Driving past military bases in the US like Charleston, Norfolk, Hampton Roads and Annapolis, one appreciates the differential scale of the military in the US compared with Europe. In the Norfolk area we saw 3 active aircraft carriers at the same time (the picture is of another occasion when I was a guest aboard USS George H.W. Bush, the largest aircraft carrier in the world).
The official data from SIPRI (Stockholm International Peace Research Institute) shows the US spending 4.7% of GDP on defence compared with 1.7% in the EU in 2012. Added to this, much of US anti-terrorist spending is off the defence budget, channelled through other Departments such as Homeland Security, while much nuclear spending is channelled through Energy.
Defence is not just important for direct employment – though with 2.3 million employed directly in the military, of whom 1.4 million are active, the numbers are not insignificant – but also for the knockon effect on the private sector.
A significant proportion of the US’s R&D effort spins off from the military and defence bases are now hotbeds of IT and communications activity for the private sector. In an earlier report we commented on how Charleston had blossomed as a result of the spinoff from military spending on communications technology.
Roads and bridges are often named after local military heroes and in many parts of the US there is a strong patriotic impulse. Obviously, driving up the East coast past naval bases we have seen an atypical sample of the country. But it is interesting how current civilian economic successes like Charleston port or Atlanta airport stemmed from their development initially as military bases in World War 2.
US Department of Defense spending accounts for 19% of total Federal government spending. And if off Defense Department spending is included, the total rises to between 28% and 38% depending on the treatment of debt interest.
With a budget deficit stubbornly above 5% of GDP for the entire Federal, State and local Government sector, cuts in the Federal government spending (which will happen either through the sequestration mechanism or through deliberate decisions) must inevitably affect defence because it is so significant a proportion of the total. Indeed there is talk of a 25% cut in defence spending in the US by 2020. The cut this year alone is over 7%.
It is difficult to believe that this can happen without there being significant impacts on local communities. And although Cebr studies have indicated that military resources can be transferred to civilian uses much more easily than many other aspects of government spending, it is hard to believe that defence spending in the US can be cut by as much as is envisaged without harming many economies that are so heavily based on such spend.
So US defence cuts will impact not only international relations but also the growth of the US economy.
Douglas McWilliams, Cebr Chairman
For previous updates in Doug’s US travel series, please see below: