By John Alexander*
Following the most recent NATO Summit held in Wales, Canada along with all alliance members, committed to “reverse the trend of declining defence budgets, to make the most effective use of our funds and to further a more balanced sharing of costs and responsibilities.”2 The alliance members accepted as “guidance”3: to continue to spend a minimum of 2 percent of individual national GDP, or where a country is currently spending less than 2 percent, then to increase spending within the next ten years to 2 percent. A similar commitment was made to spend “20 percent of their defence budgets on major equipment, including related Research & Development,” or, where they are not currently doing so, to increase to this percentage within ten years.4 And lastly, nations agreed to enhance interoperability and “… that their land, air and maritime forces meet NATO agreed guidelines for deployability and sustainability and other agreed output metrics.”5 In 2013, Canada spent the equivalent of 0.89 percent of GDP on defence.6 Among G7 nations, Canadian defence expenditures as a percentage of GDP are the lowest, even behind the ‘cash-strapped’ nations of Europe.7
Despite Canada’s commitment at the Wales Summit, a number of questions remain regarding future levels of Canadian defence expenditures and their effect upon Canada’s NATO commitment, particularly in light of Prime Minister Harper’s comment highlighted above. Are political commitments like those coming out of the Wales Summit largely symbolic in nature without an expectation of substantive follow-through by contributing nations? More pointedly, to what degree is Canada actually prepared to meet her commitment? This article will demonstrate that Canada is unlikely to achieve these targets, based upon historical precedent, and based upon recent indications given by the Government of Canada. However, despite this, it will be argued that the failure to achieve these targets does not reflect a reduction in Canada’s commitment to NATO, either politically or financially.
What Is Meant by the Target of 2 Percent GDP?
Before attempting to analyse whether Canada will meet the targets that she committed to at the Wales Summit, it warrants examining the meaning and scope of that commitment. The targets are measured as a percentage of GDP. The first criticism of this type of target mirrors common criticism of GDP as a measurement of economic growth and capacity in the first place.8 A common, accepted measure of GDP is necessary to allow for a common understanding of commitment levels.
This criticism translates across to the analysis of the absolute amount of defence spending used to calculate the 2 percent. The manner by which NATO members report spending towards their military is not consistent across the alliance, and therefore, the manner of comparing them has always been a challenge.9 A dollar (or pound or euro) in the hand of one member’s military is not the equivalent of a dollar in the hand of another. Spending is reported differently. It may appear as operations in one budget, and personnel costs in another, or even as military spending in one budget, and other departmental spending in another, and how the funds are used will also differ among nations. Factors at issue include how much money nations spend towards operations, capital equipment acquisitions, personnel costs, and real property management. These differences demonstrate the difficulty of using this type of measurement to determine real levels of military investment and financial support, as it is the responsibility of each reporting nation to identify how the funds have been spent.
A further criticism of a military defence spending target based upon percentage of GDP is that it fails to take into account a country’s ability to pay. In considering what it means to be a nation that can ‘afford’ to pay, there are a number of possibilities, two of which are considerations of a nation’s GDP per capita, and national debt levels. The GDP per capita analysis provides a context that calculations based simply upon aggregate GDP do not. It is clear that $2 million in military spending in a country with a GDP of $100 million impacts that country differently if it is supporting a population of 100,000, or a population of 10,000, although both situations represent a 2 percent contribution level. However, even with this added level of analysis, it does not go far enough to answer how much a country can afford to pay. One must also consider a nation’s debt load. This calculation subtracts the public debt from GDP, and calculates the percentage of the surplus (per capita) that is expended on defence. One can see the effect of these two additional considerations in the following: On a per capita basis, Canada’s military spending ranks tenth out of 27 nations, contributing $537 per individual citizen towards defence.10 When national debt as a percentage of GDP is then factored in, Canada ranks fifth overall.11 In the cases of Greece, Italy, Portugal, and Belgium, their national public debt exceeds their GDP. It should be clear by now that the simple funding formula of 2 percent of GDP towards defence spending is an insufficient metric for determining how much each partner of the alliance should be committing.
