Time to increase investment: slash military spending
The momentous decision by Parliament on August 29 not to participate in a military attack on Syria raises important points both for the trends in British politics and for economic policy, says economist Michael Burke.
SEB has repeatedly argued that there is no prospect of a Tory election victory in 2015. After the failure of Cameron’s military agenda the certainty of a Tory loss has become the possibility of an electoral rout. In politics, whoever sets the agenda wins and the Tory agenda has spectacularly unravelled.
There is too a direct economic impact from the vote and the potential for an indirect impact. Britain spends far more than comparable countries on warfare. Now that there is clearly a diminished appetite for foreign wars and adventures this should be addressed.
There is a great deal of publicity about cuts to the Ministry of Defence Budget under this government. However, the cuts are focused on planned current spending. The capital budget is rising. In addition, this government has introduced an entirely new Budget category something called the ‘Special Reserve’, which has only been used to fund military operations.
Published Defence Spending, £bn
| FY 2012/13 | FY 2013/14 | 2014/15 | |
| Current | 27.1 | 26.5 | 21.5 |
| Capital | 7.4 | 9.8 | 9.0 |
| Special Reserve | 0 | 0.5 | 1.1 |
| Total | 34.5 | 36.8 | 31.6 |
Source: UK Treasury
It should be noted that this is only the official estimates of military spending. In their book The Three Trillion Dollar War Joseph Stiglitz and Linda Blimes examine the full costs of the Iraq and how the US Administration has disguised them. The medical costs of treating war veterans, as well as social consequences and their costs, all of which apply to Britain and are not identified in government accounts.
Britain has the 4th largest military spending in the world. The economy is only the 7th largest in the world. Successive British Prime Ministers have been committed to Britain ‘punching above its weight’, that is, spending a disproportionate amount on the military and using it. The current Prime Minister has been blocked in his attempt to repeat that. A cut in defence spending to Britain’s close economic peers, countries like Italy and Brazil, would yield a saving of at least £14bn per annum at current levels.
The potential indirect impact arises in relation to the renewal of Trident. Britain does not have an independent nuclear deterrent as it is wholly operationally dependent on US satellite systems. It is precisely the type of expenditure which is designed to project imperial power, and allow Britain to ‘punch above its weight’.
After the vote against military action against Syria it seems glaringly obvious that the pursuit of Trident renewal is a pointless and absurdly expensive exercise. The replacement cost and running costs are estimated by CND to rise to £100bn over the lifetime of the programme.
These are extraordinary sums for a system that could never be used, or could only be used if the US wished to pursue nuclear war against another country.
The Coalition has cut government investment across the board, in the vain hope that private firms will increase their investment. Transport, housing, education, health and infrastructure are all deteriorating as a result.
Redirecting resources away from the military budget is one simple method of financing the state-led investment that the economy needs.
8 comments
8 responses to “Time to increase investment: slash military spending”
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Great to see a sound policy proposal for LU. Nice one Michael.
Here’s another one…..how about collectivising all the occupational pension schemes in the UK (total assets worth £1.7tr in 2012…about 135% of UK GDP), and create a “super fund” to serve as both a sovereign wealth fund to invest in transforming British society and economy, and also as a fund from which a decent, earnings related retirement pension can be paid to all citizens when they retire.
In what way is it a momentous decision when the so-called international community decides to ignore the use of poison gas? God forbid we should have too many more momentous decisions like that.
On the matter substantive: Decreasing military spending is decreasing investment. That’s not to say I wouldn’t be in favour of re-directing military spending to other more humane forms of investment and bringing the tens of thousands who work in the military sector over to the civilian one but you are demagogically suggesting that simply by slashing military spending we will magically be able to increase investment. That is not the case.
Jim Osborne: I’m struggling to find the policy in your policy. The occupational pension schemes already act as a super fund serving as a sovereign wealth fund investing in UK economy. As for it being used to pay a decent earnings related retirement pension to all citizens when they retire that would require a policy of full employment if it was not to lock in the post-retirement inequality we already endure but you have already displayed vehement opposition to such a policy on other threads.
Baton,
You have some good points, but you are a little confused in places.
“Decreasing military spending is decreasing investment”
Yes and no. Military research can sometimes create breakthrough technologies – the US DARPA funds are a good example, being much more blue sky and less risk averse than civilian agencies. However in terms of the simple engineering build of a next generation of trident, there is probably very little translational benefit, and the volume of jobs created would be perhaps in the thousands rather than tens of thousands that would normally be expected from this level of investment.
