Welfare State versus Warfare State:

Towards a comparative political economy of militarism in Canada and the U.S.

By Paul Kellogg
Assistant Professor, Centre for Interdisciplinary Studies
(M.A. Program in Integrated Studies, Athabasca University)
Peace Hills Trust Tower, 1200, 10011 - 109 Street
Edmonton, AB Canada T5J 3S8
pkellogg@athabascau.ca

May 1, 2013

Originally published in Political and Military Sociology: An Annual Review 41: 61-88
http://www.pmsaronline.org

This version: Author-prepared pre-print

Example citation: Kellogg, Paul. 2013. Welfare State Vs. Warfare State: Toward a Comparative
Political Economy of Militarism in Canada and the United States. Political and Military
Sociology: An Annual Review 41: 6188.



ii
Abstract
The effects of the Great Recession were much worse in the United States than in Canada. This is
not a short-term aberration, but the result of long-term economic trends, shaped in part by the
two countries different public policy orientations towards warfare and welfare. This article
examines, with reference to Canada and the U.S., the way in which a sustained commitment to a
warfare state undermines social and economic development, public finances and corporate
culture. A portion of this research was presented as a conference paper, The warfare state and
economic decline: toward a comparative political economy of militarism in Canada and the
U.S. at the annual conference of the Prairie Political Science Association (PPSA), September,
University of Saskatchewan, Saskatoon, Canada.




iii
Introduction ..................................................................................................................................... 1
The initial evidence ......................................................................................................................... 2
Figure 1: Measures of unemployment, Canada and the U.S., 2007-2012 .............................. 2
Figure 2: The rise of the loonie (or the fall of the greenback), 2002-2012 ............................. 4
Figure 3: Military spending as a percent of GDP and Central Government expenditures,
Canada and the U.S., 1966-2011 ............................................................................................ 5
Welfare, warfare and development ................................................................................................. 6
Militarism and public finances ...................................................................................................... 12
Figure 4: U.S. Central Government Surplus/Deficit, as reported, and three scenarios, 1990-
2012 ....................................................................................................................................... 13
Militarism and corporate culture ................................................................................................... 14
Figure 5: Ratio of U.S. Commercial sales to Total Sales, Lockheed-Martin, 1993-2011 .... 16
Figure 6: Boeing dependence on military sales, 1992-2011 ................................................. 17
Figure 7: Top 100 Arms-Producing and Military Services Companies, 1988-2010 Sales,
2010 U.S. Dollars .................................................................................................................. 18
Figure 8: Top 100 Arms-Producing and Military Services Companies, 1988-2010
Dependency percentage, Arms sales relative to total sales ................................................... 20
Conclusion .................................................................................................................................... 21
References ..................................................................................................................................... 23




Introduct|on
The editors of Macleans, Canadas most widely circulated weekly news magazine, opened 2012
with a triumphalist front-page story On Top of the World, complete whose subhead contrasted
a despondent United States and a crumbling Europe with Canadians who have never been
more confident about their future "#$%&' ()*(+ ,-.. This articulated a theme which has been
gaining strength since the Great Recession of 2008-2009 a sense, reflected in the press of both
countries, that Canada has somehow weathered that recession much better than has the United
States. The Los Angeles Times listed healthcare, the deficit, unemployment, immigration and
interaction with the global economy as areas where Canada was outperforming the United States.
(Lee 2010) The widely read Huffington Post ran an article advising the US unemployed to head
north to look for work in Canada where hiring is booming and home prices are rising
(McCarthy 2010). The Reputation Institute published the results of a survey which was trying to
identify the most reputable countries in the world. More than 40,000 consumers in the G8
countries, were asked to assess the economy, the environment and the effectiveness of
governance in 50 major countries throughout the world (Burkitt 2010; Reputation Institute 2011,
12 & 8). In terms of the first and third of these, Canada was ranked fourth. In terms of the
second, it was ranked sixth. But overall, Canada was ranked first. Five of the other G7 countries
Germany, Japan, Italy, the UK and France clustered from number 11 (Germany) to number
18 (France) on the list. The United States was well down the list at number 23, behind Brazil,
Greece and Portugal (2011, 14). Canada was ranked as the third most attractive economy in
which to invest (behind only Switzerland and Japan), the most attractive as a country in which to
work. The United States was not in the top 10 in either category "()**+ */()..
Here it will be suggested that there is more at play here than journalistic hubris and the
fickleness of public opinion. There have been, in the two countries, divergent trajectories in
public policy related to warfare and welfare, divergent trajectories which have had economic
effects. First, the article will examine some of the evidence indicating the different trajectories of
the Canadian and the U.S. economies this century, as well as their quite different relationship to
government arms spending. Second the article will review the literature on human development,
highlighting the work of an early analyst, Ruth Leger Sivard, who was among the first to
intimate a connection between warfare, welfare and development. Third the article will offer
evidence to suggest the ways in which contemporary militarism has severely damaged public
finances in the United States. Finally, the article will offer evidence to suggest the ways in which
a long-term over-emphasis on militarism can damage corporate culture. The argument will not,
of course, be definitive. What is being outlined here are suggestions only, suggestions which
need to be examined in much greater detail and at much greater length. But the suggestions, I
think, are strong and point towards an important series of topics for 21
st
century public policy
discussions.
2
1he |n|t|a| ev|dence
What is the evidence of a Canadian economy outperforming the one in the U.S.? One key
indicator is the different direction taken by the job markets before, during and after the Great
Recession in the two countries. Writing in 2012, one commentator observed that: total
employment in the United States is lower than it was a decade ago: growth from 2000 to 2008
was wiped out by the Great Recession. By contrast, Canada saw strong employment growth
until the recession, and recouped all subsequent net job losses within two years. Currently,
employment is 18 percent above 2000 levels (Leonard 2012, 5). Figure 1 draws a picture of
unemployment rates in both countries from 2007 until early 2012, deploying multiple measures
of unemployment in the United States (not seasonally adjusted). There is the officially reported
rate, a rate called U-4 which tracks somewhat higher than the officially reported rate, as it
includes discouraged workers, and a rate called U-5 which expands the survey to include
those marginally attached to the workforce. The fourth line for the U.S., the U-6 figure,
expands the universe again to include workers who want full-time work, but can only get part-
time, which at the worse point of the recession hit the very high rate of 18%.
I|gure 1: Measures of unemp|oyment, Canada and the U.S., 1997-2013
(Original chart, created by the author, derived from Bureau of Labor Statistics 2013; Statistics
Canada 2012)

