Satyajit Das: The Wages of War

Yves here. Satyajit Das provides a high-level look at the costs and benefits of militarization. There may have been a time when manufacturing was less specialized (think 1930s and 1940s machine shops) where bulking up for huge production of weaponry required only some investment in specialized components. But modern war, particularly when fought US-style, with lots of fussy high priced kit, means single-purpose investment, which Das argues, also have limited spill-over benefits.

Mind you, it may not have to be that way even now. Russia in its Ukraine war production expansion, is endeavoring to have as much of its new capacity as possible be dual-use, as able to later or contemporaneously make civilian goods.

By Satyajit Das, a former banker and author of numerous technical works on derivatives and several general titles: Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives (2006 and 2010), Extreme Money: The Masters of the Universe and the Cult of Risk (2011) and A Banquet of Consequence – Reloaded (2016 and 2021). His latest book is on ecotourism – Wild Quests: Journeys into Ecotourism and the Future for Animals (2024). This piece was first published in the New Indian Express.

 

Mars, the powerful Roman god of war, is ascendant. Globally, defence spending has reached $2.7 trillion in 2024, a 9.4 percent annual increase, and, on present trends, will reach $6.7 trillion by 2035.

The rise of militarism is disconcerting. First, it represents a substantial diversion of economic resources marking a shift from the post-cold war peace dividend to a war tax. Since 2022, global military spending has risen from 2.2 per cent to 2.5 percent of global GDP and from 6.6 to 7.1 percent of government budgets.

After the collapse of the Soviet Union, cuts in defence spending boosted economic growth. The US defence budget halved from 6 percent of GDP to 3 percent between 1989 and 1999. Europe’s defence spending declined to around 2 percent of GDP, in part due to their now problematic dependence on US protection. Across the EU, this freed up money for private investment and social programs which increased from 36.6 per cent in 1995 to 41.4 per cent before the pandemic. Europe’s peace dividend may be as much as €4.2 ($4.9) trillion over a 30-year period. The reversal must be financed by unpopular reductions in existing spending or higher borrowing, which is difficult for highly indebted countries like Japan, some European states, and the UK.

Second, defence spending may not generate economic activity. Beyond the initial expenditure, there is minimal multiplier effects as most goods have limited consumption or investment value. It is spent on items which become obsolete if unused or destroyed if deployed in combat. There is a diversion of resources and talent. In the longer term, any stimulatory effects of increased military spending are outweighed by higher inflation, budget deficits, and higher taxes which require painful adjustments. If a state does not have the required indigenous industries, then defence spending mainly benefits foreigners, primarily major armaments exporters like the US, Russia, China, France, and Germany. Then, there is human and material costs of wars.

Third, the effectiveness of defence spending is uncertain. Given that the required capabilities are a function of the adversary, the type of conflict and its duration, it is unclear what target fixed percentage of GDP is appropriate or sufficient.  As the Ukraine war illustrates, no matter how high the state of preparedness, actual conflict requires armaments of different type and a scale of output which is difficult.

The money is frequently eaten up by salaries, pensions, and administration costs. More than one-third and one-half of US and European defence spending, respectively, goes on personnel. Less than 30 percent and 20 percent of US and European spending is on investment.

Advanced weapon systems, the now favoured strategy, are often duds. The Golden Dome missile defence system (forecast cost $500 billion to $3.6 trillion) may not work like its failed precursor the Star Wars defence shield. Weapons systems. which take years to develop and deliver, may become redundant due to changes in the type of conflict or advances in countermeasures. Development of cheap drone warfare, which took pundits by surprise, has made some technologies obsolete. Anti-ship hypersonic missiles make expensive carrier fleets vulnerable.

Defence products rarely meet their specifications due to long development processes, changing requirements, complex or novel technologies, design issues, delays, massive cost overruns, worker and supply shortages. Military production is constrained by complex supply chains. American and European attempts to increase their defence capabilities are likely to be hampered by their reliance on potential adversaries for critical materials, such as rare earths, uranium, and other elements as well as semi-conductors. High-tech weaponry requires frequent expensive maintenance meaning extensive redundancy to ensure availability. Trained and skilled personnel to build and operate such armaments are increasingly scarce. Projects are often scaled down and eventually scrapped at great public expense.

For those without large defence industries, reliance on foreign suppliers creates dependencies. Australia’s planned AUKUS nuclear powered submarine fleet makes it reliant on the US and UK for design, critical technologies, and fuel reducing its value.

Fourth, extra spending on defence does not guarantee security. It leads to accelerating arms races where any decisive advantage is quickly lost triggering cost spirals as nations try to keep up. It can lead to war where fears of an established power about the rise of a competitors leads to conflict (the Thucydides trap). In 1914, Germany rushed to war with Russia fearing that the latter’s rapid industrialisation would imminently surpass their capabilities.

Availability of arms fuels conflict. Russian playwright Anton Chekhov argued that “one must not put a loaded rifle on the stage if no one is thinking of firing it.” That holds in geopolitics as in drama.

Fifth, as Eisenhower, Galbraith and C. Wright Mills foresaw, the unwarranted influence of the military-industrial complex weakens democracy. The defence technostructure requires centralisation and bureaucracy to assert control over resources undermining markets and capitalism as war is the ultimate state directed activity. Today, the focus on cyber, drone, satellite, intelligence gathering and psychological warfare has created a powerful group of techno-kings, such as Palantir. These groups, who once saw defence as morally tainted, now dominate the new defence-tech ecosystem.

But political impetus for greater defence spending remains strong. It is popular with voters with little idea about the subject. Leaders, bamboozled by generals seeking the latest toys, can indulge in rhetorical fantasy targeting citizen’s baser nationalist instincts and racist biases. It makes for good photo opportunities. Politicians feel strong in the company of warriors. Journalist Robert Fisk held that one reason that recent generations of leaders initiate wars is that most have never experienced its futile horror firsthand. Even where eligible, many avoided military service through connections, health issues (the US President’s exemption for student deferments and spontaneous bone spurs on his feet) or escaped direct combat postings.

The argument in favour of the increase in defence capabilities is a trite one: defence is expensive but cheaper than war or a defeat. It falsely frames the problem discounting peaceful co-existence, negotiated resolution of disputes, and non-interference in the domestic affairs of others. Even Churchill, who was no shrinking violet, urged “jaw-jaw” over “war-war.”

The embrace of violent conflict and military capabilities points to a deep self-destructive flaw in humans. The 1970s classic Barrett Strong and Norman Whitfield song summed it up: “War… What is it good for? Absolutely nothing.”

 

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