Policy Paper: Fairly Trading the World's Timber 

ARMS TRADE RESOURCE CENTER

The Study Group on the Economics of Security
In a Post-9/11 World

Thanks to all of you who have RSVPed to the upcoming meeting of the Study Group on the Economics of Security in the Post 9/11 World. Elisabeth Skoens from the Stockholm International Peace Research Institute (SIPRI) will present her paper "World Military Spending: Where Are We Heading?" Ms. Skoens is SIPRI's Project Leader for military expenditure and arms production. Her paper is attached as a word doument. Please note this is a draft and should not be distributed.

WHERE: Room 720, 66 Fifth Avenue (betweem 12th and 13th)

WHEN: FRIDAY, May 14, 2004, 2:30 TO 4 P.M.
(coffee and tea available starting at 2 p.m., refreshments afterward)

RSVP TO: Frida Berrigan, berrigaf@newschool.edu

Co-sponsored by: The Graduate Program in International Affairs (GPIA) and the World Policy Institute at New School University (NSU)

Convenors: David Gold, Master's Program in International Affairs, New School University and Bill Hartung, Arms Trade Resource Center, World Policy Institute

Please RSVP to Frida Berrigan at berrigaf@newschool.edu

World military spending: where are we heading?

DRAFT 11 MAY 2004

Elisabeth Skšns

Project leader

Military Expenditure and Arms Production

Stockholm International Peace Research Institute (SIPRI)

Sweden

Draft paper prepared for presentation at the Study Group on the Economics of Security in the Post 9/11 World, New School University, 14 May 2004

This paper is based on the chapter on military expenditure in the SIPRI Yearbook 2003 and on subsequent research. The main purpose of this paper is to stimulate a discussion with and comments from the study group, as an input into ongoing research. Therefore, please do not cite this paper without the author’s permission.

World military spending: where are we heading?

I. Introduction

The post-cold war decline in military expenditure is over. Since 1998 global military spending is increasing again. World military spending has increased at a growing rate since 1998 and in 2003 there was an extraordinary increase due primarily to the massive increase in US military spending.

The purpose of this paper is to describe current trends in world military spending with a view to assessing future trends. A number of factors are identified that raise questions about the future development of military expenditure, in the short term and in the longer term.

The paper begins with a presentation of current trends in military expenditure, globally, by region and by some major spenders (section II). It covers the period since 1998, the year when the global trend was reversed. It focuses on those events and facts that may have a significant impact on future military spending and thus can serve as building blocks in an analysis of future trends. Second, the paper outlines three sets of tension, which have a strong impact on future military spending (section III), and third, an attempt is made to identify the critical factors for future developments in world military expenditure (section IV).

II. Current trends in military expenditure

Data on Military Expenditure

Before setting out the trends in military spending, a few words about the data itself. Data on military expenditures encounter a number of problems, both in terms of validity—what is it that these data are an indicator of—and reliability—the extent to which they reflect the total and actual spending for military purposes. Because a number of weaknesses in military expenditure data it is extremely important to have a critical approach to the data and to be cautious in the interpretation of their meaning (see Sources and methods, SIPRI Yearbook 2003, appendix 10C, available also on the SIPRI Internet site). Therefore, when making studies on military expenditure, it is advisable to go to the primary sources, rather than to use secondary sources, such as those of SIPRI, IISS and the US State Department, not least because it brings out the complications and uncertainties in this kind of data. Nevertheless, used with caution and as rough indicators, military expenditure data can provide a general picture of the level and trends in resource allocations for military purposes.

The trends described in this paper are based on data from the SIPRI military expenditure database. It covers 158 countries, which means most of the UN Member states with a military establishment. For comparison, the United Nations has 191 member states, of which at least 20 are too small to have a defence force, and another 10 have very small military budgets. Data are not available for all countries in the SIPRI database. Out of the 158 countries included, there are no data available for Afghanistan and Iraq, and, until last year, for Libya. All data are presented at prices and market exchange rates of 2000 (SIPRI Internet site).

