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Russia and China Will Win the New Arms Race

The US has fallen behind due to the corrupt and monopolistic economic and political system of America’s Deep State

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This post first appeared on Russia Insider

Many believe that U.S. president Ronald Reagan engineered the collapse of the Soviet Union with his “Star Wars” arms race program. In fact, the program was more rhetorical than real and personally I do not believe that it was what knocked out the Soviet Union, rather it fell  of its own weight caused by the decline of its non-competitive economy and the fading away of the belief in its ideological foundations. Nevertheless, it is undoubtedly true that the USSR spent far too big a proportion of its economic and financial resources on the military and defense, both directly and indirectly.

The great paradox is that this time around the new arms race under the ongoing new Cold War will likely break the U.S. economy rather than the Russian. This will sound unbelievable for most people, especially for those who are familiar with the below graph making the rounds in the media.

<figcaption>Will Russia beat the USA this time around?</figcaption>
Will Russia beat the USA this time around?

But actually this graph is rather part of the proof of the tenuous position of the USA. It shows that the USA is already spending these huge amounts of money but has nevertheless not reached any kind of overwhelming military superiority over China and Russia, on the contrary they are constantly losing their advantage.

I must first address two main assumptions underlying this essay. The first is, that yes there is a new Cold War. Both the Russians and Western leaders and their media have been reluctant to admit this.  From the Russian side the idea has been to tone down the rhetoric while I think the West has been loath to let the cat out of the bag so as to prevent their populations from realizing that they have actually brought the world to a new Cold War with the risk of a thermonuclear annihilation. Fortunately, the Russian Prime Minister Medvedev acknowledged the elephant in the room telling - fittingly at the famous Munich Security Conference – that "NATO's policy with regard to Russia has remained unfriendly and opaque. One could go as far as to say that we have slid back to a new Cold War".

The second assumption is of considering Russia and China as allies in respect to the subject matter of this essay. Russia and China are joint founders of the Shanghai Cooperation Organization on the economy and military, which is however no NATO-style alliance with commitments to joint military actions in case of attack. The leaders of both countries obviously stress in public that they are in no formal alliance and that their cooperation is not directed against any other country. It is true that it is not directed against other countries in the sense that neither country prepares for an offensive war. But they both are engaged in building their defense capabilities to protect themselves against a very specific enemy, which is the expansive U.S. empire and its coalition of vassal states under the NATO umbrella. Both countries understand very well that the objective of the U.S. led Western elite is to achieve absolute world hegemony and that for this purpose they need to subjugate China and Russia. Hereby it is clear that this strategy foresees the subjugation of Russia in the first place either by a regime change operation or open war, or by wearing it down with economic warfare and terrorism. With Russia under its control, the West would then move to encircle China with sanctions warfare and the military. No other country in the World could go on maintaining an independent stand against the West once China and Russia had succumbed. It is from these considerations that I sum up the Russian and Chinese defense expenditures in comparing them with those of the West, and in particular with the American spending.

All that glitters is not gold

Let us now return to the paradoxical military spending figures. There is no doubt that America spends nominally much more than China and Russia put together, but the question is not about how much one spends but what one gets for the money. I need to point out that we do not know for sure know how much these countries actually spend on the military because at the end of the day the budgets are not all that transparent. But let’s assume that the United States spends at the level of $700 billion, China $220 billion and Russia from $40 to 50 billion (it is very difficult to state in dollar terms due to the very volatile currency exchange of the ruble to the dollar).  Hereby I do not think it makes a lot of a difference what the European vassals of the USA spend. I will concentrate here on Russia, but most of the considerations apply to China as well. By these figures it would seem that the USA spends around three times more than China and Russia taken jointly, and some 15 times more than Russia alone. But there is a difference between spending and spending. Mainly I have in mind here the capability of these countries to develop and produce new state-of-the-art weaponry.

First, we must consider the purchasing power parity (PPP) between these countries. In general the PPP of a dollar is about 3 times more in Russia, meaning that with one dollar you get three times more stuff in Russia than in the USA. With the fall of the ruble rate in the past two years, the PPP could be more than 3; on top of that I estimate that the rate is yet sharply higher in the military sector, it could be as high as 5 (or even more).  The Chinese PPP coefficient to USA could be estimated as at least 4. Thus alone with adjusting the military spending with the PPP coefficient we see that actually the USA does not have a lead over China and Russia; it could yet be the other way around. To take one concrete example, China's Wing Loong drone cost only $1 million USD to produce, whilst the American equivalent with the same capabilities, the US MQ-9 Reaper cost a whopping $30 million.

And it might just be so that the Russian and Chinese military-industrial complexes are much more efficient than the Americans, strange enough.