In summary on this issue, a target of 2 percent of GDP for defence spending is a crude measurement. There is a multitude of other ways to determine the fair contribution of each nation towards the overall shared responsibility for collective defence that could have been used. Katarzyna Zukrowska, in The Link Between Economics, Stability and Security In A Transforming Economy, argues that determining the appropriate level of defence spending per nation is best arrived at through an appreciation of the linkage between the triad of security, stability, and economy within each nation.12 In other words, the appreciation for threats to one’s security, balanced against the stability in ‘the neighbourhood,’ and the health of the national economy should combine to dictate the necessary level of funding by nations towards defence. This represents a far more nuanced analysis than that employed in the 2 percent per GDP Wales Summit commitment.
Is a Percentage Target Even a Meaningful Measure?
Ironically, it is not clear that meeting the 2 percent of GDP target will actually increase or even maintain current levels of defence spending. Were all nations to meet their respective 2 percent of GDP defence spending target within ten years, significant changes to the funding levels of most countries would have to occur. In Canada’s case, the defence budget would double, while at the extreme, Lithuania’s defence budget would increase 278 percent.13 The Wales Summit declaration commits Allies “… to reverse the trend of declining defence budgets.”14 Beyond the 20 percent commitment to major new equipment, including related Research & Development, nothing contained within the declaration defines how Allies are to expend their defence budgets.
A percentage target in no way addresses how that money is being spent. Canada, for its part, has long contended that it is not strictly about how much the military is funded, but rather, how efficiently those funds are being expended. For example, the US spends 34 times the amount that Canada spends on defence. However, the US military is only 22 times the size of Canada’s military.15 This could, but does not mean that United States’ defence spending is inefficient. However, absent from this raw comparison of reported funding levels is how that funding is allocated, for example, the proportion of declared funding spent on research and development, various alliance funding (i.e. NATO) or other global commitments, such as military training provided to developing nations. These amounts vary widely for each nation. By way of example, in 2012, the US carried 22 percent of NATO’s Common-Funded Budgets and Programs, while Canada’s share totalled 6.09 percent.16 As a percentage of each nation’s budget, the portion committed towards NATO is substantially higher from Canada than the United States.
Similarly, if one were to compare Canada to Italy, two countries committing roughly $18.9B US to defence spending in 2013, it becomes readily apparent how differently two countries can expend their military budgets. Canada expends 49.7 percent of its budget towards military/civilian salaries and pensions, while Italy expends 76.9 percent for the same. Under combined Operations and Maintenance (O&M) and Research and Development (R&D), Canada expends 30.3 percent of its budget, while Italy expends 7.5 percent.17 This demonstration is not intended to shame any nation, but rather, it serves to demonstrate that merely addressing military expenditure as a percentage of GDP does not address the efficiency with how those funds are utilized.18 The need for efficient spending is a theme of the current Canadian government, as noted earlier herein by Prime Minister Harper.
For the Sake of Argument …
For the sake of argument, assuming that the 2 percent of GDP target for defence spending is a valid target, is Canada likely to reach that goal? In order to answer this question, one must look at Canada’s historical levels of defence spending, and at the current government’s level of commitment to the target, as evidenced in its public statements.
Canada’s Historic Defence Funding Levels
An analysis of Figure 1 demonstrates that Canada has not kept pace with the average level of defence spending by NATO countries (in terms of percentage of GDP) since 1962. While Canada’s reduction in defence spending is not unique—an examination of the budgets of NATO members over recent years demonstrates that virtually every country has been reducing funding for their militaries, including the United States19— Canada’s reductions have been more significant than the NATO average. As noted by Ivan Ivanov, a visiting Assistant Professor at the Department of Political Science, University of Cincinnati, in Transforming NATO: New Allies, Missions, and Capabilities, “Canada, the Netherlands, Belgium, Denmark, Luxemburg, and Spain formed another group of relatively rich countries with low defense spending.”20
In light of Canada’s historical low levels of defence spending, it is likely that a very significant political commitment would be necessary for Canada to meet the 2 percent of GDP target. Given this, it is interesting that in the first public statement following the Wales Summit, Prime Minister Harper made no mention of the alliance members’ funding pledge, but instead, chose to highlight Canada’s ongoing (non-NATO) commitment towards the fight against terrorism, and, in particular, the fight against ISIL.21 Ironically, the Wales Declaration highlighted that “the commitment to achieve a target of defense spending at 2 percent of Gross Domestic Product is an important political signal and demonstration of solidarity among the member states of the NATO Alliance.”22 Should the absence of any commentary by the Prime Minister of Canada on this significant commitment pose a concern to NATO alliance members? The answer to this, unfortunately, is not clear-cut. While lukewarm on the idea of meeting specific funding level targets, it is clear that Canada remains committed to collective defence through NATO. The effect of these opposed themes on Canada’s NATO commitment bears exploration.
