Who Will Finance Recent Upsurge in Military Spending?
There is an upsurge in military expenditure all over the world which is spearheaded by the upsurge in Europe. Of course, there are different estimates of military expenditure, depending on what one includes under this heading. We shall, in what follows, take the estimates of the Stockholm International Peace Research Institute (SIPRI) for our analysis.
According to SIPRI, while there has been an increase in real military spending each year for the past 10 consecutive years, the increase in this spending in 2024 over the previous year, at 9.4%, was the highest annual increase for any year since the end of the Cold War. The total global military expenditure in 2024 was as much as $2.718 trillion.
One can think of two obvious reasons behind this upsurge: the first is that the metropolitan empire led by the US is coming under increasing challenge, especially with the crisis of neoliberal capitalism that set in with the collapse of the housing bubble in the US.
The second reason is the fact that the US is no longer willing to meet the lion’s share of the burden of military spending for maintaining this empire, but would like its European partners to take over a part of this burden.
With the aggressive increase in military spending by the imperialist powers because of these reasons, other countries have also been under pressure to increase their military spending in real terms, so that they do not get rolled over by the imperialist juggernaut.
A word on each of these two reasons is in order. A number of countries that either had no serious current account deficits on the balance of payments before the crisis, or had deficits but could finance them through financial inflows, found themselves in distress after the crisis; and the situation became even worse for them after the onset of the pandemic. Their current account deficits widened as export markets shrank; and the inflow of finance dried up in anticipation of repatriation difficulties. They were engulfed in a debt crisis.
A similar fate befell many countries in an even more accentuated form after the pandemic. These developments caused a disillusionment with the neoliberal international arrangement imposed on the world by imperialist powers led by the US.
At the same time, China, which had shown remarkably high growth rates, stimulated initially at least by the relocation of activities from the metropolitan centres under the aegis of metropolitan capital itself, and which had robust current account surpluses, came forward to provide some succour to such distressed and not-so-immediately-distressed countries. This has posed a serious challenge to the hegemony of imperialism, against which it wants to strengthen its capacity for military intervention.
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Simultaneously, the US wants to offload some of its military expenditure onto other imperialist countries in the wake of the crisis, just as it is resorting to tariffs to ward off the effects of the crisis on its own economy through “beggar-thy-neighbour” policies. Such offloading raises the overall military expenditure of the imperialist world as a whole, as Europe, which was partially at least under the US military umbrella, now undertakes larger military expenditure of its own.
The European governments try to justify their higher military spending by citing the aggressive threat from Russia; but this claim does not stand scrutiny. Despite the promise made by the Bill Clinton administration to Mikhail Gorbachov at the time of the collapse of the Soviet Union that there would be no eastward expansion of NATO, there has been such an expansion right up to the border of Russia. And a US-engineered coup against the elected government of Viktor Yanukovich in Ukraine, that installed in power a fascistic regime comprising followers of Stepan Bandera, the Nazi collaborator of the war years, unleashed repression against the Russian-speaking minority and asked for NATO membership. Russia has had to face this threat; so, the talk of Russian aggression against Europe is sheer imperialist propaganda.
It is significant that in 2024, Russia’s total military expenditure was $149 billion, while the military expenditure of the European NATO members together was $454 billion, more than three times Russia’s spending, despite the fact that Russia is actually engaged in a war at present.
Invoking a Russian threat to spend thrice as much as Russia for military purposes, therefore, is a ridiculous subterfuge. European military spending is driven by its own calculations which have to do with the maintenance of the imperial order.
What is particularly worrying in this context is the upsurge of military expenditure in Germany, which rose by 28% over the previous year. From a post-war situation where Germany was not allowed to re-arm itself at all, to the current state where it has become in 2024 the largest military spender in Europe and the fourth largest in the world, there is a momentous shift. Given Germany’s Nazi past, which is showing signs of recrudescence, and its particularly infamous history of bellicosity, this is a development fraught with extremely serious consequences.
The crucial question that arises is: given this rise in military spending in the imperialist world and the proclaimed commitment to raise it still further, how is military spending going to be financed? While some increase in the fiscal deficit will inevitably occur, there is bound to be a cut in welfare spending, especially since tax concessions to capitalists, in the perception of bourgeois governments, appear at present to be the primary means of stimulating the economy.
