Population Aging and the Future of NATO

by Mark Haas

[Population Aging to 2030, Day 3, Essay 2 of 3]

According to a number of analysts, including the last two U.S. Secretaries of Defense, America’s relations with its partners within the NATO alliance are nearing crisis.  In June 2011, Secretary of Defense Robert Gates warned that NATO faces “a dim if not dismal future” and “irrelevance” as America’s allies remain “unwilling to devote the necessary resources or make the necessary changes to be serious and capable partners in their own defense.”  The following October, Gates’ successor, Leon Panetta, stated that “we are at a critical moment for our defense partnership,” and he implored America’s allies to increase their defense spending to ensure that NATO remained “relevant.”

While irritation by American leaders toward their European allies over free riding and related calls for Europeans to increase their share of military spending are not new, European NATO countries’ defense expenditures—both relative to the United States and as a percentage of GDP—are at historically low proportions.  For most of the Cold War, America accounted for 50 percent of total NATO military spending.  That figure is 75 percent today.  According to official NATO figures, only three of NATO’s 28 members—Britain (2.6), Greece (2.1), and the U.S. (4.8)—currently spend the agreed two percent of GDP on defense.

Low levels of defense spending are already having major effects on military effectiveness.  In the 2011 campaign to topple Muammar Qaddafi’s government in Libya, the Europeans lacked the weaponry, as well as the reconnaissance, intelligence, heavy airlift, and refueling equipment necessary to defeat a minor power.  As Gates put it, “the mightiest military alliance in history is only eleven weeks into an operation against a poorly armed regime in a sparsely populated country—yet many allies are beginning to run short of munitions, requiring the U.S., once more, to make up the difference.”

Although a number of factors contribute to contracting military spending across Europe, demography—particularly widespread, massive populating aging—is among the most important of these causes.  Due to a combination of increasing life expectancies and very low fertility rates (which are the average number of babies per woman in a country), NATO states are growing older.  The number of retirees throughout Europe is rapidly expanding, while the number of working-age people is quickly shrinking.  In 2030, Europe will have over 50 million fewer working-age people (ages 15 to 59) than it does today, and over 53 million more people over sixty.

These demographic realities will have major effects on states’ ability to project power abroad.  Three outcomes are particularly important.  First, population aging is likely to slow a state’s overall economic growth.  The primary problem is that as societies age, more people exit the workforce than enter it.  A state’s gross domestic product (GDP), in its most basic formulation, is a product of the number of workers and overall productivity.  As a country’s workforce shrinks as more people enter retirement than enter the labor market, so, too, will its GDP unless productivity levels rise sufficiently to compensate for this loss.  Although the last is likely to be the case in most states, workforce contraction will still act as a substantial brake on economic growth for the decades to come.  One study calculates that with shrinking workforces and a 1.5 percent growth in overall economic productivity per year (which is slightly higher than the European average the last fifteen years of 1.3 percent), GDP growth in the next thirty years will average 1.25 percent in France and 1 percent in Germany.  In such an economic climate, significant increases in military expenditures are unlikely.

Compounding this tendency is a second and even more important economic effect of social aging:  the strain that this phenomenon places on state resources.  European governments have made commitments to pay for substantial portions of the retirement and health care costs of their elderly citizens.  By 2030, public benefits to the elderly are projected to rise for many European countries to over twenty percent of GDP, and they will continue to grow after this date.  In order to pay for the exploding costs of aging populations, significant spending cuts in other areas—including for militaries—will be necessary

A third and final way in which population aging is likely to impact states’ defense budgets is by pushing militaries to spend more on personnel and less on other areas, including weapons development and procurement.  As working-age populations shrink, competition among businesses and organizations—including the military—to hire workers will grow.  Consequently, if states’ militaries want to be able to attract and keep the best employees in vital areas of operation, they are going to have to pay more to do so.  Europe’s NATO members are already devoting significantly more resources to military personnel than weapons purchases and research (well over twice as much in most countries).  Without major investments in weapons and military equipment, NATO’s European powers will be hard pressed to project force beyond their borders for a sustained period of time, as we witnessed in the attack on Libya in 2011.

The preceding effects of population aging on European states’ military budgets might spell the doom of NATO from the American point of view.  Because the United States is aging to a lesser extent and less quickly than its European allies, America’s public obligations to the elderly as a percent of GDP will be lower and its working-age population will continue to expand (by over 10 million by 2030).  The U.S., as a result, will be able to continue to devote significantly more resources to the military—both absolutely and as a percentage of GDP—than will European states because the forces pushing for the crowding out of military spending for increased care for the elderly will be weaker.  Gates in 2011 referred to NATO as a “two-tiered alliance,” with the U.S. dedicating roughly 5 percent of GDP to military spending and most of its European allies less than 2 percent, and he described the resentment this bifurcation created in America.  As the aging crisis in Europe intensifies in coming decades, this spending gap is likely to increase, as will the resentment.  America’s aging European allies between now and 2030 are very unlikely to either increase their share of the burden in defense of common interests or become more effective in projecting force abroad.  As NATO’s commitment to deal with shared threats becomes increasingly hollow, the likelihood of U.S. leaders looking for more reliable—likely “younger”—allies will grow.

Mark L. Haas is Associate Professor of Political Science at Duquesne University.

5 comments on “Population Aging and the Future of NATO

  1. Pingback: “Global Trends”- CIA: Asia will as before be the center of economich development – Europa and US will losse their postions. Middleclass will be soon most important globally, but consume more and more, which will be a big problem for envi

  2. While it seems likely that demographic trends in European NATO members will persist and have the first-order effects outlined above, the ultimate impact on these countries’ power projection capabilities and NATO may not be as devastating as suggested here. Take personnel costs – these states have approximately two million in uniform, but only a small fraction (30% or less) can be deployed abroad; so only 3/10, at most, can be used in ways that are useful today and in the anticipated future. By shifting resources from unneeded personnel to procurement and RDT&E, these states could improve their power projection capabilities without increasing defense expenditures.

    Additionally, resource constraints in the U.S. and Europe are reinforcing efforts to 1. Pool, share, and specialize and 2. Maintain or increase scale and competition in defense markets. This is occurring both within and outside the NATO and EU frameworks; NATO’s Smart Defense initiative, the Obama administration’s efforts to streamline defense export controls, and deeper Franco-British defense cooperation are just a few examples. Although obstacles have limited the extent and benefits of such cooperation, it seems likely that at least some progress will continue to be made in these areas.

    In other words, it’s too soon to write off European NATO members to population aging; overall, there is still significant scope for making better use of existing and future defense resources, which would improve power projection capabilities and conceivably strengthen NATO.

  3. Pingback: A Roundup of the ‘Global Trends 2030’ Series on Population Aging | New Security Beat

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