April 24, 2015

Resources and Ambitions in Russian Military Policy

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Pro-Russian rebels stationed in the eastern Ukrainian city of Gorlivka, Donetsk region, launch missiles from Grad launch vehicles on February 18, 2015.
Pro-Russian rebels stationed in the eastern Ukrainian city of Gorlivka, Donetsk region, launch missiles from Grad launch vehicles on February 18, 2015.

The military cannot stay alone when the rest of the country is corrupt

Just as the financial crisis hit Russia in 2009, the country decided to launch a radical rearmament of its military. Six years later, and with the economy in a potentially more serious crisis, the military is still a budget winner. The Russian defence budget has increased by 80% in real terms since 2009, while the total budget has increased by only 20%. Only pensions currently have a higher priority. A major reason for putting the military first is to assure Russia’s status as a great power. However, will the chosen policy yield the expected outcome? I will argue in this article that, while Russia is indeed likely to become militarily stronger in the short and medium term, the current policy will work against Russia’s great-power status in the long term.
There are three reasons in particular why I think this is the case. First, the absence of economic and institutional reform prior to rearmament means that much of the allocated funding will go to waste. Second, even the current extraordinary level of military expenditure is not enough given the planned size of the armed forces. Basically, the present Russian economy is too small to sustain a modern, professional and high-tech military organisation of one million men. The resources will inevitably be spread too thin. Third, and most importantly, defence expenditure comes at the expense of other, potentially more growth-promoting sectors of the economy. Thus, Putin is in danger of repeating the Soviet Union’s experience of arming itself to poverty.

Spending in the absence of reform

One Russian military observer estimated in 2011 that corruption may sometimes account for as much as 20–25% of the price of a given weapon system.1 In addition to corruption, the arms industry also suffers from bad leadership, antiquated production equipment, an elderly workforce, and constant unhelpful interference from the bureaucracy. While the Russian military underwent a radical and largely successful reform under Minister of Defence Anatoly Serdiukov, nothing similar took place in the defence industry. True, there have been serious attempts to streamline the procurement system, and much of the industry has been renationalised and structured into large branch holdings, but these efforts so far do not seem to have had significant effects on the ailments outlined above.
Russia’s independent Centre for Analysis of Strategies and Technologies (CAST) estimates that about one third of defence enterprises function reasonably well, one third manage, and one third are in a very weak condition.2 The branch holdings were supposed to promote research and development through the merger of design bureaus, and to improve production through economies of scale. While the reality is mixed, the majority of holdings do not seem to have had this effect. One study of the United Ship Building Company suggests that this holding has become largely ungovernable because of the large number of sub-holdings, where there are constant internal conflicts of interest, including competition over state orders, and where the main function of the holding has become to serve as an unnecessary and cost-escalating intermediary.3
Furthermore, reform of the defence industry alone is unlikely to be enough. Unless the rest of the economy is reformed at the same time, a successful solution to the problems of the defence industry outlined above is not probable. It is hard to imagine that the defence industry could survive as an island of order and accountability in a sea of otherwise inefficient and corrupt sectors. On the contrary, more money for the defence industry is likely to have a negative effect on the rest of the economy in terms of corruption. International studies suggest that national economies have a tendency towards increased corruption in cases of high defence expenditure.4
All this does not mean that the current efforts at rearmament will be in vain. In fact, the standard of equipment in the forces has already improved significantly, and this is likely to continue. In the conflict in Ukraine, new Russian equipment in the hands of both separatists and regular Russian troops has in many instances demonstrated its superiority over the old Soviet models of the Ukrainian troops. The argument is instead that the high defence expenditure would have had a much greater effect if both the Russian defence industry and the Russian economy had been efficiently reformed first.

