Procurement: NATO Returning to Cold War Standards


December 29, 2023: The Ukraine War has made NATO countries aware that the Cold War-era Russian threat has returned and is not likely to go away. This means NATO countries will have to return to Cold War levels of defense spending, which averaged 3.5 percent a year for all NATO members. In the 1990s that shrank to two percent. Now it's going back to 3.5 percent. In Russia the situation was worse. At the end of the Cold war, in 1991 when the Soviet Union fell apart, the Soviet Union was spending over $70 billion a year on defense.

Russia is not only more aggressive but is putting its economy on a permanent war footing. Russia cannot afford that, mainly because it was hit with extensive economic sanctions. This hurt Russia economically and the government tells the Russian people that the current economic depression in Russia is the result of NATO aggression. Russia tells its people that its troops went into Ukraine to prevent NATO from taking control of Ukraine and using it as part of an attack on Russia. The assertion seems absurd to Westerners, but Russians have had over a century of government paranoia about the West and are more inclined to accept it as reality.

The problem is that NATO nations can afford this expense, without hurting their economies, more than Russia can. In 2021, the year before Russia invaded Ukraine, the Russian defense budget was $66 billion. Russia expected a short and victorious war in Ukraine. That did not happen so Russia’ military budget for 2022 rose to $75 billion and then to between $84 billion and $100 billion in 2023. As a result of this Russia is expected to spend at least $600 billion on defense between 2022 and 2025. This means less money for non-defense operations. That includes government employees, infrastructure costs and government services in general. Russia has done this before. During World War II the deprivation inflicted on civilians led to hunger and some starvation deaths. American aid to Russia helped alleviate that. These shipments were delivered to the Russian Pacific Ocean port of Vladivostok via American transports that were transferred to Russia, which was not at war with Japan. Much of this aid was food and without it there would have been a lot more starvation in Russia. Without this aid, especially the military component, Russia might have lost the war or seen it go on longer than it originally did.

All this is remembered by many Russians who know about their own history. No one is supplying Russia with military or food aid. During World War II Russia lost control of most of its food producing territories to the German invaders. While Russia can feed itself this time and is in no danger of losing territory, the economic sanctions are doing a lot of damage. Ukraine is the one getting all the foreign aid and Russia does not like this situation at all. NATO countries can afford to send Ukraine lots of aid and keep doing so both with and without (depending on the vagaries of the U.S. Congress) much participation from the Americans. Russia has got itself into a war it can’t win but cannot, because of internal politics, afford to withdraw from.

Russia is profiting in some ways from its lost war. It does this by forcing Western firms to leave Russia and seizes the assets of these foreign firms. This has led to Russia obtaining billions of dollars from the departing Western companies. Russia believes that Western firms will not abandon the Russian market forever, despite their huge losses during their 2023 departure and will eventually return. Russia underestimates the widespread use of risk assessment by Western corporations based on Russian outlaw behavior. Russia is now assessed as a high risk and unreliable place to do business. Financial and risk management firms in the West now consider Russia an undesirable place to do business and it can take decades for that to change. Russia never had a particularly good reputation as a place to do business and now Russia is considered a place to avoid. Western risk assessment firms have compiled lots of evidence to back that up and major corporations will consult that data before considering any return to Russia.

For NATO countries, this means recent Russian behavior justified the formation of NATO in the first place, as an organization of Western nations determined to defend themselves from Russian aggression, be it military or financial. The United States missed an opportunity to stop Russia early and was slow to get Ukraine the military aid it needed in the beginning. Now NATO is easing up on aid to Ukraine just as the Ukrainians are pushing the Russians back. This will get messy because the Russians plan to do whatever it takes to absorb Ukraine back into a Russian empire that no one but Russian wants.




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