University of Minnesota economics professor Vernon Ruttan gets right to the point in his latest book, “Is War Necessary for Economic Growth? Military Procurement and Technology Development” (Oxford University Press, 2005).
Ruttan, now retired from the applied economics department, devoted his career to examining the factors that cause technological innovation. Technological innovation is his central concern in examining the links between war and economic growth.
Ruttan’s quick answer to the question is no, war is not necessary for economic growth to occur. Even so, significant and sustained growth of output per person depends on continuous development of new technology.
Developing new technology requires investing in research and development. Free markets — without any government action — do not bring about a level of R&D that is optimal for society.
Especially at the level of basic science, research is a “public good” in the sense that economists use the term. That is, the benefits of basic research spill over to society as a whole and cannot be captured by the researcher the way a patent allows the inventor of a practical device to earn income.
Benefits of basic research are not “excludable” — that is, it is hard to keep others from being made better off. Nor are they easily divisible. A technological development, like the integrated circuit, benefits many people in society. These benefits cannot be divided up among individuals the way a boatload of rice or a shipping container full of shoes can be.
For economies to grow as fast as possible, governments must spend tax dollars on R&D. Private sector spending will not be sufficient.
But there are many demands on the public purse. Because the benefits of R&D take time to appear and because they are so widely dispersed to all members of society, spending on R&D does not have the same public support as highway construction or cotton subsidies.
World War II and the Cold War motivated much of our federal research spending. The object was not to foster economic growth. Rather, the spending went to solve scientific problems that barred the door to the new technology necessary for our nation to win a struggle for existence.
Radar, jet engines, digital computers, advanced plastics, microwave communications and space travel are just a few of the innovations developed with government funds.
The fall of the Berlin Wall and the decline in defense spending on new hardware undercut federal funding for basic research. In the 1990s, the Clinton administration and a Republican-controlled Congress took steps that curtailed government support for research. Overall, things have not improved in the new century or as a result of the Sept. 11, 2001, attacks.
Without the “excuse” of national defense to justify government investment in technology, Ruttan argues, we are likely to spend too little on developing new technology. Our children and grandchildren will be poorer as a result.
© 2006 Edward Lotterman
Chanarambie Consulting, Inc.