Tuesday, August 26, 2014

Global Military Spending

There are several ways to consider and compare global military spending. The most obvious way is to calculate total military spending and convert to US Dollars. Another important measure is to consider the level of spending as a percentage of a country's GDP. We start with the second way first. (See the end of the post for a definition of military spending)

I constructed this from a World Bank database (based on SIPRI Stockholm International Peace Research Institute figures). Comparing military spending as a percentage of GDP allows us to consider how much of economic growth is taken up with military expenditures.

While the United States has the world's largest military by far it ranks only 13th on the level of spending as a percentage of GDP. Importantly SIPRI doesn't construct figures for North Korea. Estimates for North Korea range from 20-33 per cent of GDP.


Rank Country            2013
1 Oman 11.48
2 Saudi Arabia 8.99
3 Afghanistan 6.24
4 Israel 5.63
5 Angola 5.01
6 Algeria 4.95
7 Azerbaijan 4.68
8 Lebanon 4.36
9 Russian Federation 4.19
10 Armenia 4.10
11 Yemen, Rep. 3.93
12 Morocco 3.90
13 United States 3.81
14 Bahrain 3.77
15 Jordan 3.56
16 Mauritania 3.56
17 Iraq 3.54
18 Colombia 3.44
19 Pakistan 3.39
20 Singapore 3.27
21 Kyrgyz Republic 3.24
22 Namibia 3.15
23 Ecuador 3.11
24 Swaziland 2.96
25 Ukraine 2.93
26 Zimbabwe 2.78
27 Georgia 2.74
28 Sri Lanka 2.71
29 Korea, Rep. 2.60
30 Brunei Darussalam 2.56
31 Greece 2.46
32 India 2.45
33 Turkey 2.33
34 United Kingdom 2.30
35 France 2.24
36 Burundi 2.24
37 Vietnam 2.18
38 Portugal 2.17
39 Serbia 2.17
40 Uganda 2.16
41 Lesotho 2.15
42 China 2.05
43 Botswana 2.02
44 Tunisia 2.01
45 Chile 1.96
46 Estonia 1.96
47 Kenya 1.95
48 Uruguay 1.87
49 Timor-Leste 1.81
50 Poland 1.79
51 Zambia 1.69
52 Egypt, Arab Rep. 1.67
53 Croatia 1.66
54 Australia 1.63
55 Cambodia 1.60
56 Paraguay 1.60
57 Bulgaria 1.58
58 Italy 1.58
59 Montenegro 1.57
60 Malaysia 1.55
61 Thailand 1.52
62 Bolivia 1.45
63 Nepal 1.43
64 Peru 1.42
65 Norway 1.41
66 Burkina Faso 1.41
67 Mali 1.41
68 Brazil 1.40
69 Congo, Dem. Rep. 1.40
70 Denmark 1.38
71 Bangladesh 1.37
72 Malawi 1.36
73 Belarus 1.35
74 Fiji 1.34
75 Germany 1.34
76 Cameroon 1.34
77 Romania 1.33
78 Gabon 1.32
79 Albania 1.30
80 Netherlands 1.29
81 Philippines 1.28
82 Finland 1.27
83 Kazakhstan 1.25
84 Honduras 1.24
85 Macedonia, FYR 1.24
86 Venezuela, RB 1.21
87 South Africa 1.17
88 Sweden 1.17
89 Tanzania 1.15
90 Bosnia and Herzegovina 1.13
91 Rwanda 1.11
92 El Salvador 1.10
93 Czech Republic 1.08
94 Guyana 1.07
95 Belize 1.04
96 Belgium 1.04
97 Benin 1.04
98 Seychelles 1.03
99 Canada 1.01
100 New Zealand 1.00
101 Japan 0.99
102 Spain 0.94
103 Indonesia 0.90
104 Jamaica 0.85
105 Ethiopia 0.82
106 Switzerland 0.78
107 Austria 0.78
108 Nicaragua 0.76
109 Liberia 0.75
110 Argentina 0.74
111 Mexico 0.62
112 Dominican Republic 0.61
113 Papua New Guinea 0.57
114 Ireland 0.55
115 Ghana 0.53
116 Madagascar 0.51
117 Luxembourg 0.51
118 Cabo Verde 0.50
119 Guatemala 0.48
120 Nigeria 0.47