When Canadas rate of unemployment is contrasted with the official U.S. rate of
unemployment, there is a Canadian advantage, but it is not substantial. However, there is every
3
reason to believe that the officially reported rate of unemployment in the U.S. severely
understates the actual state of the job market. It might well be that it is the very sobering U-5 and
perhaps even U-6 figures which capture a more realistic picture of the U.S. job market.
Unemployment rates in the United States are artificially lowered in ways unique to the
world. The warfare state itself has the effect of masking unemployment. By the end of the
Reagan era and the New Cold War, 2.6 million civilian and military personnel were employed
in the U.S. military machine. By 2000, just before 9/11, this total had decreased to 1.8 million.
But with the Wars on Terror in the 21
st
century, the totals returned to just under 2 million
(Defense Manpower Data Center 2012). This large standing army maintained by the U.S. is, in
fact, a kind of disguised unemployment. In addition, unemployment is hidden in the U.S. prison
and jail system. In 2002, the total incarcerated in the countrys prisons and jails, for the first
time, went past the two million mark (Bureau of Justice Statistics 2003). By June 2006, the last
period for which complete data are publicly available, the total had risen to 2,245,189 (Bureau of
Justice Statistics 2008). The U.S. imprisons people at a far greater rate than any industrialized
society. Its incarceration rate is almost five times higher than in Canada (International Centre for
Prison Studies 2010). This has a real impact on unemployment statistics (Western and Beckett
1999, 1030). Were the U.S. to imprison people at the rate of Canada, at least one and a half
million people, who today are prisoners, would be added to the labour market in the hunt for
jobs. Hundreds of thousands of prison employees would also find themselves out of work and on
the streets, since employment in the justice system has risen in lock step with the number of
prisoners. In 1982 there were just over 1.2 million employees in the United States justice system.
By 1999, the figure was just shy of the 2.2 million mark (Bureau of Justice Statistics 2001). By
2007 a total of 2.5 million persons were employed in the nations justice system, an increase of
93% from 1982 (Bureau of Justice Statistics 2011, 3). The prison system in the U.S. has the
effect of reducing the unemployment rate by at least two percentage points, and possibly more.
There is a second, and quite striking indicator of relative Canadian economic health, as
compared to the United States and that is the divergent trajectories of their two currencies. Just
10 years ago, one Canadian dollar could be purchased for between 60 and 65 cents. One loonie,
in other words, was worth just 2/3 of one greenback. However, as Figure 2 highlights clearly,
this has changed dramatically. The 21
st
century has witnessed an inexorable rise in the value of
the loonie, relative to the greenback interrupted momentarily during the scariest moments of
the recession, but only momentarily. We are now four years into a world where the two
currencies exist more or less at parity, with the Canadian dollar frequently worth more than its
U.S. counterpart.
4
I|gure 2: 1he r|se of the |oon|e (or the fa|| of the greenback), 2002-2012
(Original chart, created by the author, derived from OANDA 2013)

Finally, what are the two countries relationship to government-procurement of arms?
That there will be a difference, is not surprising. Almost half of all the worlds arms spending,
done by governments, is carried out by the U.S. government, and this has been true for a very
long time. From 1988 until 2011, based on officially reported government arms spending, the
proportion represented by the United States never fell below 35% and was frequently above
43%. Since the launching of the war in Iraq in 2003, it has every year been above 40% of total
world government arms spending, in 2011 $690 billion out of a world total of $1.6 trillion came
from the United States (Derived from data available in Stockholm International Peace Research
Institute 2012a). This is worth spelling out. A country with less than 5% of the worlds
population, accounts for more than 40% of total government arms spending.
Figure 3 contrasts this arms spending in the U.S. compared to Canada. Defense spending
as a percent of GDP is consistently higher in the U.S. than in Canada, hovering around the 5%
mark in the U.S., but never rising above 2% in Canada, from 1988 until 2010. More revealing is
defense spending as a percent of overall Central Government Expenditures. In the U.S., in the
Vietnam War era, defense spending consumed an enormous percentage of overall Central
Government Expenditures, peaking at the extremely high figure of 46% in 1968. In the Clinton
era, defense spending declined somewhat to just 16.23% of Central Government Expenditures in
1998. But through Bush and then Obama, it has returned to stay consistently at the 20% level. In
Canada, by contrast, defense spending has never been anywhere near as high as in the U.S. as a
5
percent of Central Government Expenditures, throughout the entire period being roughly one-
third the U.S. figure.
I|gure 3: M|||tary spend|ng as a percent of GD and Centra| Government expend|tures,
Canada and the U.S., 1966-2011
(Original chart, created by the author, derived from Department of Finance Government of
Canada 2011, 2012; Office of Management and Budget 2010; Stockholm International Peace
Research Institute 2012a)

