Despite the Government’s bluster about increasing defence spending, on current plans it is due to fall to just below 2pc of GDP
Article by Roger Bootle for the Telegraph
With a Russian invasion of Ukraine a serious danger, I have been musing on the links between military and economic strength. Some countries’ military strength is a straight reflection of their economic size. But in many other cases, their military strength is disproportionate.
It is not at all surprising that America and China are the world’s two military super-powers. After all, they are the world’s two largest economies. But Russia is a different case. Most people in the West don’t realise how comparatively small Russia is economically. At market exchange rates, its GDP is about half of the UK’s, making it the eleventh largest economy in the world, just below South Korea.
Mind you, the use of market exchange rates systematically under-states the GDP of less advanced countries because their general price level tends to be lower. Accordingly, when making international comparisons, economists usually use an artificial exchange rate, called Purchasing Power Parity, that corrects for this. If you measure GDP using this rate, then the Russian economy comes out roughly a third larger than the UK’s, ranking as the world’s sixth largest economy.
Despite this still surprisingly unimpressive economic weight in the world, it is able to field substantial armed forces because it spends a relatively high proportion of its GDP on defence. At the latest count, the figure was 4.3pc, a fair bit ahead of the US, which spends 3.7pc. And I suspect that because of very different relative prices, a given amount of money spent on defence by Russia produces much more bang per buck.
There are some much starker examples of disproportionate spending on defence. Although Israel is a comparatively small economy, ranking 29th in the world, its military spending is pretty high since the country spends 5.6pc of GDP on defence. The most glaring example of this phenomenon is North Korea. Its economy is tiny, about 100th of the size of the UK’s. Strikingly, however, it spends almost a quarter of its GDP on the military, a proportion more or less unequalled anywhere in the world.
To the surprise of many people, the UK is still a significant power. In economic terms we rank fifth in the world when measured at market exchange rates, although only 10th when measured at Purchasing Power Parity. And we are still pretty significant military spenders. When measured at market exchange rates, our military spending is the fifth highest in the world, just below the Russian level and significantly above what is spent by Germany and France, never mind Italy.
As a percentage of GDP we spend about 2pc, which happens to be the NATO target. Mind you, with the exception of America, the UK and France, this objective is honoured more in the breach than in the observance.
For the UK, 2pc of GDP spent on defence is historically a low figure. Our history of defence spending is, of course, closely linked with the history of international relations and Britain’s role in them. In 1855, when the Crimean War was in full swing, the UK spent almost 6pc of GDP on defence.
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Our military spending is the fifth highest in the world Credit: Joe Giddens/PA