Additional defense investments will not stimulate economic growth in the Netherlands. A majority of funds allocated to the sector over the next few years will be spent on new equipment that must be procured internationally. Consequently, this expenditure does not circulate within the Dutch economy, according to an analysis by the Central Planning Bureau (CPB). Moreover, recruiting more defense personnel will, given the limited availability of labor, likely reduce employment in other sectors that also require workers.
During the NATO summit in June, member states agreed to allocate at least 5 percent of their Gross Domestic Product (GDP) to defense by 2035, which includes 3.5 percent for direct defense investments and 1.5 percent for spending on ‘broad resilience,’ such as ICT infrastructure and road networks.
To fulfill this commitment, the Netherlands will have to increase defense spending by an estimated 16 to 19 billion euros in the upcoming years. However, CPB’s research suggests these additional funds will yield limited benefits for the Dutch economy.
The study’s authors highlight that economic growth is not the principal aim of these expenditures. “The effects on economic growth should not be decisive in choices regarding defense spending. The goal of increasing defense spending is to enhance our resilience and security. That is ultimately also an important prerequisite for a well-functioning economy.”
Approximately 61 percent of the extra billions will be allocated to purchases from abroad, including weapon systems and aircraft. Maintenance costs see 29 percent of additional funds being spent internationally, while all spending on personnel involves hiring within the Netherlands.
Yet, the labor market constraints mean the economy gains little from increased employment in defense. “In the current tight labor market, this will primarily result in more displacement of other economic activities in the Netherlands,” the CPB researchers note. In fact, since these expenditures are financed through measures such as reducing budgets for other ministries or raising taxes, there is a possibility of adverse effects on the broader economy.
Original article: nrc.nl
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