This becomes clear from a look at Donald Trump’s fiscal agenda as spelt out in what he calls his “big beautiful bill” that has just been passed by the Congress and awaits Senate approval. Over the next 10 years, according to this Bill, while tax concessions will amount to $3.76 trillion, total spending cuts will be $1.3 trillion, causing the cumulated government debt to increase by $2.5 trillion (not counting the interest on this debt).
Tax concessions under the Bill will be apparently given to population groups across the spectrum, but the biggest beneficiaries, taking tax and spending proposals together, will be the rich, while the poor will become absolutely worse off. In fact, the top 10% of the population will see a net addition to their household resources over the coming years while the bottom 10% will see a net diminution in their household resources, owing primarily to reduced access to Medicaid and higher health insurance charges.
While the US Congress passed the Bill with only a single-vote majority and while the outcome in the Senate is still unclear, how far globalised finance capital accepts the Bill is an entirely different matter that still remains unclear.
The government of Liz Truss in Britain had proposed an expansion in fiscal deficit for giving tax concessions to capitalists, but even this expansion in the fiscal deficit was not acceptable to finance capital. The British pound fell in the foreign exchange market as finance fled the country and Truss had to resign, becoming in the process the shortest-serving Prime Minister in British history. If the finance does not accept Trump’s Bill, then the deficit will have to be further cut, through even greater reductions in welfare spending that will affect the working people even harder.
We are thus witnessing a complete shift in the nature of metropolitan capitalism. Capitalism in the post-war years had to accede to an increase in welfare spending (apart from acceding to decolonisation and to near-full employment at home) because of the existential crisis it faced in the aftermath of the war. These concessions wrested out of metropolitan capital were then presented by liberal opinion as a fundamental and permanent shift in the nature of capitalism, from a predatory system to what was then called welfare capitalism, which, it was argued, obviated the need for any transition to socialism.
This claim was belied by the inflationary upsurge of the late 1960s and early 1970s that brought in the neoliberal regime everywhere and pushed up the unemployment levels in the metropolitan economies. The crisis of neoliberal capitalism has generated a challenge to imperialist hegemony that is bringing about an even further shift away from welfare spending towards military expenditure. Metropolitan capitalism is assuming a menacingly predatory and aggressive form even on its home front, that has not been seen in decades.
India is the fifth largest military spender in the world, after the US, China, Russia and Germany, with an expenditure of $86.1 billion in 2024. The fascistic regime in our country, while starving programmes like the MGNREGS of funds, will make every effort to push up military spending, thus mirroring what metropolitan capitalism under the leadership of Trump is attempting to do. We have to fight against this.
The writer is Professor Emeritus, Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. The views are personal.
Bengal: India’s Defence Production Sector Sees Big Potential in State MSMEs
Kolkata: The Medium, Small and Micro Enterprises (MSME) sector in West Bengal has been the state economy’s backbone for over 40 years. The sector has 90 lakh enterprises, many of them single-person ones, and employs 1.35 crore people.
“The sector has seen a joyride of over 40 years. During the Left Front government up to 2011, it maintained a lead in the country after Uttar Pradesh. Even now the state MSME sector has held on to its position,” an MSME entrepreneur, requesting anonymity, told NewsClick on the sidelines of ‘The 4th Edition of World MSME Day Conclave & Awards’, organised by the Bengal Chamber of Commerce & Industry (BCC&I) here.
The MSME ecosystem in Bengal has revolved largely around clusters. However, each MSME on an average provides employment to 1.5 people, which is low and indicates that most enterprises in the state are ‘mom & pop’ stores kind of single-person ventures.
About 30% of MSMEs in West Bengal are in the manufacturing sector, which on an average, employ to 15-20 people per unit.
However, defence production units, after the Atmanirbhar Bharat tagline zeroed on indigenisation of produces, are now wooing the MSME sector of West Bengal to produce material required for the country’s defence sector purchases.
Highlighting this at the event held recently in the city, Arunava Bhattacharya, Officer-in-Charge, Quality Assurance ESTT (Naval), Kolkata, proposed that more defence manufacturing needs to emerge from the region with the Armed Forces actively focusing on indigenous manufacturers in all three of its arms -- Army, Navy and Air Force.
