The Cash Nexus: Money and Politics in Modern History, 1700-2000
Page 48
The Second World War witnessed an even more impressive attempt to transcend economic disadvantage by means of mobilization. Although the combined GNP of what became the Allied powers in 1939 exceeded those of the future Axis powers by some 40 per cent, while the Allies’ population was 170 per cent larger, the Axis powers were able to achieve far greater territorial expansion than the Central Powers had achieved in the First World War; to kill many more soldiers and civilians of enemy states; and to resist the military alliance against them for longer. This can only partly be explained in economic terms. While it is true that the German economy grew during the war years rather than contracted as it had after 1914, this was more than compensated for by the growth of the American economy.44 By any measure of armaments production, the Axis was comprehensively outproduced, by ratios ranging from around 3 to 1 (rifles and machine guns) to more than 5 to 1 (mortars and major naval vessels).45 As in the First World War, German war finance relied more than British on monetizing short-term debt, with consequent inflationary pressure (cash in circulation grew by a factor of 2.6 in Britain during the war, compared with a sevenfold increase in Germany).46 The only reason the official German cost-of-living index had risen by less than the British by 1944 was the ruthless reinforcement of price controls.
Nevertheless, the Axis powers managed to kill nearly two and a half times more of the other side’s armed forces than they lost themselves: a net body count of over eight million. If civilian fatalities are included, the extent of Axis murderousness is even more astounding: the civilian death toll on the Allied side was more than eight times higher than on the Axis side. The total Allied death toll was five times higher: a net body count of nearly 38 million.47 Moreover, as Richard Overy has observed: ‘No rational man in early 1942 would have guessed at the eventual outcome of the war.’48 For by that date the Axis powers were, thanks to their conquests, on ‘more or less equal terms’ in terms of overall pre-war GNP – and only at a slight disadvantage in terms of population (a differential of about 20 per cent in the Allies’ favour, though the Allies were less able to mobilize men on the periphery of their territory).49 True, the Allies controlled much more of the earth’s surface (the territorial ratio was still more than six to one). But on the decisive Eastern Front the Germans achieved an economic superiority over the Soviets in 1941 and 1942. Nor was there a significant technological gap at this stage in the war.50
The principal strength of the Axis (Italy apart) was military: the ability to mobilize high proportions of men and material earlier than their enemies and then take full strategic advantage of operational and tactical superiority. Storm-troop tactics; more effective co-ordination of infantry, artillery, tanks and air forces in offensives; the defence in depth; greater flexibility of the chain of command: these were just the most obvious respects in which German (and to a lesser extent Japanese) troops were able to outfight economically superior opponents in the initial phases of the European and Asian wars. Nor was it only fighting men who were mobilized. More women entered the German and Japanese workforce during the war than in Britain and America (in 1944, 51 and 42 per cent, respectively, compared with 31 and 30).51 It was a hallmark of the improved efficiency of Hitler’s war economy compared with Hindenburg’s that Albert Speer was able – despite the disruptive effects of British and American bombing – to raise German real GDP by 1944 to a level 25 per cent higher than in 1938. Moreover, the popular legitimacy of the Third Reich appears to have been more durable than that of the Second Reich, though debate continues as to how far Germans fought on in 1944–5 because of coercion rather than propaganda (or spontaneous zeal). The drastic increase in the use of the death penalty in the years after 1941 – some 11,000 executions were ordered by the civilian courts, and 20,000 by the military courts – suggests that coercion became increasingly important after the failure to defeat the Soviet Union, though a high percentage of those executed within the Reich in this period were in fact foreign slave labourers, not ‘ordinary Germans’.52
The military performance of the totalitarian regimes in the Second World War provides sobering evidence of what can be achieved by all-out economic, military and cultural mobilization. The fact that it took another totalitarian regime to defeat the Third Reich in the crucial East European theatre speaks for itself. True, the Soviets would have found a war against Nazi Germany harder to win by 1945 without the British and American air and land contribution in Western Europe. But it is worth remembering that American economic aid to the Soviet Union amounted to just 5.6 per cent of Soviet net material product between 1942 and 1945.53 In purely economic terms, the two dictatorships were quite evenly matched; indeed, in terms of GDP, the Soviet Union fought back to victory from a 20 per cent disadvantage in 1942.
In war, in other words, autocratic regimes appear to enjoy an advantage over liberal democracies which in the short run can significantly reduce, if not altogether eliminate, any economic disadvantage. They seem able to impose greater sacrifices on both their civilian and military populations. Ultimately, the resource gap was too great – and strategy too flawed – for Germany to win either world war; but that should not detract from the way ruthless mobilization narrowed that gap and made victory at least conceivable.
A DEMOCRATIC PEACE?
