Konversiya (Cyrillic: Конверсия), Russian for "conversion" and used here in the sense of economic conversion was an economic policy initiated by Mikhail Gorbachev in the final years of the Soviet Union[1] and which continued into the early years of post-Soviet Russia.[2]
His aim was to divert resources and economic capacity from military production to civilian production.[1] These measures, carried out from 1987 onwards, were only moderately successful.[1]
Gorbachev first attempted to implement konversiya in the context of the 1987 INF Treaty[1] and continued it in the defence budget cuts of the following year.[1] In theory, once free of the demands of military procurement, manufacturers could spend capacity on consumer goods and other products to enhance civil society.[1] Such a shift in production would also decrease the Soviet Union's reliance on importing such goods from Western nations.[1] All of this assumed that manufacturers would find the switch easy and that only minimal retraining and retooling would be required to make this change.[1] In a 1989 speech to the United Nations, Gorbachev suggested that plans for such conversion should be implemented world-wide, in parallel with arms reduction.[3]
In practice, konversiya was not as easy as this.[1] Defence manufacturers found themselves under-resourced to develop and manufacture new classes of goods.[4] Furthermore, this "bottom up" approach left it to individual manufacturers to determine how to spend capacity, without taking into account broader market forces.[1] At the same time, the Soviet government's capability to provide central planning and guidance was severely eroded.[1] Initial challenges included deciding what exactly to produce, to whom to sell it, how to source the necessary raw materials, and how to finance new production.[5] Additionally, the economies of defence markets are fundamentally different from consumer markets: the former is characterised by highly complex products developed largely irrespective of cost, and the latter by simple products produced cheaply.[6]
As a result, freed-up capacity was not efficiently converted to civil production, and many products that were manufactured turned out to be economically unviable.[2] Managers of manufacturing plants began to jokingly refer to konversiya as diversiya (диверсия, "sabotage") or konvulsiya (конвульсия, "convulsions") or talk about "falling under" konversiya in the sense of "falling under a bus".[2]
Following the dissolution of the Soviet Union, Russian government reforms from 1992 onwards exacerbated the situation by privatising large chunks of the defence industry without addressing these gaps in decision-making.[7] Many of the newly privatised suffered because the loss of historical income impacted their ability to cover fixed costs, particularly wages.[7] This led to a temporary freeze on privatisation on 19 August 1993.[7]
Once privatisation recommenced in a more controlled way in 1994, manufacturers were able to convert capacity more efficiently, but by then the maligned term konversiya began to fall out of use.[2] Notably, financial-industrial groups (финансово-промышленные группы — finansovo-promyshlennye gruppy) spontaneously arose within various industries which were able to help fill the void in manufacturing strategy left by the absence of central planning.[5]