Econamici: Benefits of Military Spending

by Polly Cleveland

As Kevin Phillips recorded in Wealth and Democracy (2002), war has created the opportunity for many great fortunes. Thus the frenzied looting--and disregard for the lives of both US soldiers and corporate employees--displayed in Robert Greenwald's new film Iraq for Sale: The War Profiteers. One small example: drivers shuttle empty mail trucks up and down
dangerous roads--while the contractor is paid by the trip. With Democrats in control, we'll surely be hearing of more and worse.

But, how did we get here? It's hardly news that powerful nations meddle in the affairs of weaker ones, to the benefit of both their own nationals, and of cooperative local clients. In Imperialism (1902), John A. Hobson blamed such activity on the capitalist drive for markets. Other critics have been content to chalk foreign adventuring up to "greed."

Mason Gaffney offers a more sophisticated and chilling dynamic. In 1972, during the Vietnam war, he presented a conference paper on "Benefits of Military Spending," --which the editor deemed "too controversial" to publish.

Gaffney starts with the cooperative locals, or "caciques." Among other benefits, caciques gain protection of US military and relief from expense of self-defense. In 1972, a notable example was Vietnamese President Nguyen Van Thieu; a more recent cacique was Saddam Hussein--until he overstepped his bounds in Kuwait. Today there's Nursultan A. Nazarbayev, corrupt and brutal president of oil-rich Kazakhstan, recently in the US to visit with Papa and Junior Bush.

What do caciques do for friendly US corporations? No, they don't give them markets, or minerals per se. They give contracts. Contracts of course include oil exploration rights, water supply projects, pipeline rights of way, fishing rights, prime locations for processing plants... The easiest to give are those that needn't be taken from anyone--such as the telecommunications franchise Chile gave ITT before Salvador Allende was elected.

Here's part one of Gaffney's dynamic: a contract with "a shaky sheik" isn't worth much more than the paper it's written on. Until, that is, the contracting corporation hollers "property rights" and the US cavalry or navy races to the rescue. Or that's the way it used to be; we've grown a little more subtle. All of a sudden, that contract is gold, an entitlement to a growing stream of "economic rent." Among many examples, Gaffney cites Aramco. Organized in 1933 with a capital of $100,000, in 1947 it was worth, $250 million--an appreciation of $2500 percent over 14 years. By the time the Saudis demanded a share in 1972, it was worth billions.

And now part two of the dynamic: A cartel can greatly enhance the value of stock in oil or other international resource companies. Thus OPEC and its cooperating multinationals restrict supply to keep up prices. That means, especially with a widely-distributed resource like oil, oil companies (or nations) must grab up potential new sources of supply before someone else gets them. And in turn, that means companies must aggressively seek contracts in turbulent corners of the world like western Sudan and the jungles of Colombia--potentially dragging the US into further conflicts.

Well, don't US citizens, as citizens, get something out of this--a secure if over-priced oil supply, for example? Or military jobs? Doesn't military spending at least perk up the economy? Remember the textbook macroeconomic formula: Y = C + I + G? More G (government spending) means more Y (national income). In reality, the contribution of G to national income depends on how it's spent (and how it's financed). An investment in gaining and holding onto overseas contracts yields a very low and drawn-out return, creating relatively little net income and employment. And it comes at the expense of high-return investments, notably in the health, education and genuine security of US citizens.

Polly Cleveland

More Econamici

I send Econamici--occasional emails with interesting attachments or links--to friends who are economists or care about economic issues. If you can't follow a link, I can send you the actual article.

Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!).
11/12/2006 06:04:00 PM