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Stabilizing Employment for Nuclear Personnel
The Nuclear Cities Initiative
Status
![[ click here for larger photo ]](../../../images/cnwmphoto_nci1_sm.jpg) Part of Russian nuclear weapons plant converted to civilian production. |
Nuclear Cities Initiative (NCI) is a small program addressing an enormous challenge – the future of Russia's closed nuclear cities.[1] More than a decade after the Cold War, Russia still has ten entire cities, where nearly three quarters of a million people live, which were built only for the purpose of making nuclear weapons and their essential ingredients. These cities are each surrounded by barbed wire and guarded by a division of armed troops; access to them is tightly controlled.[2] With the end of the Cold War, a substantial part of the mission of the nuclear facilities in these cities has disappeared, and government funding for these facilities and the cities around them has plummeted. (For a list of Russia's nuclear cities and their functions, with links to more detailed information, see Nuclear Cities Table.) The purpose of the NCI is to help Russia with its declared intention of reducing the size of its nuclear weapons complex, by helping to: |
- ensure that alternative jobs are provided for nuclear weapons scientists and workers who are no longer needed; and
- convert or shut down nuclear weapons buildings that are no longer needed.
While other U.S. programs share NCI's goal of providing alternative employment for nuclear weapons scientists, NCI is the only U.S. program focused directly on reducing the size of the Russian nuclear weapons complex and ensuring that this reduction does not lead to mass unemployment and instability. By achieving these goals, it is hoped, NCI would reduce the proliferation risks posed by desperate and under- or unemployed nuclear weapons scientists and workers, and reduce Russia's ability to mass produce additional nuclear weapons for its nuclear arsenal, should circumstances change. In principle, reducing Russia's nuclear weapons complex to a sustainable size compatible with its post-Cold War missions is as much in Russia's interest as it is in the U.S. interest. In fact, Russia has announced that with or without U.S. help, it plans to shut two of its four weapons assembly and disassembly facilities, one of two facilities for fabricating plutonium and highly enriched uranium (HEU) weapons components, and all of its remaining plutonium production reactors.[3]
Faced with modest budgets, uncertain political support, and limited high-level attention in both Washington and Moscow, NCI has struggled to make progress in addressing these daunting challenges. Given the small scale of its resources so far, the U.S. and Russian governments have agreed that it should concentrate initially on three of the ten closed cities – the nuclear weapon design cities of Sarov (formerly Arzamas-16) and Snezhinsk (formerly Chelyabinsk-70), and the plutonium production city of Zheleznogorsk (formerly Krasnoyarsk-26). Now operating under joint management with the Initiatives for Proliferation Prevention (IPP), NCI has sought to focus its efforts on key gaps that were not being filled by either IPP or the International Science and Technology Centers (ISTC) – though overlap of these programs has continued to be a problem.
Scope of the Current Nuclear Cities Problem
Russia today is not the same as the Russia of 1992, or even the Russia of the late 1990s. For much of the 1990s, the nuclear facilities in Russia's nuclear cities struggled with government funding that was far less than needed for the facilities to operate safely and securely, and which was often months late or arrived in much smaller amounts than had been budgeted. As a result, nuclear weapons workers struggled with salaries as low as $60 a month, which sometimes were not paid for months at a time. (See The Threat in Russia and the NIS.) The financial crisis of 1998 brought these problems to a head, leading thousands of workers in the nuclear cities to stage strikes and protests over lack of pay, and contributing to a number of alarming security incidents. (See Anecdotes of Insecurity.)
Since then, however, the Russian economy has stabilized, with significant economic growth in each of the last four years, and the Russian government budget has moved from yawning deficit to modest surplus. As a result, the nuclear facilities in the closed nuclear cities, and the city governments themselves, are receiving increased government support, paid on time, and salaries at these facilities (also paid on time), have increased substantially – to the equivalent of $300 per month in some cases.[4]
The key issue now is the future of the 35,000 nuclear weapons scientists and workers who the Ministry of Atomic Energy (MINATOM) expects will no longer be needed for weapons work by 2005, as the nuclear weapons complex contracts over the next few years.[5] A substantial fraction of these people are at or near retirement age, and would retire if adequate and secure pensions could be made available (see discussion below). If this is true for 10-15,000 of the total, that means that 20-25,000 new civilian jobs are needed, if large-scale unemployment for nuclear weapons experts and workers is to be avoided. Neither the U.S. government nor the Russian government has the money to keep paying nuclear workers who are no longer needed forever. In the long run, therefore, a combination of private job growth in the nuclear cities, movement of people elsewhere to work, and retirement as existing workers age is the only answer.
