If you have opinions about the subject matter of posts on this blog please share them. Do you have a story about how the system affects you at work school or home, or just in general? This is a place to share it.
Hungary has a general election tomorrow. Hungary is a relatively small country with less than 10m in population and with a GDP of just $220bn and with just 8.2m registered to vote. This election is pivotal, not just for Hungarians, but also for the EU Commission and the core European governments. The incumbent Fidesz government led by PM Victor Orban has been a thorn in the side of the EU for years. Orban has opposed EU sanctions on Russia and recently blocked the implementation of the latest round of agreed E96bn EU funding for Ukraine on the grounds that Ukraine has been stopping imports of Russian gas. The EU has responded by holding back Hungary’s share of structural and support funds.
Domestically, Orban’s party has been in power for 16 years, including a landslide victory in the 2022 election. It is claimed that over its period of rule, the government has gradually reduced democratic institutions like an independent media and courts; and adopted cronyist procurement policies for government spending and for foreign investors, with a high level of corruption. According to the EU, Hungary is an autocracy, not a democracy.
Not surprisingly,, Orban’s policies have attracted strong support from US President Trump and the MAGA movement. In the election campaign, US Vice-President Vance visited Hungary to give Orban the full backing. President Trump posted in his usual style: “GET OUT AND VOTE FOR VIKTOR ORBÁN. He is a true friend, fighter, and WINNER, and has my Complete and Total Endorsement. I AM WITH HIM ALL THE WAY!”
The EU leaders are desperate to defeat Orban and break the logjam that he is causing over the funding of the Ukraine war and on EU policies in general. They are backing to the hilt the main opposition party Tisza, led by Peter Magyar. Magyar was a former Fidesz loyalist with family and friends still in the government. He broke from Orban two years ago, accusing it of corruption and cronyism. Magyar recently added in a social media post: “The ongoing election fraud carried out for months by Fidesz, along with criminal acts, intelligence operations, disinformation and fake news cannot change the fact that Tisza is going to win this election.”
Magyar’s message on corruption resonated with people. After an estimated 35,000 people turned up to a protest organised by Magyar in March 2024, he launched his movement. Currently, independent polls suggest that Tisza is leading in the vote. In 2025, Hungary was again ranked at the bottom of the European Union, according to the annual Corruption Perceptions Index (CPI) compiled by the Secretariat of Transparency International in Berlin. The poor result reflects “the continued failure to remedy rule of law deficiencies and to curb systemic corruption, manifested in the organized theft of public funds”
EU economists and Magyar claim that corruption is the main reason behind the country’s now persistent economic decline. But is it? As always, it is the structural economic issues that are more important. Since 2019, Hungary‘s real GDP growth has been highly volatile, marked by a sharp pandemic-induced contraction followed by strong but short-lived rebounds. Since mid-2022, the economy has largely fluctuated in a “no-growth zone,” characterized by stagnation or very limited expansion.
Capital investment and productivity has stagnated and unemployment has reached its highest level since 2016.
After the end of Soviet control in the early 1990s, foreign investment into Hungary by European and US multi-nationals flooded in to use cheap Hungarian labour in new factories (autos and electronics). This led to a sharp rise in the profitability of capital. But that investment petered off by the beginning of the 21st century as ‘globalisation’ slowed. Profitability fell back, particularly after the Great Recession of the 2008-9 and in the Long Depression of the 2010s.
Source: Penn World Tables 11.0
The Hungarian economy remains very reliant on foreign investment and so is vulnerable to international crises, like the Global Financial Crash of 2008 or the COVID pandemic slump of 2020. And any global inflationary spike affects the Hungarian economy more than most, as it did in the post-pandemic inflation spike – and will also from the Iran conflict.
And it’s the main reason that Hungary lags towards the bottom of the East European “convergence” club, if still higher than Bulgaria and Slovakia.
Wages are low, on average just half that of the EU average, worse than Slovakia and only slightly better than Bulgaria and Greece.
Pay for key sectors like education and health is among the lowest in the EU and life expectancy is poor compared to other EU countries. On most measures of social deprivation, Hungary performs badly compared to other Visegrad countries (Czech, Poland and Slovakia). And its gini ratio for inequality of incomes is higher.