Regions and Countries with a Significant Impact on the Global Trend

Since 1998 world military spending has increased at an accelerating rate. In 2003 there was a spectacular increase primarily due to the massive increase in US military spending in that year, primarily through the supplemental appropriation for military operations in Iraq and Afghanistan. In 2003, the supplemental appropriation alone ($62.6 billion for military operations out of the total supplemental for the wars of $74.7 billion) was significantly greater than the size of the entire defence budgets of each of the next four major spenders in the world—Japan, UK, France and China.

Military expenditure has been increasing in almost all major geographical regions during the period 1998-2003, but the rate of increase has differed substantially.

The strongest increase has taken place in North America, due to the trend in US military expenditure.

• Other regions than North America that have contributed to the increasing global trend since 1998 include East and South Asia, and the Middle East.

• Regional military spending has increased also in Africa, South America, Oceania and Central and Eastern Europe, during this period, but the level of regional spending in these regions is so low that these trends do not have any major impact on the global total.

• A few regions have not increased their military spending significantly since 1998. These are Central America and Western Europe.

However, regional trends conceal the fact that the world trend is strongly influenced by a few major spenders, and in particular, by the richest countries. This is inevitably so, because the rich countries account for an overwhelmingly large share of global economic output and resources. 1 Even if the rich countries spend a modest share of their gross domestic products (GDP) or their government budgets on the military, they will still account for the greater share of global military spending. In contrast, in many developing countries military spending constitutes a heavy burden on the economy and on the government budget, but are almost invisible in the global military expenditure picture.

• US military spending, according to NATO data, reached its low during the years 1998-1999, when it was roughly flat, and has since then increased (as is well known, not least from David Gold's presentation on the Coming Bush Defense Budget Train Wreck to this Study Group). (Gold, 2003) There has been a steady and accelerating increase in US regular national defence appropriations, but the major part of the increase has been provided in supplemental appropriations for the war on terrorism, including for the wars in Afghanistan and Iraq, and for military operations in other unspecified foreign theatres.

Other major spenders have much lower military expenditure than the USA but account for a large share of the remaining world military spending pie. In 2002 and 2003 the 15 major spenders accounted for 82 per cent of world military spending according to SIPRI estimates, which leaves 34 per cent for the 14 major spenders next to the USA in 2003. How are these countries reacting to the massive increases in US military spending in 2003?

• Among the four major spenders next to the USA—Japan, UK, France and China—only China has made any significant increase in its military spending since 1998 (an annual average rate of 10-12 %). Military spending in the other countries also increased but only moderately, although UK spending was raised by supplementary allocations to cover the costs of war with Iraq.

• The next five in size—Germany, Italy, Iran, Saudi Arabia and South Korea—account for a considerably smaller share of world military expenditure but they are still large enough to have an impact on the trend. Among these, it is only Iran that has made a major increase in its military expenditure since 1998, primarily because of a major jump in 2003. In Germany, Italy and Saudi Arabia 2003 military expenditure was lower than in 1998, while in South Korea there has been a slight resumption of military expenditure since the 1997-98 Asian financial crisis.

•Trends in the Middle East are highly relevant for an assessment of future world military spending. However, information on military expenditure plans is not available for many of these countries and there is also little detailed information available on their defence plans of many of these countries. All that is known is that up until now there have been no announcements of major increases in military spending in the Middle East region.

• Russia, with rank number 12 in 2002, and 11 in 2003, has since 1998 managed to implement its military budget (i.e. actual expenditures have corresponded to budgeted) and thus succeeded in realising its objective to increase its military spending, but it is still far below the cold war level of the USSR in 1991, its last year of existence. This is the case also if all countries that previously were part of the USSR are included.

• The other four countries in the group with rank numbers 11-15 are India, Israel, Turkey and Brazil. Both India and Turkey are on long-term growth paths. The same is true for Israel, but in 2003 its defence budget experienced a major drop, primarily for economic reasons. Its defence budget for 2004 is however set to increase again. Brazil's military expenditure increased until 2002 but dropped in 2003.

