Two Russian tales, same ending: doubling down on defense

In Russia, things are often not as they seem. When analyzing Russia it is wise, therefore, to examine the popular narrative but never to accept it at face value. Often an alternative explanation emerges, and this is particularly true when it comes to politics and money. At first glance, increases in Russian defense spending in recent years appear to be in response to events in Ukraine and a more aggressive foreign policy; but a closer look suggests it could also be due to internal political struggles and the bureaucratic legacy of the Soviet Union.

Doubling down on defense

Russia recently unveiled both an ambitious military doctrine and budget. In 2014, it spent $84.5 billion on defense and is projected to spend $88.3 billion in 2015. Defense spending has doubled over the past decade. This slice of the budget is so precious that when President Vladimir Putin announced 10% cuts across the board in 2015, he exempted defense.

The main areas of investment are research and development (R&D) with a 2011-2020 arms procurement plan to upgrade 11% of the armed forces’ inventory annually and to boost the share of modern weaponry to 70% by 2020. Much of the increased spending, particularly in R&D, reflects the growth of the arms export industry to countries such as India, Iran and South Korea. In a recent speech to the Duma, Prime Minister Dmitri Medvedev announced that Russia had sold $15 billion worth of military equipment abroad in 2014, which amounted to 3.2% of Russia’s total exports, and outstanding defense orders were currently worth more than $49 billion.

An ambitious defense budget paired with aggression in Ukraine suggests Russia is planning for a future of instability and continued conflict. Some of the main perceived threats are US long-range conventional systems and missile defenses, internal threats in border regions, and the rise of China, though the latter remains noticeably absent from official documents and statements. The December 2014 Military Doctrine largely mirrored its 2010 predecessor, with the exception of a new emphasis on “hybrid” warfare, information warfare, high-tech weapons, high-speed maneuver, and irregular and contract forces. Addressing such a diversity of threats requires a diversity of military tools. As part of this full spectrum of warfare and deterrence, nuclear weapons use is afforded in response to attacks involving WMD or “the use of conventional weapons when the very existence of the state is under threat.”

But 2014 also revealed challenges for the Russian armed forces. Although events in Crimea and the evolving doctrine of “hybrid” warfare suggest a resurgence of Russia’s post-Soviet military, these operations were conducted by well-funded elite special forces from Southern Command which are not representative of the majority of the armed forces. Russia also faces serious capacity issues in defense production, which impacted arms exports with the result that many deliveries have been late. Capacity challenges will likely continue to plague Russia’s defense industry as it attempts to shift to more domestic production to compensate for the loss of production in Ukraine. And while increased spending may seem ambitious given the country’s financial troubles over the past two years, there have been some program cuts, such as a reduced order of the Sukhoi PAK-FA fighter aircraft.

Follow the money

Current defense spending and projections through 2020 beg the question, how can Russia pay for all this? The answer is that Russia is banking on a future in which oil prices are high and the country is strong enough to influence the global order in its favor.

However, at least three factors will challenge Russia’s ability to realistically afford its defense budget. First, more than 20% of defense spending is lost in corruption. Second, sanctions, which often take years to produce a full effect, will continue to plague the Russian economy for the foreseeable future. And third, relatively low energy prices undermine the new budget, which is based on a $100 per barrel price of oil. The composite result of these last two elements, according to the World Bank, is that Russia’s economy will shrink by 3.8% this year and 0.3% next year.

Not everyone in Moscow is operating in a financial fantasyland, however. Finance Minister Anton Siluanov on October 7 told RIA Novosti, “When we were adopting the defense program, the forecasts for the economy and budget revenues were completely different. Right now, we just cannot afford it.” The current spending increase was planned before events in Ukraine, and Siluanov called for a new defense budget to reflect financial constraints. Siluanov’s predecessor, Alexei Kudrin, resigned in 2011 after eleven years in the position due to a dispute with Putin and Medvedev over what he saw as excessive defense spending. In a 2013 interview Kudrin reflected, “The arms race was one of the reasons for the demise of the Soviet Union…. We cannot repeat that mistake.” He then predicted, “If the oil price falls sharply, we will quickly realize that our cushion isn’t as thick as some believe.” 

The imbalance between Russian defense spending and income suggests a paradox, one that perhaps can be explained not solely by increased Russian strategic ambitions but also by internal Russian politics.

The other story: Putin’s power base

Untangling this paradox of Russian defense spending requires understanding how budget decisions are made, specifically the relationship between the political leadership and the military industrial complex (MIC). In 2007, Anatoly Serdyukov was dismissed as Defense Minister for his attempts to “enhance the power of the defense ministry as a customer”, which suggests military spending and production are not necessarily demand-driven. Instead, they are determined by Putin’s inner circle, the powerful siloviki, or “power guys”, predominantly alumni of the KGB who came together to push for the production side of the defense industry in September 2014, when responsibility for the MIC passed to the presidential administration.

What these internal shifts suggest is that Putin is perhaps not the authoritarian and domineering decision-maker he is often portrayed to be in the West. Domestic instability has a way of exploding in Russia, and internal threats remained a priority in the 2010 and 2015 Military Doctrines. Sustaining Putin’s leadership, therefore, requires surrounding himself with a like-minded cadre whom he has sufficiently empowered to accept his role as leader. Putin is much more a Brezhnev than a Stalin. 

What these shifts also suggest is a continued slide back to Soviet bureaucracy. In the late 1980s, in a series of unprecedented interviews, John Hines and his team at BDM spoke with the Soviet senior military leadership about their threat perceptions of the United States and how this was reflected in military production. Hines and his team made three important observations about defense production in the Soviet Union:

1. “military acquisition was dominated by the producers, rather than by the MoD customer”;
2. “the drive for superiority was manifested more in quantity than quality”;
3. and “personalities were as important, if not more important, than institutional or bureaucratic competition in determining Soviet military and force-building policy and clearly played a more immediate and decisive role than did expert analysis.”

The first, simple tale of the Russian defense budget is that it reflects strategic ambitions and aggression. The second, more complicated version is that defense spending is a power tool for Putin and his coterie with a power base in the military industrial complex. This second one is a familiar tale, with a familiar ending. But the result of both tales is an unsustainable emphasis on the military and risks of crisis both in the region and at home for Russia.