MOSCOW BLOG: Putin promises guns and butter in his state of the nation speech

MOSCOW BLOG: Putin promises guns and butter in his state of the nation speech
Putin promised to increase the size of the economy by 50% in his next term of office.
By Ben Aris in Berlin March 1, 2018

Russian President Vladimir Putin gave one of the most aggressive speeches of his career on March 1, promising the population a lot more “butter” and explicitly targeting the USA with “guns” if Washington continued to bully his country with sanctions and threaten it with missiles.

The speech was widely anticipated as the showcase for the likely policies that will dominate his next six-year presidential term. Russia goes to the polls on March 18 in an election that Putin is expected to win without a significant challenge.

But no-one was expecting the multimedia presentation that Putin delivered, replete with a series of videos showing off Russia’s latest missiles, submarines and state-of-the-art fighter jets, most of which he claimed have been specifically design to defeat the US's defensive capabilities.

The speech is likely to cause a hysterical reaction in the West and might be taken as the formal start of a real Cold War II as a new arms race was the only bit missing until now.


Putin’s speech is a clear conclusion to questions the Russian president raised at his famous speech at the Munich Security Conference in 2007 where he complained loudly about what he called the broken promises made by the West during the collapse of the Soviet Union to expand eastwards or enlarge Nato to include former Soviet vassal states.

Nato has strenuously dismissed the idea there was a promised curb on expansion as a “myth”, though Gorbachev appears to have been verbally promised by Western leaders that there would be no Nato expansion, yet nothing was put down on paper.

Putin explicitly pointed to the US decision in 2002 to unilaterally withdraw from the Anti-Ballistic Missile Treaty (ABM), which was the cornerstone of the balance of military power in Europe, and then its follow-up with the introduction of a missile defence shield, for which US-made interceptor missiles were stationed in Romania and Poland in 2017 over Russia’s strenuous objections.

“We tried to talk to our partners. Russia is a major nuclear power. They kept ignoring us. No one was talking to us. So listen to us now,” said Putin as Russia’s new rockets flew across wall-high screens behind him.

If this speech was supposed to set the tone for the next six years then the tone is going to look a lot like a new Cold War. That term has been bandied about since Russia’s annexation of the Crimea in 2014, but the two missing elements to make the clash a real Cold War – proxy wars between the US and Russia in someone else’s country and an arms race – have now been restored.

However, Putin made it explicit that Russia was not going to be the aggressor and stressed that his military build up was forced on Russia, in his opinion. Ever the legalist, he stressed that the development of these weapons are compliant with all Russia’s military and security commitments and also laid out in explicit terms Russia’s rules of engagement for the use of nuclear weapons: in retaliation to a first strike by an enemy or if the use of conventional weapons poses an existential threat to Russian sovereignty. Putin complained that under the US new nuclear policy Washington could launch nukes in the event of a cyber attack on the country.

The optimistic reading of the speech is that Putin is trying to force the West to the table to thrash out new security arrangements that acknowledge Russia’s influence in the world, and to shock the West out of its assumption that Russia is a failed state with a dying population that has no material role to play in international politics. It's a gamble and it is played into an atmosphere that is already fraught with tension and even hysteria.

Without going into details – and Putin went into a great deal of detail which is what made this speech unprecedented – the weapons on display were scarily impressive.

The main feature of the new missiles is they are designed to beat the US new missile policies and Putin suggested that this programme has been worked on for years. As bne IntelliNews reported in a cover story “Rekindling a new Cold War as Russia rearms” Russia began actively modernising its military in 2013 and former Finance Minister Alexey Kudrin was sacked as early as 2011 for objecting to a massive increase in military budget slated for the 2012 budget that kicked the process off.

In particular Putin boasted about the new Sarmat missile, a heavy rocket that can carry a 200 tonne payload but flies at hypersonic speeds and is highly manoeuvrable. The key element of this missile is it is rangeless and can fly at high speeds right the way around the world, dodging defences as it goes.

Since the US withdrew from the ABM treaty its policy has been to switch development from first-strike ICBMs to developing much more sophisticated interceptor missiles (that are stationed in Romania and Poland among other places). Putin is claiming that Russia has now negated this defence capacity and so made the US vulnerable to a Russian strike.

“There is no defence against these missiles and all our missiles are now equipped with this system. Maybe in a few years [the US] will catch up, but in the meantime our guys will have thought of something new,” says Putin with a satisfied smirk on his face.

In addition Putin showcased unmanned submarine drones that are “faster than any surface ship” and “hundred times smaller than a regular submarine” but can carry a full nuclear payload. The drones are undetectable and again there is no defence against a weapon like this that makes both the eastern and western US seaboards vulnerable to attack.