From all this it is tempting to infer that economic liberalism by itself may not be enough to abolish war; democratization may be just as necessary, since in theory democratic states are less likely to go to war than autocratic states. This argument also dates back to the Enlightenment. According to Kant, ‘if … the consent of the citizens [of a republic] is required to decide whether or not war should be declared, it is very natural that they will have great hesitation’. This is because war ‘would mean calling down on themselves all the miseries of war, such as doing the fighting themselves, supplying the costs of the war from their own resources, painfully making good the ensuing devastation, and … having to take upon themselves a burden of debts which will embitter peace itself and which can never be paid off on account of the constant threat of new wars’. Such calculations do not concern an autocrat, however, ‘for the head of state is not a fellow citizen, but the owner of the state, and war will not force him to make the slightest sacrifice so far as his banquets, hunts, pleasure palaces and courts are concerned’.54 True, Kant took care to emphasize that his argument applied to republics, not to democracies.55 But modern researchers have tended to blur the distinction. In other words, democracies are ‘constrained by representation’.56
There is no doubt that there is a close correlation between democracy and defence/GDP ratios: less democratic states tend to spend significantly more on the military.57 It is also true that, when the unit of analysis is the ‘dyad’ or pair of countries, war – or indeed the threat of war – is less likely to occur between two democratic states than between a democracy and an autocracy.58 On this basis, ‘if all states should in the future become democratic, there would be little war’.59 However, when countries are studied individually, democracies emerge as just as likely to become involved in war as autocracies. There is also some evidence that pairs of autocracies will tend to avoid war with one another, much as pairs of democracies do.60 Most problematic of all for the ‘democratic peace’ theory is the evidence that countries at an early stage of democratization seem exceptionally prone to involvement in wars.61 One possible explanation for this is that democratization seems to be associated with political fissiparity, as we saw in the previous chapter. A last – and perhaps fatal – difficulty for the ‘democratic peace’ thesis is the absence of any correlation between democratization, as quantified in Chapter 12 (Figure 32), and the actual incidence of war, as quantified in Chapter 13 (Figure 36).
THE BENEFITS OF MILITARISM
There is a final reason why military aggression is unlikely to die out: namely, that high military spending is not necessarily as economically detrimental as Kennedy suggests. Empirical evidence in support of his view is in truth rather scanty.
In a footnote, Kennedy gives a more precise definition of what he means by ‘excessive’ military spending. ‘The historical record’, he states, ‘suggests that if a particular nation is allocating over the long term more than 10 per cent (and in some cases – when it is structurally weak – more than 5 per cent) of GNP to armaments, that is likely to limit its growth rate.’62 Great Britain, however, became the ‘first industrial nation’ at a time when its expenditure on defence was above that threshold: between 1760 and 1810 it averaged 11 per cent of national income.63 More paradoxically, as Kennedy himself admits, British economic and strategic decline first manifested itself at a time when British defence spending was relatively low. Indeed, his castigation of British strategy in the first half of the twentieth century is strangely contradictory. On the one hand, he is critical of inter-war governments for spending too little on defence while ‘controlling one-quarter of the globe but with only 9 to 10 per cent of its manufacturing strength and “war potential”’.64 On the other, he repeatedly attacks what he calls ‘the British way of war’, meaning reliance in a European war on ‘colonial operations, maritime blockade, and raids upon the enemy’s coasts’ as opposed to a ‘continental commitment’ of troops. ‘The raiding strategy seemed cheaper … but it usually had negligible effects and occasionally ended in disaster … The provision of a continental army was more expensive in terms of men and money, but … was also more likely to assist in the preservation of the European balance.’65 It is not clear from this what Kennedy thinks Britain should have done: while some governments are damned if they spend too much on defence, others are damned for spending too little.
Moreover, it is not without significance that the biggest American boom of the twentieth century (in terms of real GNP growth) occurred not in the much-vaunted Clinton era, but during the Second World War. The average annual growth rate of the US economy between 1942 and 1945 was 7.7 per cent, exactly two percentage points higher than for the period 1995–8. It is also striking that American defence expenditure exceeded 5 per cent of GNP in every year from 1942 until 1990 except the years 1948 and 1976–9 (though it remained well below Kennedy’s 10 per cent maximum for a structurally strong state). Taking the longest possible view, there appears to be no long-run statistical correlation – negative or positive – between defence expenditure as a percentage of GDP and real growth for either Britain and the United States.66 If anything, the relationship is very slightly positive in the American case. Nor is there any correlation when time-lags of five or ten years are introduced.
