One of every ten residents of Obninsk, including children and pensioners,has a private business.

Journal of the City, Obninsk, 1998

The advent of the market economy doomed Zarechny. The city's economy crashed. The city managed to find a way out and becamean example of the effectiveness of the principle of local autonomy.

Business in Russia, 1996

Why do highly talented students enroll in difficult physics faculties at Russian universities and, five years later, turn their backs on careers in science? Why have so many high-tech companies established by leading Russian scientists and engineers gone bankrupt while a few scientific entrepreneurs have found lucrative markets in western Europe? How can scientists with incomes of less than $100 per month afford to own automobiles? Why has street crime declined in a small nuclear city with open borders in the Urals at the same time that criminals run rampant in other cities of the region? Why do residents living next to a nuclear power plant have longer life expectancies than the average Russian? In 1998, three American colleagues and I worked together with three teams of Russian specialists to find the answers to these and other questions. Our two-year investigation of the social and economic conditions in three nuclear cities—Obninsk, Zarechny, and Snezhinsk—provided insights into these and other puzzles surrounding the future of the technology born in the Russian, formerly Soviet, nuclear complex.

Each city has a nuclear pedigree. Highly talented scientists and engineers have spent many years in each city's largest institute as researchers in nuclear programs, including programs supporting weapons development. Laboratories are packed with sophisticated equipment to probe the structure of the atom. Storehouses contain highly enriched uranium and plutonium that can be used to create nuclear weapons whether or not the materials were intended for that purpose. In each of the cities, the Russian Ministry of Atomic Energy (Minatom) is a major force in determining research priorities. And, in Moscow, Minatom is the principal voice in gaining budgetary and legislative support for the cities.

Nuclear scientists and engineers spend much of their time attempting to adapt technologies to civilian markets, and the cities have become homes for a wide variety of technology endeavors unrelated to the nuclear industry. However, the Soviet legacy of considering all nuclear developments as having security implications complicates the efforts of the specialists to enter into the mainstream of the country's economic life. City and institute leaders have difficulty convincing Russian security forces that the cities house more than merely military assets. Security mindsets will not change easily.

Access by Russian visitors and foreigners to enterprises and institutes in the cities varies greatly and is sometimes unpredictable. Large areas of Snezhinsk, for example, have never been seen by outsiders. Even entry into the residential parts of Snezhinsk requires special permission to pass through the main gate. At the other extreme, almost all districts in Obninsk are open to casual visitors, with only a few laboratories completely off limits. Zarechny, while officially open to visitors, has limited entry points where unwelcome visitors are quickly spotted.

Until the collapse of the Soviet Union, the futures of the three cities were assured. Then the Russian government, strapped for financial resources and under international pressure to take steps to expedite arms control agreements, began downsizing the nuclear weapons complex. Many residents of the cities confronted the realities of economic survival for the first time. During the 1990s, hopes within the three cities have risen with each pronouncement from Moscow of yet another program to support conversion to civilian activities. Aspira-

tions have then promptly fallen when the Ministry of Finance withdraws its funding commitment for the proposed program.

The cities range in size from 33,000 to 110,000 residents. They are located in contrasting geographic and environmental settings. Most importantly, their leaders have traversed different roads in making the transition to a new type of economic order in Russia. They all search in their own ways at home and abroad for funding sources to help maintain a semblance of financial viability.

Our two-year study assumed that a review of lessons learned in one city about the role of science and technology in regional development, about innovation centers, and about working with foreign partners should benefit not only those planning the future of that city but officials in other municipalities as well. However, we found that local Russian leaders often perceive their cities and problems as “unique,” and they may not be interested in approaches of other officials regardless of their success. But federal policies concerning pensions, taxes, and a host of other issues cut across all cities. International programs that provide grants and purchase equipment or that support foreign travel are open to institutions throughout the country. In addition, costly mistakes in one city that lead, for example, to bankruptcies and brain drain should pique the interest of officials of all cities with similar problems.

In the Soviet era, few pleasures exceeded a two-week, all-expenses-paid holiday at a sanatorium. On three occasions during the era of the new Russia, I spent the night at the sanatorium in Obninsk—no longer well-polished, no longer teeming with attendants, and no longer free. Bring your own ping pong paddles, tennis rackets, and chess set, as recreation equipment has disappeared. Still, the whirlpools, electrical stimulation cubicles, and massage parlors are usually busy, primarily servicing short-term vacationers who live nearby but need an escape from their daily routines. The food and accommodations are adequate, and life may not be as desperate as suggested by

western investigative reporters who warn of a precipitous collapse of Russia's nuclear empire.

The history of Obninsk dates from 1946, when the Communist Party established Laboratory V 60 miles south of Moscow. “V” is the third letter of the Cyrillic alphabet, and Laboratory V was the third research center in the Soviet nuclear weapons complex. (Laboratory A had just been established in Sukhumi on the Black Sea to investigate the properties of plutonium. The southern Urals was the site of Laboratory B, where biophysics and radiation chemistry were emphasized.)

Laboratory V slowly spawned a substantial city. By 1956, the scientists south of Moscow were ready to make the transition from a settlement that was simply an outpost of a government ministry to a genuine municipality. On July 24 of that year, a governmental decree conferred city status on Obninsk.¹ Forty-one years later, President Yeltsin issued another decree, this one declaring Obninsk to be Russia's first experimental science city. Even though the concept of science cities dates back several decades (as shown in Chapter 7), the Russian government realizes that new approaches are critical if these cities are to survive and eventually thrive in a market economy. Obninsk has become a symbol of this new approach.²

Obninsk was originally established as a center for designing nuclear reactors. These reactors were to propel Soviet submarines, to power space satellites, to generate plutonium for weapons, and to provide electricity for the country's grids. The world's first reactor to provide electricity for commercial use remains a city landmark.

