Britain Slashes Defence Spending 2010 – Cyclical Implications for Canadian Defence Spending
by Major Gerry Madigan, CD1, MA (Retired)
Ecclesiastes 1:4-11: “There Is Nothing New Under The Sun”
What has been is what will be,
and what has been done is what will be done,
and there is nothing new under the sun.
Is there a thing of which it is said,
“See, this is new”?
It has been already
in the ages before us.
There is no remembrance of former things,
nor will there be any remembrance
of later things yet to be among those who come after.
The conclusions and opinions expressed in this document are those of the author cultivated in the freedom of expression and of an academic environment.
Gerry (GD) Madigan, CD1, MA is a retired logistician, Canadian Armed Forces. Major (Retired) Madigan’s career spans 28 Years as a finance officer. His notable postings included time served at National Defence Headquarters, CFB Europe, Maritime Canada and the first Gulf War Qatar. He is a graduate of the Royal Military College of Canada, Kingston Ontario, and War Studies Program
11 November 2015
“There is nothing new under the sun” so say the soothsayers of old. What has been, will be and in those words there are certain truths for there are cycles in nature and man that we can all foresee like the coming of the seasons or the rise and fall in our economies. They demand a reaction, for there are harbingers that indicate change is necessary, that will require planning, recognition, and anticipation of the difficulties ahead.
Time and again though, we fail to recognize that there are certain principles that should guide us through the cycles of our lives. It is human nature to resist the harbingers of change until such time, when reality squares us to the facts. Only then do we acknowledge that the inevitable must be faced if we are to survive. The case often arises amongst various protagonists in an ongoing debate is “which is the best way ahead? Canada’s defence provides a case in point to the tale that “there is nothing new under the sun”.
The dealings of Canada’s national defence and security needs are neither new nor unique. They are a continuing dilemma that is often a bone of contention over time in our nation’s history. There has always been a question of how much or how little does Canada require that meets all its national and international security obligations.
At the heart of the issue though is a certain skepticism. Many Canadians are wary that the military is more concerned with its own self-interest. In today’s parlance, defence policy and procurement decisions are often framed by pundits and the media in terms of as “Toys for Big Boys”. This view jades public opinion on the military, procurement and its ongoing budgetary requirements.
The argument trivializes military needs and national security requirements. At the same time it surely jeopardizes the safety and lives of every man and woman in the Canadian Armed Forces in the delay of key decisions. The men and women of our armed forces expect that they are to be properly equipped, mandated, and have the necessary tools and resources for the tasks that Canadians expect of them. The “toys for big boys” arguments detracts from those ends. As such military issues exist in tension with other issues that are important to Canadians and its public policy, whose nature is also subject to change.
Ultimately it is the matter of resources that will determine what a military organization can and will do in the execution of government policy. And as a consequence a military organization will always be tethered to change whether it is desirable or not and the public’s favour in doing so!
Professional military officers should be guided by some clear principles. Colonel Maurice Pope suggested three in 1937 that remain germane to this day:
- War, including defensive war, is an instrument of national policy.
- National policy is the responsibility of the government.
- Government, in Canada, must obtain if not support of the majority of people. 1
Pope was working against public opinion and limited defence budgets of his day. The possibility of war then was very real but its actuality too was uncertain. It was a matter of trying to convince the public of its urgency resulting in a coherent set of war plans to meet all possible contingencies. His arguments were set “in the face of public complacency and occasional anti-military prejudice”2 Our circumstances today are no different.
Pope did not challenge civil control of the military but embraced it. He saw it as a military duty to adjust to the demands of democracy. It was the military, not the politicians, who had to adjust no matter the national emergency. In Pope`s opinion, it was politics that indicated the limits to growth for a suitable military organization and the control of defence.3 Those limits are firmly expressed by successive governments as defence budgets, which are the authorized limits within which military organizations must operate, grow and/or decline!
As in Pope’s day, decisions, deductions and policies were often placed in juxtaposition to what our Allies are doing. 4 Contextually then, what allies do is a matter for Canadian concern and observation in an evolution of a changing world and the needs of defence organizations for these events may influence the direction of change for the way forward.
But Things Can Change.