Successive Canadian governments, from the late 1950s on, have chosen to devote fewer
and fewer resources to arms spending the warfare state freeing up tax dollars to be devoted to
building up education, healthcare and social services the welfare state. This was not an
inevitable development. As in the U.S., public policy is determined by a complex mix of
government policy, political ideology and interest group or social movement pressure. But the
point is, it happened. A much smaller commitment to militarism in Canada created room in the
federal budget, some of which was used to sustain a more developed welfare state, most
significantly, the tax-financed, single payer, public health insurance system, in place across
Canada since 1966. In the U.S. by contrast, central government policy has systematically been
biased towards sustaining the warfare state, squeezing the public policy field when it comes to
welfare. Again, this does not mean that it makes policy approaches such as a public, single-payer
approach to medicare impossible. But it does, of course, create an enormous squeeze on the
public purse, making the move towards such an expansion of the welfare state much more
difficult.
6
We|fare, warfare and deve|opment
Now that we have presented the initial evidence, we can begin exploring the possibility of a link
between these two facts divergent economic performance, and a different, relative,
commitment to a warfare state compared to a welfare state. A good place to begin, is in the U.S.
literature focused on arms spending where some of the earliest, careful attention was paid to
comparative developmental standing in the world system, indicating the negative impact of
prolonged maintenance of a warfare state, and suggesting the economic importance of spending
on health, education and welfare the welfare state. The United States Arms Control and
Disarmament Agency (ACDA), publishes an annual report on arms expenditures, World military
expenditures and arms transfers. The history of these reports dates back to 1964, when Ruth
Leger Sivard was in charge of international economic studies at the Arms Control and
Disarmament Agency. Sivard would become known for her annual report, World Military and
Social Expenditures, published from 1974 to 1996, the first publicly available comparison of
military and social spending by world governments (J. Sivard 2011b). Sivard, a sociologist as
well as an economist, was among the first, through these reports, to identify a negative co-
relation between arms spending and social and economic growth as well as its reverse, a
positive co-relation between social spending (on education and healthcare in particular) and
economic growth.
Sivards story is remarkable. The ACDA reports published under her watch from 1966
until 1972, included not only data on military spending (the warfare state), but also spending on
health, education and foreign aid, a rough proxy for what we are calling here the welfare state.
This ended in 1973, when ACDA decided to restrict the data presented to only expenditures on
the military. This decision did not come out of a void, but resulted from pressure, against Sivard,
brought to bear by the Department of Defense. In a memorandum addressed to the President of
the United States, the Defense Secretary emphasized that the comparisons shown in the report
made it difficult for him to obtain congressional approval for the provisional budget prepared by
his department (J. Sivard 2011a). Rather than preside over a one-dimensional report, Sivard
resigned, and continued to prepare her report as a private citizen.
Sivard was an absolute pioneer in this field, and her reports are indispensable on two
fronts. First and this was what cost her a career in the State department she noticed and
documented that arms spending undermines social and economic development. Second, through
the 1980s and 1990s, as Sivards annual reports grew in scope and depth, she developed a
framework by which to measure development, a framework ahead of its time as an alternative to
the meager GDP per capita which is the norm in cross-country comparisons. Her "economic
and social" ranking for the nations of the world was based on "average of ranks for GNP per
capita, education, and health (R. L. Sivard 1988, n2, p.50). From these three, she developed a
method to arrive at a single figure for each nation to summarize its rank among all nations in
economic-social indicators The ranking method makes it possible to combine a variety of
indicators. [T]he indicators chosen for education and health represent both input of national
effort (e.g. public expenditures, teachers) and output (e.g. literacy, infant mortality). Input factors
give credit for effort, which will determine social progress but may not yet show in slower-acting
indicators of results (R. L. Sivard 1988, 57).
This is a profoundly simple, and profoundly revolutionary approach. What could be more
basic, as measures of human development, than outputs such as literacy and infant mortality?
An illiterate society with high infant mortality is clearly a much less desirable place in which to
7
live, than a literate society with low infant mortality. Following this logic, government policy
inputs which help create these outputs among them, public spending on healthcare and
education become highlighted as tools for social advancement. And if these co-relate with
actual economic wealth GDP per capita then a very clear set of priorities emerges which
governments need to follow should they (as all claim to) desire to promote the social and
economic advancement of their people. Similar policy directions are clear if, added into this mix,
is the observation that high levels of government arms spending comprise a very negative input
an input which tends to squeeze out the very social welfare spending which is not just socially,
but economically, desirable. Is it any wonder that Sivard could not co-exist with the Pentagon in
the United States?
Employing this concept of development, it is very instructive to note the gradual change
in Sivard's ranking of Canada, captured in Table 1.

