The Economy of Self-Destruction: When War Becomes Industrial Policy
Military-industrial complex spending is becoming British industrial policy as manufacturing shrinks, defence budgets rise and civilian investment is diverted. Eisenhower’s warning now has a distinctly British echo.
On 18 September, as voting opened in Russia’s parliamentary election, Vladimir Putin told his Military-Industrial Commission that some European leaders were “openly stating that they are preparing for war with Russia”. Of European drills in the Baltic that include practising the seizure of civilian ships, he said Russia would rather be friends, “or we will have to respond”. In a clip carried by RT, he added that, in his opinion, “rising military tensions are being used to distract from falling approval ratings and domestic economic failures.“
Weigh the source. The man making the accusation was addressing a body whose business is arms production, while his army fights in Ukraine. Putin’s charge is self-serving, and it was Russia’s invasion in 2022 that sent European budgets climbing. Nothing that follows excuses it.
But ledgers do not explain how nations march to war. Fear does, and pride, and memory, and the mistakes of men who believe they are acting in self-defence. Consider who is now sounding the alarm. Germany’s defence minister, Boris Pistorius, has told the Bundestag that Germany must be war-ready by 2029, and warns that Russia could be capable of striking NATO by 2029 or 2030. In June 1941 Germany invaded the Soviet Union, and by the Soviet reckoning some 27 million of its people died. In 1955, days after West Germany joined NATO, Moscow answered with the Warsaw Pact.
Germany’s defence budget has since climbed from about €32 billion in 2014 to more than €108 billion this year, and Chancellor Friedrich Merz wants the strongest conventional army in Europe. Putin knows exactly which history he is invoking when he says of that ambition: “Good. We listen carefully, understanding what is meant.” It is hard not to hear in all this a prelude to something worse.
History does not point one way. Poland and the Baltic states remember Soviet tanks, and that memory drives their fear as surely as any spreadsheet.
None of this begins in 2022. In February 1990, Secretary of State James Baker told Mikhail Gorbachev three times that NATO would move “not one inch eastward” if a united Germany stayed in the alliance. It was never written into a treaty, and historians dispute how far it was meant to reach, but the declassified record shows the words were spoken.
In 2008 the American ambassador in Moscow, William Burns, later head of the CIA, warned Washington that Ukrainian membership was “the brightest of all redlines” for the Russian elite. Two months later, at Bucharest, NATO declared that Ukraine and Georgia would become members, with no date and no path. Add Kosovo in 1999, the first time NATO used force without the Security Council’s endorsement, and Libya in 2011, a mandate Moscow says was stretched into regime change, and it is not hard to see why Moscow stopped believing the alliance was only defensive.
None of that made the invasion lawful. Europe’s human rights court has found that Russia controlled the separatist areas from May 2014, and Ukrainian support for NATO, 18 per cent in 2013, reached 62 per cent by 2022 because of what Russia did.
The West built the tinder. Russia struck the match…
Each side has its own version of the last twelve years. In February 2023 NATO’s then Secretary General, Jens Stoltenberg, said “The war started in 2014”, and that since then NATO Allies had given Ukraine training and equipment, so that its forces were much stronger in 2022. He meant it as a defence of Ukraine, and he dated the start to Russia’s annexation of Crimea and its move into the Donbas. Read from Moscow, the same words describe eight years of an alliance it already regarded as hostile preparing its neighbour’s army. Britain alone trained 22,000 Ukrainian troops. Washington’s steps were incremental: Barack Obama declined to send lethal weapons in 2014 for fear of escalation, and Donald Trump approved Javelin missiles in 2018.
Read from Kyiv and Warsaw, the same years look like a country whose territory had been seized, with Russian-backed forces in the Donbas that Europe’s human rights court has since found were under Russia’s effective control from May 2014. Moscow calls the change of government in Kyiv that February a coup, and Ukraine calls it the Revolution of Dignity. A leaked call in which a senior American diplomat weighed who should lead the next government gave Moscow’s version its best evidence.
But the Ukrainian parliament voted 328 to nil to remove a president who had fled the capital, and I have seen nothing to show that Washington organised the uprising. Both accounts are sincerely held. Each is fed by events the other cannot forget.
That is the action and reaction I mean. Every defensive step is read by the other side as an aggressive one. In August Putin threatened to seize European ships in retaliation for boardings of Russian “shadow fleet” tankers, and this week Finland practised boarding a suspicious vessel near undersea infrastructure. Each side describes itself as responding to the other. That is how it always sounds.
And we are not at war. Before the invasion, Russia’s military spending sat just below Britain’s in SIPRI’s rankings. Last year NATO’s members spent $1.58 trillion, 55 per cent of the world’s total. Yet the Chancellor’s statement announcing the extra £15 billion for the Defence Investment Plan speaks of moving Britain towards “warfighting readiness”. A country that says it wants peace, and prepares in the language of war, should not be surprised when the language becomes the plan.
In January 1961, Dwight Eisenhower used his farewell address to say that America had been compelled to create “a permanent armaments industry of vast proportions”. He was no pacifist. He had commanded the Allied armies in Europe, and he insisted that arms must be mighty enough that no aggressor is tempted to risk his own destruction. His fear was “unwarranted influence” by the military-industrial complex, sought or unsought. The danger was never that defence is unnecessary. It was what happens when permanent military spending becomes embedded in the economy itself.