The infrastructure to provide the needed number of new jobs, whether in the nuclear cities or elsewhere, has not yet been built – and the number required is far larger than the combination of MINATOM's own conversion programs and all international assistance efforts have managed to create so far. The time when employees may be most tempted to sell nuclear knowledge or steal nuclear material for sale to others is when they know they will soon lose their jobs, but for the moment still have access to nuclear secrets and materials – and for thousands in Russia's nuclear cities, that time is now. When NCI began, the U.S. Department of Energy (DOE), which oversees the program, estimated that, based on the U.S. experience with its own nuclear complex, each job created in the nuclear cities might cost $11,000 to create, suggesting that $220-$275 million would likely be needed to create the needed jobs – a figure far beyond any present or planned expenditures for NCI.[6]
The obstacles to new business development in Russia's nuclear cities are huge. While Russia's economy is now growing, foreign investors – and even startup or expansion of domestic Russian firms – still face a wide range of difficulties (from confusing taxes to ambiguous contract laws to widespread government corruption) that have severely limited foreign investment in Russia.[7] The nuclear cities themselves were intentionally built in remote locations, making it more difficult for them to produce products and transport them to market competitively. Access to the cities (particularly by foreigners) remains strictly limited, requiring 45 days advance notice, and review of the paperwork for each visitor by the Federal Security Service (FSB, successor to the KGB). Requests for access are frequently denied, often for reasons that are not clearly explained, and foreigners are closely watched (and often searched) when they visit the cities. Attempting to convince investors to put their money into a project in a city where they cannot visit the project quickly should something go wrong is extraordinarily difficult. Having been all-Soviet "company towns" of the nuclear industry for most of their existence, these towns are only beginning to gain market experience and a market mentality; experts in the cities have limited experience with working for an ever-changing competitive market, rather than filling state production orders. On the other hand, if these obstacles can be overcome, the nuclear cities offer thousands of world-class technical experts and tens of thousands of highly educated production personnel, willing to work for salaries far below those in most other developed countries – potentially an enormous economic strength, and a huge potential for profit.
NCI needs to address only a portion of this overall problem to be successful, however. MINATOM has a conversion program of its own, which it funds at roughly $50 million per year (with the revenues coming largely from the HEU Purchase Agreement), and the cities themselves have been financing a variety of efforts to create jobs and revitalize their economies. While these efforts have had both failures and successes, all told MINATOM reports that they have created several thousand of the needed jobs – and they are expected to create thousands more in the future.[8] Other countries are interested in contributing as well, and there may be an opportunity for larger-scale contributions under the new G-8 Global Partnership Against the Spread of Weapons and Materials of Mass Destruction. (See Impact of Other Programs.)
Scope and History of the Nuclear Cities Initiative
Since its inception, NCI has had quite limited resources and has led an up-and-down existence, with many critics and few high-level champions in either Washington or Moscow. The U.S. and Russian governments agreed to establish NCI in early 1998, following a proposal from the Russian-American Nuclear Security Advisory Council (RANSAC) in the fall of 1997, though a formal government-to-government agreement was not reached until September 1998.[9] The Clinton administration had made no provision for such an initiative in its budget request for fiscal year (FY) 1999, and no additional request was made to the Congress. Hence, while the Department of Energy (DOE) provided some limited FY 1998 funds for initial start-up activities from the Initiatives for Proliferation Prevention program, it fell to RANSAC and other non-government organizations to convince Congress to authorize $15 million for NCI in FY 1999.[10] By mid-1999, when the time came for Congressional decisions on the following year's budget, the U.S. government had made little progress in fleshing out a plausible strategy for reducing the security threats in Russia's nuclear cities that could be sold to Congress. As a result, Congress slashed NCI's budget to $7.5 million, and imposed a variety of legislative restrictions.