Would an election victory by Magyar make any difference to Hungary’s weak economy? Probably not. Despite more than two years of campaigning and a 240-page election manifesto, the details of what exactly Magyar will do if he gains power remain vague. He concentrates on removing ‘corruption’ and undemocratic parts of Hungary’s institutions. Above all, he wants closer relations with the EU. He would end the veto Hungary has been applying on EU funds for Ukraine.
Ending that would release E20bn in frozen EU support funds for Hungary (that’s about 10% of the country’s GDP). Hungary had been allocated a total of €10.4 billion under the EU Recovery and Resilience Facility (RRF), consisting of €6.5 billion in grants and €3.9 billion in loans. However, almost all of these funds have remained frozen or not yet fully accessible due to disputes over rule-of-law, corruption, and judicial independence issues.
But in many areas, Magyar would change little. He wants a harder line on immigration than Orban by scrapping the country’s ‘guest worker’ scheme. And while he would end ‘dependence’ on Russian energy imports, he wants to preserve ‘pragmatic’ relations with Russia. Orban is relying for support on the government’s generous handouts to pensioners and low-paid. So Magyar, in a ‘New Deal’, is promising a $1.5bn boost for health, railways and energy. But at the same time, he aims to cut the government budget deficit to under 3% of GDP to speed up euro entry by 2030. And he also wants to cut taxes for most Hungarians. So there are a few contradictions there. Above all, the structure of the Hungarian economy as a foreign investor vassal will not be touched by either party – indeed more incentives for the multi-nationals will flow.
The 2022 election saw a turnout of just under 70%, where it has been for several elections. The turnout could be higher in this crucial election. But even if Magyar wins, ending corruption and autocracy won’t be easy. His government is very unlikely to have enough seats in the new parliament for the two-thirds majority necessary to reverse the many measures that Orban incorporated into the constitution over the decades. And if changes are not made to comply with EU rules by end-August, Hungary will lose all this EU funding. But at least the EU leaders will get a more cooperative Hungarian government after 16 years.
Interesting comments from Putin on Sweden and Finland joining NATO. I am not a supporter of Putin, but I will no doubt be called a Putin stooge for even bothering to share this discussion for the followers of this blog. The mass media in the US has for a long time demonised Russia and Putin as the cause of anything bad that happens here. Russian state media is blocked here in the US though the BBC, the media of the British state is not. We should never be afraid of hearing what leaders of other nations or political movements say.
Putin is not the world's only bad guy, Britains Blair is no angel either. And Blinken made it clear that the reason the Biden Administration supported Ukraine was to weaken Russia. I'm sure that was a popular statement in Russia.
I didn't get to vote on the US position on the Russia Ukraine war or on Biden's levelling of Gaza. I have not been able to cast a vote on the blowing up of boats off the shores of Venezuela either. I have no idea who is in them but I know I don't trust the US government or its media to tell me.
President Volodymyr Zelensky speaks at the Ukraine Reconstruction Conference last week in Rome. / Photo by Michael Kappeler/Picture Alliance via Getty Images.
In fall of 2023, Ukrainian General Valerii Zaluzhnyi, the commander in chief of the country’s armed forces, gave an interview to the Economist and declared the war with Russia had become a “stalemate.” It took three months for President Volodymyr Zelensky to fire him. The general, who is the most popular public figure in Ukraine, was named ambassador to London a month later and has served there with distinction, if quietly.
Zaluzhnyi is now seen as the most credible successor to Zelensky. I have been told by knowledgeable officials in Washington that that job could be his within a few months. Zelensky is on a short list for exile, if President Donald Trump decides to make the call. If Zelensky refuses to leave his office, as is most likely, an involved US official told me: “He’s going to go by force. The ball is in his court.” There are many in Washington and in Ukraine who believe that the escalating air war with Russia must end soon, while there’s still a chance to make a settlement with its president, Vladimir Putin.
There are indications that Zelensky knows what is coming. He has just shifted or fired three officials: the minister of defense, the prime minister, and the ambassador to the United States. As the US official told me, Zelensky “is beginning to read the danger signs.”
