Message to the U.S. – Blame the Wars, not China

DECEMBER 2, 2010 – There is a growing chorus of voices in the media and the academy singling out the actions of the Chinese state as central to the dilemmas of the world economy. This focus finds its most articulate presentations, not in the xenophobia of the right, but in the polite analysis of many left-liberals. Paul Krugman, for instance, writing in the run-up to November’s G20 summit in South Korea, praised the United States’ approach of creating money out of nothing (“Quantitative Easing”) as being helpful to the world economy, and criticized the Chinese state’s attempts to keep its currency weak as being harmful. “The policies of these two nations are not at all equivalent,” he argues, adding his influential voice to the chorus which is increasingly targeting China for the world’s woes.[1] Krugman’s, however, is a simplistic analysis which overlooks the role of the U.S. over decades in creating huge imbalances in the world economy, and has the dangerous effect of scapegoating one of the poorest nations of the world (China) for the problems created by the world’s richest.

Krugman’s argument proceeds through a sleight of hand. He objects to the attempts by the Chinese state to keep down the value of its currency – the yuan – as a series of policies whose “overall effect … on foreign economies is clearly negative.” This is a common theme – China’s “weak-yuan” currency being good for China (making its exports cheaper in world markets) and bad for the rest of the world.

But there is a problem. By his own admission, the U.S. policy of creating money out of nothing will result in a “weaker American dollar.” What he doesn’t say, but what is implicit in his analysis, is that this U.S. policy is identical to China’s – a “weak-yuan” policy in the latter, matched by a weak-dollar policy in the former. Krugman nonetheless lets the U.S. off the hook because, he argues, even though the U.S. dollar is certain to fall in value as a result of the new trillions being created, “that is not the ultimate goal.”

Judging a policy on its intent rather than its effect is disingenuous. Brian Burke’s intent as General Manager of the Toronto Maple Leafs has been to deliver a Stanley Cup to Toronto. Hockey fans are unlikely to forgive him, though, for the fact that his policies see the Leafs sitting, again, near the basement of their conference. However, let’s take Krugman at face value. Why does he see the U.S. policy as good for the world? Because, he argues, “basically, the United States is pursuing a policy that increases overall world demand” and China “is pursuing a contractionary domestic monetary policy, reducing overall world demand.”

Let’s begin with some of the key facts. At the peak of the economic crisis, the United States, Canada, and the European Union had to borrow hundreds of billions of dollars from the rest of the world to finance stimulus programs to stabilize their economies. China also engaged in serious fiscal stimulus (relative to GDP virtually on the same scale as the United States)[2], but unlike the North American and European powers, it was able to do so without borrowing a penny from the rest of the world.[3]

One of the reasons the U.S. had to resort to large-scale foreign borrowing, was because of years of high levels of central government deficit spending. Charts accompanying this analysis can be found at the end of the article. The first one shows the last twenty 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.[4]

Because the United States central government had been running very large deficits for years, borrowing on a large scale was inevitable to do the very necessary work of trying to “stimulate” the economy at the peak of the crisis in 2009. But with these deficits pushing debt levels very high very quickly, there has been increasing nervousness about both deficits and debts getting out of hand. Enter, “Quantiative Easing.” As an alternative to creating more government debt, the world’s most powerful economy can, for the moment, simply “create more money,” push it into the economy, and hope that this has the desired stimulus effect.

Krugman assesses the merits of these actions solely on their effect on world demand. But is this a sufficient criteria? There are all sorts of policies pursued by the U.S. over generations which have increased overall world demand. One in particular comes to mind. The U.S. central government has for a long time been the centre of military expenditure in the world, and its role as such is accelerating. In 1990 its military expenditures represented 36.19% of the military expenditures in the entire world. By 2009, its military expenditures had grown to fully 44.13% of world military expenditures. In other words, almost half of the money spent on war in the world is spent by the U.S. state.

This huge infrastructure of planes, missiles, bases, tanks, guns, ammunition and personnel has a powerful effect on demand in the world economy. For instance, “the U.S. military is the single largest consumer of energy in the world.”[5] This might be bad in terms of global warming. Nonetheless gobbling up millions of barrels of oil certainly helps stimulate world demand for petroleum. The trillions spent on war and militarism do meet Krugman’s criterion in that they “stimulate world demand.” But they do so in perverse ways. In particular, they are the principal reason for the desperate fiscal weakness of the U.S. central government, documented above, fiscal weakness which is driving the move to Quantitative Easing.

Let’s try on three different scenarios to examine the relationship between military expenditures and U.S. deficits. Begin 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). The official 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.[6] This is probably an understatement, perhaps a gross understatement. Joseph Stiglitz and Linda Bilmes estimate that the true cost of the war in Iraq alone will be in excess of $3 trillion.[7] However, for arguments sake we will take the official figures. If those official figures are removed from the books (scenario 1) – 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 doesn’t eliminate the deficit problem. But it does lessen it, to the extent that as late as 2007 – the year the financial crisis first revealed itself – the U.S. central government would have actually have run a modest surplus.

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 $130 billion were dwarfed by the $534 billion spent on other aspects of the military. Since 2006, the total “defence” budget of the U.S. has been over half a trillion dollars. By 2011 it is projected to be closing in on three quarters of a trillion dollars. Now imagine a pacific instead of a militaristic United States. In other words, see what the picture would be like without sustaining this massive war machine. When this military spending is removed (scenario 2), 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, twice (in 2000 and 2007) touching half a trillion dollars. 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.

