------------ EH.NET BOOK REVIEW --------------  
Published by EH.NET (June 2006)  
  
Vernon W. Ruttan, _Is War Necessary for Economic Growth? Military   
Procurement and Technology Development_. New York: Oxford University   
Press, 2006. xi + 219 pp. $45 (cloth), ISBN: 0-19-518804-7.  
  
Reviewed for EH.NET by Robert Higgs, The Independent Institute.  
  
  
Vernon W. Ruttan, Regents Professor Emeritus in the Department of   
Applied Economics and Adjunct Professor in the Hubert H. Humphrey   
Institute of Public Affairs at the University of Minnesota, is a   
well-known contributor to the literature on the economics of   
technological change. In his latest book, _Is War Necessary for   
Economic Growth?_, he ostensibly seeks to establish the relationship,   
if any, between the U.S. government's preparation for or engagement   
in warfare and the creation of new general-purpose technologies that   
contribute to increasing the rate of economic growth.  
  
I would like to think that the publisher's marketing department, not   
the author, bears responsibility for the book's foolish title. If we   
know anything at all about economic growth, we know that peace is   
among its essential conditions. No nation can expect to improve its   
economic well-being in the midst of a maelstrom of death and   
destruction. In fact, what Ruttan examines is not war at all, but   
government subsidies to and direct engagement in technological   
development and government purchases of technically-advanced goods   
and services. That these subsidies, engagements, and purchases occur   
under the rubric of "war" or "defense" is almost incidental. The   
military aspect matters only in the political sense that historically   
the U.S. government has marshaled the greatest amounts of resources   
for research and development in connection with military endeavors.  
  
Seeking to "demonstrate that military and defense-related procurement   
has been a major source of technology development across a broad   
spectrum of industries that account for an important share of U.S.   
industrial production" (p. vii), Ruttan presents in successive   
chapters capsule economic histories of technological development in   
six areas: interchangeable parts and mass production; aircraft;   
electrical power generation and nuclear energy; computers; the   
Internet; and space-related goods, such as missiles, satellites, and   
related communications systems. In each chapter, he draws on a wide   
selection of secondary sources to describe how the government's   
involvement affected the course of technological change. Although   
these descriptive chapters are informative and clearly written, they   
present no new evidence or analysis. Economic historians will be   
familiar with the broad outlines of much of the information   
presented, if not with all the details.  
  
Ruttan does not claim that the six areas he discusses constitute a   
random sample of all industries or even of industries in which the   
government has actively engaged in stimulating technological   
development. Indeed, he appears to have chosen these six areas   
because he knew beforehand that the government played an especially   
important role in each of them. Given this aspect of the evidence   
Ruttan considers, the reader must hesitate to place great weight on   
the book's findings. Yes, interchangeable parts, aircraft, computers,   
and so forth have been important areas in which the government   
contributed to hastening certain technological developments, but   
these areas are far from composing the whole economy. Areas such as   
nuclear power generation and space-related activities have even less   
significance for the overall economy.  
  
Ruttan's discussions in this book are strictly tertiary. Indeed, in   
several regards, the book resembles a textbook. Various topics are   
discussed in boxes set apart from the main text (for example, "postal   
subsidies for airline development," "the national energy   
laboratories," and "origins of the global positioning system").  All   
of the tables and figures are borrowed from secondary sources or from   
well-known published collections of data. Each chapter includes an   
extensive set of references. The indexes occupy about ten percent of   
the book's total pages.  
  
In the final chapter, Ruttan draws some more general conclusions, in   
the form of informed personal judgments, about the government's   
engagement in the various areas considered in the descriptive   
chapters. These conclusions take the form, for example: "In the   
absence of military support for R&D during World War II and military   
procurement during the Korean War, the transition to jet commercial   
aircraft propulsion would have occurred much more slowly" (p. 164).   
Well, yes, of course. Such conclusions say little more than that the   
government generated _some_ spillover effect on the rate and   
direction of technological change in commercial areas related to the   
military projects for which the government spent lavishly. When   
Ruttan tries to go further, however -- when he opines, for example,   
that between 1900 and 1950, "productivity growth in the electric   
power industry was the major driver of productivity growth in the   
entire U.S. economy," and  "[d]uring the last several decades of the   
twentieth century the computer and microprocessor emerged as the   
major drivers of productivity growth in the U.S. economy" (p. 166) --   
his judgments may well be questioned. What he means by "major driver"   
is neither obvious nor explicated  
  
In a box called "Military R&D: The Productivity Puzzle" (pp. 169-71),   
Ruttan raises critical questions for his analysis that he does not   
answer adequately. Again, he gives only his considered judgment. At   
one point, however, that judgment seems damaging for his own ultimate   
conclusions, when he states: "My own view is that we do not yet have,   
and perhaps cannot have, a body of rigorous econometric evidence   
against which to evaluate the economic impact of defense and   
defense-related R&D and procurement" (p. 170). He avers that "careful   
narrative analysis of individual cases is at present a more effective   
method of capturing the effects of complementarity than econometric   
analysis" (p. 170). This judgment is problematic because although   
careful narratives may reveal many things that econometric analysis   
does not, they still cannot answer the ultimately crucial,   
intrinsically quantitative question: what was the overall net payoff   
to the government's expenditures, considering military and commercial   
results together? Moreover, because the military aspects of the   
matter take place within an essentially nonmarket context, as Ruttan   
explicitly recognizes at one point (pp. 169-70), only the commercial   
(that is, private market) part of the return on the government's   
subsidies, direct engagement, and procurement can be computed in a   
meaningful way, and computation of even that part of the net return   
raises difficult analytical challenges.  
  
Ruttan accepts too readily the conclusion derived from neoclassical   
blackboard economics that private actions give rise to "market   
failure" because of "suboptimal" amounts of investment in   
technological change. He laments that the United States "has not yet   
designed a coherent set of institutional arrangements for public   
support of R&D for civil purposes" (p. 182). Here one is tempted to   
remark, thank God. If the government were to get even more deeply   
involved in making big financial bets (with the taxpayers' money)   
about technological development, the most probable result would be a   
massive waste of resources arising from the inherently political   
nature of any likely government program. If you want a template, just   
think of ethanol.  
  
Finally, Ruttan anticipates that because of changes in the nature of   
military technology and the diminished prospects for a great military   
mobilization such as World War II or the Cold War, the government   
will not make efforts comparable to those it made in the past, and   
hence the rate of economic growth will be diminished. He asks: "Will   
it take a major war or threat of war to induce the mobilization of   
the scientific, technical, and financial resources necessary to   
develop major new general-purpose technologies? My answer to this   
question, based on historical experience, is that it may" (p. 185).   
Although this flaccid conclusion leaves Ruttan looking forward to   
"incremental rather than ... revolutionary changes in both military   
and commercial technology" during the next half century (p. 185), we   
need not fret. In truth, Ruttan does not know what the technological   
future holds in store; indeed, no one does.  
  
Ruttan seems excessively focused on technological change per se; he   
does not give adequate attention to the economics of the matter. The   
general population does not benefit from faster technological   
progress, however, unless the rate of return on that development is   
supernormal. As Ruttan recognizes at one point, "the advances in   
scientific and technical knowledge and commercial technology induced   
by demand for defense and defense-related technology in the past   
imposed very heavy opportunity costs on the U.S. economy" (p. 185).   
Obviously, the government has specialized in pouring money into   
military projects decades in advance of the advent of opportunities   
for significant commercial applications. Moreover, the wastes   
associated with military R&D and military procurement of goods and   
services are themselves legendary, as amply documented by the   
contributors to a book I edited, _Arms, Politics, and the Economy:   
Historical and Contemporary Perspectives_ (1990). In contrast,   
motivated by sufficiently free markets, clever scientists, inventors,   
and engineers are never likely to run out of promising ideas to   
develop -- ideas that contribute directly to human well-being, rather   
than to the enlarged potential for wreaking death and destruction   
that military technological development seeks.  
  
  
Robert Higgs is Senior Fellow in Political Economy at the Independent   
Institute and editor of the Institute's scholarly quarterly _The   
Independent Review: A Journal of Political Economy_. His most recent   
books include _Against Leviathan: Government Power and a Free   
Society_ (2004), _Resurgence of the Warfare State: The Crisis since   
9/11_ (2005), and _Depression, War, and Cold War: Studies in   
Political Economy_ (2006).  
  
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