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Financialization Feeds Endless War

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Women in 1040s clothes and hairstyles working in an industrial setting, one inside a conical piece of metal, the other above. They are building an airplane.

Understanding how financialization and militarism are intricately bound together can inform our organizing for a peaceful, productive, and people-centered future.

In recent months, the Biden administration has ramped up tensions with China, put troops on the ground in Somalia, and become increasingly involved in the war in Ukraine. Amidst such escalating conflicts, the promises of last year’s military withdrawal from Afghanistan seem like a distant memory. Rather than ushering in a new era, the end of America’s longest war has left the United States poised for continued militarism.

If we instead want a peaceful future—or if we simply want to avoid a conflict with Russia or China that could end life on earth many times over—then we must confront the forces in the U.S. that drive us from one conflict to the next in an endless pursuit of war. But it is hard enough to make sense of these varied and intertwined forces, let alone confront them.

These forces have become even more difficult to disentangle as the military-industrial complex has transformed over the past half century. Since the 1970s, financialization has permeated war-making as capitalists attempted to increase their profits and as military officials sought to expand their freedom of movement. In the process, many of the social and political constraints on war were removed and the interests of capitalists, financiers, and war-makers became increasingly interlocked. This set the stage for a vicious circle of financialization and militarism in the twenty-first century—with destructive consequences.

A Crisis of US Power

In the mid-20th century United States, war and military buildup created vast profits and millions of high-wage manufacturing jobs. This meant the U.S. could have both “guns and butter” as the military expanded and workers’ livelihoods improved symbiotically. Together they served as the foundations of US world power: unmatched military strength and genuine social improvements.

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Two key features of US war-making linked warfare and welfare together: conscription and mass production. Together, these meant that a large swath of working people was involved in war, either as drafted citizen-soldiers or as armaments manufacturing workers. War-making in the mid-20th century thus came to rely on working people, a reliance that workers, soldiers, and veterans leveraged into improvements in their conditions.

But after holding sway for a generation, these arrangements undergirding US power began to unravel in the late 1960s and early 1970s.

For one, the costs of these social arrangements were too much to bear for US elites. After decades of social provisioning and strong workers’ organizing, capitalists faced a drag on their profitability. Similarly, the expenditures from both military and welfare spending began to take their toll on government coffers. The combined costs of the Vietnam War and robust social programs drained the fiscal capacities of the state.

Meanwhile, the US faced challenges to the legitimacy of its power. Burgeoning social movements were protesting racialized and sexist exclusion of large groups of people from the mid-century arrangements that had benefited white male workers. At the same time, a mass movement arose in opposition to the Vietnam War, as citizen-soldiers fought and died in what was increasingly seen as an unjust conflict.

The ultimate blow to US power arrived in Vietnam. A poorly armed peasant insurgency defeated the most militarily and economically advanced capitalist superpower in world history. The entire world order—grounded in part in US military superiority—slid into disarray.

Many took this moment as an opportunity to challenge the organization of the world system. A series of revolutionary movements emerged in the underdeveloped world, and Third World states began to call for a more just and equitable New International Economic Order. Just as the US was grappling with defeat in Vietnam and unrest from below, OPEC’s oil embargo in 1973 paralyzed the country’s economy.

Thus, by the mid-1970s, US power was in crisis. The elites’ response to this crisis ultimately set the world down the path leading to chaos in the 21st century.

Charting a Path Out of Crisis

Capitalists began to chart a path out of the crisis that would increase profitability and reinflate their social and economic power. At the same time, within the war-making apparatus, officials sought to restore US world power by strengthening the military. The end of the draft in 1973—in an attempt to free war-making from the social and political challenges of using citizen-soldiers—forced elites to think creatively about how to go about such a strengthening.

Financialization proved to be a fruitful solution on all fronts.