US military spending has declined over recent years, whilst China's has increased. Since 2004 Chinese military spending has increased by 170 per cent, whilst its GDP Has increased by 140 per cent. Still China only spends 2.05 per cent of its GDP while the US spends 3.81 per cent. Japan, due to its pacifist constitution still spends just under 1 per cent. 

The table below constructed from SIPRI databases shows basic measure alluded to above of total military spending converted to US Dollars. It shows the top 60 military spenders in the world (New Zealand comes in at 60). 

Figures are in US$m. at 2013 prices and exchange rates. 

RankCountry 2013 
1USA                           640221
2China, P. R.                  188460
3Russia87836
4Saudi Arabia                  66996
5France                        61228
6UK                            57891
7Germany                       48790
8Japan                         48604
9India                         47398
10Korea, South                  33937
11Italy                         32657
12Brazil                        31456
13Australia                     23963
14Turkey                        19085
15Canada                        18460
16Israel                        16032
17Colombia                      13003
18Spain                         12765
19Taiwan                        10530
20Algeria                       10402
21Netherlands                   10328
22Singapore                     9759
23Poland                        9257
24Oman                          9246
25Iraq                          7896
26Indonesia                     7840
27Mexico                        7838
28Pakistan                      7641
29Norway                        7235
30Sweden                        6519
31Angola                        6095
32Greece                        5939
33Thailand                      5891
34Kuwait                        5815
35Chile                         5435
36Ukraine                       5338
37Venezuela                     5313
38Belgium                       5264
39Switzerland                   5053
40Malaysia                      4842
41Portugal                      4784
42Denmark                       4553
43Argentina                     4511
44Egypt                         4255
45South Africa                  4108
46Morocco                       4064
47Philippines                   3472
48Azerbaijan                    3440
49Viet Nam                      3387
50Finland                       3262
51Austria                       3230
52Peru                          2865
53Ecuador                       2803
54Kazakhstan                    2799
55Romania                       2521
56Nigeria                       2411
57Myanmar                       2211
58Czech Rep.                    2149
59Lebanon                       1936
60New Zealand                   1833


In terms of total military spending the US still dominates with 37 per cent of the total compared to China's 11 per cent. This means that China's spending is about 30 per cent of the US figure. 







Note that these figures are measured in US dollars meaning they are subject to the same problems of measurement outlined in How Big, How Rich, How Developed. Constructed on a PPP basis, Chinese military expenditure would be more substantial as a percentage of the total.

The table from the PDA (Project on Defense Alternatives) below shows different measures for military spending from SIPRI and IISS (International Institute for Strategic Studies).


What this table makes clear is that how we measure military expenditure matters for our perceptions about China's rise and US relative decline. However, it also seems reasonably clear that the US retains an overwhelming military dominance regardless of the measure. 

Australia, despite significant declines in spending as a percentage of GDP ranks as the 13th largest military spender. 




Given the Abbott government's focus on the seriousness of the Islamic terrorist challenge and promises made, it seems clear that military spending will rise in coming years as will expenditure on domestic policing and surveillance. 



