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The socio-economic impact of the increasing military expenditure

It has been almost 100 days since Russia started a war against Ukraine. 100 days filled with conflicts, political interests and crises, and economical damage. George Santayana, a Spanish-American philosopher, quoted the famous “Those who do not remember the past are condemned to repeat it.” But has humanity not learned anything during its existence from previous wars and their effects? Our thoughts are with those impacted directly and indirectly by the events that are unfolding in Ukraine. The financial and economic costs are, of course, secondary to human tragedy. However, the greater tragedy to come is unfolding globally today with inflation rampant in food and people’s daily needs. Governments are now facing challenges that result from both, the post-pandemic and the current war situation. GDPs are being recalculated, with military expenditure being one of their top priorities, while trying to find solutions on how to minimize the impact inflation has on households.

Choosing to increase a country’s defence expenditure has great socio-economic effects. Even though public safety is seen as a primary task of the government, increased military investing is a debatable topic. Every country each year calculates and publishes its GDP, stating how much will be invested in which sectors, products, and services. When choosing to prioritize guns and soldiers by increasing its military expenses, a country may find itself out of budget which will then lead to national debt due to deficit. And this, more often than not, results in growing interest expenses, minimum investments, and increased borrowing. Then, the debt becomes public with households being affected the most by the increased taxes that are imposed in order to pay off the loans.

Moreover, developing countries that choose to spend more money on their defence usually have an insufficient or problematic public infrastructure. The final output of a country depends on human capital, part of which are education costs and efficient public transportation. Thus, when lower-income countries under-invest in human capital, the government decides to invest in defence as a getaway and an attempt to increase their status and esteem. For example, the lack of sufficient education leads to greater issues in the long run, with low quality of life being one of the biggest. The term ‘Guns and Butter’ explains this as the dynamic relationship between federal defence and social programs. It is an interrelated and interactive power duo that can lead to lower quality of life and no economic growth, affecting the yield factor negatively. Also, the ratio of industrial process and the amount of material that are needed for a final product is low due to distribution inefficiency, which can lead to even greater damage that will affect the global economy – similar to what we experience now with the Ukrainian war, the trades, and the sanctions.

On the other hand, we should also be aware of how a well-developed and innovative defence investment can have a positive socio-economic impact. Developed countries that stay in line with their military expenses invest in increased mortgage rates, which results in less discretionary expenses and better quality of life. Their currency value scores high, lowering the inflation levels, and creating stability in the economy and currencies’ exchange rates. Factors that are extremely valuable since it allows citizens to invest in themselves. Also, let us not forget that research is part of the defence expenditure too. Great inventions of wars are used daily today, a result of innovation and talent that was promoted during difficult times for humanity. For example, plastic surgery was invented during WWI to restore soldiers’ faces. The microwave is a WWII invention, and the web, as we know it today, first made its appearance during the Cold War for data protection. Are the research and innovative part of defence expenses enough to justify a war though?

Since the beginning of the Ukrainian War many countries have declared an increase in their defence expenditure. Most of those countries see Russia as an unpredictable force, with Germany stating that boosting their defence is an act in favour of freedom and democracy. Moreover, Germany was one of the first countries announcing their increase in security in the following years by creating a military fund of €100 billion, allocating more than 2% of its GDP [Reuters]. Similarly, Belgium increased its military expenditure from €4,2 billion (0.9 of GDP) to €6,9 billion (1.54% of GDP), Italy came with a raise from 1.41% of its GDP to 2%, and Romania from 2.02% to 2.5%. Also, neighbouring countries with Ukraine and Russia have chosen to increase their defence too. Poland announced a raise from 2.1% to 3% of its GDP [NotesFromPoland], with potential for further increases, and Sweden and Norway not only have upgraded their army – Norway by investing NOK3 billion and Sweden of 2% of its GDP – but have also submitted their membership application to NATO on May 18th, 2022. Swedish prime minister even stated that military service may become compulsory for young people; a decision that will affect directly the lives of young citizens and their post-school plans.

Simultaneously, Russia’s military expenditure has gone above and beyond any estimations. Research by the Centre for Economic Recovery, Civitta, and easyBusiness estimated that Russia spends about $20 billion each day on war, including equipment, the lives lost, and a potential decrease in its GDP. Additionally, with the sanctions imposed on Russia, the market has been hit greatly by both sides. Global companies have withdrawn their branches from Russia and the trading has become a hassle. On one hand, Russians struggle with the downgrade of the Russian Ruble and with their inflation rates reaching 14%. On the other hand, Russia was Europe’s biggest energy supplier, with now Europe facing a crisis due to the sanctions and bans, in addition to the inflation rates in Europe that have gone above 8%. EU, on April 7th, announced the fifth packet of sanctions that include oil and coal imports from Russia. This will not only affect the already high inflation in Europe but Siemens and BASF, two of the biggest manufacturers in Germany, have warned that a gas ban will cause thousands of jobs to be lost due to the production halter.

The economic damage of war has been long known to humanity, with the Labour party of the UK comparing the current situation with a post-9/11 style of increase in defence spending. Countries are trying their best to secure freedom and democracy, but rushed decisions in military expenditure may backfire. SIPRI (Stockholm International Peace Research Institute) announced on April 25th that the global military expenditure saw an increase of 0.7%, in real terms, in just one year, with the total amount reaching a new record level of over $2 trillion. This sudden increase runs the risk of gaps in terms of budget, target, and timeline, with long-term security being put on second faith. Also, miscalculations may occur when it comes to the additional bureaucratic resources, like new staff and training that must be included in the budget. But most importantly, the overall impact on the public is often overlooked in the name of protection, and the risks of the current economy leave a footprint on everyone.

May 31st 2022



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