Latest military expenditure data reveals the hypocrisy of austerity

Yesterday, the Stockholm International Peace Research Institute (SIPRI) released their latest data for – World Military Expenditure 1988-2014. In their – Press Release – we learn that total World military spending has fallen in the last three consecutive years although it “levelled off” in 2014. While the global trends are interesting (the shifting patterns between the big geo-blocks), I was interested in what was happening in the Eurozone in the era of austerity. I was also interesting in juxtaposing the military expenditure and social expenditure dynamics. What you learn is that Greece maintains its position as one of the largest relative spending nations on military items, spending nearly twice the proportion of its GDP compared to Germany and the Netherlands, two nations that lead the charge on imposing austerity. Further, the nations that are pushing the hardest for more austerity are those that benefit the most from Greek military expenditure. The hypocrisy is amazing.

The following graph compares the movements in military expenditure at 1995, 2005 and 2014 for the Eurozone nations and some other selected nations as a per cent of GDP.

The bars are the 1995 values. The graph also allows you to compare the Eurozone nations. In 2014, on France (2.24 per cent spent more of military than Greece (2.20 per cent). Cyprus spent 2.02 per cent of GDP.

Germany spent 1.23 per cent, Italy 1.48 per cent, Finland 1.40 per cent, and the Netherlands 1.24 per cent.

At the – 2014 North Atlantic Treaty Organization (NATO) Summit – held in Newport Wales over September 4-5, 2015, the – Wales Summit Declaration – noted that:

Allies currently meeting the NATO guideline to spend a minimum of 2% of their Gross Domestic Product (GDP) on defence will aim to continue to do so …

Allies whose current proportion of GDP spent on defence is below this level will:

– halt any decline in defence expenditure;

– aim to increase defence expenditure in real terms as GDP grows;

– aim to move towards the 2% guideline within a decade ….

So Greece and Estonia, both recession-ravaged nations, are the only two Eurozone nations currently meeting the terms of the NATO agreement.

The Greek government has significantly cut its military expenditure since the crisis. The following graph shows the annual growth in military expenditure since 1989 (to 2014) in percent.

In the few years before the crisis hit, the growth in expenditure was substantial.

The next graph compares military spending with social spending (which is taken from the OECD data and is the aggregate of cash transfers and benefits in kind).

To provide some sense of comparison (given that social expenditures are much larger than military expenditures), I took the difference of the spending shares in GDP each year as a basis of reference.

So the columns are the annual change in shares in percentage points of each spending item.

You can see that in 2012, the austerity imposed on Greece was much more stringent on social outlays than military outlays.

I have written before about how we should view military expenditure through an economics lens. In this blog – What is “good” at the macro level may well be disastrous at the micro level – I noted that aggregate spending in an economy is virtuous in that it provides the basis for employment via sales stimulating output.

But I also noted that what might be ‘good’ at the macro level could be disastrous at the micro level. For example, if that aggregate spending was highly damaging to the environment we would consider it a bad.

The same case is often made about military spending. If that spending is contained within the national borders – for example, military wages and salaries, then it will stimulate other output and create jobs. But we might be horrified as to the social consequences of the outlays.

But, a major part of military outlays in nations such as Greece manifest in the form of import expenditure, which means the expenditure is stimulating other nations and draining income from the spending nation.

In general, Modern Monetary Theory (MMT) considers for an economy as a whole, imports represent a real benefit while exports are a real cost. Net imports means that a nation gets to enjoy a higher living standard by consuming more goods and services than it produces for foreign consumption.

This doesn’t mean that there is not the possibility that severe distributional shifts (in costs and benefits) might occur on a microeconomic level within a nation undergoing a change in patterns of trade. So workers in manufacturing belts might lose their jobs because imported goods become cheaper and consumers (including the same workers who lose work) voluntarily choose to purchase the cheaper (and in some cases, higher quality) products.

While this process is painful appropriate government policy can help to alleviate the costs of adjustment and engender an environment where the workers transit into other uses. Structural adjustment is always painful though and is best achieved at times of full capacity.

In the case of military expenditure, we can go further than this and question the notion that such imports do represent a real benefit. One could easily argue that a society gains very little from such imports.

Such spending generates no visible rate of return that allows the nation to service the liabilities to foreigners that build up as a result of external deficits.

When a nation with an external deficit has a spending pattern that yields no long-term productive gains, then its ability to service the debt incurred as a result of those deficits might come into question.

I have also previously written about the Eurozone armaments trade and how that is an intrinsic element in the imbalances that have arisen since the Eurozone was established. Please read my blog – The value of government – for more discussion on this point.

More recent data is now available since I wrote that blog.

SIPRI data tells is that Germany was the third-largest military exporter (major arms) over the period 2009-12 (7 per cent of the World’s share) behind Russia (27 per cent, and the USA (29 per cent). France was fifth (5 per cent).