When the Harper government assumed power in 2006, it made support for the Canadian Armed Forces (CAF) its personal trademark. The CAF then enjoyed an expansion arising from the government’s Canada First Strategy. Those were the glory days. Of course Canada was in the midst of operations in Afghanistan, but that operation is no longer in force and now money is tight.5 So the circumstances for National Defence must change and the Canadian Armed Forces (CAF) as the face of the conservative government of 2006 is not the face of a conservative government of 2015.
Then a big factor for change was the fact that Canada slipped into a budgetary deficit in the fiscal year of 2008-09 that was influenced by a global recession. The government of the day desired a return to budgetary surplus by 2015. But any prudent government in similar circumstances would also aspire to this laudable aim. The government earmarked huge budgetary reductions from its overall operations. The Canadian Armed Forces and the Department Of National Defence were not exempt. Surprisingly, Canada was not alone in this path and attempt to trim its defence spending. Many allies were also on a similar path but were well in advance of any Canadian considerations.6
The stimulus for trimming amongst Allied defence budgets may have had a collateral impact in Canada as governments tend to look at the actions of one another for benchmarking purposes in an effort to avoid re-inventing the wheel. Thus reduced economic and fiscal circumstances may have been a cause for global introspection influencing collateral and similar actions amongst defence organizations in the common effort to adjust to new fiscal realities. Governments contracted defence spending. This contraction not only impacted defence capabilities but also impacted the inherent structure of defence organizations made to adjust to the new reality.
Planning in this post-Cold war environment became much more difficult for many defence organizations. The constant of common threat is not readily apparent. Perhaps one of the realities, if not challenge, is the nature of a “boom and bust” cycle that this type of planning environment forces defence organizations to be in a constant state of fiscal adjustment. An elusive security-threat environment demands constant adjustment and change to keep apace of threat and developments. Thus Governments must either expand or contract defence spending to meet either perceived or actual security threats and developments by adjusting fiscal realities. This will place a continuing pressure for “change” and a call for constantly evolving defence organizations.
Building and sustaining a defence organization within this environment demands flexibility to the needs of government. Thus the job of defence organizations is challenging. They must be organized to meet ongoing domestics and international security concerns, foreign policy demands, and the “security” concerns of its citizens. This challenge is both an improbable and thankless task. It is a matter of “getting it right”. But getting it right must be juxtaposed to the needs of times often results in “getting it wrong”.
Very problematic is the fact that events often supercede the requirements of change. But defence planners and politicians tend to focus on the immediate rather than the long term goals in both managing defence budgets and evolving organizations molded to the policies of government and existing security threats. The future is of little concern as it is uncertain. It is the “immediate” that demands action and, that is where the certainty lies! Thus the state of defence organizations is one of continuous change.
Difficulties in the Management of the Defence Portfolio
The difficulty in a fast pace change environment is that the process is often reactive rather than proactive and executed under the guise of economy and efficiency. A common argument is often an apparent view that the waste in a given day is the result of growth of administrative tail. Organizations must adjust or adapt to changing circumstances if they are to survive and remain relevant. You place your resources where you need capacity and when circumstances changes you should be able to re-direct and adapt those resources accordingly. But the execution of doing so is difficult.
Arguments are constantly being made of the need for the continuing development and design within defence organizations. This responsibility lies with senior leadership of all armed forces. Their task is to bring action to structure and that coordinates personnel, materiel and processes with the resources at hand that fulfill a defence organization’s purpose.7 A laudable goal, but one that may often be difficult to achieve, given the exigencies of the day and the needs of the existing government. Thus change once set in motion requires an immediate if not undivided attention of senior leadership if that change is to be effective and in place in a timely manner. It requires both discipline and precision to properly align organizational actions in the execution in the implementation of those goals. It will lead to failure if not attended too, which leaves defence institutions openly vulnerable to strategic distraction and misalignment otherwise.8
The problem with delivering an adequate defence organization is that the distractions are many, where time and resources are limited. Simply put, circumstances change as fast as governments or events change. The challenge for Canadian defence in its history was to ensure that National Defence and the Canadian Forces were well placed to meet its security and defence obligations and be able to transit from peace to war seamlessly. This has been the quest for the Holy Grail that often begs the public’s demand for the continuing relevance of the Canadian Forces in contemporary times. Thus “change” is the one constant on the horizon. The constant of design to meet change is indeed relevant, more importantly, perhaps change is cyclical and driven by the constant – the needs of the day!