If these weapon systems work as billed – a big if – then they will kick off a new arms race. Certainly merely to use the speech to talk about weapons systems like this is an extremely aggressive move on Putin’s part.

Russia was forced into the move, argues Putin, by the US aggression. Eleven years after Munich, Russia is now reacting to Western bullying. Putin specifically highlighted US sanctions, the latest version of which specifically target Russia’s defence industry.

“[The US] has created a new arms race and imposed sanctions designed to hold us back. But [the development of the new weapons] has already happened. You were unable to hold us back,” said Putin to a standing ovation by the collected Moscow elite. “Now you have to face the facts. You have to make sure I am not bluffing – and I’m not bluffing.”

Putin’s strongman display will clearly send chills throughout the region and senators in the audients said they told pundits after the speech they were expecting a “hysterical” response form the West as a result. Putin tried to anticipate the reaction by saying explicitly Russia was trying only to re-establish the balance of power as it was fed up with being ignored.

“Russia’s military power is not threatening anyone nor will it be used to attack anyone. We don't want to take anything from anyone. We have everything we need,” he added as a clear reference to suggestions that Russia wants to recreate the Soviet Union or may invade the Baltics or Ukraine. “Russia is a force for peace and wants a balance of power."

… and butter

The military hardware show came as a shock for Russia watchers who immediately questioned the veracity of the claims, as most of the video shown was computer simulations. But the irony is that this display comes as the Kremlin is clearly intending to wind down its military spending in the next six-year term and focus on the people instead.

Defence spending has already been cut hard in the 2018 budget, to the point where BSC Global Markets chief economist Vladimir Tikhomirov suggested that the cuts will drag down Russia’s industrial production.

The first part of the speech was aimed at the domestic audience and suggested the Kremlin will now turn its attention to restoring the prosperity it sacrificed in the last five years to finance the military modernisation programme.

Putin hammered two themes in the first hour: improving the quality of life for the average Russian and keeping up in the technology race. The president has clearly got a bee in his bonnet for high tech solutions, which he argues is another existential threat.

“Stability forms the foundation, but it is not enough to ensure further development. We need to further improve the quality of life for our people,” Putin told the adoring audience. “There is a technological revolution going on and the upcoming years will determine Russia’s future. Technological change is increasing in speed and those that don't take advantage of will be buried under the technological change before eventually losing their sovereignty.”

Interestingly Putin also picked up the “stability is good, but predictability is better” meme that senior Russian policymakers have been pushing since the start of this year.

To the Kremlin’s credit some of this work has already been done. The tax system in particular has been totally overhauled and a revolutionary new IT system installed. At the same time all the regional finances are being put into the cloud to better manage their treasury operations to good effect, Svetlana Balanova, CEO of Russian software developing giant IBS, told bne IntelliNews in a recent interview. Putin called for putting all government functions online in his next term.

“The danger is not invasion but lagging behind. It’s like a chronic disease that undermines the body from within. Sometimes you don't even feel it,” Putin said ironically, given he was about to launch into a big military presentation.

But the welfare of the people occupied most of this section of the speech and addressed head on many of the problems average Russians face. Some 29% of the population was living in poverty in 2000 when he took over, but that had fallen to 10% by 2012. But since the oil and currency crisis in 2014 that share has started to rise again and 20mn Russians are living under the poverty line now. “The goal is to reduce this by half in the next six years,” promised Putin.

He laid out other extremely ambitious goals. The number of families that move to better quality accommodation must rise from 3mn last year to 5mn. This means increasing the amount of new residential accommodation being put up from 80mn square meters to 120mn. Mortgage loans have risen from a mere 4,000 contacts in 2001 at a 30% interest rates to hundreds of thousands now at less than 10%, but Putin called for rates to be reduced to 7% to make housing even more affordable to more people.

And he talked a lot about investing into education, healthcare, infrastructure and environmental protection – much of it in tune with a liberal set of policies found in any Western country.

But that has always been Russia’s problem: it has been perfectly clear what needs to be done. Where Russia always falls down is on the implementation. Amongst the most unbelievable claims the president made was to increase the size of the economy by 50% in his next term of office. That would require economic growth of around 7% per year – the best of the boom years' rates of growth. With the official forecast of growth this year of 1.8% – and even the most optimistic forecast from Goldman Sachs is for 3.3% – clearly this is not going to happen. Without a new boom the question arises how the Kremlin is going to pay for all this social spending, but Putin glossed over the problem with talk about digitilising the economy and “investment by the private sector” (also a favourite trope of Western liberal politicians).

Put another way the Soviet dilemma was always whether to produce guns or butter – you can’t have both. The Soviet choice of guns over butter is what caused it to eventually collapse. What Putin promised in this speech is guns and butter.