Breeder reactors, long an Obninsk specialty, generate plutonium that can be recycled as fuel for continued operation of the reactors. The world's first breeder began operating in the 1960s in Aktau (now in Kazakhstan) on the shore of the Caspian Sea. Until it closed in 1997, it had the dual tasks of providing electricity for the city and power for a desalination plant. The second Soviet breeder was commissioned in the 1980s and still operates in Zarechny, one of the three cities included in our study.

Of course, the Chernobyl accident set back reactor development in Russia, as it did throughout the world. Nevertheless, the scientific leadership in Obninsk is confident that nuclear reactors will again be

in favor, at least in Russia, France, and Japan, and that the city will continue to live up to its reputation as the leading international research center for breeders. New designs worked out at Obninsk envisage reactors that use as their fuel plutonium and uranium removed from nuclear warheads. But the scientists have not yet convinced authorities who control purse strings in Russia and abroad that investing billions of dollars in new nuclear reactors in Russia makes political, financial, and environmental sense.

The city has more than just nuclear reactors. It also boasts the world's largest artificial cloud chamber. Entering this chamber of the Russian Hydrometeorology Service, the unsuspecting visitor feels as if transported to Star Trek's Enterprise. At the medical radiology center, views of cancer patients being subjected to intensive radiation engender immediate respect for the practical applications of nuclear science. In the agricultural radiology laboratories, the tedious task of cataloging soil conditions from every acre within wind distance of Chernobyl, and of measuring the radiation levels in the milk and vegetables taken from that land, has been under way for more than a decade. Finally, at the Obninsk branch of the Moscow-based Karpov Institute of Physical Chemistry, sales to western customers of medical radioisotopes produced in Obninsk have kept the entire institute solvent.

The importance of these activities seems clear. But, only the Karpov Institute has found reliable cash cows for its work. The Russian ministries of both Health and Agriculture—as well as the Hydrometeorology Service—are the logical sponsors of many activities in Obninsk, but they have few resources to support innovative work. Meanwhile, foreign grants keep some laboratories in business.

Since 1991, the bustle of this city of 110,000 inhabitants has attracted many new young residents. Most arrivals, together with local young scientists who have grown impatient with low paychecks and have abandoned research, now see their futures in the business sector. Overall, the active scientific workforce of Obninsk, for decades the backbone of the city, has declined by 23 percent. While most older scientists stick to their professions, most younger ones look for other types of jobs.³

Residents have faced shortages of goods and services at work, in

the home, and in the schools. Yet, with 4,000 registered enterprises, a number of state research institutes (see Box 8.1), and 300 small businesses in the scientific and technical sphere, city leaders believe that this technology-oriented city can rebound. They point to several of Obninsk's favorable features.

The city has established an infrastructure to support small innovative businesses. Two cornerstones are a Center of Natural Sciences and Technology and a Business-Incubation Center. (Box 8.2 identifies small firms linked to these centers, firms that had promise of succeeding at the end of 1998.) A venture capital fund has also been sponsored by the city and region.

The city's overall “business plan” is cast within the context of regional development. Such an approach is often adopted in the United States when cities are trying to adjust to the closing of military bases.⁴ Priority areas for contributing to the region's development include telecommunication networks, computer technologies, energy resource development and energy conservation, laser technologies for use in medi-

cine, polymer and other high-strength materials for light and heavy industry, and filtration technologies. This outreach is a promising departure from narrower marketing approaches of the past.

The Russian government has agreed to transfer federal facilities to municipal ownership, or at least local control, on a case-by-case basis.

Also, the city must approve any actions by the federal government to change the status of state enterprises located in the city—including closure of enterprises. This primacy of local authorities may be unique in Russia.

Higher education opportunities have increased, with 3,100 students enrolled at nine university-level institutions—a growth of 35 percent from 1990. The city has identified management training as a top priority. The city leaders recognize that the Soviet approach to training managers, practiced for decades in Obninsk, is no longer appropriate, and they have turned to western countries for assistance in their effort. Whether this concern over education will translate into graduation of technology-oriented entrepreneurs has yet to be determined.⁵

The veil of optimism of city leaders is paper thin, however. Funding to launch most planned activities is missing, with the city contending that the federal government has reneged on its commitment to support the science city experiment. The centers for innovation are barely surviving. The venture capital fund has yet to operate.

Turning to taxes, the city's situation has gone from bad to worse. Tax payments in kind rather than in cash have become the norm. The city may receive large quantities of building material from construction firms, but the mayor can' t meet his payroll using bricks and unfinished doors. As to tax breaks promised for innovative firms, federal designation of Obninsk as a tax-free zone for investors in high-tech activities may not survive, and claiming any type of tax exemption for research activities is difficult for entrepreneurs.⁶

Meanwhile, the influx of mafia groups into the residential areas of Obninsk, which is within commuting distance of Moscow, is both a blessing and a curse. They purchase goods and services locally, with some contribution to the city's tax base. But many unsavory people gravitate toward mafia strongholds, contributing to the growth of the city's crime rate by more than 50 percent since 1994. Some local residents compare their city to the wild west of the late-19th-century United States, noting that those with guns run roughshod over a vulnerable population that has no ability to fight back and few assets to share.