Financialization refers to the process of financial activities—such as banking, private equity, hedge funds, stocks, derivatives, and credit-provisioning—taking up a growing share of the world economy. Financialization took off in the 1970s as productive activities (such as manufacturing) faced declining profitability.

Financial activities give capitalists greater mobility, allowing capital to more easily find extraordinary profits than if it was bogged down in the manufacture of commodities (dealing with factories, workers, and other physical infrastructure) which then had to be sold to consumers (leaving profits to the unpredictable whims of the market). As a result of this reconfiguration of the world economy, financialization ultimately yielded low employment and high inequality, complementing the neoliberal project that has wreaked havoc since the 1970s.

Financialization ultimately yielded low employment and high inequality, complementing the neoliberal project that has wreaked havoc since the 1970s.

The process of financialization thus flooded the world economy with mobile capital seeking ever-higher rates of return. In its attempts to find unconstrained profits, this mobile capital permeated the military sphere in three key ways, amounting to a financialization of war-making, as financiers and investors became deeply intertwined with the military-industrial complex.

Military Buildup on a Credit Card

First, the Reagan administration began to take advantage of the world economy’s dramatic increase in mobile capital to finance a buildup of nuclear and high-tech armaments. The US government largely paid for this buildup with debt-financing—essentially, putting it on a credit card. Financiers were eager to extend credit because the US government, in general, and arms manufacturing, in particular, were viewed as strong investments. The profitability of these activites was virtually guaranteed by the United States, as the final products—military weaponry—did not need to be sold on the open market.

In addition to providing a profitable investment for financial capital, this buildup helped resolve some of the other problems facing US officials at this time. For one, these high-tech weapons did not require a mass mobilization of soldiers to operate, and often increased the distance between the soldiers using them and the dangers of battle.

Moreover, this military buildup served to throw down the gauntlet to rivals, projecting US military strength and issuing a challenge to the USSR. The Soviets responded in kind, sparking an arms race that Fred Halliday has called the “Second Cold War.” The 1980s quickly became a period of escalating rivalry that yielded a series of military interventions—Grenada in 1983, Libya in 1986, Panama in 1989, and Iraq in 1990-1. These conflicts had the combined consequences of repressing resistance in the underdeveloped world and of demonstrating US military might.

Privatizing War

Second, financial capital more deeply permeated war-making as the US military began to privatize many of its activities. In order to deal with personnel problems stemming from the end of the draft, the Reagan administration turned to private companies to perform logistics and support work. These companies tended to hire low-wage workers, often migrants from the global south, as a cheap replacement for citizen-soldiers. The US military further outsourced military acitivites by contracting with private security companies that offered mercenary forces to complement US troops. Privatization thus had the benefit of replacing citizen-soldiers with cheaper (and more expendable) labor.

Both privatization and financialization are intertwined practices that David Harvey calls “accumulation by dispossession,” in which property and wealth are taken from public entities and individuals by capitalists for profit-making. Privatization transforms a public service into an asset that can then be speculatively traded on financial markets. Financiers thus become stakeholders in a formerly public service, and in doing so transform the logic of the activity from one of utility to one of maximizing shareholder value.

Thus, as the result of their privatization, military logistics and security activities are often pursued by capitalist firms under pressure to offer the highest returns to their investors. This means that the logic of financial profitability is now a major guiding force in these activities.

Reconfiguring Arms Production

Finally, finance permeated war-making as the organization of military-industrial production was transformed. Armaments firms (like many others in this period) used mobile capital to finance their relocation to less-organized labor markets and to underwrite a boom of mergers and acquisitions. At the same time, wars no longer required the mass production of conventional arms, but rather relied on small-batch procurement of high-tech weapons systems.

These reconfigurations of military-industrial production reduced the number of manufacturing workers required to support war-making.  This meant that, in addition to overcoming the constraints of citizen-soldiers by ending the draft, the financialization of war-making helped officials and capitalists overcame the costs of industrial workers via a reorganization of production.

