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Economics of the Arms Race

John Kenneth Galbraith

Anyone addressing the nuclear arms race and its consequences must begin by recognizing the diversity of the motivating forces that are involved. There is, to begin with, the technological trap. Each power develops the weapons that make obsolete those of the other; each, anticipating this obsolescence, strives to develop those that protect it from that obsolescence and provide an advantage instead. The resulting interaction has a technological dynamic of its own. This dynamic, as I have argued earlier, is sustained by economic, bureaucratic, and military interest. Public and private employment, the bureaucratic purposes of those guiding the race, the financial interest of the weapons firms, the professional interest of scientists and engineers, competition among the armed forces are all generated or sustained by the arms competition. This is the powerful combination of forces President Dwight D. Eisenhower warned us about more than twenty years ago. We must be on guard, he said then, "against this acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist…. We should take nothing for granted."

There is a certain reluctance in this tactful age to speak of the financial motives for the arms race. Can anything so dangerous, so catastrophic, be motivated by financial interest or personal gain? But the financial analysts and like scholars in New York and elsewhere are not so inhibited. They are currently and eagerly telling their customers and clients of the corporate prospects stemming from the large current increases in the arms budget.

There is a final, more general, and yet more influential force sustaining the arms race. This is the belief, strong in the United States, much cited in oratory, that we are defending an economic, political, and social system. Because our institutions are under assault from socialism and communism, we need a large and growing commitment to weaponry, at whatever cost or danger, to protect them. The proliferation of arms and the pursuit of ever more arcane and dangerous weapons are our ultimate line of defense.

But the arms race, as I hope to make clear, does not strengthen free institutions or free enterprise. On the contrary, it is gravely weakening our economic and social system. And if or when, in some moment of error, anger, or panic, this race goes out of control—if there is some nuclear exchange, large or, as some now imagine, limited–what is called free enterprise or capitalism will not survive. Nor will free institutions. All will be shattered beyond recovery. So equally, of course, will be what is now called communism. Capitalism, socialism, and communism are all sophisticated social forms relevant only to the advanced world as it has now developed. None would have existence or relevance in the wreckage and ashes and among the exiguous survivors of a post-nuclear world. This is not a matter of easy rhetoric; involved are hard facts that no one, after serious thought, can escape.

Expenditure for arms, like any public expenditure, is made at cost to other possible use. Notably, it is made at cost to private capital use. This proposition is accepted by economists. Indeed, it is central in the general thought of the economists of the present American administration. The freeing of revenues now used for public purposes is deemed vital for private capital improvement–for the revitalization of the American industrial plant. The point, however, is not stressed as regards our military outlays. Although we have occasionally heard reference to the way military expenditures draw resources from other public needs, we have heard much less–there has been something approaching a conspiracy of silence or neglect–of the way these expenditures have contributed to our industrial decline.

That contribution has been both general and specific. During the 1970s, we spent annually about a hundred billion dollars on our defense establishment; the total expenditure for the decade was roughly a thousand billion dollars.1 If an appreciable part of this outlay had gone into the improvement of our industrial plant–as it would have gone had it not been requisitioned by the government–no one can doubt that our economy would be stronger today. And from this stronger economic position would have come some of the political prestige and primacy that we enjoyed in the years following World War II. It was our economic, not our military, strength on which our world position in largest measure depended.

The general effect of massive military expenditures has been a transfer of capital away from civilian industry over the years and a resulting weakness that is easy to see. The specific effect within the industrial system is even more visible. Modern military spending concentrates on , and certainly benefits, the narrow range of industry and the highly specialized technology that serve missile, aircraft, and marine weaponry. But this development and the associated distortion in the allocation of resources–the technical competence, capital, labor, and other resources lavished on this small specialized sector of the economic system–have been at heavy cost to the industries on which we depend for domestic or international competitive performance. As we have pressed ahead on a narrow band of industry that serves our weaponry, we have left behind, left competitively vulnerable, our steel, automobile, textile, chemical, and a great range of other industries.

It is hardly news that in modern times our competitive position has declined steadily in relation to that of Germany and Japan. We are not less intelligent than the Germans and the Japanese. Our raw material and energy base is not less good–indeed, it is far better. It is not clear that our workers are less diligent. Germany spends more per capita on its social services than we do; Japan does not spend greatly less. The difference is that the Germans and the Japanese have been using their capital to replace old civilian plant and build new and better plant. We have been using our capital for industrially sterile military purposes. The comparative figures are striking.

Through the 1970s we used from 5 to 8 percent of our Gross National Product for military purposes. The Germans during this decade used between 3 and 4 percent. The Japanese in these ten years devoted less than 1 percent of their Gross national Product annually to military use. In 1977, to take a fairly typical year, our military spending was $441 per capita; that of Germany was $252 per capita; Japan spent a mere $47 per capita. A substantial share of the civilian capital investment that brought these countries to the industrial eminence that now so successfully challenges our own came from capital that was saved and invested rather than devoted to military expenditures. Again the figures are striking. Through the 1970s our investment in fixed nonmilitary and nonresidential investment ranged from 16.9 percent of Gross National Product to 19.0 percent. That of Germany ranged from 20.6 percent to 26.7 percent. The Japanese range in these years was from 31.0 percent to a towering 36.6 percent.2 The investment in improvement of civilian plant was roughly the reciprocal of what went for weapons. Of ten industrial countries in the years 1960—1979, Japan, with its low military expenditures, had by far the highest rate of growth in productivity–an astonishing 8 percent annually. Germany also had a highly favorable growth rate. The United States and Britain, with the highest military expenditures, had the lowest rate of productivity growth among the non-socialist countries.3 Can anyone looking at these figures suppose that our military spending has been a source of industrial and economic strength? Can anyone doubt that it has been at cost to our industrial eminence and to the prestige and influence that go therewith?

Let us ask ourselves again: Have we strengthened our position in the world by accepting a decline in our civilian industry? In an age of overkill, do we win industrial strength by investing in yet more overkill? At a minimum would we not be wise to urge the arms control that would allow us to use more of our capital for improving the competence and excellence of our civilian industry? One appeals here not to pacific idealism, useful as that may be, but to practical self-interest. I think there cannot be any doubt as to the answer.


1 In constant 1976 dollars.

2 Figures are from The Statistical Abstract of the United States and International Economic Indicators, December 1980.

3 Ruth Leger Sivard, World Military and Social Expenditures for 1981.



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