And in fact, this understates the situation. Many of the costs of the U.S. bloated 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 world’s biggest military, and the world’s only truly global empire. But there are two “non-defence” line items that we can say with certainty are directly related to the U.S. military. 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 adventures abroad. And the space program is a barely disguised excuse to develop and test the rocket technology that is the backbone of the U.S. nuclear arsenal. When these two are factored in (scenario three), the picture is breathtakingly clear.

The U.S. central government deficit problem has one source – addiction to war and empire. That addiction has led to borrowing on an unprecedented scale, making it impossible for the U.S. to stimulate its economy through accumulated savings and making it increasingly nervous about the accelerating practice of borrowing on a mass scale. The Quantitative Easing approach – creating money out of nothing – has been made inevitable by the massive deficits used to sustain empire abroad.

Return, then, to Krugman’s argument. If we only have one criterion by which to assess this – the creation of demand in the world economy – then there is no problem here. Massive levels of arms spending create demand. Years and years of arms-related U.S. budget deficits do “stimulate” the world economy. But downing two or three pots of coffee in one setting will similarly “stimulate” a person’s metabolism. That doesn’t mean it is a recommended method by which to obtain our nutrition.

Obviously “the creation of demand” is not the only criteria we should use. When trillions are spent, it is useful to us ordinary folk when these trillions are spent in productive ways – on homes for the homeless, on childcare, on healthcare, on education, on infrastructure, on subways, on clean energy, on water purification in the Global South – the list is endless. But when the trillions are wasted on grenades, nuclear weapons, M-16 rifles, nuclear submarines, aircraft carriers and all the other paraphernalia of the U.S. killing machine – this is ultimately the equivalent of taking those trillions and flushing them down the toilet. It is “investment” which leaves nothing behind – except nuclear waste that future generations will have to dispose of, deadly munitions that will exist for generations to maim and kill peasants in the field, and broken bodies and minds chewed up in endless wars. The creation of “demand” is not the only criteria. It matters – and it matters desperately – exactly what kind of “demand” we are feeding.

And think this through. This creation of money from nothing will systematically drive the U.S. dollar lower relative to other currencies. For those holding billions (and in some cases trillions) of U.S. dollar denominated debt, the devaluation of the U.S. dollar means a devaluation of the worth of their holdings. In effect, the United States through Quantitative Easing is forcing the rest of the world to pay for its empire, to pay for the costs it has incurred through sustaining a bloated Permanent Arms Economy.

It is irresponsible to assess the value of the policies of the U.S. and Chinese governments by narrowly focussing in on momentary decisions related to their currencies, and by pretending that these policies happen in a vacuum. There is a history to the current predicament of the United States, a predicament of its own making. When put in this bigger context, the message that must be sent to Krugman and others making similar arguments is quite clear: blame the wars, not China.

Currency Wars and the Privilege of Empire
Another G20 Summit: The new club of ‘hostile brothers’

Charts referenced in the article

(c) 2010 Paul Kellogg

Publishing History

This article has been published as “War and the Global Economic Crisis: Blame America’s War Economy rather than China,” Global Research, 23 December 2010. Also published as “War and the Global Economic Crisis,” Нова српска политичка мисао, 25 December 2010; “Message to the US – Blame the wars, not China,” Links, 2 December; “Message to the U.S. – Blame the Wars, not China,” The Bullet No. 444, 23 December.

[1] Paul Krugman, “When China Exports, Everyone Pays,” Truthout, 4 November, 2010.
[2] Eswar Prasad, “Assessing the G-20 Stimulus Plans: A Deeper Look,” Brookings, 2 December, 2010.
[3] Joseph Trevisani, “While Many Countries Must Borrow, China and Japan Can Fund Their Own Stimulus,” Seeking Alpha, 28 January, 2009.
[4] Figures for this and the next three charts (Scenarios 1-3) are primarily derived from “Budget of the United States Government: Historical Tables Fiscal Year 2011: Table 4.1 – Outlays by Agency, 1962-2015.” For the years 2001 to 2010, the charts are based on figures in Office of the Under Secretary of Defense (Comptroller) / CFO, United States Department of Defense Fiscal Year 2011 Budget Request: Overview, February 2010: 1-1. 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.”
[5] Sohbet Karbuz, “US Military Energy Consumption – Facts and Figures,” Sohbet Karbuz, 20 May 2007.
[6] Amy Belasco, “The Cost of Iraq, Afghanistan, and Other Global War on Terror Operations Since 9/11,” Congressional Research Service, 2 September 2010: 1 and 3.
[7] Joseph E. Stiglitz & Linda J. Bilmes, “The true cost of the Iraq war: $3 trillion and beyond,” The Washington Post, 5 September 2010.

Is there space for peace?

Letter to host of “Q,” submitted to CBC, Dec. 24, 2008 • You opened your Christmas Eve show with a flashback to 1968, the Apollo 8 flight, and the astronauts reading selections from Genesis, the first book of the Bible, while floating in space. “Peace on earth” you speculate could be brought a wee bit closer if we told the Apollo 8 story every Christmas, helping us to see our earth in green and blue perspective.

Many of us remember that flight like it was yesterday. Many of us, as children, were enthralled by the space program, by NASA, and by its celebrities – chief among them, Wernher von Braun.

