As Russia's invasion of Chechnya shows, the Russian armed forces are suffering from tremendous shortages of capable leaders and soldiers. These problems, among others, relate directly to the shortage of funds for the military. Yet Russia cannot afford to spend more than it is now spending on the armed forces. This is the crux of an abiding Russian strategic dilemma, namely the gap between the state's ambitions and objectives and the means of realizing them. Until Russia resolves this dilemma by scaling back its goals, tremendous pressure and impetus to revive a state system in which military spending and the social forces that benefit from a stress on such spending will prevail in politics. This monograph examines the defense sector's current crisis which has come about due to the collapse of the Soviet Union and of the Russian economy. Should Russia continue to fail to meet the challenge of overcoming an economy excessively geared to defense, prospects for the security of Russia's neighbors and for Russia's democratization remain dim. In the final analysis, the crisis of Russia s defense economy is a vital part of the ongoing crisis of the Russian State.