Old textbooks in economics used to explain consumer choice with an example that pinned plow bills against cannons. The premise was that if we want to feed people—put plow bills in the soil—we will have to give up our national defense.
For a long time, that choice seemed to be little more than an academic exercise to set the brains of bright young economics students in motion. Recently, though, the old hypothetical tension between two necessities has emerged as a real one, and it is affecting policy and politics in individual NATO states. The latest example is Spain, as reported by our news writer Tamas Orban:
For weeks, it looked like the 5% target would not get approved due to opposition from Spanish PM Pedro Sánchez. On Sunday, however, Sánchez dropped his veto after being promised “flexible” spending options—meaning Spain would not have to spend as much as others, as long as it still meets NATO’s updated “capability targets.”
Deutsche Welle points specifically to the resistance to higher defense spending that Prime Minister Sánchez is meeting from his left-wing political allies. They spell out the ‘plow bills or cannons’ dilemma, refusing to accept any cuts in health and education to make room for a bigger military budget. Although the prime minister has already promised to safeguard social benefits, DW explains that critics on the Left claim that cuts are already being made to make room for a bigger military.
It remains to be seen if the hard Left is correct on the budget cuts, but they have a valid point when it comes to the welfare-warfare dichotomy. Figure 1 shows two contrasting trends, on the one hand, a steady growth in the share of government outlays going to the welfare state; on the other hand, a long-term decline in the defense share:
Figure 1
There are five components to welfare state outlays: social protection, which in 2023 accounted for 41% of total government spending in Spain; health care (14.5%), education (9%), arts and recreation (3%), and housing and community development (1%).
Together, these items of government spending represent the ambitions of modern governments in the industrialized world to redistribute economic resources between citizens. The ‘rich’ give up more of their income than the ‘poor’ do, thus contributing to the funding of the welfare state. Its benefits, in turn, are designed to elevate the standard of living of the ‘poor.’
To most Europeans, the redistributive nature of the welfare state is not a problem. On the contrary, the idea that the rich should help the poor is universally accepted across the European continent. However, the expansion of the welfare state has forced the electorate to make a hard choice: high taxes and redistribution—or a forceful national defense.
Now that the pressing situation in Ukraine and stern demands from America force Europe’s NATO members to expand military spending, the Spanish example brings the choice to the forefront. There is no question that the government in Spain is experiencing a high level of political agony over this—and for good reason.
In 2023, the most recent year with comprehensive data from Eurostat, total Spanish defense outlays amounted to €14 billion. This was equal to 0.9% of the nation’s GDP that year. Using 2023 as an experiment year, let us increase defense spending to 2% of GDP. That would give Spain’s national defense a total budget of €30 billion, a €16 billion increase.
Looking at welfare state spending, we find that, in the same year, the Spanish government spent €17.2 billion on arts and recreation. Essentially, this means supporting concerts, theaters, artists, and tourism.
So far, the political price for more defense appropriations has not been overwhelmingly high. However, the choice between plow bills and cannons takes on very different proportions when we grow defense spending to 5% of GDP.
At that level, Prime Minister Sánchez would have to go to the Spanish parliament and ask for €74.9 billion—an expansion of €61 billion over current (2023) levels. This expansion is equal to
- 22% of total social protection spending; or
- 62% of total health care outlays; or
- 97% of the total education budget.
In other words, there is no free lunch for the Spanish military.
At the same time, it is easy to see why NATO insists on its member states making the 5% commitment. Figure 2 shows how defense funding in Spain would have developed under the 2% and 5% goals; for comparison, actual defense spending is included:
Figure 2
This expansion, enlarged to cover every member state, looks delicious from a desktop view in the NATO headquarters. There, the domestic political fallout of higher NATO spending is irrelevant.
The situation is very different at the street level. In the Spanish case, one small detail has become essential for politicians who have to squeeze every euro of new defense money out of their taxpayers. The actual Spanish defense budget fell from 1.4% of GDP in 1995 to 0.9% in 2023. This puts even more distance between Spain’s current defense outlays and the goals that NATO has put up.
With these numbers in mind, one could easily sympathize with Prime Minister Sánchez and why he feels it necessary to ask NATO for leniency on the new spending goals. However, his government is not the only one in NATO that is faced with a hard choice between welfare and warfare. The Swedish government also wants to escape the same tough choice, but instead of dragging their feet on defense appropriations, they are going to borrow SEK300bn (€27bn; $31.5bn) for military expansion purposes.
From the viewpoint of political expediency, the Swedes probably made a wiser choice than the Spaniards. From a fiscal viewpoint, however, the shoe is on the other foot. National defense is a service that government provides to its people and, as such, it should be funded by current revenue, not borrowed money. The problem for the Swedes is that when their new credit line runs dry, they have to pay back the loan while finding a way to replace that funding source.
In short, they will end up paying for the same military expansion twice. At least the Spanish government has bought itself some latitude to increase its defense outlays as its government finances permit.
Regardless of how the Spanish government negotiated its defense expansion deal with NATO, the one question that remains unanswered is: what kind of precedent does it set for the future? Other NATO members are just as pressured by similar fiscal tensions; why do they not deserve the right to a de facto permanent postponement of the 5%-of-GDP goal for their military budget?