As adults, many of us learned the truth. Von Braun was a veteran of Hitler’s Germany, scooped up along with dozens of other Nazi-era scientists, a prize catch for the United States.[1] The Apollo program was the direct descendant of von Braun’s Nazi-era rocket research, designed to deliver payloads of death and horror to civilian populations in Britain. We know now that he used slave labour in these activities.[2]

And NASA? The furious pace of its progress in the 1960s was not motivated by the desire to put astronauts in space to read the Bible. That was just window-dressing. The whole program was completely embedded in the arms race. Rocket technology is not about romance and religion, but about mass murder and war – a technology necessary for the delivery of nuclear warheads to whomever might threaten U.S. hegemony.

The Apollo space flights are a poor vehicle with which to bring peace on earth, their roots deeply planted in slave labour, fascism, and the desperate search for the construction of weapons of mass destruction. If the Apollo astronauts had wanted to quote the Bible for peace, they should have stayed away from Genesis and chosen Isaiah instead. To get peace on earth we will have to “beat our swords into ploughshares,” so that “nation shall not lift up sword against nation.”[3] Among the biggest swords to be re-engineered are the rockets of the U.S. space program.

© 2008 Paul Kellogg


[1] A fact known for years – see Tom Lehrer’s bitter spoof, available on youtube.
[2] Tony Paterson, “Germans at last learn truth about von Braun’s ‘space research’ base,” The Telegraph, June 14, 2001
[3] Isaiah 2: 4

Harper out of Ottawa, Canada out of Afghanistan

DECEMBER 5, 2008 – (Article 4 of 4) Of all the compromises that might happen to keep a coalition alive, by far the most troubling is the one that is brewing on the war in Afghanistan. As news of the coalition began to surface in the last week of November, The Globe and Mail reported that “a senior NDP official said that no policy issues are considered deal breakers” including that of the war in Afghanistan.[1]

This above all else has to be a “deal breaker.” The NDP has been the one major party that has been committed to ending the war in Afghanistan. As this is being written, news came across the wires that three Canadian soldiers have been killed, taking the military death toll past 100.[2] We don’t know how many Afghanis have been killed in the war – there is no official attempt to keep track.

No compromise is possible on war. You are either for it or against it. The Liberals began this war. The Liberals voted to extend it to 2011. We all know that it is an unwinnable war, fought for corporate profits and geopolitical power, not for democracy and human rights. An anti-war party cannot stay anti-war and enter a cabinet with a pro-war party. Layton and the NDP leadership have to face up to the fact, that were the coalition to take office, the war in Afghanistan would become their war, and the deaths and injuries suffered in that conflict would be their responsibility.

Some will say that were the NDP to insist on this point, then the coalition would not be possible. That is probably true. But a coalition that includes “compromise” on Canada’s military adventure in Afghanistan is not a coalition worth having. Canada is engaged in an imperialist adventure in Central Asia – part of the long slow re-militarization of Canada begun by the Liberals and continuing under the Tories. Opposition to this war is a matter of principle, not one of political expediency. Were Layton and the NDP leadership to compromise on this issue, it would do immeasurable damage to the anti-war movement in Canada – and ultimately to the NDP itself.

There is fear among millions in the face of an unfolding economic crisis. There is anger at the arrogance of a Tory minority that is pushing full steam ahead with neoliberalism at home and militarism abroad.

But it is no solution to replace Harper with a coalition government led by the other party of corporate power and of militarism – the Liberal Party of Canada. All that would be accomplished would be the burying of the independent voice of Canadian labour – the voice of the NDP – behind the pro-corporate voices of Michael Ignatieff and his colleagues.

If the coalition does not take office, we know the way forward. We need to build social movements against war in Afghanistan, against the militarization of Canadian society, against sending off working class men and women to die for corporate profits. We need to build inside the workers’ movements, unions with the muscle to challenge the agenda of the corporations. Don’t bail out the auto companies – nationalize them and convert the jobs to green jobs, building public transit, building the infrastructure of a sustainable green economy. If the coalition does take office – the way forward is exactly the same.

We will be told that raising Afghanistan is divisive. So be it. We will demand that the coalition withdraw the troops immediately, even if that means the Liberals abandoning the coalition and the government falling. The only lasting basis for gains for working people and the poor is in building social movements that do not rely on manoeuvres at the top of the system. The Liberals will say “but we are a party of peace, we didn’t go to war in Iraq.” We will remind them that they were going full speed ahead to war in Iraq in 2003, until 400,000 people took to the streets – including two massive, beautiful demonstrations in Montreal – demanding that Canada stay out of that conflict. The Liberals reluctantly stayed out of the Iraq war because it would have been political suicide for them to join the Coalition of the Killing.

That is the way we will win progress whether it be a Harper government, or a Liberal/NDP government – by mobilizing on the streets and in the workplaces, whether the Prime Minister is Stephen Harper, or Stéphane Dion, or Bob Rae, or Michael Ignatieff.

Previous articles:Harper’s Tories: Attacking Quebec to Save Neoliberalism
Are the Liberals an Alternative?
Liberals and Tories – parties of corporate power

© 2008 Paul Kellogg

Publishing History

This article was published as Harper out of Ottawa, Canada out of Afghanistan,”, 6 December.

[1] Brian Laghi, Steven Chase and Gloria Galloway and Daniel Lebanc, “Harper buys time, coalition firms up,” The Globe and Mail, November 29, 2008
[2] Graeme Smith, “Canada suffers 100th military casualty of Afghan mission,” The Globe and Mail online, December 5, 2008

Are the Liberals an Alternative?

