Measuring the Peace Dividend in the United Kingdom

Abstract

The changing strategic climate in Europe has led to considerable speculation about major cuts in military spending. This paper examines the economic implications of such reductions in military spending for the UK. The international economic and strategic context is discussed and then a multi-sectoral macro-economic model is used to evaluate the impact of cutting UK defence spending. The simulation results show that a reduction in military expenditure to one-half of its 1992 level by the year 2000, with the released `peace dividend' allocated to other government current and capital expenditures, would lead to a reduction in unemployment of 0.52 million and an increase in output above base by 1.84%. While these results do hide potential problems at industry, company, region and local community levels, it is argued that these problems of transition are both smaller and less difficult to deal with than those experienced in the past. The restructuring of the arms industry is already taking place and the required local adjustments are no worse than those experienced by traditional manufacturing industry over the past decade and, with careful planning, could be made painless. Overall, it is clear that with sensible adjustment policies the reduction of military spending provides an opportunity for improved economic performance.