8

!"#$% ' ( )*+,+-.*/0+*."$ 01",2.,3 / 4.35%61 7",8.,3 9"1.+,6: ';<</';=>
Country Rank in:1986 1984 1983 1982 1980 1979 1977
Canada 1 3 2 7 11 7 7
Iceland 2 1 3 6 5 5 8
Norway 2 2 1 1 2 3 3
U.S. 4 4 3 4 9 8 5
Denmark 5 5 6 2 3 2 4
Sweden 6 5 3 3 1 1 1
Finland 7 5 7 5 8 11 9
Luxembourg 7 10 15 13 15 13 18
Switzerland 9 13 10 11 12 10 2
Japan 10 13 16 16 20 20 11
France 10 8 8 8 4 3 10
Australia 10 8 8 9 7 6 11
W. Germany 13 10 10 10 6 9 6
Netherlands 14 17 15 15 13 13 15
United Kingdom 15 12 12 14 14 16 16
E. Germany 16 20 25 24 19 18 14
Austria 16 23 19 20 17 18 11
Brunei 18 21 20 18 25 27
Belgium 18 21 16 12 9 12 17
Qatar 20 17 27 22 30 31 30
New Zealand 20 13 14 17 15 15 18
Italy 22 26 22 18 21 21 24
Ireland 23 25 25 25 22 24 21
Israel 23 17 20 22 23 22 22
Spain 25 26 28 31 28 25 28
U.S.SR 25 23 23 26 25 23 24
Kuwait 27 16 13 20 17 17 23
Czechoslovakia 29 31 32 29 27 25 20
Barbados 29 29 28 30 33 35 36
Hungary 28 25 24 27 28 28 29
(R. L. Sivard 1980, 1982, 1983, 1985, 1986, 1988, 1989)
In the late 1970s, by her criteria, Sweden was the most developed country in the world,
Switzerland second and Norway third. Canada was high up (seventh or eleventh) but trailing
these small European powers. But in 1983, Canada jumped to second spot. And by 1986, Sivard
had Canada ranked as the most developed nation in the world. Iceland and Norway were tied for
second (although, since both have very small populations they are not that relevant for the
purposes of world comparisons). The United States was fourth, Denmark was fifth and Sweden
had slipped to sixth.
9
Since 1990, there has existed, through the United Nations, the new standard by which
comparative social and economic development is measured. The Human Development Report
published annually since 1990 by the United Nations Development Programme (UNDP) has
supplanted all others as a guide by which to measure a countrys relative standing in the world.
And, if imitation is the highest form of flattery, then the UNDP is giving very high praise indeed
to Ruth Leger Sivard. It has, in effect, adopted a modified version of the framework she began to
develop in the mid-1970s.
The UNDP views on development were expounded in detail in the first issue of their
report in 1990. "People" they argue "are the real wealth of a nation. The basic objective of
development is to create an enabling environment for people to enjoy long, healthy and creative
lives" (United Nations Development Programme 1990, 9). The shorthand used in the report is
that "human development is a process of enlarging people's choices" (1990, 10). This is a very
big step beyond simple GDP per capita figures. Put in philosophic terms (and paraphrasing
Hegel), it means striving for an economic situation where the realm of necessity has been
minimized opening up the possibility of maximizing the realm of freedom. In the hierarchy of
national economies revealed by any study of the world economy, for those at the bottom of the
hierarchy, the realm of necessity impinges on everything. The scope for either individual or
governmental choice is restricted indeed. For those at the top of the hierarchy, the realm of
freedom is somewhat (or in fact a great deal) enlarged. However and this is the key point
there is nothing automatic about the use that is made by the rich states of the "realm of freedom"
inherited from the development of the past. That realm of freedom has been used in some states
(the United States for example) to build up the warfare state. Others have used it to build up a
welfare state. The UNDP report is much less explicitly politically charged than Sivards annual
report. It rarely draws out the negative co-relation between warfare and social development. But
for those with eyes to see, it is embedded in every one of their charts, and in particular with the
way in which particular societies are profiled in their figures.
Mahboub ul Haq, a prominent economist from Pakistan who initiated the Human
Development Report, has identified four phases in the modern attempt to link economic statistics
with measures of development. The first phase saw income as a sufficient indicator of
development. "Pigou ... described economic welfare as the measurable part of human welfare
the part that could be brought into a relationship with 'the measuring rod of money'" (United
Nations Development Programme 1990, 104). Donald McGranahan was one of many voices that
began to argue that income was insufficient as an indicator of development. The new concept
was one of "socio-economic development" where gross economic statistics were combined with
other indicators like mortality, literacy and urbanization (McGranahan, Pizarro, and Richard
1985). M.D. Morris refined this with a Physical Quality of Life Index, focusing on three
indicators, infant mortality, life expectancy at age one and literacy (Morris 1979). It was on this
basis that the notion of development as the maximization of human choices was settled on in the
Human Development Report. It is related but not restricted to economic data. It attempts to link
overall economic performance with the way this has been translated into the "development" of a
society's ability to improve key aspects of the quality of human life. This approach is completely
in sync with that of Sivard.
So how can you quantify the process of enlarging people's choices"? To measure these
choices, the UNDP has included those critical areas for which figures are available (life
expectancy, education, access to resources, etc.) and excluded those which, while important, are
harder to quantify (political freedom and human rights being the two most important) (The
10
Economist 1990). This makes it less comprehensive than a study which tried to incorporate these
important variables, but quite relevant to the argument being developed here.
To measure development by its criteria, the UNDP selected the 130 countries which had
a population of more than one million. It then calculated a "human development index" (HDI)
which combines purchasing power, life expectancy and literacy. The UNDP method has one
principal disadvantage when compared with Sivard's. Sivard does not just focus on outputs
(high levels of literacy, low levels of infant mortality), but also indicates the importance of
inputs (government spending on health care and education). Sivards method more forcefully
suggests policy direction for states to follow, than does the UNDP. Nonetheless, the UNDP
figures are interesting. Table 2 reproduces the rankings for the top 20 countries published in
1990, the first year of the report. "The table ranks the countries in ... order of their score on the
human-development index. The UNDP's researchers combined the first three columns in each
part of the table showing life expectancy, adult literacy and purchasing power to deduce the
[Human Development Index]" (The Economist 1990, 81). The United States, second in terms of
Gross National Product per capita, slips to 19th place in terms of overall development. Canada,
seventh in terms of GNP per capita, rises to fifth place in terms of overall development.
11
!"#$% ? ( @A9A B%C%$+D-%,1 7%D+E1: ?F G+61 B%C%$+D%2 9"1.+,6: ';==
Life Real GDP Human
Country Rank by expectanc per head Development
rank GNP at birth (PPP-adj'd) Index
by HDI per head (years) 1987, U.S.$ (HDI)

