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Guns, Butter, and Empire

The economic elites of the United States are reversing their perception and evaluation of the role of military spending and research in the US economy. From the 1950’s through the 1970’s, military spending was viewed both as an excellent way to prime the economic pump and as a primary vehicle for creating advanced technologies. Contemporary trade deficits, budget deficits, and technological competition from Japanese and European multinationals have shaken up the American economy and the worldview of its economic, political, and intellectual elites. Within this context, military spending is increasingly viewed as a source of problems rather than a solution.

Public discussion of the relative decline of the United States as the leading economic and military power has become respectable, even fashionable. The best-seller status of Paul Kennedy’s scholarly book, ‘The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000’, is one index of the breaking up of the postwar American consensus on the US role in international trade and politics.

Overspending on the military sector and specialized military technologies is increasingly viewed as a major source of the loss of market leadership by US corporations. Business Week publishes graphs which purport to demonstrate expected increases in employment, gross national product, and exports for each one per cent cut in the military budget. Ten years ago, we expected to find these kinds of graphs in Seymour Melman’s books, but certainly not in Business Week.

Paradoxically, just as it has become respectable to entertain the view of a long-term decline in US power and the key role of the military in provoking this decline, new work by researchers who can hardly be considered sympathetic to the Pentagon is challenging this ‘pessimistic’ view. Neo-conservatives such as Samuel Huntington have argued quite vigorously against the hypothesis of US decline and the negative role of military spending. A parallel questioning by researchers who are critical of US foreign policy is more surprising and likely to be more informative.

My intention here is to share some initial thoughts and doubts concerning the purported economic and military decline of the United States. The predominant view in the peace movement is that the United States’ economic power is in decline and that over-investment in the military plays a basic role in this decline. I think that it is far from proven that the US economy is in decline. If the economy is in decline, it is far from proven that overspending on the military can be considered to be a prime mover in the process of decline.

1. Guns, Butter, and the Decline of Empires.

The argument of the military role in the purported US decline is delivered with a one-two punch.

Firstly, there is the proposition that modern military technology is highly specialized and generates relatively little ‘technological fallout’ for the civilian economy. Over-investment in military technologies leads to diversion of resources from civilian research and development, and thus an eventual loss of market shares and leadership to national economies which invest less of their resources in the military. Secondly, the strength of this argument is reinforced by placing contemporary problems within the context of long-standing trends in economic and military history. Kennedy’s book on the rise and fall of great powers brought this argument into general public consciousness, but this point of view had been previously elaborated in Immanuel Wallerstein’s work on the modern world system (1974, 1980, 1989).

The first modern imperial system (modern in the sense of a system organized by markets as opposed to bureaucracies) was Holland’s economic hegemony of the seventeenth century, succeeded by Great Britain’s hegemony during the nineteenth century and then that of the United States after 1945. In each case, the rise and fall of imperial systems follows a common sequence. First, technological and organizational innovations make the nation in question the leader in terms of agri-industrial productivity. Translating this economic productivity into international market hegemony requires investment in state resources, especially military, which permit this superior productivity to be realized in international markets. Over time, however, investment in the military expenses of empire diverts investment, both in finances and human resources, from renewal of the productive apparatus. A loss of technological leadership then undermines the ability of the hegemonic power to maintain its military leadership.

The bloated Pentagon budget, and its negative consequences, would thus tread the path previously followed by the Dutch and British economic and military empires. In the present context, we must ask ourselves whether contemporary US military expenditures are, in fact, at a level which drain its civilian technological capabilities. Then we will ask whether the US economy is really in such bad shape.

2. How Much is Too Much?

Gordon Adams, a prominent and critical analyst of the military budget, has recently been voicing some reservations concerning the received way of thinking about the negative economic consequences of US defense spending. Adams shares the perception and concern that the American economy is facing some fundamental deficiencies in productivity and economic organization that can, in the long run, undermine the ranking of the US in world trade and politics. What he questions is whether the burden of military expenses in the US economy constitutes a primary element in this risk of economic and political decline.