The Canadian Forces had surfeit of the public’s support while in Afghanistan. Now that that operation is effectively over, there has been a diminishment in the public support and thirst for increased defence spending. Once again the Canadian Force must prove its relevance to Canadian security in peacetime while it prepares for the next exigency that will ultimately be placed at its doorstep for action by any government of the day at some unknown time.
Thus the Canadian Forces and the Department of National Defence are at war every day. It is not the war they expect. It is a bureaucratic reactive war that attempts to balance budgetary constraint and the demands of public relations in the use of budgetary resources. It is a war that can distract strategic direction and management opening the door to charges of misalignment of resources that complicates the management of scarce defence resources.9 In this milieu benchmarking and best practices are often employed as time saving measures. It is a panacea to quick solutions and proper staff evaluation looming defence problems. What our allies do then, is indeed a matter of interest and should be a matter of concern to Canadian defence planners because those solutions may be held up as the benchmark and a way ahead for Canada.
Back to the future -1995?
Whether we like it or not, Canada is tied to its allies’ economic policies and long-term security interests. We are inextricably linked to events happening globally.10 Others may hold up a pressing urgency and demand for change that Canada cannot ignore or avoid.11 The situation in the United Kingdom (UK) and the follow on in the United States (US) in 2010 was such an example. Those events may have been be the harbinger of change to Canada in the events that followed. A looming economic crisis warranted drastic action.12
Defence and government spending is in fact based on the health of the economy. World pressure for prudent economic action on government spending could have been brought to bear in Canada. Prudence would suggest that Canada get on board with many of the UK and US initiatives at the time. Thus global and public pressure may have had an indirect impact or influence on Canada’s direction towards its defence spending that followed.13
But really have we not been down this path before? The reality is we have been down this path many times!14 The means and measures held for the way ahead were neither unique nor are they extra-ordinary in the context of the possible policies paths or options open to governments under financial duress. They were merely stop gap measures until economic fortunes or strategic circumstances changed.
The one constant theme on which all these short-term and expedient measures are premised on, is a need and a drive for economy and efficiency.15 A review of our own history may be indicative of such cyclical change in the drive for economy and efficiency since World War II. The effects of the drive for economy and efficiency were likely mitigated and tempered by the constant of Cold War planning but that damper was removed in 1990 with the fall of the Berlin wall. The world seemed a safer placed and emerging and existing democracies demanded a post-Cold War ‘Peace Dividend’. 16 That assumption no longer holds true.
Still it was abundantly clear given the debt load that the US, UK, and others had back in 2010, indicated that there would be some economic impacts and actions that Canada had to consider too. Looking back, the US felt its recession a year earlier than Canada.17 There was nothing to suggest then how events would transpire or whether they would be felt in Canada at any point to the same degree. But the events that happened, particularly in the UK, may have been the harbinger and indicator of a path for renewal that would soon be looked upon by the Canadian defence establishment. The past was indeed becoming prologue, for the UK measures were very reminiscent of what happened to Canada 1995-2005 leading to:18
- Program cuts;
- Public Service cuts;
- A call to stimulate the economy through the private sector;
- Program rationalization;
- Reduction or elimination of capabilities; and
- Public Service restructuring.
Looking Back at the United Kingdom and the United States 2010
The United Kingdom’s (UK) fiscal problems were not unique in 2010. Many applauded the United Kingdom for taking necessary and painful fiscal steps taken to get its economic house in order. As such the UK was held as an example for the way ahead within the NATO community.19
Curiously, the UK actions prompted calls for similar considerations in the United States (US). For the US budget deficit problem was not dissimilar to the UK’s. The US faced an 8.9% budget deficit while the order of magnitude for the UK was 11.4%. Given the United States reduced fiscal circumstances since the onset of the recession, there was much debate within the US that they too, must get their house in order. It may well have been a shift in the congress from democratic to republican control at the time that was the lever for the US administration to sit up and take notice that the situation demanded similar actions.20
Thus a common precedent amongst major allies towards fiscal improvement and restraint was being set for common action plans. Similar policy actions likely trickled down through a web of globalized relations to the linked states in a globalized economy, for in part, we share common policies by our alliances. 21 Those ties are often bound through our globalized trade and economy. A tenuous twang in one part of the relationship may be translated throughout this web of dependent relationships. Thus what happened in the UK then, would certainly have implications for Canada, for we do not exist in a vacuum.
