A Peace Dividend: What Is It?
A peace dividend is the economic benefit that a nation receives when a conflict ends.
Theoretically, the government may then cut military expenditure and redirect the funds to objectives for domestic policy.
This presupposes that funds recovered from military expenditures are often used for human or sustainable development and the benefit of society—for instance, new housing, healthcare, and education initiatives.
A peace dividend also may refer to a gain in market sentiment, which in turn stimulates an increase in stock prices when a conflict ends or a significant danger to national security has been removed.
The Oxford English Dictionary states that Fortune magazine used the term “peace dividend” for the first time in 1968, writing, “In Washington, the magic word is ‘the Peace Dividend’…
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The demise of communism in Southeast Asia and the opening of markets for American firms were anticipated by American politicians at the time.
They also believed that, in accordance with the “guns and butter” idea made famous by macroeconomists in the middle of the 20th century, the money spent on the Vietnam War would be redirected into public projects when the conflict was finished.
Both of these statements were stated by Richard Nixon in his 1972 acceptance speech for the Republican nomination for president of the United States:
All too often, my fellow Americans, the peace dividend that we hear so much about is explained just in terms of money—how much we might divert from the budget for weapons and use for our own domestic needs.
The greatest benefit, however, is that realizing our objective of a sustainable global peace would represent the aspirations and values of every American.
“We covet no one else’s territory, we seek no dominion over any other nation, and we seek peace, not only for ourselves but for all the people of the world,” I was glad to remark in my May televised speech to the Russian people on behalf of the American people.
Regretfully, the savings from the conclusion of the military action in Vietnam were completely destroyed by the ongoing rise in U.S. inflation in the 1970s.
However, the notion that opening markets for American interests would improve the economy was carried over to succeeding administrations and used as justification for winning the Cold War.
Following the Soviet Union’s collapse and the United States’ stunning military victory over Saddam Hussein in the first Gulf War, U.S. President George H.W. Bush pledged in 1992 to reduce military expenditure.
The goal of the ensuing peace dividend was to reallocate the funds to domestic initiatives and reduce military expenditure by more than 3.3% after inflation.
Bill Clinton, one of the Democratic candidates that year, called for $140 billion in savings “by trimming federal bureaucracy and slashing the military budget” in order to significantly reduce the defense budget.
The New York Times. “The 1992 Campaign: Economic Plan; Clinton and Perot Numbers Are Crunched, Then Criticized by Darman”
Despite winning the election, Clinton’s chance to realign the budget never had any noticeable outcomes.
The massive expansion of the global economy after globalization from 1991 to the present, particularly in East Asia, Southeast Asia, and Brazil, has contributed to the peace dividend, if there has been one.
Why It’s Hard to Realize a Peace Dividend
Although a peace dividend seems like a good thing in principle, it is difficult to make a peace dividend a reality in reality.
Both World Wars I and II brought about economic booms in the United States.
A 44-month economic boom followed from 1914 to 1918, first as Europeans started buying American products for the war and then as the United States itself entered the conflict.
The United States was in a recession when it entered World War I.
In order to fund the war effort, the government also took out large loans, which boosted the economy.
Increased government borrowing and military expenditure during the Vietnam period overheated the economy and caused inflation, but sustained defense investment also gave rise to powerful economic interests who claimed demobilization would destroy companies and employment.
While reducing military expenditure might have significant benefits, especially in the long run, it usually results in the underutilization or unemployment of labor, capital, and other resources in the near term.
The custom of cutting military expenditures once a battle is over was broken in the 1980s by President Ronald Reagan’s defense budget, which included the “Star Wars” missile system.
To combat the worldwide war on terror, governments from George W. Bush to Barack Obama sustained high military expenditure levels in the 2000s and 2010s.
Despite his isolationist statements, then-President Donald Trump demonstrated that his government oversaw the highest military spending in history.
“In early December 2018, Trump went as far as calling current levels of U.S. defense spending ‘crazy,’ only to announce plans for a $750 billion defense budget just a week later,” according to James Miller and Michael O’Hanlon.
When Trump took office again in January 2025, he urged NATO members to boost their military budgets.
The yearly military expenditure might surpass $1 trillion if the United States itself reaches Trump’s goal of 5% of GDP.
The majority of Western European nations were not better off, but rather worse off, as a result of the transitional costs associated with the end of the Cold War and the inadequate government responses.
There was no cooperation between governments or between business and the state, and defense cutbacks happened in an unanticipated frenzy.
Dividends from Peace and Inequality
The legitimacy of a peace dividend was also called into doubt by the global financial crisis of 2008.
Populist movements upended the political and economic unity that served as the basis for a recurrent peace dividend after over 20 years of global economic expansion.
From Trump in the United States to Marine Le Pen in France, Geert Wilders in the Netherlands, and Narendra Modi in India, these populist trends have been seen globally.
Discontent among the people left behind, both those in rich nations who live in rural areas and still developing countries over the unequal distribution of commodities obtained during the peace, forecasts greater political instability and maybe an end to the peace.
As Sanjeev Gupta, Benedict Clements, Rina Bhattacharya, and Shamit Chakravarti have showed, the change from peace to war may be exceedingly destructive to economic development, although the stock market of the nation at war may not respond immediately.
In the ultimate analysis, the peace dividend, if it exists, has not been deposited or received.
The ongoing international wars in which the United States has been engaged for the last 20 years are the finest example of this.
These include the civil war in Syria, the growth of ISIS, the conflict in Afghanistan, and the Iraqi problem, all while the nation’s inequality is growing.
The Vietnam War: What Was It?
North Vietnam and South Vietnam, together with its allies, battled each other for 20 years in Vietnam, Laos, and Cambodia. In April 1975, the United States’ involvement in the conflict as a South Vietnamese ally came to an end. Soon after, North Vietnam emerged victorious in the conflict.
The Cold War: What Was It?
The Cold War, which lasted from the conclusion of World War II to the Soviet Union’s disintegration in 1991, was a time of geopolitical competition and tension between the US and the USSR as well as their respective allies, the communist Eastern Bloc and the capitalist Western Bloc.
Defense Spending: What Is It?
Defense expenditure is the amount of money a government spends on providing its armed forces with personnel, equipment, and weaponry as well as retirement benefits and other military-related expenses.
Spending on defense may have a variety of effects on a country’s economy, including increasing private sector investments, depleting other public funds, and adding to the national debt.
The Bottom Line
The fictitious boost to a nation’s GDP in the post-conflict period is known as a peace dividend.
This is predicated on the government’s ability to cut military expenditure and redirect the funds to initiatives that promote human or sustainable development and the welfare of society.
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