Bhattacharya was speaking at the event on the theme ‘Atmanirbhar Bharat: Growing Locally, Competing Globally’, which saw the participation of over 100 MSMEs and the presence of 11 stalls exhibiting innovative products and solutions.
In his welcome address, Subhodip Ghosh, Director General, BCC&I, stressed the importance of MSMEs, which formed the core of the chamber. He promised the delegates that the event would deliberate a gamut of issues, from onboarding to financial issues, from certification to tax compliance and GST (goods and services tax) issues and finally, the sector’s “eternal quest towards optimisation”. He said the state government had conferred on BCC&I the task to work with MSME & and the textiles departments to find out how many MSMEs can be onboarded in the defence value chain.
Arjun Kumar, Additional Director/Scientist ‘F’, DTE of Technology Development Fund, Defence Research and Development Organisation, shed light on the various schemes for MSMEs in the defence sector, such as iDEX and Technology Development Fund (TDF) and lamented the poor penetration of the fund in the Eastern region with only four-five MSMEs being awarded funding under the scheme out of the total 80 awardees.
Indranil Dutta, mentor, National MSME Committee, BCC&I & CEO, Datre Corporation Ltd., pointed out the immense potential of the region due to the presence of good academic institutions creating young talent, and called for devising ways to attract young talent.
Speaking with NewsClick, Sridev Mookerjea, a shipping and engineering professional, who also partners with international institutions and start-ups, including in India, said the MSME sector in West Bengal was a “significant growth engine, leading the country in new unit establishment and women entrepreneurship, while also making substantial contributions to employment.”
However, he pointed out that despite robust growth and proactive government support through various schemes, “the sector still faces challenges, such as access to credit and technological upgrades.”
He said West Bengal leads in terms of the number of MSMEs and women-owned enterprises, often surpassing industrialised Western states, such as Maharashtra and Gujarat in this aspect. However, Maharashtra and Gujarat generally exhibit higher figures in terms of fixed assets and overall industrial output in the MSME sector, indicating a focus on larger-scale manufacturing and potentially more capital-intensive units.
He stressed the need for more MSME manufacturing sectors in West Bengal.
While the state boasts of a high number of MSMEs, a greater focus on manufacturing would definitely boost industrial output, create more diversified and stable employment opportunities, and will further strengthen the state's economic resilience, Mukerjea added.
The MSME sector is the backbone of the Indian economy, driving significant employment generation, contributing substantially to gross domestic product and exports, and fostering entrepreneurship, particularly in rural areas. However, the sector continues to face challenges like limited access to formal credit, technological gaps, and regulatory complexities. Continuous government support and increasing digitalisation offer immense opportunities for the sector's sustained growth and global competitiveness, he said.
Additionally, challenges persist more in West Bengal regarding antiquated technology, mainly for the manufacturing sector MSMEs, inadequate infrastructure and logistics support. These issues collectively hinder productivity, reduce competitiveness, and limit their growth potential. Therefore, increased access to micro-financing with improved terms and conditions is recommended, along with relaxed collateral requirements within reasonable safe limits, he said.
When asked, Indranil Dasgupta, professor at the Indian Statistical Institute and a well-known economist, declined to comment on the “joyride” of the MSME sector, as exhibited in the programmes of the state government or of various chambers of commerce.
“This bubble is a myth and a tale of survival of individuals by opening up roadside shops after big industries in the state closed down,” he said.
Dasgupta said most of these MSMEs, being in the non-productive sector, do not result in creating more assets or employment.
“Unless and until big industries are set up in the state and MSMEs grow as ancillaries, no real growth is possible in this sector,” he added.
The main cradle of MSMES in the state, in Howrah, also known as the ‘Sheffield of the East,’ has also fallen silent, as most of the big units on which their work depended, have shifted base elsewhere in the country.
Talking to NewsClick on the plight of MSMEs in the state, Anadi Sahu, a trade union leader and president of Centre of Indian Trade Union’s Bengal unit, said although some enterprises, of late, had come up on the sides of national and state highways, no labour laws were being adhered to. “The eight-hour work norm is also not adhered too. During the Left Front government’s rule (till 2011), the situation was much better… now the Minimum Wages Act is being flouted in the MSME sector,” he said, alleging that the “extortion bids” by ruling Trinamool Congress members “knows no limit” and the owners were under “huge pressure” because of this.
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