Obninsk also has a special problem stemming from its nuclear heri-

tage. The Institute of Physics and Power Engineering has storerooms packed with tons of highly enriched uranium and separated plutonium which could be used directly in producing nuclear weapons. Such material is routinely used in the institute's reactor tests and related experiments. In the Soviet era, this material was protected by reliable guard forces. However, in the absence of regular paychecks, current guard forces are less reliable.

Additional means—such as physical protection barriers and accounting systems—are needed to ensure that even small amounts of nuclear material are not stolen or diverted by any insiders who may be feeling the economic squeeze or by any outsiders who may be able to penetrate the security fences. In 1994, a small amount of highly enriched uranium showed up on the black market in Germany. This material is generally believed to have come from Obninsk. While it may be difficult to find customers in advance for a few hundred grams of uranium, local thieves may assume that once they have such material in hand, a customer will appear. Alternatively, with foreigners of all stripes omnipresent in Russia and with criminal elements well entrenched within Obninsk, interested foreign buyers might orchestrate a theft scenario.

One American journalist recounted the challenge of protecting nuclear material at the institute:

The headache is little round tablets or disks containing weapons-grade plutonium and uranium. In the Fast Critical Facility building, there are 100,000 disks or about ten tons of bomb-grade material, theoretically enough to make hundreds of bombs. A dozen disks could easily fit into a pocket. But the old Soviet accounting system for them is a nightmare. About 6,000 disks have duplicate numbers. The Soviet-era records were kept in paper notebooks, some decades old, that record the weight and “price,” an absurd measurement for bomb-grade material. In short, there is no full record of the current physical condition of the massive pile of uranium and plutonium disks.⁷

During my visit to the institute in 1995, a Russian TV crew was preparing a commendatory report on bar coding the disks in the Fast Critical Facility. Each time a disk was taken into or out of a laboratory of the facility, a physicist scanned the bar code with a supermarket-type device and entered into a computer the disk's old location and

new destination. The computer system then had an up-to-date record of the locations of the disks. At the time, 10,000 disks had been bar coded, with the remainder to be labeled within 18 months. By the end of 1998, however, more than half of the disks were still not labeled. What happened? “Other priorities,” pleaded the scientists.

The Obninsk experience in protecting dangerous materials and in using technological wherewithal for commercial purposes is typical of developments at institutes and enterprises throughout Russia. Russian institutes come up with new ways to employ modern technologies and projects begin with great fanfare. Most commonly, the projects run out of money, as Russian or western financiers conclude incorrectly that they have jump started a process that will continue on its own.

In some cases the Russian scientists have become relegated to the status of technicians. Bored and with no opportunities to develop yet other new technologies, they look for more challenging tasks. The project then becomes the responsibility of less talented specialists. This explains, at least in part, why so many disks remain in dusty barrels.

Another major institute in Obninsk is struggling to find new customers. The Research and Production Enterprise “Tekhnologia” has a proud history of producing unusual types of glass, ceramics, and polymeric composites. These innovations have been used in Russian aircraft, the space shuttle Buran, and rocket engines. But Russian customers no longer exist. Efforts to find foreign customers in competition with western manufacturers have proven too difficult for most products.⁸

Overall, Obninsk has transformed itself from a closed nuclear city where secret experiments were the order of the day to an open city obsessed with attracting foreign participants to conferences and consultations. These gatherings provide local specialists with opportunities to find like-minded colleagues with access to western funds in which they might share. Indeed, many researchers have become addicted to western grants.⁹ While there are compelling reasons for foreign grants, little attention is given to how research activities will continue once a grant ends.

Overall, Obninsk is an economically depressed community with an industrial base working well below capacity. In contrast to the pov-

erty in the surrounding rural areas, however, life in the city is good. The population increases by about 1 percent each year, largely due to the abundance of goods and services, which outweighs the crime, pollution, and job uncertainty. As to the priorities of the general public, improved medical services and better public transportation are at the top of the list.¹⁰

Finally, the scientific workforce is somehow managing to stay largely intact, with more than 70 percent of the researchers fully intending to remain in the city. The most prosperous institute is the Institute of Physics and Power Engineering, with dozens of western contracts that have led to annual incomes of $50,000 or more for a few senior institute managers. Economic conditions for other employees at the institute are much more difficult, with annual incomes of $1,000-2,000 being the norm. Nevertheless, almost all scientists have telephones at home, 90 percent own dachas, and 76 percent have automobiles. And they are not the only city residents who have some material wealth: registered within the city are 30,000 automobiles.¹¹

How can this paradox of low pay (at least official pay) and a reasonable lifestyle be explained? There are two important reasons. First, Obninsk is near Moscow, where Russian and foreign representatives of funding organizations are located. Related to this geographic advantage are strong technological capabilities in Obninsk that are of interest in the West, and a large number of the city's specialists participate directly and indirectly in western-funded projects with payment arrangements frequently not officially recorded. Secondly, there are many opportunities for moonlighting in the small business sector. While few such jobs involve innovative activities, they do pay the bills, enabling researchers to keep their day jobs.

The Beloyarsk nuclear power station dominates the town of Zarechny, 30 miles east of Yekaterinburg. This is a company town. Ten percent of the population of 33,000 are employed at the nuclear plant, and the plant provides the financial backbone of the local economy. The plant's income, while much reduced due to long-overdue customer

payments, has been essential in cushioning for the city the economic shocks of the last several years.

