Deloitte’s Global Defense Outlook 2013 Raises Red Flags

Deloitte’s most recent assessment of the global defense environment should be required reading for everyone involved in national security. The 2013 Global Defense Outlook assesses the defense policies and budgets of 50 countries whose total defense spending comprises 97 percent of the world’s total. The study divides these fifty into four groups based on their income levels and how much they are willing to spend on defense. What results is a 2×2 matrix. One group is high income spenders such as the United States and Israel. A second is high income economizers which includes virtually all the Western European countries plus Japan, Australia and Canada, essentially most of America’s allies. Then there are low income countries divided into two groups based on whether they are high or low spenders on defense. The one questionable call is China which Deloitte characterizes as economizing on its defense spending. Given the continuing double-digit increases in China’s defense budgets plus Beijing’s ability to hide defense-related expenditures in other accounts and the evidence of multiple major aircraft, ship and missile programs, calling the Peoples Republic of China an economizer is a little hard to believe.

One of the more interesting parts of the Global Defense Outlook is what it suggests about changing attitudes towards defense spending in the West. The study makes three observations about changing attitudes towards defense issues in general. The first is a growing struggle by policymakers in many of these countries, including those that are high income and high spending, to balance defense budget requirements with growing domestic demand for increased spending on social programs. The second is the challenge posed to traditional views of national security by concerns about civil liberties. The third problem is that of finding the resources to pay for professional military forces. Even nations that consider themselves confronted by existential threats to their survival, Israel as an example, have to grapple with these three issues.

The most interesting aspect of the study is what it has to say about so-called low-income countries that are increasing their defense spending. The nations in this group include Algeria, Pakistan, Russia, Saudi Arabia and Iraq. If one includes China in this category – and I would – you have the basis for an “arc of instability” to coin a phrase that runs from North Africa across much of Eurasia to the Pacific. Since most of the countries around these states are economizing on their defense expenditures, this leaves open the very interesting possibility that some of these nations will seek to exploit an increasingly favorable military balance to resolve regional geo-strategic disputes. Deloitte offers this worrisome conclusion: “The 2013-2017 period will be characterized by declining defense budgets in the higher-income states – while the lower income countries continue to grow defense spending and become more active in weapons R&D and trade.”

This rebalancing of global military power is taking place just as the United States is beginning its once-a-decade reduction in defense spending and, as a consequence, cutting its military capabilities. The juxtaposition of increased defense spending by states that can ill afford it but which in many instances harbor all sorts of grievances towards their neighbors with the deepening downturn in defense spending by virtually every Western nation is disturbing to say the least. Absent the United States as the strategic balancer in the Middle East and Asia-Pacific region what can we expect to happen?