Observatory on disarmament, arms trade, armed conflict and culture of peace
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Militarism and Economic Crisis

Written by Pere Ortega on . Posted in Economia de defensa

(War Profiters News de War Resisters International, diciembre 2010)

It was between 9/11 and the ensuing war against international terrorism (in Afghanistan and Iraq) initiated by the USA, with the help of the majority of European countries, that the already sizeable military spending of the USA’s allied countries began to increase significantly.

In this regard, the USA has spent $1100 billion. In Europe spending has not gone so far. However, these defence budgets have increased above their national GDPs, with an annual average 5% increase.

Things changed suddenly in the middle of 2009 with the onset of the serious economic crisis. This crisis was mainly caused by the lack of state regulation of the financial system, as it allowed for high-risk products to be issued in highly speculative pyramid-structured markets. These hedge funds, combined with the enormous inflationary property bubble, undermined the mortgage sector and, in turn, the stock markets the world over. But there was another cause, which few have analysed. Amongst the various causes for this economic disaster, which led to unemployment and the exclusion of millions of people, thus creating more poverty and destitution in the whole world, war and war preparations could have played a very important role in the crisis.

When the crisis set in, the European states began to make cuts in military spending in order to deal with their budgets. Let’s look at some cases.

Greece, the most militarised country of the EU, earmarks 3.6% of GDP on military spending and ranks 5th in the global ranking of arms buyers. Now, with the serious economic crisis which we are going through and in order to receive aid from the EU, Greece has been under pressure to reduce its public deficit. Amongst the measures announced by the government, there are cuts in military spending. There will in fact be a cut of €1 billion of the Defence Ministry’s budget this year, and the cuts will continue in the following years until the military spending is reduced to 1.7% of GDP. Amongst the countries affected by the reduction in arms investments were France and Germany, who had recently signed important contracts with Greece. In the case of Germany, two submarines had been contracted and four more were being negotiated, with a final cost of €1.8 billion. In the case of France, six frigates, helicopters and Mirage and Rafale fighter planes were involved, with a cost of €3 billion. When faced with the possible annulment of these contracts, Angela Merkel’s and Nicolas Sarkozy’s governments reacted by pressurising the Greek government to prevent this from happening, warning that they could jeopardise the chance of EU funds being given, to bail out the Greek economy.

In the budget for 2011 in Spain, a €1 billion reduction was proposed, representing a saving of 7% compared to the previous year. There is also to be a reduction of 3000 soldiers out of the 134,000 troops. What is most important is that the Spanish government has not cancelled any of the large arms industry projects, in which around €15 billion is to be invested. It has merely postponed the completion of these projects. This means that these projects with military industries will have to be refinanced and will end up paying more interest, thereby increasing the final price.

The United Kingdom has proposed a reduction of 42,000 troops so as to cut military spending by 8%, that is to say £3.6 billion in four years. But it has not cancelled the projected construction of two new aircraft carriers. In order to reduce spending in nuclear arms projects, they have signed a military agreement with France, in order to share the costs, so as to be able to continue developing the project.
Germany has apparently gone further in reducing spending and it has proposed a reduction of it armed forces by 70,000 soldiers. However, in reality this conforms with the transition of a conscript army to a professional one. Therefore, in this case, there is no certainty that, in the end, the defence budget will be cut and in fact it could even end up increasing.

These cases make us fearful, despite the budget cuts announced by the different governments. These governments are merely adapting to the current situation of the crisis. In these decisions which have been adopted, there is absolutely no will to address the main problem underlying military spending. Simply put, the problem is that military spending is inefficient for the productive economy.
A concept which has been generally accepted in the most traditional political and economic spheres is that an increase in resources for military spending is an effective investment for the productive economy. This is false. Military spending stunts the growth of the productive economy. It firstly generates public debt, which leads to inflation as an attempt to prevent the public coffers from being affected. Monetary resources, group capital, technological knowledge and manual labour, used by the army in an unproductive way, is not being used in the civil sector where it could yield more profit. Furthermore, civil production facilitates the exchange of goods on the markets, which is not the case with arms as they do not obey market laws, as they are bought directly by states. Therefore they do not enter the exchange circuit. We must remember that military industries receive favourable treatment by states. This dependence pushes companies to not control the final price of the end product. They do not produce economies of scale and they increase the cost of the final arms price. However high the cost, the price will be met as the state will buy the arms all the same. This means that the war industries are parasites of the real economy.

The current economic crisis is an opportunity for governments to find socially progressive solutions.
One of them, amongst other possible solutions, would be to reduce resources for military spending and allocate these resources to the truly productive economy, that which is linked to human development, such as in health, education and economic growth. For example, all it would take is to cancel some of the most useless parts of military spending, especially those relating to investment in new arms, so as to deal with the countries’ public debts as well as in order to create employment.

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