What happens next, the official added, in terms of political violence inside Kiev and elsewhere, depends largely “on the degree to which the population has reached the point where they have no other choice. Zelensky will not go willingly but feet first. Herein lies a US internal debate. Smart side says let the Ukrainians sort it out by themselves and not get the CIA involved to seal the deal. So far, good sense drives the policy. But some unnamed leaders are impatient and this will take time—more than fifty days.”
I do not know Trump’s view on all of this. The president has publicly hardened his attitude toward Russia, telling the press after a meeting with a senior NATO Secretary-General Mark Rutte official earlier this week that Putin had “fooled a lot of people”—including a few past US presidents—but “he didn’t fool me.” More US weapons will be sent to Ukraine, he said, increasing its ability to strike deep into Russia.
Russia’s official response to Trump’s remarks was to acknowledge their seriousness and that some of them were directed personally at Putin. Other officials made it clear that Russia will continue its increased tempo of attacks on Kyiv and elsewhere.
New York Times international correspondent Paul Sonne wrote that Russia seemed “unrattled” by Trump’s new hard-line stance. He noted that many Russian commentators “questioned whether Mr. Trump has really reversed course and is fully committed to supporting Ukraine.” I have been told here that Trump is still annoyed at Zelensky for his decision last winter to wear his usual combat clothes to what turned out to be a disastrous state visit in Washington, describing him as coming to the White House in “pajamas.”
Meanwhile, I was unable to learn whether Putin was aware of the US desire to push Zelensky out, but I did learn that Zaluzhnyi has maintained a working relationship with Valery Gerasimov, chief of staff of the Russian armed forces and a Putin confidant. Gerasimov, as I have previously written, was one of the few to know in advance that Zaluzhnyi would tell the Economist that the war was stalemated.
I have been provided with new Russian casualty numbers, from carefully evaluated US and Britishintelligence estimates, that show that Russia has suffered two million casualties—nearly double the current public numbers—since Putin started the war in early 2022. “Putin is not afraid of losing power, but he is losing popularity,” the US official said, “and Donald Trump is Zelensky’s supplier and the only one who can keep the Ukraine war going. Who’s got real power? It isn’t Zelensky. His only lifeline is the US. Trump is asking, ‘How do we get the pissants to stop? He thinks he’s the only one who can make the deal.
The Russian combat losses are seen in Washington, I was told, as key to a renewed urge to get new leadership in Ukraine in order to begin serious negotiations to end the war, given Putin’s contempt for Zelensky and the possibility of escalation. The losses were at an all-time low of twenty per month last fall, as Putin waited for the results of the US election. “When Trump won,” I was told, the Russian leadership organized a spring offensive “to capture as much territory as possible” before another round of expected peace talks with Ukraine started.
The results were dismal. The offensive has only progressed 120 miles beyond the areas Russia already controlled in Ukraine. That gain, amid high casualties, was of minimal importance, I was told: “all farmland, no fortified towns or critical communication sites. The monthly casualties have been 380 a month through May. The total now is two million. Most importantly,” the official stressed, “was how this number was described. All the best trained regular Army troops, to be replaced by ignorant peasants. All the best mid-grade officers and NCOs dead. All modern armor and fighting vehicles. Junk. This is unsustainable.”
The US official went on: “With the offensive debacle, Putin turned to the ‘London Blitz’ strategy. The Brits stood firm under Winnie, but the residents of Kiev not so much under Zelensky.
“The Ukrainians are now taking sixty casualties per square mile [of advance]—sustainable in numbers but the forces left are mostly previously draft-exempt rejects recently dragooned into the army.”
Asked if some in Europe would vigorously reject a change in the Ukraine leadership, the US official predicted that “no one in Europe is going to sacrifice country life and weekends in Paris to support Zelensky. The Europeans will all go along.” The official reminded me, disdainfully, of Europe’s insistence that the Ukraine air force be provided with American built F-16 fighter airplanes and additional training in Romania and Denmark to learn English and then how to fly them. The planes were a total bust, he said: “The Ukrainian pilots learned how to take off but they don’t know how to land.”
