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China's Military Gets More Bang for the Buck

Noah Smith is a Bloomberg View columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
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Whenever anyone brings up the rising military power of China, Russia and other U.S. rivals, some pundit usually pops up to remind us that America is still overwhelmingly dominant both in terms of military capability and spending. The pundit will generally offer you a chart like this one, which shows American military spending dwarfing everyone else's. The message, of course, is that the U.S. outspends all its rivals, ensuring its continued military dominance.

But there are several problems with this perennial talking point. The first is that these dollar numbers aren't adjusted for the cost of anything that any of these militaries buy. The lowest-paid U.S. soldiers earn about $18,000 a year. In comparison, in 2009, an equivalent Chinese soldier was paid about a ninth as much. In other words, in 2009, you could hire about nine Chinese soldiers for the cost of one U.S. soldier.

Even that figure doesn't account for health care and veterans' benefits. These are much higher in the U.S. than in China, though precise figures are hard to obtain. This is due to higher U.S. prices for health care, to higher prices in general, and because the U.S. is more generous than China in terms of what it pays its soldiers. Salaries and benefits, combined, account for a significant percentage of military expenditure.

But labor costs aren't the only thing that is cheaper in China. Notice that China's gross domestic product at market exchange rates is only two-thirds of its GDP at purchasing power parity. This means that, as a developing country, China simply pays lower prices for a lot of things. Some military inputs -- oil, for example, or copper -- will be bought on world markets, and PPP won't matter. For others, like complicated machinery, costs are pretty similar. But other things -- food or domestically manufactured products -- will be much cheaper for the U.S.'s developing rivals than for the U.S.

Those who follow global security issues have known about this issue for a long time. But somehow, this fact hasn't penetrated the consciousness of pundits or made its way into pretty, tweet-able graphs.

There are other reasons that U.S. military spending doesn't go as far in reality as it does on paper. One is that the U.S., situated in the peaceful, relatively unpopulated Western Hemisphere, is very far away from the location of any foreseeable conflict. China isn't going to invade Colorado (sorry, "Red Dawn" fans!), but it might invade Taiwan or India. Simply getting our forces to the other side of the world would require enormous up-front expenditures.

In addition, there is some indication that the U.S. military is no longer getting as much bang for its buck as in decades past. This is hard to measure, since the true test of military preparedness only comes in a war. But in recent years the military appears to have wasted huge amounts of money on programs of dubious value, like the F-35 Lightning jet fighter. That program has seen its costs balloon to $400 billion -- about 2.5 percent of one year of U.S. GDP -- and will undoubtedly see costs go much higher. But the plane still does not work. Nor is the F-35 particularly unique. Programs like the F-35 have provided Americans with jobs, but have often been of dubious value to our military while costs greatly exceed initial estimates. Meanwhile, new Chinese weapons systems continually exceed U.S. expectations.

Finally, the U.S. has different goals than its rivals -- goals that are much, much more expensive. The U.S. has commitments to defend allies in Europe, Asia and the Middle East. We have to keep aircraft carriers sailing the seas and maintain overseas bases just to meet our existing commitments. That dramatically reduces the amount of money we would actually be able to spend on a major war. China and Russia, of course, have no such global commitments. It's expensive being a hegemon.

So all of the pundits who constantly remind us that the U.S. reigns militarily supreme overstate their case. The U.S. still has the world's most powerful military, but the margin is not nearly as huge as we hear.

This isn't, of course, an argument that the U.S. needs big increases in military spending in order to maintain overwhelming hegemonic supremacy. That is the kind of behavior that got the Soviet Union in trouble in the '80s. Instead, if I were a defense policy analyst, I would recommend that we realize the limits of our unilateral power, avoid unnecessary entanglements, try to build more alliances, and persuade some of our allies to boost their military spending.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Noah Smith at nsmith150@bloomberg.net

To contact the editor on this story:
James Greiff at jgreiff@bloomberg.net