So the Japanese and German experiences did not contradict the thesis of arms expenditure as an explanation of world growth and stability. But they were a contradictory factor in this growth. Their very success meant that a growing chunk of the world economy was not wasting investible output on arms. Nor was that the end of the matter. The very success of the low arms spending economies began to put pressure on the high arms spenders to switch resources away from arms and towards productive investment. For only then could they begin to meet the challenge they faced in market competition from Japan and West Germany.
This was most clearly the case for Britain. Its economy was highly dependent on foreign trade and it ran into balance of payments crises with every spell of rapid economic growth between the late 1940s and the late 1970s. Successive British governments were forced, reluctantly, to abandon their notions of imperial grandeur and to reduce the proportion of the national product going on defence-from 7.7 percent of GDP in 1955 to 4.9 percent in 1970.
In the case of the US, the pressure was less obvious at first, since even in 1965 foreign trade only amounted to about 10 percent of GNP and the country enjoyed a trade surplus throughout the 1950s and 1960s. Nevertheless, arms spending declined from around 13 percent of GNP during the Korean War to between 7 and 9 percent in the early 1960s. The pressure of arms spending on its international competitiveness was suddenly revealed when it shot up by a third with the Vietnam War. The new level was not anything like that of the Korean War. But it was too much for a US industry facing vigorous competition for markets. There was an upsurge of inflation at home and Wall Street turned against the war.39 Then, in 1971 for the first time since the Second World War, US imports exceeded US exports. President Nixon was forced into two measures which further undermined the stability of the world economy: he cut US arms spending40 and he devalued the US dollar, in the process destroying the "Bretton Woods" system of fixed international currency exchange rates that had acted as a framework for the expansion of world trade throughout the postwar period.
The End of the Golden Age
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