I think people are jumping to the extremes a bit here.
Both sides are correct and have points of merit, as with almost all things in life, it’s abour striking the right balance rather than taking a fundamentalist view that A is all good and B is all bad.
I tend to think that in broad terms, military procurement spending is a lot like insurance. In good times, it can be a pain paying the bills thinking of all the other things you could do with that money, but when bad things happen, you are sure going to thank your lucky stars that you did buy that ‘insurance’ when you had the chance.
The last time China neglected its defence was in the later years of the Qing dynasty, when the Emperoress was more interested in building Palaces, and we all know what bitter fruits that decision yielded.
In economic terms, Military spending is exactly like consumption in that it generates demand and employment, which keep people employeed, so they can afford to spend on other things, and the whole multiplier effect kicks in to boost economic growth.
This could be seen most clearly in the shipbuilding industry. After the 2008 financial crash, the world shipping industry pretty much collapsed. Overnight, orders dried up.
It’s no coincidence that China’s current naval built up started soon after.
China was using military orders to offset some of that lost commercial work. That meant Chinese yards were able to keep their core of extremely highly trained (and so difficult and time consuming to regenerate) workers employed and continue investments in the shipyards to improve their technological base.
When commercial orders start picking up again, Chinese shipbuilding will be in far stronger position in absolute terms and relative to its competitors in South Korea and Japan.
Something else to seriously consider is the benefits military R&D yields for the broader economy.
For the 10th anniversary of the launch of the iPhone, there were a lot of articles written about the 10 key technologies that made the iPhone possible. Although it is not explicitly stated in any of the published articles I have read, in an interview with the BBC’s radio 4, one of the authors made a point I will never forget - every one of those 10 key technologies were developed either directly, or benefited fundamentally from government funded military R&D programmes.
I think it is no conincidence that American technological and economic world dominance peaked shortly after the end of the Cold War, and has been on a general, relative declining trend relative to the rest of the world, and China especially, ever since.
The biggest single direct contributing factor, in my view, is the contrasting amount of government funded R&D the US and China have invested in since.
While the US massively scaled back its own government funded military and civilian R&D programmes, China massively increased its own funding. Now, increasingly the big technological breakthroughs are coming out of China instead of America. Quantum computing and communications being a prime example. Even in fields where the West still lead in, China is closing fast in AI, autonomous driving cars, and a whole host of other cutting edge tech, with many insiders believing China will take the lead in a few years.
Government R&D is best at the big ticket break throughs as those takes vast investment over long years or decades with little to no immediate returns. Often such breakthroughs needs to combine multiple fields and technologies that are increasingly difficult for private enterprise to do with modern patent abuse.
Where private investment excels is at taking those big ticket breakthroughs to market to create products and services.
During the Cold War, that was the balance in America, with the government spending vast sums development the underlying technologies, and companies taking declassified tech and making new products with them. They made vast profits from the commercialisation of those products, which generated taxes to help fund more R&D.
America was able to turn that technological partnership and leverage it to gain economic dominance by being able to make things others simply could not. That is how middle income America was able to afford their comfortable lives of excess - because the rest of the world was willing to pay a huge premium for access the the latest high tech goods and services.
But with US government funding drying up after the Cold War, the source of all the new tech started to dry up also. Private investment tried to take over, but could never hope to offset all that lost government investment funding.
So more and more, American products lost their technological edge, yet was still trying to change the same kind of premiums as before, which is a key reason for the massive decline in American manufacturing - the rest of the world was not willing to keep paying such a high premium for things they can make themselves or could buy from other sources at lower cost.
A living embodiment for this trend would be Apple. It’s products used to be revolutionary, but now, increasingly, they just feels like endless rehashing of the same things with only incremental improvements. It is still the best, but is fast loosing its edge.
Outsourcing was also a key factor, but was a result of the declining US technological edge, where companies tied to offset the reduced premiums with lower costs. It would not have gutted American manufacturing had American technological advancement not slowed down so much at the same time. Had American technological advancement not slowed down, by the time the rest of the world absorbed the tech in its outsourced manufacturing, they would have moved onto the next gen of tech. And so the cycle could repeat without significantly eroding US technological dominance.
The key, as with all things, is moderation. Beyond a certain point, excessive military spending, be it R&D or hardware procurement, becomes a drag on the economy if it starts eating up resources that would be far better spent on other areas. This is where the USSR fell down hard, and increasingly, America is headed in the same direction.
For China, it’s traditional investment channels are already saturated. Much more investments in those areas will only lead to bubbles and busts.
One Belt One Road is a way to open up new markets for investment, but military spending, in both R&D and procurement, is also another.
Chinese military spending as a percentage of GDP is still very low, so there is plenty of room for growth without any real negative effects on the economy.
