In late February, the federal government announced its new “defence industrial strategy.” This strategy presents the massive increase in military spending as economic policy with the aim of reviving the Canadian economy. The government claims this will trigger $300 billion in private investment and create “125,000 high-paying careers.”
This plan has been welcomed by the ruling class with open arms. The Business Council of Canada called the defence industrial strategy “an important step towards strengthening Canada’s security and economic resilience amid rising geopolitical uncertainty.” The Globe and Mail claims the plan will “jump-start private investment” and could even create a “golden age of reindustrialization.”
Even Conservative Leader Pierre Pollievre, who strains to disagree with the Liberals on every little thing, has signalled his broad support. He said, “It turns out that the same things we have to do to become self-reliant are the same things that we need to do to become an affordable country for all Canadians.”
But will this plan create a “golden age of reindustrialization” with “125,000 high-paying careers”?
Good money after bad
There are many problems with using military spending to revive the economy.
For starters, technically speaking military production is outside of the real economy. It does not produce consumer goods, nor does it produce machinery and other capital goods used to make consumer goods. But it is precisely investment in capital goods, in production, that grows the economy. In Marxist terms, military investment does not enter the cycle of production that Marx called the “production and reproduction of capital,” which stimulates economic expansion.
Although arms spending can create jobs and profits for some in the short term, this is largely “fictitious,” in the sense that it diverts investment away from the real economy—from activities which raise productivity and long-term growth.
Even the International Monetary Fund (IMF) recognized this fact in a recent report where they explain, “Relative to public investment, defense-related government consumption tends to generate weaker and less-persistent effects for potential output, as it does not directly expand productive capacity.”
So the economic impact of military spending will be extremely limited at best and will tend to suck money out of the real economy. As the IMF report notes, military spending can have a negative effect by “reallocating spending away from productive physical and human capital to defense, and through distortions leading to an inefficient allocation of resources that can lower productivity.”
While military spending doesn’t create consumer or capital goods in the real economy, it does create jobs which pay people wages. This can have a knock-on effect because it creates demand for consumer goods, which then stimulates investments in more production—leading to more hires.
But if the goal is to create jobs, this strategy is highly ineffective. Military production tends to be highly capital-intensive, not labour-intensive. To increase the number of jobs in military production from 81,200 to 206,000, as the government claims it wants to do, will mean that they will be spending $4 million of government money per job! After the corporate press raised a stink about Canada Post “losing” $20,000 per worker, it is sheer hypocrisy for the entire capitalist establishment to argue for such a fantastically inefficient waste of money.
Deficit financing
Then there is the question of the price tag.
Last year, the government increased the military budget to $63 billion. And it plans to increase this to roughly five per cent of GDP—or a whopping $159 billion annually by 2035. This is more than three times as much as the federal health-care transfers to provinces. All in all, Carney plans on spending upwards of half a trillion dollars on the military over the course of the next decade.
While Carney has enacted a “Buy Canadian” military procurement policy with the aim of awarding 70 per cent of contracts to companies based in Canada, this won’t happen overnight. In the meantime, roughly 75 per cent of Canadian military spending flows to U.S. suppliers. It is therefore inevitable that a large chunk of the money being rolled out for the military will have zero economic benefit in Canada.
And this immense sum of money will have to come from somewhere. It will inevitably have to be taken from the profits of the capitalists or through attacks on the workers—that is, through taxation or austerity measures.
If the government tries to avoid the problem by going further into debt, as they are now doing, this will have an inflationary effect. By increasing the money supply via government debt, the amount of dollars chasing the same number of goods increases, thus reducing the purchasing power of each dollar.
But the government cannot take on new debt forever. What is more likely is that in order to afford this, the government will cut social spending which working-class people rely on. But this will mean workers buy less, so capitalists will invest less in the real economy. This would completely nullify the positive effects caused by new jobs in military production.
Who pays?
Behind the smokescreen is the reality that Carney’s rearmament program will be profoundly destructive to the Canadian economy. The most crucial need of the Canadian economy is to increase the productivity of labour, which has been falling for several years. Only in this manner can Canada be competitive on the world stage, attract investment, and improve wages. Military spending does the opposite, by diverting money away from productive use.
Military expansion will create some jobs and may even produce short-term economic growth. But fundamentally it will only accelerate and deepen the crisis of Canadian capitalism.
This is what happened In the 1970s and 1980s when the U.S. and Soviet Union engaged in an arms race. Rather than stimulating growth in the U.S., this arms spending resulted in annual inflation as high as 10 per cent and ended up smashing living standards for workers. During the same period, the fastest-growing economies were those of Germany and Japan, and both countries spent next to nothing on their militaries.
Carney’s massive militarization drive will likely have a similar result. A few corporate contractors and billionaire shareholders will profit. The costs will fall on the working class. When growth fails to materialize, federal and provincial governments will be forced to cut every public service that makes life worth living. The austerity we’re already seeing is only the beginning of an epoch of the biggest austerity in Canadian history. This is what the continued existence of capitalism means for the working class.
That’s why communists reject Carney’s militarism and reject the idea that workers should have to depend on the production of weapons of death and destruction just to get decent jobs.
Instead, the working class must fight to direct these billions of dollars toward health care, infrastructure, education, and real industrial development—investments that expand productive capacity while improving workers’ lives. On this basis, everyone could be guaranteed a good job.
To achieve this goal, society’s wealth must be brought under democratic public ownership and directed toward human needs rather than death and destruction. In this way, we can build a truly human society free of war and violence of all types.