Finally, a cross-country survey of average defence budgets in relation to average growth for the years 1990–1997 reveals only the slightest negative correlation between the two. Admittedly, only four out of the 59 countries in the sample spent more than 5 per cent of GDP on defence; one experienced negative growth (Russia), and two of the four had less than average growth. Israel, however, spent 9.7 per cent of GDP on defence – a fraction below Kennedy’s threshold – but enjoyed growth of 5.8 per cent, more than twice the global average.67
After the collapse of the Soviet Union, Kennedy modified his position; but only slightly. The issue, he argued in Preparing for the Twenty-first Century (1993), was not ‘whether high defence spending causes economic slowdown’, but rather how the economy was structured. ‘If [an] economy is growing briskly,’ he argued, ‘possesses a flourishing manufacturing base, is at the forefront of new technologies, invests heavily in R&D, is in balance … on its current accounts, and is not an international debtor, then it is far better structured to allocate 3 or 6 or even 9 per cent of its GNP to defence than if it lacks those advantages.’ Kennedy conceded that the United States was by no means weak on all these scores, but added that ‘the single most important fact’ was the slowing of the US growth rate since the 1950s and 1960s. An eye-catching figure contrasted average annual growth of over 4 per cent in the 1960s with a miserable -0.5 per cent in 1991.68 However, an updating of the data shows that average annual growth of GDP in the 1990s was 3.3 per cent: higher than in both the 1970s (3.2 per cent) and the 1980s (2.8 per cent).69
Nevertheless, the hypothesis remains an attractive one that the Soviet economy ultimately crumbled under the weight of excessive defence expenditure in the 1980s. Superficially at least, it seems plausible that it was the Soviet Union which was suffering from Kennedy’s ‘overstretch’, not the United States. As we saw in Chapter 1, estimates of defence spending as a proportion of GNP for the Soviet Union in the mid-1980s were as high as 16 per cent, at a time when the equivalent American figure was just 6 per cent. It has even been argued that the increase in American defence expenditures under Ronald Reagan led to the West’s ultimate victory in the Cold War by pushing the Soviet Union over the threshold of sustainable defence expenditure. If so, then Reagan’s policy has paid a tremendous dividend: though to call it a ‘peace dividend’ is a misnomer, for it was the hawks not the doves who won it. A simple calculation suffices to illustrate the point. Between 1981 and 1989, under Presidents Reagan and Bush, the annual American defence budget averaged $378 billion (adjusting for inflation): $100 billion a year higher than under President Carter. It was this increase which aroused so much anxiety among Reagan’s critics and the prophets of national decline. In the 1990s, however, real spending on defence fell back to just $270 billion (the 1998 figure), largely as a result of the collapse of the Warsaw Pact and the Soviet Union. If the Pentagon’s conspicuous consumption contributed anything towards the Soviet regime’s external and internal crisis, then the real cost of Reagan’s policy was rather lower than was claimed in the 1980s. In fact, the change of policy has cost Americans around $70 billion a year, or slightly less than 1 per cent of GNP.70 This was not much to pay for the defeat of what was in many ways an ‘evil empire’, just as Reagan said.
Then again, there are those who would maintain that the Soviet Union collapsed because of its own internal contradictions, not because of Reagan’s defence spending. Certainly, the Strategic Defence Initiative does not seem to have played as big a part in it as Reagan himself was led to believe.71 The reality was that a planned economy had been the right model for waging a full-scale conventional war against the Germans in Eastern Europe, but the wrong model for sustaining an arms race with the remote United States. The Soviets might conceivably have won a hot war once they had established superiority in warheads.72 In its war with Nazi Germany, the regime had already proved its ability to withstand millions of civilian as well as military casualties; and in the event of a hot war, it would have been much less susceptible than its American opponent to popular pressure for peace. Mass civilian death would have been a new experience for Americans, but not for Russians. However, the decision not to risk nuclear war forced the Soviets to compete in an open-ended arms race. In this, the advantage lay not with the side capable of achieving the maximum possible military mobilization in the short run – the key to victory in a hot war – but with the side capable of paying for its armaments without stifling civilian consumption and living standards in the long run.
From 1950 until around 1974, the Soviet Union enjoyed real GNP growth rates comparable with those of the United States; indeed in the late 1950s and late 1960s they may even have been higher. But from the mid-1970s Soviet growth lagged behind. As we have seen, high absolute levels of defence expenditure became steadily less and less burdensome to the United States as growth increased in the 1980s. But the Soviet defence burden rose inexorably because the arms race accelerated while the planned economy stagnated. To put it simply, between 1980 and 1989 the United States was able to increase defence spending in real terms by around 50 per cent; but per capita consumption in the same period rose by more than 20 per cent. The equivalent figures for the Soviet Union were 15 per cent for real defence spending and barely 5 per cent for per capita consumption. Why was this? Partly it was because in the Soviet system there could be no spin-offs from military research and development, because there was no technology transfer to the
private sector; indeed, there was hardly any private sector at all. When Mikhail Gorbachev gambled on economic ‘restructuring’ in the hope of closing the economic and technological gap between East and West, he unwittingly caused the output of the planned economy to collapse; and the political ‘transparency’ introduced at the same time merely revealed that the system had lost popular legitimacy. In that sense, Reagan’s defence budgets were a symptom of American superiority, not a cause of the Soviet collapse. This suggests that high levels of military expenditure are not economically damaging per se. Under the right circumstances, rising public expenditure on the technology of defence and destruction can co-exist with rising consumption: the magic combination of guns plus butter – or, to be precise, missiles plus Big Macs.