Military spending as a share of GDP has declined in all the world’s major economies over the past couple of decades. In 1988, Soviet and US expenditure amounted to 15.8% and 5.7% of GDP, respectively, dramatically higher than today. The US continues to account for more than 40% of total expenditure in nominal dollar terms. Economically, defence expenditure is relatively unproductive. An aircraft carrier may help pursue a country’s national interest or help defend the realm. But it is less economically productive than infrastructure or machinery and equipment. Defence-related government savings contributed to the “peace dividend” of the Clinton years. Today many European countries face significant fiscal pressures against the backdrop of low growth and large deficits. Not surprisingly, defence spending has been declining in recent years. The trade-off between “guns and butter” is likely to intensify, not just in Europe but also in the US and Japan. Ageing populations and rising public pension- and health-care spending pressures will limit the scope for high military expenditure – at least during peace time.
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| Source: SIFRI |