• Brazil is an interesting case, which we elaborate on in the SIPRI Yearbook 2004, because the cut in its military expenditure in 2003 was due not merely to economic constraints or default, but was the result also of a change in policy. The cuts in 2003 result partly from the difficult economic conditions in Brazil following the Argentina crash of 2002, but partly also from the social priorities of the new government in Brazil, in particular the ‘Zero Hunger’ programme. In order to fund this programme, a planned $700 million purchase of 12 advanced combat aircraft was postponed, and other major items in its procurement plan have also been postponed as a result of the spending cuts in 2003. Brazil may provide an example of a developing country with scarce economic resources trying to achieve ambitious economic and social aspirations without an expensive reliance on military capabilities. Although this still remains to be seen, Brazil appears to be pursuing global influence without rising military expenditure, in particular by pursuing new and enhanced trading and industrial relations and by taking on a leading role in WTO trade negotiations and in strengthening the South American customs union, the Mercosur.

To summarise: by the end of 2003 USA was even more dominant in the pattern of world military spending than in previous years. However, there was no corresponding dramatic response among other major spenders in terms of their resource allocation for military purposes in 2003.

Are the trends that we have seen since the low point in 1998 going to continue? What will be the impact of 9/11 on future trends? What will be the impact of the Iraq war on future trends? Will the strong upward trend established in 2002 and 2003 continue or are there counteracting factors that will prevent this? Our conclusion at the end of 2002, as formulated in the SIPRI Yearbook 2003, was as follows:

"A review of global [military] expenditure trends shows that the rest of the world is not prepared, and cannot afford, to follow the USA’s example in increasing military expenditure at the current level or for the same purposes. The pattern of relationships which developed in 2002 between the United States and the rest of the world over the war on terrorism tends more towards weighing the benefits of supporting the USA against the costs than towards unalloyed support of US efforts." (Skšns et al. 2003, p. 334).

Is this conclusion still valid? What are the decisive factors? One way to look at this is by looking at current plans, and try to assess the economic and political realism of these plans. What will prevail: the formulated needs and demands for economic resources, or the economic and political constraints for financing of these needs? The plans in the countries and regions of most relevance for this assessment are outlined below.

• US military spending is planned to continue to grow until 2008 according to current plans. (US FY2004 Budget; Gold)

• Other major spenders that are set on a steady growth path, although at a lower and varying pace, include China, Japan and Russia. China plans to continue its long-term trend of rising military spending at the rate of 10-12 per cent per annum. Japan also plans to continue on its much slower growth path in line with its GDP growth. 2 Russia, at a much lower level, continues its efforts to raise its military budget and to modernise and reform its armed forces.

• In Europe the picture is mixed. The military expenditure plans of France and the UK show a moderately rising trend, which is at least partly motivated by the post 9/11 security environment, while Germany stays on its course of prioritising social expenditure and economic development.

What are the prospects for the implementation of military expenditure increases in the short term?

• The most important factor is the outlook for US military spending. It is becoming increasingly evident that the war in Iraq will require substantial additional funding and the US Administration has made clear that funding for this purpose will continue to be provided by supplementary appropriations. In the first week of May 2004 the US Administration requested another $20 billion for this purpose already for fiscal year 2004, and it is likely that there will be supplementals also to the FY 2005 budget for this purpose. The critical question is whether Congress will authorise this and continued spending proposal.

• Furthermore, it is unlikely that planned US defence budget will sustain current defence plans, thus implying another "train wreck" in US defence budgeting (as described in David Gold's previous paper to this study group, based on reports by the CBO and by Steve Kosiak).

• Similar funding problems have arisen in the UK during 2003 (the cash crisis of November 2003), while France and Germany have problems to accommodate their defence budgets within an overall central government budget that meets the EU upper limit on budget deficits of 3% of GDP. 3 Thus, there is both a ‘cash problem’ and a fiscal problem, demonstrating the competition between military and social needs in these countries.

• In contrast, continuously strong planned increases in Chinese military spending (11 per cent for 2004) does not impose a heavy burden on the Chinese economy because of its strong economic growth. Russia has after many years of economic difficulties entered a period of economic recovery that enables them to implement plans and policies that they have had for a longer time but not been able to implement.

