Belgian military spending: A narrative of decline, stagnation, and recent reversal

Correspondence: The Profitability of Primacy

The end of the Cold War has ushered in significant changes in worldwide military spending. This paper finds that the easing of (1) international tensions, (2) regional tensions, and (3) the existence of IMF-supported programs are related to lower military spending and a higher share of nonmilitary spending in total government outlays. These factors account for up to 66 percent, 26 percent, and 11 percent of the decline in military spending, respectively. Furthermore, fiscal adjustment has implied a larger cut in military spending of countries with IMF-supported programs.

The end of the Cold War has ushered in significant changes in worldwide military spending. This paper finds that the easing of (1) international tensions, (2) regional tensions, and (3) the existence of IMF-supported programs are related to lower military spending and a higher share of nonmilitary spending in total government outlays. These factors account for up to 66 percent, 26 percent, and 11 percent of the decline in military spending, respectively. Furthermore, fiscal adjustment has implied a larger cut in military spending of countries with IMF-supported programs.

A study of the impact of military expenditures on economic growth and development examines the differences in the results of previous studies which led to contradictory conclusions. The authors find that these differences are due to sample variations, specificational choices, and the different time periods examined. The data indicate that there is no consistent, statistically significant connection between military spending and economic growth. Augmentation of the models suggests that military expenditures neither help nor hurt economic growth to any significant extent. 2 tables.

The end of the Cold War has ushered in significant changes in worldwide military spending. This paper finds that the easing of (1) international tensions, (2) regional tensions, and (3) the existence of IMF-supported programs are related to lower military spending and a higher share of nonmilitary spending in total government outlays. These factors account for up to 66 percent, 26 percent, and 11 percent of the decline in military spending, respectively. Furthermore, fiscal adjustment has implied a larger cut in military spending of countries with IMF-supported programs.

Military Spending, the Peace Dividend, and Fiscal Adjustment

Evidence from Israel suggests that economic growth may benefit from increased investment rates and cuts in defense spending - in other words, an economic `peace dividend'. Recent scholarly work, however, focusing on short-term, direct impacts, has provided little evidence for the existence of such a peace dividend in other parts of the world or in Israel itself. In this article, we address these competing views by exploring some important indirect, longer-term effects of defense spending on the Israeli macroeconomy. Our results indicate that a short-term focus fails to reveal the process through which a small, positive economic peace dividend appears to be operating in Israel. Rather, the main features of this process are indirect, long-term, and nuanced, operating through investment, delayed several years, with non-military government spending acting as a crucial intervening variable in the process. Whether the decline of defense spending will continue to be associated with rapid economic growth in Israel is problematic. However, like the defense-economy linkage in Israel, so too may the peace dividend operate indirectly and only in the long term. Our analysis shows that these linkages are not static, but change in important and dramatic ways over time.

Upon the fall of the Berlin Wall in early November 1989, governments, defence-related manufacturers, defence dependent communities and employees whose livelihoods were contingent on a sustained level of defence spending, either directly or indirectly, began coming to terms with the likely prospect of significant cuts in the military procurement budgets of nations. Indeed, defence expenditures in the USA dropped from 6.5 per cent of GDP in 1986 to an estimated 3.6 per cent in 1997,1 and in the United Kingdom spending fell from 4.8 per cent of GDP to 3.3 per cent from 1986 to 1994.2 Consequently, international debate among academics, politicians, industrialists and ordinary citizens began to rage about the size and most beneficial uses for the anticipated savings realized from lower national defence budgets following the end of the Cold War ± often referred to as the peace dividend.

The sudden end of the Cold War in 1989–91 brought widespread expectations of a ‘peace dividend’ to be reaped from the redirection of economic resources that until then had been devoted to the massive military establishments, in both East and West, spawned by four decades of confrontation. The peace dividend was expected to arise in two ways: reductions in military spending overall (which would allow governments to increase spending on social programs, or to reduce deficits and pay down debt, or to decrease taxes and thereby stimulate increased economic activity in the private sector); and from the ‘conversion’ of resources with high economic leverage to the pursuit of increased quantity, quality, and variety of civilian goods and services and hence improved quality of life. These resources included specifically the productive capacities of high-technology defense-oriented firms and the inventiveness of defense-oriented research-and-development (R&D) establishments.

