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 enters 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,