Number of troops and the size of the economy

Within Russian defence expenditure, arms procurement has priority in the state armament programme to 2020 (GPV-2020). Investment as a share of total defence expenditure has risen from 40% to almost 70%. It is true that officers’ salaries were increased very substantially at the beginning of 2012, and that they became competitive with civilian salaries at that time, but they have not been index-linked since. The Russian military still falls seriously short of the stated goal of one million under arms. Currently, the armed forces consist of about 300,000 conscripts, 300,000 contract soldiers and 220,000 officers. That leaves a gap of about 180,000 personnel. Officials repeatedly announce efforts to increase the number of contract soldiers, but insofar as the open parts of the Russian defence budget can shed light on this question, little or no money seems to be set aside for the purpose.
This inability to fill the structure with people has negative consequences in terms of the capability to fight: there are just not enough people to man all the units. The problem was clearly demonstrated in connection with the crisis in Ukraine. According to Russian military analyst Mikhail Barabanov, the so-called permanent readiness formations “could send no more than two-thirds of their personnel to the operational area”.5 This meant that the old practice of merging units on the spot continued, and that the troops therefore had to fight with people they had never seen before or trained with.
As long as the one-million-man target remains, and the structure and number of units are organised accordingly, manning will continue to be the Achilles heel of the Russian military. The current economic crisis may make a military career more popular, but probably not enough to solve the problem. The demographic forecasts are not promising. On the other hand, setting the target below one million would be seen by many in Russia as an admission of inability to be a truly great power. China has 2.3 million men under arms, the USA 1.4 million and India 1.3 million. So far there are no signs of willingness in Russia to accept the unfeasibility of the one million target.

Damage to the rest of the economy

Besides security policy, one main argument for the high defence expenditure is that the defence industry will be the central resource for the technological modernisation of the Russian economy as a whole. It is expected to have significant technological spin-offs for civilian industry. President Putin has repeatedly talked about the defence industry as the new locomotive for the new economy.6
While much new technology was transferred from the military to the civilian sector during the Cold War, many defence economists agreed as early as the mid-1990s that the trend had turned.7 This does not mean that technological spin-offs from the military to the civilian sector are no longer possible, only that it is not likely to be very decisive for civil technology development. There may of course be characteristics specific to Russia that would exempt the country from the general trend, but so far no convincing arguments have been put forward in this respect.
Russia is now spending more on defence than on health and about the same as it spends on education. Given the huge problems in both these sectors in Russia, it is very likely that a healthier and better educated population would have contributed more to economic growth than an unreformed defence industry awash with money. The detrimental effects on great-power status here are twofold. First, military might alone is not enough to maintain this status—economic strength is also necessary. Second, slow or no economic growth will in the long run also negatively affect Russia as a military great power.

The years ahead

The relatively successful reform of the Russian military organisation under Serdiukov, together with an ongoing renewal of hardware, will in the coming years result in significantly stronger Russian armed forces. However, ambitions are unrealistically high in terms of manpower, and this creates unnecessary imbalances within the organisation. Furthermore, high defence spending is more likely to hurt the country’s economic recovery than help it. Despite Putin’s phenomenal ratings, there are doubts about the population’s willingness to bear this high defence expenditure. In a November 2014 Levada opinion poll, only 21% said they “would prefer that Russia’s efforts were focused on building military strength”, whereas 73% said they “would prefer that Russia’s efforts were focused on achieving a high standard of living for its citizens”. Russia may constitute an increased security risk to its neighbours in the short and medium term because of its aggressive behaviour and stronger military, but in the longer run the risks of the military spending spree are likely to be as high, if not higher, for the regime itself.
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1 Author’s interview with Ilja Kramnik, Moscow, September 2011.
2 Director of CAST, Ruslan Pukhov, at the IISS Global Strategic Review conference, Oslo, September 2014.
3 Aleksei Bezborodov, “Kuda katitsia rossiiskoe sudostroenie?”, Eksport vooruzhenii, No. 6, November–December 2011, pp. 70–4.
4 Sanjeev Gupta, Luiz de Mello and Raju Sharan, “Corruption and military spending”, European Journal of Political Economy, Vol. 17 No. 4, 2001, pp. 749–77 and Giorgio d’Agostino, John Paul Dunne and Luca Pieroni, “Corruption, Military Spending and Growth”, Defence and Peace Economics, Vol. 23 No. 6, 2012, pp. 591–604.
5 Mikhail Barabanov, “Testing a new look”, Russia in Global Affairs, No. 4, 2014.
6 Vladimir Putin, “Byt silnymi: garantii natsionalnoi bezopastnosti dlia Rossii”, Rossiiskaia gazeta, 20 February 2012.
7 Robin Cowan and Dominique Foray, “Quandaries in the economics of dual technologies and spillovers from military to civilian research and development”, Research Policy, No. 24, 1995, pp. 852–68.

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