Ukraine’s President Volodymyr Zelensky holds a press conference in Kyiv on May 13, urging the United States to levy its most hard-hitting package of sanctions on Moscow if Russian President Vladimir Putin rejects a call to meet in Turkey this week. / Photo by Genya Savilov/AFP via Getty Images.
One constant in the war between Russia and Ukraine that Vladimir Putin started more than three years ago has been the willingness of the generals on both sides to say: “No more.”
I was told more than a year ago that the stunning interview Ukrainian General Valerii Zaluzhnyi gave to the Economist in the autumn of 2023—the Ukraine commander famously said then that the war had become “a stalemate”—was planned with the knowledge of General Valery Gerasimov, chief of staff of the Russian Armed Forces.
An involved American official told me recently that it is not the generals but the politicians—he was referring to Putin and Volodymyr Zelensky, his counterpart in Kiev—who are keeping the war going in still contested areas of Ukraine. One major battleground is in Donetsk oblast in eastern Ukraine, where Russian forces are continuing to take physical and political control of Ukrainian territory amid talk of peace. Bitter fighting is going on now—ignored by the US press—thirty-five miles outside of Donetsk City, in and around the towns of Pokrovsk and Toretsk.Last week Russian forces captured three settlements in Donetsk that allow them to block critical supply routes for Ukrainian forces and to threaten two nearby Ukrainian provinces.Putin is clearly intent on controlling as much Ukrainian territory as possible before he submits, if he ever does, to serious peace talks.
Another American with intelligence contacts in Europe told me that diplomats there are convinced that the Russian negotiators are “laughing behind the backs” of US negotiating team, which is headed by Steve Witkoff, a businessman of good intentions but little historical knowledge, and Keith Kellogg, a retired three-star Army general favored by President Donald Trump. The Trump team is now headed for Turkey, where more peace talks with a Russian delegation are to take place brokered by President Recep Tayyip Erdogan. There was hope that Trump, now in Saudi Arabia, would join, along with Putin, but Trump is sending Secretary of State Marco Rubio in his stead.
The second American told me that the “sheer incompetence” of the US team makes it unlikely, in the view of some European politicians, that a peace agreement can be reached without a summit meeting between Putin and Zelensky. It will not happen this week in Turkey, although Zelensky has said he would fly there if Putin did the same. He said that with their recently increased financial and military support of Zelensky, the Europeans have put themselves in the position of where they are “too weak to end the war but strong enough to spoil the peace.”
The involved American official with knowledge of the current negotiations told me that “the Russians are the problem now. Putin is no Stalin, but you have to go back to the transcripts of the Yalta conference” to understand the modern-day Russian and European states of mind. He was referring to the second and final meeting in February, 1945, of what was known as the “Big Three” leaders—Prime Minister Winston Churchill of Great Britain, Soviet Premier Josef Stalin and the ailing US President Franklin D. Roosevelt.
“The ghost of Yalta still haunts European leaders, particularly those on the Russian border,” the official said. At Yalta, Churchill and Roosevelt, representing the Allies, “bought”—the official’s word—Stalin’s commitment to stay in the European war “until Hitler’s defeat by giving him control of the new post-World War I countries of Poland, Romania, Yugoslavia, Hungary, and the Baltic States. As Soviet power waned, they all clawed their way back to freedom and were welcomed into NATO.”
In his view, the official said, after noting that many Democrats and Republicans in the Congress and the American bureaucracy agree with him, the Russian leadership clearly believes it has been “cheated out of just reward for their great sacrifice.” That was the theme, he said, of Russia’s elaborate celebration last week of the defeat of Germany in World War II. Putin and many Russian generals remain convinced, with much justification, that it was the Russian Army’s willingness to fight to the death in Stalingrad and Eastern Europe that was the ultimate deciding factor in the Allied victory over Nazi Germany in World War II.
There are many today in Western Europe, the official said, who fear that Putin’s elaborate WWII victory show was meant to present his continuing military efforts in Ukraine “as the first step” in what is feared to be “a long-term plan for regaining these territories” Russia has lost to NATO and the West since 1989.
The official made it clear to me that he still sees a chance for Trump, obsessed as he is with making deals in the Middle East that will spread billions of dollars among all involved, including many private US corporations, to reach an accommodation with Putin. But he said that the state of combat on the ground that may explain Putin’s insistence on continuing his war and trying to take more land in Ukraine.
