March 21, 2016: Military budgets aren’t all they appear to be. While the United States alone accounts for over a third of the annual defense spending worldwide, this is not as overwhelming as it appears to be. There are several very practical reasons for this misperception. First there is the purchasing power parity (or PPP, the relative cost of common goods in different countries) angle. If you take into account PPP, those nations with lower costs (like China and India), loom larger as defense spenders. They get more bang for their buck, at least on paper.

Without PPP the top five in military spending is; United States, China, Russia, Britain and Japan. Adjust for PPP and India rises into the top five and Japan falls. That’s because things like local supplies and labor are much cheaper in India than Japan. Applying PPP also makes American defense spending much less effective compared to what China spends. Thus without PPP American defense spending is closer to 20 percent of global spending.

Adjusting for PPP Chinese defense spending goes from a quarter of what America spends to over 70 percent. Yet American forces deploy many more high teach weapons than China. That’s because U.S. defense spending has been the highest in the world since the 1940s. Since major items of military equipment (ships, aircraft and armored vehicles) have useful lives of over 30 years the Americans have had plenty of time to accumulate a much larger arsenal of expensive equipment than China. But that will change in the future because Chinese annual defense spending has nearly tripled in the last decade. Thus if China keeps its defense spending high and relative costs low, it will match the U.S. in many areas within two or three decades.

That probably will not happen because of other factors and trends that do not favor China (and many other nations). First there is the fact that not only has the Chinese economy been growing rapidly since the 1980s, but so have wages and the costs of much else besides. Thus over time the PPP advantage diminishes. China also has a greater problem with corruption in the military than the United States (and most Western nations). This greatly (by 20 percent of more) diminishes the effectiveness of their defense spending. Corruption in defense spending is found everywhere, but it has, for thousands of years, been particularly bad in China. The Chinese government has, since the late 1980s, been making strenuous efforts to reduce the corruption but has had limited success.

There is another complication when comparing defense spending. This big one is the relative costs of defending your nation versus attacking someone somewhere else. It’s much cheaper to defend. Going on the offensive, especially over long distances, is much more expensive. Depending on how far your forces have to travel, equipping an offensive force can be anywhere from a quarter more expensive (if you plan to attack a neighbor) to more than twice as expensive (if you are prepared to go anywhere in the world).

Then there is your military leadership. If your generals and admirals know what they are doing and maintain high standards for subordinates and concentrate on training and readiness for combat the forces at their disposal will be much more effective than when (as is often the case) the military is treated like a jobs program to keep unemployment low and, if there is a lot of corruption, make politicians and senior officers rich.

Thus nations that spend little cash, but have cheap local costs (food, housing, payroll), like Iran and Pakistan, all of a sudden have larger defense spending (Iran is now about six percent of U.S. spending, and Pakistan about four percent.) Purchasing Power Parity shows how poor nations can spend only a few billion dollars a year on defense, yet have hundreds of thousands of troops in service. If these soldiers have good leadership and train regularly, they can be a formidable foe even to a high tech force from the West. But most of the poor nations don't have high quality officers and NCOs, and their troops fade quickly when confronted with a well-equipped and well trained force. Unfortunately, the media is not very keen on examining the quality of training and leadership in anyone's armed forces. Yet, time and again, these two factors have proved to be the most critical ones. And that will remain the case in the future.