Tuesday, September 4, 2012

Selling Weapons is Big Business

Selling weapons is big business. The Economist shows that the Cold War has had some lasting effects beyond Taiwan and North Korea, with the United States and Russia still the biggest arms dealers. According to The Economist:
Arms deals were buoyed last year by unusually high demand from Saudi Arabia. The Middle Eastern country is the developing world’s biggest arms buyer; deliveries were $2.8 billion in 2011. India, which is Russia’s biggest high-value arms client, was close behind, with $2.7 billion-worth of deliveries last year.

Those Cold War connections still count. According to another report declining military spending in the US is pushing US firms to look for new export markets.
... analysts cautioned that the sales are also indicative of economic realities in the US, where tighter budgets have shifted the defence industry's gaze toward exports. 
In the case of fighter jets, for example, the US has delayed production of its own next generation of aircraft. Had the deal with Riyadh not been signed, manufacturers might have had to shut down production altogether ...  
Although the Gulf arms market is expected to remain strong in coming years, this year will probably prove to be an anomaly for US sales because of the large Saudi deal. The $66.3bn figure represents the value of all arms deals signed but the weapons and aircraft will be delivered as far as several decades out.

The place to go for detailed assessments of military spending and the like is SIPRI (Stockholm International Peace Research Institute).

SIPRI reports that world military spending was flat in 2011:
World military spending in 2011 is estimated to have been $1,738 billion. While the figure is higher in dollar terms than in 2010, this is largely the result of changes in prices and, more importantly, a falling dollar. When measured in real terms (constant 2010 prices), the total for 2011 is just 0.3 per cent higher than in 2010. Given the uncertainties in the data, this means that world military spending was essentially unchanged in 2011, breaking a 13-year run of continuous military spending increases.
But the disaggregated picture was more interesting:
The levelling-out of military spending results from a very mixed pattern of changes in different countries and regions. ... This included:
  • A decrease in the US of 1.2 per cent in real terms, the first fall in US military spending since 1998;
  • A moderate increase in Asia and Oceania (2.3 per cent)
  • Falls in Western and Central Europe (1.9 per cent) due to austerity measures, matched by a large increase (10.2 per cent) in Eastern Europe
  • A substantial increase (4.6 per cent) in the Middle East
  • A moderate (3.3 per cent) decrease in Latin America large increase (8.6 per cent) in Africa.

US spending fell last year for the first time since 1998. Two factors are driving the fall.
The withdrawal of US forces from Iraq and the gradual drawdown in Afghanistan, which means reduced spending on the additional war budget, otherwise known as Overseas Contingency Operations. This can be expected to continue if plans to end combat operations in Afghanistan in 2014 are fulfilled, and if the US does not become involved in any major new war.
The Budget Control Act, passed by Congress in 2012 as an attempt to reduce US national debt, will also affect military spending. The immediate effect of the Act was to require cuts of $487 billion from the Department of Defense budget from 2012–21, compared with previous plans. However, as those plans involved an increasing ‘base’ DoD budget (excluding Overseas Contingency Operations), the effect of the Act will mean relatively flat budgets in real terms up to 2021. ...
These falls may be much higher if further cuts mandated by the ‘automatic sequestration’ clause of the Budget Control Act take place.4 This provides for automatic across-the-board cuts theoretically commencing in January 2013 and totalling $1.2 trillion by 2021, including $500 billion from National Defense.

However, several members of Congress have initiated moves to prevent or delay the military spending portion of the cuts from taking effect, arguing that such cuts would jeopardize US national security.5 These additional cuts have not been accounted for in current budget projections, or in the Administration’s FY2013 budget request.The decline in US spending is likely to have an effect on total military spending because the US accounts for 41 per cent of the global total.

Military spending in Asia and Oceania is up, so we're pulling our weight in covering for those US declines. But Eastern Europe, Africa and the Middle East are clearly leading the way to account for American declines (both South and North)

But as a recent cartoon from xkcd made clear, growth (flow) figures need to cited in relation to overall (stock) figures. (incidentally probably the best cartoon since Calvin and Hobbes in my humble opinion)

Although the diagram doesn't say it, I'm assuming the red bit is Asia and Oceania with 20.9 per cent (the amount remaining).

Unsurprisingly China's growth has been the most significant development in the region. According to SIPRI the rate of growth has slowed slightly in recent years to about 2.3 per cent compared to a rate of 6.3 per cent (all figures are in real terms)between 2000 and 2009.

Most of the regional increase was due to Chinese growth of 6.7 per cent - around $8 billion in constant 2010 prices.  

Since 2002, China has increased its spending by 170 per cent. Since 1995, spending has increased by more than 500 per cent (that's in real terms).

Total Chinese spending in 2011 was 923 billion Yuan ($US143 billion), which makes it the global number two. Interestingly, it has managed to do this without increasing military spending as a percentage of GDP. It has remained at approximately 2 per cent since 2001.

A growing economy does allow for a growing military.
The increased military spending has allowed both increased salaries and better conditions for troops, as well as extensive modernization of military equipment and technology, as part of a drive to ‘informationatize’ the armed forces. Chinese military technology remains, however, one to two generations behind that of the US.
Obviously these increases cause worries in the region, not the least in Australia, where the subject of Chinese power often dominates my undergraduate and postgraduate seminars.

SIPRI, however cautions against the idea that there is an arms race going on in the region.
both data and analysis reveal a mixed pattern of trends in military expenditure and arms acquisition, with China far from the only driving factor.
The two countries that have responded most to China's spending are India and Vietnam. Australia talked about increased military expenditure, but the spending plans contained in the 2009 White Paper are dead and buried.

Since 2002 India has increased military spending by 66 per cent, while Viet Nam has increased military spending by 82 per cent since 2003. Both countries spending fell in 2011, perhaps reflecting growing economic woes. Taiwan's spending has grown by only 13 per cent since 2002, while Japanese spending has declined over recent years.

Other countries include

The Philippines - 7.4 per cent increase since 2002.

Indonesia - 82 per cent since 2002

Thailand - 66 per cent

Cambodia - 70 per cent

For the sake of comparison here's a graph of military spending as a percentage of GDP for a few select countries.

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