This article is based on Alex Alexiev’s presentation to the “Russia After Putin” conference of the Bulgariaanalytica.org on Oct. 2. 2017 in Sofia. All citations are from the “Russia in Decline” publication by the Jamestown Foundation, edited by Enders Wimbush and Beth Portale, March 2017.
Vladimir Putin came to power in Russia in 1999, a period of time which in many ways determined the course of his rule. The major, if not decisive reason for that, was that 1999 and the eight years that followed, were a period during which the prices of oil and gas rose dramatically from an average of $12-$14 dollars per barrel (USD/bbl) in 1999 to $147/bbl in 2008. This increased Russian export earnings nearly tenfold over this period and led Putin to make several key decisions that in retrospect doomed his rule to failure. The first was his assumption/wishful thinking that hydrocarbon prices would stay high and guarantee Russia a continuing bonanza of export earnings for the foreseeable future. A key follow up from that was the imperative of state control of these resources, which led to his gradual nationalization of the oil and gas companies. While, under Yeltsin, 70% of the economy was in private hands, however crooked its method of acquisition, by the late 2000s, the majority of the hydrocarbon industry, especially the giant Gazprom and Rosneft monopolies, were majority state-owned and run by Putin cronies. The expected export windfalls also convinced Putin that he could keep up with the United States militarily and maintain a claim to superpower status, despite Russia’s actual economic weakness. Thus, extrapolating from 2008 prices, Putin’s economic experts projected a Russian GDP of $5 trillion in 2020 in 2011, allowing for a defense budget of $200 billion (Blank, p.193). Based on these contrived figures, Putin ordered a rearmament for the 2011-2020 period that envisaged $700 billion (Blank, pp. 193-196) in new procurement to include 1500 new aircraft, 400 ballistic defense systems, 400 ICBMs, 2300 new Armata tanks and 17,000 military vehicles. It looked for while that there was enough for both guns and butter.
Alas, as often happens with wishful thinking, Putin’s schemes promptly came to naught. Oil and gas prices collapsed and Russia’s GDP in 2017 is under $1 trillion and its ongoing economic decline appears to be permanent. In just three years Russia’s export income has shriveled to less than half, from $526 billion in 2013 to $230 billion in 2016 (Inozemtsev, p.23). Putin’s vaunted $700 billion procurement was barely 1/3 accomplished by 2017. Moscow’s aggression against Ukraine and the Western sanctions imposed in the aftermath have cost Russia $600 billion (Felgenhauer, p.215) and growing to date, to say nothing about the loss of the significant Ukrainian military-industrial capability. And it will get worse. There is growing evidence that Russia is falling behind technologically not only behind the West, but also behind medium powers like China and India. A case in point is the much touted joint development and production of the Sukhoi/Hal Fifth Generation Fighter Aircraft (FGFA). Nearly ten years after signing the contract, the Indian Air Force has found 40 weaknesses in the plane’s engine, stealth and weapons capabilities and is about to quit the project, according to top IAF officials. If Russia can no longer sell military aircraft to India, a reliable, long-time client, the future does not bode well.
But the real long-term problems that may doom the Russian military-industrial complex to a second-rate status has much deeper roots and is to be sought in the fact that Russia is no longer a knowledge economy. For much of its history, Russia and the Soviet Union, boasted a highly-educated population that without a question maintained a knowledge economy in spite of the depredations of communist economics. As late as 1990, Soviet citizens represented 6% of the working individuals with tertiary education in the world (Eberstadt, p.104). Today, that percentage is less than 2% and will slide under 1% by 2030. At present, Russia is a country that produces virtually no high-tech products that find a ready market in the developed world. In makes no high-tech medical or diagnostic equipment, no telecommunication products, no computers, digital cameras or even sophisticated office appliances (Inozemtsev, p. 21). And it has fallen behind especially in the areas of relevance to military technology. Fully 65% to 79% of the electronics used in Russian missiles and space rockets need to imported (Balzer, p.135). Only 0.23 of the patent applications to the US patent office (USPTO) are of Russian origin (Eberstadt, p. 86) and Russia makes but a meager 1% of the world service exports in 2015 (Eberstadt, p. 89). Add the ongoing brain drain of young educated Russians to the West (350,000 in 2016) and the acute demographic crisis and it should be clear that the prospects for the Russian military after Putin are unlikely to look any better than they do now.
By Alex Alexiev