The world is tooling up. The peace dividend it has enjoyed since the end of the cold war — releasing wads of cash from defense to spend on other things — is ending. Now comes the new “war tax”. Our simulations suggest global defense spending may rise by $200 billion-$700 billion a year, or from 9% to 32%. Blame fraught geopolitics — especially Russia’s invasion of Ukraine and China’s saber-rattling at Taiwan.
America and China are locked in a race for military ascendancy in Asia. European countries are scrambling to meet NATO’s target of spending 2% of GDP on defense. Poland is aiming for 4% and wants to double its armed forces. Japan’s defense budget will rise by at least two-thirds by 2027, which may make it the world’s third-largest spender. Australia is developing pricey nuclear-powered submarines with America and Britain.
Yet for Western governments, finding money for arms will not be easy. They must pay interest on debts and cope with fiscal pressures that did not exist in the 1980s, such as the need to care for aging populations and curb climate change. Furthermore, as in the cold-war era, there is a risk that cash is blown on good-but-exorbitant equipment, thanks to red tape and cronyism. How to get the best value from defense spending in the 2020s?