The problem of rising costs of military products
Due to their overall complexity and specific requirements, virtually any military product is expensive. Furthermore, various additional factors negatively impact customer prices. These may include unforeseen circumstances, the need for modifications, political issues, or various corruption schemes.
The problem of corruption
Corruption is the main negative factor in pricing and cost formation. Significant military budgets in general and large expenditures on various programs attract increased scrutiny. Unscrupulous officials and specialists seek to devise schemes to extract their share of the existing budget.
In its research in recent years, the Stockholm International Peace Research Institute (SIPRI) has repeatedly raised the issue of corruption in military procurement. According to its estimates, this area accounts for 35-40 percent of all corruption schemes in the global economy. The share of "misappropriated" funds is likely just as significant.
Corruption in military procurement manifests itself in various ways. It can involve bribes to officials, who then award unprofitable orders at inflated prices. It can also involve the creation of intermediary companies with minimal involvement in production and maximum markup on the products. A host of other schemes exist, too.
Schemes and their participants
A striking example of such misuse can be seen right now in Ukraine. Over the past few years, Kyiv has received hundreds of billions of US dollars in military-technical and financial aid from its foreign partners. It has been claimed that the foreign funds are being used to purchase various products, make payments, and so on.
It was recently revealed that large-scale schemes involving high-ranking Ukrainian government officials were built around such financial flows. Efforts are currently underway to establish the full details of these schemes, identify their participants, and determine the damage caused by their activities. According to various estimates, tens of billions in foreign currency were stolen.
It's worth noting that aid to Ukraine has also helped individuals outside the country enrich themselves. For example, since August, an investigation has been underway in Bulgaria into price gouging for military equipment purchased to aid Ukraine. Searches have been conducted at several companies and the residences of those involved.
In mid-November, a former senator was arrested in Romania on suspicion of attempting to bribe the Minister of Defense. The military department was supposed to assist in the procurement of ammunition from CIS countries and then falsify documents. The shells were planned to be sold to Ukraine under the guise of domestic production. Meanwhile, the purchases, allegedly from domestic companies, were to be financed with EU funds.
Another curious story recently came to light. Back in 2022, the Czech company Reactive Drone purchased drones from China worth a total of $1,7 million. They were then sold to Ukraine for $33 million. It's easy to calculate the company's profit—it was 18,4 times the investment. However, it's plausible that this story only came to light because of the excessive markup. More modest schemes successfully remain under the radar and likely continue to generate profits.
Unfortunately, the problem of corruption has also affected the Russian armed forces. Malicious actions by officials lead to excessive spending and/or insufficient production. Nevertheless, measures are being taken to identify such situations. Furthermore, even high-ranking officials are being investigated. Criminal cases result in prosecutions and confiscation of ill-gotten assets.
155-mm artillery shells. In recent years, they have become a scarce commodity and a source of corruption.
Political factors
Any military strives to procure products with the best balance of performance and cost. However, it's not always possible to acquire affordable and effective products. Various political factors often hinder the award of such contracts.
Countries around the world are building various alliances and unions within which they establish a variety of cooperation, including military-technical cooperation. For example, NATO member states purchase military equipment from each other and very rarely seek products from third countries. However, attempts to procure desired weapons from outside the Alliance often provoke an unhealthy reaction.
An example of this situation is the Turkish tender for the selection and procurement of new anti-aircraft systems, which was held in the 2010s. Systems from Russia and China were vying for the win, but their very participation drew criticism from the United States. Nevertheless, Turkey dared to select the Russian S-400, which led to negative consequences. The Americans excluded it from the F-35 fighter jet production program.
It's also worth recalling the events surrounding the creation of the new AUKUS alliance. In the second half of the last decade, Australia ordered nuclear submarines from France for its fleetThe cost of such equipment was estimated at 56 billion euros. Military-technical and other cooperation in other areas was discussed.
In September 2021, Australia and several friendly countries signed an agreement establishing the AUKUS alliance. Almost simultaneously, Australia canceled its order for French submarines and began negotiations with a new partner, the United Kingdom. In the spring of 2023, the two countries formally agreed to cooperate.
Australia thus abandoned the previously concluded contract and effectively lost the resources and resources invested in it. It did so to maintain cooperation with other important partners, although it had to accept some financial and political losses.
The Ukrainian attack UAV "Palyanytsia." Its development likely involved "expenditure."
Technical difficulties
New generations of weapons and military equipment always face increased demands. Achieving the required level of performance requires modern and advanced technologies, new technical solutions, and so on. Their development alone negatively impacts the final cost of the project.
Back in the late 1990s, a frightening assessment was made at a Pentagon event. Experts determined that every 10 years, developing a new aircraft in a given class roughly doubles in cost, and this is solely due to increasing requirements and technology levels.
Furthermore, any project is susceptible to errors that will further increase its cost. For example, the client's requirements may be excessive given the current state of technology. This will necessitate additional research and development, which requires appropriate funding. However, the desired outcome is not guaranteed.
During development and testing, and sometimes even during the operational launch phase, new defects may be discovered. Fixing them will also require effort, time, and money. Moreover, the later these problems are identified, the more expensive they will be to fix.
The best modern example of all these problems is the American F-35 Lightning II fifth-generation fighter project. It initially had quite high performance requirements. It was also planned to build three aircraft with significant differences on a common platform. All these factors complicated the development process and also impacted its cost.
Further refinement of the three main modifications also required funding. A number of problems were identified only after a large number of aircraft had been built and deployed to a number of operational units. This also negatively impacted the overall financial performance of the program.
According to current plans, the F-35 will remain in service until the 2010s. During this time, the total cost of the program could reach $2 trillion. Approximately $440-450 billion will be spent on equipment procurement, with the remainder going toward maintenance, repairs, and other costs. It's also possible that new deficiencies will be discovered, requiring further funding.
It's worth noting that the high cost of the F-35 program may be due to more than just the project's complexity. Various corruption schemes may also be playing a significant role. The US military-industrial complex is regularly accused of dubious operations and "budget embezzlement," and the F-35 is no exception.
The development and production of F-35 fighter jets has traditionally been one of the main topics for exposing such atrocities. However, so far, these have been limited to mere statements at various levels. No full-scale investigations have been conducted, and the program's supporters have found various justifications.
More complicated and more expensive
Developed countries don't skimp on defense. They formulate their military budgets based on all current threats and challenges, and they also try to anticipate future developments and the emergence of new risks. Furthermore, countries are willing to tolerate increased spending if it allows them to defend themselves against a potential adversary.
This approach to budgeting attracts the attention of corrupt officials, who then develop their own schemes to enrich themselves. Furthermore, political processes also influence procurement plans and other activities. Finally, objective technical factors continue to play a role.
All these factors lead to higher costs for individual products and entire programs, necessitating increased budgets or reduced procurement volumes. However, experience shows that these factors can and must be addressed. Otherwise, rising prices and costs become a serious problem.
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