Dilemma for all
Despite the need for action, the UK contraction of military services was of deep concern to the US. For one, the UK was considered it’s most trusted, if not, it’s most reliable ally. Questions were raised in the US as to who would replace the UK in this role. The UK contraction left a gap that others would be bound to fill. It placed a burden on all its allies, particularly the US who was in an economic position to increase burden sharing.
The US outmatched all 17 of its NATO allies in military spending of $660 billion in annual defence expenditures, which was more than all its allies combined.22 Sustaining that burden, without additional strain, was of immediate concern to US analysts.
US defence spending was growing at rate of 4.8% in the year 2010 while GDP growth grew at less than 2%.23 The US in its role as policeman to the world came at a cost of $1.5 trillion budget deficit on top of its national debt of $13.5 trillion.24 The US budgetary deficit was likely due in large part to the growth of military expenditures of $1.2 trillion on operations since 9/11.25
The US in 2010 faced a similar dilemma to the UK. It too faced rising unemployment, required much needed investments in infrastructure and education, and other looming priorities. Forty cents of every US dollar of debt serviced military commitments. Still the US continued to spend $3 billion a week on military operations but the fiscal reality suggested that this level of spending was no longer be affordable nor sustainable.26 Thus there came pressures within the US as well to reduce its overall budgetary spending and military spending in particular to get its own house in order.27
Canada could not ignore such happenings either in the US or amongst its global partners. The United States is Canada’s largest trading partner. Our Canadian economy is inextricably linked to the US economy. It would be akin to burying one’s head in the sand to ignore the issues of “remedies” as actions taken elsewhere would certainly be considered for Canada.
History may well have been be repeating itself in the same vein and as calls for measures taken for post-Cold War in the call for a `Peace Dividend` of the 1990’s would surely be entertained. So are we once again revisiting the past like “Ground Hog Day” and pushing the remedies of the past to get us out of a current bind?
Size and Extent of UK Defence Cuts– Looking in the rear view Mirror
The ramifications of the UK defence cuts were singularly relevant and important. They were a lightning rod for possible policy outcomes for the way ahead. It was hard to ignore that the UK’s annual deficit was at a level of 11% of GDP in June 2010. Its net debt was crippling. Their net debt in gross dollar terms was $1.5 billion that equalled 60% of its GDP.28
A continued spending level, given those economic circumstances, was well on the way to pushing the UK over a financial brink to bankruptcy. Their fiscal situation was no longer tenable and drastic actions were required. This resulted in their announce cuts that have generally resulted in an overall decline of government spending whose proposed cuts averaged 19%. 29
The UK took the following key measures in October 2010:30
- £81bn cut from public spending over four years
- 19% average departmental cuts – less than the 25% expected
- £7bn extra welfare cuts, including changes to incapacity, housing benefit and tax credits
- £3.5bn increase in public sector pension employee contributions
- Rise in state pension age brought forward
- 7% cut for local councils from April next year
- Permanent bank levy
- Rail fares to rise 3% above inflation from 2012
It was hoped that such measures would forestall economic disaster and bring the UK fiscal house back to a sound economic footing. But such measures were not taken without cost. They were achieved by eliminating 500 thousand public servants, slashing welfare budgets, and eliminating $131 billion of government spending.31
Some feared that this level of austerity would only serve to even further dislocate the UK’s economic recovery. Adding to the problem was the uncertainty that the private sector would be unable to absorb the influx of 500 thousand unemployed public servants. Some suggested that there would be follow on impacts to the private sector Indeed the level of pain suggested was that an additional 500 thousand private sector jobs could possibly be lost in the process!32
The nub of the problem was that if this alchemy was not right, it could indeed further dislocate the UK economy. The level of pain that was proposed in this announcement, could go far deeper than expected. Some would say that these actions were a gamble which jeopardized their planned recovery and a return to fiscal stability.33
The sustainment of military capability and might was also made difficult by a continued debt load that would drive debt interest carry charges that in the end would lead to doubling the UK’s annual defence budget by 2015/16 to keep pace with its needs!34 The measures taken though geared the UK to cap expected government spending at $1.1 trillion by 2014 based on the assumption that its economy would then be in structural balance.35
What was truly feared though, was that these economic actions would take the UK’s armed forces spending well below 2% of GDP.36 This spending level is a marker for a nation’s security spending as an effective contributor to the NATO alliance.37 It appeared on the surface that a 19% average cut would take the UK well below this level.