In terms of electrical output—600 megawatts—this breeder reactor is not particularly noteworthy. But in terms of technology, the station has been a pacesetter for the world for almost 20 years. In contrast, the United States spent billions of dollars on breeder research and construction but failed to solve the problem of safely circulating quite dangerous sulfur through the cooling pipes of a power station. Thus, environmental concerns over the safety of such a reactor stopped the U.S. program 30 years ago.

Soviet engineers, perhaps less concerned about safety and costs during their experiments, figured out how to handle sulfur. The Beloyarsk power station became their showcase for demonstrating world leadership in that area. Small problems have included minor sulfur leaks and even flash fires. Overall, however, the plant's performance has been excellent. One of the biggest problems has been the periodic attempts of Russian environmental activists to sneak onto the reactor's territory as a sign of general protest over the uses of nuclear power. To date, no intruders have been able to get close enough to the nuclear components of the plant to cause damage.¹²

The Russian minister of atomic energy during 1999 was, earlier in his career, in charge of research activities in Zarechny. He may view as his legacy a still larger breeder at the Beloyarsk station, a project begun in the early 1990s. After the site was cleared for a new reactor and support buildings were erected, the project came to a halt due to a shortage of cash. The concept, however, is still very much alive—at least in Zarechny—since a new reactor complex would mean more jobs and a cut for the city of the revenues of those utility companies that distribute the electricity.

But where will the minister find $3 billion? His formula is simple: the regional and city governments should provide $1 billion in loans, $1 billion should come from loans from commercial banks, and $1 billion should be contributed by the Russian government, since the reactor will provide a national service by burning nuclear material taken out of weapons slated for destruction.¹³

In principle, the project makes sense. Also, the minister's commit-

ment to funding only from Russian sources is admirable, although at least partial financing from abroad would seem more likely. I have no doubt that Russian designers and engineers could solve the technical problems and build a good station.

But, even in the unlikely event that $3 billion were available, several problems rooted in corruption would be difficult to overcome. First, ensuring that the available funds were used as intended would require an international accounting firm of the highest reputation to control all expenditures. Secondly, component suppliers and construction crews would undoubtedly attempt to cut corners on goods and services, and intensive monitoring by a corrupt-proof organization—again probably an international firm—would be essential. Finally, once the power plant was in place, monitoring to ensure that the managers and the operators do not cut corners, again to benefit themselves, would be essential.

Tucked behind the original nuclear plant is the Zarechny branch of the Moscow Institute of Power Engineering. For years, these laboratories operated in secrecy, despite Russian claims that they were always open.¹⁴ They were located adjacent to the reactor where they could test the resistance to radiation of materials being developed for the Soviet weapons and space programs. Today the beams of radiation provide new opportunities for the laboratories to produce radioactive isotopes for international markets.

At the time of my first visit in 1993, this branch of the Moscow institute was becoming that institute's cash cow. The scientists had developed inexpensive processes for manufacturing the inert gases xenon and krypton that were in demand by physics laboratories and industrial companies in the West. The first shipments of krypton went to the Center for Nuclear Research (CERN) in Switzerland, and contracts for other shipments were prompdy negotiated with customers in England, Germany, France, and the United States. The key to competing in this international market is the purity of the gases. Russian researchers rightfully boast of their super-pure products.

In 1997, the researchers attempted, with limited success, to expand their export line to include carbontetrafluoride and sulfurhexafluoride. The primary application was to be dry etching of silicon used

in integrated circuits, but the international competition was too intense. A potentially more rewarding activity is providing hospitals in Moscow with xenon as an alternative anesthesia. According to the scientists, xenon has a powerful narcotic-like property with no known side effects.¹⁵ In 1999, clinical applications were expanding, although still on an experimental basis, with particular attention to possible side effects, if any.

A daughter firm of the Moscow institute, also located in Zarechny, provides the commercial framework for producing the gases and handling financial transactions.¹⁶ Buoyed by the success of its gas products, this firm also began producing laser analyzers of gases with the first foreign customer being the California company, Aerojet. One line of lasers can identify carbon layers in certain steel alloys, and another can be used for diagnosing cancer malignancies in humans. However, these applications have yet to attract customers.

The daughter firm and the nuclear power station are the technological cornerstones of an ambitious plan to transform the entire city into a Technopolis—a proposed technological rebirth of a city near its death bed in the early 1990s, when subsidies from Moscow began to dry up. The original idea was to develop products of interest to nearby industrial and agricultural enterprises, as well as for the international market. A core company was established to both support specific projects and provide a physical infrastructure within Zarechny that would enhance the effectiveness of small firms—with an emphasis on providing telecommunications linkages.

The core company, the Technopolis-Zarechny Development Fund, was established by Minatom, the regional administration, and the city administration. The company manages an industrial incubator and an agricultural incubator for small enterepreneurs.¹⁷ However, the initial flurry of interest in establishing small firms was not successful. More than 500 registered firms never operated in the black. Markets for a wide variety of products simply did not develop, due to both the poor state of the economy and the lack of marketing skills among the new entrepreneurs.