The end of the Cold War raises anew the old question of the alternative uses of the resources spent on the arms race. Disarmament is now taking place in Europe and the security environment of the Nordic countries is changing dramatically. Studies in the Nordic countries and elsewhere indicate that once transition problems are surmounted the medium-to-long-term effects of disarmament will be positive for employment as well as economic growth. The size of `the peace dividend' can be estimated only through econometric studies based on realistic scenarios of future military spending. Such scenarios, in turn, must be based on a reconsideration of the force structures appropriate to the challenges facing the Nordic countries today. Military spending in the Nordic countries rose rapidly under the influence of the Cold War. From the mid-1960s the Nordic countries seem to have parted ways, with continuing arming in Finland and Norway and a levelling off of military spending in Denmark and Sweden. There is a peace dividend to be collected for the Nordic countries, but it is not very large, and is accompanied by a situation of greater uncertainty and less predictability.

Click to increase image sizeClick to decrease image size Notes 1 Kemal Kirişci, 'The End of the Cold War and Changes in Turkish Foreign Policy Behavior', Dış Politika, Vol.18, Nos.3–4 (1993), pp.1–43; Malik Mufti, 'Daring and Caution in Turkish Foreign Policy', Middle East Journal, Vol.52, No.1 (Winter 1998), pp.32–50; Alan Makovsky, 'The New Activism in Turkish Foreign Policy', SAIS Review, Vol.19, No.1 (Winter–Spring 1999), pp.92–113; Heinz Kramer, A Changing Turkey: The Challenges to Europe and the United States, Washington, DC, 2000, pp.93–6. 2 See Amikam Nachmani, 'The Remarkable Turkish–Israeli Tie', Middle East Quarterly, Vol.5, No.2 (June 1988), pp.19–30; Neil Lochery, 'Israel and Turkey: Deepening Ties and Strategic Implications, 1995–98', Israel Affairs, Vol.5, No.1 (Autumn 1998), pp.45–62. For a most comprehensive analysis of the bilateral relationship and its regional ramifications, see Efraim Inbar, The Turkish-Israeli Entente, KCL Mediterranean Studies pamphlet, London, 2001. 3 See Ofra Bengio and Gencer Özcan, 'Old Grievances, New Fears: Arab Perceptions of Turkey and Its Alignment with Israel', Middle Eastern Studies, Vol.37, No.2 (April 2001), pp.50–92. 4 Namik Kemal Pak, 'Changing Concepts of National Security in the Post-Cold War Era and Turkish Defence Industry', Perceptions, Vol.7, No.2 (June-August 2002), pp.115–17. 5 Robert Olson, 'Turkey-Iran Relations, 2000–2001: The Caspian, Azerbaijan and the Kurds', Middle East Policy, Vol.9, No.2 (June 2002), pp.118–19. 6 See Efraim Inbar, 'The Regional Implications of the Israeli-Turkish Strategic Partnership', Turkish Studies, Vol.3, No.2 (Autumn 2002), pp.21–43. 7 Stephen M. Walt, 'Why Alliances Endure or Collapse', Survival, Vol.39, No.1 (Spring 1997), pp.156–79. 8 For a view attributing much weight to issues that might influence negatively bilateral relations, see Gregory A. Burris, 'Turkey and Israel: Speed Bumps', Middle East Quarterly, Vol.10, No.4 (Fall 2003), pp.67–80. 9 See Middle East Newsline (hereafter, MENL), 19 June 2001; Jerusalem Post, 10 July 2001; Jerusalem Post, 6 January 2002. 10 See inter alia the 2 April 2003 declaration of the American Jewish Committee supporting the US$1 billion for Turkey in ESF, which could be used to obtain US$8.5 billion in loans. 11 Aksam, 2 January 2004; See also Uri Dan, 'Israel and Turkey Join Forces vs. Al Qaeda', New York Post, 10 January 2004. 12 Ha'aretz, 18 November 2003. 13 Worldtribune.com, 5 November, 2003; MENL, 12 November 2003. The minister also cited Iran's efforts to export what he termed the Islamic revolution and mentioned Iran's attempts to undermine Turkey's efforts to improve relations with Central Asian states. For the possibility that Turkey would contemplate a nuclear posture, see Mustafa Kibaroglu, 'Iran's Nuclear Program May Trigger the Young Turks to Think Nuclear', Proliferation: News and Resources, Carnegie Endowment for International Peace, 2005. 14 For Turkey's strategic options, see F. Stephen Larabee, 'Turkish Foreign and Security Policy: New Dimensions and New Challenges', in Zalmay Khalilzad, Ian O. Lesser and F. Stephen Larabee (eds.), The Future of Turkish Western Relations: Towards a Strategic Plan, Santa Monica, CA, 2000, pp.48–51. 