The German government publishes an annual report of its exports of military equipment. In its – Bericht der Bundesregierung über ihre Exportpolitik für konventionelle Rüstungsgüter im Jahre 2013 – we learn that in 2013, Germany exports of military weapons totalled 933.251 thousand euros of which:

1. Greece imported 40,891 thousand euros worth from Germany (4.3 per cent of total).

2. Ireland 169 thousand (0.01 per cent of total).

3. Portugal 65 thousand euros (0.007 per cent of total).

4. Spain 7,504 thousand euros (0.9 per cent of total).

5. Italy 108,452 thousand euros (11.6 per cent of total).

In terms of German exports, the other major importing nations were South Korea (29.4 per cent), then UAE (10.9 per cent), Algiers (6.3 per cent), Israel (6.1 per cent), and Singapore (5.6 per cent).

In other words, Greece is Germany’s 7th largest customer for military equipment.

But according to the Independent (November 6, 2011) – Less healthcare, but Greece is still buying guns – Greece was Germany’s largest customer for military equipment in the period 2005 and 2010:

During the five years up to the end of 2010, Greece purchased more of Germany’s arms exports than any other country, buying 15 per cent of its weapons. Over the same period, Greece was the third-largest customer for France’s military exports, and its top buyer in Europe, with 12 per cent.

The three major suppliers of military equipment etc to Greece are the US (42 per cent), Germany (22.7 per cent) and France (12.5 per cent).

I have had time today to check French military exports (Greece is its third largest importer of military weapons and equipment) but a similar story would emerge. The same would go for the Netherlands.

Why would Greece continue to outlay so much each year on military weapons and equipment etc when it has a self-stated “humanitarian crisis”?

The answers go beyond my expertise. I guess it is a way of appeasing the generals who otherwise might be tempted to stage another coup and return the nation back to its days of junta (1967-74). It might be difficult for them to justify a coup given the last one was to root out communist and ensure men wore short hair and girls longer dresses.

The long-standing territorial disputes with Turkey clearly started an arms race between the two nations. But this excuse would appear to be somewhat lame these days given that (Source):

1. The Turkish government has offered to end the arms race. Its chief negotiator with the EU said in 2009 that “Greece doesn’t need new tanks or missiles or submarines or fighter planes, neither does Turkey. It’s time to cut military expenditure throughout the world, but especially between Turkey and Greece. Neither Greece nor Turkey needs neither German nor French submarines.” (Source.

2. Both nations are in NATO – which would preclude any major military conflict.

Perhaps Syriza can advance that agenda.

The data tells us that the narrative spun by the neo-liberals as to cause and solution of the Greek depression is very selective.

If Greece had have spent much less on military equipment in the lead up to the crisis it would be in much better shape now under the pernicious system that it chooses to situate itself within.

1. The income drain from the imports would have been lower and its fiscal deficit would have been lower for a similar GDP growth rate.

2. As the crisis hit, it would have been closer to meeting the fiscal rules of the Stability and Growth Pact (deficits must be lower than 3 per cent of GDP) even though the automatic stabilisers would have driven the deficit up substantially given the loss of employment and tax revenue.

3. Further cuts in military expenditure (cancelling contracts if need be) would have given the nation significant spending adjustment without cutting into spending that matters. This is because most of the military outlays stimulate other economies.

As the now Greek finance minister said in 2011 (see Independent article):

When Greek hospitals are running out of bandages, the only bit of the budget not being attacked by the EU and IMF is military expenditure.

4. Germany, in particular, that built its Eurozone strategy on savagely containing domestic spending via real wage cuts and fiscal austerity (after 2004), would have been in a worse position. This would have forced it to stimulate its own economy from within – for political reasons, and probably would have seen a return to their troubles with the Excessive Defecit Mechanism (as in 2002 and 2003).

That would have seen a totally different dynamic (both economic and political) as the Eurozone descended into crisis after the housing collapse in the US.

It also brings into light the claims about structural inefficiencies and lazy Greek workers who pay no taxes. 2 per cent of Greek GDP is wasted on military hardware etc. Scrap it first.

Yet, I don’t see any proposals for Greece to significantly cuts military spending.

But while the likes of Germany, Finland, and the Netherlands are lecturing it about fiscal austerity and the obligations of Greece to obey the rules of the EMU, Greece should note the failure of these nations to honour their NATO obligations. If all the NATO nations currently spending less than 2 per cent of GDP on military equipment etc honoured that commitment there would be an improvement in world economic activity, which might help Greece.

But then we are back to the macro-micro dilemma. The last thing the World needs is an arms race. The 2 per cent NATO rule is ridiculous and should be abandoned.

Greece should immediately halve its spending on weapons as a per cent of GDP and redirect the expenditure to buying “bandages” and other useful things.

Conclusion

I avoided getting into discussions about military complexes and world conspiracies. The narratives around those topics are probably accurate but I am not qualified to really write about them without a lot more research.

But the basic numbers are stunning really. A nation in crisis that is still laying out 2 per cent of its GDP on military equipment is mad.

Full Employment in Australia – White Paper 1945

I have created a full searchable, on-line version of the – White Paper – for those who are unable to easily obtain it from their libraries.

There are still some typing glitches which I will correct as time passes.

I trust this will be of use.

Here is the Wikipedia link to the – White Paper

That is enough for today!

(c) Copyright 2015 William Mitchell. All Rights Reserved.