NATO's free rider dilemma

#144

My Dear Friend of Democracy,

The North Atlantic Treaty Organization, short NATO, is on everyone's lips these days.

Former Dutch Prime Minister Mark Rutte will succeed Jens Stoltenberg as NATO's next Secretary General. And yesterday ended the yearly summit of the thirty-two members' heads of state.

A good time to examine a question of sometimes existential importance:

Why do organisations, at times, fail to achieve their goals?  

What do I mean by that?

Organisations exist because goals can sometimes be achieved better in a group than if everyone tries to achieve their goals individually.

NATO is the best example of this.

When countries join to defend themselves against an external enemy, the probability of success is higher because every country that belongs to the alliance receives the full support of the entire organisation.

But there is a problem. An incentive problem.

Each country tends to keep its contribution to the group's success as low as possible, but it also wants to benefit from the support of all the others in an emergency.

From an individual perspective, such behaviour makes sense. But in the end, it leads to a bad result for everyone. A dilemma.

This dilemma is widespread and well-studied in economics. It is called the free-rider problem.

It occurs in many areas of life. Generally speaking, a free rider wants others to pay for something he plans to use for themselves.

If many act as free riders, the good may never be provided.

It's not that bad with NATO; however, the alliance is underfunded.

To avoid the free rider dilemma, NATO members promised to spend at least 2 per cent of their GDP on defence. Only 23 of the 32 members meet that goal.

At least, things have turned for the better: a decade ago, only three members met that threshold.

One of them is, and always was, the USA.

Since about 1960, the United States' share of allied GDP has averaged roughly 36 per cent, while its share of allied military spending has been more than 61 per cent, according to a Cato Institute report.

✊ Europe has long lived comfortably under the protective umbrella of US military power. Times are changing, and so is the awareness of most European governments. Their willingness to spend more on defence is increasing, but it is increasing very slowly compared to the dramatic developments in Europe.

See you in Europe,

Johannes