Is the peace dividend over?

CAMBRIDGE — Russia’s brutal invasion of Ukraine should be a wake-up call for Western politicians, corporate leaders, and economists who advocate a green and equitable future, but lack any practical or strategic sense of how to get there. Regardless of what short-term tactics Europe and the United States use in responding to the current crisis, their long-run strategy needs to put energy security on a par with environmental sustainability, and funding essential military deterrence on a par with financing social priorities.

The Soviet Union collapsed in 1991 in no small part because Russia’s leaders, most of all President Boris Yeltsin and his economic advisers, recognized that the Soviet communist military-industrial complex could not afford to keep up with the West’s superior economic might and technological prowess. Today, with Russia’s economy less than one-twentieth the combined size of the US and EU economies, the same strategy of vastly outspending Russia on defense should be much easier to execute. Unfortunately, there is a hesitancy in many Western societies, particularly on the left, to admit that defense spending is sometimes a necessity, not a luxury.

For many decades, Western living standards have been boosted by a massive “peace dividend.” For example, US defense spending fell from 11.1 percent of gross domestic product (GDP) in 1967, during the Vietnam War, to 6.9 percent of GDP in 1989, the year the Berlin Wall fell, to just over 3.5 percent of GDP today. If US defense spending as a share of GDP was still at the Vietnam-era level, defense outlays in 2021 would have been $1.5 trillion higher — more than what the government spent on social security last year, and almost triple government spending on nondefense consumption and investment. Even at the level of the late 1980s, defense spending would be more than $600 billion higher than today. The extra cost would have to be funded by higher taxes, greater borrowing, or lower government spending in other areas.

Europe’s defense spending has long been far lower than that of the US. Today, the United Kingdom and France spend just over 2 percent of their national income on defense, and Germany and Italy only around 1.5 percent. To the question on why Europe does not mount a stronger military response to Russia’s attack on Ukraine and looming threats to the Baltic states, the larger reason is its egregious lack of preparedness.

Thanks to Russian President Vladimir Putin, this may all change, with Europe rethinking its fiscal rules, while policymakers consider how to make enough space to deal with unexpected large-scale military buildups.

In today’s complex world of drones, cyberwar, and automated battlefields, how governments spend their defense budgets matters greatly. Still, it is magical thinking to assume that every time defense budgets are cut, military planners will make up the difference with increased efficiency.

It would also help if the West could avoid further strategic energy-policy blunders of the sort that led us to this point. In particular, Germany, which relies on Russia for more than half of its gas needs, appears to have made a historic mistake in decommissioning all its nuclear power plants after the 2011 Fukushima disaster. By contrast, France, which meets 75 percent of its energy needs through nuclear power, is significantly less vulnerable to Russian threats.

Everyone hopes for lasting peace. But hard-headed analyses of how countries can achieve sustainable and equitable growth requires leaving fiscal space — including emergency borrowing capacity — for the costs of guarding against external aggression.

—Project Syndicate

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Kenneth Rogoff is professor of economics and public policy at Harvard University. He is a former chief economist of the International Monetary Fund.