Military Spending Essay, Research Paper

Consequences of Military Expenditure on the Economy

For many years, debate has raged whether spending billions of dollars on the army, nuclear arsenal and missiles is beneficial to the economy, of developing and developed nations, as well as the international economy. Naturally, military spending peaks during times of war; which historically has coincided with periods of economic growth. Economists have argued that war spending creates jobs and encourages investment in research and development; leading to advances in technology. However, with the end of the Cold War, scholars have access to comprehensive information in the US and former communist countries regarding military expenditure. As well, increased research into the economic effects of disarmament has resulted in new information. Contrary to public and government opinion, military expenditure does not contribute to economic growth. In fact, it is detrimental to economic growth and is harmful on many levels: economically, socially and politically. Three major issues dealing with the effects of defense spending include; a drain of economic resources, the effect on inflation, employment and consequences in the Third World. Spending extreme amounts of money on the military ?saddle[s] the nation with a [society] built around the scenario of vast global conflict 1.

Many economists state that spending money for military purposes is detrimental to the economy, for it results in a competition for scarce, non-renewable resources and investment. The United Nations estimate that in the 20th century 75% of global resources were devoted to producing and developing arms2. Military expenditure is capital intensive, as the employees are skilled and scarce; therefore they are expensive to retain. In the early seventies, 20% of the world?s scientists and engineers were employed in the military sector3. This figure has been estimated to be much higher during the height of the Cold War. Opportunity cost assessments have revealed the consequences of expanded defense spending. It is expensive, due to the pre-empting of resources, therefore less funds available for investing in socioeconomic development. The positive effects of health, education and social spending is reduced. In the US 59% of the military budget is spent on R & D 4. As well, long-term studies have determined that the ?multiplier effect? of military research applications is significantly less then investment in civilian research 5. In fact, when comparing the expenditure and labor costs per GNP of Japan and US, non-military R & D is high in Japan 6. Thus, productivity rates of the civilian sector are lowered due to the diversion of capital. The products of military research do not contribute to capital goods and services, thereby causing no improvement to productive capacity. Analysts suggest, that by competing for the same investible resources in research, industries such as aerospace, metallurgy, energy, electronics and chemical engineering are affected adversely 7. This lowered productivity has resulted in a lower GDP and standard of living for the majority of the population, in countries, which spend enormous amount of money on military R & D 8. The productivity and growth rates of the US fell from 2.1% to 1.8% from 1965 to 1975 9. These were the lowest rates of any industrialized nation and occurred during the involvement of the U.S. in the Vietnam War.

In periods of high military spending, especially in the early eighties, stagflation (a combination of unemployment and inflation) rose significantly at 9% to 12% 10. Inflation occurs during these periods as during times of anticipated war where conflict does not occur, results in an increase in demand and an oversupply of arms enter the market 11. The sudden increase in demand causes the prices of raw materials to rise. This in turn, causes the ?ripple effect? throughout the entire manufacturing process; thus affecting the entire economy. As well, the product costs are not recouped; they then pass the cost on to the consumer. This situation is referred to as the ?demand-pull? situation 12. In Western Europe throughout the seventies and eighties, military inflation was greater than general inflation 13. The fact that inflation rises is further emphasized when William Winpsinger, past president of International Association of Machinists the largest union of defense workers tireless campaigned against military spending. He maintained that

the Pentagon is a perpetual inflation machine. It drives prices up by pumping dollars not goods and services, into the economy, by siphoning scarce resources and raw materials into non-productive purposes, by condoning waste, cost over-runs and inefficiency among prime contractors who maximize profits by inflating costs, and by fueling ever larger deficits in the [US] federal budget. From 1981 to 1991, $3 trillion was spent on the military, which accounts to 3/4 of the debt. More than half the present national debt is directly traceable to the Pentagon 14.

There are many misconceptions regarding the effects of military spending; with the assumption that it creates employment. The Bureau of Labor Statistics in the U.S., conducted several studies, which showed that if the government transfers $1 billion to the civilian sector of the economy, 1.5 million jobs would be created 15.

