Arms, profits and of the Cold War
The arms budgets of the great powers were central to their economic development. But their roots were not narrowly economic. They flowed from a new struggle to divide and redivide the world between the main victors of the Second World War, the US and the USSR-the Cold War.
The US had aspirations for its industries, the most advanced and productive in the world, to penetrate the whole world economy through "free trade" . The Western European powers, exhausted by the war, were in no position to challenge it directly (although British politicians often expressed a private desire to do so). Russia's rulers were in a different situation. The war's end left them dominating virtually the whole of northern Eurasia, from the borders of Western Europe right through to the Pacific. With levels of industrial productivity less than half those of the US, they were in no position to sustain themselves in economic competition through free trade. But they could contest the US attempt at global hegemony by blocking its access to the economies under their control-not just the territory of the old Russian Empire, but also the countries of Eastern Europe which they subordinated to their military-industrial goals. The US, for its part, rushed to cement its hegemony over Western Europe through financing pro-American Christian Democrat and Social Democrat political parties, the Marshall Plan for reviving European industry within parameters favourable to US interests, and the creation of the NATO military alliance and setting up US bases in Western Europe.
The pattern was laid for the next 40 years, of each of the two great powers reaching out to draw as much of the world as possible into its sphere of influence so as to gain a strategic advantage over the other. They fought a bloody war over control of the Korean peninsula, not because of the little wealth it then possessed, but because of the strategic implications for the whole of the East Asian and Pacific region. Each tried over the following decades to extend its sphere of influence by giving aid and arms to states which fell out with its rival.
The Cold War conflict could not be explained by economics as often understood, in terms simply of profit and loss accounting. The armaments bills of both great powers soon exceeded anything their rulers could hope to gain from the increased exploitation of the lesser powers under their control. At no stage in the 1 940s or 1 950s did total US overseas investment (let alone the much smaller return on that investment) exceed US spending on arms. Even in the period of "disarmament" prior to the outbreak of the Korean War "military expenditure totalled something like \$ 1 5 billion a year. Thus it was 25 times as high as the sum of private capital exports" .51 By 1 980 total expenditure on "defence" had risen to around \$200 billion-less now than total overseas investment of \$500 billion, but still substantially more than the profits that could possibly accrue from that investment.
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Capitalism in the 20th Century