(Article 2 of 4) Harper and the Tories are unfit to govern, and should be shown the door. Unfortunately, the alternative we were offered December 3, after Harper’s broadcast to the nation, was not very promising. The Liberal-NDP coalition would be headed by outgoing Liberal leader Stéphane Dion. Along with Harper, Dion was offered ten minutes of air time on national television to present his position. In a strange piece of melodrama, Dion’s tape was delivered late – so late, that it only appeared on CBC, and was not aired by CTV.

For those who saw the video, the effect was depressing. The message Dion put forward was confusing and hesitant (as well as looking as if it had been produced by a webcam). Many who watched it and had supported the Liberal-NDP coalition, had second thoughts after seeing his performance.

Dion is a lame-duck leader of a Liberal Party that was deeply wounded in the last election. The Liberals received their lowest percentage vote ever, getting the backing of just 26% of the electorate.[1] It is only because they are so weakened that they have been forced to turn to the BQ and the NDP for support.

The role of the NDP and the recently ex-NDP is in fact extremely important in this drama. The origins of the coalition idea seems to have come from current NDP leader Jack Layton in consultation with former NDP leader Ed Broadbent. Layton – far more popular with the electorate than Dion – is centrally important in giving the coalition credibility. And in the dramatic radio coverage of the decision to prorogue Parliament, the CBC had Ed Broadbent on the phone for the NDP, and for the Liberals – former NDP premier of Ontario Bob Rae, and former NDP premier of B.C. Ujjal Dosanjh, both of whom are now senior members of the Liberal Party of Canada, one of whom (Rae) is a leading candidate to replace Dion.

But make no mistake – if the NDP is central to the formation of the coalition, this will be a Liberal government. The prime minister will be Liberal. The finance minister will be Liberal. Most of the cabinet seats will be Liberal. And these Liberals are a known quantity, a party little different from the Tories in both their fiscal and foreign policies.

Harper is hated because of his neoliberal policies. But the bitter truth is, there is nothing to choose between the Liberals and the Tories in terms of neoliberalism. One way of measuring this is in the support given by the federal government to the provinces. In the Canadian system, it is the provinces that deliver the bulk of Health, Education and Welfare. But given the much greater taxation powers of the central state, they are very dependent on transfer payments from the central state to finance these “social wage” activities. One of the key aspects of neoliberalism is launching an assault on this social wage. The chart on this page shows the record here for both the Liberals and the Tories.[2]

The neoliberal era in Canada is usually seen as beginning with the Mulroney Tories in the 1980s. The chart shows that social wage transfers did stagnate through much of the 1980s under Mulroney’s watch. But the years of devastating cuts were 1995 to 1998, years of a Liberal government. The critical moment was the 1996 budget authored by then finance minister Paul Martin, working with then prime minister Jean Chrétien. That is the budget which collapsed long-standing programs for delivering money to the provinces (Established Program Financing and Canada Assistance Plan) into the Canada Health and Social Transfer. Disguised in this bureaucratic shuffle were cuts in billions to the transfers necessary to sustain the social wage – more than $1 billion in the first year, more than $2 billion in the second and almost $3 billion in the third. In Ontario in those years, we could see the open neoliberals – Mike Harris, Jim Flaherty and Tony Clement – launching horrible attacks on hospital and public school funding. But their open neoliberal attacks were made possible by the “silent” neoliberalism of Paul Martin and Jean Chrétien. The fact that those transfer payments go up in the last years of the Liberal tenure should give none of us comfort. The first years of the 21st century saw an unprecedented world-wide economic expansion, which filled the federal coffers with billions of tax dollar windfalls. So transfer payments increase in the last years of Chrétien and Martin – but they have also increased in the last two years of the Harper Tories. This is not because either became wedded to protecting Canadian workers – it is because of the economic boom, a boom which has now come shuddering to a halt.

This division of labour between the Tories and the Liberals has long defined Canadian politics. Their policies are virtually indistinguishable – Liberals playing the soft cop as a counterpoint to the Tories’ hard cop. Social policy is not the only place where this is visible. In foreign policy, the Liberals love to portray themselves as the party of Lester Pearson, the party of peacekeeping – contrasting themselves to the hawkish Tories. And in fact, Harper’s Tories have openly relished increasing the militarization of the Canadian state. This year, Harper has boasted about his plans on these lines. In May, the National Post gave a “sneak preview” of the plans.

Over the next 20 years, the Tories want to commit Ottawa to spending $30-billion more on the military. Mr. Harper foresees an expansion of our Forces to 100,000 soldiers, sailors and airmen. Troop strength will include 70,000 regular forces, up from 65,000 today, while the reserves will expand from 24,000 to 30,000. Ageing warships will be replaced, and new transport aircraft and armoured vehicles wibe purchased. New medium-lift helicopters will be bought immediately to ferry our troops over and around roadside bombs and snipers in Afghanistan.[3]

This was confirmed on the evening of Thursday June 19, 2008 – “the night before Parliament adjourns for the summer”[4] – a major document appeared on the National Defence web site, announcing a 20 year, $490-billion “Canada First” Defence Strategy to steadily upgrade Canada’s military capacity over a generation.[5] But the chart here documents that this increase in spending on war did not begin with the Tories – it began with the Liberals.[6] Under Liberal Paul Martin’s watch between 2003 and 2006, military spending increased more than $1 billion, in real terms, every year. Under Harper, those increases actually slowed for two years, before returning to Martin era levels in 2007-08. There is nothing to choose between the Tories and the Liberals in terms of Canadian militarism.