Should Canada Fail to Meet Its 2 percent of GDP Target, Will That Adversely Affect Its NATO Commitment?
Canada clearly remains committed to NATO. Speaking in an interview at the Economic Summit in London on 3 September 2014, Prime Minister Harper stated, “… where there is a common threat to ourselves and our allies, and where particularly our major allies the United States, but also the United Kingdom, France, are willing to act, the general position of the Government of Canada is that we are also willing to act and prepared to play our full part.”23 Despite this clear commitment, is it likely that Canada’s failure to meet the 2 percent of GDP target will adversely affect NATO? It will be argued herein that due to current sufficient NATO funding levels and Canada’s self-interest, the answer to this question is likely to be ‘no.’
How Much Does NATO Require?
It is easy to be sympathetic with Ivanov’s observation of the United States’ frustration with the apparent “unwillingness of European allies [and Canada] to contribute to collective defense,” when, as of 2006, only seven allies were spending 2 percent or more of their GDP on defence.24 This number of committed nations remained unchanged as of 2013. However, one question that begs asking, is how much does NATO require? Speaking to the Western Economic Association International Conference in June 2013, Adrian Kendry, Head of Defence and Security Economics in the Political Affairs and Security Policy Division at NATO Headquarters stated that “… the positive news is that the Alliance, as a whole, does have a pool of forces and capabilities sufficient to conduct the full range of its missions.”25 The Wales Summit emphasizes the requirement for an agreed output metrics to assess the interoperability and effectiveness of NATO nations’ forces provided, although further fidelity to these metrics is not defined within the declaration.
At a policy level, there is a push to better utilize the resources that NATO currently possess. On 30 September 2011, NATO Secretary General Anders Fogh Rasmussen stated: “I know that in an age of austerity, we cannot spend more. But neither should we spend less. So the answer is to spend better. And to get better value for money. To help nations to preserve capabilities and to deliver new ones. This means we must prioritise, we must specialise, and we must seek multinational solutions. Taken together, this is what I call Smart Defence.”
It is surprising, given Prime Minister Harper’s statements at the beginning of this article that focus on the efficient use of resources, which the idea of Smart Defence does not seem to resonate back in Canada in any policy level documents within the Department of National Defence. The reasons are unclear as to why. Perhaps it is the physical separation between Canada and Europe, or the concern with losing sovereign control over one’s forces when capabilities are pooled together. Either way, there is little indication emanating from Canada that it will in any significant way contribute towards Smart Defence in the immediate future. Despite this, NATO’s current level of funding and its commitment to “spend better” suggest that Canada’s failure to meet its 2 percent of GDP commitment may not have adverse consequences for NATO.
The Wales Declaration called upon allies to “ensure that their land, air and maritime forces meet NATO agreed guidelines for deployability and sustainability and other agreed output metrics.”26 Canada’s declaration on finding efficiency and arguing for better spending of defence dollars seems to be consistent with this goal. Beyond the Wales Declaration, nothing further has been published which quantifies or explains what those metrics will look like, or how they will be applied. It will be interesting to see what form these metrics take moving forward. Will these metrics consider, for example, the obligations of each nation’s military beyond their NATO commitments? What is the balance of effort towards each nation being able to provide for their own national security and how much effort should they then be called upon to have dedicated directly towards the collective security of the alliance?
The Canadian Conundrum: An Enviable Place to Be
The Canada First Defence Strategy articulates the three roles of the Canadian Armed Forces (CAF) as being, “… defending Canada, defending North America and contributing to international peace and security.”27 This articulation seems to imply defending Canada is the top priority. Yet, ‘top priority’ does not equate to ‘highest funded.’ An analysis of funding estimated to be expended for 2013, as reported by the Department of National Defence, demonstrates that funding towards International Peace, Stability and Security, the ‘last in the chain,’ will consume 77 percent of the $2.6B earmarked for the three roles of the CAF. Defending Canada will consume 14 percent, and North American defence will consume 9 percent.28 The reported funding does not include personnel, capital equipment, or real property costs associated with each role. Only the operations and management (O&M) costs are factored into the equation.
