Not a lot might be the best answer. Mr Trump, as usual, surfed in on a frothy-wave of self-serving publicity, something which he revels in and which, to be fair, he has become very adept at doing. Winding up the press is a favourite pastime of his and on occasions he seems to inadvertently carry it over into raising the pulse of fellow presidents and other senior world-leaders.
As he approached both the time and location of his NATO meeting, he made it clear that defence spending was his main agenda item. And, to be fair, why not? The US has without a doubt carried NATO for many decades – and, on present form, will have to do so for many to come. By America, we actually mean the American Taxpayer; people, like you and me, who try to earn money and then get clobbered by the Inland Revenue – or Internal Revenue Service in the States.
By some reckoning the US spends more than the next seven largest budgets combined (China, Saudi Arabia, Russia, the UK, India, France and Japan). In 2008 the US defence budget represented 48% of the World’s total expenditure on defence; by 2012, after a few high-spending years, it had fallen to 39% but remained at that approximate level until Donald Trump came to power and implemented his planned increases to cover growing gaps in the DoD budget created by previous cuts.
By 2018 the budget had grown to almost $700bn, or 54% of US Government spending, and requests have been made by the Trump Administration for this to rise to 61% in 2019.
However, before going any further down this statistical maze, it is important to understand that all these figures are subject to interpretation. For example, the International Institute for Strategic Studies (IISS), believed the UK and French defence budgets for 2014 were $61.8bn and $53.1bn respectively. For the same year, the Stockholm International Peace Research Institute (SIPRI), put them at 60.5bn and 62.3bn respectively. The fact is that there is no single, accepted, international standard for what constitutes defence spending.
In the above case, the French para-military gendarmes are considered to be a component of defence spending by SIPRI – but not the IISS (the French government stopped including it in 2009). For its part, the UK started to include Service Pensions in its calculations, managing to add the £800m total to the defence budget in the 2015/16 calculations handed in to NATO. This occurred after the US started to openly criticise the UK for a significant reduction in its “real” defence spending; however, the tactic allowed the UK to claim it met the terms of the NATO Wales Agreement of 2014 which called for a minimum of 2% of GDP for defence budgets.
Even these figures can change. In the UK, if there are a number of overseas deployments, the Government can allocate some or all of its reserve to fund them which might add many hundreds of millions to that year’s overall defence spending. If the troops are sent in support of the UN, for example, then a form of double-accounting may be used to boost defence costs as the UN pays for the use of those troops. And then there are the secret services of course. In 2015, David Cameron, the then PM, said:
“…..so I am also concerned about the budget for MI5, the Secret Intelligence Service, GCHQ, counter-terrorism policing. To me all of these things are part of our national defence.”
All of which might be used to add well over £2bn to the UK defence budget for nominal accounting purposes.
So where does that leave NATO and its various members’ contributions? According to the main NATO criteria for measuring budgets (as presented in the March 2018 NATO press release on Defence Expenditure of NATO Countries 2010 – 2017), there are in fact only two countries that meet their complete targets: the US and UK. This is because not only is an overall budget of 2% required, but the NATO guideline for equipment expenditure as a proportion of defence spending is set at 20%. That knocks out Greece and Estonia, with Poland marginally below the required 2% budget figure, but over the 20% equipment bar. Taken as a whole, the Median figure for budgets is 1.3% while that for equipment spending is 19.75%. So it can be seen that, from NATO’s perspective, the main problem lies in the proportion of GDP spent on defence rather than equipment levels.
Or does it? As already shown, it is possible to play tricks with the figures. In the case of equipment costs as a proportion of overall defence spending, an army that uses conscripts might have relatively low wage-bills compared with equipment costs (one such example being that of Turkey). Does this mean it is a more effective member of NATO ? Possibly not, as these tend to be less strategically-mobile. By setting these two bars – rather than just focussing on the 2% of GDP, NATO is sending a message to its partners: you have to be spending enough but additionally on the right “stuff”, presumably in order to create modern armies that can work together; interoperability, in other words.
Looking at the overall NATO-country budgets for the last 15 or so years, there has been a clear reduction in money allocated to defence, from a high of just over $1,000bn in 2010/2011, to a low of $871bn in 2015, followed by a rise to $917bn in 2017. However, Mr Trump might be advised to tread cautiously, for in that time the European and Canadian totals only vary by some $15bn and are now above their 2012 levels, whereas the US effort fell from 726 to 594bn in 2015 and will not be back to their 2012 levels even with the recent increased called for by the current budgets.
That having been said, there is no escaping the fact that the US contributes a disproportionate share of NATO’s capability. Even if NATO European/Canadian countries matched the US proportion of GDP spent on defence, then, based on NATO’s 2018 report (in which 2017 figures were still estimated in some cases), the two figures would be $738bn for Europe/Canada and 618bn for the US. That is to say, America, with about 330m people is effectively matching Europe and Canada’s efforts.
In terms of spending per head of population, the most basic indicator of what each taxpayer has to stump up yearly, the figures are very telling. US spending in 2017 was $1,896 per person. In Europe, the average figure for 2017 was $481 per person, with Norway heading the table at $1,481 and the UK second at $896. We can repeat the above exercise but now increase the European per-capita rate to match the US and see where it would leave the overall budgets. Using the 2017 figures provided by NATO, if Europe were to match the US in terms of defence spending per-capita, it would be spending $1,182bn, which would be almost twice the US total for that year. But of course, Europe does not and would not!