Partisans of major military spending point to the fact that this spending now only constitutes 6 per cent of the US gross national product and that this is unlikely to act as a crushing financial or technological burden on the American economy. Adams rightly dismisses this argument as insufficient: the question is how this six per cent impacts on investments and people involved in the creation and application of new technologies. Given the relative size of investment and savings flows, a diversion of several percentage points of GNP from butter to guns could, in principle, have damaging long-term consequences for civilian production and trade. The question has to be answered by specific and systematic reference to the range of technologies created by military spending, the range of technologies which may have been retarded by diverting resources from the civilian to the military sector, and the trade implications of these budgetary choices.

For the record, however, it should be noted that there has in fact been a secular decline in military spending relative to US GNP The US defense budget shrank from 13 per cent of GNP during the Korean war to 9 per cent during the Vietnam war (1967) and then declined to 6 per cent by the end of the 1970’s. (Kupchan, 1989:42-43) Reagan’s military budget increases brought this proportion up to a level of over 7 percent during the mid-1980’s, but the final years of his second term saw military spending move back towards 6 per cent of GNP.

Adams’ central points and questions concerning the new received wisdom on the negative impacts of military spending can be summarized in the form of three propositions and responses:Proposition 1: Military expenditures divert a major proportion of scientists and engineers from fundamental work on technological innovation.Response: Since 1972, the proportion of technical personnel employed by the military sector has fallen to less than 20 per cent of the total technically qualified labour force.Proposition 2: Military expenditures divert a major proportion of financial resources from commercial research and development in the private sector.Response: While the proportion of US federal budget expenditures on military research and development increased relative to federal outlays on civilian R&D during the 1980’s, the share of military R&D as a proportion of total national R&D expenditures, both public and private, declined from 60 per cent of the total during the 1950’s to less than 40 per cent by the end of the 1980’s.Proposition 3: Military technologies are nonproductive because they generate relatively little in the way of ‘technological fallout’ for the military economy.Response: There is little in the way of systematic analysis of the complex relations between military and civilian technological development in the contemporary United States. In certain cases and at certain times, defense expenditures were a source of general civilian technological innovations, e.g., aeronautics, micro-circuits, fibre optics, lasers, and composite materials. On the other hand, it is plausible that a range of civilian innovations did not take place because of diversion of federal resources to the military sector. These sorts of negative consequences are inherently difficult to quantify. The debate over positive or negative technological fallout from the military sector has focused more on rhetoric than facts.

Adams’ last point shortchanges, in my opinion, the quite serious work that has been done by Melman and others on the question of technological fallout. Even though military R&D spending as a proportion of total R&D spending declined from 1950 onwards from 60 to 40 per cent, this is still a large fraction of R&D. Relative economic decline takes several decades to work itself out. Spending roughly half of R&D budgets on the military during the 1960’s and 1970’s may have been a trigger for the problems we observed during the 1980’s. It may take further cuts in the relative role of military R&D to restore and maintain the US relative ranking as a world technological leader during the coming decades. Nevertheless, I think that Adams’ scepticism concerning negative fallout form military spending merits serious consideration.

3. Are Things Falling Apart?

Perception is a fundamental part of reality. A widening perception, both within the United States and from rival powers, that US technological and economic leadership is on the decline has concrete ramifications even if a more careful analysis of trends indicates that much of the purported decline may be mythological.

Michel Beaud’s new, impressively researched book on the world economy of the 1980’s advances the argument that much of the purported decline of the United States is, in fact, statistical artifact elevated into myth. Studies on the US decline frequently trace trends in productivity rankings and market shares by using the 1940’s and the 1950’s as the base period. This distorts measures of changes in relative rankings since the near-absolute leadership of the US through the early 1960’s was temporarily based on the physical destruction and reconstruction of the European and Japanese economies. What counts is changes in relative rankings from the 1970’s onwards. Despite the deep deficits in the US budget and foreign trade accounts, the performance of the US economy during the 1980’s equalled or bettered that of the European and Japanese economies on a variety of measures such as growth in employment and gross national product or rates of investment. For example, US investment rates in constant prices were 4.5 per cent from 1972 to 1985 as compared to 3.2 per cent for Japan and 0.7 per cent for the EEC (Beaud, 1989:165).