The unique geographic positioning of Canada, combined with a very low population density and immense geography, means that defending Canada would be very problematic were Canada to have a serious threat to its sovereignty.29 Identifying the defence of Canada as a priority is easier than devising an actual defence policy achievable by the CAF, given the immense size of Canada when compared to the size of its military forces. In The Future Security Environment: 2013-2040, a publication recently produced by the Chief of Force Development within the Department of National Defence, it was noted that the CAF should be prepared to deploy “… in reaction to events that threaten Canada’s sovereignty, national interests, key allies, or in an effort to contribute to regional and global security.”30 However, beyond identifying as a task the protection of Canada’s territorial sovereignty, including the Arctic, no further mention is given to specific threats to her territory.
Fortunately, due to Canada’s geographically opportune location, Canada has not been faced with a serious domestic threat.31 She has no direct threats to her sovereignty that necessitate a large domestic military presence for deterrence. Her single largest trading partner is also her greatest ally with which she shares a separate military alliance in the defence of North America through the North American Aerospace Defence Agreement (NORAD). The two nations also jointly participate in several economic associations, such as the North American Free Trade Agreement (NAFTA), the Asia Pacific Economic Cooperation (APEC), and the Free Trade Area of the Americas (FTAA). Threats to Canadian sovereignty remain relatively low. The low threat to sovereignty permits the commitment of a greater percentage of operational funding towards UN, NATO, NORAD, and other coalition operations throughout the world.
Membership in the ‘Big Boys Club’
A November 2004 Chief of Review Services report detailed the Canadian benefits from membership in NATO as: a “Seat at the Table” argument; a “United States” argument; a “European” argument; and a “Collective Defence” argument. NATO has provided, and continues to provide, Canada with “… access to a venue where it sits as an equal with other influential states”32 in an increasingly integrated world. Interestingly, when discussing the benefits of Collective Defence, CRS reported that “… enhancing the effectiveness of NATO will also support Canadian interests by discouraging the formation of smaller security pacts among NATO members.”33
The NATO alliance continues to serve Canadian interests for now and for the foreseeable future. The alliance provides Canada with a collective defence capability, although as demonstrated earlier, this is not as significant, given its relatively low threat exposure level. The most significant benefits Canada derives from membership in the alliance are an equal voice at the table. In this regard, Canada has a greater voice within the alliance than perhaps can be argued it has within the United Nations. However, as mentioned by Ivanov in Transforming NATO: New Allies, Missions, and Capabilities, the strength of that voice can be limited by the need for consensus within the alliance. He states that: “It is necessary to note that the lack of consensus and further commitment of the allies naturally reflects the alliance’s limited capabilities to meet the specific operational demands of the mission.”34 In other words, it will be in Canada’s interests to remain within the alliance as long as the alliance can reach consensus when required.
The November 2004 Chief of Review Services report expressed concern “… with respect to Canadian contributions to projects in countries where audits are slow, or the audit trails are not solid.”35 The question of accountability within NATO is all the more relevant now as several European nations are struggling with an increasing debt crisis and are looking to shrink defence expenditures. While a valid concern, it does not appear that issues of accountability are currently a significant factor affecting Canadian NATO contribution levels.
Canada’s Recent Commitments to NATO – ‘Boots on the Ground’
Despite concerns with respect to accountability within NATO, and the fact that Canadian defence spending as a percentage of GDP is at an unprecedented low level since the end of the Second World War, evidence suggests continued Canadian support for NATO operations. As noted by Benjamin Zyla, an Assistant Professor in the School of International Development and Global Studies at the University of Ottawa, in Years of Free-Riding? Canada, the New NATO, and Collective Crisis Management in Europe, 1989–2001, “Canada has demonstrated a dedication to the alliance that seems stronger than NATO’s collective commitment to itself.”36 Canada demonstrated in Afghanistan that it was prepared to undertake a difficult mission in Kandahar province, and as a result, sustained casualties per capita higher than other alliance members. Canada is once again demonstrating commitment to international peace in contributing fighter and transport aircraft and Special Operations Forces to the (non-NATO) coalition fight against ISIL in northern Iraq.
