Exploring the economic dividend from extra defence spending
UK's strategic defence review lays bare the debate about spurring innovation and long-term productivity gains
It has been estimated by the UK government's Strategic Defence Review that the UK will need to spend about £68bn to prepare its armed forces for modern warfare.
The FT's Delphine Strauss observes in her recent article, How big is the economic dividend from extra defence spending?, that microchips, GPS satellites and the EpiPen are just some of the innovations that started life as US military projects and have since become ubiquitous.
The UK's Prime Minister Sir Keir Starmer wants to emulate this US example. His promise is that by boosting UK spending on the military to 2.5 per cent of GDP by 2027 and to 3 per cent in future years would yield a “defence dividend”, in the form of jobs, exports and lasting productivity gains.
London Business School's Paolo Surico has briefed officials at the Treasury and Ministry of Defence on research he conducted that extra suggests defence spending worth 1 per cent of GDP could raise GDP by up to 2 per cent in the long term and boost the UK’s poor productivity by 0.3 per cent over 15 years. That is provisional that the money is concentrated on research and development.
“US defence spending has been critical to an innovation ecosystem that has made them head the innovation race for the last 50 years. This is a productivity opportunity . . . Public R&D is the strongest and quickest way to push productivity,” he said.
To read the full article in the FT, click here For Professor Surico's research, click here
