THE ECONOMIC-PROCESS OF CONVERSION AND TH E ROLE OF THE STATE

In a shortage economy, as in a decentralized economy, the specific nat ure of the defence sector is governed by the particular constraints fa ced by defence enterprises. Conversion can then be defined as a change of the institutional environment facing defence firms, from an enviro nment characterized by bargaining over priorities into a competitive e nvironment. However, in the case of Russia, conversion is taking place as the economic institutions of a decentralized economy are themselve s still in the making. The specific defence institutional environment has a repercussion on the types of assets developed by defence firms. Competitive assets, especially technologies are over-developed. But te chnology is not the only determining factor of the conversion process. Entreprises have to develop their efficiency assets and get rid of th eir complementary assets. The role of the State is then to help firms in the process of conversion to overcome these difficulties. But State -action cannot only be defined in terms of the specific nature of the defence sector. Indeed, conversion is only an extreme case of any econ omic activity in a decentralized economy where decision-making is base d on uncertain information. The role of the State is then to create th e institutional and macro-economic environment facilitating appropriat e decision-making. This involves establishing the rules of a decentral ized economy and implementing economic and industrial policies. Howeve r, rule-making is problematical in Russia when the legitimacy of the S tate itself is in question.