1. Japan 5 78 13,135 0.996
2. Sweden 6 77 13,780 0.987
3. Switzerland 1 77 15,403 0.986
4. Holland 14 77 12,661 0.984
5. Canada 7 77 16,375 0.983
6. Norway 3 77 15,940 0.983
7. Australia 17 76 11,782 0.978
8. France 12 76 13,961 0.974
9. Denmark 8 76 15,119 0.971
10. Britain 18 76 12,270 0.970
11. Finland 10 75 12,795 0.967
12. W. Germany 11 75 14,730 0.967
13. New Zealand 22 75 10,541 0.966
14. Italy 19 76 10,682 0.966
15. Belgium 15 75 13,140 0.966
16. Spain 24 77 8,989 0.965
17. Ireland 25 74 8,566 0.961
18. Austria 13 74 12,386 0.961
19. U.S.A 2 76 17,615 0.961
20. Israel 23 76 9,182 0.957

(The Economist 1990; United Nations Development Programme 1990)
In the years since, Canada has maintained a consistently high development ranking
according to the UNDP. Only three countries the United States, Japan and Canada have been
consistently ranked in the top 10 since the report began gathering figures. On average, the U.S.
has been ranked as the seventh highest among these high human development countries but
never ranked first. Japan on average has been ranked sixth, and four times (in the late 1980s and
early 1990s) was ranked first. Canada has a better performance than both, having an average
ranking of third in the category of high human development and on eight separate occasions
being ranked first, more than any country except Norway (which has been ranked first nine
times) (United Nations Development Programme 2012).
The suggestion explicitly from Sivard, and implicitly from the UNDP, is that the two
different policy tracks need to be seen not simply in terms of foreign and/or social policy, but in
terms of their differential developmental impact. The evidence is building, that a prolonged bias
in public policy towards a warfare state, seriously undermines key sections of the economy.
There can be short-term stimulus effects, but in the long-term through squeezing out other
12
non-military sectors the economy suffers. By contrast, a public policy approach biased towards
the welfare state, can have important positive economic spinoffs, in particular through making
possible the devotion of public resources towards health, education and welfare to sustain the
flexible, healthy and well-educated workforce, increasingly central to the emerging knowledge
economy of the 21st century.
M|||tar|sm and pub||c f|nances
One reason that a heavy commitment to militarism creates pressures to squeeze out spending on
welfare, is because of the way in which militarism directly damages government finances. Figure
4 documents the trajectory of the central government deficit (and sometimes surplus) in the U.S.
since 1990. The line deficit as reported shows the last twenty-two years of central government
spending, a story of only momentary surpluses and a norm of deficits in the hundreds of
billions of dollars in 2009 and 2010 in the wake of the financial crisis, passing the one trillion
dollar mark.
1


1
Figures here are primarily derived from the Budget of the U.S. Government (Office of
Management and Budget (OMB) 2012). For the years 2001 to 2010, the charts are based on
figures in Office of the Under Secretary of Defense (Comptroller) (2012). The latter differ
slightly from the former, but have the advantage of explicitly incorporating the military portion
of the War on Terror, euphemistically referred to as Overseas Contingency Operations.
13
I|gure 4: U.S. Centra| Government Surp|us]Def|c|t, as reported, and three scenar|os, 1990-
2012
(Department of Defense 2012, 12; Original chart, created by the author, derived from Office of
Management and Budget 2012)

