WASHINGTON: It’s become a commonplace to say the US spends much more on defense than any other country — but what if that’s not exactly true? Inspired by something Army Chief of Staff Mark Milley said to the Senate, I pulled together some numbers that suggest America’s superior spending power erodes dramatically when you compare actual purchasing power. Once you factor in how much the US military spends on pay and benefits for uniformed and civilian personnel — almost half the budget by some measures — as opposed to weapons, operations, and training, then China’s defense budget may actually be bigger.
We aren’t econometricians here at Breaking Defense, so our methodology is admittedly very rough. What we are good at is listening to Pentagon and Hill leaders very carefully, and I was struck by an exchange last week at a hearing of the Senate appropriations subcommittee on defense.
“I’m going to ask you all a town hall question; it’s the kind of thing you might run into in any town in America,” said Sen. Dick Durbin, the subcommittee’s ranking Democrat. “You tell us that one of our biggest threats, greatest enemies, is Russia; turns out we read recently that Russia spends about $80 billion a year on its military…..So let me get this straight: We’re spending $600, $700 billion against an enemy that’s spending $80 billion. Why is this even a contest?”
The traditional answer is that the US has global commitments — multiple allies to defend, myriad adversaries to deter — and therefore it’s not fair to compare our budget to any one country’s. But General Milley instead took issue with the math:
“I’ve seen comparative numbers of US defense budget versus China, US defense budget versus Russia or any other number of countries,” Milley said. “What is not often commented on is the cost of labor.”
“We’re the best paid military in the world by a long shot,” he continued. “The cost of Russian soldiers or Chinese soldiers is a tiny fraction. So we would have to normalize the data in order to compare apples to apples and oranges to oranges…. take out the MILPERS (military personnel) accounts for both the Chinese, Russians, and/or the US, and then compare the investment costs.”
“I think you’ll find that Chinese and Russian investments, modernization, new weapons systems, etc., their R&D — which is all government-owned and also is much cheaper — I think you’d find a much closer comparison, Senator,” Milley concluded.
Now, estimating what China and Russia actually spend on defense is complex enough, let alone separating out their pay and benefits costs. Russian military pensions, for example, were paid from the defense budget until the mid-1990s, then taken out. So we can’t do the entire exercise Milley recommends. But we can do two crucial parts of it.
First, the standard comparisons of international defense spending — like the graph above — convert everything to US dollars at market rates. That’s fine if you’re comparing countries’ power to buy military equipment with hard currency on the global market.
But countries like Russia and China buy most of their equipment from domestic suppliers, which they can pay in local currency. As Milley points out, most of these domestic defense firms are also either officially government-owned or heavily government-influenced, and their products are generally much cheaper than their US equivalents.
So instead of using market rates, a better measure (albeit still imperfect) would be Purchasing Power Parity (PPP), which tries to account for prices being different in different countries. That gets you this chart:
Now for the second part of Milley’s proposed comparison: Set aside the roughly 42 percent of the US defense budget that goes to pay and benefits. We can’t set aside the comparable portions of the Russian and Chinese budgets, because we don’t have good estimates of what they spend on personnel, but since personnel is a relatively small share of their budgets, we can still make a decent first approximation:
Now the US doesn’t look so dominant anymore. In fact, the Chinese budget looks bigger: The unanswered question is how much of that we should take away to account for their personnel costs.
Whatever methodology you use, Russian spending remains a fraction of US — although that fraction rises sharply, from just 11 percent at market exchange rates, to 26 percent at purchasing power parity, to 44 percent of US spending excluding pay and benefits. But Chinese spending rises from 38 percent of US (market rates) to 71 percent (PPP) to 122 percent (excluding US pay & benefits spending).
Now, this is comparing the entire Chinese budget to part of the US budget, so the actual China:US ratio is lower that this graph shows. How much lower depends on how much of the Chinese budget goes for personnel. But if it’s anything less than 18 percent of their budget, about $78.5 billion — the difference between their total budget (PPP adjusted) and ours less personnel — then they’re still spending more than we are, adjusted for purchasing power, on weapons, training, operations, and so on.
The obvious counterargument is that you generally get what you pay for. US military leaders routinely extoll the quality of American personnel — their skill, dedication, and initiative — as our decisive advantage, more important than even our advanced technology. So perhaps our high spending on personnel is central to our military performance. But perhaps regimes that treat their people less generously can still get the human performance they need and have a lot more left over for new weapons.