TNAG-0476-FCO40-541-Strength-of-garrison-in-Hong-Kong-1974 — Page 26

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33.

Ipite this, on the NATO definition we spend 1 times as much

of our GNP on defence as our main European allies 6% in 1973 as compared with 4.2% for France and 3.9% for Germany (1).

This is

the best single measure of relative defence burdens. The fact that

France and Germany each appear to spend about the same absolute

amount does not vitiate the comparison, because they do so our of

a national product which is growing faster than ours. It is true

that since we do not have conscription, while they do, this tends

to put up the bill for our Armed Forces compared with theirs. However,

even if we deflate this extra expenditure on military pay, it appears

that we are still spending at least as much on defence as France and

Germany our smaller military manpower being compensated for by other

(2) factors, such as greater use of civilians

To do this out of a

smaller GNP than theirs puts a relatively greater strain on our

economy. To attempt to go on maintaining absolute parity, with a

widening gap in resources, would put us at an increasing disadvantage

in the management of our economy.

Note 1. The FRG incur substantial expenditure to ensure the viability

of Berlin, which falls outside the NATO definition. If this expenditure were included the proportion would rise to 4.7%.

Note 2. Comparisons of income and expenditure in different countries

using market exchange rates can be very misleading, especially in a period of fluctuating rates. Foreign exchange market rates are determined by flows of international traded goods and by capital movements. They are not a good measure of the comparative value of resources devoted to a particular activity in different countries. The assessment of the comparative levels of defence expenditure in this paragraph and of GNP in the preceding one are in terms of purchasing power parities, using methods applied in UN studies. Although subject to some margin of error, we believe that they provide a much better basis for the judgement of comparative defence effort than do market exchange rates. But as German and French defence expenditure appears comparatively larger in exchange rate terms rather than in terms of purchasing parities, they may prefer the former basis of comparison, even though this basis produces higher figures for their GNP as well as for their defence expenditure. We shall have to convince our allies on this point when we consult them.

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