Military expenditures data from SIPRI are derived from the NATO definition, which includes all current and capital expenditures on the armed forces, including peacekeeping forces; defense ministries and other government agencies engaged in defense projects; paramilitary forces, if these are judged to be trained and equipped for military operations; and military space activities. Such expenditures include military and civil personnel, including retirement pensions of military personnel and social services for personnel; operation and maintenance; procurement; military research and development; and military aid (in the military expenditures of the donor country). Excluded are civil defense and current expenditures for previous military activities, such as for veterans' benefits, demobilization, conversion, and destruction of weapons. This definition cannot be applied for all countries, however, since that would require much more detailed information than is available about what is included in military budgets and off-budget military expenditure items. (For example, military budgets might or might not cover civil defense, reserves and auxiliary forces, police and paramilitary forces, dual-purpose forces such as military and civilian police, military grants in kind, pensions for military personnel, and social security contributions paid by one part of government to another.)
Stockholm International Peace Research Institute (SIPRI), Yearbook: Armaments, Disarmament and International Security.

Tuesday, August 19, 2014

European Dependence on Russian Energy

From: New York Times

Classic dilemma for IR and IPE students.

Who has the power in this situation?

In the short-term it seems clear that the Russians have power (no pun intended) given the dependence of many countries on Russian energy supplies. Over the longer-term, however, it seems likely that the switch away from Russian energy supplies could be disastrous for the energy export-dependent Russian economy.

The sanctions on Russia do not involve stopping the import of Russian energy, but other sanctions could lead to retaliation from the Russians in terms of energy exports or imports. Indeed the Russians have banned food imports from major Western countries. This will undoubtedly punish those exporters to Russia, but will also lead to food shortages in Russia itself. According to this report from the NYT, Russian bans on food  imports will advantage Chinese producers.


Thursday, August 14, 2014

Importing Chinese Tourists as Exports

Australia has been exporting large quantities of resources to China in recent years. I would like to say it has transformed our economy, but in reality it has accentuated pre-existing attributes of the Australian economy. Indeed, although the policy framework shaping Australia's economic interactions has been transformed, Australia remains reliant on resources to pay our way in the world.

In the 1980s, Japanese demand for resources was followed by a significant increase in Japanese investment and tourists. This is now happening with China and the prospects for further increases in Chinese tourism are high. 

Our importing of Chinese nationals to visit Australia is registered in the national accounts as an export as is the spending of Chinese students. 

Alan Kohler canvasses the potential numbers:
In June about five Boeing 747 loads of seasonally adjusted Chinese tourists arrived in Australia every day. For the year to June, the total was 769,000 -- a record number -- and second only to New Zealanders. More importantly, Chinese tourists stay the longest and spend by far the most: $5.1 billion in the year to March, according to Tourism Australia data, or $7,343 each -- double what the Kiwis spend. 
Apparently only 5 per cent of Chinese actually own a passport so there is a fair bit of upside potential there, although it's important to note that most Chinese are still poor. Despite China's rapidly growing economy over recent years, overall China is still a poor country, ranking 82nd in the world for Gross National Income per Capita (measured in US dollars) according to the World Bank. This puts it just above Namibia, but below Iraq and Turkmenistan. Australia ranks third.

In the case of tourism, purchasing power parity rankings of economic weight (see here for explanation) have less purchase than exchange rate measures (local currencies converted to US Dollars) because going overseas requires you to convert your money and pay higher prices. I'm not sure that poor Chinese will be visiting expensive rich countries any time soon.  Of course, with a population as large as China's, this is not really the point as long as the middle class keeps expanding and decides to spend some of its new found wealth on coming to Australia.

According to The Economist: 
Nearly one in ten international tourists worldwide is now Chinese, with 97.3m outward-bound journeys from the country last year, of which around half were for leisure. Chinese tourists spend most in total ($129 billion in 2013, followed by Americans at $86 billion) and per tax-free transaction ($1,130 compared with $494 by Russians). More than 80% say that shopping is vital to their plans, compared with 56% of Middle Eastern tourists and 48% of Russians. They are expected to buy more luxury goods next year while abroad than tourists from all other countries combined.
Supposedly, the number of Chinese tourists will double by 2010 and their spending will triple, although there is no indication how these numbers were arrived at. It's China so anything I suppose is possible.

