Defense budgets or military expenses are normal defense need for a country. To measure whether the defense budget matches up against the national defense's strength, a crucial indicator is to look at the proportion of military spending in the national economy. During peacetime, the defense budget will grow in tandem with the nation's economy. Under normal circumstances, military expenditures would make up a fairly stable portion of the economy.
Using the world's greatest military spender, i.e. the United States as an example, from the time the U.S. entered the Second World War in 1940 up to now, the proportion of defence spending in its GDP was relatively higher during three periods of wartime: 37.8% in World War 2 (1944), 14.2% in the Korean War (1953) and finally 9.4% in the Vietnam War (1968). Most other times, it ranges between 3 to 6% and has come to drop in recent years. In 2018, the defense spending was only 3.4% of GDP (about US$ 692 billion in military expenses).
If the military expenditures are too large and exceed what is able to be managed by a nation, it will create a substantial effect on the nation's economy. In this aspect, the Soviet Union has provided an example. It should be noted that the break up of the Soviet Union is due to many complicated factors, but from the perspective of the economy, the Union's massive military expenditures had also brought some pressures, hence it cannot be disregarded as a reason that caused the fall of the Soviet Union.
How much were the military expenditures of the Soviet Union back then? For a long time, this was high-value intelligence that the West was hoping to get during the Cold War. According to official figures released by the Soviet Union, using estimations from the time of spending, the expenditures were 9.3 billion rubles in 1960. It rose to 17.9 billion rubles in 1970, representing an average annual growth rate of 6.8%. This was maintained until 1973 when it started declining again. 17.4 billion rubles was spent in 1975, and 17.1 billion rubles each year from 1980-1984. In the 70s, an average decline of 0.4% each year was recorded. In 1983, the Soviet Union's military spending increased by 11.8% as compared to the year before, reaching up to 19.063 billion rubles. Military expenditures as a portion of fiscal expenditures fell from 12.72% in 1960 to 4.6% in 1986. ("Soviet Military Expenditures and Their Effects", Li Wei Guo, 1987).
However, the official data released by the Soviet Union is highly questionable and the outside world believes that this figure was played down by Soviet authorities. According to information as understood by ANBOUND, institutions in the West used two main methods in order to derive the real values of Soviet military expenditures. The first is to use a categorized and estimated approach. This method is conducted by evaluating personnel, operation, and maintenance, procurement, R&D and valuation (RDT&E) as well as the construction of military structures according to categories, in addition to summing the total amount after running it through the exchange rate. The inherent difficulty in this method is trying to accurately estimate the number of purchases and other situations of expenses that could be made by the Soviet Union. The second method is to rely on the tabulation of numerous hidden elements in the public budget expenses by the Soviet government. This pointed to the many projects related to the military but was not categorized under military expenses, such as research fundings and satellite launches.
According to CIA estimations furnished by the IISS (International Institute for Strategic Studies), the proportion of Soviet military spending to GDP is: 9.9-13.3% in 1960, 11.8-14.5% in 1965, 11.5-13.8% in 1970, 11.5-14.1% in 1975, and finally 11.8-15% in 1980. SIPRI (Stockholm International Peace Research Institute) has lower estimations and believes the figure was about 8.7% in 1975. In Armaments and Military Affairs Estimates and National Security Chronicle by William Snyder, the estimates of the Soviet Union's military spending in proportion to its economy was higher, being 15.75% for 1975, 18% for 1980 and 21% for 1985.
Despite the differences in estimates between the institutions, they basically arrive at the same conclusion. This conclusion is that the military expenses of the Soviet Union were huge and that the economy was bearing a heavy load caused by these massive expenses. Taking the industrial production and national production totals as an example, the Soviet Union's industrial production grew at an average annual rate of 8.5% in the 1960s and fell subsequently to 5.9% in the 1970s. Moving forward, it fell further to 3.7% in the first half of the 1980s. In 1970, the average annual growth rate of the Soviet Union's actualized GDP was 5.1%. It fell to 3.2% in the 1971-1980 period and further to 2.6% from 1981-1985. It is very clear here that as the military expenses increase and military prowess expands, the development of the national economy would be greatly compromised.
During the Cold War, striking a balance between armaments and the economy used to be a common problem faced by both the Western powers and the Soviet Union. In the early days of the Cold War, the Western European economy was more or less annihilated by the Second World War, and mass-rearming was thought to have an adverse impact on citizen's lives and was rejected politically by voters. From then on, one of the main issues plaguing Western powers was how to procure enough armaments in order to deter the Soviet Union, without triggering a collapse of its economy and subsequently allowing the Soviet Union to benefit politically, and certainly, the Soviet Union did not need to worry about domestic votes against its actions. Ever since, with the rejuvenation of the economy of Western Europe, pressures on striking a balance between purchasing armaments and preserving the economy had been in the decline. The irony here, however, was that the West's measures to counter its fears of collapsing around 1948 could be seen in practice when the Soviet Union finally collapsed 40 years later.
From a comparison of the U.S. and the Soviet Union, behind their arms race was vastly different economic backgrounds. The U.S.'s GNP (Gross National Product) reached US$ 399.25 billion in 1985. At the same time, the Soviet Union's GNP was US$ 193.53 billion, accounting for about 48.5% of the U.S. Despite this, the military strength of the Soviet Union at that time was comparable to that of the U.S. In order to maintain a roughly equal military might, the Soviet Union had to match the military spending of the U.S. In the period from 1981 to 1985, the average annual military spending of the U.S. was as high as US$ 233.8 billion. Assuming the Soviet Union spent about US$ 200 billion, its military expenses would make up more than 10% of the GNP (The U.S. Department of Defence estimates that in the first half of the 1980s, the Soviet Union's annual military expenses was one-third more than that of the U.S. at about US$ 300 billion, accounting for 15 to 17% of GNP). Else, the balancing against U.S. military prowess achieved by the Soviet Union after years of efforts would not be easy to sustain (Li Wei Guo, 1987).
The high military expenditures had brought about abnormalities in the development of the military industry. In its midst, other industries were very obviously left behind. In these types of abnormal structures, the quality of life of its citizens was on a gradual decline, and investment and productivity were also sliding downwards. William T. Lee, an American specialist researcher on the Soviet Union, estimated that due to the Soviet Union's continual rise in its military spending, expenses and investment in the gross national product has continued to decline. From 1960 to 1985, the Soviet Union's consumption percentage in GDP fell from 62.6 to 55.5%, and the proportion of investment fell from 27 to 23.5%. The only thing that rose during this period was the military expenditure, from 10.4 to 21%.
This series of information shows that having the military expenses beyond what a country is able to afford will bring a lot of pressures, and cause abnormal development in the industrial structure and the decline of quality of life. Other than that, large quantities of weapons used in wars (such as ballistic missiles) and weapon platforms (such as warships and submarines) require continuous and expensive maintenance fees after they are produced. Some of these weapons and systems also require continuous system improvements. The heavy military expenditures greatly exceeded what the Soviet Union was able to manage. It eventually snowballed with other factors to form great pressures and caused the collapse of the Soviet Union.
Final analysis conclusion:
It is important to learn from history and not to repeat it. In modern times where geopolitical instability is increasing, many countries are responding to this by strengthening their national defenses in order to safeguard their national interests. However, at the same time, there is a need to pay attention to the balance between national defense construction and national economy. Only by balancing the two can a sustainable and healthy development exist for both the nation and its citizens.