NCI was not popular in Moscow, either. From the perspective of many in Russia, NCI has meant an endless stream of Americans visiting sensitive areas to discuss potential projects, with precious little in the way of concrete job creation in return – prompting frequent Russian charges that the United States was simply engaged in "nuclear tourism." With their long Soviet experience, some in MINATOM and in the nuclear cities expected that a job creation program would mean U.S. government funding to build new factories which would produce planned products and provide jobs; NCI, by contrast, took a more American perspective that government's role was primarily in helping bridge the gap from technological invention to markets, by providing business training, help with linking up with commercial partners and investors, and the like. This fundamental difference of perspective made reaching agreements on particular projects difficult, especially in the early days of the program. Moreover, some 70% of the funding through December 2000 went to U.S. experts (paying for visits to Russian nuclear cities to help draw up plans, and the like), rather than to Russians in the nuclear cities themselves, provoking loud complaints in Russia and on Capitol Hill.[11]
Nevertheless, by the following year, FY 2001, with key Congressional threat reduction advocates such as Senator Pete Domenici (R-NM) focusing on the importance of the problem, NCI's budget was increased to almost $27 million (the program's high-water mark to date), and a new set of Congressional directions for the program's priorities was enacted – demanding both a focus on projects that could be commercially self-sustaining within three years, and pursuit of Russian agreements to shut down key weapons production facilities.[12] By then, some key NCI projects (described below) were beginning to bear fruit, more focused management approaches were being put in place on the U.S. side, and prospects for the program seemed to be improving. There were still, however, substantial complaints on the Russian side about the small proportion of money going to Russia and the meager job-creation results, and complaints on the U.S. side about difficulties in getting access to the cities to move projects forward, and other Russian barriers to building up private enterprise in the nuclear cities.
This apparently improving picture was reversed when the Bush administration came to power in January of 2001. The new team proposed to slash NCI's budget by 75%, to $6.6 million; key officials associated with the Bush administration's review of threat reduction programs made their hope to terminate the NCI program clear; and a General Accounting Office report released in March 2001 criticized NCI for spending most of its money in the United States, having no strategic plan, and focusing a significant portion of its effort on projects with little commercialization potential.[13] With Russian officials little more supportive, the program spent a good deal of 2001 fighting to survive, making the case that the issue it was addressing was critically important, and that with improved management approaches and increased Russian cooperation (as represented by a new agreement on access to the closed cities signed in mid-2001), there were good prospects for NCI being able to have a substantial positive impact.
In the wake of the September 11 attacks, that effort appeared to have succeeded: with Congress providing hundreds of millions in supplemental funding for nonproliferation efforts, the NCI program's budget for FY2002 ended up at $21 million – less than the previous year, but far more than the Bush administration had requested; the Bush administration's review accepted NCI's continuation; and in response to the GAO report, Congress and the administration agreed to put NCI under joint management with IPP, while keeping both programs as separate entities. The Bush administration proposed again to reduce funding for NCI in FY2003, but not as sharply as it had proposed to do the previous year; NCI's survival seemed assured. During 2002, however, a project that had been billed by some program officials as NCI's key flagship effort collapsed (see discussion below), and political support for NCI in both Washington and Moscow remained very weak. There is no doubt that the constant need to fight for the program's survival has substantially undermined NCI managers' ability to plan and implement a successful effort. As Senator Domenici (R-NM) has remarked, NCI is caught in a Catch-22, with constant demands to produce eye-catching results in return for resources clashing with inadequate resources to produce any eye-catching results.
NCI Projects
The projects NCI has funded fall into three principal categories: downsizing weapons infrastructure, subsidizing civilian job-creation projects, and financing infrastructure improvements (designed both to improve the business climate and to improve the quality of life).
Weapons complex downsizing. The principal project here is at the Russian nuclear weapons assembly and disassembly plant "Avangard," in the closed city of Sarov. NCI has financed a major project to move the fence at Avangard so that 6 buildings totaling 550,000 square feet, on 10 acres of land – about 40% of the Avangard facility – are now outside the fence and opened to civilian work in the new "Sarov Technopark."[14] The last nuclear weapons work will be phased out at Avangard in 2003. This was an historic event – the first ever opening of part of the Soviet nuclear weapons complex – but the total reduction in Russia's capacity to produce nuclear weapons was small, as Avangard was the smallest of four nuclear weapons assembly and disassembly facilities. In addition to the Avangard project, as part of the negotiations toward establishing the "Open Computing Centers" in Sarov and Snezhinsk (see below), computers that had been transferred from U.S. firms to the Russian weapons labs were moved out of the weapons areas to the OCCs, eliminating concerns over their possible use for weapons work. A Zheleznogrosk Technopark has been established as well, but this was not carved out of former weapons production space in a similar way.
