The 5% Formula: What is it?

The 5% Formula is a two part mechanism combining absolute cuts followed by a threshold rule. Combined, they are designed to achieve major, year-on-year cuts to global military spending over 10 years and beyond. It is a long-term, sustainable campaign, with a top-line demand that works for civil society groups in every country where there is a perceived value in challenging policies concerning military spending. It would see annual global military spending cut by 40% after the first decade, back to ‘Clinton Era’ spending levels ie $1 trillion dollars, the lowest in recent history (and even then, ‘low’ is not low enough for many peace campaigners – indeed far from it). This would deliver an estimated $700 billion to be redirected to core urgent human and environmental needs. After the first 10 years, we call upon all nations to adopt the 5% threshold rule to sustainably restrain the global military spending – no country allows any increase in military spending to outstrip economic growth. The 5% Formula would therefore drastically cut annual military spending to the Clinton level in a short but practical period of time and then maintain an effective check on military spending in perpetuity by considerably lagging its annual change behind economic growth.

Reaching the ‘Clinton Level’

The 5% Formula would be applied for the first decade as follows: we call for all nations to cut their annual military spending by 5% every year. Our primary targets are the ‘Top 20’ military spending nations who account for 87% of total spending ($1.7 trillion dollars) in 2012.

compound cut table5% annual and absolute cuts to national military budgets: This is equivalent to a compound 40% cut for each nation’s respective annual military spending after 10 years (see the Table on the right for illustration).[4] These cuts are expected to deliver an estimated $700 billion in total to be redirected.

SUM CAPTURED: $700 billion

Beyond the First Decade – the 5% Threshold Rule

The 5% threshold rule is designed to be mainstreamed into budgeting beyond the first 10 years, acting as both a military expenditure ‘dampener’ and an economic growth ‘accelerator’[5] for all nations, while facilitating and enabling the public to more deeply interrogate the many inter-linked issues of the military spending debate.

All nations adhere to a ‘5% threshold rule’, where military spending growth (% change) in a given year is limited by previous year’s economic growth (measured as % increase in gross domestic product, or GDP), less 5 percentage points (5%).[6]

For example:

0% economic growth = 5% cut to annual military spend
2% growth = 3% cut to annual military spend
5% growth = no increase
7% growth = only 2% increase on annual military spend.

The 5% threshold rule in practise means that no country allows any increase in military spending to outstrip economic growth. Most economies grow less than 3% annually; this effectively translates as 2% annual reduction to their military spending. These savings are then divided equally to fund both domestic and international needs. The world military expenditure will gradually decrease, until an equilibrium is reached that emphasises economic/social rather than military advancement.

The fast-growing economies (eg BRICS), according to this 5% threshold rule, might be able to increase their spending in some years if their economic growth merits it (albeit at a much lower rate than they might otherwise do without the threshold). In that case,  there will be no ‘cuts’ per se to their military spending to be diverted, we propose that they are therefore required to ‘gift’ a contribution of an amount equal to 2.5%[7] of their previous year’s military spending to fund international development programmes.

EXPECTED SUM CAPTURED: tens of billions of dollars per year

The 5% Formula would therefore drastically cut annual global military spending to the Clinton Level in a short but practical period of time and then maintain an effective check on military spending in perpetuity by considerably lagging its annual change behind economic growth.

How would we track this?

Governments’ proposed military budgets and actual military spend can be assessed in light of the previous year’s national economic growth and defence budget figures. Statistics for both GDP and the defence budgets are regularly released and readily available in most countries. These figures can then be directly used to judge whether the governments concerned are proposing to spend or have already spent an amount of money on military-related purposes that are not consistent with The 5% Formula.

  1. 4. 1-(1-0.05)10=100%-60%=40%
  2. 5. In many ways, military expenditure hinders rather than advances economic prosperity, compared to investments by the government in other productive areas of the economy. The 5% threshold rule ensures a government allocates more of its revenue to grow the economy while still preserving its ability for sensible defence.
  3. 6. The 5% threshold rule: Annual percentage change in military spending ≤ (Percentage change in yearly GDP – 5%).
    Annual economic growth is the % difference between any two consecutive years’ GDP: we assume most economies will not grow more than 5% on average for the foreseeable future.
  4. 7. This 2.5% ‘contribution’ is a fixed percentage, no matter how negligible the annual military spending is increased. This is consistent with the requirement for G8 nations who are required to cut 5% of their annual military spending every year in the first decade and to divert these savings to fund both domestic and international needs equally – in effect, G8 nations are diverting 2.5% of their annual military spending to fund international development programmes every year.

What If…? retrospectively applying the 5% Threshold  Rule, 2001-10

If the world’s highest military spenders had adopted the 5% threshold rule in 2001, their total military expenditure would have been reduced to $730 billion by 2010, rather than actually increased to £1.3 trillion.[8] 

What if 2000s
The mechanism therefore would have made a significant impact. The difference of $570bn is a significant sum, hence, the campaign demand is reasonable – both as a reachable target as well as delivering meaningful reductions. Using this retrospective approach to illustrate the benefit to society of The 5% Formula enables the campaign to engage society with some of the core issues that underpin the demand, such as: Why do we need to prioritise military spending? How do we define ‘defence’? Who are the real beneficiaries of excessive war spending?

$700 billion in first 10 years: how could it be used?

The $700 billion captured in the first 10 years can be diverted to and divided equally between, domestic and international needs:

  • International:  $350bn
    • Immediate and urgent poverty reduction
    • Sustainable development – reflecting civil society activism on climate & economic justice
    • Peace/conflict prevention & human rights
  • Domestic:  $350bn
    • The global green economy

The debt cancellation campaign and the financial transaction tax are two examples of how it is possible to win both public and political support for the redirection of monies from one end-use to another, more progressive one. The 5% Formula would have a great deal to learn from both of these international, high-profile and successful campaigns.

  1. 8. Sources: World Bank; SIPRI. Military expenditure figures are based on SIPRI’s annual global defence spend calculations and GDP rates based on World Bank figures. The global military spending grew by around 4% every year on average between 2001 and 2010.

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