Two recent Russian government reports that, at first glance, appear completely independent of one other, are, in fact, entirely interdependent. And their interrelationship has serious consequences both for how the Kremlin will deal with its own population as well as for how and especially when it may seek to project power abroad. On the one hand, Russian government figures show that Moscow has increased its spending on national defense to the highest level since Soviet times (Finanz.ru, July 14). But on the other hand, the labor ministry has projected that a decade from now, pensioners will form one-third of the Russian population, their largest share ever (Riafan, July 7).
These two reports are related for three important reasons. First, with earnings from the oil and natural gas sector having dropped precipitously, Moscow must extract funds from elsewhere—the population and the business community—to pay for any defense buildup. But reliance on such revenue sources is currently problematic. An ever-increasing share of the Russian population consists of pensioners who pay far less in taxes and themselves depend on government-funded retirement payments; in turn, the Russian business sector is mired in a deep recession because of the COVID-19 pandemic. And while pensioners are perhaps less likely to go into the streets to protest, President Vladimir Putin’s boosting of the pension age—an effective cutback in their expected incomes—has cost him much of the support he had prior to doing so, especially since he earlier promised he would never attempt such a policy (see EDM, September 19, 2018; see Commentaries, July 24, 2018). If the Kremlin leader tries to extract more money from the population to pay for a military buildup, he would probably see his support decline for the same reasons.
Second, the aging of the Russian population calls attention to the fact that there are ever fewer men in the prime draft-age cohort, making it increasingly difficult for Moscow to raise troops the way it has traditionally done. Consequently, this has compelled defense officials to seek more expensive but manpower-saving weapons systems instead, just as many Western countries have done (see EDM, May 16, 23, 2018). Yet, moving further away from a conscript-based force to a professional, all-volunteer military—as is necessary to operate ever more technologically advanced modern weapons systems—comes with its own serious budgetary issues due to significantly higher salaries that must be paid to contract soldiers (kontraktniki). Moreover, many Russian commanders will protest any further diminution in their units’ numbers. All this could cost Putin the backing of one of his key support groups—the one he now relies on to remain in power against any challenge (see EDM, July 13, 2020).
And third, as a result of these two above factors, Putin will feel under growing pressure to use his expanded defense forces for aggressive actions abroad in the near future (see EDM, July 13, 2020). A “victorious little war” might restore some of the backing he used to enjoy from generally more patriotic elderly Russians as well as prevent any loss of support from the generals, all while preempting the looming demographic changes, which could preclude such actions later (see EDM, June 29, 30  , July 1). Demography is not destiny, of course, except in the very long term; but it does open and close windows for action. And Russian demographic changes in general and the aging of the population in particular appear likely to be behind present and future Kremlin decision-making in the defense sector. Thus, close attention to Russia’s demographic factors is all the more important.
A recently published report from the Russian labor ministry projects that if retirement ages are not increased again, the share of the population on pensions will rise to more than 29 percent, up from about 25 percent now. The demographic shift is the result of declining birthrates, extremely high mortality among working-age Russians and, at the same time, increasing life expectancy. In 2030, the ministry says, Russians can expect to live on average to 80 years. The costs of supporting them will likely go up as well, the ministry says, given that the government has promised to augment pensions in each of the coming years. As a result, a decade from now, supporting Russian retirees both directly by pensions and indirectly via social and medical services will require an ever-larger portion of the budget (Nsn.fm, July 6).
Putin may try to maintain defense spending in the face of that budgetary challenge by taking money out of the regime’s reserve funds, something he has so far been reluctant to do. Alternatively, he could attempt to cut pensions still further, either by boosting the retirement age again or not fully adjust payments to inflation. A final possibility for the Kremlin may be to increase taxes on businesses in general and small businesses in particular. According to Russian economist Vladislav Inozemtsev, the Kremlin is currently considering all three of these options (Spektr.press, July 13).
But adopting any one of these or a combination of them comes with enormous costs, Inozemtsev suggests. The Putin regime has not wanted to use the state’s reserve funds even during the pandemic and likely is concerned how using them now would be read by the population and elites—and by foreign governments. At the same time, it recognizes that its support in the population is falling and cutting pensions would drive that support down still further, leaving the Kremlin leader with fewer options in dealing with either the population or the elites. And if it chooses the last course, the one it currently seems most set on, it will effectively preclude any growth in the economy for the coming years because any claimed “bounce back” will be from a much lower base.
Consequently, the Kremlin leader may very well view the latest demographic news as a compelling reason for him to use his modernized military (see EDM, May 20, 27, June 10, July 1, 15) to justify what he has been doing. It is an all-too-real possibility that makes the latest labor ministry report far more significant than might appear at first blush.