NATO’s other mission—promoting economic freedom

NATO (the North Atlantic Treaty Organization) is known primarily as a military alliance—and understandably so. Military deterrence is NATO’s core mission, ensuring the security and defending the territory of the alliance’s 32 member states and 980 million people. However, that’s not NATO’s only mission. Perhaps NATO’s most underappreciated contribution to its members and the rest of the free world is its role in spreading prosperity and promoting economic freedom.

Last Chance

Before digging into NATO’s lesser-known mission, it’s important to establish that, despite their misuse over the centuries, armies can actually help preserve liberty and promote prosperity.

No less an authority on economic liberty than Adam Smith—recognizing that “a wealthy nation is…the most likely to be attacked”—observed that “the first duty of the sovereign, that of protecting the society from the violence and invasion of other independent societies, can be performed only by means of a military force”; that “the military force of the society” should be maintained “even in time of peace”; and that armaments are “favorable both to the permanency and to the extension of civilization.”

In short, investment in defense is a primary duty of government. It’s not only a hedge against the destruction brought about by war, against violence and invasion, against those who would roll back civilization. It’s a necessity. Just as our cities cannot function without police, our civilization cannot long survive without armies.

Some of Smith’s contemporaries—including many of America’s Founding Fathers—would challenge the notion that armies can serve as a bulwark for liberty. Several founders openly warned that standing armies threaten liberty. Such worries were understandable given the history they learned and indeed the history they lived: King George III’s army literally trampled the liberties of the colonies. But opposition to standing armies was not a consensus view among the founders. President George Washington, echoing Smith, argued that a standing army—limited in size and under civilian authority—was “indispensably necessary” to discourage attacks on the frontier, “protect our trade,” “prevent the encroachment of our neighbors” and “guard us at least from surprises.”

What do Smith’s and Washington’s observations have to do with NATO?

To borrow from Washington, the civilian-led militaries of NATO have deterred attacks, protected trade, prevented encroachment, guarded against surprises and protected our liberty from external threat.

To borrow Smith’s term, NATO is a collection of wealthy nations. Since 1949, the sovereign authorities of those nations have recognized that they are stronger together than apart; that a collective-defense alliance can help protect their societies from invasion; and that prudent investments in defensive arms can deter their enemies and preserve their civilization. Indeed, as he took the reins as NATO’s first military commander, Gen. Dwight Eisenhower called NATO “the last remaining chance for the survival of Western civilization.”

Bluster and Alarm

To be sure, public resources are sometimes wasted in the process of equipping armies and deterring aggression. Eisenhower worried about the growing size of “the military-industrial complex,” and we’ve all heard about the Pentagon’s “$600 hammer.” However, it could be argued that NATO helps save resources.

First and foremost, NATO’s purpose is to deter war—a human action that devours resources. In addition, the alliance promotes military-to-military interoperability and efficiencies, shares the burdens and costs of security, encourages a division of labor, allows members to play niche roles, and avoids duplication of production. For instance, the NATO nuclear umbrella, provided by just three members, reassures the other 29 that they need not expend resources developing, deploying, stockpiling and maintaining nuclear weapons.

Eisenhower’s words about the survival of civilization—and NATO’s record in the intervening decades—underscore why many on both sides of the Atlantic have reacted with alarm to President Donald Trump’s positions. Trump has dismissed NATO as “obsolete,” proposed withdrawing from NATO, threatened NATO members and invited Putin’s henchmen “to do whatever the hell they want” to members that don’t “contribute their fair share.”

Whether triggered by Washington’s bluster or Moscow’s aggression—probably a little of both—America’s allies have gotten the message that there’s no room in NATO for free-riders. In the past decade, allies in Europe and Canada have increased defense spending 106 per cent. The U.S. share of NATO military spending has fallen from 72 per cent to 60 per cent.

Origin Story

To get a sense of how intertwined liberal economic principles and NATO are, look at the documents that serve as the intellectual infrastructure of the alliance.

One of those documents is the Atlantic Charter. Drafted by President Franklin Roosevelt and Prime Minister Winston Churchill in 1941, the Charter is arguably NATO’s foundation stone—and undeniably NATO’s north star. 
The Charter declared the right of all nations “to traverse the high seas and oceans without hindrance,” promised “all states…access, on equal terms, to the trade and to the raw materials of the world, which are needed for their economic prosperity,” and called for “the fullest collaboration between all nations in the economic field.”

