By Michael Burke
“Wars have been the only form of large-scale loan expenditure which statesmen have thought justifiable” – Keynes
As the clamour for increased military spending in Europe grows, so too are the claims about the supposed economic benefits of government outlays on weaponry of all types. These claims are spurious and should be completely rejected.
At a time of budget cuts, the propaganda in favour increased military spending is positively dangerous domestically as well as internationally, as it could only occur at the expense of other, useful or productive areas of government spending. It is therefore vital for the defence of public services and public investment that the false arguments in favour of increased military spending are thoroughly rebutted.
Military ‘keynesianism’
There is an entire body of thought devoted to the idea of promoting military spending as an economic benefit dubbed by its supporters as ‘military Keynesianism’. The idea is a vulgarisation of Keynes’ work, which supporters suggest means that any type of government spending is beneficial to the economy, and given that military spending enhances the power and prestige of the country, then military spending should be prioritised.
The idea had fallen into disrepute partly because its advocates, not just prioritised military spending, but treated it as an exception. In no other sector of the economy did they argue that there would a benefit from increased government spending.
But the decisive development took place in the real world as the ideas behind military Keynesianism (and a left variant known as the ‘permanent arms economy’) were tested to destruction in the Viet Nam war. The US government granted itself unlimited published and covert budgets to fight the war and almost bankrupted itself in the process, as well as destroying the Bretton Woods economic system and unleashing global inflation.
A contrary example is from Britain’s own history. After World War II West Germany was not allowed armed forces. It was obliged to use its Marshall Plan funds for economic regeneration, which became known as the German ‘economic miracle’. Britain had no such restrictions and spent freely on the military. There was no British economic miracle and it became known as the ‘sick man of Europe’.
But in the present era, the suddenly reduced state of Western Europe’s military weight in the world has caused a widespread panic. In the drive to rearm, old or discredited ideas are being dusted off to justify the diversion of public funds, a blatant project of policy-based evidence-making. These include growing claims on the positive effects on technology, R&D and jobs.
None of these claims is correct.
Productive versus unproductive investment
The purpose of investment (GFCF, Gross Fixed Capital Formation) is either to replace or to supplement the existing level of fixed investment in the economy. It is the additional investment, Net Fixed Capital Formation which augments the existing level of fixed investment in the economy. This represents an increase in what was formerly called the means of production and is now more usually called the productive capacity of the economy.
Of course, building a factory that is never used or constructing one of Japan’s infamous (but largely mythical) ‘bridges to nowhere’ does not constitute useful or productive investment. The traditional mainstream definition of investment is an outlay on which there is a financial return.
Yet in many cases, government fixed investment will not include a direct financial return at all. This would apply to a new road or railway, or the latest technology in universities. But in each case there is a financial benefit to the users (who are not charged tolls, or in the form of quicker journeys or cheaper fares or who can develop new scientific methods, and so on). But the users will receive a financial benefit which raises prosperity generally. In turn, government will itself usually benefit from their increased economic activity through its ordinary tax receipts.
But this highlights the fallacy that there is any potential for prosperity through military spending. The benefits of these other categories of government spending arise because they boost other areas of activity. This is because the bridge, or road, or home is not just a social benefit. It has a monetary benefit to the users and then wider society. But there is no benefit to the wider economy from a tank, a bomb, or a missiles system. There is no benefit in terms of efficiency, speed, productivity to other economic sectors. Economically, military spending is not even a bridge to nowhere.
Inputs to military spending
There is also a widespread yet false claim that military spending is ‘jobs rich’. All types of government spending require labour inputs. Military spending is not unique in that respect, although some of its advocates never suggest that increased NHS spending, or greening the economy creates jobs at all.
But, since military spending does not add to the productive capacity of the economy, the labour used in the manufacture of weapons is the equivalent of Keynes’ digging holes and filling them in again. It has zero net economic benefit.
In a time of high unemployment, even digging holes and filling them in again can have the effect of a stimulus to wider job-creation (which was Keynes’ ironic point). But if the aim is to create better, higher-skilled, higher wage jobs, then there are far better ways to spend government money.
The military budget is already one of the largest areas of government spending, £53bn in 2022/23, behind only the Departments of Health and Education. It is more than the spending of the Departments of Housing, Transport and Work & Pensions combined.
In terms of direct employment, the MoD employs just under a quarter of a million military and civilian staff. But the claims made for military spending being ‘jobs rich’ rely on assertions about the effect of MoD procurement on creating jobs in the private sector arms industries and related services.
It would be easy to get bogged down in highly technical analyses in this area. Thankfully, though, this work has been down elsewhere, in analysis for the Scottish Government on what are known as ‘employment multiplier effects’. This is an analysis of the structure of the economy which then shows the relationships between inputs and outputs in the economy. The analysis applies to individual sectors and includes labour inputs.
A full explanation of this analysis is shown here and includes detailed tables for each economic sector.
Here the key point is the conclusion. This is that military spending has one of the lowest ‘employment multipliers’ of all economic categories. It ranks 70th in terms of the employment it generates, out of 100. Health is rated number 1. Everything from agriculture to energy to food manufacture, chemicals, iron and steel, to computers, construction, and a host of others in between all have greater ‘employment multipliers’ than military spending. Investing in health is two and half times more ‘jobs rich’ than investment in military spending.
Conclusion
The frenzy for increased military spending has generated an enormous number of spurious claims about it alleged economic benefits.
Since the outputs of military spending serve no wider economic purpose, these claims are clearly false. In terms of generating prosperity, military spending is completely wasteful government spending, as historical evidence shows.
The related claim that military spending generates jobs exaggerates its effects, even in these narrower terms. Many other sectors of the economy are far more ‘jobs rich’ that military expenditures. Many of these also have a wider economic better, such as health, construction, food and many manufacturing sectors.
The logic of government investment to restore prosperity and generate higher-skilled and paid jobs should be applied to these sectors instead.
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