The Dialectic Relationship Between Military Spending and Economic Development

A distinctive feature of today’s global development is the rising military spending in most countries, which has become a burden on the budgets of both large and small states alike, acting as an obstacle to economic development. Many economists around the world view the costs of wars in Iraq and Afghanistan as major contributing factors to the ongoing crisis that began affecting the U.S. economy in 2007, evolving into a global financial and economic crisis reminiscent of the Great Depression of the early 1930s.

The economic boom witnessed in the global economy during the 1990s was a direct consequence of the end of the Cold War. A significant portion of the funds previously dedicated to the arms race shifted towards infrastructure projects. However, this golden age was short-lived. The end of the Cold War did not usher in lasting peace, and contradictions between countries soon intensified, leading to increased conflicts, exacerbated tensions, and wars. The arms race escalated among major powers as well as among developing and low-income countries in Asia and Africa.

This study aims to clarify the impact of military spending on economic development. To achieve this goal, the research will be divided into four sections:

1. The first section addresses the concept of military spending and the factors influencing its level.
2. The second section presents an overview of global military spending growth, particularly in certain major countries, based primarily on data from the Stockholm International Peace Research Institute (SIPRI) annual report (2023 edition).
3. The third section explores the dialectic relationship between military spending and economic development.
4. The fourth section introduces a new concept promoted by some advocates of positive outlooks on military spending, particularly in the United States, regarding its stimulating effect on economic growth, termed “military Keynesianism.”

1. Definition of Military Spending and Factors Influencing Its Level

Definition of Military Spending

There are different definitions of military spending. Some take a narrow view, restricting it to “resources dedicated to defense in the state’s budget,” viewing it as “a part of the state’s public spending undertaken to defend against external threats or to address existing threats, or to leverage military strength to achieve expansionist goals.” This definition does not consider various aspects of spending related to military purposes, focusing only on what appears in the state’s budget. It also omits civilian activities within the defense budget, such as infrastructure projects and relief efforts. Adopting this narrow definition could misrepresent the reality of military spending, usually underestimating it and skewing comparisons with military spending in other countries.

In contrast to this narrow definition, others adopt a broader perspective, considering military spending to include the following:

• Total expenses of the Ministry of Defense for military purposes.
• Expenditures directly supporting defense programs, regardless of the managing authority.
• Expenditures on other programs justified on the grounds of national security.
• Payments related to past wars or former military programs.

The most comprehensive definition of military spending is that used by SIPRI, which states that “military spending includes expenditures on the following actors and activities:

A) Armed forces, including peacekeeping forces. B) Ministries of Defense and other governmental bodies involved in defense projects. C) Paramilitary forces, when calculated as trained and equipped for military operations. D) Military activities in space, including all recurring and capital expenditures on:

1. Military and civilian personnel, including military pensions and social services for individuals.
2. Operations and maintenance.
3. Procurement.
4. Military research and development.
5. Military aid (in the military spending of the donor country).

Excluded from spending are civilian defense and current expenditures on past military activities, such as grants allocated to veterans, separation processes, and the scrapping and destruction of weapons.

Factors Influencing Military Spending Levels

Military spending is primarily a political, strategic, and economic decision. Naturally, the decision-making process in this regard is influenced by various factors that interplay, including political, strategic, and economic elements:

• Political Factors: These include the prevailing political situation in the country, the nature of the regime, and the level of political stability. There is a clear correlation between political instability and military spending, as well as the country’s regional alliances and military alliances that can result in high spending levels.
• Strategic Factors: These involve the risks of war, where military spending tends to be higher in areas where prospects of conflict loom. Civil wars and regional disputes instigate arms races among countries in those regions.
• Economic Factors: These consist of:
  1. Availability of economic resources. Wealthier countries are generally more capable of military expenditure compared to poorer nations.
  2. Level of economic development, usually expressed in changes in per capita GDP. Higher economic development often leads to increased military spending.
  3. Foreign exchange, where the availability can help a country meet its needs for advanced military equipment, driving military spending higher.
  4. Military industrialization, referring to the existence of a domestic arms industry. In countries with military production, the military must ensure a steady demand for its output, resulting in high military spending.

2. Military Spending Grows

As previously noted, the end of the Cold War did not bring about permanent global peace, leading to the inevitable consequences of intensified contradictions between states, spreading conflicts, and escalating arms races, with military expenditures rising in most countries. According to SIPRI data, from 1989 to 2022, there was a significant increase in military spending worldwide, particularly for the United States, whose military budget made up nearly half of total global military spending.

Global military spending was estimated at approximately 2.53 trillion in 2022,marking a 3.72.53 trillion in 2022,marking a 3.7321 for every person worldwide. The United States continued to be the highest military spender in 2022, accounting for 39.3% of total military spending globally, followed by China at 13.4%, then India at 3.7%, and the UK and Russia at 3.1% each.

To illustrate military expenditures among the top fifteen spenders in 2022:

• Table 1: The Top 15 Countries by Military Spending in 2022

Source: Stockholm International Peace Research Institute (SIPRI), Annual Report, 2023 Edition.

Military burden is understood as military spending as a percentage of GDP. The figures for military burden pertain to 2021, the latest available data year. It is evident from the data that the top fifteen military spenders accounted for about 81% of global military expenditures, with the top five alone comprising about 62%. The shares remained consistent with previous years. The United States maintained its dominant position with a share of 39.3%, followed by China, the UK, Russia, and India.