Job creation. As of early 2002, NCI had provided support for some 10 job creation projects in Sarov, 11 in Snezhinsk, and 7 in Zheleznogorsk.[15] A few of the most important include:
- Fresenius: Kidney Dialysis Equipment. Fresenius, a leading producer of kidney dialysis equipment, had reached agreement with NCI to make a substantial investment in a project that would produce components for such equipment at the Sarov Technopark at Avangard. This was to have been the Technopark's flagship project, and was frequently touted by DOE officials as a key NCI success, with other commercial firms coming right behind Fresenius to make investments in projects in Sarov.[16] Ultimately, however, Fresenius pulled out of the project when MINATOM could not provide satisfactory commitments on the ability to Fresenius personnel to get timely access to the project. This was a serious substantive and political blow to the NCI effort.
- Open Computing Centers. Russia has developed a thriving software industry, in many cases doing "outsourced" software development on contract to foreign companies.[17] Russian weapons experts have strong expertise in software, particularly since the Soviet Union's less impressive computer hardware forced them to develop efficient algorithms for their weapons work. Intel has for some time employed a group of former weapons workers in Sarov to work on Intel software design. NCI therefore sponsored the establishment of "Open Computing Centers" – open in the sense that they are outside the fence of the nuclear facility, though still within the closed city – in Sarov and Snezhinsk.[18] A third center in Zheleznogorsk is planned to open shortly. These centers have been the largest job-creation efforts funded by NCI, supporting hundreds of jobs in total. To date, however, these centers have subsisted primarily on subsidized work provided by the U.S. national laboratories, with only a modest fraction of their effort being competitively won commercial work. Efforts to get the thriving Russian software industry to invest in these centers, or Western firms to provide large-scale contracts to them, have borne only modest fruit to date. The Sarov center has been placed under new, more entrepreneurial management, and has merged with the "Open Science Center," also supported by NCI, to form "Sarov Labs," a joint stock company to be run as a commercial business.[19] The Zheleznogorsk center will have a major investment from Novosoft, a leading Russian software developer operating on the international market, and hence will start from the beginning operating primarily as a commercial business.[20]
- Nuclear Waste Processing, Zheleznogorsk. Russian experts at the plutonium production facility at Zheleznogorsk have developed a technology for cleaning intensely radioactive sludge from the bottom of high-level waste tanks, a multi-billion-dollar problem at facilities such as Hanford and Savannah River in the United States (as well as Russian facilities). With help from NCI, they have established a firm that hopes to provide technological consulting services for high-level waste tank cleanout projects. The effort already employs dozens of people, and could potentially employ hundreds of people if the firm successfully penetrates this cleanup market.
- Identification Technologies Company. The deputy director of security at the nuclear weapons design laboratory in Snezhinsk resigned to found this company, which distributes equipment for upgrading nuclear security at sites in Russia. The company is making money commercially, providing jobs for Russian nuclear security experts, while simultaneously contributing to the parallel U.S. goal of improving protecting against theft of nuclear material at Russian nuclear facilities.
- European Bank for Reconstruction and Development (EBRD) Small Business Loans. The EBRD has a half-billion-dollar fund for providing loans to small and medium-sized enterprises in Russia. NCI provided $1.5 million to allow the EBRD to set up loan offices in each of NCI's three target cities; the EBRD itself also set up an office in Seversk (formerly Tomsk-7), home of a large plutonium production, uranium enrichment, and weapon component fabrication facility. Although the interest rates on the EBRD loans are at commercial rates – a fact which provoked considerable Russian complaint – demand for these loans in the nuclear cities has been high. By the end of 2001, the EBRD had made 982 loans in the four cities, totaling $3.9 million;[21] $5-$6 million.[22] Each such loan goes to some one with a reviewed proposal for starting or expanding a small or medium-sized business. The default rate on these loans has been close to zero. While EBRD does not collect data on the number of jobs created as a result of these loans, it seems very likely that the average number of jobs created per loan is at least 2-3, which suggests that this project may have created several thousand new jobs in Russia's closed nuclear cities – by far the biggest job creation success NCI has had, though an uncertain one.