Now look at what Britain still makes. Manufacturing accounted for 8.5 per cent of UK economic output between April and June, while services make up about four-fifths of the whole. In 2025 the country ran a £221 billion deficit on trade in goods, offset in part by a £203 billion surplus in services. Trade is not the enemy. But there is a difference between trading with the world and surrendering the capacity to make things.
GDP disguises the loss. It still counts the lorry, the warehouse, the loan and the till, while the making happened somewhere else. But an economy that works for the few is a closed circuit, and it goes stale. A wage earned making something is largely spent back into the economy that paid it. A wage lost when the factory shut is spent nowhere, and every job we export takes a customer with it. Cheap imports lower the price for people who no longer earn the money to meet it. The saving is shared between the shopper and the retailer, and the cost lands on the worker. We have called this efficiency. Sooner or later the buyers have no jobs, and the shelves are full of things nobody can afford.
Into that hollow comes the one order book the state will fill without argument. On 30 June the Government published its Defence Investment Plan: £298 billion over four years, including an additional £15 billion. The then Prime Minister, Keir Starmer, said it would deliver a “defence dividend” and almost 60,000 jobs. His successor has gone further. Andy Burnham has pledged half a million defence and aerospace jobs by 2030.
I will not sneer at those jobs. But the dividend is not paid from nowhere. The Government’s own explainer says the extra money is funded primarily by reallocating budgets from across government departments, with £10.3 billion identified now and £4.7 billion still to be confirmed at the Budget. The Institute for Fiscal Studies says around half of the increase comes from cuts to other departments’ capital budgets, with larger cuts to transport and energy. The state is taking investment in trains and the grid, which also employ people, to pay for missiles. When an economy has been stripped of so much of its productive base, war itself begins to look dangerously like industrial policy.
Nor is defence the only sector that profits from a world on edge. After US and Israeli strikes on Iran, shipping through the Strait of Hormuz, which carries a fifth of the world’s oil, came to a near halt. In the second quarter Exxon made $14.5 billion and Chevron $12.1 billion. The Bank of England projects that a little over five million households will see mortgage repayments rise by the end of 2028, up from nearly four million in December, after markets repriced following the war. Barclays, meanwhile, reported first-half pre-tax profit of £6.1 billion, up 17 per cent, on trading revenue from volatile markets.
None of this proves that anyone manufactures wars to enrich arms makers, oil producers or banks. That claim goes beyond the evidence. The problem is structural: a system in which crisis has profitable constituencies.
“The war is not meant to be won, it is meant to be continuous. Hierarchical society is only possible on the basis of poverty and ignorance. This new version is the past and no different past can ever have existed. In principle the war effort is always planned to keep society on the brink of starvation. The war is waged by the ruling group against its own subjects and its object is not the victory over either Eurasia or East Asia, but to keep the very structure of society intact.” ― George Orwell
There is always a balance in geopolitics, and history shows how quickly it can tip the wrong way. Governments can convince themselves that military spending is deterrence, that escalation is controlled and that every new weapons programme simply buys security. Sometimes they are right. The lesson of the 1930s is that weakness invites aggression. The lesson of 1914 is the opposite one, that mobilisation timetables, once running, can leave diplomacy with nothing to negotiate with. That is A.J.P. Taylor’s case in War by Timetable, and historians still argue over it. A serious country holds both lessons at once.
What it cannot afford is an economy that holds only one. The constant beat of the war drum has consequences. Sooner or later, rhetoric becomes mobilisation, mobilisation becomes confrontation, and the drumbeat is drowned out by something far more real: the crunch of boots on the battlefield. When ministers promise defence jobs in every region, when capital is taken from energy and transport to pay for them, and when oil companies and trading floors profit from the tension, those with an interest in it continuing are organised and well placed. Those with an interest in it ending are scattered across the country, paying the bill. I am not claiming anyone orders a war. I am saying that an economy built on the drum has no natural brake.
The test is coming. Chancellor John Healey, who resigned as defence secretary over funding before returning under Burnham, delivers his first Budget on 28 October, where the plan’s remaining gap must be closed. Do not pay for missiles by cutting the capital budgets that also build things. Tax the war profits of the oil majors, as European lawmakers and Democrats in Congress are already demanding. Attach conditions to every defence pound: British production on British payrolls, recognised unions, public equity where the public pays for the plant. And keep talking. To arm for deterrence is prudent. To treat every attempt to de-escalate as betrayal is how drums become boots.
There is a better precedent than a bigger arms budget. In January 1976, workers at Lucas Aerospace published an alternative plan in response to the company’s announcement that thousands of jobs were to be cut, and it included over 150 designs for alternative products such as wind turbines, hybrid cars and heat pumps. Nearly half of the company’s business was related to military matters. Management rejected the plan, but it was nominated for the Nobel Peace Prize in 1979. Tony Benn called it “one of the most remarkable exercises that has ever occurred in British industrial history”. Its logic was simple: put the working people of this country to work on what the country needs. A state that can order missiles by the thousand can order heat pumps, turbines, trains and steel, and pay the people who make them. We must produce more than arms.
Eisenhower warned where that road could lead. Perhaps the most disturbing thing is not that his warning failed.
It is that we built the economy he warned us about.