The fifteen highest spenders in military expenditure in 2022 were the same as in 2021, although some rankings were adjusted. Notably, China in 2022 surpassed the UK and Russia to rank second worldwide behind the United States. The data also reveal significant disparities in per capita military spending among these countries. The military burden for Saudi Arabia was 8.5% of GDP in 2021, significantly above the global average of 2.2%.

Conversely, military burdens for countries like Australia, Canada, Brazil, and Japan fell below 2%. Countries such as France, Germany, and Italy experienced slow or even negative real growth in military spending since 2012, while others, including China, and Russia, significantly increased their military expenditures.

3. Military Spending Versus Development Opportunities

There is an inverse relationship between rising military spending and economic development. A study by European analysts published in Handelsblatt noted that a mere 1% increase in military spending from a country’s GDP could lead to a 0.7% decline in national economic capabilities over five years. The competition to develop new weaponry further drains national resources. For instance, the costs linked to producing a single nuclear submarine equate to the annual education budget for over 26 developing countries with 180 million school-age children. Additionally, global military spending outstrips six times the servicing of external debts for developing nations, suggesting that a decrease in military expenditure could free up significant resources needed to tackle pressing global issues such as poverty and hunger.

The mounting military spending, often unjustified, siphons off large portions of available resources, especially in developing countries, which could be directed toward productive economic sectors and developing infrastructure to foster economic diversification and advance human development. Military production shifts a significant share of the best scientific and productive capacities toward military industries, depriving civilian production sectors of vital resources. Thus, the military-industrial growth leads to an enormous waste of resources that could otherwise benefit society, contributing instead to destruction during conflicts.

Human development is integral to comprehensive development, with education being a vital component. Real development can only be achieved with an educated population attuned to scientific and knowledge advances capable of driving overall social progress. Achieving this goal requires investment in education and skill development. A modern state must fund educational institutions to consistently adapt their curricula and foster a learning environment that encourages critical thinking and innovation, enabling students to grasp emerging developments.

Excessive military spending remains a significant barrier to achieving these aims, particularly in developing nations, where substantial financial shifts create pressure on social needs. The disparity between military expenditures and allocations for health and education severely impacts economic development and human resources.

Moreover, military expenditures often hinder economic productivity by causing inflationary pressures, redistributing national income in ways that disrupt resource allocation and distort national economies. While some analysts argue for the functional benefits of military spending, particularly in developed nations, by pointing to growth stages within high military expenditure contexts, it is crucial to note that civil spending would similarly contribute to reduced unemployment and enhanced growth.

4. “Military Keynesianism”?

Proponents of military expenditures cite perceived positive aspects of military spending inconsistently with their arguments, culminating in what has been termed “military Keynesianism.” The core of Keynesian economic theory advocates state intervention to regulate market mechanisms and instill order amidst income inequities brought about by rampant market liberalism. Emerging from the Great Depression, this theory re-emerged amid the fallout from the recent global financial crisis.

Advocates of military Keynesianism borrow the idea of state intervention, suggesting that military spending serves as an economic growth stimulant. Contrary to prevailing views framing military expenditures related to wars in Iraq and Afghanistan as contributing to the current economic crisis, these proponents argue that military spending has cushioned the impact of housing market collapses, as articulated by Janet Yellen, formerly of the San Francisco Federal Reserve.

But while military spending can stabilize the economy during crises, it relies substantially on state expenditure, not consumer or private enterprise inputs. This, combined with long military procurement timelines, tends to provide a stabilizing effect amid economic fluctuations, maintaining production levels and employment rates in the defense sector.

Chalmers Johnson raised concerns regarding the entanglement of military Keynesianism, emphasizing that national treasury flow toward the military sector diminishes actual economic value and job opportunities long-term. For instance, he pointed out significant aspects of governmental budgetary allocations for military needs outside the defense department, including expenses related to nuclear warheads or veterans’ health care.

In conclusion, while recognizing the necessity to allocate national resources for defense and national security, it is vital to understand the limits of military expenditure to prevent it from becoming a burden on the national economy. Even for a significant economy like that of the United States, excessively high military expenditures are likely contributing to the current economic crisis. Total expenditures for U.S. national security significantly exceed the formal military budget, with aggregate annual spending exceeding $1 trillion when including various defense-related appropriations.

In summary, clearer delineations are needed between military expenditure and productive economic investment to foster human development and sustainable economic growth across the globe, especially within the context of rising inequities observed in resource allocation worldwide.

References

1. Stockholm International Peace Research Institute (SIPRI) – Annual Reports and Data on Military Spending. Available at SIPRI official website.
2. World Bank – Data on Global Economic Indicators. Available at World Bank Data.
3. International Monetary Fund (IMF) – Economic Outlook and Global Financial Stability Reports. Available at IMF official website.
4. United Nations Office for Disarmament Affairs – Reports and Publications on Military Expenditure. Available at UNODA website.
5. International Institute for Strategic Studies (IISS) – Publications including “Military Balance.” Available at IISS website.
6. The Centre for Economic and Policy Research (CEPR) – Reports on Economic Impacts of Military Spending. Available at CEPR official website.
7. Economic Policy Institute (EPI) – Studies on Military Spending and Economic Impact. Available at EPI website.
8. The Brookings Institution – Research and Analysis on Defense Spending and its Economic Effects. Available at Brookings website.
9. Chalmers Johnson, “The Sorrows of Empire: Militarism, Secrecy, and the End of the Republic,” 2004 – Book discussing military expenditure impacts.
10. Janet Yellen – Speeches and Academic Publications on Economic Stabilization and Military Spending.
11. Noreena Hertz, “The Debt Threat: How Debt is Destroying and Displacing Us,” 2013 – Discusses the intersection of military expenditures and economic stability.