• The Middle East is the region, which is most difficult to assess in terms of defence spending problems, not least because of difficulties to predict the security environment in the region even in the short term: the political and military developments in Iraq and the course of the Israel/Palestine conflict. However, there are several indications that also in some of these countries, there is an emerging tension between military and social demands on government spending. There is a relatively strong opposition to increased military spending and a pressure for increased social government expenditure in several Middle East countries (Omitoogun, 2004). The Middle East already is the region which has the highest military burden: a regional average of 6.3% of GDP in 2001, compared to a world average of 2.4 % in that year. (Skšns et al. 2003, table 10.2, p. 3.)

III. Factors of importance for future military spending

For the purpose of this presentation, I argue that there are three sets of tension that will have an impact on future military spending.

• Military versus non-military (social) demands for economic resources, on the national level

• Military versus non-military means of addressing security problems, on the national and international level

• National versus international financing of security

Economics is about the competing demands on scarce economic resources. This applies also between military and non-military demands on public sector resources and on national economic resources more generally. The tension between military and non-military demands is more pronounced under periods of economic constraints. Major factors that are often referred to as important for the current tension between military and non-military demands include the following:

• The need for transformation of military forces to adapt to the new security environment after the end of the cold war. Transformation has economic costs. The change-over to new types of equipment imposes great costs, as has the change from a system of conscription to professional forces. An increased demand for civil defence and crisis preparedness, not least after 9/11, also reinforces this tension.

• The continuous development in military technology

• The difficulties for government to motivate high defence budget in the post-cold war security environment

In many countries the competition between military and social demands for economic resources has resulted in another type of tension: between defence plans in physical terms (personnel, equipment, maintenance) and defence budget plans. While this tension is perhaps most pronounced in the US, similar problems exist also elsewhere. Furthermore, it is not a new phenomenon. Pressures to increase defence budgets beyond what has proven to be politically feasible have been a persistent issue within NATO, most recently since the adoption of the Defence Capabilities Initiative in 1998. Similar pressures exist in Europe for the implementation of the European Security and Defence Policy (ESDP) and the equipment required for this, most notably the European Rapid Reaction Force (ERRF). In order to help satisfy military requirements within insufficient defence budgets, a variety of new, and sometimes ‘innovative’, ways of savings and of financing military activity have been employed. The following list include some of these:

• Savings through cancellation of less relevant types of weapon systems, so-called cold war type legacy systems. This seems as the most rational way to find finance for new types of military equipment needed in the new security environment. Has to some extent been done in European countries. But generally the transformation from old to new systems has been slow, or at least the cancellation of older system. Instead, systems that used to be seen as legacy systems are being redefined, or even reconfigured, as transformational system.

• Savings through rationalisation. This is a standard method but it has its physical limitations.

• Savings through cost sharing between countries, for example through common equipment and joint forces.

• Savings through increased armaments collaboration and harmonisation of equipment requirements.

• Leasing instead of buying equipment. This is a rapidly increasing trend, both internationally (from the supplier government) and domestically (from the producing company).

• Private financing: PFI/PPP (Private Financing Initiatives and Public Private Partnerships. In the UK this is now very common. An extreme example of this is the financing scheme proposed by Boeing for the lease of air refuelling tanker aircraft to the USAF.

• Buying commercial off-the-shelf (COTS) items rather than funding military-specific solutions, which are much more expensive.

• Attracting new types of companies into the arms industry in an effort to cut costs. New technologies demanded for network centric type of systems demands new solutions, some of which may be cheaper obtained from small high-tech firms in the commercial sector.

• Drawing on basic science and technology (S&T) results for military innovation (to reduce costs) (Hagelin, 2004)

To the extent that the military is successful in adopting and implementing such savings and financing schemes, this will make it easier for them to satisfy their demand for physical resources and, under ideal circumstances soften the pressure for budgetary resources.