The “Canada First” increase in Canada’s militarism, builds upon a generation of moves by both Tories and Liberals to move away from the peacekeeping moment. In 1991 under the Tories, Canada was a full participant in the first Gulf War. Canada’s 1993 intervention in Somalia looked to the Somalis more like occupation than peacekeeping.[7] In 1999, under the Liberals, Canada was one of the principal contributors to NATO’s bombing campaign against Yugoslavia. And from 2001 to the present, it has been a central component of the war in Afghanistan. It was not the Tories who sent Canada into this overseas adventure – it was Jean Chrétien, and John Manley, and Paul Martin, and John McCallum, and Stéphane Dion – the very Liberals we are now told are an alternative to the Tories.

The Harper Tories are a threat to peace, a threat to social programs, a threat to the interests of working people in Canada. But the record of the Liberal Party over a generation should make us soberly assess the chances of a coalition – a coalition they dominate – being any better.

Previous article:
Harper’s Tories: Attacking Quebec to Save Neoliberalism
Read next:
Liberals and Tories – parties of corporate power
Harper out of Ottawa, Canada out of Afghanistan

© 2008 Paul Kellogg


[1] According to Nodice,
[2] Department of Finance, Canada, “Fiscal Reference Tables, September 2008: Table 11 – Major transfers to other levels of government,” adjusted into 2008 dollars based on Statistics Canada, Canadian Socio-Economic Information Management System (CANSIM) “Table 3260020 – Consumer Price Index, 2005 basket, monthly” accessed December 5, 2008.
[3] “Bolstering our Forces,” National Post, May 14, 2008
[4] David Pugliese, “Parliament in the dark on major weapons purchase,” Canwest News Services, June 19, 2008, accessed June 20, 2008
[5] “Canada First Defence Strategy,” National Defense, Canada, June 18, 2008, accessed June 20, 2008.
[6] Department of Finance, Canada, “Fiscal Reference Tables, September 2008: Table 7 – Budgetary expenses (millions of dollars),” adjusted into 2008 dollars based on Statistics Canada, Canadian Socio-Economic Information Management System (CANSIM) “Table 3260020 – Consumer Price Index, 2005 basket, monthly” accessed December 5, 2008
[7] Sherene H. Razack, Dark Threats and White Knights: The Somalia Affair, Peacekeeping and the New Imperialism (Toronto: University of Toronto Press, 2004)

Addicted to war: A tale of three corporations

In the unfolding of the current economic crisis, many are looking to the state for help. There has been a sudden revival of state intervention or Keynesianism. But what kind of state intervention? There is a dangerous pattern, established over years, of corporations in trouble turning to “Military Keynesianism” – producing for sale to the armed wing of the state – as a “quick fix” for deep structural problems. Corporations addicted to war are the worst way to fix economic problems – a “solution” which only accelerates pressures to engage in overseas military adventures.

Some corporations are well-known as being embedded in the Military-Industrial Complex. In Bowling for Columbine, Michael Moore identified Lockheed-Martin as the world’s biggest weapons maker, and in spite of the outrage this created from supporters of U.S. imperialism, his statement is probably true.[1] 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 since the early 1990s, Boeing has 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 Defence (NMD) program – better known as Star Wars. Boeing is the “Lead System Integrator” for NMD “responsible for ensuring that all component NMD parts and systems are developed and integrated successfully.”[2] Pushed to the background by the wars in Iraq and Afghanistan, the time-bomb of NMD is still ticking away in the background. Col-Gen Varfolomey Korubushin, first vice-president of the Military Science Academy in Russia, has said, “If the U.S.A. deploys a national missile defence [system], other nuclear powers may opt for increasing their nuclear missile potential, which will worsen the situation in the world.”[3] He should know. After all, his government is a full participant in this burgeoning arms race, in 2005 successfully testing a “missile with a highly manoeuvrable warhead capable of annihilating the national missile defence (NMD) currently being developed by the Americans.”[4]

Boeing’s NMD role was symptomatic of a deep change in the physiognomy of the company. In the early 1990s, fully 80 per cent of Boeing’s revenue came from its sales of commercial planes – the jumbo jets and other passenger planes that are everywhere 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,” [5] what Karl Marx called “a crisis of overproduction.”

The company’s 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 Pentagon’s 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. Department of Defense, and #4 NASA contractor.”[6]

The chart here shows its evolution through the 1990s, the percentage of its revenues derived from building military aircraft, missiles and other paraphernalia of the U.S. war machine rising from two-thirds to nearly 80 per cent.[7] Now there are some who would challenge the interpretation of these statistics. McDonnell Douglas, for instance, has three categories and not two: “military aircraft,” “commercial aircraft,” and “missiles, space and electronic systems.” But unless you are a “fly me to the moon” romantic, it is pretty obvious that “missiles and space” production is driven by the needs of a war economy, not by visions of Star Trek exploration. If anything, the emergence of Star Wars should make this abundantly clear.

The second chart 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.[8] From 2005 to 2008 that drifted down again to the 50 per cent mark. But that was before the outbreak of the current crisis. The picture is clear – 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.

The transition to the war economy has succeeded in slowing Boeing’s decline. (But only partially – In 2003, Boeing had to cede to AirBus its position as the world’s largest airplane manufacturer.[9])

AirBus has unveiled its new, massive A380 airliner – the largest passenger jet ever built – capable, in some configurations, of seating more than 800 people. The plane is designed as a “jumbo-jet killer” to displace Boeing’s big 747 at the top of the commercial airline market. Perhaps then we can look to Europe as a place where business is not driven by militarism. This is in fact how spokespeople for the European Union often market their institutions.