“already act as a super fund serving as a sovereign wealth fund investing in UK economy”
Sovereign wealth funds by their nature are designed to invest overseas so as not to cause the Dutch disease i.e. increase the value of the home currency, making things difficult for manufacturing. On a wider point, the UK has perhaps the largest financial sector in the world, but has an attrocious venture capital sector. i.e. the preference is still to invest in financial products rather than real world startup companies creating real wealth.
Here are some things that £30B could probably fund:
1. A bullet trainline to Birmingham (if a proper nationalised company handled the contract)
2. A reactor that could achieve the first fully functional nuclear-fusion.
3. Tens years worth of our current investment into science and engineering
4. A venture fund with a difference, whereby the state takes a direct stake in companies developing new products and services – i.e. generating new wealth.
5. 1 million scholarships to pay for 3 years worth of student education.
My point is that the £30 billion would probably be spent on replacing the lost jobs of soldiers and civil servants. It is not that we suddenly have an additional £30 billion. Pretending we will save money by slashing military spending is the wrong, unprincipled, way to go about opposing military spending.
As for your spending suggestions: 1 and 2 will never have my support but 3, 4 and 5 are pretty non-controversial.
I think pension funds are the only funds not exposed to the bankers dodgy financial products and Ponzi Scheme there having been some kind of law against them investing which is why those funds are now so greedily being eyed up by the government as a way of bailing out the bankers’ creditors and the bankrupt government.
“My point is that the £30 billion would probably be spent on replacing the lost jobs of soldiers and civil servants. It is not that we suddenly have an additional £30 billion.”
That is certainly a good point. It is more a question of what society gets back for £30M worth of investment. If you assume the military engineers and civil service managers can be redeployed creating more energy efficient transport, or hey, a more energy efficient grid, the result would be much more uesful than a few dozen nuclear weapons which would hopefully never be used.
“I think pension funds are the only funds not exposed to the bankers dodgy financial products”
I think you are mistaken there. All pension funds (as opposed to the state pension) increase their value through a mixed bag of investments, which include bonds (i.e. loans), shares in companies – big and small, venture capital and yes, the more dodgy products such as hedge funds, Credit default swaps etc. I suggest you ask whoever is dealing with your pension, where it is all going
I have been sad and reading an awful lot on government financing and I am no expert, far from it. But the following I found rather interesting.
Firstly a professor Woodward stated apparently the following.
Governments should not create money and give this to the banks as quantitative easing. He is coming round to the idea that leaving banks in control of wealth creation is what got us into this mess. QE is meant to keep borrowing costs down. And make it easier for banks to lend. But since banks are also being required to rebuild their balance sheets, that’s not what is happening. QE should be used instead eliminate government debt on the bloated balance sheet of the central banks and quite rightly central banks should write off their debt instead of paying the interest via austerity the first politician to take up this idea and make it work will be very popular indeed.
I think this is something left unity should use to embarrass our politicians into a corner. We the UK have accrued £370 billion through quantative easing and are paying dividends to the government as we own this money and is why we really did not slip into recession again. And had nothing to do with austerity and makes austerity look ridiculous if this nasty little secret was more communicated to the man on the street.
I see you talking about 30 billion, but were you aware that if government chased the hidden money by the top ten percent of the richest in society and pursued for tax non payment, this would raise 35 billion and this is probably just scratching the surface.
The goverment have already earmarked 310 billion to spend on infrastructure, road railways and housing, but I say nonsense chase the rich abandon trident and use the 370 billion add them together. The government expenditure for the 310 is to be implement and split from now until 2020. Also the railway network franchises run out between 2015 and 2020. Once those contracts run out, they become run by government until put back out to tender. In other words they become ours and can be renationised at virtually no cost. Furthermore thes franchise spend 11 billion on the railways per year of which 5 billion is given to the franchises by the government. Therefore, the passengers pay and then the public pay a subsidy of 5 billion per year, renationalise and use the above figure of 505 billion to reboots the UK’s infrastructure properly creating real jobs at living wages that can sustain family’s rather than penalise. Use tridents 100 billion to buld 1 million real family council homes and use the rest for road and rail projects and other contingencies.