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U.S. generals may have had a "don't ask, don't tell" tingle of a different sort when they saw photos of a bare-chested Russian President Vladimir Putin snapped on vacation in Siberia.
American military officials have come to believe that the ex-KGB officer's newly aggressive stance, shown even more convincingly in some steps the buff leader has taken of late, is intended to provoke the West into the sort of traditional confrontation that both sides' militaries yearn for.
The end of the Cold War in 1989 may have been great for the nerves of the citizens of the United States and Russia, after all, but it's been a hell on wheels for the warriors. Russian generals have suffered repeated embarrassments in a long-running guerrilla battle with separatist groups on the country's southern fringe, while the Pentagon has been drawn into maddening, no-win battles against hit-and-run insurgencies in Iraq and Afghanistan. Morale in both formerly proud armies is at all-time lows, and patience is wearing thin.
What better tonic for military leaders on both sides -- not to mention, ahem, defense contractors -- than a massive new arms race ginned up and sold to the media? Neither side really wants bloodshed, but both are salivating at the opportunity to sell the need to prepare to their respective citizens. National-security threats are as useful for political campaigns as they are for weapons-industry investors, so it's no coincidence that both countries have major elections on tap next year.
In a moment, I will tell you about the U.S. defense contractors most likely to benefit investors in the coming arms race of the 2010s, but first let's take a quick look at how we got here.
A fossil-fueled resurgence
President Ronald Reagan is rightly credited for toppling the Soviet Union by forcing its leaders to spend a ridiculous share of their national wealth on weapons. By 1988, a year before the fall of the Berlin Wall, military spending amounted to as much as 16% of the Soviets' gross national product and was rising 5% per year, a crippling pace. After President Mikhail Gorbachev made his peace with Reagan and launched the dismantlement of the Soviet empire, arms spending plummeted -- falling by some estimates to a 10th of its former level by 1998. By the start of this decade, virtually all major weapons-system procurement inside Russia had ceased; all arms production was sold overseas.Meanwhile, the United States briefly paused in its own arms buildup, but quickly picked up the tempo again. Federal budget documents show the United States will spend at least $650 billion on war efforts this year, a level that is something like 40% of the entire world total. By some estimates, we now spend four times the amount that Russia and China will spend on their militaries combined.
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Yet there's a sense of dissatisfaction that the dollars spent on jet aircraft and nuclear subs aren't getting us very far with the hide-and-seek enemies we now face, which is why some of our generals pine for a good old-fashioned conventional conflict that would pit battalions against battalions rather than a rifle squad against a neighborhood warlord.
Up until four or five years ago, there wasn't much that Russian officials could do about the spending disparity and their own disenchantment, and embarrassed Russian army leaders simply wept in their vodka. But in 2003, energy prices began to triple amid a surge in demand from Asia and a decline in Saudi Arabian production. By the time Putin was elected to his second four-year term in 2004, Russia found its coffers overflowing with dollars and euros thanks to nature's gift of the world's largest reserves of oil and gas beneath its frozen eastern tundra. A new spending spree was on.
For a while, Russia seemed content to pursue its agenda as an energy superpower rather than in its old role as a nuclear superpower. Rather than squandering its riches solely on weapons systems, this time around its cash has fueled a broad-based manufacturing and service economy growing at up to 7% per year that supports millions of urban migrants from the mountains of the Caucasus to the steppes of Central Asia. Film, music, apparel, food, wireless communications, consumer electronics and retail have flourished in the newly decentralized economy, and opinion polls show that the swelling Russian middle class loves the country's muscular, tough-talking boss.