Trade-offs taken to Hold Defence Spending to 2% of GDP
The UK’s action was of serious concern to the United States. There was some speculation that it was only the serious intervention of then Secretary of State Hillary Clinton that swayed the UK from drastic cuts to its defence spending to hold to “2% of GDP”. The US looked to that level as an assurance that the UK was indeed “punching above its weight.”38
But holding to a 2% of GDP level was mercurial. The UK’s defence review posed some dramatic cuts and lost or deferred capabilities in the form of trade-offs to arrive at that number
The British army:
- faced a reduction of 7000 soldiers reducing its size from 102,500 to 95,500
- lost 40% of its armoured and 35% of its artillery capabilities that were mothballed.39
The Royal Navy in turn saw the:
- loss of its Harrier jump jet capability
- loss of the aircraft carrier Ark Royal
- reduction in fleet size of destroyers and frigates from 23 to 19.40
The navy was allowed to finish completion of two aircraft carriers whose contracts were deemed too expensive for cancellation. But in the end the Royal Navy would only have sufficient aircraft to man one aircraft carrier.
The F35 procurement as replacement aircraft for the Harrier was reduced from 138 to 40 units. It was proposed that the second aircraft carrier be mothballed or sold at a later date as it was too costly to terminate the build. Finally a decision on the Trident nuclear submarine force was temporarily postponed to a later date.41
The reduction in the new F-35 fighter procurement obviously had an impact on both the Royal Navy and the Royal Air Force. It forced a redundancy of surplus staff that led to a further manpower reduction of 5000 service personnel of both services.42
The serious loss of these key capabilities and the policies taken to do so are relevant as they expose end results and future intents.
The reduction of the UK’s defence spending to 2% of GDP has had a number of implications.43 Traditionally the UK spent higher than this level. A lower level would be a key indicator of a withdrawal in the UK’s projection as a global power that goes beyond the two percent of GDP marker. NATO places great emphasis on sustaining defence at a two per cent of GDP marker. A reduction below this level suggests a reduction of capability and an intent that the UK is withdrawing from global power projection and the role it plays within that alliance.44
Pegging defence spending as 2% of GDP is an interesting marker. It may representative on the world stage as the minimum effective resource point for national security and action on the world stage. It may also represent the minimum resource point available for effective self-defence and maintenance of a nation’s sovereign interests.45
Thus the two percent marker may be the point upon which nations assess threats and ambitions for globally projection or expansionist policies. Any investment at or beyond this point may also be the benchmark for assessing whether a nation is capable of punching above its weight or has a willingness to do so. It may be the one true measure of a nation’s defensive if not offensive posture and the measure to judging national ambitions on the world stage.46 Thus the UK’s possible retreat below this level sent a clear signal that it was adjusting its global position as a major power.
Two percent of GDP is therefore relevant marker that assesses the level of defence investment juxtaposed to minimal military capability for self-defence and sovereignty purposes. A two percent level was very suggestive given the fact that the UK proposed to go below this level. It was only through an apparent US pressure that provoked the UK to revise its plans to adjust to this level.47 But it is meaningless if the resulting capabilities of the alternatives does not match or exceed the requirements of the trade-offs they replace.
Cause and Effect
Canadian defence spending has been widely cited as too high and excessive by some.48 So given what our allies were doing, it is logical that pressure would also be brought to bear on Canadian defence spending when juxtaposed to similar circumstances.
