The so-called “peace dividend” following the collapse of the Soviet Union in 1989 was often more spin than reality according to author and former banker Satyajit Das. Nevertheless, the global economy did benefit:
“First, defence spending declined, freeing up resources for other expenditure… Second, scientific and mathematical resources previously employed in the defence-industrial infrastructure were re-deployed… Third, it allowed the integration of former communist economies into the Western trading economy opening up new markets.”
But since 11 September 2001 – and especially since the invasion of Iraq in 2003 – the benefits of peace have gone into reverse:
“Russian revanchism now threatens a return to the Cold War. Radical Islam, the Sunni-Shia conflict, nuclear ambitions and geo-political positioning have destabilised the Middle East. One manifestation of this is the rise in terror attacks, including the attack on a Russian civilian airliner and those in Europe. Another is the flow of large numbers of refugees into Europe fleeing conflict and a lack of economic opportunities in the region.”
Das chastises those economists who think that there is a war dividend – largely based on the experience of Western Europe as a result of the Marshall Plan. In fact, war is almost always followed by economic depression because the money that is expended was not invested in future productivity:
“In the 19th century, French economist Frederic Bastiat explained why there is no benefit to the destruction of productive assets or expenditure on unproductive assets. The money expended could otherwise have been put to more productive uses, generating greater wealth. Higher defence expenditure will, ultimately, divert resources.”
Today, with public finances already over-stretched, western economies desperately need the cash that is being wasted on futile wars in the Middle East to finance the next round of domestic economic growth. Economic sanctions against Russia are also having a cooling effect on western economies, and may be driving Russia and China into becoming closed economies that no longer participate in an open global market. The recent example of Chinese steel dumping coupled to tariffs on European imports is an indicator of the direction this could go in unless leaders on all sides find a means of de-escalating the conflict. Moreover:
“The Syrian civil war illustrates the high humanitarian cost and the economic expense of dealing with the crisis. Combating and controlling failed states, resulting from conflict, such as those in the Middle East, Africa and central Asia, requires commitment of vast resources, by way of manpower and treasure. Asymmetric warfare, cyber-attacks or isolated terrorist attacks, impose high cost on economies. Increased security measures designed to prevent or minimise the effects of such attacks are expensive.”
If Das is right, Western economies are facing a crisis largely of their own making. But then, the idea of a military-industrial complex is nothing new. The only novel thing about it is that it has morphed into a banking-military-industrial complex that may yet kill us all.
Satyajit Das’ book A Banquet of Consequences is available now.