The perennial debate on the impact of defense spending on the American economy has been heating up. Those who favor smaller military budgets cite the high "opportunity cost" of diverting vital scientific and technological resources from productive civilian pursuits, undermining productivity at home and competitiveness abroad.
They try to show that a dollar (or rather a billion dollars) for defense produces fewer jobs than the same amount of money devoted to non-military expenditures. High levels of defense spending, in this view, sap the nation's growth prospects.
A related criticism is that too large a proportion of a nation's resources allocated to military purposes rather than "wealth creation" is likely to lead to a long-run weakening of national power. Some raise the specter of "global overstretch" by the United States.
In turn, proponents of larger military budgets cite the favorable spinoffs of defense technology into high-growth electronics and aerospace industries. They also focus on the large number of high-paying industrial jobs created by military outlays, especially in science and technology.
It is fascinating to compare these two sets of self-serving arguments. They literally are mirror images of each other. Each contends that defense spending has a powerful impact on the economy, be it for good or ill. The truth is quite different. Economic experience since World War II shows that both critics and supporters of defense spending have overstated their cases.
Defense spending does generate some broad benefits. Military research and development produces important technological spillovers into the civilian sector. The education, training and physical conditioning that young men and women obtain in the armed forces benefit them and society throughout their working lives.
However, military outlays are rarely the most efficient way of securing those desirable results. The odds are far higher that a new treatment for cancer will come from medical research than from work on the Strategic Defense Initiative. Also, the private sector is no slouch at training and educating "recruits."
On the other side of the coin, defense spending is not sapping the civilian economy. New civilian jobs are being created rapidly in the United States--far more rapidly than in the nations of Western Europe, which devote much smaller shares of their gross national product to defense.
Decline in the Ratio
In fact, since the end of World War II, the relative importance of defense to the economy of the United States has been declining. Putting the large absolute size of defense purchasing of goods and services into context reveals that the economic impact of defense activities in this country peaked decades ago and has been declining, albeit irregularly, ever since.
The Korean War peak of 14% of GNP was far below the World War II high of 39%. Vietnam War outlays were even lower--less than 10% of GNP. The high reached in Reagan Administration years was a comparatively modest 6.5% in 1986 and 1987, a ratio exceeded in many peacetime years in the 1950s and 1960s. A decline in that ratio is occurring because of the substantial reductions in defense appropriations that Congress enacted during the past several years.
Different ways of gauging the use of resources by the Defense Department yield the same overall trend over the past half century: Military spending has been a falling portion of the federal budget, defense manpower has represented a decreasing fraction of the nation's work force and defense accounts for a diminishing portion of the nation's research and development funding.
Military outlays now represent only one-fifteenth of the GNP and an even smaller proportion of the nation's work force. Few of the largest industries produce significant portions of their output for the military.
Moreover, long periods of relative decline in the military's use of R&D and other high-powered resources have not resulted in comparable increases in civilian demand, much less a pickup in U.S. productivity and growth rates. The decade from the mid-1960s to mid-1970s provides a striking case in point.
The decline in the Defense Department's share of R&D funding has been dramatic. In 1960, the department obtained 62% of the nation's scientific and technological resources. In 1987, the ratio was only 30%.
Many people believe that military spending on research and development "crowds out" civilian R&D expenditures, but that thesis does not hold up. Expanding military R&D is at least as likely to have a positive effect on civilian R&D as a negative effect, according to figures for 1949-88. In 18 of those years, nearly half of the period covered, the shares of the federal budget devoted to civilian R&D and to military R&D moved in the same direction--in other words, the civilian R&D portion rose when the military R&D share rose and fell when the military share fell.