The basic idea is if we all spend a significant hunk of money, we will get more defense than if we spend somewhat less money. But spending more money on defense may not improve NATO’s ability to field effective armies, navies and air forces. For many members, spending more could simply mean spending more on personnel, which might lead to a more capable force or it might not. There are additional NATO goals which get far less coverage, which are aimed at persuading members to spend significant hunks of cash on capital–building ships, planes, tanks and other equipment. Again, this is a focus on input. Spending more on equipment does not necessarily mean getting better or more equipment. It could simply mean more waste.
The funny thing is that the US is pushing Belgium to buy the F35, suggesting that this would help them get to 2%. Buying a super-expensive plane may or may not improve Belgian military performance, but it might get Belgium off of the free-rider list? I am trying to remember a similar example of being so focused on inputs that they become more important than outcomes, but can’t at the moment.*
Sure, we tend to focus on inputs or even outputs because they are easier to measure, and in NATO dynamics, are things about which it is easier to come to a consensus. It is hard to measure outcomes like readiness and effectiveness. Also, big numbers are not secret whereas actual military capability–what can a country really do–might have to be covered in secret sauce. But what really matters is whether NATO can fight better (against others, not against each other) or not. Spending more might help, but it might not, depending on where the money goes. When countries underperform, is it because they underspend or because they have restrictive rules or because they have lousy strategies (who could that be?) or because their procurement processes are busted (hello Canada!) or because the adversary gets a vote?
One last semi-related point: asking the Western democracies to spend more on defense after encouraging austerity post-2008 is a hard sell, and, yes, domestic politics is a thing. After years of saying that spending must be cut on social programs because debt is the supreme evil, saying that the first priority now must be defense is just not going to fly, especially with all of the complex coalitions that are barely governing so many members of the alliance.
So, as we keep invoking 2%, let’s keep in mind that many countries will never reach it, as it would require more than a few to increase defense spending by 50-100% AND it allows us to ignore the bigger challenges of how to foster greater effectiveness and readiness.
* The only thing I can come up with would be examples from the Soviet Union of meeting five year plan targets by building huge non-usable things that helped reach the goals measured by weight like one really ball-bearing or something like that.