------------ 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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