More fundamentally, Beaud argues that the proper measure of the power and performance of the US economy is, precisely because of the multinationalization of US companies after 1945, the world market share of goods and services produced and exported by US companies both within US borders and by plants they own and control outside the United States. The share of world exports coming from US territory decreased modestly from 17.5 per cent in 1966 to 13.3 percent in 1977 and then rose to 14.0 per cent in 1984. At the same time, exports by foreign branches of American companies rose slightly from 17.7 per cent in 1966 to 18.1 per cent of world trade in 1984. (Beaud, 1989:169) This is hardly a sign of ‘deindustrialization’ or imminent decline of the leading role of the United States in world investment and trade. A list of the leading multinationals in seven high technology sectors confirms the continuing leadership role of US firms in key components of world industry (Beaud, 1989:195).

Beaud also cites other figures which might indicate a more uncertain future for US industrial leadership, such as the rapid rate of European and Japanese investment in the US which may, over time, come to surpass the level of US investment in the rival power blocks. The tables of contemporary relative rankings of multinational firms may be less important than a more detailed and microscopic examination of the generation and control of recent technological innovations that may, over one or two decades, result in a fundamental reordering of the world economic hierarchy.

Perhaps the most valuable lesson from Beaud’s research is that the evidence is far from final in the debate on the purported US decline. There is a distinct possibility, in fact, that the evidence may indicate the persistence of US economic and military power during the next quarter of a century.

4. Conclusion

It remains to be proven that US military expenditures are a primary element in the present economic difficulties of the United States, or whether these difficulties are as intractable as proclaimed by the ‘rise and fall’ hypothesis. The primary elements may well be the basic organizational and financial strategies of the major corporations which control the US economy and the business schools which train their managers. We refer to institutional phenomena such as a damaging preoccupation with short-term financial results or the control of manufacturing corporations by managerial elites trained in accounting or law, and nurtured on the myth that a ‘good manager’ can use his business school skills to efficiently run any company in any sector.

Japanese trade negotiators are becoming quite vocal about the need for the US economic elite to get its own house in order. I am not convinced that major military budget cuts and the consequent peace dividend, if it ever does arrive, will do very much to put the US economic house in order.

The institutional malaise of the US economy is deep-seated and may well, over time, undermine US power. It would be a mistake, however, to assume that US power has already been greatly undermined or that US society lacks the institutional flexibility to adapt to new circumstances and maintain its rank for some time to come. Cutting the military budget and then throwing new money at civilian institutions, however, is unlikely to make much of a dent in the long, hard problem of transforming outmoded economic practices.


  1. Adams, Gordon. Les depenses de defense: bienfait ou hemoragie pour l’economie americaine?, Momento GRIP 1988. Bruxelles: Groupe de Recherche et d’Information sur la Paix, 198, p.165-169.

  2. Beaud, Michel. L’economie mondiale dans les annees 80. Paris: La Decouverte, 1989.

  3. Kennedy, Paul. The Rise and Fall of the Great Powers. New York: Random House, 1987.

  4. Kupchan, Charles A. ‘Empire, Military Power, and Economic Decline’, International Security, Vol. 13, no. 4 (Spring, 1989), p.36-53.

  5. Melman, Seymour. The Demilitarized Society. Montreal: HarvestHouse, 1988.

  6. Schine, Eric, ‘The Casualties of Peace’, Business Week, No. 3140 (Jan. 6, 1990), p.70.

  7. Wallerstein, Immanuel. The Modern World System, Vol. 1, 2, 3. New York: Academic Press, 1974, 1980, 1989.

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