Look more closely. AirBus pushed hard to finish work on the A380 to allow its engineers to turn to building a new military transport plane, the A400M. This massive plane is described by Airbus Military as “the most ambitious European military procurement programme ever undertaken.”[10] One commentator said that this, “the biggest joint venture ever in the European defence industry” was “crucial for the credibility of the European Union’s commitment to strengthen its military capability and coordination.”[11]

“Total firm orders for the A400M stand at 192 aircraft,” according to a leading airforce technology web site. Outside of Europe, South Africa has ordered 14. Malaysia has ordered four which could open the door to sales in other Asian countries.[12] European industry, in other words, is just as capable of playing the war production game as is American.

Perhaps this new militarism is particular to the troubled aerospace industry, desperate for sales in a world saturated with expensive to build and maintain airplanes? Turn your attention to the world’s biggest manufacturing corporation, General Motors. GM, as everyone knows, is in trouble. Its current lurch towards bankruptcy has roots that go back years. By the end of 2004, its debt burden had skyrocketed to a mind-numbing $291 billion.[13] In 2005, it recorded losses totaling $10.6 billion.[14] The vast majority of GM’s earnings came from its finance arm, General Motors Acceptance Corp. (GMAC), but to cover its mounting losses, it reached an agreement to sell 51 per cent of GMAC by the fourth quarter of 2006[15]. This staved off problems for a few months, but they came back with a vengeance in 2007 and 2008. February 2008, GM announced 2007 losses of $38.7 billion “the largest annual loss in the history of the auto industry.”[16]

Business analyst Robert Walberg has a solution. GM must, he says, find a “higher margin business with more promising and stable growth prospects.” That business, of course, is the death business. He doesn’t call it that. The nice word for the death business is “defence contracting”. Such a move into war production “could be a good one for the automaker, just as it was for the jet maker Boeing nearly a decade ago.” Walberg is nostalgic for “the 1940s, when GM delivered more than $12 billion worth of war material.”[17] Walberg doesn’t mention that the 1940s was the decade of the most destructive war in human history.

In this tale of three corporations, we have in outline form some of the key elements in the contemporary U.S. and world economy. Industry cannot survive in its traditional markets. Recurring crises of overproduction are driving debt levels higher and higher. In the search for a reliable consumer of last resort, again and again corporations are driven towards arms production. War requires that states purchase massive quantities of expensive to produce weapons and materiel – and if overproduction is the problem, then war with its infinite destructive potential is “the answer”.

It is an economic solution that clearly carries with it huge political and social risks, and very starkly poses the necessity of finding a political solution. The turn to state intervention into the economy is a welcome reprieve from the decades of neoliberalism. But if that state intervention is the intervention of the warfare state and not the welfare state, the dangers for working people around the world are obvious.

© 2008 Paul Kellogg


[1] See for instance Andrea Rothman, “U.S. chief executives, Pentagon brass fail to make Paris show,” Chicago Sun-Times, June 17, 2003, p. 54. Rothman without comment and quite uncontroversially, refers to L-M as “the world’s biggest weapons maker.” But this is for the consumption of the readers of the business press. It is one thing for investors to know the truth about who builds what. It’s a little more awkward when that is made available to the public at large.
[2] Kevin Martin, Rachel Glick, Rachel Ries, Tim Nafziger and Mark Swier, “The Real Rogues: Behind the Star Wars missile defense system,” Z magazine, September 2000.
[3] Cited in “Deploying U.S. national missile defence may trigger arms race – Russian expert,” BBC Monitoring Former Soviet Union, February 27, 2006, ProQuest document ID: 994482301
[4] “Russia has successfully tested a warhead,” The Press Trust of India Limited, November 2, 2005, Gale Document Number: A138245614
[5] Boeing, 1995 Annual Report,
[6] McDonnell Douglas, 1996 Annual Report,
[7] Based on McDonnell Douglas, Annual Reports, 1994-1996, 2nd Quarter 1997, The figures for 1997 represent revenue for the first half of the year only
[8] Boeing, Annual Reports, 1995-2007, www. . Figures for 2003-2007 updated from “Five-Year Summary (Unaudited),” The Boeing Company 2007 Annual Report, p. 21 . 2008 Figures are annualized approximations based on three quarters of results available at “Boeing Posts Lower Third-Quarter Results on Reduced Commercial Deliveries,” News Release, October 22, 2008
[9] Robert J. Samuelson, “The Airbus Showdown,” Washington Post, December 8, 2004, p. A31
[10] Airbus Military, “Final go-ahead for A400M military airlifter,” Press Release, May 27, 2003,
[11] Yacine Le Forestier, “Europe’s military aircraft dream takes wing at last,” AFP, May 27, 2003
[12] “A400M (Future Large Aircraft) Tactical Transport Aircraft, Europe,”
[13] Daniel Gross, “GM’s Debt Crisis,” Slate, Dec. 21, 2004,
[14] “Management’s Discussion and Analysis of Financial Condition and Results of Operations / General Motors,”
[15] David Streitfeld, “GM Agrees to Sell 51% of Finance Unit,“ Los Angeles Times, April 4, 2006,
[16] Associated Press, “GM reports biggest-ever automotive loss,”, Feb. 12, 2008
[17] Robert Walberg, “GM’s best offense could be defense,”, February 3, 2005,

War Free Schools

Here’s a nice thought for public education – let’s put automatic weapons into children’s hands, and let’s show them how to use them. Even better – let’s pay them $600 a week for the training. Sounds a bit wrong? Well, since 2006 it’s been the policy of the Toronto District Public School Board.[1] One other point – the students actually get credit for this, their placement with the military being done through the Army Reserve Cooperative Education Program.

