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Russian military spending looks small in that chart. Here's the reality:
Ask yourself: Do we really know how much our adversaries spend on their military, and what they are getting for their money? Russia, for example, presents a glaring problem for academic and policy circles alike. Most comparisons are done in current U.S. dollars based on prevailing exchange rates, making Russia’s economy seem the size of South Korea’s. This approach is useless for comparing defense spending, or the country’s purchasing power. Yet, it is used frequently to argue that despite a large military modernization program, and a sizable conventional and nuclear deterrent, Moscow is a paper tiger. As a consequence, the debate on relative military power and expectations of the future military balance is terribly warped by a low-information environment.
The best example of this problem is a recent announcement by the Stockholm International Peace and Research Institute that Russian military spending has fallen to the sixth highest in the world in 2018, at $61.4 billion. Rest assured, or perhaps discomforted: Russian defense spending is several times higher than $61.4 billion, and the Russian defense budget remains the third largest in the world, dwarfing the military expenditures of most European states combined. In reality Russia’s effective military expenditure, based on purchasing power parity (Moscow buys from Russian defense manufacturers in rubles), is more in the range of $150-180 billion per year, with a much higher percentage dedicated to procurement, research and development than Western defense budgets.
Although there are challenges with comparing economies based on purchasing power parity, it would do good to keep in mind that Russia is actually the sixth-largest economy in the world and not long ago was the largest economy in Europe based on purchasing power parity (PPP) — ahead of Germany. Purchasing power comparisons come with their own shortcomings, especially when understanding global financial flows, import/export, and the like, but it helps paint a much more accurate picture than comparing economies by converting their gross domestic product into dollars based on the current exchange rate. If ruble valuation suddenly dropped by 50 percent against the dollar, which it did in 2014, does that mean the Russian economy suddenly contracted by half in one year? No, it doesn’t. Then why is this a useful way of looking at the world and understanding the relative balance of economic power or military expenditure?
There is no value in conceptualizing Russian defense spending in U.S. dollars based on the prevailing exchange rate, since Russia does not buy its weapons or major components from the West. Yet, this is how SIPRI arrives at its $61.4 billion figure, which places Russia safely behind France, even though Moscow fields a military that’s almost 900,000 strong, with a conventional and nuclear arsenal capable of taking on the United States. PPP is not without limitations, but it is heavily advantaged when comparing defense spending as opposed to consumer spending, where countries may import a broad range of goods. As a consequence it is not only the most accurate way to compare defense spending in countries using different currencies, but should arguably be the only method of doing so.
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Russian military spending looks small in that chart. Here's the reality:
Ask yourself: Do we really know how much our adversaries spend on their military, and what they are getting for their money? Russia, for example, presents a glaring problem for academic and policy circles alike. Most comparisons are done in current U.S. dollars based on prevailing exchange rates, making Russia’s economy seem the size of South Korea’s. This approach is useless for comparing defense spending, or the country’s purchasing power. Yet, it is used frequently to argue that despite a large military modernization program, and a sizable conventional and nuclear deterrent, Moscow is a paper tiger. As a consequence, the debate on relative military power and expectations of the future military balance is terribly warped by a low-information environment.
The best example of this problem is a recent announcement by the Stockholm International Peace and Research Institute that Russian military spending has fallen to the sixth highest in the world in 2018, at $61.4 billion. Rest assured, or perhaps discomforted: Russian defense spending is several times higher than $61.4 billion, and the Russian defense budget remains the third largest in the world, dwarfing the military expenditures of most European states combined. In reality Russia’s effective military expenditure, based on purchasing power parity (Moscow buys from Russian defense manufacturers in rubles), is more in the range of $150-180 billion per year, with a much higher percentage dedicated to procurement, research and development than Western defense budgets.
Although there are challenges with comparing economies based on purchasing power parity, it would do good to keep in mind that Russia is actually the sixth-largest economy in the world and not long ago was the largest economy in Europe based on purchasing power parity (PPP) — ahead of Germany. Purchasing power comparisons come with their own shortcomings, especially when understanding global financial flows, import/export, and the like, but it helps paint a much more accurate picture than comparing economies by converting their gross domestic product into dollars based on the current exchange rate. If ruble valuation suddenly dropped by 50 percent against the dollar, which it did in 2014, does that mean the Russian economy suddenly contracted by half in one year? No, it doesn’t. Then why is this a useful way of looking at the world and understanding the relative balance of economic power or military expenditure?
There is no value in conceptualizing Russian defense spending in U.S. dollars based on the prevailing exchange rate, since Russia does not buy its weapons or major components from the West. Yet, this is how SIPRI arrives at its $61.4 billion figure, which places Russia safely behind France, even though Moscow fields a military that’s almost 900,000 strong, with a conventional and nuclear arsenal capable of taking on the United States. PPP is not without limitations, but it is heavily advantaged when comparing defense spending as opposed to consumer spending, where countries may import a broad range of goods. As a consequence it is not only the most accurate way to compare defense spending in countries using different currencies, but should arguably be the only method of doing so.
source: https://www.defensenews.com/opinion/commentary/2019/05/03/russian-defense-spending-is-much-larger-and-more-sustainable-than-it-seems/
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