In further pursuit of its ambitions, the city was the first in Russia to obtain authority to prepare a region-wide industrial program that

would be recognized at the federal level as the area's authoritative program. The program does not call for transfers of government funds from Moscow, as is the conventional practice. Rather, the hope is to stimulate investments in high technologies and production processes with short recoupment periods that can then lead to capital growth. Given this ambitious undertaking, is the city really prepared to forego subsidies from Moscow if it might obtain them?¹⁸

In March of 1999, the regional governor gave his blessing to yet another scheme of the city's scientists to develop a profitable enterprise. The target is the international market for rare-earth metals such as lanthanum, yttrium, and scandium—malleable and durable metals now found in bumpers, trimmings, and other components of automobiles, among other uses. During the 1980s, the Soviet Union was the second leading exporter of these metals, but the four manufacturing plants —as well as the raw materials—were located outside the Russian part of the USSR. Thus, Russia now has almost no exports in this field. However, thousands of tons of monazite—enough raw material for several decades of rare-earth production —have been uncovered at a dormant storage facility several hundred kilometers from Zarechny. This material, mined in Brazil, was en route to Germany during World War II when it was seized by the allies and deposited in Russia.

The idea is to construct a manufacturing facility for the metals near Zarechny, with the profits to be divided among the regional administration, the town, and a new scientific-production enterprise. In the offing are jobs for local residents, technical challenges for scientists and engineers—and the probability of many a financial nightmare for managers responsible for dividing profits three ways while coping with Russia's banking system. Still, Zarechny entrepreneurs are confident they can not only succeed but pay off investment costs within several years.¹⁹

As to life in the city, Zarechny may not be a closed city with high fences, but it is certainly a guarded community. There are only three roads into the city, due to the configuration of the nearby lake. A police car is parked at each entrance day and night. Thus, the possibility of unknown persons entering the town undetected is rather remote.

In 1995 the mayor organized a festival in the town's stadium that

attracted 15,000 people from the city and the surrounding area. A handful of young thugs became unruly and disrupted the celebration. An immediate telephone call to the police in Yekaterinburg brought a heavily armed response team. The troublemakers were promptly arrested, tried in a very public manner, and given harsh sentences. This quick retribution carried a message, and there has been little crime in the city since.

The resulting confidence in personal safety means less personal stress for Zarechny residents than for those in many other cities. This factor may contribute to the unusually high life-expectancy rate of 64 years for Zarechny's males, in contrast to the national average of 57. Other reasons include a reliable food supply, both home-grown and imported from nearby towns, and a well-functioning hospital. Despite economic hard times, the population seems quite satisfied with life next to the nuclear station.²⁰

With these attributes and its regional orientation, Zarechny has a good chance to become a high-tech commercial center in the Urals, a center that penetrates both domestic and international markets not only with its inert gases but also with other products. One young high-tech entrepreneur, for example, has developed a handheld device that concentrates infrared waves on portions of the body that require heat massage. He moved to Zarechny because the city provided a safe working space at reasonable rates. He does not attempt to sell the device directly to consumers, given the difficulty of establishing a marketing network, but rather provides components and associated technology to a factory in Tomsk which, in turn, assembles and markets the devices.²¹

While one success does not outweigh dozens of failures, city leaders seem confident that they can help up to 100 private firms in the city become customer friendly and customer successful. If even only one-half that number are successful, the experience will offer “ lessons learned” of wide interest.

In short, Zarechny is a bright spot on the bleak financial horizon of Russia. It has a number of advantages. It is small, and the communal services for its residents have been functioning well for some time. The nuclear power station is an essential facility for the region. At some

future time, electricity users will be more diligent in paying their bills—probably following threats of losing their connections. Being astride the Transiberian railway and near a major airport are helpful. Finally, and most importantly, a number of Zarechny specialists now have experience in competing in the domestic and international marketplaces. They know the realities of competition, and they should be able to make reasonable judgments as to the marketability challenges for new products.

A major concern, however, is the orientation of the city's youth, a dilemma facing the entire country. The current economic conditions dictate a move away from technology to the sales of goods and services in order to survive. Added to that is the sense of isolation young people feel from the action in Yekaterinburg and other large cities. It's no surprise, then, that they spend their leisure time watching television broadcasts from other parts of the country and abroad, and only 4 percent of schoolchildren use computers on a regular basis. Our study shows that one-third of the young people want to remain in Zarechny, another one-third believe they would prefer life in larger Russian cities with greater opportunities for education and social life, and the remaining one-third want to live in foreign lands. For this latter group, Canada is the preferred destination, undoubtedly due to the highly popular student exchange programs supported by the Canadian government.²²

Ironically, a key to the sustainability of technology-oriented programs will be a new wave of technology entrepreneurs. Without young specialists who perceive rewards from technology innovation as rewards rivaling those in trading and banking, the likelihood of sustaining technological leadership over the long term is not high. International competition will be intense and, in Zarechny, young talent will be essential to gaining and holding market niches.

For 35 years, the Institute of Technical Physics was masked by the innocuous post office address, Chelyabinsk 70. Only in the 1990s did

the Soviet government finally acknowledge the existence of a municipality of nearly 50,000 inhabitants located in the southern Urals. The city adopted the name Snezhink (snowflake). Established in the 1950s as the second nuclear weapons design institute (the first was in Sarov, several hundred miles east of Moscow), the institute recruited many of the Soviet Union's best and brightest physicists and engineers. Behind the imposing fence, which encircles an area of more than 120 square miles, the nuclear scientists designed and directed the testing of weapon upon weapon in the race to stay abreast of the United States. ²³

Several of the original Soviet bomb designers have written memoires about the city's 1955 founding and the rivalry between the Snezhinsk and Sarov laboratories.²⁴ In recent years, rumors have circulated in Moscow that the defense establishment would cast one of the two institutes adrift in view of duplicate expenditures and the dwindling need for more nuclear weapons. Consequently, the rivalry intensifies as each rallies all its allies to protect its place in the nation's military budget.

