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Guns > Butter: The Shifting World Order and Defense Spending

As the US recedes from the global stage as guarantor of world order, individual nations must fill the security vacuum and increase their own defense spending as various forces challenge global security in the years to come.

After WWII, the forces of technology and globalization unleashed profound changes on global governance and economies. The Great Recession, income inequality, and erosion of trust in key institutions have poured fuel on the fires of nationalism and populism. Costly and ineffective wars in Iraq and Afghanistan have diminished American willingness and ability to project power abroad. These factors and events have hollowed out alliances that maintained peace among great powers during the post WWII era. To quote a report published by the Eurasia Group in September 2016: 

"The end of governments' monopoly over politics isn't the only factor making the world messier. The very alliances that underpinned international relations in the post-World War II era are also fraying. Trust in the United States' reliability as a partner has eroded. The transatlantic relationship has become little more than a hollow alliance. No longer does either side of the pond view the other as its partner of first resort. When France seeks assistance against the Islamic State, it turns to Russia. When Germany needs to stem refugee flows, it asks for Turkey's help. When the United Kingdom needs financial resources, it knocks on Beijing's door. In America, the question was once "whom to call" in Europe, but today no one bothers to even start dialing. Already a shadow of its former self, the value of the US-UK "Special Relationship" will inevitably take a further hit from Brexit" - Eurasia Group

The world is not prepared for a US no longer suited to play the role of global policeman. For years Europe has rested on the US nuclear umbrella and NATO for security. Only 5 of the 28 NATO members spend the agreed upon 2% of GDP on defense. Anecdotes of rising global tensions are abundant. Increasing ISIS terrorism on European soil, island disputes in the South China Sea, Russian interference in former Soviet territories, proxy wars between Saudi Arabia and Iran, and North Korean nuclear brinkmanship to name a few. These conflicts are heating up at the same time traditional alliances are cooling down. It doesn't help that economic integration is on the decline as well. In recent years, trade growth as a percentage of global GDP has been stagnant. The failure of the Trans-Pacific Partnership (TPP), and the dormant status of the Transatlantic Trade and Investment Partnership (TTIP) reflect this reality. In Thomas Friedman's Golden Arches Theory of Conflict Resolution: No two countries that both have a McDonald's have fought a war against each other since each has gotten its McDonald's. Admittedly, this theory has lost its luster, and economic liberalism has failed to become a cure for inter-state conflict. Yet the role global trade plays in at least mitigating conflict is crucial. Its popular these days to cite the follies of "globalism" but millions have avoided slaughter in war since WWII. If global trade is stagnating, and traditional alliances fraying, individual countries will start to hedge their bets. Hedging their bets mean investing more in their own defense systems rather than relying on security provided by the US or other more prominent military powers. European defense spending is currently 18% below its 20 year historical norm as a percentage of GDP. 

Nationalist parties or candidates have been gaining vote share in global elections for several years. Japan's Abe has hinted he would like to rewrite the nation's constitution, allowing Japan to deter an expansionist China more aggressively. France's Marie Le Pen called for increased defense spending to counter the threats of terrorism from the Middle East. Russia has increased its own defense spending at to counter what it sees as western interference in its sphere of influence. 

These cracks in the geopolitical landscape may seem like a new phenomenon, but it is not. Just like business and economic cycles, geopolitics undergoes cycles as well - they just happen to be a lot longer. The world has not seen a true surge of populism since the 1930s. Technology and globalization unleashed forces that altered the balance between developed and emerging economies; between capital and labor. These balances changed in ways faster than the world's social structure could adapt. As a global community, wealth increased and income inequality decreased. However lower wage workers in rich countries found themselves replaced by foreigners or machines, with all the social breakdowns that usually occur when jobs leave communities. The divide between the "Haves" and the "Have-Nots" grew greater, bringing into question the effectiveness of the economy and government institutions. These developments filtered through to partisan politics, creating governments that had an increasingly difficult time finding solutions to big problems. All the while the problems facing voters festered. In response, voters have blamed "elites" for societal decay. They looked for strong leaders who could push the nation through its stasis. After years of expanding wealth and opportunity gaps, foreign influence, and broken government, the prescription is protectionism, nationalism, and militarism. These forces tend to feed off each other in a reinforcing cycle. 

It is without question that geopolitical risks are increasing, and the odds of conflict have increased as well. Perhaps the world will avoid large scale conflict of the likes of the early 20th Century. Given the benefit of hindsight, new conflict resolution mechanisms may be developed in the future. Even if great conflict is avoided, nations will need to prepare for a worst case scenario. The years of relying on the US for security are over. In response to new age threats, countries may look to upgrade their security apparatus to include cyber defense, intelligence gathering, or precision strike capabilities. All this results in increased revenues at defense companies, especially considering  the low base defense spending is currently at globally. In an ode to Economics 101 classes, nations will opt for guns over butter. 



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