Economic stagnation
Financial limitations are a serious obstacle to the longer-term goals of Russian military modernization and for the ambitions to create a truly competitive conventional force. Since the early 2000s, defence spending has experienced consistent growth. Clearly, in absolute terms, the threefold increase in the Russian defence budget from below US$30 billion in 2000 to over US$90 billion by 2015 is dramatic, and similar developments during peacetime in a Western European setting are unthinkable. At the same time, the idea of a militarily resurgent Russia fuelled by a sudden increase in military spending requires contextualization, both internationally and in terms of the share of GDP Moscow has spent on defence throughout the post-Soviet period. In international comparative perspective, Russia’s military revival is not as clear-cut as the rise in absolute spending on defence might suggest. It is obvious that defence spending alone is insufficient as a measure of a country’s relative military power. Fluctuations in exchange rates and differences in purchasing power also complicate international comparisons in this area. Owing to the sheer discrepancy between Russian defence spending and that of other global military powers, this point is still significant. Russia’s military expenditure of just over US$90 billion in 2015 was less than a sixth of US spending, which amounted to over US$595 billion. Moscow spent less than half of the Chinese budget, which came to over US$214 billion in the same year.
To put the magnitude of Russian defence spending further into perspective, even when the country spent more than 5 per cent of its GDP on the military in 2015, its budget only slightly exceeded the combined military expenditure of Germany and Italy. Both countries do not have nuclear weapons and kept their defence spending comparatively low at 1.2 and 1.5 per cent of GDP respectively. Increases in spending elevated Russia to third place in the ranking of global military expenditure by 2015. The large gap between the two largest spenders and Russia, however, means that the latter continues to be in an entirely different league from the US and China and is much closer to the smaller countries in the mid-top ten of the list of global military expenditure. Russia’s defence budget in 2015 was only marginally bigger than that of Saudi Arabia, the world’s fourth-largest military spender. The UK and France, in fifth and sixth place, each had a budget of around US$60 billion, or approximately two-thirds of Russian spending. Russian military expenditure did not start exceeding that of France until 2011 and that of the UK until 2012.
Looking at Russian defence spending as a percentage of GDP, it is clear that the increase in military expenditure under Putin has not been all that dramatic. In fact, Russia’s share of GDP expended on defence has been fairly consistent since the early 1990s. The average share of the GDP spent on defence under Yeltsin’s leadership (1992–9) was 4.15 per cent, peaking at 4.9 per cent in 1994 and reaching a low point of 3 per cent following the economic crisis and devaluation of the rouble in 1998. The average share of GDP spent on defence under Putin and Medvedev (2000–15) was 4.16 per cent. This includes a sharp rise to 5.4 per cent in 2015 following the contraction of economic growth and the federal budget in previous years. The relative consistency in percentage of GDP spent on the military squares with the above argument that the slump in defence spending under Yeltsin resulted from economic weakness, rather than from a principled decision to afford less importance to a strong military. At the same time, it puts into perspective the idea of a sudden militarization of Russia since Putin’s rise to political prominence. The revival of the Russian military is often associated with an about-turn in defence and security policies following the end of Yeltsin’s years in office and the election of Putin as president in 2000. It is important to bear in mind that this revival not only coincided with Putin’s appearance on the political scene, but also with a time of economic optimism and recovery.
A central factor in the recovery of Russia’s economy was the sharp increase in the price of oil from an average of less than US$20 per barrel during the 1990s to almost US$150 by 2008. This heavily benefited Russia, because its economy continues to rely on energy exports, which account for about half of its federal budget income (Connolly 2015: 6). Between 2000 and 2008 the Russian economy grew by an average of 6.9 per cent per year, a rate of growth that was matched by similar annual increases in the defence budget (Oxenstierna 2016: 61). Following years of economic turmoil during the 1990s, when even a relatively high percentage of GDP spent on defence was insufficient to sustain the military on a reasonable level and made costly modernization unfeasible, Russia’s long-standing ambition to rebuild a military fit for a great power had finally became affordable.
Affordability is an important factor in the future prospects of the modernization programme’s longer-term goals that have not yet been achieved. The costly State Armament Programme 2011–25 unveiled in 2010 accounted for the major share of recent increases in defence expenditure. Its ambitious procurement plans, which are discussed in more detail below, had been based on the expectation of significant and consistent economic growth that would allow Russia to keep defence spending below 3 per cent of GDP for the lifetime of the programme (Cooper 2016: 51–42). These expectations did not come to pass, because Russian economic growth slowed as global oil prices steadily declined to below US$50 per barrel by 2015. The high levels of defence spending envisaged in 2010 became costly to the contracting economy and military expenditure ballooned to more than 5 per cent of GDP. The impact of the economic downturn has yet again presented the Russian leadership with the dilemma, as Michael Bradshaw and Richard Connolly have put it, of ‘weighing the trade-off between spending on guns and butter’ (2016: 156). This dilemma has been historically difficult for Russia to resolve, because its financial means rarely matched its military and great power ambitions.
As discussed in chapter 1, the Russian economy historically had to adjust to the needs of the military and not the other way around. Certainly, during Soviet times, a high level of military expenditure was affordable only at the expense of other areas of public spending or, as Vasily Zatsepin concluded, the ‘guns-or-butter’ dilemma was unambiguously resolved in favour of the guns (2012: 115). The pace and extent of further military modernization under the conditions of economic crisis will depend largely on the extent to which the Russian leadership is prepared to prioritize the defence sector above everything else yet again. By 2015 the evidence regarding its ultimate priorities and preparedness to pursue militarization at any cost was not yet conclusive.
The largely oil-induced economic downturn will inevitably affect the socio-economic situation of Russian citizens and put a strain on the social contract between the population and the regime in power, especially if populist promises made in the run-up to the 2012 presidential elections are not kept. As Bradshaw and Connolly have argued, by 2016 it was far from clear whether Russia could ‘afford to continue to strengthen its military capability in the face of falling oil and gas exports revenues, economic recession, and growing social demands on the federal budget’ (2016: 156). Russia continued to pay a comparatively high price for its military in terms of share of GDP, even though this percentage was lowered to a much less dramatic level after the collapse of the Soviet Union. When the share of GDP spent on defence started rising far above the previously intended level, this did not go unnoticed.