Back to the 1930s war economy

The American author Mark Twain quipped that history does not repeat itself, but it often rhymes. With European economies promising to up their defense expenditure to 5 percent of GDP, are we repeating the 1930s, when the Western powers all used defense spending to pull themselves out of the Great Depression?

The interwar years were dominated by Western (including Japan) powers, with the rest of the world under colonial yoke. The World War I between the European powers did not settle old scores, with Germany bitter about war reparations, which caused hyperinflation that devastated German society. By 1934, President Franklin Roosevelt was elected on the promise of his new deal to revive the American economy. In Japan and Germany, right-wing factions rose on the back of militarism. In 1934, Hitler came to power with Nazi nationalism to revive and avenge German humiliation in the World War I and loss of territory. German military spending went from 1–2 percent of GDP in 1933 to 13 percent by 1936 and nearly 100 percent of GDP by 1945. Japan went from 3–4 percent of GDP to 9-10 percent by 1937–1938, when the Sino-Japanese War broke out. The United States (US) was slow to react, with an average spending of 1-2 percent of GDP between 1930–1938, but she rapidly ramped up to as much as 40 percent of GDP by 1945.

The US has always taken care of European security after World War II, mostly through the creation of the North Atlantic Treaty Organization, but the Trump administration has decided that Europe should bear the burden of its own security, particularly to raise defense expenditure to 5 percent of GDP. Europe must also take care of the Ukraine mess, whilst America concentrates on its rising rival, China.

After the humiliating 2025 Munich Security Conference, in which the Trump administration basically told the Europeans that they are on their own, new German Chancellor Friedrich Merz announced a doubling of military expenditure. This was a signal that Europe is now beginning to rearm.

Nevertheless, the US remained the largest military spender in the world, with $916 billion larger than the combined spending of the nine other top spending countries, and 3.1 times as large as China, the number two spender.

How will European rearmament impact on growth?

The peace-loving layman’s view is that military expenditure is a waste of money. But the influential German think-tank, Kiel Institute for the World Economy report on “Guns and Growth: The Economic Consequences Defense Buildups” argue that Europe-wide GDP may grow by 0.9 percent to 1.5 percent if defense spending increases from 2 percent to 3.5 percent of GDP.

The United Nations issued a report called “The Security We Need: Rebalancing Military Spending for a Sustainable and Peaceful Future,” which highlighted that global military spending has surged to an all-time high of $2.7 trillion in 2024. Meanwhile, less than 20 percent of the UN Sustainable Development Goals are on track to be achieved by 2030, with the annual financing gap at $4 trillion.

The UN argues that heightened military expenditure does not necessarily lead to greater peace or stability, but instead, exacerbates geopolitical tensions, fuels arms races, and increases risks of conflict, particularly when coupled with weak governance, rising inequality, and systemic mistrust. We risk military expenditure today crowding out essential resources addressing social and ecological imbalances, with the negative impact mostly on low-income and fragile states.

What is the alternative?

The UN calls for a fundamental shift from defining security narrowly in terms of military capability into security as a human-centered, multidimensional approach rooted in dignity, human rights, and sustainable development. We see a widening chasm between a march to war or a path to peace and common prosperity.

The UN has a five-point agenda for action. First, prioritize diplomacy, peaceful settlement of disputes, and addressing underlying causes of growing military expenditure. Second, bring military expenditure to top agenda on disarmament discussions, arms control, and development. Third, promote transparency and accountability around military expenditure, including better domestic-fiscal accountability. Fourth, reinvigorate multilateral finance for development; and fifth, advance a human-centered approach to security and sustainable development.

Will we get these aspirations? Not if you make more money investing in arms manufacturer stocks. As long as central banks are willing to finance fiscal deficits to use on military expenditure, the world will not veer away from the foolish march to war. Our problem is never artificial intelligence, but human folly and ego. Our greatest hope is that wise leaders will rise above egos to look towards a peaceful future for next generations. The security we need is to survive as a species, not to fight to our mutual annihilation. The Jakarta Post/Asia News Network

—————-

The Philippine Daily Inquirer is a member of the Asia News Network, an alliance of 22 media titles in the region.