15 This group includes former high-ranking diplomats such as Uri Savir (Director-General of the Foreign Ministry), Colette Avital (Deputy Director-General for European Affairs), and Allon Liel (who eventually became Director-General of the Foreign Ministry). All became involved later in Israeli politics on the left. Their influence has drastically diminished, as the 'peace' orientation with which they were identified was largely discredited in Israeli politics with the failure of the Oslo process. 16 Interview with Maj. Gen. (ret.) David Ivry, Tel Aviv, 30 November 1999. Ivry became a central figure in the Turkish-Israeli alignment in his capacity of Director-General of the Ministry of Defence, and in his subsequent position as National Security Advisor (1997–99). For Rabin's realpolitik view of international relations, see Efraim Inbar, Rabin and Israel's National Security, Baltimore, 1999, pp.9–11. 17 Ha'aretz, 3 September 1998. 18 Turkish Probe, July 1999. 19 Cumhuriyet, 27 November 2002. 20 For a review of the political support for good relations with Israel, see 'RP Stand Alone as Support Grows for Turkey's Relations with Israel', Turkish Daily News, 13 April 1996. 21 See Gencer Ozcan and Ofra Bengio, 'The Decade of the Military in Turkey: the Case of the Alignment with Israel in the 1990s', International Journal of Turkish Studies, Vol.7 (Spring 2001), pp.90–109. 22 MENL, 5 November 1999. 23 For a succinct treatment of these issues, see F. Stephen Larrabee and Ian O. Lesser, Turkish Foreign Policy in an Age of Uncertainty, Santa Monica, CA, 2003, pp.27–36. 24 M. Hakan Yavuz, 'Turkish-Israeli Relations through the Lens of the Turkish Identity Debate', Journal of Palestine Studies, Vol.27, No.1 (Autumn 1997), pp.22–37. 25 Alan Makovsky, 'Israeli-Turkish Relations: A Turkish "Periphery Strategy"?', in Henri J. Barkey (ed.), Reluctant Neighbor: Turkey's Role in the Middle East, Washington, DC, 1996, p.169. 26 R. Stephen Humphreys, Between Memory and Desire. The Middle East in a Troubled Age, Berkeley and Los Angeles, CA, 1999, pp.19–20. 27 For Turkish foreign policy in this period, see Philip Robins, 'Turkish Foreign Policy Under Erbakan', Survival, Vol.39, No.2 (Summer 1997), pp.82–100. 28 See Aysegul Sever, 'Turkey and the Syrian-Israeli Peace Talks in the 1990s', Middle East Review of International Affairs, Vol.5, No.3 (September 2001), at http://www.meria.idc.ac.il 29 This was part of the Netanyahu government's secret attempts to reach an agreement with Syria (Author interview with a senior official). 30 Sever, 'Turkey and the Syrian–Israeli Peace Talks in the 1990s', pp.94–5. 31 Kemal Kirişci, 'Turkey and the Muslim Middle East', in Alan Makovsky and Sabri Sayari (eds.) Turkey's New World, Changing Dynamics in Turkish Foreign Policy, Washington, DC, 2000, p.47. 32 Jerusalem Post, 11 September 2001. 33 For an account of the incident, see Turkish Daily News, 11 April 2002; Washington Times, 16 April 2002. Turkish leaders, including Yilmaz, criticized Ecevit for his choice of words. 34 Jewish Telegraphic Agency, 11 December 2002. 35 Defense News, 23 June 2003, p.10; 5 January 2004, p.6. 36 AFP (London), 6 January 2004. 37 Turkish Daily News, 25 December 2003; Reuters (Jerusalem), 25 December 2003. 38 Interview with Israeli police official, 20 January 2005. 39 Sabah, 21 March 2005. 40 Interview with David Sultan, Israel's Ambassador to Turkey, Ankara, 25 November 2001. 41 See Shlomo Nakdimon, A Hopeless Hope. The Rise and Fall of the Israeli-Kurdish Alliance, 1963–1975, Tel Aviv, 1996 (Hebrew). 42 MENL, 21 December 2003. 43 See, inter alia, 'A Strategic Friendship Cools', The Economist, 24 June 2004; Bülent Aras, 'A Big Chill: A Duo Divided by Democratic Legitimacy', The Daily Star, 10 August 2004. Another factor behind this mini-drama was the fact that the OIC summit was just about to take place and Turkey wanted to assume the presidency of the organization and gain its members' support on the Cyprus issue (both of which it succeeded in achieving). A little drama with Israel was useful for Turkey in this respect. 44 For the 'Periphery Doctrine', see Michael Brecher, The Foreign Policy System of Israel, London, 1972, p.278. 45 Turkish Daily News, 16 July 1999.

