International Forecaster Weekly

What Global Defense Spending Tells Us About the World

If there is any bright spot to this harrowing statistic, it is that the contractors are making money hand over fist without the need for active conflict in many parts of the globe.

James Corbett | September 19, 2015

Want to know the next global hotspot but find that crystal ball gazing isn't providing any answers? Never fear, there's a much easier way to determine the shape, form and location of future conflicts. As in so many other fields of investigation, if you want to know where things are heading, just follow the money.

            Earlier this year the Stockholm International Peace Research Institute (SIPRI) helped us put some hard numbers on global military expenditures, and the results are quite revealing. Here are five trends in global conflict that we can discern from SIPRI's annual report on global military expenditure.

            1 - The US Still Spends More On Defense Than The Rest of the World Combined

            What the numbers say: You may have heard much ballyhoo and hand-wringing over the past year about the US military's recent budget cuts (including a 0.4% decline in spending last year), but here's what the media left out of that equation: Last year, the US spent $610 billion on its military, more than the next seven largest military spenders put together. This represents 3.5% of the US GDP, a percentage that is also among the highest in the world as well. The US alone accounts for 34% of the world's military spending and is at a comparable level to its all-time peak in the late 1980s.

            What this tells us: I don't suppose this statistic is surprising to anyone who has so much as cracked open a newspaper in the last 50 years, but for any anthropologists from Mars studying the globe, this is one of the first facts that would be readily apparent and that would make sense of much of the carnage being waged in the world today. Perhaps more to the point, it tells us about the world we are living in and what we can continue to expect in the near future: a world dominated by a military power that dwarfs not just the size, scale and might of any global power before, but which enjoys an unquestionable and unprecedented military dominance over the rest of the planet.

            The fact that the US military spending is starting (however microscopically) to decline and that the US share of world military spending is likewise declining (slightly) should also be of concern, however. In late 2000, having lost the convenient Soviet boogeyman and having yet to bring Al-CIAda to front and center stage, the neocons started dreaming of their "New Pearl Harbor" and within a year of being in office they had helped to bring that about. Will the threat of declining revenues for the terrorists at the heart of the terror-industrial complex stimulate a similar reaction from whatever neo-neocons are scurrying around Washington these days? The answer is not only "Yes," but, as we shall see, the next theaters of conflict for the US are already starting to heat up.

            Of course, what is particularly galling about the hysteria with which this "Oh, won't someone think of the poor military!" hysteria about US defense cuts and the cuts in troop benefits and veteran medical care that it has engendered, is that it is (like everything else that emanates from Washington) a demonstrable lie. There is no budget crisis at the Pentagon that is not of its own making. As reports on the "unaccounted for" $2.3 trillion from the Pentagon's FY1999 spending and the "still unaccounted for" $8.5 trillion today make clear, the Pentagon could 'shake $50 billion out of its couch cushions today' if it really wanted to. But then, if the Pentagon ever did actually produce a reliable audit of its books (current ETA: 2017!) the black hole of free money would disappear. In other words, don't hold your breath waiting for those unaccounted for trillions to be accounted for, and don't cry any tears for the Pentagon's declining budget.

            2 - Saudi Arabia Saw the Greatest Jump in Defense Spending in 2014

            What the numbers say: Saudi Arabia's military budget saw a gigantic increase in 2014, up 17% from the year before and a whopping 112% from 2005 to come in at $80.8 billion. This makes Saudi Arabia the fourth largest military spender in the world (after China and Russia), expending 10.4% of its GDP on its armed forces.

            What this tells us: The Middle East has seen a complete transformation over the past decade and a half, from the toppling of Saddam and the carving up of Iraq to the years-long terrorist insurgency in Syria, with a regime of stifling sanctions on Iran and an Arab Spring to boot. This transformation is still in progress and it is still up in the air how the region will look once the dust has cleared.

            Given its size, economic might and military strength, Iran would, all things being equal, likely be the naturally dominant player in the region. But all things are not equal and any idea of a re-born Persian empire have to be tempered by Iran's increasing isolation and encirclement by the NATO powers and growing rivalry from Saudi Arabia, Qatar, Turkey and other challengers looking to assert their own influence over the region. As a result, we have seen Saudi's military budget growing along with its regional ambitions, and this has been reflected in its deep involvement supporting the terrorist insurgency in Syria, and, more recently, the decimation of Yemen.

            Interestingly, this rise in Saudi military assertiveness also tracks another phenomenon I have been noting in these pages for some time now: the de-yoking of Saudi Arabia from the American sphere of influence. Is the fact that the Saudis are aggressively expanding their military capabilities (and putting those capabilities on full display in a proxy war with Iran in Yemen) yet another sign that they are no longer content to sit under the American military umbrella? And is this another sign that the defense-for-oil scheme underlying the petrodollar is, however slowly, coming to an end? The numbers certainly support the hypothesis.

            3 - Eastern Europe Saw the Greatest Regional Increase in Defense Spending Last Year

           What the numbers say: Although overall military spending in Europe in 2014 was only up 0.6% to $386 billion, looking at a finer map reveals a more nuanced story. While spending was down 1.9% in Western and Central Europe, the spending was way up in Eastern Europe, climbing 8.4% over the previous year to $93.9 billion. Unsurprisingly leading the way in military budget increases were Ukraine and its neighbors in Poland and Russia, up 23%, 13% and 8.1% respectively.

