The military spending race that has begun in the world in recent years (primarily because of the war in Ukraine) has become a burden on the budgets of many countries, but for Russia in particular, dependence on military injections could prove disastrous, believes Oleg Itskhoki, professor of economics at the University of California, Los Angeles. While military spending in the world is growing from 2% to 3% of GDP, in Russia it is already almost 9% of GDP and 40% of the budget. And even if the war ends tomorrow, it will not be possible to simply get off this needle of military spending, and the money will run out sooner or later.
Military spending is a perennial dilemma for policymakers. On the one hand, it is necessary and should be high enough to prevent armed conflicts from breaking out. For example, high defense spending by Poland and the Baltic states makes the escalation of conflicts beyond Ukraine less likely. Germany’s defense spending has a similar effect, since in the event of a conflict, it will more quickly and willingly transfer excess weapons from its warehouses to strategic partners. Part of the delay in delivering weapons to Ukraine after the war began in 2022 was due to a shortage of weapons in Western warehouses, which in turn was the result of low military spending in previous decades.
On the other hand, if war does not happen, then it is wasted expenditure, using resources for unproductive activities at the expense of the growth of the population’s well-being. Thirty years ago, after the collapse of the Soviet Union and the Eastern Bloc, Europe made the easy – and, as is now obvious, wrong – decision to largely abandon military and defense spending.
Thirty years ago, after the collapse of the USSR and the Eastern Bloc, Europe made an easy and, as is now obvious, wrong decision: to cut military spending.
Total global military spending has been growing in absolute terms for many decades. If during the Cold War it amounted to hundreds of billions of dollars, now it is more than two trillion. However, these figures are largely the result of economic growth and price levels. But in percentage terms, spending has been decreasing: if at the height of the Cold War the share of military spending in global GDP reached 6.5%, then in 2023 it is only 2.3% . And this is despite the fact that after the start of Russia’s full-scale invasion of Ukraine, defense spending in the world has grown at a record rate.
The US between Economy and International Security
The United States recently experienced a period of higher spending, while the country was waging two major wars – in Afghanistan and Iraq. But now America is not directly involved in any war, so spending is naturally lower . The last three presidents have tried to minimize America’s involvement in international conflicts, as this was the demand of voters: society is tired of wars. Barack Obama did not want to directly participate in the conflict in Syria, Donald Trump proclaimed the principle of “America First”, that is, the desire not to participate in any international conflicts and especially not to spend money on it; and Joe Biden withdrew troops from Afghanistan.
The cycle of wars and high spending on them in the US is over. In 2010, they made up almost 5% of US GDP, now – 2.7%. However, in absolute figures, this is still more than anyone else in the world: $884 billion in 2024 is about 70% of NATO countries’ spending and almost 40% of global spending.
The question arises: is it possible that America’s reluctance to engage in foreign conflicts, its refusal to be the world’s policeman, has contributed to the destabilization of the situation? Is it possible that when America withdraws from regulating international conflicts, things become even worse than when it intervenes in them? Is Putin’s invasion of Ukraine a response to the trend of reducing military spending in the United States, to Obama’s inactivity in Syria, and to Biden’s withdrawal from Afghanistan? It’s not a very popular view. But it seems to be what we are seeing now.
America’s refusal to play the role of the world’s policeman may have contributed to the destabilization of the situation in the world.
Yes, now the US defense spending is growing again, the state is repairing closed factories to increase the production of 155-mm artillery shells, which are constantly in short supply, from 14.4 thousand to 100 thousand per month. But the US is unlikely to increase military spending too much: the country has a large national debt, and this seriously limits the growth of spending. Most likely, they will be in the region of 3% of GDP (versus the current 2.7%) and, in general, their fluctuations will not have a serious impact on the US economy.
The EU and state defense procurement
In Europe, defense spending has increased sharply in recent years, although it is still lower than at the very beginning of the EU. The picture differs by country. In Germany, the share of military spending has been steadily increasing since 2015 and should amount to 2% of GDP in 2024. And in Poland, it was already above the NATO-set 2% target in 2022 and should exceed 3% of the country’s GDP. Defense spending should be above 3% of GDP in Estonia, and Greece has long since surpassed this level, which can be explained by the long-standing Greek-Turkish rivalry in the Eastern Mediterranean.
Increasing defense spending from 2% to 3% of GDP is generally safe for the economies of EU countries. On the contrary, the state defense order will give an increase in GDP, will spur the economy in the Keynesian sense. Of course, these unproductive expenses themselves will not ensure the growth of welfare, but they will turn into someone’s income, which can be spent on other civilian goods. This can give an initial boost to the economies of European countries, which have been stagnating in recent years.
Increased defense spending could provide a much-needed boost to Europe’s stagnating economies.
By the way, Poland, the EU’s record holder for military spending, is also one of the record holders for economic growth rates and has come close to the level of prosperity of the main countries of Western Europe.
The growth of defense spending is also observed in the Asia-Pacific region and in Africa. China is the second largest military spender in the world and is constantly increasing it. Taiwan is forced to do the same , although its investments are incomparable with China’s: approximately $17 billion versus almost $300 billion. But, again, all together they do not yet represent such a large share of the world GDP that their reduction with the new “détente” and the onset of stabilization would be a shock. This can only be predicted for certain countries whose economies are being militarized. And first and foremost, this is Russia.
Russia and the Defense Spending Needle
In Russia, defense and security spending this year will amount to 8.7% of GDP. This is, of course, a completely different scale than the 3-4% of GDP that is usually the upper limit in Western countries. And this is almost 40% of federal budget spending. In money, this is 14.2 trillion rubles, or more than $150 billion. This is comparable to the entire pre-war annual GDP of Ukraine ($200 billion).
It is precisely on this stimulus – large government expenditures on war – that the Russian economy is growing for now. Up to a third of its growth is provided by the military-industrial complex and related industries. What will happen when the war stops? It is likely that even despite the lack of direct need, Russia will maintain a high level of military spending.
This is not even the logic of a permanent war with the Western world, but simply economic logic. It is impossible to stop the infusion of more than 8% of GDP in the form of government spending without causing a tectonic economic collapse. For comparison: during the large-scale global crisis of 2008/2009, spending and GDP in most countries decreased by “only” 1-2% of GDP.
It is impossible to stop the infusion of more than 8% of GDP into government defense spending without causing a tectonic economic collapse.
Therefore, high military spending in Russia will probably be an integral part of economic policy as long as there is money left in the budget and the National Welfare Fund of the Russian Federation. And a reduction in military spending will become a forced emergency measure during a budget crisis.