The Snezhinsk team outpaced colleagues in Sarov in one technical program that has received little attention in recent years. This program demonstrated how nuclear explosions can be used for peaceful purposes. During the course of two decades, the Soviet Union set off more than 100 underground nuclear tests for peaceful purposes, with Snezhinsk scientists responsible for designing 70 percent of them. The tests were geophysical experiments involving the search for natural resources, the creation of storage cavities for oil and gas products in underground salt domes, the stimulation of flow in oil and gas wells, the fracturing of rock ores that can be mined, and the excavation of disposal areas for hazardous wastes.²⁵

The aspirations of the Snezhinsk scientists to realize economic gain from the gas, oil, and excavation industries as the result of such nuclear explosions were shelved in the mid-1990s. At that time, Russia and the United States—along with China, the United Kingdom, and eventually France—agreed to a moratorium on nuclear tests, whatever the purpose. Disguising a weapons test as a test for peaceful purposes has always been a concern. The diplomats insisted there would be no loophole to permit tests for any purpose.

On a broader basis, the Institute of Technical Physics is going through a painful process of downsizing, with displaced scientists scrambling for new ways to use their talents. Of course, some weaponeers—perhaps one-half of the the institute's 18,000 scientists, engineers, and workers—will continue to practice their military trade at the design laboratories, two experimental plants, and experimental field site. ²⁶ However, even the most critical and best paid personnel have become discouraged by their erratic and shrunken paychecks. Some have joined in street demonstrations protesting frequent delays in pay.

Since 1992, the institute has been a major target for programs in the West to provide alternative employment opportunities for disgruntled weaponeers lest they look to unsavory sources for income. The largest projects have been supported through the International Science and Technology Center (ISTC) in Moscow. One popular line of research is redirection of strong mathematical capabilities, originally devoted to weapons design, to modeling of many processes involving physics and chemistry that have little relevance to weapons. Modeling projects supported by the ISTC have included transformations of brittle materials under heat and mechanical stresses, dispersion of pollutants in the atmosphere, and fallout of radioactivity from two major nuclear accidents 30 and 40 years ago near Karachai Lake, less than 75 kilometers from Snezhinsk.²⁷

More than 2,000 specialists from Snezhinsk have received salary support during participation in western-funded activities. In March 1999, programs financed by the West provided 10-15 percent of the institute 's budget. But not all international programs have been considered by Russian specialists to be of equal importance.

Programs sponsored by the U.S. Department of Energy, in particular, have been tinged with Russian suspicions of intelligence missions. Too often the teams sent to sensitive areas have included excessive numbers of U.S. participants with no obvious legitimate tasks to perform. In group settings, Russian specialists refer to such personnel-padded activities as “nuclear tourism,” whereas privately they blame U.S. intelligence agencies for complicating exchanges of real scientists.

When undertaking conversion programs, the scientific leaders of

Snezhinsk are surprisingly unconcerned about the handicaps of being located a great distance from potential customers for products they might develop and of having a workforce with little experience in marketing commercial technologies. They undoubtedly assume that public funds, and even foundation funds, will flow their way. Thus, most of their ideas to diversify from their military profile are not oriented toward the private sector marketplace. They emphasize either high-quality science to advance the frontiers of knowledge or applied projects that help government agencies responsible for environmental protection, nuclear safety, or health services do a better job.

Throughout 1999, Snezhinsk scientists marketed to international organizations, government agencies, and foundations both in Moscow and abroad several projects that, while interesting, continue to reflect a hesitancy to compete in the private sector marketplace. The projects include:

• A test site for investigating sources of underground tremors. Snezhink would become a test site for trying out inspection techniques to investigate suspicious tremors. International inspectors could check the effectiveness of sampling air, water, and soil for uncovering recent releases of fissionable materials associated with nuclear tests by rogue states.

• An environmental survey of radiological conditions in the city. Such a survey would likely confirm that radiation levels in Snezhinsk are minimal, thereby reassuring potential investors that there is no nuclear hazard in doing business in the city. The survey would also demonstrate for other cities a practical approach to monitoring urban areas where nuclear activities have thrived for years.

• A center to study nuclear policy issues. Among topics of interest are the strategic implications of large reductions in the nuclear arsenals of the United States, Russia, and other countries; techniques to monitor compliance with international agreements to terminate production of weapons-grade plutonium; preparation of international standards for physical protection and accountancy of plutonium and highly enriched uranium; and analyses of successes and failures in attempting to

convert military-industrial activities to commercial activities in the nuclear cities of Russia.

• A training center for personnel from institutes throughout the Uralsinterested in upgrading capabilities in physical protection and accountancyof weapons-grade nuclear material. Such an activity would be analogous to training programs being carried out in Moscow and Obninsk.

• A program to analyze export control issues. The institute is committed to assisting Minatom in assessing the technical aspects of proposed international transfers of nuclear technology.²⁸

Even if such projects are supported, they will have little direct impact on near-term economic revival of the city. The numbers of full-time participants are too small to help very much in the search for jobs. Nevertheless, such efforts have significant national security implications. They could enhance Snezhinsk's standing as a center of international importance with the potential to become a magnet for other activities as well.

