The collapse of the Soviet Union in 1991 hit the defense industry particularly hard. Once the premier sector of the Soviet economy, with immense production capacities, the defense industry suddenly found itself without a market. The economic paradigm that supported it was broken and the customers it existed to serve (the Soviet Union and Warsaw Pact) were no longer buying. For a while, the industry was able to sustain itself by feeding off Soviet-era stockpiles of raw materials. But this was hardly a sustainable solution, and as the industry began to consume those stockpiles, it soon had to confront the realities of a completely new economic paradigm: the market economy. The centrally controlled Soviet economic system did nothing to prepare the industry for working in a modern business environment. That the Russian defense industry has survived at all is not because of military procurement investment but because of foreign sales. Following the demise of the Soviet Union, China became the principal financier of the Russian defense industry, though Chinese purchases have dropped off significantly. Having learned much from imported Russian military technology, Beijing is becoming quite capable of making its own military equipment. India, Algeria, Venezuela and Iran are picking up the slack as importers of Russian military hardware (and thus financiers of the defense industry). The bottom line is that the Kremlin, since the end of the Cold War, has yet to invest enough in its own defense industry to sustain it. The new 2011-2020 procurement plan will likely try to do that, but only time will tell whether a reasonable degree of implementation can be achieved. Meanwhile, Moscow is attempting to eliminate corruption and incompetence and consolidate successful industries under unified aegis like the United Aircraft Building Corporation and the United Shipbuilding Corporation. While much of the defense industry is as bad off as the Russian military during the dark days of the 1990s, certain sectors are nonetheless cranking out quality hardware. At times, Russian military hardware is still derided by Western analysts who inappropriately hold it to Western standards. This is to misunderstand Russian military hardware. Even the best Soviet equipment was designed with lower quality control, mass production, particularly rugged operating conditions (even by military standards) and crude maintenance in mind. In fact, the Russian defense industry has made incremental and evolutionary improvements to the best of late-Soviet technology and is able to produce the results and sell them abroad. The Su-30MK-series "Flanker" fighter jets are highly coveted and widely regarded as extremely capable late-fourth generation combat aircraft. The industry is already working on not only a more refined Su-35 but a larger fighter-bomber variant known as the Su-34. Russian air defense hardware also remains among the most capable in the world. The Soviet post-World War II experience greatly informed the decades-long and still vibrant Russian obsession with ground-based air defenses. The most modern Russian systems — specifically the later versions of the S-300PMU series and what is now being touted as the S-400 (variants of which have been designated by NATO as the SA-20 and SA-21) — are the product of more than 60 years of highly focused research, development and operational employment. Though the S-300 series is largely untested in combat, it remains a matter of broad and grave concern for American and other Western military planners. That this production capacity has endured through the hardships of the post-Soviet era is simply remarkable, and it represents a solid technological footing for Russian military reform. While certain Russian products — night and thermal imaging, command, control and communications systems, avionics and unmanned systems — are neither as complex nor as capable as their Western counterparts, they are often more durable and more user-friendly in the hands of poorly trained troops. Products from the T-90 main battle tank to the new Amur diesel-electric patrol submarines are still extremely capable, as are supersonic anti-ship missiles like the SS-N-27 "Sizzler". Some of these products come from a Russian design heritage specifically tailored to target American military capabilities (read: U.S. Navy Carrier Strike Groups) and are attractive to a number of customers around the world. There are two caveats to this. The first is that Russian military hardware is increasingly competing directly with the products of Western defense companies in places like India. Not only is Russian after-market service reputed to be abysmal, but high-profile problems with quality and on-time delivery (though hardly unique) give pause to potential customers with viable alternatives. The second caveat is that even the newest Russian products have their roots in incremental and evolutionary upgrades from late-Soviet technology, though this is not as problematic as it may seem. Much of the military hardware close to being fielded when the Soviet Union collapsed was quite capable and continues to have very real application and relevance today. This incremental and evolutionary progression continues, even as Russia's industry begins to venture into less familiar territory, such as stealth and unmanned systems. These are areas that will require more innovation and present greater challenges and for which there will be less foundation from Soviet days. This is where the industry's prospects become particularly cloudy. Declines in both the Russian population in general and intellectual talent in particular have been profound. From software programming to aeronautical engineering, what native talent Russia does possess has been finding work abroad. Those who remain are not attracted to the defense sector, which has done a terrible job of recruiting bright, young employees. And what expertise the industry does have is nearing retirement age. The youngest engineers with meaningful design experience during the thriving Soviet era (i.e., who were not hired the year before the entire apparatus came crashing down) are already in their 50s, and even those without Soviet experience will be that old within a decade. The financial crisis of the late 1990s prevented the hiring of new workers and the transfer of institutional knowledge. While Russia recognizes the problems inherent in the defense sector, the window is closing for the transfer of knowledge and experience to a newer generation. Manufacturing can always be outsourced, but without the ability to innovate and move beyond the legacy of late-Soviet designs, the Russian defense industry will be hard-pressed to keep from becoming irrelevant (though it would likely retain some prominence as a small-scale provider of specific — if impressive — niche products like fighter aircraft, air-defense equipment and anti-ship missiles). To compensate for the erosion in broad capability, the Russian defense sector has occasionally cooperated with foreign countries, notably India and China. Most recently, work on the Brahmos supersonic cruise and anti-ship missile combined Soviet-era research and development with Indian intellectual capital to produce a successful product. Moscow is attempting to replicate this experience with the Sukhoi PAK-FA program to build a modern, stealthy, fifth-generation fighter (though the long-anticipated prototype may prove to be little more than a modified airframe with the engines, avionics and subsystems of the Su-35). Countries like India and China have essentially used Russia to gain access to late-Soviet design work and to learn all they can in order to create independent domestic defense industries. Some Russian defense equipment is among the best in the world today and, with even moderate upgrades, will remain relevant for a decade or more. But the Russian defense industry has yet to demonstrate the ability to make a bold generational leap in terms of technology. This does not bode well for the industry's long-term competitiveness and viability. Next: The Georgian campaign as a case study.