If economic nationalism and closed-off markets helped sow the seeds of war, Roosevelt and Churchill reasoned, then the postwar world would need to be shaped by free trade, access to raw materials, freedom of the seas and a more open economic system. “One of the preconditions of any lasting peace will have to be the greatest possible freedom of trade” and “markets open for healthy competition,” Roosevelt argued.

Yet Roosevelt and Churchill recognized that the free world needed more than free trade to build some semblance of peace. Trade between nations is inherently a good thing, and it sets conditions for peace between nations. As Walker Wright pointed out in last year’s Economic Freedom of the World Report, “An abundance… of empirical studies have shown Bastiat, Mill and Cobden to be correct: trade indeed reduces interstate military conflict.” (NATO itself is proof of that, as discussed below.)

However, trade alone is not an inoculation against military conflict. Consider the surging trade flows ahead of the First World War: French iron-ore exports to Germany grew 60-fold in the 13 years before the Great War. In 1914, Britain accounted for more than 14 per cent of Germany’s exports. British exports to continental Europe swelled by 88 per cent between 1900 and 1913, German exports to Britain by 69 per cent. Then came the summer of 1914.

In short, while trade is an important ingredient for peace, shared political values are as well. The Atlantic Charter defined some of those values: “the right of all peoples to choose the form of government under which they will live”; a commitment to “no aggrandizement, territorial or other” and “no territorial changes that do not accord with the freely expressed wishes of the peoples concerned”; the “disarmament” of “nations which threaten, or may threaten, aggression”; and an ecosystem that affords “all nations the means of dwelling in safety within their own boundaries” and all people the opportunity to “live out their lives in freedom from fear and want.”

Less than four years after the Allies rescued civilization from the Axis—spurred by yet another threat against civilization from yet another form of tyranny—America, Canada and 10 European nations used the concepts of the Atlantic Charter to craft the North Atlantic Treaty (also known as the Washington Treaty).

Although Article V—NATO’s all-for-one defense clause—is the heart of the treaty, the principles of economic and political freedom are sprinkled throughout NATO’s core documents.
The preamble of the North Atlantic Treaty, for instance, commits signatories to “democracy, individual liberty and the rule of law.” Article II binds all members to “strengthening their free institutions,” declares that they “will seek to eliminate conflict in their international economic policies” and affirms that they “will encourage economic collaboration between any or all of them.”

In 1957, NATO leaders vowed “to promote peace, economic prosperity and social progress throughout the world,” encouraged “the development of the European Economic Community and of a European Free Trade Area,” and condemned the communist bloc for suppressing “human liberties.”

NATO offered its members more than words. To build free economies and free governments out of the rubble of the Second World War, the peoples of Western Europe would need “safety within their own borders.” NATO provided that—largely in the form of America’s commitment to defend its war-battered transatlantic neighbors from aggression. That commitment provided the security Europe needed to construct a community of freedom—and to fend off an enemy of freedom.

Even after the Cold War was won, NATO recognized its spadework for freedom wasn’t done.

In 1991, as Eastern Europe shook off the shackles of communism, NATO declared, “It is only on those foundations of political and economic freedom that the legitimate aspirations of peoples of those states can be met.”

In 1995, NATO promulgated guidelines on post-Cold War enlargement, which declared that new members must embrace “the principles of democracy, individual liberty and the rule of law”; that new members must commit to “resolution of ethnic disputes [and] external territorial disputes…by peaceful means”; and that NATO’s growth should “complement the enlargement of the European Union,” which, at its heart, is a free-trade zone.

The roadmap to NATO membership requires NATO aspirants to “demonstrate commitment to the rule of law,” “show a commitment to promoting stability and well-being by economic liberty,” and “conform to basic principles embodied in the Washington Treaty,” including “individual liberty.”

Prospective NATO members, the alliance concludes, must “be able to demonstrate that they have…a functioning democratic political system based on a market economy.”

Transformed

Today, most of Europe’s former communist-bloc countries are stalwart exponents of liberal democracy and economic freedom. Poland, Estonia, Latvia, Lithuania, Czech Republic, Slovakia, Romania, Bulgaria, Croatia and Slovenia are categorized as “free” by Freedom House. All of these once-captive nations rank in the top half of the Economic Freedom of the World Report and the top third of the Human Freedom Index. And all are members of NATO.
Given where they were in 1989-91, this is remarkable. The transformation of Europe’s eastern half from a junkyard of decaying communist regimes into vibrant liberal democracies was encouraged and fueled by NATO’s tutelage. The pursuit of NATO membership incentivized virtually all of Eastern Europe to liberalize their economic and political systems. More accurately, NATO (in tandem with the European Union) shepherded these former communist states toward political and economic freedom.

