Is the world heading back to a 1930s-style war economy?

History doesn’t repeat itself, but it often rhymes, as Mark Twain is reputed to have said. With European economies promising to up their defence expenditure to 5 per cent of GDP, are we repeating the 1930s, when some powers used defence spending to pull themselves out of the Great Depression? The interwar years were dominated by Western powers and Japan, with the rest of the world under the colonial yoke. World War I took place largely between the European powers and did not settle old scores. It left Germany bitter about war reparations, which caused hyperinflation that devastated German society. After the Roaring Twenties, which ended in the stock market crash of 1929, the 1930s were years of global slowdown. In 1932, Franklin D. Roosevelt was elected US president on the promise of his New Deal for reviving the American economy. In Japan and Germany, right-wing factions rose on the back of militarism. In Germany, Adolf Hitler came to power on a Nazi nationalist platform to avenge German humiliation over World War I. German military spending went from around 2 per cent of gross domestic product in 1933 to nearly 100 per cent by 1945. Japan went from around 4 per cent of GDP to more than 10 per cent by 1937, when the Sino-Japanese War broke out. The United States was slow to react, with an average spending of 1-2 per cent of GDP between 1930 and 1938, but it rapidly ramped up to as much as 40 per cent of GDP by 1945. The US has been the guarantor of European security since World War II, but that is changing as the second Trump administration has decided Europe should bear more of the burden for its own security. After February’s Munich Security Conference, during which Trump officials essentially told Europeans they were on their own, incoming German Chancellor Friedrich Merz announced a doubling of military spending by 2029 in a sign that Europe is beginning to rearm. The Stockholm International Peace Research Institute estimated global military spending rose by 6.8 per cent in 2023 to more than US$2.4 trillion, equivalent to 2.3 per cent of world GDP. On average, military spending was 6.9 per cent of fiscal budgets, having increased across all five geographical regions. African countries saw the highest increase at 22 per cent, while the Americas saw the smallest at 2.2 per cent. The US remained the biggest defence spender in the world at US$916 billion, larger than the next nine top-spending countries combined and more than triple the outlay of China, the second-largest spender at US$296 billion. In Europe, 39 out of 43 countries increased defence spending at an average of 16 per cent, with Ukraine’s spending rising 51 per cent and Russia’s 24 per cent. What effect will European rearmament have on economic growth? A peace-loving person might assume that military spending is a waste of money. However, the Kiel Institute for the World Economy, an influential German think tank, said in a February report: “A conservative estimate is that the Europe-wide GDP will grow by 0.9 per cent to 1.5 per cent if defence spending increases from 2 per cent to 3.5 per cent of GDP. This implies only a limited trade-off between armament and private consumption in the short run.” It further argued that the long-run productivity gains from military spending could be substantial, with examples of public research and development for military applications spilling over into the private sector. “A transient 1 per cent of GDP increase in military spending could increase long-run productivity by a quarter of per cent both through learning-by-doing and R&D.” According to the Kiel Institute report, nearly 80 per cent of European defence procurement comes from outside the European Union. Spending more on materiel produced in Europe would help the continent’s industries thrive. Just what are the trade-offs between a war economy, which could lead to wanton destruction, and an economy dedicated to peaceful development? This week, the United Nations issued a report highlighting that global military spending surged to an all-time high of US$2.7 trillion in 2024. Meanwhile, just one out of every five UN Sustainable Development Goals is on track to be achieved by 2030, with the annual financing gap at US$4 trillion. The UN argues that heightened military spending does not necessarily lead to greater peace or stability, instead exacerbating geopolitical tensions, fuelling arms races and increasing risks of conflict, particularly when coupled with weak governance, rising inequality and systemic mistrust. Today’s military spending risks crowding out essential resources for addressing social and ecological imbalances. What is the alternative? The UN calls for a fundamental shift from defining security narrowly in terms of military capability to seeing security as a human-centred, multidimensional approach based in dignity, human rights and sustainable development. We see a widening chasm between a march to war and a path to peace and common prosperity. These aspirations seem unlikely to be achieved as long as investors can make more money buying stock in arms manufacturers. As long as central banks are willing to finance fiscal deficits and support military spending, the world will not veer away from the foolish march to war. Our greatest hope is that wise leaders will rise above egos to look towards peace for future generations. The security we need is our survival as a species, not fighting to mutual annihilation.

Is the world heading back to a 1930s-style war economy?

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Today’s surge in military spending risks crowding out resources needed to address global issues and make a better future possible

Today’s surge in military spending risks crowding out resources needed to address global issues and make a better future possible