An enduring myth about the Soviet Union is that its economy collapsed under the burden of its military spending. This story allows America to congratulate itself on "winning" the Cold War by driving it to collapse under the fiscal weight of the arms race.
This is not true. (1/8)
In fact, the Soviet military industrial complex was by far the most cost effective and technologically sophisticated sector of the Soviet economy. The general academic consensus is that the Soviet Union had a comparative advantage in both military R&D and production. (2/8)
Mark Harrison, a economic historian who specializes in the Soviet Economy, wrote that nobody "saw the Soviet Union being crushed under an unbearable military burden." He furthermore deduced a counterintuitive motivation for Soviet secrecy about such matters. (3/8)
The Soviets were secretive about defense expenditures – not to hide a crushing fiscal burden, but actually to hide how cheaply they were able to make weapons! The Soviet state made a huge profit exporting weaponry, and did not wish to make known the size of the markup. (4/8)
The Soviet economy was badly stagnant and plagued with myriad problems by the Gorbachev years, but the defense sector wasn't the culprit. In fact, during the final years of failed reform, Gorbachev wanted the defense industry to take on R&D for other sectors. (5/8)
By this time, the malaise and obsolescence of the rest of the Soviet economy was obvious. Defense was the star – the lone source of successful innovation – and Gorbachev hoped that this technical prowess could bail out the rest of the flailing economy. (6/8)
The bottom line is that in a highly dysfunctional late Soviet Economy, the defense sector was the lone bright spot, able to both develop new weapons systems and mass produce them cost effectively. (7/8)
By failing to appreciate this fact, the west continually underestimates the power of the USSR's core successor state – Russia. The west is ever blindsided by Russia's ability to field high quality modern weapons, many of which are superior to western competitor systems. (8/8)
An addendum: according to Harrison's estimates, in 1989 defense outlays made up 15.7% of the USSR's state budget, compared to 27.2% in the United States. Of course the accounting comparisons are not perfect, but this hardly looks like a crushing, clunky, inefficient system.