Tourism Australia reports that there were "6.6 million visitor arrivals for year ending June 2014, an increase of 7.9 per cent relative to the previous year". China ranked second behind New Zealand with the UNited Kingdom third.



The Australian Bureau of Statistics compares 2013-14 with 2003-04 to see how short-term visitor arrivals have changed. Seemingly, the Japanese are less interested than they once were in Australia.


New Zealand numbers have increased by over 30 per cent, but the number of Japanese visits has fallen from 718,600 to 323,700, a fall of 55 per cent. Chinese visits have increased by nearly 230 per cent, while Indian visits have increased by nearly 250 per cent.

It is not just short-term visitor numbers that interest Australian authorities. In recent years, Australia has introduced 'significant investor visas', which enable people to buy their way into Australia. According to a recent report, the scheme "has reaped a total $1.7 billion to date", awarding 343 residency visas as at the end July 31. The Abbott government accelerated the scheme after concerns that the program begun in 2012 was not attracting investors. Accordingly "six hundred and two additional applications had been made at July 31, and $3.05 billion in investment pledged in return

Australia has been in a good location to take advantage of Asia's booming economy, although we should be careful about assuming that these numbers will continue to expand, just because Japan and China have large populations. Australia will continue to depend on the economic growth of East Asian countries with China increasingly important for all countries in the region. A slowing China will affect all other countries in Asia and in turn have a negative affect on Australia.   

Wednesday, July 30, 2014

Australia's Economic Vulnerabilities

Interesting comments from Australian OECD economist Adrian Blundell-Wignall.

He argues that the export-led model of many developing economies is not sustainable, especially over time as developing economies account for a greater share of global GDP (see here for analysis).

Not all countries can be exporters at any point in time exports must match imports so unless we start trading with another planet, not every country can have a trade surplus.

He then goes on to skewer the banks:
"If you go back to 1980 the earnings of the financial sector of the S&P 500 companies was less than 10 per cent."
He says the proportion of Wall Street earnings by finance stocks is now more than 30 per cent, having risen above its share when the GFC hit.
"The financial sector is supposed to be the sector that intermediates between real savers and real investors. That's what greases the wheels of capitalism," he said.
"Where do we get off thinking that the financial sector can just rip one third of the earnings for themselves?
"People want to understand why investment is a problem ... there's no inflation and the recovery is very problematic everywhere.
"Monetary policy can only do so much and you need an investment cycle to follow. And the investment cycle really isn't following."
He also warns of the danger of a slowing China for Australia and the potential for problems if the US dollar rises and has an impact on commodity prices.




New Defence Issues Paper

The New Paper outlines the following areas of concern for the future:

  • What are the main threats to, and opportunities for, Australia’s security?
  • Are Defence’s policy settings current and accurate?
  • What defence capabilities do we need now, and in the future?
  • How can we enhance international engagement on defence and security issues?
  • What should the relationship be between Defence and defence industry to support Defence’s mission?
  • How should Defence invest in its people, and how should it continue to enhance its culture?
It'll be interesting to see what the government does with the new White Paper given the extensive ambition of the last 2 WPs under Labor and their significant underfunding. 

One of the biggest issues remains whether Australia should build military hardware itself or buy it 'off the shelf' from other countries. 

If we are going to build things ourselves we still need to provide competitive pressures to avoid cost overruns, delays and incompetence. 

On the first point it will be interesting how the WP deals with the issue of China. 

Monday, July 28, 2014

The 2014 Human Development Index

The World Bank has released its 2014 Human Development Index. Australia ranks second behind Norway. Just imagine if we increased the level of taxation on our 80 foreign owned resource sector and redistributed some of the profits, how well we might do.


The HDI attempts to provide a broader measure of progress than GDP by including life expectancy, literacy, education and GDP per capita.  For a range of ways to measure economies see How Big, How Rich and How Developed? The State of Play in the World Economy