Dwight Lee is professor of economics at the University of Georgia and holds the Ramsey Chair in Private Enterprise.
Why was Mikhail Gorbachev willing to sign the Intermediate Nuclear Force (INF) treaty which calls for the elimination of all U.S. and Soviet intermediate range nuclear weapons in Europe? One obvious answer is that the Soviet Union has an advantage over the West in conventional forces. But this raises another troubling question. Why, in the face of a weak Soviet economy, is Gorbachev willing to shift toward conventional forces, when nuclear weapons are relatively cheaper? Haven’t we heard repeatedly that the Soviets are sincere in their stated desire for arms control because they cannot afford an expensive arms race? There is no doubt that the Soviet economy is weak, especially the civilian sector. Economic decisions in the Soviet Union are controlled predominantly by central planners, and will remain so into the foreseeable future, Gorbachev’s policy of perestroika notwithstanding. Central planners are incapable of either acquiring or acting upon the information needed to keep production decisions responsive to the changing preferences of millions of consumers. This explains why the Soviet civilian economy is characterized by unimaginative managers, poorly motivated workers, inferior products, and chronic shortages. Contrary to the prevailing understanding, however, poor economic performance encourages military spending in the Soviet Union. It does so in two important ways. Economic inefficiency in the Soviet’s civilian sector 1) increases the importance Soviet leaders attach to military strength and 2) reduces the costs of producing that strength. In contrast with the United States, the Soviet Union is a superpower for one reason only: its military strength. Without its military power, the Soviet Union would be a large but poor country, and its leaders would have little standing or influence in the world community. Within the Soviet power structure, the impotence of the economy accentuates the importance of the military. Poor economic performance also reduces the real cost of Soviet military spending. The cost of producing anything, whether bombs or band-aids, is the value of output that must be forgone. The Soviet Union may be less efficient absolutely at producing military hardware than the U.S., but the production of military equipment costs less in the Soviet Union because, with its inefficient civilian economy, this production crowds out less civilian output than it does in the United States. The Soviet Union has what economists refer to as a comparative advantage in producing military power. Soviet leaders have responded predictably to this comparative advantage. They know that if the Soviet Union were to distribute its resources among the military and civilian sectors in the same proportion as does the U.S., then it would cease to be a superpower. But a large sacrifice in military strength would produce little improvement in what would remain a weak civilian economy. Thus, Soviet leaders have lavished resources on the military sector, and created the military machine we confront today. The INF treaty raises the costs of the military competition between the U.S. and the Soviet Union because it increases the emphasis on conventional weapons. Despite the overwhelming economic advantage the U.S. and its NATO allies have over the Soviet Union and its Eastern European allies, any arms agreement that increases the costs of military competition plays to Soviet strength. The Western democracies can compete dollar for dollar with the Soviet bloc militarily, but there is little evidence that they will. In economically efficient democracies, strong political pressures exist to subordinate military spending to civilian consumption. The convenient belief is that the same pressures exist within the Soviet Union, and are intensified by the weakness of the Soviet economy. This is a delusion. The ever-present danger in a democracy is that delusions will control our decisions. This danger is at no time more threatening than when it leads to attempts to increase our security by trusting in arms control agreements such as the INF.
Dwight R. Lee
Dwight R. Lee is the O’Neil Professor of Global Markets and Freedom in the Cox School of Business at Southern Methodist University.