- Nonproliferation Analysis Centers. Working in cooperation with RANSAC and with U.S. foundations, NCI has supported the establishment of nonproliferation and arms control analysis centers in both Sarov and Snezhinsk, Russia's two principal nuclear weapons design cities. (Experts from U.S. nuclear weapons labs play key roles in U.S. nonproliferation policy, advising on matters ranging from what technologies should be controlled to constrain proliferators' nuclear weapons programs to how best to secure nuclear warheads and materials.) These centers have provided detailed analyses of a range of subjects. The Sarov center, in particular, in addition to analyses of specific nonproliferation topics, has provided quarterly assessments of economic and political developments in Sarov, which have been useful to both the U.S. and Russian governments in assessing next steps for promoting economic development in the city. These centers, however, employ only a couple of dozen people. A much larger number of Russian weapons experts work on other U.S.-Russian nonproliferation cooperation programs (see Impact of Other Programs). The job-creation potential of the nonproliferation centers could expand substantially if their role was expanded to include nonproliferation technology research and development, on contract to the U.S. and other governments (see discussion below).
NCI has pursued a wide range of other projects designed to create jobs for workers and scientists in the nuclear cities as well, from expanding production of high-voltage switches for the Russian electric power industry to technical services to the Russian oil and gas industry. Some of these have been successful in providing modest number of jobs, and are either self-sustaining or seem to be on a path toward achieving that goal; others have been failures. All told, NCI argued that as of mid-2001, it had succeeded in moving 370 weapons experts out of Russia's nuclear weapons complex and providing them alternative employment (in addition to the uncounted jobs created by the EBRD loans);[23] that number has increased only modestly since then.
NCI has succeeded in drawing in a significant amount of capital from other sources, leveraging NCI's own investments. As just noted, the $1.5 million investment in setting up EBRD loan offices has already resulted in $5-$6 million in loans in the nuclear cities from the EBRD, and the very modest investment in the IDCs has helped experts in Zheleznogorsk win some $17 million from MINATOM headquarters.[24] MINATOM has invested several million dollars from its conversion program in NCI projects, a new European Nuclear Cities Initiative (ENCI) has been established to complement NCI, the British government has announced its intention to launch a small program in the nuclear cities, and – perhaps most important – private firms have provided millions of dollars in contracts or investments to entities supported by NCI. The list of private firms that have entered into or considered investments in or contracts with NCI projects includes firms such as Motorola, General Electric, and General Motors.[25] Every single one of the projects NCI was supporting in FY 2001 had some Russian contribution, and two-thirds of them had Russian monetary contributions complementing the U.S. government support.[26] As of mid-2001, NCI estimated that $37.5 million in NCI spending (as of that time) had leveraged $24.7 million in investment from other sources.[27]
Community development and infrastructure. Particularly in its early years, NCI supported a broad range of projects designed to create a more favorable business infrastructure, or a more livable society, in the nuclear cities – ranging from helping to install improved telecommunications capabilities (including high-speed internet connections that would help experts in the nuclear cities win research and development (R&D) outsourcing contracts for companies abroad), to helping to improve medical care in the cities. NCI has also arranged the establishment of "sister city" municipal exchanges between Russia's closed cities and the cities near comparable nuclear facilities in the United States, in which city leaders (and high-school students) exchanged visits and compared their approaches to common problems. NCI has also financed a variety of training programs, from business management to protecting intellectual property rights.
Perhaps the most important and successful of NCI's infrastructure investments has been its investment in the "International Development Centers" (IDCs) in Zheleznogorsk and Snezhinsk.[28] These centers, each led by a Russian with substantial experience in Russian commercial industry, provide a wide range of services to those attempting to start or expand businesses in the cities – from business training, to space for meetings with foreign partners, to help with developing business and market plans. In addition, they have worked with the city governments to help prepare economic development plans for these cities. Like the nonproliferation centers, the IDCs themselves employ only a few people – but have the potential to have a substantial indirect impact on job creation. For example, experts from Zheleznogorsk won $17 million in competitive grants from MINATOM's own conversion program in 2001, more than any other nuclear city, and attributed that success in significant part to the assistance their IDC provided in project development and analysis.[29] Responding to congressional direction to focus on projects that can be rapidly commercialized, NCI has now phased out most of its support for community development and infrastructure projects, except for the IDCs.