The complex relationship between international development, military expenditure and economic growth has been confirmed by many economists and institutions. In developing countries, the problems of unemployment and lack of resources is further magnified by excessive military expenditure as well as causing many issues uncommon in the developed world. In nations with limited economic progress and little money for health and education, defense spending is an impediment to proper exchange of commodities, technology, capital and services 16. As well, when bloated defense budgets cause economic problems in developed countries, nations in the Third World suffer, as many have trade relations with developed countries. Developing countries are dependent on First World nations, due to lack of export diversification such as in commodities; resulting in vulnerability to global price fluctuations 17. Military expenditure places an overwhelming demand on already suffering economies, which results in further non-productivity. Studies prepared for the International Monetary Fund, indicate that reductions in spending result in a 3.7 % increase in the nation?s GNP, a rise in capital stock by 5.3% and an increase in agricultural production by 4.6% 18. Such stabilizations are especially advantageous for Third World nations, as it leads to a favorable investment climate, stimulates long-term trade and increases lending. Further studies for the U.N. predict that if the arms race accelerates past the year 2000, the developing world will lose 11 million jobs, and 4% of its value of non-military products (Appendix A) 19. In developing nations stagflation has risen disproportionately during the eighties and its effects were more severe; the rates are generally 20% to 30% as opposed to 9% to 12% for developed nations 20. Second World nations (Communist countries) are generally more vulnerable to such economic fluctuations, as their defense is a larger part of their GNP 21. In China and the former Soviet Union many basic needs are unmet, due to enormous resources devoted to the arms race. Studies by the United Nations, illustrate that improved living standards due to reduced diversion of resources, result in political restraint, which negate the need for arms 22. Thus, many developing nations have begun to reduce their military expenditure, and focus their resources and efforts on long term economic planning for greater economic growth and productivity 23.

In 1975, a United Nations issued a major economic report concluding that ?the development towards a new international economic order is strongly influenced by the arms race … the economic and social consequences are so detrimental that its continuation is incompatible with the implementation of such an order.24 ? Unfortunately, twenty three years later, this accepted economic generalization has not yet permeated the minds of policy makers, governments and the public. Buoyed by disproved theories of mass unemployment and an eroding industry caused by reduced defense spending; the consequences of competition for precious resources and investment, unemployment, inflation and slow economic growth in the Third World continue to have been well illustrated. The international call for economic conversion from dependence on military industries, in not an issue of an international social conscience or idealism; it is a vital issue of overwhelming economic evidence.

ENDNOTES

1. Gideon, Rosenbluth. Canadian Economy and Disarmament p.45

2. Dolman, Anthony. Disarmament, Development, Environment: Three Worlds in One p.88

3. ibid. p.89

4. Morrison, Philip. The Future of American Defense p.13

5. ibid. p.71

6. Gideon, Rosenbluth. Canadian Economy and Disarmament p

7. Economic and Social Consequences of the Arms Race and of Military Expenditures. p.92.

8. Morrison, Philip. The Future of American Defense p.323

9. World Armaments and Disarmaments Yearbook of the Swedish Government?s Stockholm International Peace Research Institute (SIPRI), p.222

10. ibid, p.98

11. Gideon, Rosenbluth. Canadian Economy and Disarmament p. 456

12. ibid. p.457

13. Morrison, Philip. The Future of American Defense, p.100

14. Economic and Social Consequences of the Arms Race and of Military Expenditures. p.76.

15. Morrison, Philip. The Future of American Defense p.87

16. Blechman, Barry. ?The Use of the Armed Forces as a Political Instrument?.p.12

17. ibid.p.107

18. Gideon, Rosenbluth. Canadian Economy and Disarmament p. 456

19. World Armaments and Disarmaments Yearbook of the Swedish Government?s Stockholm International Peace Research Institute (SIPRI), p.348.

20. Economic and Social Consequences of the Arms Race and of Military Expenditures. p.78

21. ibid, p.166.

22. Dolman, Anthony. Disarmament, Development, Environment: Three Worlds in One p.176

23. Gideon, Rosenbluth. Canadian Economy and Disarmament p.35

24. Dolman, Anthony. Disarmament, Development, Environment: Three Worlds in One p.243