NATO’s founding members led by example, and NATO’s newest members proved to be fast learners: NATO members—old and new—are among the strongest nations in the world on the economic freedom metric (comprising 18 of the top 35) and human freedom metric (comprising 29 of the top 50). 
A study led by the School of Advanced International Studies (SAIS) reveals a “transatlantic economy” of $9.5 trillion.

A CSIS report concludes that “NATO membership increases bilateral trade between member countries, with estimates of the long-run effect in the range of 12% to 27%.”

NATO is a driving force for political and economic freedom.

Costs and Benefits

The economic benefits of NATO aren’t limited to the other side of the Atlantic. NATO helps America prosper.

Consider that Europe is the second-largest market for American exports—accounting for 28 per cent of all U.S. exports, just behind Mexico and Canada (31 per cent combined)—and keep in mind that Canada is a NATO member.

Consider the SAIS study, which reports that European companies employ 5.3 million people in the U.S.

Consider the CSIS study, which warns that if Washington withdraws from NATO, U.S. exports would fall 16.1%, and U.S. GDP would fall 4 per cent.

Or consider that in the 76 years before World War II—before America began building an interconnected latticework of alliances—America’s per-capita GDP increased by 136 per cent. In the 76 years between the end of World War II and 2021, America’s per-capita GDP increased by 320 per cent. The postwar alliance system, with NATO at its core, is not the only factor here, of course. Lower tariffs, higher productivity, the rise and growth of the free world, and the decline and fall of the communist bloc played a role as well. But many of these factors were a function of the security and stability assured by NATO and other free-world alliances.

The “myth is that our allies are making us poor by free-riding on our military expenditures,” the late Gen. William Odom, former director of the National Security Agency, observed. Countering NATO’s critics in his day—and the America First caucus of today—he asked, “How are we to explain that the United States has gotten richer than its allies? Proponents of this argument cannot explain why. They fail to realize that our military alliances, by lowering transaction costs, have facilitated the vast increases in international trade from which the United States profits enormously.”

To borrow a popular phrase, NATO isn’t a “bad deal” for America. Giving Western Europe’s free governments and free economies the space to rebuild created markets for U.S goods and services; bolstered Western Europe against communism; laid the foundation for a European free-trade zone; and transformed Europe from an incubator of world wars into a partnership of prosperity. Forging a free Germany and bringing it under the NATO umbrella rechanneled its energies away from military expansion—and reassured its neighbors. Nurturing free-market democracies in Eastern Europe and welcoming them into the NATO fold rescued them from devolving into failed states and shielded them from the hell Ukraine is enduring.

Concerns

President George H.W. Bush compared NATO to “an insurance policy… against the kinds of conflagrations that we’ve seen in the past.”

For the U.S., NATO serves as a hedge against disaster and diminishes the likelihood of the very worst of the worst-case scenarios: another European conflict triggering another global war. For the rest of the alliance, NATO is a security guarantee backed by the United States. Without that guarantee, there’s no security, as history has a way of reminding those on the outside looking in, from Cold War Hungary to post-Cold War Ukraine.

Like all insurance policies, there are costs associated with NATO. IISS estimates that U.S. expenses for defense in Europe range between 5.1 per cent and 5.5 per cent of the Pentagon’s budget. For FY2026, that translates into $44.6 billion, which is a lot of money. However, too many Americans overlook what’s gained in exchange for that insurance premium: an outer ring of security, diplomatic and military partnerships that bolster U.S. power, a Europe reinforced against invasion, and, as discussed, the vast economic benefits that flow from these realities.

All of this raises concerns about Washington’s recent approach to NATO. The Trump administration has engaged in military coercion against Denmark and economic coercion against Canada; informed NATO’s eastern flank of plans to phase out funding for military hardware where it’s most needed; publicly berated allies; stood aside when Poland came under Russian drone attack; reduced the number of assets available to NATO and in Europe; and questioned the need for NATO. Members of Congress have even introduced legislation to withdraw from NATO.

If the people behind these policies think it’s difficult (and expensive) to deter our enemies, protect our interests, and promote our prosperity with NATO intact, wait until it’s gone.