            What this tells us: Once again, these numbers shouldn't be surprising. The defense budget cuts in Europe were led by those countries teetering on the edge of the Eurozone collapse (Portugal, Greece and Italy), and the spending increases were led by those countries actually engaged in or preparing for active conflict (Ukraine, Poland and Russia).

            While Russia's rise in military spending might at first glance seem to be a response to the conflict in Ukraine, as SIPRI notes, "Russia had planned for this increase before the start of the crisis." Instead, we have to see Russia's rising defense budget as part of a response to the growing NATO threat on its borders. Russia was set for an even greater increase in military spending this year with a proposed 20% increase (including a whopping 60% increase in arms procurement), but had to scale its plans back as a result of falling oil prices and increasing pressure on the Russian economy as a result of US/EU sanctions.

            Russia's NATO rivals are similarly feeling the pinch. Having formally committed last year to reverse defense budget cuts and have members instead increase spending to reach at least 2% of GDP, only the US and Estonia are actually meeting that goal and other governments are resorting to accounting tricks to try to clear the hurdle. As a result, there are now increasing calls to scrap the pledge altogether. Still, NATO member states in Russia's back yard in Eastern Europe are seeing the budget benefits of the "new cold war" with Moscow, with Poland now in the midst of a 10-year, $42 billion military modernization plan that will result in it exceeding the 2% NATO spending goal by the end of the year.

            If there is any truth to the adage that you can track military hotspots by looking at defense spending, Eastern Europe and the quickly growing Russia/NATO conflict seems to be a prime example of that phenomenon.

            4 - An Arms Race is Taking Place in East Asia

            What the numbers say: Military spending in Asia and Oceania was up a substantial 5% last year and 62% since 2005, with $439 billion being spent on regional defense budgets. Although relatively small spenders like Brunei, Afghanistan, Cambodia and Kyrgyzstan led the regional increase in percentage terms, it was China's substantial military budget growth that added to the overall figures. China's (estimated) $216 billion military budget puts it squarely in second place for world defense spending, up 9.7% from 2013. Taking China's enormous spending increase out of the picture, the region's overall military spending growth was only 1.2%.

            What this tells us: Although the rate at which defense spending in Asia is increasing has fallen since the 2008 financial crisis, the fact that it is still going up speaks to the growing military tensions in the region. These tensions are perhaps most easily seen in the South China Sea and the East China Sea, where China's PLA Navy is growing not only in size but in sophistication and assertiveness. With new drones, a homegrown aircraft carrier, aircraft carrier "killers" and other high-tech goodies increasingly at their disposal, China is being more and more brash in asserting its claims to large chunks of the region's waters.

            As I have been at pains to point out for years now, all of these tensions are manna from heaven for the (mostly American) contractors who are profiting to the tunes of billions of dollars from drone sales and armament sales to the region. Given that the US is still formally committed to the "Asia-Pacific Pivot" and that political rulers on all sides of these conflicts continue to score points with their domestic populations by pumping up militaristic and nationalistic rhetoric on the back of the scare, don't expect military spending in the region to decline any time soon.

            5 - Global Defense Spending is More Than it Was in the Cold War

            What the numbers say: Although global military expenditure peaked in 2011, it has only fallen by fractions of a percent each year since then to stand at $1.776 trillion in 2014. This is still substantially above inflation-adjusted spending levels in the late 1980s, when global defense spending topped out just over $1.5 trillion.

            What this tells us: Remember when the Soviets were the enemy of freedom and the stockpiling of nuclear-tipped ICBMs and the creation of Star Wars defense initiatives were the only thing keeping us safe from the red scourge? Well, swap that old Soviet threat out for a new threat from a menacing (but clearly less militarily threatening) Russian bear and a rising (but still nowhere near risen) Chinese dragon and a fearsome (but Al-CIAda sponsored, created, funded and trained) Islamic State boogeyman and you have the perfect cocktail for...even more defense spending! That's right, the globe is now spending more money on defense spending than ever before in human history, even during the height of the Cold War that was supposedly the greatest military standoff the world has ever seen.

            This isn't just a trick of the numbers, either. As the report explains, "The SIPRI Military Expenditure Database includes figures for each country and region in constant (2011) US dollars, which is the basis for the real-terms calculations." In other words, this isn't comparing 2014 dollars to 1980 dollars without adjusting for inflation; these are inflation-adjusted figures. There really is greater military spending now than ever before.

            If there is any bright spot to this harrowing statistic, it is that the contractors are making money hand over fist without the need for active conflict in many parts of the globe. Although there certainly is fighting in Syria, Yemen, Ukraine and other active conflict zones, and continuing military tensions in war-ravaged Afghanistan, spending in other regions (like Asia) is taking place on the mere threat of possible conflict. Perhaps we can take solace in the fact that the defense contractors and arms manufacturers are making enough money without plunging the world into WWIII...

            ...but don't count on it. Military conflict has always been the fall-back position in times of economic chaos, and given the size of the asset and bond bubble that has been blown in the last 7 years we are on the verge of some very chaotic economic times. And with the sheer number and potential destructiveness of this mechanized equipment of death out there, it is increasingly possible for one stray bomb to land in the wrong place on the wrong day and start a new conflict on the Korean peninsula or on Russia's border or in the South China Sea or who knows where, quickly dragging the world into conflict.

            Whatever way you slice the pie graph, the forces of peace and disarmament seem to be losing.