Turbo-charged arms production; for protection or for power and profit?

When former Dutch prime minister Mark Rutte addressed the European parliament in his fresh position as secretary-general of NATO, it was the usual military complaint about budgets. Rutte argued that only a fraction of the expenses for pensions, healthcare and social security would be needed to make the military so much stronger. His message echoed Donald Trump who demands an increase in European military budgets towards 5% of Gross Domestic Product (GDP).

When Trump was inaugurated, @SecGenNATO tweeted:
“With President Trump back in office we will turbo-charge defence spending & production. (…) Together we can achieve peace through strength – through @NATO!”

Rutte repeated these views at the World Economic Forum in Davos but did not give a specific spending figure for NATO members to discuss. Later, Rutte spoke in the media of a target of 3.7% of GDP. But it could be less. Or more. Setting a vague goal makes it hard to debate and criticise and obscures that every GDP one percent extra would cost European NATO members together $195,422,720,000.ⁱ An increase from 2% GDP (the present target) to 5% GDP makes a difference of almost $600 billion extra. Asking for 3.7% GDP military spending means roughly $330 billion extra of the aggregated European NATO members’ household books.

The military spending hike spreads over Europe. EU president Von der Leyen spoke of “a new era of harsh geostrategic competition”, ignoring that there is a wide range of reactions possible to geostrategic competition, other than military. The costly and dangerous military answer to all geostrategic problems is in the European driving seat. Even some conservatives are worried about the skyrocketing costs of the ‘unrealistic military spending’ proposals of Von der Leyen, the EC and NATO. Greens and socialists on the other hand, like German minister of Economics Habeck, are joining the choir for military budget raises and plead for 3.5% of GDP. While in contrast Italy’s central bank chief Fabio Panetta said that manufacturing war equipment does not help increase a country’s growth potential. Development comes from productive investment, not from arms.

To underline the urgency of high military budgets, NATO-secretary general Rutte claimed in the European Parliament that Russia is producing in three months more weaponry than all NATO countries together in a whole year.ⁱⁱ An unlikely figure which sounds like an alternative fact. So let’s fact check.

Russia has considerably raised its military budget the past years. In 2021 (before its invasion in Ukraine) Russia spend €64 billion. The present spending range is somewhere between €119 billion and €140 billion. The first figure is the official Russian figure, and seems to come close to reality. The second figure originates from the Polish Institute of Foreign Affairs (PISM, critical on Russia). On the other side, according to annual NATO figures, European NATO-members did spend $405 billion on their military in 2024, of which $130 billion on major weapons and military Research & Development (R&D). So even when erasing the United States and Canada from the equation between NATO and Russian expenditures, we have a NATO-Europe figure on weapon spending comparable to the total military expenditure of Russia.

The European Defence Agency reported in its Defence Data 2023-2024 report a record spending on arms by EU Member States in 2023 of 26% of total military expenditure. NATO as a whole is spending a third on equipment (see table). This share is considerably bigger than the 20% NATO has set as a target in its 2014 meeting in Newport, Wales. The strength in troops is higher than ever during the past decade, but the share spend on military salaries is constantly decreasing in favour of more materiel (and thus an increase of turnover for the military industry, see e.g. figure 1 in a recent report by the Stockholm International Peace Research Institute, SIPRI). There is a war driven growth of military industry output.

The $130 billion that European NATO members spend on equipment and R&D is comparable with the total Russian military spending. From what Europe spends on weaponry, Russia also has to pay its operations, infrastructure, salaries and extra debit entries like compensations to families of killed soldiers and allowances for conscripts signing up. “These allowances increased an average of five times and depending on the region, range from $8,000 to $30,000.”ⁱⁱⁱ writesAlexandra Prokopenko in Foreign Affairs magazine: “The estimated cost of this recruitment effort is between $16 billion and $25 billion a year – a figure that excludes additional expenses to provide handouts for wounded soldiers and to compensate the families of the deceased because official statistics are classified.” Another source valued compensations at 900 billion rubles (€8.7 billion); the costs of human health and lives lost in war. Together recruitment and compensation takes about $25 to $33 billion out of Russian military spending.

Can we compare a dollar spend in Russia to a dollar spend in the west? As Rutte argued in his speech in the European parliament, production in Russia is cheaper than in technological advanced NATO countries. But Russia has its own specific costs, a far lower budget and, to quote a former US general: “You get what you pay for, and we are spending a lot more — and getting good (and necessary) value for our money.” His words were on soldiers, but for weaponry the same counts; the quality of western produced military goods just gives better value for money.

There is another Russian disadvantage. Russian arms exports have collapsed since it started the war in Ukraine. This means less income for the Russian arms industry and higher costs per unit of military production. Exports are generally used to spread the enormous development and research costs over more units.^iv Moreover: “As the Russian government admits the shortage of 160,000 workers in military factories, experts in Russia also predict a loss of up to 40 percent of Russia’s research and engineering capabilities due to reduced arms sales revenue,” a military website writes.

