The 2% ‘Solution’

JAMES FRYER  –  Jun 18, 2023

Canadian defence spending and NATO Alliance politics

The spectre of Canada as an outlier in NATO defence spending has raised its head again. First came the release of the Secretary-General Jens Stoltenberg’s 2022 Report in March 2023. On page 52, a graphic representation of defence spending as a percentage of gross domestic product (GDP) and equipment spending as a share of defence expenditure, shows that by 2022, Canada had not only failed to meet NATO targets of 2% and 20%, respectively, but that it placed below the NATO average on both counts.  Indeed, Canada ranks 25th among the allies in terms of defence expenditures and 28th for equipment expenditures.

April saw the publication of classified documents by a rogue U.S. air national guardsman, and their partial reflection in an article in the Washington Post. Exposed by these leaked documents, the Trudeau government finds itself in the spotlight for alleged remarks by the prime minister to the effect that Canada will never reach the spending target of 2% of GDP.

Politicians, scholars and commentators have sought to explain the apparent delinquency in Canada’s defence effort over the years. Some have chalked up the perceived under-investment to a disinterest in geo­political matters.

Others point to the (heretofore) unspoken realization that Canadian defence spending is meant to buy entry into major Western decision-making institutions such as NATO, rather than to contribute meaningfully to collective defence. The latter view received a boost following Russia’s initial foray into Ukraine in 2014. When questioned on why Canada had agreed to lead a multinational battlegroup in Latvia, PM Trudeau studiously refrained from mentioning a Russian threat. Instead, he framed the commitment as a gesture of support to allies – an effort at relationship-management rather than deterrence and defence.

Bullets and Bean-counters

The government’s response to accusation of parsimony usually takes the form of disputing the relevance of the 2% figure, or re-directing attention – away from spending targets and toward the contributions Canada has made to allied operations. Both of these responses are problematic.

The 2% figure – agreed to by allies at the Wales summit in 2014 – is indeed arbitrary if one subscribes to the notion that defence spending should be appropriate to the level of perceived threat an ally is facing. That overall perception may be viewed as a combination of perceived vulnerabilities of the homeland to military coercion, as well as of the community of nations/alliance to which the ally belongs. One may also add the perception of threat posed to the international system desired by the ally, such as the oft-cited but poorly understood ‘rules-based international order’.

A figure of 2% may indeed yield a defence effort that somewhat matches a perceived level of threat. Yet in a benign strategic environment, it may cause the ally to overspend on defence to the detriment of other priorities. The opposite is also true: in a clearly unfavourable geopolitical landscape, a strong commitment to a rigid spending target could place the ally in a budgetary straight-jacket, restricting defence spending to 2% when a higher figure is called for. This, combined with the fact that an ally can theoretically meet the target but fail to contribute to allied operations or to spend adequately on capital, suggests that while 2% of GDP has much political importance attached to it, as a practical metric for demonstrating solidarity, it has limits.

Less-than-artful ‘Dodger’?

This is not to suggest that the 2% figure is unimportant, or that allies can easily absolve themselves of aspiring to it. Official Ottawa has long argued that Canada always steps up to the plate when NATO issues a call for assistance, and that spending 2% of GDP on defence is unreasonable. The problem with this argument is that it contains its own rebuttal. An ally will only be able to contribute meaningfully to NATO operations if it makes strenuous efforts to keep its defence effort in good working order. Chronic under-investment in personnel, infrastructure, and/or equipment will gradually reduce the range of relevant capability that the ally has to offer. It will likewise reduce capability depth (capacity) until only small and operationally inconsequential contributions can be offered. Thus, even if the 2% target is not adhered to, consistently falling far short of it will erode an important tool of national power, diminish national resilience, and prejudice Canada’s standing among its peers and potential adversaries.

Another response to accusations of under-investment is to cite recent capital projects such as the F-35 acquisition and the promised replacement of the NORAD detection/surveillance infrastructure. But these are projects that any Canadian government would have to pursue, even in an era of relative stability. They are merely the ‘basics’ that underpin a sovereign country’s defence. The point of the NATO spending goal is to encourage allies to go beyond the basics – to exert themselves in a manner consistent with a decidedly unstable strategic landscape.

Successive Canadian governments have dodged and weaved their way through these inconvenient truths, enduring whatever reputational damage results from non-adherence to NATO spending goals. What’s different this time, is that the prime minister’s admission was made in the context of great turbulence in the international system, as well as uncertainty about the long-term willingness of the United States to continue to underwrite the security of the West. The PM’s alleged candour plays into frustrations felt on both sides of the US political divide that most allies are easy-riders on the coat-tails of the American defence and security apparatus.

Republican law-makers who are simultaneously isolationist and pre-occupied with perceived threats in the Indo-Asia-Pacific, would likely welcome the abandonment (or at least the reduction) of trans-Atlantic commitments – especially given the very steep costs of supporting Ukraine’s war effort. Meanwhile, many liberal Democrats who value alliances a multilateral talking-shops rather than repositories of hard power, are also looking to de-militarize U.S. foreign policy in the longer term. They would undoubtedly welcome the opportunity to transfer defence and security burdens to what they see as wealthy and capable allies who just need the right incentives to up their game.

Canada’s perceived parsimony and intransigence in its position on defence spending may be cited as justification for both factions’ positions. And if the PM was careless with his remarks, his American interlocutors now have even more reason to suspect other allies of harbouring the same sentiments. Such is not good for allied solidarity in the face of a revanchist Russia or an assertive China, both of whom stand ready to exploit any divisions in the liberal-democratic camp.

