1. Introduction
It’s been 6 months since Putin commenced Russia’s “special military operation” in Ukraine, or ‘war‘ for those appreciative of more accurate vocabulary. Like all wars, innocent victims of death and destruction continue to ratchet up. Seeing such conflict misery has sharpened outlook and schooled political demand. The Daily Express, apparently unruffled by any random sampling qualms, announced that 95% of Brits think Britain should “protect itself, not the world“. While jingoistic in tone, it does appear consistent with political consensus aligned with lessons learnt from Economics 101. Given the threat posed by state aggressors such as Russia, we should invest more in our military sector. It’s an infrequent example of government interventionism engineering equivocal well-being gain. After all, it’s a sincere reference to one of the most popular concepts explored in any introductory microeconomic tome: public good provision. If anything, delivering national security is seen as the purist example of such special good. My task today? Assess the validity of the case for boosting military spending.
To complete my mission, I will adopt what I’ll term ‘crosswise economics‘. This is a two-stage procedure. First, compose an apparently irrefutable Economics 101 statement. Second, show that the linguistics in that statement have been carefully chosen to hide from more nuanced debate. Let’s commence with my bland, but apparently watertight, statement: “Military spending creates the public good of national security. Increases, representing a response to market failure, are rational”. Notice the sneaky application of key choice vocabulary, particularly ‘market failure’ and ‘rationality’.
2. Market Failure
Two aspects sing out within the Economics 101 theorising: non-excludability and non-rivalry in consumption. As you are protected from foreign aggression, so am I. Your consumption of national security will not impair my consumption. In this free-riding economic environment, markets will fail. Denied the allocative efficiency associated with an exclusive private good, there is no market compulsion towards economic efficiency. Government must therefore intervene. As threats increase, which undoubtedly is the case through Russian aggression, interventionism must also increase.
What problems exist with this rhetoric? First, finding evidence of under-provision isn’t a straightforward proposition. In 2021, according to SIPRI, UK military spending represented 104% that of Russia’s. Central and Western Europe overall spent $274 billion dollars more than Russia. Second, and perhaps more scathing, we have assumed a benign government capable of solving market failure. Might we just be adding a layer of government failure? To illustrate the point, consider the various flavours of economic power disclosed by Galbraith. First, we have Condign Power. Referring to persuasion through threat, it’s used within microeconomics to explain phenomena such as price rigidity by firms. Don’t reduce prices or the uppity market leader will destroy you! Second, we have Compensatory Power. Rather than the stick, this is persuasion via carrot. And lastly, we have Conditioned Power. This is the most insidious, referring to persuasion through information manipulation. Might the last two be pertinent here? The fault line is described by Eisenhower’s famous 1961 farewell address: “In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists, and will persist.“.
What might the Military Industrial Complex mean here? We have arms companies cosily located within walking distance of the avenues of power. How easy might they be able to persuade a politician to increase military spending merely to meet the company’s thirst for profit? Moreover, are threats objectively quantified? Did we objectively quantify, for example, the risks from Iraqi “weapons of mass destruction“? Might threats be deliberately exaggerated? It’s a world of the “rent-seeker“, as described in Dunne and Skons (2011): “…coalitions of vested interests within the state and industry, which could lead to decisions being made which were in the interest of the coalition members and not necessarily in the interests of national security.“
3. Rationality
So, what beef could we have with the use of rationality? This appears to be a simple reference to economic efficiency. Market failure shrinks the economic pie; gluttony to consume more provokes the optimal chef into action. Such metaphor is but an awkward reference to microeconomic recipe. But what happens if we get the macroeconomic cookbook out instead? This necessarily generates fault lines in our logic, based on more comprehensive consideration of economic growth. First up is the orthodox ‘endogenous’ variety. How might military spending, cosily entwined with arms production, impact on technical progress? Historically, the military sector seeks out solution to pesky market failure: a boost to R&D, generating spin-off technologies for the civilian sector. Many of the very components of the systems I’m using to write this very blog originate from investments in military know-how. But, with the speed of innovation created by the information revolution, we’re now more likely to see ‘spin-in’. Finding military application for civilian innovation, military investment endangers a growth drag. Using our limited supply of scientists and engineers inefficiently, we risk crowding-out future technical progress.
Might we find a saving grace via more traditional macroeconomic tool? Up steps Keynesianism. Seeing military spending as stimulus, an alternative growth narrative is unleashed: from escaping the Great Depression through by-product of world war to fooling free marketeers with Reaganomics. The economics, however, is dismal. Dunne (2011) concludes: “A large literature has debated the economic effects of military spending and while it has reached no consensus, there is also little support for any belief that military spending is a good way of stimulating the economy”. Military spending, in other words, is at best wasteful.
So why use military stimulus when civilian variety is arguably more effective? Perhaps the heterodox economists have the explanation? Consider Baran and Sweezy’s underconsumption theory, itself based on just two key ingredients in capitalism: a tendency towards market concentration and a tendency towards low investment. Government waste, providing a mechanism to reabsorb economic surplus into the economy, becomes a stabilising force. Our sense of rationality is transformed. Military investments are rational if we are motivated by maintaining the economic status quo.
4. Conclusion
So, what words of wisdom shall I leave you with? Can I exclude military spending increases in the ‘good sense’ stakes? Simply put, no. But if you do support such rises then at least avoid falling foul of Economics 101 oversimplification. Make sure that you acknowledge that its likely to also be growth-stunting, with the macroeconomic waste involved inherently supported by politicians who are exhibiting less than perfect accountability. It would be hypocrisy to do anything else.