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A slew of stories in the Russian press today illustrate again the deeply ingrained problems that country has, both in corruption and in its ability to produce a quality product.
- Source says Russian rocket crash caused by human error
- Some 100 space industry officials fired over three years – deputy PM
- First suspect under house arrest over embezzlement in Russia’s space sector
- Audit reveals $1.8 billion financial violations at Russia’s space agency
The last story describes the overall scale of the corruption, which is not confined just to the space sector, but can be found in many industries. The aerospace industry just happens to be the most visible outside Russia, and thus the most embarrassing. Yet,
Despite numerous efforts to reform the space industry since a long streak of crashes and high-profile failures began in 2010, Russian rockets continue to explode and officials are at a loss as to how to fix the space industry’s problems.
The newest government solution? Put the entire industry into one corporation run by the government.
It seems that the concepts of competition and open markets failed to gain a foothold in Russia since the fall of the Soviet Union. After the fall the many different government design bureaus that built different things in the space industry each became independent private companies. The hope had been that they would begin to behave as private companies do, independent and competitive, striving to gain a bigger market share — and bigger profits — by using their creativity to produce better products.
Unfortunately, none of them ever tried very hard to do this. Instead of innovating and trying to win business from others with better ideas built for less, they each continued to focus on their particular specialties as assigned during the Soviet era. To compete with another company would mean they were invading that company’s territory. Moreover, managers both in and out of these companies probably frowned on such competition, trained as they were in the Soviet way of doing things.
If a new private business formed, free from this old thinking, pressure from these established companies worked to prevent them from gaining customers within Russia. Imagine the way the Prohibition-era mob syndicates would work here in the U.S., dividing up cities into territories that belonged to each different syndicate and then working together to keep new players from cracking the market.
The result has been that, a quarter of a century later, no new companies ever formed in Russia, and the only way managers in the old companies know to make big bucks is to embezzle money. And the only way Russians see to fix the problem is to put everyone under the control of the government which will then impose strict discipline on managers to prevent theft from happening.
Will that clean things up? It will likely get rid of the worst corruption, but it won’t do much to improve quality at the assembly line. Moreover, the fix will only work in the short run, since it will do less than nothing to foster competition, which in turn will do little to foster innovation.