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Here’s How Defense R&D Affects US Productivity Growth
It’s not a natural impulse for politicians or activists to highlight trade-offs. Take cutting defense spending. Some Democratic presidential candidates envision a sizable reduction to the Pentagon’s budget if they’re elected. If that should happen, one possible program on the chopping block might be R&D investment. There is a lot of it, after all. A 2018 Congressional Research Service report found that in 2016 the United States spent $78.1 billion on defense R&D, “more than seven times as much on defense R&D than the rest of the OECD countries combined.”
And what do we get for all those tens of billions? That question is partially answered by a new working paper, “The Intellectual Spoils of War? Defense R&D, Productivity and International Spillovers” from Enrico Moretti, Claudia Steinwender, and John Van Reenen. Here’s what the researchers found (bold by me):
Published in Economics, MilitaryIn the US and many other OECD countries, expenditures for defense-related R&D represent a key policy channel through which governments shape innovation, and dwarf all other public subsidies for innovation. We examine the impact of government funding for R&D – and defense-related R&D in particular – on privately conducted R&D, and its ultimate effect on productivity growth. We estimate models that relate privately funded R&D to lagged government-funded R&D using industry-country level data from OECD countries and firm level data from France. To deal with the potentially endogenous allocation of government R&D funds we use changes in predicted defense R&D as an instrumental variable. In both datasets, we uncover evidence of “crowding in” rather than “crowding out,” as increases in government-funded R&D for an industry or a firm result in significant increases in private sector R&D in that industry or firm. A 10% increase in government-financed R&D generates 4.3% additional privately funded R&D. An analysis of wages and employment suggests that the increase in private R&D expenditure reflects actual increases in R&D employment, not just higher labor costs. Our estimates imply that some of the existing cross-country differences in private R&D investment are due to cross-country differences in defense R&D expenditures. We also find evidence of international spillovers, as increases in government-funded R&D in a particular industry and country raise private R&D in the same industry in other countries. Finally, we find that increases in private R&D induced by increases in defense R&D result in significant productivity gains.
What you say may be true, but I still oppose these seemingly endless wars.
Yea sure. The thing is we waste huge amounts on everything in government including defense. We have to spend a lot on defense and few people know what we need, what the threats will be nor how the technology is changing. When we try to cut, the big spenders cut stuff they know we like and need and have spin offs such as R and D, so we don’t cut. If they focused on dead wood, they’e find plenty but they don’t. Unlike most of the Washington bureaucracies Defense is Federal, has to be. Maybe if we didn’t spend so much on things that shouldn’t be on Washington’s plate, we might pay more and better attention to Defense, because waste and fraud there isn’t just a rip off it endangering. And, let me repeat, it is Federal, has to be and most of the other stuff isn’t and shouldn’t be. It should be city or state not federal. Not just because that’s what the constitutions says, it’s because Washington can’t do that local stuff for thousands of cities and towns.
Yes indeed. Whenever the budgets aren’t done or there are cuts in revenue, we get a big song and dance about teachers/firemen/police not going to work, so your entire family will be home to die in a fire set by the mad arsonist there aren’t enough police to catch!
Did the researchers only examine defense R&D, or did they also look at non-defense R&D?
Like, would their “crowding in” argument also apply to government investment in, say, “renewable energy” R&D?
For this to work, you at least have to have an enemy we’re going to go to war with, and probably a significant enemy.
We had the Cold War and the Soviets. Our present enemies are terrorists who do not come close to our present capabilities when it comes to arming themselves. I don’t think we have to stretch ourselves in the R&D world to fight them.
The Chinese are different, and that’s where we’ll probably want to continue military R&D.
It comes at a cost to our democracy, though. One cost is our imperial presidency. A symptom of it is that day to day, our president is transported around in military conveyances (Marine One and Air Force One). And because he is a higher profile military target, transporting him on the ground is a big production that can include disrupting the day to day lives of people living in large metropolitan areas when he comes to visit. Other symptoms are treating the Oval Office as a kind of throne room.
But this is just a symptom. The presidency has acquired some very undemocratic powers domestically over the years, and that’s a consequence, not just a symptom.
Other countries with democratically elected heads and chiefs of state aren’t close to treating their leaders this way, though their executive portions of their governments have also gained powers at the expense of their legislatures (but not Switzerland which has never had a modern war economy).
So has military R&D benefited us? Yeah, but that doesn’t mean that without it we would not have innovated.
And don’t under estimate the cost that our war economies have had to our individual freedoms.