If the latest round of scrutiny is not enough to spur Canada to exert itself more on the defence file, it may be attributable to the age-old guns-versus-butter analogy that a dollar spent on the military is one denied to the plethora civilian needs. Yet this, too, is problematic. Leaving aside the fact that only during the world wars did military spending consume the majority of government expenditures, there is also the fact that spending on defence and non-defence needs do not rise or fall in proportion to each other. A cut in the budget of the Department of National Defence does not result in an equivalent gain for other federal departments. (Indeed, cuts to DND are often be accompanied by cuts to other departments and agencies if the priority is deficit-fighting.) In the same way, the defence budget may remain static as the federal government fire-hoses money on non-defence projects. Still, the fallacy of robbing social programs ‘Peter’ to pay for defence ‘Paul’ seems to persist in the public mind.

The Instrument of (Insurance) Policy

In reality, it is not all that difficult to build a case for a more strenuous defence effort – even one that does not necessarily mean reaching NATO spending goals. For those who are swayed by the guns-versus-butter fallacy, it may be instructive to view defence and security as a national insurance policy against the unintended and/or unforeseen. In the last two decades, the Canadian Armed Forces (CAF) have been called into action with greater frequency, and to deal with an ever-wider array of civil and military challenges. Demands to mitigate the consequences of forest fires, floods, and the recent pandemic have become commonplace and show no signs of abating as climate change roils the globe and provincial as well as federal governments treat the CAF as primary actors in national resilience plans, rather than as forces of last resort. Externally, the military has been called on to train and mentor foreign armed forces, stabilize difficult situations (often at great risk), evacuate non-combatants from crisis areas, render assistance to victims of natural disasters, and fight capable opponents. All this comes in addition to its ongoing surveillance and control taskings in the skies over North America and on the three oceans bordering the country.

Clearly, the metaphorical insurance policy is being used constantly. But even if the amount of insurance coverage Canada needs cannot be objectively determined, it seems clear from recent statistics that we have fallen behind on our premiums. The armed forces have an authorized strength of 70,000 regulars but are between 9,000 and 10,000 short of that target. Reservists, who compose a critical component of both domestic response and external deployments, are also short and recruiting cannot keep up with separations from the CAF.

These human resource deficits affect everything the CAF does – whether mounting overseas operations, protecting sovereignty at home, or assisting civil authorities with their domestic security responsibilities. A particularly worrisome effect of under-staffing is reflected in the decreasing ability of DND to support concurrent procurement programs. With only 70% of the required military and civilian staff, it’s not surprising that the project management offices that buy equipment to keep the military relevant suffer from decreased throughput.

Apart from their use as instruments of policy, Canada’s military equipment holdings are also a means to healthy recruiting and retention. Along with military housing, they demonstrate the value government places on the quality of life accorded to service members, and the quality of the work that it expects its soldiers, sailors and aircrew to perform. Thus, a defence budget that not only fails to reach overall agreed targets, but also falls short of the lesser-known NATO benchmark (that a minimum of 20% of an ally’s defence budget should be spent on new equipment) will hamper efforts to retain skilled personnel, and render meaningful contributions to defence and security impossible over time.

Sensing apathy at the highest levels, as the quality of work gradually succumbs to under-manning and obsolescence, service members will take the hint and depart, while potential recruits will look elsewhere for a career.

This unhappy scenario will be keenly felt when the inevitable natural disasters and break-downs in international peace and security demand attention. The Trudeau government’s refusal to lead a stabilization mission in Haiti, and its failure to follow through on promises to make timely equipment purchases for the Canadian Army – ones that are only now being urgently pursued for use in Latvia – are manifestations of incapacity caused by years of insufficient attention to the defence file. The government’s refusal to date to consider much-needed reforms to the defence procurement system – ones that might help DND spend the money that it has been given – is yet more evidence of a flagging effort.

Even if the ‘insurance policy’ analogy does not resonate with the Canadian public or the political class, it is worth remembering the structure of the federal system and its assignment of responsibilities. Whereas all three levels of government have the power of taxation to buy the public goods and services demanded by Canadians, national defence is the preserve of the central government alone. Ottawa cannot rely on the provinces to share in the national defence burden, nor can it download the task to municipalities or contract it out to the private sector. Nor, despite Canada’s best (and unacknowledged) efforts, can the responsibility for international peace and security be abdicated to allies and partners. The federal government – regardless of its political stripe – is compelled to take these matters seriously, and Canadians must give it the leeway to do so.

Dear Canada, Your Premium is Due

Just as Canadians do not pay their home or auto insurance only when it feels convenient, a vibrant, functioning national defence effort must be maintained in both prosperous and straightened economic times. The amount of coverage required is a matter of opinion, based as it is on a variety of internal and external factors, but coverage must nevertheless be kept up-to-date, lest the policy-holder be incapable of coping with the uncertainties and misfortunes that are a fact of life today.

It is unclear whether or how much the promised defence policy update will address this matter. Efforts to raise spending to the NATO average, and enact meaningful reforms to the procurement system, would be good places to start. (So would a sincere effort by the government to ‘talk up’ the value of the armed forces for Canada, which might encourage recruiting and retention.) They would go some way to allaying fears that Ottawa is apathetic to allied concerns. Regardless, it should be abundantly clear by now that the dismissal of allied spending targets can render pious claims of solidarity to be hollow.

It should also be clear that reliance on past commitments as an alibi for current under-performance, or a belief that under-investment today will not crimp capabilities and commitments tomorrow, will do more than just harm Canada’s already tattered reputation. In a world of climate-induced crises, strategic competition, and potential American retrenchment, they will rob Canada of a vital tool with which to shape its future.  

James Fryer is an independent defence analyst based in Toronto.