A similar program existed in the 1990s, but was terminated in 2002. In this earlier program, when placed with the military as part of their “experiential” learning, students were not paid, as is the case with every other placement. In 2002, the Canadian Armed Forces terminated the program “since the army reserve in June 2002 determined that first they must pay students and second that they could not afford to pay.”[2]

But in 2005, talks opened up between the School Board and the Army Reserve leading to a revival of the program – this time with the students – who “actually become members of the Canadian Forces Primary Reserve” – being paid a salary equivalent to about $600 per week. In 2005-2006 there were 14 Toronto school children taking part in this program – one just 16 years old, three others just 17 – along with 104 others from “boards such as York Region, Peel, and Toronto Catholic School Boards.”[3]

This is being sold as a way of building character. “The military is great for time-management skills” said Martin Boreczek a corporal in the Reserve now attending York University. “A lot of things need to get done on time, which is something procrastinating university students could learn and apply.” But the real reason has more to do with war than study skills. Boreczek, for instance, was a soldier in Afghanistan from 2004-2005.[4] It is the needs of the war machine – now committed to fighting in that country until 2011 – which is behind the intrusion of war-making into the school system.

In response, Educators for Peace and Justice (EPJ) have launched a “War Free Schools” campaign. A fund-raiser to launch the campaign was held June 19 in the East End of Toronto. Teachers and students from high schools and universities listened to a presentation from Dylan Penner of Operation Objection, who made the case for getting the military out of our classrooms. Playing in the background were images from the War Free Schools Organizing Kit – a Backgrounder and a Handbook available from their web site,

Canada has a reputation as being a peacekeeper, but it is clear that this peacekeeping moment is now over. In 1991, Canada was a full participant in the first Gulf War. Its 1993 intervention in Somalia looked to the Somalis more like occupation than peacekeeping.[5] In 1999 it was one of the principal contributors to NATO’s bombing campaign against Yugoslavia. And from 2001 to the present, it has been a central component of the war in Afghanistan. This has been accompanied by initiatives from both Liberal and Conservative governments to increase spending on the military. Most recently, Prime Minister Stephen Harper’s government announced a plan for a significant expansion of Canada’s military. In May, the National Post gave a “sneak preview” of the plans.

Over the next 20 years, the Tories want to commit Ottawa to spending $30-billion more on the military. Mr. Harper foresees an expansion of our Forces to 100,000 soldiers, sailors and airmen. Troop strength will include 70,000 regular forces, up from 65,000 today, while the reserves will expand from 24,000 to 30,000. Ageing warships will be replaced, and new transport aircraft and armoured vehicles will be purchased. New medium-lift helicopters will be bought immediately to ferry our troops over and around roadside bombs and snipers in Afghanistan.[6]

This was confirmed while the fund-raiser was in progress. On the evening of Thursday June 19, 2008 – “the night before Parliament adjourns for the summer”[7] – a major document appeared on the National Defence web site, announcing a 20 year, $490-billion “Canada First” Defence Strategy to steadily upgrade Canada’s military capacity over a generation.[8]

This is being accompanied by a serious intensification to recruit young people into the Canadian military. In February 2006, then Chief of the Defence Staff, General Rick Hiller, launched “Operation Connection” whose goal was to enlist all the uniformed personnel of the Canadian Armed Forces into the recruitment effort, saying: “I expect every sailor, soldier, airman and airwoman to recognize their role as a potential CF recruiter, effectively spreading the load from the shoulders of recruiting centre personnel to the shoulders of all Regular and Reserve personnel.” The effect would be to enlist 85,000 uniformed personnel as active recruiters to the armed forces.[9]

This pressure to pull young people into the service of Canada’s wars abroad is not going to end anytime soon. Building a movement to get the troops out of Afghanistan, is going to require building a movement to get the military out of our schools. No blood for oil, no youth for the killing fields.

© 2008 Paul Kellogg


[1] “Briefing Note: Cooperative Education and the Canadian Armed Forces,” Toronto District School Board, June 5, 2006
[2] “Briefing Note”
[3] “Briefing Note”
[4] “Military co-op opens door to a career,” ylife: York’s Weekly Newsletter for Students, October 2, 2006
[5] Sherene H. Razack, Dark Threats and White Knights: The Somalia Affair, Peacekeeping and the New Imperialism (Toronto: University of Toronto Press, 2004)
[6] “Bolstering our Forces,” National Post, May 14, 2008
[7] David Pugliese, “Parliament in the dark on major weapons purchase,” Canwest News Services, June 19, 2008
[8] “Canada First Defence Strategy,” National Defense, Canada, June 18, 2008
[9] “Op CONNECTION: Reaching out and touching Canadians,” National Defense, Canada March 9, 2006. For the response of the anti-war movement, see Dylan Penner, ed., War Free Schools: The Rise of the Counter-Recruitment Movement (Toronto: Act for the Earth, 2006)

Return of the Cold War?