As to taking a technology to the commercial marketplace, the Snezhinsk scientists are still looking for their first high-tech success. Four of their strong candidates are prosthetic devices, diamond powder for industrial applications, perforated tubing for use in the gas industry, and electrochemical sources of energy. But cost and market considerations are, as always, the keys to commercial viability. ²⁹

Part of the problem has been the institute's organizational approach. In the early 1990s, a number of stand-alone enterprises were established to spin off promising technologies developed within the institute. But these firms soon ran short of startup funds, encountered controversy over the extent to which the institute should share in any profits for technologies it had developed, and gradually disappeared. Most were led by entrepreneurs who moonlighted from their institute jobs and, upon the initiative's collapse, returned full-time to their laboratories.

In a revised effort in 1998 and 1999, the institute set up daughter firms to attempt once again to commercialize many of the same technologies. The difference is that the institute now retains some financial

commitment to help ensure the success of the firms. While success may be difficult, the backing of the institute provides some financial and technical reinforcement for the efforts. (See Box 8.3 for a list of the technologies that are to be implanted in daughter firms.)

Meanwhile, the city administration has adopted an aggressive role in promoting the commercialization of technologies. It has several strong assets that have not been fully exploited in the search for commercialization opportunities. First, the city receives and retains payments of federal taxes of local firms, including Value Added Tax and property and profit taxes. The tax revenues are not remitted to Moscow. Therefore, Snezhinsk can entice firms to locate in the city by offering special tax breaks. Secondly, the city controls a Small Business

Development Fund which receives funds from abroad without requirements to convert hard currency to rubles or to pay taxes except to the city. Thirdly, a federal customs office is located in Snezhinsk, greatly simplifying clearance of imported products.

At the same time, Snezhinsk has lost some of its previous attractiveness as a tax haven (a 50 percent tax savings plus the advantage of paying all taxes to a single organization) for Russian firms headquartered elsewhere. In order for a firm to be registered in the city, 90 percent of the property and 70 percent of the working capital of the firm must be retained there. Thus, in 1998-1999, the number of registered firms declined from 400 to 120.

The city administration is interested in promoting the commercialization of the institute's high-tech achievements, even though there may be conflicts with the institute in this area. Also the city facilitates establishment of other companies that will increase tax revenues and provide jobs (e.g., production of shoe polish, fabrics, perfumes). A number of companies that have been in place for years are also in a sense under the patronage of the city (e.g., producers of macaroni, sausages, beer, and lingerie, and providers of services such as civil engineering).

Snezhinsk is taking several steps to promote its commercialization agenda, which includes the following plans:

• A business incubator for small entrepreneurs who have difficultiesfinding space, utilities, and communications services for new businesses. The city plans to establish a facility outside its fence but within city limits so entrepreneurs can take advantage of special tax breaks accorded to firms located there. The planners have turned to funding agencies in Moscow that have interests in promoting high-tech activities.

• A training center for small business entrepreneurs. The training would concentrate on two specific themes: (a) preparation of persuasive proposals for potential funders of projects and (b) the administrative, legal, labor, and related aspects of establishing and managing a small business in Russia. European funders are interested in this plan.

• A Moscow-based representation office. This office would seek

out potential investors, entice Russian and foreign organizations (particularly western companies already represented in Moscow) to establish offices in Snezhinsk, and provide information on potential cooperative projects that could draw on the capabilities of Snezhinsk specialists.³⁰

Given the handicaps of geographic and physical isolation, both local entrepreneurs and institute specialists have difficulty knowing which aspects of their expertise have market potential outside the city. Even in areas of high promise, they may have difficulty cultivating customers for their products.

Certainly for the next decade, it will be impossible for residents to maintain even the current standard of living without substantial new income streams (beyond the reduced, but still assured, defense contracts) from Moscow and abroad. The small businesses operating in Snezhinsk do receive some income from outside, and certain Moscow ministries, such as those responsible for education and health, provide a little money for activities in the city. But overall, the most important source of funds will continue to be the institute's payroll, a payroll in increasing jeopardy as Russia reduces its commitment to new nuclear weapons.

Despite the discouraging economic outlook for a city accustomed to special treatment, Snezhinsk is not in as difficult straits as many other Russian cities. At the top of the list of Snezhinsk's advantages is a population that highly prizes the security on the streets, and suggestions for opening the city meet strong resistance. Also, the good medical facilities attract residents of nearby towns as well as local citizens. The dacha gardens have expanded, and the beauty of the surrounding landscape looms large in the lives of the residents.

The city's population is slowly growing. Russians long associated with the Soviet nuclear program who had lived outside Russia are resettling there. Also, extended family members of Snezhinsk residents, particularly elderly females, are returning to the city's security. This factor is so pronounced that, in 1999, the ratio of female to male adults over the age of 55 in the city was 2 to 1.³¹

Finally, as to the children who, at least by tradition, should be the

next generation of scientists, the youth is increasingly attracted to excitement of larger cities. Some dream of lives abroad, particularly in England, which has sponsored a number of youth exchanges with Snezhinsk. Television remains far more popular than computer games. A startling statistic from a recent survey reflects a youth disenchanted with careers in science. Of 18 students enrolled in the undergraduate physics faculty of the Physical-Technical University who were queried in a recent poll, only one indicated an interest in a career in science. The others had their eyes on more profitable business careers.³²

The residents of Snezhinsk will band together to withstand economic pressures. While a few will reach out in their commercial endeavors, most will remain a tightly knit community. They like the personal safety in the city in contrast to the crime elsewhere, and they are accustomed to the strict security governing nuclear secrets. They recognize the importance of retaining rights to apartments both for themselves and for their relatives. Some of the wealthiest residents nearing retirement age may follow their children to Moscow and other cities, while outsiders from Russia and from abroad will be a growing presence on the streets and in the laboratories. But, for at least the next decade, Snezhinsk will remain largely aloof from the mainstream of Russian life.