In addition to the lower per-capita expenditure, there are a number of other factors that mean a country might get less “bang for its buck”, and, on the whole, these further reduce the effectiveness of European defence spending. Firstly, and setting aside the few effective pan-European/US defence programmes, European defence acquisition is typically worked on a national basis and, therefore, quite fragmented. So they cannot hope to achieve the sort of economies of scale available to the US forces. Secondly, the proportion of defence budgets spent on infrastructure is much higher in Europe than the US.
The proportion of the US defence budget allocated to infrastructure was 1.21% in 2107 according to NATO estimates. For most European countries it ranges from 3% to 6%, with some reaching 17.5% (Latvia) and others below 1% (Portugal, Albania etc.). Germany spent 3.95% of its 2017 defence budget on infrastructure, while the UK has never spent more than 2% since 2010. It is possible to argue that this sort of cost is cyclical, with a major building programme being followed by “lean” years thereafter, but the figures provide by NATO tend to confirm that simple land and building costs in Europe are much higher than in the States where large expanses of unpopulated, low-grade agricultural land are available to the military. It also has to be said that, based upon a somewhat subjective test, base living-conditions for US troops might not match those expected by their European counterparts.
The story so far confirms the US view that they are bearing a disproportionate share of NATO’s burden as measured in terms of expenditure. However, does this actually mean that their taxpayers are having to give up more of their income at source to achieve this? The answer is “not necessarily” because, and this is a very important point, the proportion of the US government budget spent on defence is higher than in Europe because they spend proportionately much less on health and social welfare programmes.
In the UK in 2016/7 we spent some £46bn on defence, representing about 6% of total UK Government spending of £772bn (which is not the same as GDP). This compares with UK spending on social and health-related programmes (but not schools and housing) of about £415bn. So defence spending is only just over a tenth of the UK’s main health and welfare budget. The US figures are startlingly different.
Firstly, for a country some five times the size of the UK, US Discretionary Federal Spending is only about 10% larger than the UK Government’s budget (but bear in mind that US States also impose their own taxes). And then, because the US has a very different attitude to the provision of national health and welfare programme, these only absorbed about 9% of the total spending in 2016 (including unemployment and labour, health and housing and community), or about $165bn, which is about £122bn (compared with the UK’s total of £415bn). Defence, on the other hand, was $618bn, or 53% of US Federal spending in 2016 .
So, whereas the UK spends over 55% on its national health and welfare programmes, the US Federal Government spends roughly the same on its defence. Other NATO European countries spend more than the UK. This does not mean that the US is less concerned about health, for in fact the per-capita spend on health in the US is actually higher than Europe. It just means that it has traditionally asked people to pay into private health schemes rather than in taxes as it believes in competing health provision. (Until President Obama came along with his Medicare Bill of course. And that is why Mr Trump wants to put the health-budget back in its box – to allow him to balance a “traditional”, defence-heavy Federal budget.
It also explains why a Trump demand that Europe pay more into defence will never be easy to achieve. For, if a typical European country wishes to increase its defence spending, the main losers will almost certainly be either the national health and social budgets, or medium and higher-rate taxpayers. And this is where it comes straight back to party politics in a country like the UK – or indeed any other true democracy in Europe. Can an elected leader in Europe afford to risk the loss of support which will, typically, follow a cut in social spending? Recent events suggest that the people of Europe are not going to put up with such a move after years of “austerity”.
And so we come full circle to whether Mr Trump achieved anything much by his recent chiding of other NATO partners. It has to be asked whether he actually really understands the European social welfare system, or the way in which national budgets here do not allow for the sort of increases he is demanding. Yes, the US is spending a disproportionate amount of its GDP on defence compared with the rest of NATO, and yes, it cannot be faulted for its level of commitment to the Alliance. But – is that money well-spent?
Some might argue that the US has been too ready to throw money at operations that do not really benefit NATO; Afghanistan for example. And, if you take that view, you can start to pare away the actual US contribution to NATO per-se as opposed to money spent on US “self-interest” operations. However, in this “connected world”, how do you actually separate out a specific part of any defence budget. A battalion of infantry held in the Pacific, for example, might easily be sent to Europe in a crisis; so what part of that unit’s annual costs should allocated to the NATO-contribution equation? And so on.
It has to be borne in mind that although the main talk is about the percentage of GDP spent on defence, this can cause some confusion as to the actual amount spent. GDP is a sign of the economic well-being of a country and, in good years, it might increase significantly; so a static percentage will still result in more money being spent. If GDP goes up by 10% – so might the defence budget. Conversely, it might be that an increase in a defence budget as a percentage of GDP at a time of falling national output will still result in less money for defence.
As a final thought, and to emphasise the complexity of this whole topic – and the somewhat futile argument about simple percentages of GDP, even if the UK (or any other nation) were to announce an increase in defence spending, what would it actually mean in terms of capability? Defence acquisition is a lengthy process and an extra Pound today might not actually find its way to the “frontline” for years or even decades. What is more, given the typical five-year political cycle, and the increasing polarisation of European parties, there is an increasing chance of any increases today being reversed by successive governments.
All in all, perhaps the Secretary General of NATO was right in trying to avoid a head-on political rumpus in Europe by applauding its overall commitment to gentle increases by 2024 without pushing too hard for more. He appeared to have succeeded in taking the impetus out of the Trump onslaught which rather seemed to have fizzled-out by the end of the trip. And that is possibly why he is Secretary General.