The war in Ukraine will reinforce a recent upturn in government military spending. This will necessarily be at the expense of other priorities and will not help the economy.
At the beginning of the year, some fifty Nobel Prize winners called on governments around the world to agree to reduce their military spending by a mere 2% per year. This modest reduction, they said, would not change the balance of world power, but would save more than US$1.3 trillion over five years. This sum, they proposed, could instead be devoted, for half, to priority issues for each of the nations concerned, such as health and education, and, for the other half, to global problems such as pandemics, global warming and poverty.
It is true that a lot of money is still spent in the defense sector. In its latest snapshot of the situation in April, the Stockholm International Peace Research Institute (SIPRI) reported that total global military spending amounted to $2.113 billion last year, almost two-thirds of which was concentrated in five countries. only: the United States (38% with 801 billion), China (14% with 293 billion), India (3.6% with 77 billion), the United Kingdom (3.2% with 68 billion) and Russia (3.1% with 66 billion).
It must also be said that after a gradual decline that began in the late 1960s, a jump during the Reagan years in the United States and a downturn following the end of the Cold War, spending has been on the rise for some time now. time. Thus, after having increased, in constant dollars, from approximately 1500 to 1000 billion during the 1990s, world expenditure had returned to 1700 billion in 2010, then began to rise again approximately five years ago.
As an example, the defense budget of the United States was equivalent to 9.4% of its gross domestic product during the Vietnam War in 1967, reports SIPRI. It will fall to 4.9% during the 1970s to rise to 6.8% in 1982, then go down again after the fall of the Berlin Wall as low as 3.1% before the attacks of September 11. Today, this proportion is 3.5%. Russia, for its part, had lowered this military effort to 2.7% at the end of the 1990s, but had returned last year to 4.1%.
And now Ukraine
The shock created by the invasion of Ukraine by Russia will not reverse the latest trends, on the contrary. Elected after promising to increase state spending on public infrastructure and social programs, President Biden has already demanded from the US Congress an increase in the Pentagon’s budget greater than anything Donald Trump did. had never dared to ask.
While the British Prime Minister, Boris Johnson, dreams, for his part, of restoring to the Royal Navy its domination over the European seas, the German Chancellor, Olaf Scholz, struck the spirits, this winter, by announcing his intention to inflate Germany’s military spending from the equivalent of 1.3% of GDP to more than 2%.
Canada does not want to go that far, but still intends to make an extra effort. In its latest budget, the Trudeau government provided an additional C$8 billion over five years for the National Defense budget to bring it to C$41 billion. Canadian military spending would thus fall from the equivalent of 1.36% to 1.5% of GDP in 2026-2027. Much of this additional money will be used to modernize the North American Aerospace Defense Command and to support NATO.
“The situation in the world has changed and it is necessary to spend more,” said Finance Minister Chrystia Freeland to justify this additional military effort.
Everyone will agree that peace is absolutely preferable to war, and you don’t have to be a great economist to see that the chaos and destruction wrought by the latter is generally bad for business. But there’s more to it, Harvard University economist Kenneth Rogoff told the analyst website Project Syndicate in March. Past reductions in military spending have freed up financial resources for the development of other state missions, in addition to helping to clean up their finances and reduce the volatility of their spending and interest rates. This has been called “the peace dividend”.
Tanks against schools
Now the opposite is likely to happen, warned the American economist. All that extra defense money will have to come from somewhere. Either tax increases or budget cuts in other areas.
The situation in the world has changed and there is a need to spend more
However, even from the standpoint of strictly economic spinoffs, not all government spending is created equal. Experts generally estimate that for every $1 spent by governments, we can hope to generate $1.50 of economic activity, provided that the economy is not already running at full speed. But this estimate is an average that hides large variations between the sectors where this money is spent, found a study on the subject published in the journal Globalization And Health, in 2013.
In fact, it is reported, since military spending goes largely to the purchase of imported technologies and equipment, their multiplier effect would turn out to be largely negative (between -$5.70 and -$7.40 depending on the cycle). economic). It would be the opposite for the improvement of the social safety net (between +$2.70 and +$3), health (between +$3.60 and +$4.90), the environment (between + $3.20 and +$9.50) or education (between +$7.90 and +$9.40).
Figures, if confirmed, which suggest a replacement of “peace dividends” by a kind of war tax.