“Russia may have the desire,” he told me, “but its performance in Ukraine shows they [its army] simply do not have the capability. For them Ukraine is a separate history story. They are looking to reclaim ‘little Russia,’’’ as parts of modern-day Ukraine were known for decades beginning in the Eighteenth Century.
One of the lingering issues of the current crisis, the official said, is that Trump has “never heard of Yalta.” A second issue, he said, is that the Europeans, fearful of an escalation with Russia, “hear Trump wavering on American military support”—in the unlikely chance that Europe were to agree to join forces with Ukraine against Putin —“just when they most seek reassurance.”
Warmongering has reached fever pitch in Europe. It all started with the US under Trump deciding that paying for the military ‘protection’ of European capitals from potential enemies was not worth it. Trump wants to stop the US paying for the bulk of the financing of NATO and providing its military might and he wants to end the Ukraine-Russia conflict so he can concentrate US imperialist strategy on the ‘Western hemisphere’ and the Pacific, with the aim of ‘containing’ and weakening China’s economic rise.
Trump’s strategy has panicked the European ruling elites. They are suddenly concerned that Ukraine will lose to the Russian forces and before long Putin will be at the borders of Germany or as UK premier Keir Starmer and a former head of MI5 both claim, “in British streets”.
Whatever the validity of this supposed danger, the opportunity has been created for Europe’s military and secret services to ‘up the ante’ and call for an end to the so-called ‘peace dividend’ that began after the fall of the dreaded Soviet Union and now begin the process of rearmament. The EU Foreign Policy Chief Kaja Kallas spelt out the EU’s foreign policy as she saw it: “If together we are not able to put enough pressure on Moscow, then how can we claim that we can defeat China?”
Several arguments are offered for rearming European capitalism. Bronwen Maddox, director of Chatham House, the international relations ‘think-tank’, which mainly presents the views of the British military state, kicked it off with the claim that “spending on ‘defence’ “is the greatest public benefit of all” because it is necessary for the survival of ‘democracy’ against authoritarian forces. But there is a price to be paid for defending democracy: “the UK may have to borrow more to pay for the defence spending it so urgently needs. In the next year and beyond, politicians will have to brace themselves to reclaim money through cuts to sickness benefits, pensions and healthcare.” She went on: “If it took decades to build up this spending, it may take decades to reverse it,” so Britain needs to get on with it. “Starmer will soon have to name a date by which the UK will meet 2.5 per cent of GDP on military spending — and there is already a chorus arguing that this figure needs to be higher. In the end, politicians will have to persuade voters to surrender some of their benefits to pay for defence.”
Martin Wolf, the liberal Keynesian economic guru of the Financial Times, launched in:“spending on defence will need to rise substantially. Note that it was 5 per cent of UK GDP, or more, in the 1970s and 1980s. It may not need to be at those levels in the long term: modern Russia is not the Soviet Union. Yet it may need to be as high as that during the build-up, especially if the US does withdraw.”
How to pay for this? “If defence spending is to be permanently higher, taxes must rise, unless the government can find sufficient spending cuts, which is doubtful.” But don’t worry, spending on tanks, troops and missiles is actually beneficial to an economy, says Wolf. “The UK can also realistically expect economic returns on its defence investments. Historically, wars have been the mother of innovation.” He then cites the wonderful examples of the gains that Israel and Ukraine have made from their wars: “Israel’s “start up economy” began in its army. The Ukrainians now have revolutionised drone warfare.” He does not mention the human cost involved in innovation by war. Wolf moves on: “The crucial point, however, is that the need to spend significantly more on defence should be viewed as more than just a necessity and also more than just a cost, though both are true. If done in the right way, it is also an economic opportunity.” So war is the way out of economic stagnation.