Financialization and War-Making

The financialization of the war-making apparatus thus helped elites accomplish several of their post-crisis goals. First, by strengthening the military through an arms buildup and reimagination of war-making, it helped restore US world power. Second, the development of a high-tech and flexible military apparatus that didn’t require mass mobilization or threaten significant citizen-soldier casualties removed some of the social and political forces that had previously constrained war- and profit-making. Finally, these transformations resulted in remarkably high profits for firms that provided the high-tech arms, logistics support, and mercenaries—and for the financial investors providing the mobile capital underwriting these activities.

Indeed, armaments and military services were increasingly viewed as safe investments for financiers, backed by the strength of the US military and the promise of continued belligerence. Even after the collapse of the Soviet Union in the 1990s, capital still flowed into military industries. NATO expansion meant more weapons purchasers, and a merger boom among arms firms gave banks opportunities to finance acquisitions.

The financialization of war-making thus locked the profit interests of a large swath of capitalists and financiers to war-making more tightly and broadly than before. While some capitalists had always profited from arms manufacturing and logistics support, financialization not only intertwined banks and financial firms in war-making, but also turned a massive number of individual financiers into shareholders in military firms—and in US militarism. (For example, last year Lockheed Martin reported over 24,000 total shareholders. Approximately 2,500 of those are financial institutions—and nearly all of the remaining shareholders are individual investors.)

The financialization of war-making locked the profit interests of a large swath of capitalists and financiers to war-making more tightly and broadly than before.

In the 1990s, soaring profits combined with the collapse of the Soviet Union (in no small part under the pressure of the arms race with the US) and apparent US victories in several small, popular military operations to make the decade an era of elite triumphalism.

But beneath this belle époque lurked the consequences of elites’ actions. Financialization and the neoliberal project had worsened the livelihoods of a large segment of working people, while putting the expensive military buildup on a credit card had dramatically increased US indebtedness to potential economic challengers—especially those in East Asia.

By the turn of the 21st century, simmering social and geopolitical tensions, the greater intertwining of capitalist interests with war-making, and a feeling of military invincibility had primed the US for endless war.

A Vicious Circle in the 21st Century

After a decade of elite triumphalism, war arrived with the US invasions of Afghanistan in 2001 and Iraq in 2003. Ironically, the same financialization of war-making that set the stage for the 21st-century wars led to the U.S. getting bogged down in them. Rather than swiftly moving from Afghanistan and Iraq to Iran and beyond, the U.S. remained embroiled in its initial wars for decades, giving them a seemingly endless character.

For example, Richard Lachmann has noted several ways that the structure of elite interests in the 21st century is detrimental to US war efforts. First, the overinvestment in high-tech weapons systems led to an underinvestment in cheaper and simpler weapons that could be more useful in counter-insurgency warfare. Stockpiles of useful technologies like mine sweepers and small-diameter bombs would come at the expense of investments in high-tech platforms such as submarines or carriers—a tradeoff that would be detrimental to officers’ careers and cut into  armaments firms’ profitability and their shareholders’ value.

Second, war planners saw the invasions of Iraq and Afghanistan as opportunities to enrich Americans through the seizure of oil reserves and other assets, and the further privatization of state activities. This “neoliberal plunder” made it difficult to recruit collaborators by robbing local actors of opportunities for enrichment. As local enterprises were replaced with US firms, the goods and services that used to be provided by Iraqis and Afghans for Iraqis and Afghans were now provided by US firms with foreign labor forces. Per Lachmann, local elites thus did “better for themselves by allying with insurgents” instead of US forces.

These factors stymied US military goals. Lacking either simple and effective weaponry or local collaborators, the US response to each obstacle it faced was ever-greater doses of firepower. While this firepower wrought great destruction, it failed to accomplish military goals, and ultimately served to solidify resistance to US war-efforts (and created blowback that would lead to new threats, such as the rise of ISIS).