In short, NCI has had some success in downsizing infrastructure and creating jobs, in the very difficult political and economic environment in Russia's closed nuclear cities. NCI has also given the United States a window into what is happening in Russia's nuclear cities, and channel by which to discuss the changes there with Russia and seek to influence them. These intangible benefits are important, and should not be ignored. But what has been achieved to date is extremely modest by comparison to what is needed. Four years since its inception, with $67 million appropriated through FY 2002, NCI has contributed to the shutdown of only a very small fraction – perhaps 5-10% – of Russia's nuclear warhead assembly capability, and a still smaller proportion of its total nuclear weapons complex. It is unlikely that NCI has created as many as 4,000 jobs even if the uncounted number resulting from the EBRD loans is included. That is perhaps 10-20% of what is needed, and if 4,000 were the right number, the cost to date would be almost $17,000 per job created.[30] Some of the projects NCI has supported may grow and thereby create additional jobs in the future; others, however, may prove not to be sustainable when no longer subsidized by NCI, ending jobs currently counted as "created."
NCI officials argue, with some merit, that direct job creation is not the best metric for measuring their success, and that they will be successful if they help create a better business climate in the nuclear cities that leads to economic revitalization and job creation there. Developing metrics to assess how well the program is meeting that objective, however – and how much of the economic changes occurring in these cities has anything to do with NCI's efforts – is a difficult challenge; the program has not developed such metrics to date. Moreover, political support for NCI among Russian and U.S. officials will be severely undercut if the program does not succeed in achieving the visible metric of job creation. In short, the challenge is huge, the effort to date has had only modest success, and the resources provided to date have been woefully inadequate to the task.
Budget
See
budget table
NCI has received $67 million in appropriations through FY 2002, with $21 million of that coming in FY 2002 itself. The up-and-down course of these budgets is described above. The Bush administration requested $16.748 million for NCI in FY 2003. While Energy and Water appropriators in both the House and Senate approved the Bush administration's request, this appropriation was not completed, so as of late 2002, the Department of Energy was running on a continuing resolution, along with much of the rest of the government. Program officials expect to receive approximately $16 million in FY 2003.[31]
By contrast, in 1998 DOE officially estimated that $550 million over 5 years – more than six times the annual rate planned for FY 2003 – would be needed to foster sustainable employment for 50,000 people in Russia's nuclear cities.[32] Even if only half that number of jobs is required, and even if funds can successfully be used to leverage private investment, the fact remains that NCI's current resources are simply not on a scale that can have any very large impact on the future of ten entire cities – or even of the three cities where it has focused so far.
Key Issues and Recommendations
While criticizing NCI's progress, the GAO report concluded that making an effort to help Russia shrink its nuclear complex and provide alternative employment for the nuclear scientists and workers who are no longer needed is "clearly in our national security interest." NCI has the potential to make a critically important contribution to U.S. and international security – in effect addressing the root causes of nuclear insecurity, rather than the symptoms. But to achieve that potential, a broad agenda of reform of the effort is needed, including:
- A broader approach to fostering private sector job growth in the nuclear cities;
- A more comprehensive set of job-creation tools than relying only on quick technology commercialization, including contracting a portion of U.S. nonproliferation, nuclear cleanup, and energy R&D to nuclear city experts (a win-win-win approach that would get this work done for less and provide access to unique Russian concepts and technologies, while creating sustainable jobs for Russian nuclear city experts);
- Support for secure retirement for Russian nuclear scientists and workers;
- A more focused approach to working with Russia to reduce its nuclear weapons infrastructure to a sustainable size; and
- Substantially increased resources – both of money and of sustained high-level attention.
A broader approach to economic redevelopment.[33] Currently, NCI focuses primarily on subsidizing the startup or expansion of particular business projects, usually involving attempts to commercialize technology from the Russian weapons institutes. These projects are typically proposed by Russian weapons experts, reviewed by DOE and national laboratory experts, and then an attempt is made to "sell" them to Western private firms, to convince them to invest in and partner with these potential enterprises. This approach has multiple flaws. First, DOE and its national laboratories have been notably unsuccessful in commercializing laboratory technology in the thriving U.S. economy; why they are expected to be successful in the far more difficult circumstances of Russia's nuclear cities is not clear. Second, while considerable effort is made to identify projects with commercial potential, nonetheless the initial suggestion of projects tends to be more "technology push" than "market pull" – more trying to sell a technology developed by the Russian labs than trying to adapt these labs' expertise to pursue market opportunities as they develop. Third, while lack of initial start-up capital is a substantial constraint on establishing or expanding businesses, government subsidies for a portion of the initial start-up capital are no guarantee of commercial success, particularly in the extremely difficult environment for private business found in these most Soviet of Russian cities.