A recent Greenpeace report underlines that: “Even without the gigantic military apparatus of the USA, the European NATO states are clearly superior: their military budget is higher than the Russian state budget. They have 1.9 million soldiers, Russia only has 0.5 million west of the Urals. They have 6,300 battle tanks, Russia only has 2,000. They have 2,100 combat aircraft, Russia only 1,000. They have 140 warships, Russia only has 30. In addition, NATO’s weapons systems are more modern than those of Russia.” This last remark brings us to an aspect neglected in the stirred-up fear for the Russian bear: the disparate technological position of Europe and Russia.

Military production of advanced weaponry is using micro-electronics. In the US, this part of industry is considered so strategic that it receives financial support from the Pentagon. Russia depends on foreign producers for this part of its weaponry (see e.g. Chipwar on this). Some weapon systems need up to 40 or 50 Western components. Because of sanctions, Russia has to import these components sneaky from countries still willing to deliver. Because of this dependency, suppliers can raise their profit margins; again an extra cost for Russia when it wants to produce state-of-the-art weapons.
The Russian manufacturing business – of which the arms business is a part – grew 7.6% in the first nine months of 2024. “But the initial wartime economic expansion is slowing down. Between the second and third quarters of 2024, Russian GDP growth dropped from 4.1 percent to 3.1 percent. Industries involved in defence production are still expanding, but at rates well below their peaks in 2023. The Russian economy, in other words, is starting to hit a wall,” writes Prokopenko.
Russia is a former superpower, a position it has lost. In land seize it is a giant on the Eurasian continent, and it has a large number of nuclear arms. But the seize of its economy is half that of Germany and mostly based on export of fossil fuels. Its population is smaller than that of France and Germany combined. We should not make Moscow bigger as it is.

In January 2025, Russian President Putin signed off the country’s new State Budget. A enormous part, around 32.5%, will be spend on the military, up from a reported 28.3% in 2024. An amount which is unhealthy for the society and the economy. Even a regime such as that of Putin has to invest in sectors important to the population to keep them on his side. Again Prokopenko: “It is true that Putin’s current strategy is unsustainable. He is trying to simultaneously wage war in Ukraine, maintain high social and infrastructure spending to create an illusion of normality for his domestic constituents, and preserve macroeconomic stability. It is impossible to do all three in perpetuity. Achieving the first and second goals requires large outlays of cash, which fuel inflation and thus prevent the achievement of the third goal. And the cracks in the Russian economy are becoming increasingly apparent.”

Moreover, the money invested to get new military personnel (according to Minister of Defence Andrei Belousov, 427,000 soldiers were contracted in 2024) is not only a burden on the budget. The war also leads to shortages on the labour market. Employers competing with the army and the military industry have been raising salaries to match military wages, which will inflate average industry salaries several times, raise the overall cost of production and “(t)he rising rate of dead and wounded will compound demographic problems and manpower shortages” Polish institute PISM cynically adds.

The Russian bear is mean, but in comparison with NATO a much smaller party. Even with massive investment of the Russian state, the Ukrainian military is noticing that the use of ammunition by the Russian forces is going down; “a cut in half”. Western shortages are widely reported by those who want to beef up EU and NATO militaries, but for Russia, the war efforts are hardly bearable.

Secretary-general Rutte is exaggerating the military threat of Russia to create more urgency for the raise of NATO budgets, at the cost of on pensions, welfare and health care. Alternative facts are introduced to convince European people to sacrifice their social security for the benefit of the military-industrial complex.

Martin Broek January 2025

Notes:

iDefence Expenditure of NATO Countries (2014-2024): GDP in million US dollars. Table 5. NATO 2024. https://www.nato.int/nato_static_fl2014/assets/pdf/2024/6/pdf/240617-def-exp-2024-en.pdf

iiThe remark was copied by the High Representative of the EU for Foreign Affairs and Security Policy, Kaja Kallas, at a meeting of the European Defence Agency in a fear mongering talk. Mark Channer, ‘EU’s top diplomat warns we must stop Putin ‘before he attacks’ Europe,’ LondonLovesBusiness, January 25, 2025.

iiiThe support from Pyongyang is also paid. The New York Times gave the following figures: “The North has earned up to $5.5 billion through arms deals with Russia, according to Olena Guseinova, a researcher at the Hankuk University of Foreign Studies in Seoul. In a report published in October​, she also estimated that North Korea could ​bring in up to $572 million annually through deploying troops — a huge sum by the ​North’s standards​. The country’s official exports amounted to $330 million only last year.”

ivThat is also why Russia is trying hard to sell arms. In the past week (potential) sales to Indonesia, Saudi Arabia, India, China, and Algeria were reported. See: Shivam Patel, ‘Indonesia in talks to buy Russian-Indian missile as President Prabowo visits Delhi sources say,’ Reuters, Jan 24, 2025; and Alisa Yurchenko. ‘Sanctioned Russian Firms Sold $2B Air Defense System to Saudi Arabia, Leaked Documents Show,’ OCCRP, Jan 24, 2025.