Russia's military procurement with Richard Connolly

Dr. Richard Connolly joined me on the Acquisition Talk podcast to discuss a wide range of issues, including Russia's GPV modernization programs, the effect of sanctions, whether Russia can produce hypersonics in large numbers, dependence on oil, access to commercial technology, and even acquisition reform in the United Kingdom. Dr. Connolly is the director of the Center for Russian, European, and Eurasian Studies (CREES) at Birmingham University, and he is an Associate Fellow at Chatham House. The discussion features an argument Dr. Connolly made about how to convert Russian military spending from rubles to dollars. The standard methodology uses the Market Exchange Rate (MER), which puts Russia's economy on the same level as Spain's and their military spending comes out to around $61 billion. That may give the misleading impression that Russia's military capability is perhaps less than one-tenth that of the United States. Dr. Connolly convincingly argues that the Purchasing Power Parity is a better measure, in which case Russia's perceived military spending increases to $160 billion. The MER reflects the supply and demand for rubles in US dollars to balance trade. The problem is that traded goods are not reflective of prices Russia's military planners face. For example, food, housing, haircuts, and worker salaries are not reflected in the MER. Even after adjusting for the MER, consumer prices are less than half as much as they are in the United States -- meaning Russia's military planners can afford more. The PPP provides a more apples-to-apples comparison. Preliminary results from Dr. Connolly's efforts to construct a PPP for military inputs show that it is close to the same value as the PPP for consumer goods. Dr. Connolly concludes that the PPP is roughly right whereas the MER is precisely wrong. The same is likely true of other low-income countries like China and Iran. This podcast was produced by Eric Lofgren. Soundtrack by urmymuse: "reflections of u". You can follow us on Twitter @AcqTalk and find more information at AcquisitionTalk.com.