Writing a year before the Wales Summit, Kendry noted, “… there can be no absolute reassurance concerning the commitment to 2 percent.”37 Despite the Declaration committing to defence funding of 2 percent of GDP within ten years, and a commitment to dedicate 20 percent of defence funding to capital acquisition and Research and Development, there is little reason to believe Canada will achieve this goal. Lieutenant-General (retired) Jo Godderij, former Director General of the International Military Staff of NATO, addressed the NATO Defense College on 22 October 2014, expressing his personal opinion that the more significant messaging emanating from the Wales Summit was not whether nations would achieve the funding levels prescribed, after all ten years is a very long period in the political scape, but rather, that there is a commitment by member nations “to stop the decline” in military spending now and realise an increase.38 And that perhaps, is the most significant message for Canada to take out of the Wales Summit. Canada enjoys a unique and enviable position within the alliance: her borders are relatively unthreatened, her economy is secure, and her ability to commit precious resources towards her various alliances is higher than most other nations. Canada demonstrates every reason to believe she will continue to deploy and sustain NATO missions in the future. Canada should continue to be seen as a reliable partner within the alliance for years to come.
About the author:
*Colonel John Alexander, CD, has served in the Canadian Armed Forces for the past 25 years and holds a Bachelor of Arts in History from Western University, and a Master of Defence Studies from the Royal Military College of Canada. A tactical aviation and special operations pilot, he commanded 427 Special Operations Aviation Squadron in Petawawa, Ontario, and has held numerous appointments at the tactical, operational and strategic levels. A recent graduate of the NATO Defense College in Rome, Colonel Alexander is currently Commander Task Force El Gorah in northeastern Sinai in Egypt.
- Privy Council Office, “Prime Minister Stephen Harper Economic Summit-London, England.” Economic Summit-London, England. (Ottawa: HK Publications, 2014), p. 10.
- North Atlantic Treaty Organization, Wales Summit Declaration: Issued by the Heads of State and Government participating in the meeting of the North Atlantic Council in Wales, 2014, para 14.
- Ibid. The paragraph preamble to the 2 percent commitment in paragraph 14 states: “Taking current commitments into account, we are guided by the following considerations:” This language certainly leaves open to individual nations to identify how far towards the commitment they can realistically achieve.
- North Atlantic Treaty Organization, Wales Summit Declaration … , para 14.
- IISS. The Military Balance 2014. (Abingdon: Routledge for the ISS, 2014), p. 486. NATO officially reports a figure of 1 percent. However, the means of reporting/accounting differs between sources. For consistency in comparing nations, the Military Balance 2014 is being utilized.
- Roland Paris, “Is Canada Pulling Its Weight in NATO?” Centre for International Policy Studies. May 9, 2014, accessed 27 September 2014, at http://cips.uottawa.ca/is-canada-pulling-its-weight-in-nato/.
- In Carl Eks’ NATO Common Funds Burdensharing: Background and Current Issues, he delves much deeper into the funding formula challenges of NATO activities purely as a percentage of GDP, reflecting upon such matters as the ‘ability to pay,’ and the Gross National Income (GNI) of participating nations. The Gross National Income (GNI) is the total domestic and foreign output claimed by residents of a country, consisting of Gross Domestic Product (GDP), plus factor incomes earned by foreign residents, minus income earned in the domestic economy by non-residents.
- Ivan Dinev Ivanov. Transforming NATO: New Allies, Missions, and Capabilities. (Plymouth: Lexington Books, 2011), p. 26. Dr. Ivanov is a visiting Assistant Professor at the Department of Political Science, University of Cincinnati. He has also taught at Georgetown College and Muskingum University. His regional focus is Europe and the Middle East, as well as various aspects of international cooperation, politics of transition and economic development.
- Based upon current statistics as reported by the Central Intelligence Agency’s World Fact Book at https://www.cia.gov/library/publications/the-world-factbook/geos/xx.html. Accessed 11 October 2014.
- Formula = Defence expenditure per capita/(GDP per capita – Debt per capita).
- Katazyna Zukrowska, The Link Between Economics, Stability and Security In a Transforming Economy, at <n.d. www.nato.int/docu/colloq/1999/pdf/269-283.pdf>. Accessed 11 October 2014, p. 270.