Wolf shouts that Britain needs to get on with it: “If the US is no longer a proponent and defender of liberal democracy, the only force potentially strong enough to fill the gap is Europe. If Europeans are to succeed with this heavy task, they must begin by securing their home. Their ability to do so will depend in turn on resources, time, will and cohesion ….. Undoubtedly, Europe can substantially increase its spending on defence.” Wolf argued that we must defend the vaunted “European values” of personal freedom and liberal democracy. “To do so will be economically costly and even dangerous but necessary… because “Europe has ‘fifth columns’ almost everywhere.” He concluded that “If Europe does not mobilise quickly in its own defence, liberal democracy might founder altogether. Today feels a bit like the 1930s. This time, alas, the US looks to be on the wrong side.”
‘Progressive conservative’, FT columnist Janan Ganesh spelt it out baldly: “Europe must trim its welfare state to build a warfare state. There is no way of defending the continent without cuts to social spending.” He made it clear that the gains working people made after the end of WW2 but were gradually whittled away in the last 40 years must now be totally dispensed with. “The mission now is to defend Europe’s lives. How, if not through a smaller welfare state, is a better-armed continent to be funded?” The golden age of the post-war welfare state is not possible anymore. “Anyone under 80 who has spent their life in Europe can be excused for regarding a giant (sic – MR) welfare state as the natural way of things. In truth, it was the product of strange historical circumstances, which prevailed in the second half of the 20th century and no longer do.”
Yes, correct, the gains for working people in the golden age were the exception from the norm in capitalism (‘strange historical circumstances’). But now “pension and healthcare liabilities were going to be hard enough for the working population to meet even before the current defence shock…..Governments will have to be stingier with the old. Or, if that is unthinkable given their voting weight, the blade will have to fall on more productive areas of spending … Either way, the welfare state as we have known it must retreat somewhat: not enough that we will no longer call it by that name, but enough to hurt.”Ganesh, the true conservative, sees rearmament as an opportunity for capital to make the necessary reductions in welfare and public services. “Spending cuts are easier to sell on behalf of defence than on behalf of a generalised notion of efficiency…. Still, that isn’t the purpose of defence, and politicians must insist on this point. The purpose is survival.” So so-called ‘liberal capitalism’ needs to survive and that means cutting living standards for the poorest and spending money on going to war. From welfare state to warfare state.
Poland’s Prime minister Donald Tusk took the warmongering up another notch. He said that Poland “must reach for the most modern possibilities, also related to nuclear weapons and modern unconventional weapons”. We can presume that ‘unconventional’ meant chemical weapons? Tusk: “I say this with full responsibility, it is not enough to purchase conventional weapons, the most traditional ones.”
So nearly everywhere in Europe, the call is for increased ‘defence’ spending and rearmament. European Commission President Ursula von der Leyen has proposed a Rearm Europe Plan which aims to mobilise up to €800 billion to finance a massive ramp-up in defence spending. “We are in an era of re-armament, and Europe is ready to massively boost its defence spending, both to respond to the short-term urgency to act and to support Ukraine, but also to address the long-term need to take on more responsibility for our own European security,” she said. Under an ’emergency escape clause’, the EU Commission will call for increased spending on arms even if it breaks existing fiscal rules. Unused COVID funds (E90bn) and more borrowing through a “new instrument” will follow, to provide €150 billion in loans to member states to finance joint defence investments in pan-European capabilities including air and missile defence, artillery systems, missiles and ammunition, drones and anti-drone systems. Von der Leyen claimed that if EU countries increase their defence spending by 1.5% of GDP on average, €650 billion could be freed up over the coming four years. But there would be no extra funding for investment, infrastructure projects or public services, because Europe must devote its resources for preparing for war.
At the same time, as the FT put it, the British government “is making a rapid transition from green to battleship grey by now placing defence at the heart of its approach to technology and manufacturing.” Starmer announced a rise in defence spending to 2.5% of GDP by 2027 and an ambition to reach 3% into the 2030s. Britain’s finance minister Rachel Reeves, who has been steadily cutting spending on child credits, winter payments for the aged and disability benefits, announced that the remit of the Labour government’s new National Wealth Fund would be changed to let it invest in defence. British arms manufacturers are cock a hoop. “Leaving aside the ethics of weapons production, which deters some investors, there is plenty to like about defence as an industrial strategy” said one CEO.