At the same time some of these solutions are likely to produce various types of problems in the future, which if realised, may generate opposition to their use. New financing schemes and leasing may result in a forward shift of costs for current acquisitions to future years. A potential risk deriving from drawing on S&T for military innovation is that it may lead to the imposition of military-type restrictions on openness and on sharing of research results.

The changing security environment after the end of the cold war brought about new thinking on security and in the very notion of security. It looked as if the concept of security was moving from the classic, narrow definition of military, state-centric security, towards broader and deeper security concepts. New security thinking was described as moving along one of three axis:

(a) attempts to broaden the narrow, orthodox conception of state security, primarily in military terms, to include a wider range of potential threats, including economic, environmental and health issues; (b) attempts to deepen the conception of security beyond its state-centric focus by moving either down to the local level of individual or human security or up to the level of global security; or (c) attempts within the state-centric approach to assess different multilateral forms of interstate security cooperation (collective, common, comprehensive or cooperative security). (Krause, 1998; Hagelin and Skšns, 2003)

What impact has 9/11 had on the evolution of the notion of security?

Security threats and problems are of a broad variety and are difficult to treat in a general way. Below is an attempt at defining different kinds of security problems, acknowledging that some of these are interlinked and overlapping. Furthermore, security threats and problems are to a great extent a matter of perception, and thus have a varying degree of realism.

• External security threats. The most dominant currently perceived external security threats are weapons of mass destruction, terrorism, and possibly emerging major powers, the major example today being China.

• The threat of terrorism to domestic security

• The risk of inter-state armed conflict. The incidence of major armed conflict between states is now very low. In 2003 there were only two cases of inter-state major armed conflicts: the US-led war on Iraq and that between India and Pakistan.

• Internal armed conflict (civil wars).

Each of these types of security threats and problems can be addressed by different types of military and non-military means. The choice of government policy has a direct bearing on future military expenditure.

The war on terrorism on the domestic front. How will it be managed? Will it be possible to maintain a strict division of responsibilities between military and internal security? The relationship between the military (external) and internal security sectors, for the protection of the domestic territory against terrorism. In many developing countries the border line between the external and internal security sectors has for long been blurred, both were used to maintain the power of the state, and the government in office. Are we now seeing a tendency in that direction in Western countries, due to the threat of terrorism in their domestic territories? As a consequence, can we expect an increase in military expenditure by virtue of a broader definition of security, encompassing also part of homeland security?

Similarly in some developing countries with a domestic threat of terrorism or armed conflict: what are the implications for military spending in these countries as a result of US support for combating domestic terrorism in these countries, such as its military assistance to Indonesia, and the Philippines? In addition, since 9/11 there seems to be a conflation of the terms ‘terrorism’ and ‘political opposition’ in a number of developing countries—with the active support of the US and the UK. Some genuine opposition groups are conveniently lagelled ‘terrorist’ groups will all its implications for conflict resolution. Examples include Ethiopia and Uganda.

The Iraq war as an example of the use of military force to build ‘peace and democracy’. What impact will it have on the use of foreign intervention by military force? Will it discredit military means for securing peace and democracy? It is very much a matter of perception, the media will have an important role. It may also be a matter of business prospects, lucrative contracts involved in reconstruction of a country.

Linked to this is the question of how to prevent and end civil wars. As an alternative to military intervention stand policies that put a greater emphasis on conflict prevention and crisis management through other means, such as diplomacy, economic relations and political relations involving foreign aid, technical and other aid to promote armed forces reform and good governance (Collier).

There is a growing norm of military intervention, but the way it is perceived of, and thus its consequences for military expenditure are different, for example between Europe and the US. The European perception of crisis management, focused on non-military means, implies that it is possible to develop such capabilities without significant increases in military expenditure. This is illustrated by the fact that out of the four peace operations that the European Union has launched, two were non-military (Bosnia and FYROM-Macedonia), and its two military peace operations were of very short duration and did not involve war-fighting capacities (although in DRC-Congo it had such mandates). This reflects a different notion of military intervention than that of the US.