- Calculations based upon statistics as reported by the Central Intelligence Agency’s World Fact Book at https://www.cia.gov/library/publications/the-world-factbook/geos/xx.html. Accessed 11 October 2014.
- North Atlantic Treaty Organization. Wales Summit Declaration …, para 14.
- IISS. The Military Balance 2014. (Abingdon: Routledge for the ISS, 2014), p. 486.
- Adrian Kendry, The Nexus between Economics and Security: NATO’s Challenges and Opportunities in 2020 and Beyond.” RAND Defence Economics Sessions – Western Economic Association International Conference. 30 June 2013, p. 6. Note: Canada’s Department of National Defence website reports Canada’s contribution to NATO’s “common budgets for investment and operations” as 5.94 percent, “… making it the sixth largest financial contributor among allies.” (Department of National Defence 2013) As noted in the Congressional Research Service paper entitled “NATO Common Funds Burdensharing: Background and Current Issues” of April 2010, the complexity of determining a “fair” distribution has long been debated within NATO. The 2001 NATO Handbook noted that “[b]y convention, the agreed cost-sharing formulae which determine each member country’s contributions are deemed to represent each country’s ‘ability to pay’. However, the basis for the formulae applied is as much political as it is economic.”
- North Atlantic Treaty Organization. Financial and Economic Data Relating to NATO Defence, 24 February 2014, at http://www.nato.int/nato_static_fl2014/assets/pdf/pdf_topics/20140224_140224-PR2014-028-Defence-exp.pdf, p. 9. Accessed 28 October 2014.
- Ellen Hallams and Benjamin Schreer, “Towards a ‘Post-American’ Alliance? NATO Burden-Sharing After Libya,” in International Affairs (Oxford: Blackwell Publishing, 2012), p. 315.
- IISS. The Military Balance 2014. (Abingdon: Routledge for the ISS, 2014), pp. 486-492
- Ivanov, p. 29.
- Stephen Harper, PM delivers closing remarks at the NATO Summit. Accessed 24 September 2014, at http://www.pm.gc.ca/eng/news/2014/09/05/pm-delivers-closing-remarks-nato-summit#sthash.33ozIar8.dpuf.
- Kendry, p. 4.
- Privy Council Office. “Prime Minister Stephen Harper Economic Summit-London, England,” in Economic Summit-London, England. (Ottawa: HK Publications, 2014), p. 9.
- Ivanov, p. 30.
- Kendry, p. 2.
- North Atlantic Treaty Organization. Wales Summit Declaration …, para 14.
- Department of National Defence. Canada First Defence Strategy, (Ottawa: Government of Canada, 2008), p. 7.
- Department of National Defence. Future-Oriented Financial Statements: 2013-2014 (Unaudited). Annual Report, (Ottawa: Goverment of Canada, 2013), p. 3.
- Joseph T. Jockel and Joel J.Sokolsky, Canada and Collective Security: Odd Man Out. (New York: Praeger Publishers,1986), p. vii.
- Department of National Defence. The Future Security Environment: 2013–2040. Strategy Paper, (Ottawa: Government of Canda, 2014), p. 88.
- Jockel and Sokolsky, p. vii.
- Department of National Defence. Audit of NATO Contributions. CRS Audit Report, (Ottawa: Government of Canada, 2004), p. A1/1
- Ivanov, p. 33.
- Department of National Defence. Audit of NATO Contributions, p. 8/12.
- Benjamin Zyla, “Years of Free-Riding? Canada, the New NATO, and Collective Crisis Management in Europe, 1989-2001,” in The American Review of Canadian Studies, Vol. 40, No. 1 (2010), p. 1 Benjamin Zyla is an Assistant Professor in the School of International Development and Global Studies at the University of Ottawa. Before coming to the University of Ottawa, he held a Social Sciences and Humanities Research Council of Canada (SSHRC) Postdoctoral Fellowship, and was a fellow at the Europe Center at Stanford University, the Centre for International Relations at Queen’s University and the Centre for International Policy Studies at the University of Ottawa.
- Kendry, pp. 6-7.
- With kind permission of Lieutenant General (retired) Jo Godderij, NATO Defence College, 22 October 2014.