The top ten arms exporters in 2018 included two rather small (by population) countries. At number 8 was Israel, a nation with a population of 8.8 million. At 10 was the Netherlands, with twice as many people. The top five producers have a combined population of over 1.6 billion. The Israeli ranking isn’t about economic power. The Israeli GDP is $391 billion while that of the Netherlands is $914 billion. Number 9 on the exports list is Italy while the top 7 are the U.S., Russia, France, Germany, China, Britain and Spain. The top five producers account for having a total GDP of $44 trillion, more than half the world total.
Israel got to the top ten after the Cold War ended in 1991 because it was still at war, as it has been since it was founded 71 years ago. Despite the refusal of many nations to sell weapons to Israel, mainly because Moslem states controlled most of the world oil supplies, that vulnerability was turned into a strength by developing, manufacturing and eventually exporting more and more weapons. Israel concentrated on high-tech systems that would work as advertised and that helped export sales because Israeli weapons were always “combat proven.” Israel has won five wars during that time and while that has discouraged many of its Moslem neighbors from attacking, it has not eased the threat. More and more the Israeli military edge was bolstered by superior Israeli made military tech. After 2001 the threat to Israel got more intense. Back then there were some 200 companies in Israel that manufactured military equipment, and five of them (Israel Aircraft Industries, Israel Military Industries, Rafael and Elbit) accounted for over 90 percent of the export sales. Although most of these companies began with contracts to supply the Israel armed forces, they have grown through exports.
Israel does so well at arms exports because it has a very competent military and Israeli defense firms have a reputation for overall military excellence. Moreover, Israel will sell to just about anyone if they have the money. The collapse of the Soviet Union in 1991 crippled a major arms exporter, especially the high-tech stuff the Soviets offered. Israel stepped up and grabbed some of that market, which is why India is now Israel’s largest customer, accounting for more than a third of Israeli arms exports. That was how Israel had a peak year in 2017, with $9.2 billion (up 42 percent from 2016). Sales were down to $7.5 billion in 2018 but the trend continues upward. Israel even has Moslem majority countries as customers and that is expected to increase as Arab state realize that they, and Israel, face the same enemies, mainly Iran and Islamic terrorists.
Meanwhile, global defense spending hit a plateau after 2010. This was the result of the 2008 worldwide economic recession followed by the sharp decline in oil prices after 2013. Global defense spending increased 25 percent between 2008 and 2010, from $1.28 trillion to $1.6 trillion. Since then it has barely kept up with inflation. Put another way, defense spending went from 2.5 percent of world GDP in 2007 to 2.6 percent in 2010. At that point, the United States was responsible for about 43 percent of that spending. However, American spending increases were declining. In the first decade of the 21st century, American defense spending increased 80 percent, and accounted for most of the worldwide increase since 2001. While military spending continues to decline in Europe, it was up nearly everywhere else. That included Africa and South America. Russia was rearming in a big way, and China's increase was smaller in 2010 because of the recession, but there was still an increase. India and China are in something of an arms race, although it is mostly India trying to catch up with an economically much stronger China.
All this is still less than the Cold War numbers, which reached a peak in the late 1980s, when spending (adjusted for inflation), went past $1.7 trillion a year. After the Cold War ended in 1991, worldwide spending fell by nearly half, to about $960 billion a year. Since then, especially since the war on terror and growing aggressiveness by Iran, the spending has been rising. It was just over a trillion dollars in 2005. From 2010 to 2018 global defense spending went from $1.6 trillion to $1.8 trillion.
Defense spending is dangerous, even if you never use all those weapons in a big way. The Soviet Union, which started the arms race in the early 1960s, couldn't keep it up, and disintegrated partly because of the huge military spending, in 1991. Global defense spending began to rise again in the late 1990s. Now annual global military spending is rising steadily. But it's not the same as before. In fact, it's very different. Back during the Cold War era, there were over a hundred million people under arms, and each year, factories turned out thousands of tanks, hundreds of warplanes and dozens of warships. No more, not even close, even though current spending is nearly back to its Cold War peak.
There are fewer than 40 million people under arms now, and tank production rarely exceeds a few hundred a year, with annual warplane production of less than a hundred a year, and only a few dozen warships. When the Cold War ended, so did the era of huge conscript armies, masses of tanks (the Soviet Union had over 50,000 when the end came) and comparatively large numbers of combat aircraft and warships. Suddenly, after 1991, everything got smaller and more expensive. Conscripts were replaced by far fewer professionals, who got paid a lot more money. This was something the British pioneered in the 1960s, followed by the United States in the 1970s. When the Cold War ended, and the world saw what pros could do in the 1991 Gulf War, everyone began to dismantle their conscript armies. Smaller armed forces, staffed by professionals and equipped with less, but more capable, gear, were the new norm. Another change has been the growth in U.S. defense spending between 2003 and 2010, to support operations in Iraq and Afghanistan. This includes lots of money for bases in Iraq, and the hiring of over 100,000 civilians (including about 20,000 armed security contractors) to help with the war effort.
Thus the patterns of defense spending have changed. Much more of it now goes for payroll, and for buying far fewer, but higher quality, weapons. More money goes into equipment, notably high tech stuff like satellite-based communications and computers. Billions of dollars a year is spent on satellite communications alone, and not just by the United States.
With the Soviet Union gone, no one else out there wants to try and match the United States spending levels. The war on terror also has American spending going up again. Currently, the United States spends about $649 billion a year (according to SIPRI, an independent defense research organization), all of Europe, over $200 billion, all of Asia, nearly fifty percent more, the Middle East, over $110 billion (and rising fast). Africa and the rest of the Americas account for the rest. While nearly half the spending is by the United States, most of that money is not buying weapons, but payroll, benefits and materials needed for training and operations (food, fuel, spare parts, services.)
For most of the decade, not many new tanks, warplanes or combat ships were built, as everyone continued to live off the Cold War surplus. But that is changing. Many countries want to build new stuff, despite the fact that everything has gotten so much more expensive. That's because computers and powerful sensors and all manner of nifty new technology provide most of the lethality in new weapons. For example, your basic $500 assault rifle becomes far more lethal when you add several thousand dollars’ worth of computerized accessories.
Countries are spending more on defense, but they aren't buying the same kind of stuff they were two decades ago. Everyone, including the Russians and Chinese, have agreed that the Western way of warfare, with small number of well-trained volunteers using high-tech weapons, is the way to go. Israel, ironically, is an exception. But Israel has a compelling reason to continue with conscription. Israel exists in a violent neighborhood and every Israeli is well aware of that. So conscription is not seen as an unfair disruption, but rather a contribution to keeping everyone in Israel safe from very obvious threats. A small number of Israelis are on active duty with most of the armed forces consisting of former conscripts who remain in the trained and organized reserves for over a decade and never forget how to be a soldier, because the threat is always there for everyone. This system was pioneered by Switzerland and later adopted by Sweden to discourage aggressive neighbors from attacking them. It worked but requires a high degree of popular support to maintain.