Peace dividend was a political slogan popularized by US President George H. W. Bush[1] and UK Prime Minister Margaret Thatcher in the light of the 1988–1991 dissolution of the Soviet Union, that described the economic benefit of a decrease in defense spending. The term was frequently used at the end of the Cold War, when many Western nations significantly cut military spending such as Britain's 1990 Options for Change defence review. It is now used primarily in discussions relating to the guns versus butter theory.
While economies do undergo a recession after the end of a major conflict as the economy is forced to adjust and retool, a "peace dividend" refers to a potential long-term benefit as budgets for defense spending are assumed to be at least partially redirected to social programs and/or a decrease in taxation rates. The existence of a peace dividend in real economies is still debated, but some research points to its reality.[2]
A political discussion about the peace dividend resulting from the end of the Cold War involves a debate about which countries have actually scaled back military spending and which have not. The scale back in defense spending was mainly noticeable in Western Europe and in the Russian Federation. Although United States military spending rapidly fell between 1985 and 1993 and remained flat between 1993 and 1999,[3] it increased strongly after the September 11 attacks, funding conflicts including the War on Terror, the War in Afghanistan and the War in Iraq.
US intellectual Noam Chomsky has argued that US military spending was not due to security reasons, but rather a politically consensual mechanism to subsidize technological innovation via massive public military spending to benefit defense corporations and their partners.[4] There is therefore, asserts Chomsky, no interest in the US toward a peace dividend when peace arrives. On contrary, the fall of the USSR allowed the US to look for new external wars[5] to justify the desired military spending at home.
European nations were sharply criticized by a December 2023 Wall Street Journal article for the lack of progress on arming themselves since Russia's invasion of Ukraine in 2022. Examples it gave were Denmark having no heavy artillery or air defence, France only having 90 howitzers and Germany only having 2 days of ammunition stored. Noting that West Germany used to have 7,000 tanks, the article pointed out that now-unified Germany has only 200. Not only that but also military production is low in volume.[6] EU countries like Germany has for a long while been reducing the military spending.[7] With a NATO average spending in 1989 being 4% of GDP, with the number of tanks and equipment having been slashed alongside spending. In 2014 that same spending had dropped to 1.4%. The Washington Post described Germany as having the most "stunning" turnaround after 2022.[8] The peace dividend also affected the structure of Europe's militaries. Many European countries abolished conscription and moved to professional armies.[9] The peace dividend does not only show in the military sphere, but also in the economic. When the Russian 2022 invasion of Ukraine began, it was laid bare how unprepared and dependent some European countries were on Russian energy and raw materials. Germany had to scramble to build new LNG terminals.[10] Another vulnerability is pipelines and other infrastructure running on the seabed, evidenced by the Nord Stream explosions.[11] The Nord Stream incidents have highlighted similar threats to "critical infrastructure", such as against the energy network or the information network, like undersea cabels.[12]
While some countries in Europe, such as Finland, did not abolish its conscription and bought many weapons from the disarming nations, such as M270 and Leopard tanks from the Netherlands.[13][14] Thus Finland is amongst the better armed nations in Europe today,[15] while the Netherlands receive criticism for not having tanks any longer.[16] Although, even though these aspects, Finland too had its defense budget go under 2% in the post-cold war period.[17] While Sweden abolished its conscription and re-established it again after Russian annexation in Crimea and has since the 2022 invasion reinforced it further.
Bruegel estimates that the peace dividen has benefited Europe by 4,200 billion € over a 30-year period.[18]
The logic behind not spending money on threats like these outlined, is thought to spur economic growth, by freeing up the spending onto other things.[19] The Conversation states that the peace dividend helped finance the British welfare state, stating; "The UK currently spends slightly over 2% of GDP on defence each year, amounting to some £45 billion in 2021, or about £660 per person. This has fallen substantially over time. In the mid-1950s, the UK spent almost 8% of GDP on defence. That fell to about 4% in 1980, 3% in 1990, and around 2% today. At the same time, spending on the health service has grown from around 3% of GDP in the mid-1950s to more than 7% on the eve of the pandemic."[20] While the peace dividend was somewhat criticized earlier in the 1990s, with a war launched by Russia the peace dividend came to the fore of societal discussion and countries' spending on preventing threats started to increase.[21][22][23] Not everyone has criticized the peace dividend as a negative; "This study found that the results varied according to national characteristics and regional environmental characteristics. However, peace dividends generally had a significant impact on national productivity." - according to one research paper[24]
According to a 2023 Econpol report, NATO defense spending increased as a result of Russia's invasion, from an overall pre-war level of 1.7% of GDP to 1.9% in 2023, and 11 nations out of the 30 members (plus Sweden) above the 2% level. Poland became the biggest spender per capita and issued the biggest increase to its budget as well. The report noted there is an East to West divide, countries closest to Russia increasing spending the most in general. While some countries reduced their spending during the same 2021-2023 per capita such as Portugal, the United States and Croatia.[25]
Explaining that "Protection against external threats is a public good—and one of the core tasks of a state" ... "Maintaining an armed force, however, is expensive. Many NATO members must consolidate their budgets and have hardly any leeway for significant increases in expenditure." ... "If higher defense spending means making spending cuts elsewhere or raising taxes or public debt, it will be difficult for them to achieve a majority in parliament and elections, which may tempt some of them to simply announce that the 2% target will be reached sometime in the future." Though also stating in its conclusions that however; "Clearly, Europe’s peace dividend has come to an end."[26]
According to Forbes, the US helped win the Cold War with a high defense spending. Defense spending has decreased since the end of the cold war, in comparison with total federal spending. Stating: "This assessment proved to be accurate, as defense outlays as a share of total federal spending declined thereafter. The decade of the 1990s, in turn, was marked by above-average economic growth of more than 3.5% per annum, low inflation and a federal budget surplus by the end of the decade."[27]
In an article based on an opinion piece of Marco Rubio. Highlighting that the US military lacks 41,000 new recruits. Critizising the US for peace dividend not looking good in the US.[28][29]
Canada needs to spend an additional $18.2 billion to meet the NATO two percent of GDP spending goal, this in addition of the already planned increases. Commenting that Canadas spending where among the lower spenders on defence in the Alliance.[30]
In Australia the term has been linked to the Voice Referendum. That the down voting of said proposal could now increase culture wars.[31] While other opinions stay more true to the original definition and express worry about; "This reprioritisation of government spending could hurt Western living standards, including Australia’s. The absence of the peace dividend could hit the funding of education, health, lower taxes, the transition to a greener economy, housing and so on, as pressing needs other than defence are pushed to the side."[32] With others being worried about the peace dividend being to strong in Australia in light of recent world events following the Dissolution of the Soviet Union. Stating: "Indeed, it is now well recognised that the Australian Defence Force is in a position similar to that of a decade ago, with little progress made in the way of new capabilities being delivered to the ADF" and highlighting the changing times and that Australia should do more in the defense space.[33]
The African Union said its newsletter, linking the term strongly with peace negotiations. The AU highlighted peace efforts like the one between the Ethiopian government and TPLF and that peace trieaties would allow African countries to reap peace dividends, such as from good governance.[34]
While Viviana García Pinzón highlights the mixed results of peace dividend in Columbia following the Farc peace agreement. Saying that there has been some advances in democracy and shift of public debate to corruption, but that violence has still not ended despite the agreement. That in this way Columbia is in a middle state between fully gaining a dividends from peace and the previous levels in violence.[35]