June 16, 2015 3:10PM

U.S. Taxpayer Subsidies for European Welfare States Continue

The lackluster defense spending of U.S. allies is again in the news. At the G7 Summit in Germany earlier this month, President Obama implored British Prime Minister David Cameron to reverse the decline in the UK's defense spending, which is widely expected to fall below NATO's 2 percent of GDP mandate next year.

This is not the first time in recent months that the topic has come up. During a private meeting in Washington in February, Obama reportedly told the Prime Minister: "if Britain doesn't spend 2 percent on defense, then no one in Europe will."

In fact, hardly any of America's NATO allies meet their NATO commitments. In 2014, only Greece, Estonia, the U.S. and the U.K. spent as much as 2 percent of GDP on defense. Excepting NATO member Iceland, which is exempted from the spending mandates, the 23 other NATO members failed to spend even two cents of every dollar to defend themselves from foreign threats. And Greece only met the 2 percent threshold because their economy is falling faster than their military spending.

But the problem of inadequate defense spending by America's allies goes even deeper. The U.S. and the U.K. are the only two NATO member states that met both the 2 percent of GDP floor, and the mandate that at least 20 percent of military spending be "dedicated to research, development and acquisition of major defence equipment" in 2014. If current trends continue, the United States will be the only NATO member to meet both mandates starting next year.

Of course, this is hardly a new phenomenon. U.S. taxpayers have been subsidizing European defense for decades. Indeed, many pundits like it that way. They fret that U.S. allies might go their own way, or simply botch the job of defending themselves. The Wall Street Journal's Bret Stephens explains, “America is better served by a world of supposed freeloaders than by a world of foreign policy freelancers.”

Most Americans disagree. They are tired of being forever on the hook to pay to defend wealthy allies that are certainly capable of defending themselves. And their anger and resentment would surely grow if they understood how their tax dollars are, in effect, funding Europe's bloated welfare states. Freed from the obligation to spend on defense, the one core function expected of any government, European governments have chosen to divert their resources into other nice-to-have things. In 2013, the United States, for example, allocated over 20 percent of government spending to its military; NATO's other members spent, on average, 3.6 percent.

This Cato infographic, painstakingly assembled by my colleague Travis Evans, attempts to put all of these facts into perspective.



As you can see, in 2013 -- the last year for which NATO provides detailed spending breakdowns -- the United States spent an estimated $735 billion, or 4.4 percent of its GDP, on defense (based on the NATO definition). That amounts to $2,305 spent by every man, woman and child in America, 5 times more than in NATO founding states, and 8 times more than was spent in those member states that have joined NATO since the end of the Cold War. U.S. taxpayers contributed nearly 72 percent of all NATO defense spending, even though the economies of the other NATO members states collectively exceeded U.S. output by nearly 11 percent. And the free riding problem has only been getting worse. Total military spending by NATO's European members was less in real terms in 2014 than in 1997 -- and there are 12 more member states in NATO today.

In fairness, one can hardly blame NATO's other members for failing to spend more on defense. And one shouldn't expect that they will willingly change course, despite faint signs that some European members are finally getting serious about their security. After all, why pay for something that someone else is willing to provide for you, for free? America's allies consistently underprovide for their own security, and that has been the case all along. (Mancur Olson and Richard Zeckhauser explained this dynamic in the late 1960s; and John R. Oneal revisited the theory in 1990).

The free ride could come to an end if Washington wants it to. The modest spending restraint imposed on the Pentagon's budget by the bipartisan Budget Control Act of 2011 has already forced the military services to make some difficult choices. The really hard choices may soon fall on the Pentagon's civilian masters, who so far have refused to prioritize roles and missions. They should stop deploying the U.S. military in ways that discourage other countries from doing more, and stop expecting U.S. taxpayers to foot the bill.


Infographic Sources:

NATO: Public Diplomacy Division.Financial and Economic Data Relating to NATO Defence.” Brussels, Belgium, 2014.

Central Intelligence Agency. “The World Factbook 2013.” Washington, D.C., 2013.

The International Institute for Strategic Studies. The Military Balance 2015. Edited by James Hackett. London: Routledge, 2015.