More broadly, there appears to be no example anywhere in the world where very modest subsidies for high-technology startup firms were themselves sufficient to revitalize the economy of a city or region where the main previous industry had gone into decline. Revitalizing such a region is not an uncommon problem (though some of the specific circumstances in Russia and its closed nuclear cities are unique), and the evidence from both successful and unsuccessful experiences in the United States and around the world makes clear that a broader set of tools – ranging from investments in infrastructure and education to tax breaks and other incentives for businesses to locate in the targeted area – are essential to success. To overcome the huge obstacles to business development in Russia's closed nuclear cities in particular – and seize the opportunities there – the traditional approach of most past U.S. efforts related to defense conversion, focused on funding high-tech R&D and providing some business training, will be helpful but will not be enough. The full spectrum of tools that have been used to promote private-sector growth in other areas (in Russia and elsewhere) – business centers, loan guarantees, political risk insurance, start-up capital for new enterprises, tax incentives, and the like – are likely to be necessary.
Neither DOE nor MINATOM is well-suited to imaginatively deploying such a broad set of economic development tools. Indeed, to date, NCI (and other U.S. programs) have been notably unsuccessful in working with the complete set of agencies of the U.S. and Russian governments that would be needed to put a broadened economic development strategy for these cities into place. Since NCI began, for example, the Russian government itself has granted and then taken away "tax haven" status for these cities, to attempt to convince businesses to locate there, has drastically increased the level of federal support for both the nuclear facilities and the city governments at these sites, and has ratcheted up the security services' intrusive monitoring and control of foreigners visiting these cities, while publicly suggesting that their gates will be opened in the future. These steps almost certainly had far more influence (both positive and negative) on the economic futures of the nuclear cities than anything NCI has managed to accomplish to date, yet all were done with essentially no discussion between the United States and Russia concerning how such policies could be shaped to maximize the chances for success in the common goal of providing needed alternative employment as Russia's nuclear weapons complex contracts. Similarly, in the 1990s, the United States launched a "Regional Investment Initiative" designed to use all of the tools available to the U.S. government to encourage foreign investment in certain selected regions in Russia that were leading the way in reform; no similar effort to bring a wide range of the U.S. government's tools to bear has been taken for the nuclear cities.
- Recommendation: NCI should establish an advisory group that includes individuals with substantial experience in several areas, including revitalizing the economies of regions where the main industry has declined; high-technology commercialization; commercial firms' approaches to performing contract R&D; and Russian market conditions. Working with this advisory group, NCI and its Russian counterparts should develop a broadened program plan, drawing together a wide range of tools that could be applied by the U.S. and Russian governments to promote job growth in the nuclear cities. This plan should be based on adapting the lessons of other efforts to revitalize the economies of regions where the main industry has declined to the unique circumstances of Russia's closed nuclear cities.
- Recommendation: The U.S. and Russian governments should establish a broader and higher-level dialogue about steps that could be taken to ensure a stable transition for Russia's nuclear cities (and, more broadly, for all the closed cities in Russia). This should include joint development of a package of incentives the two governments could offer to businesses to employ former nuclear weapons experts and workers – whether those jobs are in the nuclear cities themselves or elsewhere. Examples could include:
- Tax breaks to businesses for each former nuclear weapons expert or worker they employ (whether the job is located in a closed city or elsewhere)
- Subsidized equity and loan capital for starting or expanding businesses in the closed nuclear cities
- Russian government investments in infrastructure and training needed for business development in the nuclear cities
- Recommendation: As part of the broader dialogue just recommended, the U.S. and Russian governments, in consultation with the private sector, should develop and implement an approach to allowing rapid access to these cities by pre-cleared individuals associated with firms that have made investments or written contracts for work in these cities. An approach to access that is workable for the private sector is crucial to creating private-sector jobs in these cities; this issue, more than any other, killed the Fresenius project, and other firms will have observed what took place in that episode.
- Recommendation: As part of this ongoing dialogue, NCI and MINATOM's own $50 million/year conversion fund should be much more fully coordinated (and integrated, where possible), to maximize the leverage of the combined funding in promoting economic revitalization in Russia's nuclear cities. (Currently, while MINATOM's fund has made some investments in NCI-supported projects, it generally supports its own efforts with little consultation or