The Duck of Minerva

The Duck Quacks at Twilight

War and the Economy

June 3, 2010

Two somewhat parallel stories have emerged, one from Europe the other from the Americas, about political leaders who believe that war fighting may be necessary for a strong economy.

First, according to the Guardian:

In a radio interview given on his return from a tour of German military bases in Afghanistan earlier this month, Köhler, a former head of the International Monetary Fund, said that the largely pacifist German public was finally coming to terms with the concept that their country could no longer avoid involvement in military missions, which helped “protect our interests, for example, free trade routes, or to prevent regional instability, which might certainly have a negative effect on our trade, jobs and income”.

The remarks were seized upon by the German left, who accused Köhler of supporting a type of “gunboat diplomacy” and of betraying the thousands of German soldiers who are currently stationed in Afghanistan.

Second, according to the Huffington Post, President Bush apparently told former Argentine Prime Minister Néstor Kirchner that all of the growth experienced by the US had been based on the different wars it had fought:

Kirchner, in a meeting with Bush, suggested that the United States replicate the successful nation-building strategy it implemented at the end of World War II.

“And he stood up from his chair and got angry. He told me, ‘A Marshall plan! No! That’s a crazy idea from the Democrats. What needs to be done here, and the best way to revitalize the economy is — the United States has grown based on wars,’ he told me. That’s what he told me,” Kirchner recounted.

Bush added, said Kirchner, that “all the economic growth that the U.S. had had, had been based on the different wars it had waged.”

The former Argentine leader, whose wife now heads the country, made the comments in an interview with Oliver Stone for his upcoming documentary “South Of the Border.”

In Germany, President Köhler resigned abruptly because of his comments; in the US, there has not been much reaction beyond the blogosphere that I can detect.

I don’t think that Köhler’s statements would be controversial in non-pacifist countries with large economies (i.e. countries other than Germany or Japan).  The main problem with his remarks was that it did not seem to make much sense when applied to Afghanistan — a country with few resources or markets that Germany needs or wants.  Köhler tried to clarify that his remarks were a reference to the horn of Africa, but apparently he did not convince many of his critics.

Bush’s comments, if Kirchner’s account is correct, seem more controversial.  To say that all of America’s economic growth is based on wars seems rather sweeping.  But I don’t think his idea should be dismissed out of hand. While the outbreak of hositilities often rattles markets, war and preparation for war fighting can stimulate an economy in terms of employment, organization of the factors of production, and technological advancement.  Of these three, my hunch is that technologicial advancement provides the greatest stimulus to growth in a large and generally competitive market economy which no longer relies on conscription for its military.  As technological inventions filter through the economy, they can stimulate growth in a wide range of economic activities (e.g. the Internet).  Innovations which increase efficiency are the major source of economic growth in an economy which has almost fully mobilized capital and labor.  These technological advancements might be possible without massive defense spending, but it would probably take longer to achieve and refine new technologies, particularly given the general impatience of capital in the US.  (But we have to acknowledge that massive defense spending is not always an efficient use of capital and often results in waste and corruption.)  So the issue is whether technological advancements created by defense spending are propelling the economy.  Certainly we can see that in the current war in Afghanistan, defense spending is leading to great leaps in surveillance technologies (e.g., drones and biometrics), and previous inventions in defense related fields are also still filtering through the economy (e.g. telecommunications).  Of course, other major technologies which propel the American economy do not appear to have much relevance to the defense department (e.g. genetically modified foods).  And while the military says it will turn toward greener technologies, I don’t think the Defense Department is the major driver in this technological field.  Finally, there are military technologies which don’t appear to have much relevance to the civilian economy (e.g. stealth technology).  So I don’t think that Bush’s sweeping argument can be validated, but a more moderate version of the argument might be compelling.

For many though the real issue with Bush’s argument is ethical rather than technical.  Some might feel uncomfortable at the realization that much of their country’s prosperity is due to the effects of massive defense spending (and from war fighting).  I don’t think that the current US economy is dependent on defense spending for technological breakthroughs, but I do think it would be foolish to dismiss the notion that massive defense spending does contribute significantly to the economy’s growth. 

This is not at all my area of expertise, so I wonder what those who have studied this issue more carefully think…

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Vikash is an Associate Professor of Political Science and Asian Studies at Hobart and William Smith Colleges in Geneva, NY. His main areas of academic interest are (post-) globalization, economic development, and economic freedom, with a regional focus on South Asia