February 21, a three-stage Navy SM-3 missile hit a satellite the size of a school bus, and blew it to pieces.[1] The bizarre explanation for this from the Pentagon, was that they were concerned for peoples’ health. The fuel tank on the satellite (which was falling out of orbit) contains several hundred pounds of something called hydrazine, which is a health hazard. Don’t believe the “health” explanation. The missile strike marks a serious escalation in the arms race, a race that may have slowed after the end of the Cold War, but never really went away.

First, the hydrazine “threat” is completely overblown. As Time magazine pointed out, “It’s extremely hard for a spacecraft component to survive reentry even if you want it to … The hydrazine tank … is unlikely to make it through the heat and aerodynamic violence of the plunge that awaits it, meaning that it will spill its contents high in the atmosphere, where it will represent barely a breath of gas that will disperse harmlessly.”[2]

The real reason for the satellite strike is military competition with Pentagon rivals. CNN reports that: “In January 2007, China used a land-based missile to destroy a 2,200-pound satellite that was orbiting 528 miles above the Earth.”[3] The destruction of the hydrazine-carrying satellite this month by the Pentagon is their way of saying to China, “what you can do, we can do better.”

In fact, the missile used in the strike is part of the Aegis Ballistic Missile Defense System, an integral part of what the Pentagon calls “Missile Defense” but what most of us call “Star Wars.” In 2002, the system was tested “successfully” according to the Missile Defense web site. Not all agreed. A report from the Union of Concerned Scientists was very sceptical, saying that missile defense would require hitting a tiny object, maybe one metre long, while the target used in the test was huge – a 10.5 metre long rocket. But it had to be that big, they said, because of the “relatively poor capability” of the radar used to track incoming missiles.[4] The Pentagon concluded they needed to test this technology “against more stressing ballistic missile targets and target scenarios.”[5] That is exactly the opportunity presented by the satellite that was falling out of orbit. It became the Star Wars equivalent of a clay pigeon to test the capabilities of a system which is designed for the terrifying prospect of war in space.

What we have is a return to what we thought was over – an arms race between Great Powers, playing Russian Roulette with the lives of the people of the world.

Most thought this was over because the last arms race was embedded in the Cold War, which was almost universally seen as a competition between capitalism on the one side and communism on the other. When the Berlin Wall came down in 1989 and the Soviet Union collapsed in 1991, analysts both left and right saw this as the triumph of capitalism over communism, and the end of the conditions which created the arms race.

This was terribly misleading. The Soviet Union, at the centre of the competition with the West, was a completely class-ridden society – a million miles removed from anything resembling communism or socialism. We cannot judge societies by the labels attached to them by their rulers. Socialism has to do with the deep extension of democracy to every aspect of the economy and the state. With the rise of Stalin, all aspects of democracy in the Russian state were expunged – and the wonderful economic democracy of the early years of the Russian Revolution disappeared when the workers’ councils (soviets) ceased to be more than rubber stamps for the state-appointed managers.

Russia was state-capitalist, and the competition to carve up the world between the U.S. and Russia world was no different in kind from the competition to carve up the world between England, France, Germany and Italy in an earlier epoch. The reason an arms race has “returned” is that it never went away. When societies are class-ridden and based on the accumulation of wealth and power in the hands of tiny minorities, then competition between these powers is inevitable, and the “classic” form of competition between states is military.[6]

We know that the Pentagon does not represent the forces of “freedom” that it always uses as justification for its muscle-flexing. By the same token, the Chinese state which is blowing up satellites with missiles is no more “communist” than the Russian state under Stalin, Brezhnev and others who used military force to crush revolution in Hungary, lay waste to Afghanistan, and throw away masses of money on a what remains the world’s second largest collection of nuclear ballistic missiles.

Marine General James Cartwright, vice chairman of the Joint Chiefs of Staff, could barely control his glee when announcing the successful strike against the rogue satellite. His smile might get even broader if the U.S. Congress approves its budget request. Submitted to Congress in the first week of February, the 2009 budget asks for $515 billion, up eight percent from the amount allocated last year. According to The Christian Science Monitor: “This request, adjusted for inflation, is the biggest since the end of World War II.” And it doesn’t even cover “war operations” whose first tab will be $70 billion for 2009, which likely represents “only a down payment on next year’s war costs.”[7]

To wipe the smile off the Pentagon’s face will require a movement against war that is every bit as international as the militarism of Washington, Beijing and Moscow.

© 2008 Paul Kellogg


[1] Peter Grier and Gordon Lubold, “U.S. Missile Shoots Down Satellite – But Why?” The Christian Science Monitor, February 22, 2008,
[2] Jeffrey Kluger, “Was a Satellite Shootdown Necessary?” Time, February 20, 2008
[3] “Pentagon confident satellite’s toxic fuel destroyed,”, February 21, 2008
[4] David Wright, “An Analysis of the 25 January 2002 Test of the Aegis-LEAP Interceptor for Navy Theater-Wide,” Union of Concerned Scientists Working Paper, March 3, 2002
[5] Missile Defense Agency, “Aegis Ballistic Missile Defense (Aegis BMD),”
[6] For more on the theory of state capitalism in Russia, see Tony Cliff, Russia: A Marxist Analysis (London: International Socialism, 1964), Raya Dunayevskaya, “The Nature of the Russian Economy,” The New International, December 1946/January 1947, and C.L.R. James and Raya Dunayevskaya, “State Capitalism and World Revolution”, 1950
[7] Gordon Lubold, “Pentagon asks for Biggest Budget Hike Since World War II,” The Christian Science Monitor, February 5, 2008