Moscow Splurges on a New Armada

While much of Europe slashes spending to reduce deficits, surging oil prices are allowing Russia to splurge. The Kremlin's choice of stimulus package is a bit of a throwback, though—among other things, a new fleet of warships to challenge China. Last week Prime Minister Vladimir Putin announced a whopping $678 billion package of new defense spending for the next decade, with a quarter of the money going to revamp Russia's Pacific fleet. On the Kremlin's shopping list: 20 new ships, including a new class of attack submarines, plus new missile subs, frigates, and an aircraft carrier.

Ostensibly, the point of all this spending is to show China that Russia's still in on the great power game in the Pacific. But the Kremlin also needs to funnel money into the country's sclerotic arms industry to keep it alive. Russia's military-industrial complex employs close to 3 million people and accounts for 20 percent of all manufacturing jobs. And though Russia is still the second-largest conventional arms exporter after the U.S., its defense industries are in serious trouble. Last year Russia sold about $10 billion worth of arms—mostly bargain-basement conventional hardware—to foreign customers. But, says analyst Alexander Golts, as many as 25 percent of Russia's defense enterprises are facing bankruptcy and most are an inefficient "hangover from the Soviet-era military." Even Russia's own Defense Ministry has gone shopping abroad for the first time since World War II for equipment that Russia is incapable of making—for instance, two 20,000-ton Mistral helicopter carriers that the Kremlin has ordered from France for €1 billion apiece.

Russia's army is in no better shape. Last month the Moscow-based Center of Analysis of Strategies and Technologies published a report estimating that though the Russian Army, in theory, fields 1.1 million men, only two brigades, or 9,000 men, are actually deployable.

Throwing money at the problem may not make the Russian military a modern fighting force, but it will keep millions of Russian soldiers, sailors, and arms manufacturers employed. Most important, it will make many bureaucrats and defense contractors very rich. President Dmitry Medvedev himself estimated that in the last year Russia's bureaucrats stole a trillion rubles, or $33 billion, from the state budget. The Kremlin even confirmed that it splurged on a new super-yacht for Medvedev—which, according to reports, cost a cool $35 million, even secondhand. Does that count toward Russian naval power?