Over in Germany, the Chancellor-elect in the new coalition government, Friedrich Merz, pushed through the German parliament a law to end the so-called ‘fiscal brake’ that made it illegal for German governments to borrow beyond a strict limit or raise debt to pay for public spending. But now military deficit spending has priority above everything else, the only budget with no limit. The defence spending target will dwarf the deficit spending available for climate control and for badly needed infrastructure.
Annual government spending due to the new German fiscal package will be larger than the spending boom that came with the postwar Marshall Plan and with German reunification in the early 1990s.
That brings me to the economic arguments for military spending. Can military expenditure kickstart an economy that is stuck in a depression, as much of Europe has been since the end of the Great Recession in 2009? Some Keynesians think so. German arms manufacturer Rheinmetall says that Volkswagen’s idle Osnabrück factory could be a prime candidate for conversion to military production. Keynesian economist, Matthew Klein, co-author with Michael Pettis of Trade Wars are Class Wars, greeted this news: “Germany is already building tanks. I am encouraging them to build many more tanks.”
The theory of ‘military Keynesianism’ has a history. One variant of this was the concept of the ‘permanent arms economy’ that was espoused by some Marxists to explain why the major economies did not go into a depression after the end of WW2, but instead entered a long boom with only mild recessions, that lasted until the 1974-5 international slump. This ‘golden age’ could only be explained, they said, by permanent military spending to keep up aggregate demand and sustain full employment.
But the evidence for this theory of the post-war boom is not there. UK government military spending fell from over 12% of GDP in 1952 to around 7% in 1960 and declined through the 1960s to reach about 5% by the end of the decade. And yet the British economy did better than at any time since. In all the advanced capitalist countries, defence spending was a substantially smaller fraction of total output by the end of the 1960s than in the early 1950s: from 10.2% of GDP in 1952-53 at the height of the Korean War; to only 6.5% by 1967. Yet economic growth was sustained pretty much through the 1960s and early 1970s.
The post-war boom was not the result of Keynesian-style government spending on arms, but is explained by the post-war high rate of profitability on capital invested by the major economies. If anything, it was the other way around. Because the major economies were growing relatively fast and profitability was high, governments could afford to sustain military spending as part of their geopolitical ‘cold war’ objective to weaken and crush the Soviet Union – the then main enemy of imperialism.
Above all, military Keynesianism is against the interests of working people and humanity. Are we in favour of making arms to kill people in order to create jobs? This argument, often promoted by some trade union leaders, puts money before lives. Keynes once said: “The government should pay people to dig holes in the ground and then fill them up.” People would reply. “that’s stupid, why not pay people to build roads and schools.” Keynes would respond saying “Fine, pay them to build schools. The point is it doesn’t matter what they do as long as the government is creating jobs”.
Keynes was wrong. It does matter. Keynesianism advocates digging holes and filling them up to create jobs. Military Keynesianism advocates digging graves and filling them with bodies to create jobs. If it does not matter how jobs are created then why not dramatically increase tobacco production and promote the addiction to create jobs? Currently, most people would oppose this as being directly harmful to people’s health. Making weapons (conventional and unconventional) is also directly harmful. And there are plenty of other socially useful products and services that could deliver jobs and wages for workers (like schools and homes).
The UK government’s defence minister John Healey recently insisted that boosting the arms budget would “make our defence industry the driver of economic growth in this country”. Great news. Unfortunately for Healey, the UK’s arms industry’s trade association (ADS) estimates the UK has around 55,000 arms export jobs and another 115,00 employed in the Ministry of Defence. Even if you include the latter, that is only 0.5% of the UK workforce (see CAAT’s Arms to Renewables briefing for details). Even in the US, the ratio is much the same.
There is a theoretical question often at debate in Marxist political economy. It is whether the production of weapons is productive of value in a capitalist economy. The answer is that it is, for arms producers. The arms contractors deliver goods (weapons) which are paid for by the government. The labour producing them, therefore, is productive of value and surplus value. But at the level of the whole economy, arms production is unproductive of future value, in the same way that ‘luxury goods’ for just capitalist consumption are. Arms production and luxury goods do not re-enter the next production process, either as means of production or as means of subsistence for the working class. While being productive of surplus value for the arms capitalists, the production of weapons is not reproductive and thus threatens the reproduction of capital. So if the increase in the overall production of surplus value in an economy slows and the profitability of productive capital begins to fall, then reducing available surplus value for productive investment in order to invest in military spending can damage the ‘health’ of the capitalist accumulation process.
