Defence spending is as I understand it very capital intensive - creates very few jobs for the dosh deployed.
For decades Britain suffered shoddy infrastructure because of mega dosh diverted into gee whizz warplanes, missile systems etc etc. While Germany rebuilt itself from the rubble up.
Lets not forget, of course, that the only reason we weren't having to teach German in our schools is because of the mega dosh diverted into the military.
The economic and mercantile rise of Germany in relation to the allied nations was a failure of politics and the sudden relevance of a new nation under arms that had only ever been an ally of convenience up until then. Had the Soviet Union not required massive diversion or resources to counter, and there been a political consensus to do so amongst the victorious nations, the allied home economies would have prospered at a much faster rate while the political boot was kept on Germany's windpipe. Even worse, while the USSR required massive military spending to counter, and the allies needed to maintain an army of occupation to stop yet another rise of rampant German nationalism, Germany was having to spend very little itself militarily and was being protected for free by the allies. To this day there is still a significant foreign military presence in Germany, and anyone who thinks it is there solely to discourage the Russkies is sadly mistaken.
The whole mess was caused by history, politics and suspicion. The manufacture of of weaponry is very lucrative, keeps many people employed in their manufacture, and the manufacture of the tools and equipment to facilitate that manufacture, maintains strategic manufacturing skills that might otherwise be lost, and also requires lots of military personnel be hired to operate it. in addition, home grown defence manufacturing keeps the £££ spent on our shores, paying wages, being spent in shops and on taxes. Sadly, a lot of the ownership is foreign, but that is again a political and separate economic issue rather than a failure of manufacturing. The industry us very good at many economic level - it's only when the outside considerations of politics and commerce starts to interfere that the playing field can become massively skewed, as we saw post war.
At the cold war was kinda cool. Commies were bad, protect and survive leaflets were cool, the peace demonstrators at US airbases were the butt of jokes, and so the world turned.