Figure 4 uses the deficit as reported as a baseline, and then charts the results of three
different Scenarios. Begin with Scenario I, dealing with one aspect of arms spending, the War
on Terror. Launched in 2001 it has had three components Operation Enduring Freedom (the
war in Afghanistan), Operation Iraqi Freedom (the war in Iraq) and Operation Noble Eagle
(beefing up U.S. military bases and homeland security). Officially, the bill to-date for this War
on Terror is almost identical to the amount of money created in the first round of Quantitative
Easing $1.1 trillion dollars (Belasco 2011, 1 & 3). Joseph Stiglitz and Linda Bilmes estimate
that the true cost of the war in Iraq alone will be in excess of $3 trillion (2010). However, for
arguments sake we will take the official figures. If those official figures are removed from the
books (Scenario I on Figure 4) that is, if we see what the picture would be like had the War on
Terror not been launched then a change begins to take place in the picture of U.S. deficit
spending. It doesnt eliminate the deficit problem, but it does lessen it.
But the War on Terror is just the tip of the iceberg. The United States, as documented
above, spends money on the military at a rate far greater than any country in the world. In 2010
for instance, the War on Terror costs of $162.3 billion were dwarfed by the half a trillion spent
on other aspects of the military. Since 2006, the total defense budget of the U.S. has been over
half a trillion dollars. Since 2010, it has been closer to $700 billion a year than to $600 billion,
and is projected to stay at that level through 2013, declining after that point as the wars in
14
Afghanistan and Iraq disappear from history. When this military spending is removed (Scenario
II on Figure 4), the picture of the U.S. central government budget is completely different. In
2009 and 2010 there are of course quite large deficits. This is the normal Keynesian turn to
deficit spending that occurs in any economic downturn. What is remarkable however, is the fact
that in terms of non-military spending, before 2009 and 2010, there would have been no deficit
whatsoever. In fact in many years there would have been surpluses, including in 2007, the year
before the Great Recession.
And in fact, this understates the situation. Many of the costs of the U.S. war budget are
hidden. It would take a team of forensic accountants with unlimited time and unlimited funds to
sort through government finances and corporate balance sheets to tease out the actual costs of
sustaining the worlds biggest military, and the worlds only truly global empire. But there are
three non-defense line items that we can say with certainty are directly related to the U.S.
military. First, Veterans Affairs spending is extremely high in the U.S. precisely because so
many young people have come back maimed and broken through U.S. military operations
abroad. Second, the space program is a deeply militarized portion of the budget, an essential part
of the development and testing of rocket technology that is the backbone of the U.S. nuclear
arsenal. We know, for instance, that the first explorative space missions employed hardware
originally developed for military purposes and that military requirements often still provide the
catalyst for space exploration (Webb 2001, 18). Finally, a significant proportion of the budget
of the Department of Energy is spent on nuclear weapons activities (Isenberg 2007, 1). When
these three are factored in (Scenario III on Figure 4), the picture is breathtakingly clear. With a
budget history for the last 20 years resembling this graph, a pacific U.S. government could have
spent billions on its stimulus package, without borrowing a dime. Stimulus could have been
completely financed out of accumulated surpluses from the last 20 years.
What has been presented here is just a sketch, but it suggests strongly that the U.S.
central government deficit problem has been in large part created by its unusually large
commitment to arms spending. Above this article contrasted defense spending in the U.S. with
that of the Canadian government, and showed that the U.S. central government has for a long
time been the center of military expenditure in the world as a whole. This huge infrastructure of
planes, missiles, bases, tanks, guns, ammunition and personnel, sustained by this expenditure, is
a principal reason for the desperate fiscal weakness of the U.S. central government. Critics will
say that it is inconceivable to completely eliminate defense spending in the United States,
something that happens nowhere in the world. Fair enough. So reduce U.S. arms spending to
something reasonable. Instead of 45% of the worlds total spending, a reasonable sum might be
five per cent, as the U.S. population is roughly five per cent of the worlds entire population. Do
that, and virtually the same picture will emerge. Public finances in the United States have been
severely damaged by a long-term commitment to militarism.
M|||tar|sm and corporate cu|ture
There is another pernicious manner by which a Warfare State builds distortions into economic
development the creation of a corporate culture that is increasingly dependent for survival upon
government military contracts. The fact that demand in the U.S. has been sustained through huge
government contracts for military production, has qualitatively distorted the U.S. economy into
an economy that is increasingly reliant on those contracts.
15
Begin with Lockheed-Martin made famous in Bowling for Columbine, where Michael
Moore identified the company as the worlds biggest weapons maker. In 2010, the labor of the
corporations 132,000 employees resulted in almost $3 billion in profits. Those profits came
from sales of almost $46 billion, $36 billion of which were identified by SIPRI as coming from
military production. We can capture a corporations dependence on arms production, by
expressing its arms sales as a percent of total sales. For Lockheed-Martin, its arms-production
dependency is an extremely high 78% "012$3'4 56%51%62738+ 9&'7:&9 ;'3< =235>$3%<
?82&'8627386% @&65& A&4&6'5$ ?8427212& ()*(5..
In fact, this might understate the extent of its dependency. In its annual report, the details
provided are opaque. The largest category is U.S. Government divided into Aeronautics,
Electronic Systems, Information Systems & Global Solutions, and Space Systems. Clearly, the
vast majority of the $39 billion in sales reported in this category, would be comprised of arms-
related goods. The second largest category is labeled International. In 2010, this accounted for
$6,437 billion in sales, divided into the same sub-categories as sales to the U.S. Government. But
the report does not indicate just how much of this latter category involves government
procurement for military purposes, and how much is commercial. All that is offered is a very
general footnote, repeated in every annual report, that sales made to foreign governments
through the U.S. Government (i.e. foreign military sales) are included in the International
category (Lockheed Martin Corporation 2012a, 63).
But it is probable that this International category is dominated by military sales to
governments. We can infer this through an examination of the smallest category in the report. In
every annual report until 2005, this category was straightforwardly labeled Commercial.
Unhelpfully, in the years since, its title has morphed into first Commercial and Other from
2006 until 2010, and then in 2011 into U.S. Commercial and Other (Lockheed Martin
Corporation 2012b). The first transformation clearly referred to the same content, as the values
were identical in each category for overlapping years. The 2011 name transformation is less
clear, as there were some minor changes in values for overlapping years. But these changes were
quite small, and it is reasonable to treat this as one category for the entire time period. In 1996,
this category of commercial sales counted for a respectable $4.8 billion in sales (Lockheed
Martin Corporation 1997, 82). But by 2010, this category had shrunk to just $374 million in sales
less than 1 per cent of total sales. This astonishing decline of commercial sales as a portion of
total sales at Lockheed-Martin is captured in Figure 5. The picture that emerges is of a
corporation absolutely addicted to a combination of U.S. and non-U.S. government military
procurement, and an addiction which has vastly increased in the 21st century.
16
I|gure S: kat|o of U.S. Commerc|a| sa|es to 1ota| Sa|es, Lockheed-Mart|n, 1993-2011
(Original chart, created by the author, derived from Lockheed Martin Corporation 2012b)

Perhaps this should not be surprising. Lockheed-Martin is notorious as an arms-sales
corporation. But there are other corporations which are less well-known as arms-manufacturers.
Boeing, for instance, while for a long time a supplier to the Pentagon, is usually seen as a largely
civilian corporation the company of the Jumbo Jet. However, in a dramatic evolution through
the 1990s, Boeing transformed itself from civilian to military production.
Boeing revealed itself as a major military player in the context of the development of the
National Missile Defense (NMD) program better known as Star Wars. Boeing was the Lead
System Integrator for NMD responsible for ensuring that all component NMD parts and
systems are developed and integrated successfully (Martin 2000). Boeings NMD role was
symptomatic of a deep change in the physiognomy of the company. In the early 1990s, fully 80
per cent of Boeings revenue came from its sales of commercial planes the jumbo jets and
other passenger planes that are ubiquitous in the skies of the world. But in the next two years
Boeing suffered a serious decline in revenues. In its annual report for 1995 it explained this
decline as due to fewer commercial jet transport deliveries as a result of economic conditions
and airline industry overcapacity in most major market areas of the world (Boeing 1996).
The companys solution to this problem was revealed in 1997, with its merger with
McDonnell Douglas. The merger was driven by one consideration while Boeing was in its
majority a civilian corporation, McDonnell Douglas was one of the Pentagons prime
contractors. Its 1996 Annual Report At A Glance section, proudly proclaimed that it was #1
military aircraft maker, #2 prime contractor and research-and-development contractor to the U.S.
17
Department of Defense, and #4 NASA contractor (McDonnell Douglas 1997). Figure 6 reveals
the resulting transformation of Boeing. From deriving just 20 per cent of its revenues from arms
sales in the early 1990s, by 2004 and 2005, arms sales accounted for 60 per cent of its revenues,
and around 50 percent from 2005 to 2011 (Boeing 1996, 2012b). Boeing has attempted to
solve the crisis of overproduction that was plaguing it in the early 1990s, by turning to a
customer with an eternal appetite for commodities the Pentagon.
I|gure 6: 8oe|ng dependence on m|||tary sa|es, 1992-2011
(Original chart, created by the author, derived from Boeing 1997, 1998, 72, 2003, 86, 2007, 22,
2011, 17, 2012a, 18)

