In defence of the 2 per cent
Edward Hunter Christie / Nov 2017
Jens Stoltenberg, Secretary General of NATO. Photo: Shutterstock
The Defence Investment Pledge agreed at the 2014 Wales Summit (paragraph 14 of the Summit Declaration) explicitly refers to a set of inter-related goals and guidelines. The headline goal, as embedded in the Summit Declaration, is for Allies to “move towards the 2% guideline within a decade with a view to meeting their NATO Capability Targets and filling NATO's capability shortfalls” (emphasis added). A second goal is that Allies should devote “20% of their defence budgets on major equipment, including related Research & Development”. A further set of more granular guidelines concern the deployability and sustainability of Allied armed forces, and the implementation of agreed NATO standards and doctrines, in order to ensure interoperability.
In May 2017, NATO Heads of State and Government decided to develop national plans, setting out how Allies intend to meet the Defence Investment Pledge. The plans cover three major areas: cash, capabilities, and contributions. First, how Allies move towards the 2% and 20% goals. Second, how they invest the additional funding in relevant military capabilities. And third, how they intend to contribute to NATO missions, operations and other engagements. It is the totality of these goals that constitute the Alliance’s commitment, rather than only the 2% goal. The idea that the 2% goal is too narrow is thus a bit of a straw man argument: it is not supposed to be removed from its context of additional and more detailed commitments which, together with the 2% goal, constitute the coherent whole that Allies have signed up to.
The 2% goal is however the essential starting point. For example, in combination with the 20% goal, it provides the financial basis for adequate defence procurement levels. Implicitly, devoting at least 0.4% (20% of 2%) of GDP on major equipment and R&D should ensure that Allied armed forces are able, on average, to maintain a ‘military capital stock’ of adequate size and quality, bearing in mind factors such as force size, level of ambition, and technological progress and obsolescence. Conversely, an Ally that devotes much less than 2% of GDP on defence is likely to experience a degradation of its military capital stock, and ultimately of its military capabilities, even if the share devoted to major equipment and R&D reaches 20%. In sum, the combination of the 2% and 20% guidelines makes sense, both from a defence economics perspective and from a military capabilities perspective.
The further guidelines and standards regarding deployability, sustainability and interoperability ensure that capabilities could be genuinely and effectively used in the context of joint NATO operations in order to meet threats to Allied security.
Definitional and measurement issues concerning the 2% guideline do arise, although they are perhaps less problematic than some commentary suggests. NATO definitions naturally apply to defence spending as defined by NATO. In that context, the leeway for ‘fudging the figures’ is quite limited. As for the denominator, i.e. annual GDP, national statistical offices release a single official total ex post (pending small subsequent revisions). Official GDP data, which is developed on the basis of the UN’s System of National Accounts (SNA) norms, is then included in international economic databases. Forecasting a nation’s future defence spending effort as a percentage of GDP is of course a different matter, as one is then reliant on planned or budgeted defence spending levels, which may be amended, divided by GDP forecasts, which differ according to source. Ex post, however, there isn’t much mystery or confusion regarding the measurement of Allied defence spending as a share of GDP.
From a macroeconomic and fiscal perspective, the 2% threshold is by no means high, neither in international comparison nor in a historical perspective. The US example is but one illustration, with a defence spending effort that has remained above 2% of GDP for several decades, without undue sacrifices to economic growth and prosperity. Indeed, over the last three years, both economic conditions and defence spending efforts have largely improved. According to NATO estimates published in June 2017, of the 25 Allies who spent less than 2% of GDP on defence in 2014, 21 will be devoting a higher share of GDP to defence in 2017 as compared to 2014.
From an international relations perspective, the 2% guideline embeds several goals, depending on which audience one considers. Within the Alliance, making progress towards 2% is a clear demonstration of political will and commitment to responsible national defence policies and to fairer burden-sharing among NATO Allies. In that context, the 2% guideline is fundamentally a measure of national effort, requiring trade-offs in fiscal and budgetary policy terms, and reflecting a deliberate choice to overcome the temptation of free-riding. When Allies move towards better burden sharing, the Alliance as a whole comes across as more cohesive in the eyes of third countries, including potential adversaries.
The notion that defence spending should not be targeted in isolation, but rather as a component alongside other budgetary items such as development aid, is also questionable. Every security challenge requires a different mix of responses over various time horizons, and nothing prevents Allies from devoting more resources to soft power instruments. But no amount of development aid can deter or defend against an external actor that shows a readiness to use force to achieve its ends.
The views expressed in this article do not necessarily reflect those of NATO or of Allied governments.