Another factor is that a huge portion (I don’t know which exactly) of the U.S. military spending goes to maintaining their military bases all over the world, which is only a drain on the resources and does not do much good for developing defense capacities. On some estimates, the USA has 800 bases all over the world, and on top of that military personnel and marines in 160 countries and also costly floating bases of the navy, the 10 carrier groups. All in all this could mean half a million troops with family overseas. Russia and China do not carry any corresponding burden of maintaining an overdrawn imperial force across the globe. 

Wall Street meets War Street

The biggest drain on the U.S. defense budget comes from the symbiotic relationship of the U.S. military-industrial complex with the financial sector, that of Wall Street and War Street. This is the securitization of the U.S. military-industrial complex. The main contractors are all listed on the stock exchange and therefore the defense contracts come with huge profit margins in order to satisfy the demands of the stock market ideology. The contracts are not open to any kind of tendering but awarded by intra-Deep State machinations where the congressmen that live off campaign contributions serve as rubber stamps. This mechanism guarantees that the contracts come with the required budgeted profit margins.  I do not have any actual figures on that but it much be tremendous. It is very probable that some 30% of the U.S. military budget is siphoned off in form of such profit margins, which are eventually paid out as dividends, or worse yet as payments on stock-buy back schemes. By these considerations, the actual money left over for the physical military development and production is far less than what China and Russia can muster.

The Wall Street syndrome also spells all kinds of outsourcing contracts, which would supposedly guarantee more efficient operations but in reality further drain the system with overpriced contracts and another layer of profit margins. A small but good example was a contract to build a fitness center at the base in Camp Lemonier in Djibouti for $25.5 million (2013). The system’s corruption automaton allows for any write-up of margins, as they can always be motivated by overseas “hardship”.

Then we have the more traditional forms of corruption although they are often dressed as consulting contracts. In the USA, you are free to pay a consultant whatever exorbitant fees. However, every once and a while we also here about billions that just disappear in the very old-fashioned way.

One interesting and crucial part of the corruption are the campaign contributions which flow back from the defense contractors to the congressmen to keep the merry-go-around in circulation.

Here is an interesting article on this topic: How Corruption Cripples America’s Military. US versus Russian Weaponry. Who Wins

The evidence is piling up

There have been an increasing number of reports revealing that the system can actually not anymore produce the weapons it is supposed to do as evidenced, for example, by the multi-billion dollar fiasco with the F-35 fighter jet development project of which there are more and more reports.

It is not just the F-35 but we also hear about the failure of the navy’s new class of destroyers. And billions have been sunk into a failed missile shield to protect the US mainland. Here is an article that convincingly dismantles the myth that Russia would be inferior to the US in military technology. 

There seems actually to be much metaphoric truth to the anecdote of the “space pen” according to which the NASA scientists wanted to develop a pen that would function in the space and spent years and millions of taxpayer dollars to develop a pen that could put ink to paper without gravity. The punchline is that the Soviet counterparts instead made use of old fashion pencils. (Actually, though, a private company Fisher Pen Company without any government funding developed a real space pen).  The corrupt and hyperbolic system of the American permanent war machine favors costly and hubristic R&D programs that aim at a final superiority is often outmaneuvered by the Russian engineers to work under more rigid budgetary considerations. A marvelous example of this is provided by The Saker’s accounon how the Russian "dumb" iron bombs are almost as accurate when dropped from 5000 meters as US smart bombs. 

Russia is winning because of its healthier economic and political system

Considering all this, and much more, it looks like the United States cannot get out additional mileage from the incremental funds it throws into the military. Just as a guestimate, I believe that for every additional 10 billion that Russia and China spend the USA would have to spend 50 to 100 billion. However, there are concerns that the system might be just so rotten that no amount of new funding can salvage it. These are amounts of money that the USA might just not be able to cough up at the same time when it is faced with huge challenges to fund its crumbling domestic infrastructure and a financial system that could crash any day. The case for a risk of an imminent financial crisis is profoundly argued in this Awara study.

Combining all the considerations outlined above, we see that Russia with China are not the underdogs in military spending and may actually have a substantial lead over the USA. The big historic irony is that the USA is losing the new arms race for the same reasons that the USSR fell. The USA now have - just as the USSR had – a non-competitive and monopolistic economic system serving the needs of a small corrupt elite instead of the needs of the society at large. And this coincides with a growing awareness among the American population – just as in the USSR – that the system has become untenable and is reaching its breaking point. Russia’s market economy system with a significant state component especially in the military industry seems to be far superior than the present day perverted monopolistic capitalism of the oligarchical Deep State of America.

PS. I have been greatly aided in formulating my above ideas by reading Mike Lofgren’s book The Deep State: The Fall of the Constitution and the Rise of a Shadow Government, to which I owe the wonderful formulation of “Wall Street and the War Street”. That the USA has retreated from democracy and is evolving into an oligarchy has been convincingly proven by a Princeton University study that has been widely published, for example, here.  Also very tellingly, former U.S. president Jimmy Carter has also spoken out against this scourge: Jimmy Carter: The U.S. Is Completely Subverted By Oligarchs

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