The transition to dependence on the warfare state has succeeded in slowing Boeings decline, but
only partially. In 2003, Boeing had to cede to AirBus its position as the worlds largest airplane
manufacturer (Samuelson 2004).
The increasing dependence on military sales of companies such as Lockheed-Martin and
Boeing are not exceptions, but rather illustrations of general trends in the industry as a whole.
Since 1988, the Stockholm International Peace Research Institute (SIPRI) has carefully compiled
information on arms production around the world, publishing for every year since then (except
for 2001) information on the top 100 arms producers. In 2010, the last year for which figures are
available, arms sales of the top 100 arms producers (adjusted for inflation so that all figures are
expressed in 2010 dollars) topped $400 billion for the first time. The list as it has been in every
year since 1988 is heavily weighted towards corporations in the United States. Forty-four of
the top-100 corporations are based in the U.S., seven of the top 10, and the largest arms producer
18
is, as Michael Moore indicated, Lockheed Martin. Figure 7 tracks the history of the arms sales of
top-100 corporations from 1988 until 2010, with all figures expressed in 2010 dollars to adjust
for inflation. Four things are immediately visible. 1) There was a steady and substantial decline
in arms sales from 1988 through to 2000, falling from just under $350 billion a year to $200
billion a year in that period. 2) The 21st century has witnessed a substantial and quite noticeable
reversal of that trend, arms sales more than doubling on a world scale to above $400 billion. 3)
The majority of these arms sales originate from U.S. corporations, comprising 60.53% of the
total in the years covered. 4) The second biggest concentration of arms sales are from
corporations based in Europe, comprising on average 31.55% of the total in the years covered.
I|gure 7: 1op 100 Arms-roduc|ng and M|||tary Serv|ces Compan|es, 1988-2010 - Sa|es, 2010
U.S. Do||ars
(Original chart, created by the author, derived from Bureau of Labor Statistics 2012; Stockholm
International Peace Research Institute 2012b)

The picture here is significant in itself. There was a kind of peace dividend with the end of the
Cold War, represented by the steady decline of sales of military-related goods and services
through the 1990s. With the onset of the War on Terror in 2001, this peace dividend
completely disappeared, sales of military-related goods and services soaring well above their
level at the end of the Cold War. Within this story of production for the military, corporations
based in the United States have a uniquely prominent role, consistently selling more than twice
as much as corporations based in Europe, the gap between the two growing steadily this century.
19
Perhaps these trends are driven by geopolitics 9/11 and the resulting War on Terror
explaining this turn towards military production. However, we have already seen that, in the
individual case of Boeing, a turn towards military production and sales was taken in response to
a crisis in its commercial sales. In addition to the logic of geopolitics, we are clearly going to
have to take seriously the logic of corporate profitability that the aggressive buildup of arms
spending by the U.S. in particular, and the related rapid increase in arms sales and military
production, has been driven by economic as well as geopolitical considerations. In fact each
might be feeding the other. There is a corporate logic towards turning towards military sales to
counter slumping commercial sales, which would have powerful synergies with a political
discourse of increased threat from foreign enemies.
Looking at the data on the top-100 arms producers from a different angle can help
illustrate this. Just as with Boeing and Lockheed-Martin, for all top-100 military production
corporations, there has been an increasing dependence on the production of goods and services
for sale to the war-machine of their states. Figure 8 charts the arms-production dependency
percentage of these corporations for the same period of time, 1988-2010, calculating sales of
goods and services by these 100 corporations as a percent of their total sales. In 1988, globally
that percentage stood at 16% for the world as a whole, 17% in the U.S. and 16.8% in Europe.
These figures changed only marginally for the rest of the century, declining slightly in the U.S.,
increasing slightly in Europe. But this century, the story is quite different. In 2010, for all top-
100 military producing corporations, fully 30% of their sales were dependent on the military. For
corporations in the U.S., that figure was 32%. For corporations based in Europe, the dependency
percentage had jumped to 40.2%.
20
I|gure 8: 1op 100 Arms-roduc|ng and M|||tary Serv|ces Compan|es, 1988-2010 - Dependency
percentage, Arms sa|es re|at|ve to tota| sa|es
(Original chart, created by the author, derived from Stockholm International Peace Research
Institute 2012b)

