Defense Burdens, Capital Formation, and Economic Growth

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Abstract
One of the factors thought to explain the relative decline of system leaders is the high military overhead costs assumed by leaders. High defense burdens, however, may be achieved at the expense of investment, capital formation, and future economic growth. By evading the high defense burdens, rivals and competitors are able to improve their relative economic positions while the system leader's economic position is decaying. Focusing on Smith's (1977) earlier analysis of this phenomenon, we examine the empirical record for two system leaders (Great Britain in the nineteenth century and the United States in the twentieth century) and several other major powers. Longitudinal evidence for a defense burden-investment tradeoff is restricted to the cases of France (1872-1913) and the United States (1946-1978). These findings suggest that the tradeoff explanation may contribute to explaining some cases of leadership decline but that it will not necessarily fit all cases.