The relationships between major powers in the world, notably the West and China. How will it be managed? By military or economic and political means? In this context it is interesting to see how China has launched a campaign to improve its image on the international scene, not least in trying to explain the reasons for its increasing trend in military expenditure and in arguing against Western estimates of Chinese military expenditure, which are 3-4 times higher the official Chinese level. China also tries to persuade the world of its peaceful foreign policy and reliance on domestic economic development and stability while participating in economic globalization it will adhere to independence. At the same time there are now more vocal analysis of the emerging China threat (Medeiros, 2004). Again, the media has an important role. Does China stand a chance towards the dominant Western perception of China in international media? Or will the China threat be employed to give arguments for higher defence budgets in the West? The way in which the future relationship between China and the West will be managed: with primarily economic and political means or with strategies based on military strength—will have a significant impact on future military expenditure

The recent moves towards improved relations between India and Pakistan, with greater reliance on non-military means such as confidence building, economic and commercial cooperation for the resolution of their conflicts (UNIDIR, 2004). Will these efforts be sustained, and if so, lead to a more benign security environment in South Asia and thus a reduction of military spending in this region?

Will Brazil provide a model for the foreign policies of other developing countries? Developments within the African Union to promote regional security under Nigerian and South African leadership. Will this provide models for other developing countries to achieve peace and stability without heavy reliance on military capabilities? If so, it runs counter to Western (US?) efforts to encourage countries in Asia (Indonesia and the Philippines and Africa (Ethiopia and Uganda) to take a more assertive stance, through military means, towards terrorist threats in their countries.

The third type of tension is between national and international financing of security. Security problems are increasingly internationalised, due to increasing global interdependence. Governments are also perceiving them as such and this is also changing their perception of responsibility for security problems in other countries and regions. But financing systems for the means to provide security remain a predominantly national matter, and organised on a national basis.

There are exceptions to this. In the military field, NATO as a collective defence organisation, is based on the idea of shared responsibilities and costs. However, common funding is limited, applies primarily to the costs for the NATO infrastructure and for its AWACS aircraft. NATO missions are covered according to the principle that ‘costs lie where they fall’, that is, participating countries pay for the personnel and equipment they engage in a given operation. The same applies for the contribution of capabilities (personnel and equipment) to the NATO Rapid Reaction Force (NRF) and the European Rapid Reaction Forces within the EU. 4 In the broader area of non-military means for global or regional security problems, the main example is the United Nations, which has its own budget to which member states contribute funds according to specific agreed criteria.

There is a trend towards more international inter-dependence in the military field. Whether that will generate problems or not, depends on the specific environment. Multilateral cooperation depends both on the actual need for cooperation and common activities and on the perceptions. In Europe, increased international integration is the goal also in the military field. In other geographical dimensions, multilateral cooperation may be more difficult. One inhibiting factor is the existence of regional hegemons, such as USA, China, Japan, India and Israel, since hegemons do not easily consider multilateral schemes. The absence of regional hegemons in Europe is one factor that has facilitated regional cooperation and integration.

If we are moving towards more interventionist policies, peaceful ones such as conflict prevention and peacekeeping, or aggressive ones such as the war in Iraq, will this lead to more international financing mechanisms ? International or even global financing mechanisms. For rapid reaction forces, peace-keeping forces, other types of military intervention forces? Under UN umbrella, or under NATO, EU or OSCE umbrellas? Any other potential umbrellas? ECOWAS? ASEAN? AU? OAS?

How have the wars in Afghanistan and Iraq affected the future agenda for interventionist policies? With more or less participation and involvement of the United Nations, or with further unilateralist coalition building by the US, or with some entirely new type of organization and funding mechanisms?

In sum, the critical factors for future trends in military spending are in the shorter term: (1) the lessons learned from the Iraq war, for developments in military techno logy and for the utility of military force to address threats such as WMD, terrorism and regime change; (2) economic and political constraints; and (3) the nature of policies for crisis management in areas of actual and potential armed conflict.

In the longer term the critical factors include future developments in (1) the notion of security and security policies; (2) long-term strategies to combat terrorism; (3) regional security cooperation for conflict management; and (4) prospects for multilateral cooperation and international financing mechanisms for the provision of global, regional, national, and human security.