Perhaps as, or even more important than 9/11, as a factor pushing towards higher levels of arms
procurement by states, and higher levels of arms production and sales by corporations, have been
the dot-com slump which opened the first decade of the 21st century, and the Great Recession
which closed it. One mechanism to quickly cushion the impact of slump and in the context of
9/11 in the U.S. an extremely popular method is to prop up domestic arms producers through
increased government procurement. There certainly has been an increase in U.S.-centered arms
spending. There has been a corresponding increase in corporate arms production and sales, and
an astonishing intensification, in the last decade, in the dependence of corporate arms producers
on military sales as a percentage of their total sales. Top-100 arms producers in Europe, in 2010,
employed almost one million people, in the U.S. more than 2.2 million (Stockholm International
Peace Research Institute 2012c). Without arms sales, those corporations would have had to
seriously reduce employment, with ripple effects through the economy as a whole. We are fixing
one problem depressed demand in the world economy by creating another an important
section of the corporate universe increasingly unable to function without access to billions in
dollars of military procurement tax dollars. This is more true in the United States than elsewhere
in the world, even though, as this section has shown, it is also a factor and an increasingly
important factor in pacific Europe.
21
Conc|us|on
Two otherwise quite similar countries, then, have weathered the stormy waters of the Great
Recession quite differently. To many, this has been counter-intuitive. The U.S. economy is, of
course, the biggest in the world. Canadas economy has long been seen as an appendage of the
one in the U.S., over-reliant on resource-extraction, with a less-developed manufacturing sector,
and therefore quite vulnerable to the volatility of the world economy. Certain important aspects
of the divergent Canadian and U.S. realities have been offered to explain their different
experiences during the Great Recession, including fiscal discipline and the strategic orientation
of the tax system (Leonard 2012, 4) as well as its ability to leverage its position as the number
one supplier of imported U.S. oil (Leonard 2012, 7). Niall Ferguson and others have suggested
that Canadas more regulated banking and real estate sectors were a factor (Scoffield 2009).
There is another, extremely visible, public policy difference in particular, which, it has been
suggested, has had an influence on the evolution of the two countries economies. Since the end
of the Korean War, there has been a decidedly more pronounced development of military
expenditure in the United States, compared to Canada, allowing for a comparatively more
pronounced devotion of public resources to health, education and welfare in Canada. The U.S.,
as the center of empire, has over-time acquired an over-developed warfare state, while Canada,
at the margins of empire, has been able to construct a somewhat more developed welfare state
(most visibly symbolized in the commitment, since the 1960s by all levels of government in
Canada, to sustaining a single-payer, government controlled, medical insurance system).
Elsewhere I have suggested a framework by which to theorize this development, through
deploying the concept of Permanent Arms Economy to analyze the evolution towards a
warfare state in the United States, and that of military parasitism to analyze the capacity of the
Canadian state to downplay military spending, and devote resources towards a welfare state.
Roughly put the capacity to sustain its role as one of two superpowers during the Cold War,
and then as the worlds only superpower since the collapse of the Soviet Union, has deformed
U.S. public policy, relative to other OECD economies, through a long-term pressure to maintain
an extremely large military establishment. Canada, by contrast, in its role as a free-rider
benefiting economically from the spheres of influence it shares with the U.S., but without having
to pay the military overhead has, by virtue of this military parasitism, had the freedom to
downplay its commitment to militarism since the Korean War, and free up resources for use in
the sustenance of a welfare state (Kellogg 2013a). The focus of this article has been on the
differential developmental impacts of these public policy developments.
Over half a century ago, the divergence between Canada and the U.S. in terms of each
countrys commitment to a warfare state, began to reveal itself. The symbolic turning point in
Canada, was the 1958 cancellation of production of the Avro Arrow fighter-bomber. Killing the
Arrow was politically controversial, and in the short-term economically disruptive leaving
14,000 workers looking for new work (Kellogg 2013a, 193). But it symbolized the turn of the
Canadian state away from sustaining military production, opening the door to the possibility
(realized in the 1960s) of devoting resources to medicare and the other elements of the welfare
state. Perhaps we witnessed the Avro moment for the U.S. in 2011, with the cancellation of the
Space Shuttle? This article has been written from the very defensible assumption that funding the
space program is a key part of the maintenance of the warfare state. The Space Shuttle, as part of
a space race fuelled by cold-war paranoia about Soviet science (The Economist 2011) simply
22
became too burdensome an expense on the U.S. public purse, particularly in the context of the
Great Recession of 2008.
However, the transition away from a warfare state, no matter how justifiable, will not be
easy. The short-term and immediate term disruptions will be severe, involving layoffs of
thousands of workers. And while it might make good public policy sense to reorient away from a
warfare state, the evidence presented in this article of increasing corporate dependence on
military production, means that any move away from the warfare state will face sharp opposition
from powerful forces in the U.S. business community.
Analysts such as this author, writing from the perspective of the Canadian state, can also
feel little complacency. If avoiding a commitment to a warfare state has been good public policy
for two generations, there are many indications that Canada is evolving in a new direction,
making a greater and more sustained commitment to government military-procurement as an
embedded and expanding aspect of Canadian government policy. The current administration in
Ottawa is on course to purchase 65 F-35 fighter jets from a corporation which has figured
prominently in this article, Lockheed-Martin. The governments figures on the costs of this
purchase mean that it would be the most expensive defence project in Canadian history and
increasingly those government estimates are coming under fire as being too conservative (Cohen
and McDowell 2011). In a strange coincidence, as this paper was being completed, no less a
figure than Canadian retired major-general Lewis MacKenzie suggested that, as an alternative
the purchase of the F-35 fighters from Lockheed-Martin, the Canadian government should revive
the Arrow (Chase 2012). In addition to such a move being probably unnecessary (it is unclear
against which enemy any Canadian fighter-bomber might reasonably be deployed) and
unfeasible (it is unlikely that 1950s-era technology could play any meaningful role in the 21
st

century) this paper is suggesting that it would be economically retrograde.
This is not, then, simply a U.S. story. While it is certainly the case that the United States
government has been more prominent than others in sustaining a warfare state, this is an issue
which, perhaps more than most, is actually trans-national. Hopefully the analysis developed here
has made some contribution to this increasingly necessary discussion.
23
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