2% of GDP: it might be logical, but is it rational?
10 Sep 2013|

budget_signRemarkably, there’s now bipartisanship in Australian Defence. Both major parties agree that the Defence Budget should be 2% of GDP. The only difference is the timing in getting there. While some express doubts, there’s a certain logic to this position. Its rationality is less easily discerned.

Logically this declaration cuts through worries about strategy or the ADF’s role. There are some who see the Defence budget as buying insurance; the more you buy, the less you’ll lose if some predetermined event occurs. Seen this way it’s just like car insurance—spend a bit and get third party, spend more for comprehensive, spend even more and cover the windscreen, lower the excess and so on. The attraction of this risk management policy is that it avoids having to have a strategy. And devising strategies are intellectually demanding. We’re still recycling Paul Dibb’s 1987 deterrence by denial strategy—even though the Cold War has ended, China’s risen, the Arab Spring has come (and gone?) and cyber war is the new black.

You can see this in the two contenders for Defence Minister in the election just gone. Both had much advice from inside and outside the Department yet, as James Brown wrote, neither offered a thought-out ‘strategy’ although they both have well-formed views on new military hardware. Arguing about the number of submarines or debating the value of the JSF’s stealth is where people feel more comfortable. They’re numbers, after all. And in the case of the JSF, even better—it’s classified, so no one outside a small cabal can even talk about it. Perfect one might argue, but this is where a focus on money leads to: talking about what you buy, rather than why you need it and where it fits into the big picture.

So the 2% budget figure is wonderful for dragging the debate away from intellectually hard areas and into an area easy to understand. Who needs those pesky strategies anyway—just buy stuff and hope for the best.

The logic appears appealing but is it rational—why 2%, rather than 1.5% or 2.5%, or even 3%? It’s illustrative to see where the number came from. At the start of the last decade NATO was casting around for something to define its new approach in the new century and this figure arose from that. It was solemnly agreed that, irrespective of circumstances, defence budgets would be 2%. A decade on and only the US, UK and Greece reach this target; the other 25 nations are falling short.

Well that’s Europe for you! No threats and plenty of economic woes to worry about. The Asian landscape is a bit different. DIO helps with some data here (PDF). South Korea (2.5%) and Taiwan (2.3%) both exceed the NATO guideline—someone might think they really do have a threat, although both spend a fair chunk of their defence budget on their national defence industries; building military hardware is seen as nation building.

Closer to home, Vietnam (2.4%) and Singapore (3.6%) also spend more than 2%—it seems that conscription is expensive. Those that spend less than 2% include China (1.3%), Japan (1.0%), Indonesia (0.9%), Malaysia (1.4%), Thailand (1.5%) and the Philippines (1.0%). India does spend the magic 2%.

It’s hard to draw meaningful comparisons here. David Kang aggregates East and South East Asia and finds that both US-allies and non-US allies now spend an average of about 1.73% GDP on Defence (2012 figures). The large nations spend less than 2%, some of the smaller ones more. Some that border China spend more, some that border China spend less. Of course, that’s just the share–it’s true that as the Asian nations’ economies develop, they spend more in absolute terms. A small GDP allocation in a fast growing economy can bring a lot more in each year.

Trends are interesting here. Over time the defence spending decline is remarkable. Since the end of the Cold War average defence spending in GDP terms has halved. Perhaps nations feel safer now than before. But we plan for the future, not the past, and the trend lines suggest that defence spending may well be plateauing. Thus 1.7% of GDP may be the new norm.

What do all these numbers mean for us? Certainly raising to 2% will make us stand out from the crowd–and Mark Thompson’s calculated sustained 5.3% annual increase in the defence budget will be one of our biggest ever peacetime arms buildups.

Then there are the dangers of security dilemmas starting unnecessary arms races—others might wonder what we know that they don’t. Or maybe our intentions aren’t seen as benign. In the reverse situation we’d argue that intentions can change overnight but capabilities take longer to build up, so commentators would argue that we should re-arm in response. Certainly some in Indonesia harbour some doubts about us. Will we be more secure if we encourage others to re-arm? It’s hard to determine if a sudden Defence budget increase is rational in regional terms or not. No one else is doing it, but maybe we’re special!

And that returns us to the logic. As already mentioned, it lets us avoid thinking but there’s another interested party here—the US. Having failed to convince any others to embrace 2%, they’re now lobbying hard here (and here). The US would be delighted if we spent more—with our tendancy to buy much of our equipment for hard cash from America suppliers being a handy bonus. And the US is quite happy to provide our missing strategy for us. They’d simply like us to bring more military might to the coalitions they lead. For the US, our Ministerial aspirants and those selling insurance, Australian thinking about having a defence strategy is most unnecessary and indeed might be unhelpful. Avoid troubling headaches, go 2%! It’s only money

Peter Layton is undertaking a research PhD in grand strategy at UNSW, and has been an associate professor of national security strategy at the US National Defense University. Image courtesy of Flickr user 401(K) 2013.