Source: Satyajit Das

It’s often said that the post-1989 world economy reaped the benefits of a “peace dividend”. There was actually no “peace”. Economists contest the empirical reality of the “dividend”. But the global economy did gain in a number of ways.

First, global defence spending declined, freeing up resources for other expenditure. US defence spending fell from around 5.5% of gross domestic product (GDP) in 1989 to 2.6% of GDP in 2000. The reduction in defence spending was more marked in western Europe and in the Russian Federation.

Second, scientific and mathematical resources previously employed in the defence-industrial infrastructure were re-deployed, helping accelerate the growth of other parts of the economy, especially technology industries. One group was the physicists on Wall Street (or POWS) who entered financial services helping develop new financial products contributing to the financialisation of the economy.

Third, it allowed the integration of former communist economies into the Western trading economy, opening up new markets. It increased the global labour pool from approximately 1.5 billion workers to nearly 3 billion workers, reducing production costs and keeping inflation low.

Fourth, the dissolution of Cold War alliances and improved security conditions for trade and commerce provided impetus to the globalisation of production and capital flows.

The peace dividend may now be reversing.

Russian revanchism has increased in response to NATO expansion, fear of encirclement and other perceived slights. The Ukraine conflict and air and sea incursions in the Baltic seas adjoining Sweden evidence this shift. Former Soviet Union leader Mikhail Gorbachev has warned that the world is on the brink of a new cold war.

Radical Islam, Sunni-Shia conflict, tribal tensions, nuclear ambitions and geopolitical positioning have destabilised the Middle East.