The justification for increased or sustained defence spending at an appropriate level in Canada is often lost in the reaction to declining fiscal circumstances that effectively chokes defence spending.49 There are some groups and interests in Canada who are highly critical of Canadian military spending. Some consider the Canadian Forces an anachronism and an unnecessary burden on the Canadian taxpayer. That message is played time and again. 50 Thus Canada’s defence budget is always under constant scrutiny. It is also the one budget that is easily targeted as the scapegoat for reduce discretionary spending in hard times. It alone represented 7.1% of discretionary federal spending in 2012.51
The panoply of media reports on 2010 defence issues was very reminiscent of the 1990’s. The discussions surrounding various defence procurements and the F-35 in particular are very reminiscent of arguments of high expense, cost over runs, inefficiencies, and threat of project cancellations.52 The way ahead is very clear if the reaction is extant that can lead to possible turmoil, dislocation, and lost opportunity within Canada’s defence spending portfolio.53
Still Canadians want to be sure that they are getting value for money on any investment no matter what. They also have a desire to ensure that the Canadian social safety net is preserved and grows to meet the needs of the time. But if we do not have the shield to protect Canadian vital interests, all will be for not! If we are not prepared to act or protect our sovereign interests, they will be taken away from us.
That is why we must be aware of what is happening in the UK, the US and elsewhere. It may be the benchmark for the way ahead but that benchmark may not be apropos for Canadian circumstances at that time. But whatever the demands, Canadian policy action must be crafted with Canadian interests at heart. So it is important to know what our allies are contemplating and it is just as important to understand the outcomes as possible consequences to Canadian Defence policy.
A Call for Austerity
Regardless the level of Canadian defence spending remains a bone of contention. This is where the important implications of the UK budget reductions come into play. Many would no doubt hold the UK’s example as the way ahead for Canadian interests. The political imbroglio surrounding Canada’s purchase of the F-35 as the replacement for the CAF-18 is indicative of that in the media.54
We saw that in the decade of the 1990’s. Defence was often “benchmarked” and policy actions of “best practices” were often applied to achieve economies and efficiencies without due regard to Canadian circumstances. So there should be some trepidation and concern with the UK’s action for budget reduction, force rationalization, redundancy, economy and efficiencies, with a view to rationalization of defence spending.
The UK policy actions must have had some collateral impact on Canadian defence spending even in passing. Their actions will likely be the impetus for the consideration of ratcheting down Canadian defence spending. The trouble is, the UK is attempting to ratchet down to 2% of GDP but Canada’s current level is 1.4% of GDP.55 Some may argue that the 2% of GDP is irrelevant, that it is real dollar spending that matters. Still the 2% level was the marker of importance and concern to then Secretary of State Hillary Clinton in the matter of the UK budget reductions.56
Where does Canada sit? – The true test of the Day may be the Debt to GDP-ratio!
Debt to GDP-ratio may be a key ratio for defence management. It may be a key trip wire for anticipating economic calamity. The tripping point for Canada in 1995 was a ratio of 48.3%.57 The government took steps and managed to reduce this ratio to 22.4% by the onset of the recession in 2008. Given that GDP ratio was forecasted to of 30.8% by 2015-16 when the Canadian economy is expected to return to a surplus position, is suggestive for Canadian defence planners and managers.
There are three key points that the management of growth of Debt to GDP-ratio foretells of government ends in . At 48 % of GDP or more, government action will take actions to contract of defence spending that may have drastic consequences. A Debt to GDP-ratio ratio of 22% or less may be indicative of an ability to expand or sustain defence spending. A rise to 30% or more may be indicative of a measure of flexibility for to fund unforeseen contingencies that buffer the economy and engage economic action plans that stimulate economic growth.
