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Whether will sustain the Russian economy a new arms race?

Выдержит ли российская экономика новую гонку вооружений?

And after the elections in March 2018 presidential elections the prospects of the Russian economy should be assessed through the prism of the presidential address, which was made public two and a half weeks before the election. And it is, as you know, had a pronounced military character.

 If anyone doubted whether to start a new arms race, then after the message, an affirmative answer to this question became apparent.

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SPENDING IN THE BAY

Much Russia spends on defense? According to the Stockholm Institute for peace studies (SIPRI), the Russian defense spending in 2016 amounted to 5.3% of GDP, while in 2014 it spent 4.5% of GDP, and in 2015 to 4.9%. Yes, this is not the first place, which in 2016 was Oman (16.7 per cent), and Saudi Arabia (10.4 per cent), but it’s still “honorary” seventh place. For comparison, the US with 3.3% of GDP is in 23rd place and China with 1.9 percent — 49-e a place.

Note that the costs can be considered in absolute terms — how many tens, or even hundreds milliardov dollars spent on the army of a country. But consider the cost as a share of GDP, assessing their impact on the economy, more objectively: what can we count in billions of US dollars, if the scale economies vary significantly.

Ahead of Russia there are other countries. For example, Congo has written to the defence 7% of its GDP, Algeria is 6.7%, Kuwait 6.5%, Israel 5.8 percent. What kind of company we are? Russia is among the countries with huge defence expenditure which is understandable and appears justified. It is mostly oil in the country, located in an extremely complex geopolitical region.

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RESOURCES DEMAND RESOURCES

Whether such a significant defence spending in Russia? After all, saying that a positive effect of such spending is. Moreover, even talking about the fact that such costs can be a saving grace for the Russian economy. They say, people will get higher wages, spend it, related industries will also get an impetus to development. Such arguments are not without reason. However, to estimate this effect is through the possible negative consequences, and they are a lot more.

First, it is crucial that the products manufactured for military purposes does not bring further added value. For example, if you made a tractor or dump truck, he will continue to work in the economy, generating new value added. What new value-added will create a new tanks, warplanes, submarines? Yes, no. All of the products will only consume and consume new resources. Is now the blame turns.

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Second, the irrationality, the aim, the inefficiency of military spending is off the charts. If you, for example, started to build a new submarine, it is for its completion will require new resources. It’s, you know, like a bottomless black hole. You can’t leave unfinished the same submarine, it means that the government will allocate additional money. From this side it turns out.

Third, the explicit aim of military spending is an obvious structural imbalance of the Russian economy. For example, in the NATO countries is that the defense you need to spend only 2% of GDP. And until recently — that is, before the deterioration of relations with Russia, in many countries the level was below. Now, however, the European military and the local defence industry has the opportunity to lobby for increased defense spending. But we have level of defense spending higher than in the NATO countries.

Why the authorities have said repeatedly about structural problems of the Russian economy, but does not seek to correct this structural imbalance? Or are we going to fix it, not where it is warped, and where it is convenient to do so? Moreover, after such a presidential address, there is no doubt that the problem will only get worse. Structural imbalances is a disaster for the economy, because if you have the budget to undue priority (defense), something else (in this case — education, health and other social expenditures), by contrast, is not a priority. It’s simple: the budgetary “pie” — it is one and more than one piece, the less others. Of course, not limited to the above-mentioned negative consequences of excessive military spending on the economy. This does not mean that such expenditures should not be. Moreover, some countries already due to its geographical conditions forced many to spend on defense (a huge area, a significant length of the border). But one thing — reasonable forced spending.

And another thing — spending on trumped-up reasons that someone may seem, even stimulate the economy. They do not stimulate, they only steal if you look at the situation in the complex.

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WHERE WILL THE RACE

Now back to the question about whether the Russian economy to sustain a new arms race. Recall that the Soviet economy such a race did not survive. If someone disagrees, let us recall the empty shelves of Russian stores in the late Soviet period. But they were including because the economy’s resources were directed a significant amount on defense. The economy, and that so was not the most effective to suffer anymore from these unnecessary expenses.

But now that we have a different economy — the market. However, the market only partially: property rights are securely protected, the competition low and very specific, administrative arbitrariness and significant for labor productivity in the Russian economy is 2-3 times lower compared to those of developed countries.

Moreover, the economy is, it is still burdened by sanctions and confrontation. This economy will not sustain a new arms race. People, of course, nothing good to expect from an arms race should not be. Overall, for the economy, as was shown above, this is a disaster.

Although the defense industry will benefit from it — at first. It is also, by the way, was in our, then still Soviet, history. Supply of goods of the population of closed cities, working in the defense industry, and individual companies was much better compared to other sectors and territories. But then, when things went off the rails when defense procurement was cut multiple, the industry and the area were in deplorable condition. It turns out that strategically, even these initial beneficiaries lose.

Well, don’t worry: let not sustain the Russian economy a new arms race, will live without her. Yes, only huge resources to the point when you have to yank the emergency brake, are already spent, and spending on human capital development — reduced. So today, in the 21st century, when the priority of such spending is a condition for the country’s development, its competitiveness.

 Today, the Russian authorities believe that money will suffice on everything from defence to culture. No, not enough. To set the right priorities still have, and better to do it before, himself, but not too late and forced, when money already on what will not.

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