Purpose – The purpose of the article is to compare the macroeconomic effects of military and non-military government spending on the Polish economy, which is particularly relevant in the context of the rapid rise in military spending after the outbreak of the war in Ukraine. Research method – The research is based on a new-Keynesian dynamic stochastic general equilibrium model estimated for the Polish economy. The model developed for the study takes into account differences between 3 types of government spending – military spending, non-military current spending and non-military investment. Results – On the one hand, the empirical results show that in the short and medium term, increasing military spending is a more effective method of stimulating GDP than rising non-military spending. On the other hand, the impulse response functions indicate that increasing non-military spending is a better tool for enhancing effective consumption. Originality / value / implications / recommendations – This is the first research exploring the macroeconomic effects of military spending in a CEE country, which is based on stochastic general equilibrium model accounting for heterogeneity of government spending. Assessing these effects at a time of unprecedented growth in military spending in Poland is an important added value of the study. The main implication of the research is to recommend increasing military spending to boost GDP, while rising non-military spending to stimulate effective consumption.

: In the Cold War era, massive armed forces were required, especially in Central Europe, to counterbalance the Warsaw Pact. As a result of the end of the Cold War, the collapse of the Warsaw Pact and the reunification of Germany, the security situation has changed dramatically. The nations were able to reduce their armed forces considerably, thus reaping the 'peace dividend'. However, the massive threat has been replaced by other risks which require the nations to provide flexible and mobile forces suited for a broad spectrum of operations. The employment of armed forces in the 21st century will nearly always require multinational efforts to keep or restore the peace in crisis areas. In 1990/91, The North Atlantic Treaty Organization (NATO) responded to this requirement by setting up several multinational corps in Central Europe comprising reaction forces, main defense forces and backup reaction forces. The corresponding decisions were influenced both by political and by military aspects. Although the composition of these multinational units has been changed several times, the principle of multinationality has become firmly established as a basis for operations of modem armed forces. Germany has supported and pushed the idea of multinational structures from the very beginning. In some cases, multinational units were activated for political rather than for military reasons with a view to visibly demonstrating the nations' will to cooperate. The military effectiveness of these units had yet to be demonstrated. The experiences until now allow to evaluate the political and military value of multinational forces and to draw conclusions for the future. This paper deals with the question of to what extent the principle of multinationality should drive the degree of integration of future force structures.

An enduring and important debate in economics concerns the effects of military spending on economic growth. It has generated a huge literature, with a variety of results and no clear consensus. The end of the Cold War led to marked reductions in military burdens and to renewed concerns on whether this was likely to lead to a ‘peace dividend’ or a ‘peace penalty’. This paper revisits the debate using a sample of small industrialising economies. It estimates a growth equation and an investment equation, where investment is a function of growth and military expenditure. The data is used to consider the individual economies and to provide some panel time-series results, which show some evidence of a negative impact of military spending on growth and investment.

With the end of the Cold War, the old security policies and structures that served the countries of Western Europe have been called into question. In the heady days of 1988 and 1989, there was talk of massive disarmament and of a substantial ‘peace dividend’. Events since then, in the former Yugoslavia and elsewhere (including post-Mikhail Gorbachev Russia) have dampened that early optimism. Nevertheless, the basic questions remain of what West European defence and security policy is for, and within what framework it can best be pursued.