IV. Summary and conclusions

This paper has summarised basic trends in military expenditure since 1998, the year when the trend in world military spending changed from a post cold war decline to an accelerating increase. It has provided some information about planned military expenditure in major spender countries. Third, it has discussed three types of tension that have an impact on future military spending. What conclusions can be drawn?

A.the general trend. The current sharp increase in military spending will not continue. It is likely to remain an exception, based on specific conditions in the United States. The war with Iraq does not appear to be a successful war, and it appears unlikely that the US Government will be able to continue to extract public resources for war at the rate it did in 2003 and 2004. Furthermore, other major spenders do not appear likely to follow the US course. On the contrary, they are becoming increasingly sceptical and critical to US foreign policy.

However, this does not exclude the possibility of continued increases in world military spending, although at a slower rate of growth. Most major spenders are planning some increase. This is driven partly by the need to keep up with developments in military technology (a continuous modernisation), and partly by the on-going process of transformation to the new security environment. As a consequence of current experiences in Iraq, it is likely that military intervention abroad as a preventive means of ensuring national security will decline in value. This would have a downward effect on military spending. However, these wars have also reinforced trends in the development of costly military technologies, which are likely to have a continuously upward impact on military spending in most industrial countries.

B. Regional security environment in the Middle East. Difficult to assess.

C. Domestic terrorism. It is most likely that there will be a continuing demand for security from the threat of domestic terrorism as long as the root causes of terrorism are not being addressed more seriously than at present. The question is whether this will lead to a change in the composition of military expenditure in the direction of a stronger focus on internal security or whether domestic terrorism will be fought primarily with non-military means.

D. the cost of conflicts. Armed conflict in many developing countries will continue to absorb funding in these countries, but much of that is hidden, difficult to assess. Add to this the economic dynamics of conflict (war economy, etc.) that often strip such countries also of broader national economic resources. At another level the costs of ongoing reforms in the military sector in many developing countries will continue to push military spending upwards for the foreseeable future.

E. Military assistance and intervention. Linked to that is the demand for security provision from the richer countries to some of the developing countries, both those in armed conflict and those with a domestic terrorist threat. It also seems likely that there will be a continued and probably also increased response to such demands, some of which—deployment of military force and the provision of military aid—will have an impact on military spending.

F. Economic factors. One critical question is whether the required funding will be made available by parliaments. That in turn depends on threat perceptions. In the absence of serious threats and threat perceptions, it would be possible to organise the provision of peace and security in a much more cost-effective way than currently, and at a lower level of military spending. In the face of serious threats, real or perceived, there are no strict economic limits on military spending. Thus, much depends on the future incidence of terrorist acts, perceptions of threats from weapons proliferation, and the management of great power relations, in particular between China and the US. However, the willingness to spend depends not only on the perception of threats but also on the perception on the means to address such threats. This is where the differences between the US and Europe on military intervention and crisis management play a role, and where the current US approach is overwhelmingly more costly than the European approach.

G. Multilateral versus national approaches to security.

If the differences between US and Europe can be resolved, this would allow for greater multilateralism in addressing international and global security threats and problems, which probably could involve significant long-term savings in military spending. Is the difficult and costly developments in Iraq now bringing about an opening in the US position on multilateralism ? If that is the case, it can probably have a considerable downward impact on world military expenditure.

SOURCE REFERENCES

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Hagelin, B. and Skšns, E. 2003. ‘The military sector in a changing context’, SIPRI Yearbook 2003. Oxford. OUP, chapter 9, pp. 281-300.

Hagelin, B. 2004. ‘Science- and technology-based innovation: the United States and Europe’. SIPRI Yearbook 2004. Oxford. OUP, forthcoming, chapter 9.

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Omitoogun, W. 2004. Military expenditure in the Middle East after the Iraq war. SIPRI Yearbook 2004. Oxford. OUP, appendix 10E, forthcoming.

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UNIDIR Disarmament Forum. 2004. No 2. Has a summary of a study on the improving relations between India and Pakistan.