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.....
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.....
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