The outcome depends on the effect on the profitability of capital. The military sector generally has a higher organic composition of capital than the average in an economy as it incorporates leading-edge technologies. So the arms sector would tend to push down the average rate of profit. On the other hand, if taxes collected by the state (or cuts in civil spending) to pay for arms manufacture are high, then wealth that might otherwise go to labour can be distributed to capital and thus can add to available surplus value. Military expenditure may have a mildly positive effect on profit rates in arms-exporting countries but not for arms-importing ones. In the latter, spending on the military is a deduction from available profits for productive investment.
In the greater scheme of things, arms spending cannot be decisive for the health of the capitalist economy. On the other hand, all-out war can help capitalism out of depression and slump. It is a key argument of Marxist economics (at least in my version) that capitalist economies can only recover in a sustained way if average profitability for the productive sectors of the economy rises significantly. And that would require sufficient destruction in the value of ‘dead capital’ (past accumulation) that is no longer profitable to employ.
The Great Depression of the 1930s in the US economy lasted so long because profitability did not recover throughout that decade. In 1938, the US corporate rate of profit was still less than half the rate of 1929. Profitability only picked up once the war economy was underway, by 1940 onwards.
So it was not ‘military Keynesianism’ that took the US economy out of the Great Depression – as some Keynesians like to think. US economic recovery from the Great Depression did not start until the world war was underway. Investment took off only from 1941 (Pearl Harbor) onwards to reach, as a share of GDP, more than double the level that investment stood at in 1940. Why was that? Well, it was not the result of a pick-up in private sector investment. What happened was a massive rise in government investment and spending. In 1940, private sector investment was still below the level of 1929 and actually fell further during the war. The state sector took over nearly all investment, as resources (value) were diverted to the production of arms and other security measures in a full war economy.
But is not increased government investment and consumption a form of Keynesian stimulus, but just at a higher level? Well, no. The difference is revealed in the continued collapse of consumption. The war economy was paid for by restricting the opportunities for workers to spend their incomes from their war-time jobs. There was forced saving through the purchase of war bonds, rationing and increased taxation to pay for the war. Government investment meant the direction and planning of production by government decree. The war economy did not stimulate the private sector, it replaced the ‘free market’ and capitalist investment for profit. Consumption did not restore economic growth as Keynesians (and those who see the cause of crisis in under-consumption) would expect; instead it was investment in mainly weapons of mass destruction.
The war decisively ended the depression. American industry was revitalized by the war and many sectors were oriented to defence production (for example, aerospace and electronics) or completely dependent on it (atomic energy). The war’s rapid scientific and technological changes continued and intensified trends begun during the Great Depression. As the war severely damaged every major economy in the world except for the US, American capitalism gained economic and political hegemony after 1945.
Guiglelmo Carchedi explained: “Why did the war bring about such a jump in profitability in the 1940‐5 period? The denominator of the rate not only did not rise, but dropped because the physical depreciation of the means of production was greater than new investments. At the same time, unemployment practically disappeared. Decreasing unemployment made higher wages possible. But higher wages did not dent profitability. In fact, the conversion of civilian into military industries reduced the supply of civilian goods. Higher wages and the limited production of consumer goods meant that labour’s purchasing power had to be greatly compressed in order to avoid inflation. This was achieved by instituting the first general income tax, discouraging consumer spending (consumer credit was prohibited) and stimulating consumer saving, principally through investment in war bonds. Consequently, labour was forced to postpone the expenditure of a sizeable portion of wages. At the same time labour’s rate of exploitation increased. In essence, the war effort was a labour‐financed massive production of means of destruction.”
Let Keynes sum it up:“It is, it seems, politically impossible for a capitalistic democracy to organize expenditure on the scale necessary to make the grand experiments which would prove my case — except in war conditions,” from The New Republic (quoted from P. Renshaw, Journal of Contemporary History 1999 vol. 34 (3) p. 377 -364).
