Much of the foreign policy discussion relies on estimating the strength of enemies and allies correctly. Yet, experts and pundits rarely question how assessments of military capabilities are made. That is deeply problematic, as most popular methodologies to account for state power are flawed.

The most widespread indicator of economic power is gross domestic product (GDP). GDP rankings place the United States as the number one power and China second. Looking at the daily news, this ranking makes sense. However, representing wealth by GDP numbers in nominal U.S. dollars creates empirical anomalies. Number three is Germany, and number four is Japan. But few would classify these two countries as great powers despite their big GDPs. Meanwhile, that Russia’s GDP resembles Spain’s or Italy’s is a widespread cliché. But Russia makes global headlines daily, not Spain.

According to GDP data in nominal dollars, Russia’s economy collapsed in 2014. But in Russian rubles, the GDP barely budged. This discrepancy is, in fact, due to changes in the dollar-ruble exchange rate. There was no economic collapse. That would be an issue for the economists alone if security experts did not use nominal dollar data to count military spending.

In 2013, the exchange rate was around 1 dollar for 32 rubles. But the dollar-ruble exchange rate felt drastically after 2014. Hence, Russian military spending looked smaller after 2014, but it did not change much in real terms. For instance, Moscow’s military expenditures in 2020 represented only around 62 billion dollars at the 2020 exchange rate. However, at the 2013 rate, it would have represented around 140 billion.

Nevertheless, more comprehensive is not always better. International Relations scholars often use the Composite Index of National Capability (CINC), which encompasses military personnel and expenditures, total and urban population, energy consumption, and iron and steel production. However, implicit assumptions underlying the CINC question its relevance. For instance, do urban population and steel production matter much during a short war? Furthermore, the CINC produces power rankings that seem at odds with commonly accepted rankings. For instance, according to the CINC, China has been the first world power since 1996, the heyday of America’s ‘unipolar moment.’

Many have devised creative ways to remedy the power measurement predicament, but all these methods have strengths and flaws.

Alternatively, purchasing power parity (PPP) exchange rates can help correct the distorting effect of nominal dollar data and account for price differences among countries. Indeed, using a PPP methodology, some adjusted Chinese military expenditures to account for labor costs and found them to rise above 467 billion dollars in 2017. Based on PPP calculations, experts have assessed Russia to have spent 200 billion in 2019. Former U.S. Joint Chiefs Chairman Mark Milley came up with similar figures, confirming that government officials use PPP numbers, too.

In a book published last year, I used World Bank data to check the evolution of PPP defense spending in Asia and Europe between 2008 and 2020. My numbers for China and Russia are slightly lower than those just mentioned, but the World Bank’s data relies on self-reported military budgets. Still, it suggests that Russia spends over two times more money on defense than any single European major power. For instance, in 2020, it spent around as much as France, Germany, and the United Kingdom combined. In Asia, China’s military budget is many times bigger than that of any other regional power except India. Japanese, Indian, and South Korean expenditures put together barely approach China’s.

Nevertheless, the PPP methodology has its problems, too. PPP figures overestimate the defense spending of states that rely heavily on imported weapons (like India or Saudi Arabia). In addition, publicly available PPP data are based on civilian goods’ prices, which may not be a good proxy for the prices of military equipment and labor.

The more exhaustive and comprehensive the indicator, the more implicit assumptions you will find. However, seemingly straightforward indicators like military spending are anything but. Some go around by bean-counting weapons, but this is no panacea. It can be biased toward quantity over quality. One could fall back on campaign analysis, but it is another world of complexity.

In conclusion, there is no definitive answer on how to account for military power. Policymakers and experts must stay aware that all methodologies have their flaws. Therefore, any discussion or study whose conclusions are based on counting military spending should be taken with a grain of salt.

For instance, whether you believe that Russia has the military budget of Britain or that of Western Europe combined will matter tremendously to your understanding of Russian policies. In traditional dollar numbers, Russia’s decision to invade Ukraine and then challenge the vastly superior West can appear a dangerous bet by a mere “regional power,” to quote Barack Obama. Using PPP figures, its decision to attack and mobilize for a long war against the collective West looks far less risky. Similarly, whether you see the United States spending as much as the nine next powers combined or China and Russia already outspending Washington significantly will profoundly influence your views of world politics.