By most accounts, the annual military budget of the Russian Federation is a small fraction of annual U.S. military outlays, in the range of 1/7th.
Yet despite enjoying only a fraction of the resources available to the Pentagon, Russia’s military has managed to develop new technologies and incorporate them into a new style of warfare that challenges U.S. military readiness.
The U.S. Army undertook a study of Russia’s invasion of Ukraine to seize Crimea in 2014. What they learned was alarming.
The implied conclusion is that President Vladimir Putin has outflanked the Pentagon and a succession of American presidents in the arms race by devising the technology and strategy to stage multi-domain attacks.
Unlike the situation in the United States, where American presidents have little personal role in devising effective military strategies, much less weapons, the character of Russian crony capitalism is different. Major Russian arms suppliers, like Tactical Missiles Corporation, are not public companies but state-owned enterprises.
Tactical Missiles Corporation was founded by decrees of Putin, including No. 84, No. 591, and No. 930, beginning Jan. 24, 2002. Unlike American defense contractors who have to compete for contracts to build the Pentagon’s weapons of choice, Russian arms contractors gain work according to Putin’s whim.
Hence, he probably has a better claim to bragging rights over Russian advances in weaponry than Presidents Barack Obama, Donald Trump, or Joe Biden.
I hasten to point out that I am no fan of Putin. He cost me a lot of money after the fall of the Soviet Union. In the mid-to-late 1980’s I was a lonely voice proclaiming to the world that the Soviet Union would collapse. Surprisingly, my forecast that the USSR would soon cease to exist excited the ire of most bastions of the status quo. Newsweek ridiculed my forecast as an “unthinking attack on reason.”
In any event, I was sure the Soviet Union would soon fail. So brazen was I that I began looking for investments I could make to capitalize on my insight. This was a difficult challenge because communism was hardly a system that created investment opportunities. The best everyday investment option I could find was to buy a private residence on the Nevsky Prospect near the Winter Palace.
Suppose you never took an interest in St. Petersburg real estate. In that case, Nevsky Prospect is the main street of St. Petersburg, named for Prince Saint Alexander Nevsky, my collateral ancestor, and hero of Russia’s wars against Sweden in the 13th century. We are both descended from the same princes of the Kievian Rus.
In any event, seeking a route to profit when the Soviet Union fell, I bought a private residence in St Petersburg. Soviet laws at that time did permit foreigners to purchase real estate. Presumably, such a law was popular with the Soviet elites because it increased the prospects (and the bid) when they sought to liquidate their holdings.
In retrospect, I would have been better advised to go to Ladbroke’s, the English betting firm, and placed a wager for a $10 million payout if the Soviet Union collapsed. I could probably have gotten good odds. At that time, my forecast was considered preposterous.
While quite familiar with the U.S. version of crony capitalism, I was somewhat naïve about Russian Business ethics. I did buy the property. And for several years, it almost seemed a shrewd move. The value of the property doubled and then some. We intended to hold on for still higher prices. But I didn’t reckon with Putin. On June 28, 1991, Putin became head of the Committee for External Relations of the office of the Mayor of St. Petersburg. Putin’s responsibilities included promoting international relations and foreign investments. He later served as deputy chief of staff to the Mayor.
In other words, Putin held sway over our investment. At that time, of course, we had no perfect idea of who Putin was, much less who he would become. Not that it would have done us a stitch of good to have foreseen his career in fine detail.
The positive side of this bullying is the profits were not entirely seized and/or taxed away. We were obliged to sell; the forced sale, so we were told, was ordered by Putin himself, putting a cap on my profits from foreseeing the collapse of Soviet communism. We walked away with money in our pocket.
Putin’s gaudy net worth underscores a crucial difference between the U.S. and Russian versions of “crony capitalism.” In Russia, one prominent crony capitalist, Putin himself, monopolizes power profits. In the United States, defense contracts are widely shared. And additional millions are pocketed by lobbyists and politicians (as campaign contributions).
As recently as 2019, Lockheed Martin collected $47.07 billion in Pentagon contracts. Boeing and General Dynamics followed with $26.32 and $16.5 billion respectively.
The combined total of $89.89 billion received by the three top U.S. military contractors matched the Stockholm International Peace Research Institute’s high estimate of recent Russian military spending (for 2016). With Russia’s state budget disproportionately financed by oil and natural gas sales at widely fluctuating prices, available revenues have fallen short of budgeted sums. Russia’s state-owned arms dealers have sometimes had to wait years after delivering weapons to receive full payment.
As Scientific American reminds us, General James McConville, chief of staff of the U.S. Army, points to a crucial reason the United States seems to have fallen behind, notwithstanding the largest military budget on the planet. He notes that the U.S. military has focused on counterterror operations in Afghanistan and Iraq. But a potential fight against Russia—or China, which the Pentagon now regards as the U.S. military’s preeminent threat—would require a shift of focus to a different set of technologies. “In order to deter strategic competitors,” McConville says, “we need to be able to do large-scale combat operations.”
He may actually be saying that the battlefield of the near future will be automated. “What we look for is speed, range and convergence in our systems so we will have overmatch,” McConville says, using Pentagon speak for dominance. “We are looking for an edge, looking for an advantage, and we’re doing it working together ... as a combined force with allies and partners.”
