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American Power Requires Economic Sacrifice

Author: Sebastian Mallaby, Paul A. Volcker Senior Fellow for International Economics and Director of the Maurice R. Greenberg Center for Geoeconomic Studies
July 7, 2011
Financial Times

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Last month, on one of his final trips abroad as US defence secretary, Robert Gates uncorked his worries about America's standing in the world. “I've spent my entire adult life with the US as a superpower, and one that had no compunction about spending what it took to sustain that position,” he confessed to Newsweek. “I can't imagine being part of a nation, part of a government ... that's being forced to dramatically scale back our engagement with the rest of the world.”

As president Barack Obama meets Republican leaders for budget talks today at the White House, the US military establishment will indeed be on the chopping block. Mr Obama has called for defence savings of $400bn by 2023, a cut in the Pentagon's projected budget of about 7 per cent – and that's before counting the economies that will flow from the exit from Iraq and the reverse surge in Afghanistan. Prominent Republicans, including Donald Rumsfeld, Mr Gates's predecessor as defence secretary, have denounced these proposed spending cuts, charging that they will undermine security and cost American lives. But, as a new Council on Foreign Relations analysis demonstrates, the deep drivers of defence spending point to a clear deterioration in America's weight in the world.

Start with a basic truth about military spending: the US can maintain its share of the global total either by maintaining its share of global gross domestic product, or by increasing the share of its own GDP that it devotes to defence. The first option is based on economic dynamism and is sustainable. The second option, based on a sacrifice of competing spending priorities, is unlikely to work over the long term.

During the 1990s, the US share of total defence spending was both steady and sustainable, since the country's weight in the global economy was roughly unchanged over the decade. In the 2000s, by contrast, the US share was neither steady nor sustainable. The nation increased its share of world defence spending from 36 per cent to 42 per cent. However, because the US share of global GDP was shrinking, the US could only achieve that increase by choosing guns over butter.

Looking into the future, the pendulum seems almost certain to swing back. Even if the US were to maintain military spending at a constant share of its own GDP, the nation's shrinking weight in the world economy would cause its share of global spending to decline to 39 per cent by 2015. If the Obama plan for defence cuts is implemented, the US share will fall further. If China or some other rising power chooses to make defence a higher priority, US military pre-eminence could decline even more precipitously.

Of course, military budgets must be measured against military needs, which in turn can be refashioned through alliances and diplomacy. Facing relative economic decline at the dawn of the 20th century, Britain supported Japan in order to check Russia and made up with France in order to contain Germany. But if you recalculate the US share of global defence spending by adding allies to the US bucket, the same trend emerges. The combined military spending of the US, Nato allies, Japan, South Korea and Saudi Arabia came to a formidable 77 per cent of the global total as of 2005. By 2010 it had fallen to 72 per cent. By 2015 it is projected to fall to 66 per cent – still a huge proportion, but clearly a diminishing one.

Moreover, these measures are based on market exchange rates. For military hardware, this might be appropriate. There is, roughly speaking, a global market in weapons, so the cost of a tank in Indonesia or Italy should be similar – which is why a country's military budget, measured at market exchange rates, closely tracks the size of its holdings of military equipment. In contrast, the cost of military services – notably, wages for soldiers – varies widely across countries. If the usual comparisons of military spending were adjusted for such differences in purchasing power, US pre-eminence would look less formidable.

Other adjustments further diminish the appearance of US omnipotence. More than in other countries, a high and rising share of US defence expenditure goes on health and other benefits for veterans, which contributes to military morale but not directly to fighting power. And because US defence is capital intensive, the rapidly rising cost of equipment imposes a particular burden on its defence budget. CFR analysis of procurement costs for naval ships since 1950 suggests that prices have risen twice as fast as inflation in some categories.

Believers in American power are correct that, if the US has the will to allocate a rising share of GDP to the Pentagon, it can sustain its global dominance for a long time to come. After all, defence claimed more than a 10th of US GDP during the 1950s, compared with just under 6 per cent today. But military budgets on the scale of the 1950s entail social and economic sacrifices. Mr Gates is surely right to wonder whether his countrymen have lost their appetite for these.

 

 

This article appears in full on CFR.org by permission of its original publisher. It was originally available here.

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