By Shana Marshall
Marshall, Shana, 2023. “Theorizing the Intersection of Financialization and Militarism,” Security in Context Working Paper 23-01. May 2023, Security in Context.
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Abstract: There are many forces driving the militarization of societies in the Global North and Global South, from struggles over dwindling environmental resources to rising income inequality. One factor not commonly addressed by researchers is the financialization of the global economy. The accumulation of surplus capital made possible by this financialization is driving a dramatic expansion of private investment in weapons technologies, military hardware and security services. Buttressed by growing state spending on military research and procurement, private equity and other investors are reaping substantial returns in these sectors, driving a cycle of militarized production and heightened financialization.
Questions of the organization and function of the global arms industry sit at the intersection of inquiries into the very nature of states, markets, and war. If direct military invasion and occupation of another state are the most extreme expression of international relations, then the equipping of foreign states with weapons is only a small step removed. Yet, while war-making is central to academic theorizing, the arms trade – and its foundation in the global military industrial complex – is rarely given equal consideration. This is especially true in the post-Cold War era when the globalization of weapons manufacturing has produced a transnational industry and trade in armaments that is governed less by state actors and more by private industry.
Most political economists are very familiar with the distributed and diffuse financing networks and supply chains involved in, for example, the apparel industry. But few are aware that many Raytheon missile components are produced in the same Mexican border towns that figure centrally in our discussions of low wage migrant labor, or that the largest defense contractors are establishing landed companies in major conflict zones in order to co-develop new weapons systems to avoid US and EU technology export restrictions. The forces that facilitated these changes: the increasing influence of private industry over the state, the role of finance in directing the development and growth of global manufacturing, and the dramatic expansion and complexity of supply chains, apply equally to missiles as to washing machines. Given these realities, we should use the same methodological and analytical tools we apply to our histories of capitalism (those that examine the rise of capitalism through certain commodities or the capital formations that are produced in certain periods) to examine the development of the arms industry. More specifically, we should examine the arms industry in the current context of the financialization of the global economy. As we witness the phenomenon of financialization (the increasing dominance of the financial sector) we also see the increasing centrality of militarized (or securitized) industrial production. How do these trends constitute each other, and what is the result of that interaction?
Logically, military production should be the last sector to succumb to the disciplining force of the market. The maintenance of a national military industrial base and continued technological supremacy are (ostensibly) the ultimate concerns of national policymakers. This has translated into government protection of military industry, shielding it from the pressures that have produced declining rates of profit in other manufacturing and service industries. Its protected status attracts private investment dollars in a way that civilian production cannot. The industry enjoys access to massive government subsidies (for R&D, infrastructure, and other major capital expenditures); special contracting terms that guarantee profit margins on government contracts that comprise the vast majority of its business; a uniquely permissive regulatory environment (penalties for violations are often waived due to the small number of firms capable of manufacturing certain systems), and structurally embedded congressional support for increased expenditures. The growth of overseas markets (the largest firms make about 20% of their revenue from overseas sales) means technologies of military hardware are often transferred under surprisingly loose regulatory schemes. However this proliferation is quickly remedied by manufactured demand for regaining a technological edge that provides renewed domestic funding. Despite these privileges and subsidies large weapons firms are no longer managed like the oligopolistic providers of strategic industrial infrastructure they were under earlier versions of US capitalism. Their singular goal is not, in fact, defense of a geographically-bounded nation state but the maximization of shareholder returns – the same imperative that governs every other private firm under financialized capitalism. These features, combined with a highly interventionist foreign policy establishment in the US and widespread deregulation of the financial industry has produced a massive military industrial complex and a financial sector eager to profit from it.
Other markers of financialization are also visible in the military industrial sector, these include the capitalization of asset streams through new financial products such as the ‘offset credits’ often sold and traded by military firms as well as the advent of substantial corporate venture capital funds that invest in startup firms and acquire smaller tech firms. The impact of these large funds – and the parallel government funds such as In-Q-Tel, OnPoint Technologies, and the Defense Innovation Unit (DIU) that provide financing to ventures with military and intelligence applications – is to militarize technology firms that might otherwise engage in development of civilian products. The Pentagon’s new Office of Strategic Capital was created in December 2022 to provide emergency bail out funds to these firms (and their private equity funders) that the agency considered to have important military applications.
Ties between big capital and the weapons industry are of course not new. The very first venture capital firm in the US, American Research and Development Corporation (ARD), was itself founded to profit from the new technologies developed for use in WWII, and the role of military spending in turning Silicon Valley into a tech hub is well documented. But the rapid proliferation in the number of private equity firms that are expressly investing in weapons and intelligence technologies is a more recent phenomenon. Firms like Veritas Capital, Civitas Group, Arlington Capital Partners, Behrman Capital, and Paladin Capital specialize in investing in startups, providing investment capital to fuel growth in weapons development and steering yet more private capital into the military sector. Other private equity firms target not just startups but some of the largest weapons firms. At least two firms ranked by the Stockholm International Peace Research Institute/SIPRI as among the world’s 25 largest military firms (Peraton and Amentum) were recently acquired by private equity firms. An analysis of Pitchbook data conducted by SIPRI concluded that 3,700 US-based arms companies were involved in market deals between 2000 and 2021, with about 25 per cent of those deals funded by private equity. Most of these PE firms combine the marquee names and government contacts of high-ranking military and national security retirees with veteran investment bankers who use their rolodexes of wealthy clients to raise capital for new funds designed to invest in security enterprises. The profitability of this pairing between finance and weapons production is reflected in the unusually high number of military and national security retirees that somehow manage to headline their own PE funds despite having absolutely no experience in finance or banking.