Looking at these three cities, the residents of Zarechny have the best chance of prospering in the near term, even under difficult economic conditions. With a small population, effective control of street crime, and international sources of income from several products, Zarechny scientists and engineers are in a good position to weather the storms seeded by economic turmoil. And, with nuclear power, rare gases, rare-earth metals, and gold reserves, it is unlikely that this town will fade away.

Obninsk, with a larger and younger population but with an aging scientific and industrial workforce, faces more difficult times. Only if the local entrepreneurs are successful in their regional outreach do they have a chance of contributing to a revitalization of the city. This

outreach will have to encompass Moscow, and not just the immediate environs of Obninsk, even though the crime spillover from Moscow is already a significant force in Obninsk. As a few residents continue to prosper—some from international scientific grants and others from criminal activities—the gap between rich and poor will become even more evident.

Snezhinsk's scientists are engaged in many nuclear issues, and these issues are simply too important for Russia or western governments to permit the collapse of the city. But, commercially viable undertakings on a significant scale are not on the horizon. While small commercial projects may be possible in a few areas, the large projects that can revitalize life in the city have yet to be developed. One missed opportunity has been development of a customer base throughout the region, a customer base that considers products made in Snezhinsk to be comparable to products imported from Europe and Asia.

In all three nuclear cities, entrepreneurial successes are usually linked to government support of activities. The Russian market for nuclear technologies is small. International competition is severe. A few non-nuclear technologies have been of global interest, but an equally promising approach is import substitution (substituting locally made products for more expensive imports) in Russia and the other countries that were formerly part of the Soviet Union.

The attitudes and goals of the cities' young people is crucial to the cities' technology futures. These cities, with strong scientific heritages and capabilities, should be developing the next generation of technology entrepreneurs, but few signs point in that direction. The challenge is to convince youth that, in Russia as in other advanced countries, the potential for businesses that rest on success in technological innovation can in the long run be more rewarding, financially and professionally, than many of the get-rich-quick business schemes currently being pursued.

1. M.V. Shubin, “Presentations at the Scientific Conference Commemorating the Fortieth Anniversary of Obninsk,” City of Obninsk, 1997, pp. 1-4.

2. A.V. Zrodnikov and A.P. Sorokin, “Obninsk—Science City of XXI Century,” unpublished manuscript, Institute of Physics and Power Engineering, Obninsk, September 1998.

3. Ibid.

4. An example is the planning in the East Bay region of California, which includes Lawrence Livermore National Laboratory.

5. “Organization of a Center for Training Specialists in the Field of Science and Technology Management,” “Statute of the Obninsk Venture Fund,” and “Interagency Program of Innovation from 1998-2000.” These unpublished manuscripts were provided by the city administration in September 1998. There are other reports describing the initiatives included in the documents; but as noted in the text, implementation has been difficult.

6. Discussions in Obninsk with city administrators, July 1998.

7. David Hoffman, “Cure for Russia's Nuclear Headache Proves To Be Painful,” The Washington Post, December 26, 1998, p. A1. For additional background see National Research Council, Protecting Nuclear Weapons Material in Russia, (Washington, D.C.: National Academy Press, 1999).

8. Zrodnikov and Sorokin, “Obninsk—Science City of XXI Century.”

9. Discussions in Obninsk with city administrators, March 1999.

10. Information collected by Obninsk city administration, March 1999.

11. Ibid.

12. Visit to Beloyarsk nuclear plant, April 1993.

13. Meeting in Obninsk with the Minister of Atomic Energy, October 1998.

14. Visit to Beloyarsk nuclear plant, April 1993.

15. “Laser Diagnostics and Pure Technologies ENTEK,” Technocenter MINATOM brochure, 1998.

16. Ibid.

17. Fedor Polezhaev, “Zarechny, the Little City that Can,” Business in Russia, March 1996, pp. 4-5.

18. “Federal Program ‘Creation of Technolopolis Zarechny,'” dated 1997, provided by Zarechny city administration, 1998. “Results of Fulfillment of Plan of Social-Economic Development, City of Zarechny, 1997,” provided by Zarechny city administration, 1998.

19. Discussions in Zarechny, April 1999.

20. Ibid.

21. Ibid.

22. Ibid.

23. Discussions in Snezhinsk, October 1993.

24. B. Yemelyanov, Opening the First Pages in the History of the City of Chelyabinsk 70 (Snezhinsk), Uralskiy Rabochiy, Yekaterinburg, 1997.

25. Discussion in Moscow with former director of program on use of nuclear explosions for peaceful purposes at the Institute for Technical Physics, September 1998. For another assessment that differs somewhat (although the general conclusions are the same) see Milo D. Nordyke, “The Soviet Program for Peaceful Uses of Nuclear Explosions,” Science and Global Security, volume 7, 1998, pp. 1-117.

26. Russian Federal Center—VNIITF Homepage, www.ch70.chel.su, February 1999.

27. Ibid.

28. Discussions in Washington, D.C. with VNIITF senior officials, January 1999.

29. Russian Federal Center, Homepage.

30. Discussions in Livermore, California, with the Mayor of Snezhinsk, November 1999.

31. Discussions in Zarechny with Snezhinsk city administrators, March 1999.

32. Discussions in Zarechny with the specialist from Snezhinsk who conducted the survey, March 1999.