Despite its failures, this response had the dual benefits of reinforcing the fragile US sense of military superiority while also requiring the continued procurement of profitable arms. This has meant any attempts to shift strategies—let alone wind down the wars—faced significant headwinds not only from the military but also from capitalists whose profits were at stake.

Indeed, the interlocking interests of capitalists, financiers, and war-makers that developed in the late 20th century have become even tighter in the 21st. Financialization and war have expanded together symbiotically. Two decades of war have increased the opportunities for militarized profit-making—making military industries an ideal investment for financial capital—and a growing number of financial firms are specializing in military sector investments.

As Shana Marshall notes, the interlocking interests of capitalists and military leaders in the pursuit of war “ensures a steady delivery of investment in militarized technologies and high returns for finance capital from continued US commitment to a highly militaristic foreign policy.”

This amounts to a vicious circle of financialization and militarism. Any expansion of war leads to greater profits for firms, which only enhance the capacity of firms to attract investments. This intertwines an ever-larger number of capitalists in war, expanding the base of support of militarism. These capitalists then use these profits to lobby for war, to finance pro-war think tanks and research, and to influence media coverage of world problems.

This vicious circle creates powerful pressure for the US to adopt a narrow foreign policy vision in which military action is the go-to solution for every problem. This is a destructive state of affairs in any instance, but it becomes even more dangerous when the US sets its sights on rivalry with other powerful states.

The vicious circle of financialization and militarism creates powerful pressure for the US to adopt a narrow foreign policy vision in which military action is the go-to solution for every problem.

Endless war in dangerous times

The decades-long project of attempting to restore US power ultimately helped fuel challengers to its primacy. Already beginning in the 1980s, the turn to finance for military buildup increased US indebtedness to East Asian powers. With the US wars in the 21st century, this debt only grew: by 2020, the US had accumulated $2 trillion in war-related debt. About 40 percent comes from foreign borrowing, with China and Japan as the leading holders of US debt.

China’s economic boom over the same period, combined with the growing perception that US militarism was causing great damage to the world, fueled China’s rise as a strategic partner for countries around the globe. One could go so far as to say, to paraphrase Giovanni Arrighi, that China has been the real winner of the war on terror.

From Bush and Trump to Obama and Biden, the US response to rivals in the 21st century has been a doubling-down on militarism in an attempt to cling to preeminence. This is an unsurprising development. As the adage goes: if the only tool you have is a hammer, you tend to see every problem as a nail.

Decades of interlocking capitalist and financial interests in war have helped create a situation in which militarism is the first, last, and only approach in the US toolbox—a hammer for which the rest of the world is a nail.

This is not to say that all financiers and capitalists are excited about expanded confrontation with rivals like China and Russia. Indeed, many can see the dangers—if not to humanity, then to their bottom lines—that world war would bring. Much as with climate change (which, like endless war, is an exisistential threat to humanity that has been driven by a never-ending pursuit of profit), not all capitalists are eager to reap what they have sown.

Nevertheless, despite the dangers, the growing number of capitalists and financiers intertwined with war-making can’t help themselves. The war in Ukraine, for example, has already proved to be remarkably profitable for many, as arms transfers, regulatory maneuvers, and financial sanctions fill the coffers of firms—and boost the value of shareholders—from Raytheon and Lockheed Martin to Facebook and Goldman Sachs.

If we are to bring endless war to an end, then we must confront these entrenched interests that are invested in continued militarism. But such a confrontation requires understanding the balance of forces we face. Making sense of how the inequities of financialized capitalism and the dangers of endless war are intricately bound together is thus an important step in the path towards a peaceful, productive, and people-centered future.

Featured image: War-making in the mid-20th century relied on mass production, which workers used to their advantage. Pictured here, British “Rosie the Riveters” at work, riveting the rear fuselage of a Fairley aircraft during WWII. Ministry of Information official photographer, Public domain, via Wikimedia Commons