In the face of facts the government though must consider the drastic reductions that are being considered by many of its NATO peers. There certainly will be a demand for fiscal prudence in the rationalization of defence resources here too despite the fact that Canada’s defence spending is below a 2% of GDP marker favoured by its key Allies.58
Forward looking statements of the Department of Finance (Canada) to 2015–16, suggested that Canada’s Debt to GDP-ratio ratio would decline to 30.8 per cent such that a small surplus of 0.1 per cent of GDP was expected.59 Although this is a large percentage figure, its projection is still down from the all peak of Federal Debt as a percentage of GDP at 68.4% in 1995-96. This ratio was 28.6% in 2008-09 at the onset of the current recession, and given the government stimulus efforts to stem the effects of that recession, Canada’s Federal debt as percent of GDP remained at a fairly constant level with only a 2.2% increase growth once the economy edged toward a surplus.60
Some consider the government’s forecasts to be overly optimistic. Canada’s watchdog, the Parliamentary Budget Office’s projections presented 3 November 2010 indicated an $11 billion deficit by 2015-16 that will ultimately add more than $210 billion to Canada’s national debt. The divergence of opinion between the watchdog and the Department of Finance’s calculations centres on an assumption of Canada’s ability to keep spending growth at two per cent annually. The watchdog suggests a more reasonable ambition is to keep spending growth equal to inflation and population increases, or about 3.2 per cent a year. He is recommending about half the rate of Ottawa’s increased spending prior to the recession. On a positive note he also indicated that the government is overestimating the size of this year’s deficit by about $5 billion that tends to ameliorate the long-term forecasts.61
An Action Plan – or Holding the line on Canadian Defence Spending
The watchdog’s warning is significant but it’s not above some criticism. Implied in his analysis must be a lower spending growth rate. Who is to say the watch dog or the government for that matter, is right or wrong? Assumptions and projections are deadly. We cannot truly accurately forecast what Canada’s growth will be. The true results may be more or less than either projection for which we may be pleasantly surprised on the one hand or ruefully disappointed depending on which way the forecasts go. But the watchdog’s suggestion for a more reasonable ambition is quite correct. Plans based on a 2% growth model are speciously susceptible to inflation and political will.62
But the value of the watchdog’s “reasonable ambition” strategy is its application before things really get off the rails should the economy not achieve its 2% per annum annual growth. It is better to decelerate rather than decapitate government programs by continued spending that is not warranted and that borrows against future generations! However sustaining the present need not be conducted at the halt either. It may be matter of managing between the lines by: 63
- ascribing the maximum debt to GDP ratio that Canada was willing to bear – the trip wire for drastic action was a net debt-to-GDP ratio of 48.3% in 1995
- holding the trip wire to a reasonable threshold say the projected debt to GDP ratio of 30.8% by 2015-16
- monitoring economic growth for the 2% per annum annual growth;
- if annual growth falters, applying the reasonable growth strategy within the lines of the Parliamentary watch dog, and
- then managing Canada’s defence spending in between these lines.
There has never been a full or complete analysis on the success or failure of the Canadian policy of “change” of the 1990s. But it was certainly a painful, if not a chaotic experience for many. It certainly was marked the most disruptive experience for the Canadian Forces as the Decade of Darkness.64 Many Canadian taxpayers also suffered and lost gainful employment they were saddled with download costs of public sector services, at a time when many were trying to keep their heads above water. Growth of personal income was non-existent.65
Bold action is now needed by governments of all stripes to ensure both their fiscal and economic security. Should they avoid layoffs, reductions, or economies and efficiencies at all costs? No, certainly not! But they should certainly consider the scale of their actions lest they have the undesired impact of killing rather than growing their economy. It may be a matter of approach rather than a call for drastic action.
Let’s be realistic, Canadians do not wish to go through time and again what has already been tried and tested in less than one generation. It simply does not make sense! The UK’s game plan was essentially Canada’s playbook of the 1990’s! But why does history seem to be repeating itself? Change is tied to budgetary requirements of the day. Senior leaders need to be constantly on top of their game in managing change both in good and hard times. Management along a spectrum of “conflict” demands flexibility. Management along the spectrum of economic change also demands that flexibility! That seems to be lacking and is likely a key variable in accommodating change within the boom and bust cycle that seems to perplex defence budgeting over the long term!
Whatever looming global economic or security problem may be on the horizon, Canada must have its own actions plans that remediate the unforeseen and lead to economic stability that Canadians long for while securing its vital interests. Let’s hope whatever they are, governments are not simply pulling the rabbit out of the hat or reacting on the spur of the moment in the moment of crisis or need. Planning and flexible defence organization are key. There must be forethought in those plans that are for the best of all Canadians. Maybe it is learn from our history to start looking ahead, and being proactive rather than reactive to the wall of seemingly endless problems of the day, otherwise what may be left of Canada’s meagre military might would be a simple hollow shell.66