spheres of the country greatly affect the
performance of the defense industry. A qualitative and
long-term improvement of the situation in the DIC and
its potential is only possible by implementing a whole-
some system of financial and institutional measures
with an all-round effect on the DIC.
Analysis of the modeling results allowed us to make
the following conclusions:
—the preservation of the current favorable trends
would only lead to a short-term (or medium-term)
improvement of the situation, which would inevitably
worsen under other conditions being equal. This indi-
cates that the existing trends do not encourage the
favorable development of the situation;
—a moderate increase in government expenditures
on AF supplies would not lead to a noticeable improve-
ment of the situation;
—a very large increase in government expenditures
on AF supplies would not reverse the negative trends in
the DIC either; and
—a significant improvement of the situation may
only be reached by implementing a complex of mea-
sures that may include benefits for DIC investors, gov-
ernment guarantees for DIC lenders, efficient mecha-
nisms of dual-purpose technology transfer, increased
direct government investments into the DIC, benefits
and additional opportunities for the defense industry’s
employees, etc.
STUDIES ON RUSSIAN ECONOMIC DEVELOPMENT
475
Coefficient value
2.0
1.5
1.0
0.5
5 2 3 4 5
Scenarios Scenarios
Streamlining government policy in favor of modern
WCE and activating the performance of DIC enter-
prises are equally necessary for building up Russia’s
military potential. This is due to the fact that govern-
ment policy prioritizes the development of modern
WCE, and DIC enterprises are economic agents that
make the government ideas of military security a real-
ity. During transition to a market economy, these enter-
prises are becoming increasingly independent finan-
cially and economically, and this enables them to
develop their strategies of control over the design and
production of modern WCE and military technologies.
A key condition for the efficient performance of DIC
enterprises is sufficient financial resources based on
equity and government financing. Here, it is important
that DIC products, which meet the world’s current
WCE trends, are in demand in the domestic market.
ACKNOWLEDGMENTS
This study was supported by the Russian Founda-
tion for Basic Research, project no. 06-06-80230.
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