A similar pattern is visible in large sovereign wealth funds, particularly in oil-rich states that are expanding their domestic defense industries. Areas where investment has been particularly active include state surveillance and eavesdropping technology as well as machine learning (or AI) for weapons systems. Saudi Arabia’s Public Investment Fund (PIF) has financed the formation of a state-owned defense conglomerate Saudi Arabian Military Industries/SAMI, to act as the local partner for foreign military firms competing for government contracts; in the UAE, the Tawazun fund did the same for the Emirates’ defense conglomerate EDGE. These large sources of capital have led directly to innovations in the business practices of the large prime contractors, who are setting up so-called ‘landed companies’ in places like the UAE, where new technologies will be co-developed with strategic investment from host states with the aim of circumventing export controls and other regulations. These reserves of enormous capital surplus (made even larger by two decades of near-zero borrowing costs for large institutions) have accelerated the development of many military technologies and fast-tracked the formation of domestic defense industrial bases in many countries of the Global South. The ability of these countries to harness the income from oil exports and sovereign wealth returns to create new nodes for defense technology development is testament to the role that finance can play in driving industrial futures. The truly global nature of capital (which, unlike humans, has virtually zero barriers to cross-border movement) has generated truly transnational relationships between capital and weapons that defy even the stated priorities of great power governments. Financing from huge investors like Goldman Sachs and Sequoia Capital flowing into Chinese firms with military applications – and large financial flows from Chinese investors into US defense-tech firms, suggests that the imperatives of capital supersede the grandest geopolitical rivalries. War itself likewise feeds back into the expansion of private equity and private markets. Most recently the confrontation between Russia and the US over Ukraine has damaged public markets and public investment, driving global wealth further into private markets. The cycle of militarization, violence, and accumulation is self-reinforcing.
The intersection of the financialization of the global economy and the militarization of production no doubt has dramatic implications for the trajectory of the global economy and the future of war. However, this intersection is undertheorized and lacks a firm empirical foundation as well. Basic questions, such as a comprehensive measure that reflects the degree to which production has been militarized, are unanswered. Connecting financialization with the expansion and transformation of military industrial production takes many existing areas of robust research (privatization of war; proliferation of weapons technologies like drones; the militarization of existing sectors like high-tech, big data, machine learning, etc) and offers a framework that allows us to link these many phenomena to a concrete condition in the global economy. This concrete condition is financialization.
Many aspects of financialization, notably the extraordinary accumulation of surplus capital at the very top of the income spectrum, drive up investment in new weapons technologies. This concentration makes it ‘cheap’ to borrow to invest in militarized production, promotes extreme wealth inequality that drives the violence used to justify increased militarization, and lubricates the revolving door between the financial and political ruling classes that ensure sustained and predictable state support. When capital is so concentrated and needs to chase viable investment options (a product of both the need for valorization and declining public investment in non-militarized sectors like infrastructure and social programs), the military industrial complex becomes a key target sector for asset managers and other agents of private finance. These connectivities help us think through many ‘big’ pressing issues of our contemporary moment, including the knock-on effects of growing income inequality, the expansion of surveillance and repressive technologies, the tendency for technology firms to militarize their applications, as well as questions of the tempo and nature of US decline. The primary mode of continued US hegemony is that of US finance; this hegemony exists alongside the erosion of US supremacy in industry and international affairs. In fact, perhaps the last ‘working’ tools of US empire are economic sanctions and indebtedness; the rising cost of the latter driven by the US Federal Reserve’s influence over global interest rates. Sanctions work to strangle US enemies not because technocrats craft clever sanctions policies. They work because exporters (like major pharmaceutical companies and agribusiness firms) and the global financial institutions that process import payments and loans are risk-averse. If exporting or financing even unrestricted items like medicines or fertilizer may put them in contact with sanctioned entities like local banks or shipping companies they will avoid any (even licit) engagement with sanctioned countries. At the very least, they will charge an enormous premium for their products and services, intensifying the economic chaos that sanctions are designed to sow.
US finance has dislodged itself from the decaying US state because it only really needs one thing from that state, which is low interest rates and the cheap capital that it generates and regenerates. Efforts to maintain US empire through superior weaponry and US financial dominance are mutually reliant, and increasingly mutually constituted. Even the rise of competitive centers of hegemony (from India, from China, etc) are imbricated in US finance through the presence of their own ruling classes in the commanding heights of US finance (and its corollary, Eurodollar finance).
Because this framework of financialization and militarism is not yet firmly established in academic scholarship, Security in Context’s working group on financialization and militarism seeks to build this framework as a future research agenda: demonstrating that the connectivities exist, theorizing them in their contemporary manifestations, and connecting the scholars that do relevant work to help tie it together. This project will deepen our theoretical and empirical understanding of these significant changes and their implications through case studies, cross-regional comparisons, and generating new databases and methodologies.
 Bryan Maybee, The Security State and the Globalization of the Arms Industry, p88.
 This is especially true given the increased reliance on remote and highly advanced military technologies over the actual physical presence of troops on the ground in overseas conflicts.
 Among others: the 1979 repeal of the so-called ‘prudent man’ rule that prohibited pension/retirement and endowment funds from investing in speculative assets; the continued reduction of the capital gains tax rate and other loopholes that have produced an effective rate of roughly 8% for those who derive most of their wealth from capital earnings (compared to 40% for high-income individuals who derive most of their wealth from wages).
 Charles W. Mahoney (2020) “United States defence contractors and the future of military operations,” Defense & Security Analysis, 36:2, 180-200.
 California-based Intel Capital and Alpha Intelligence Capital in Luxembourg (IOL 834) have been major investors in biometric technologies and Chinese artificial intelligence firms, such as SenseTime (IOL 825), which have been increasingly sought after by Western web giants and universities looking for research partnerships.