The Superior Economic Impact of War

While the management of scarce resources on a macro level is necessary for the construction of a healthy economy, many factors regress or excel the economic growth of a nation. Of the many factors that affect economic growth, armed conflict stands as the most prominent. The presence of armed conflict frequently results in a drastic change of a nation's economy in both the short and long-run. Additionally, a nation’s political stance alters its economy; however, positive and negative change to this degree cannot be achieved unless armed conflict is initiated. In a market economy, in which both the populace and the businesses finance, both monetary and fiscal policies are implemented in order to guide the "invisible hand" of the market but are incapable of imposing extensive changes to a nation’s economy. Alternate factors such as the laws of a nation merely guide the economy as opposed to shifting the supply and demand in each industry on both micro and macro scales. Notwithstanding, there remain two events in modern economic history that paralleled the drastic change armed conflict imposes on a nation’s economy. The Great Depression was the first, as its tenure in the 1930s resulting in mass unemployment, with the unemployment rate at 24.9% in 1933 within the United States. The second was the financial crisis of 2009. As consumer confidence on a macro scale diminished, resulting in a similar economic trough to that of the Great Depression, that raised unemployment to 10% during 2009 in the United States, a substantial difference from a healthy unemployment of 6-7 percent. However, unlike the Great Depression and the financial crisis of 2009, armed conflict is proven to be a consistent means of affecting the economy on a macro scale. Therefore, the domineer that armed conflict has over other miniscule factors that influence a nation’s economy is demonstrated over natural resources, civil wars negatively affecting a nation’s economy, and Keynesian economics during wartimes increasing industry within a nation.

Natural resources are vital in sustaining a nation’s economy as it is manufactured into tangible goods and can be used as a means of trade between countries. However, with natural resources at a premium and minerals and fossil fuels becoming scarce, armed conflict facilitates the acquisitions of said resources. The United Nations highlighted the economic services that are required for a society’s survival of which energy acts as the most important in the modern industrial age, and thus can prompt extreme measures to secure said resources. Many 20th century conflicts that shaped society with the effects armed conflict had on a nation’s economy. This can be seen as 90% of all major armed conflicts between the years of 1950 to 2000 took place in countries rich in natural resources. Due to natural resources being a vital source of capital as well as a source of power in the case of fossil fuels, neighbouring countries sought to use armed conflict to obtain natural resources to increase their economic wealth. This is seen with the Iraq War in which the United States have prolonged their occupation due to the discovery of oil. This became a common theme in politically unstable countries with a wealth of natural resources in which neighbouring nations took advantage of the poor protection over natural resources. Attacks on poor nations with a plethora of natural resources further propel its citizens into poverty, depriving its workforce of the sustenance necessary to thrive. Another common theme in natural resource conflicts is how armed conflict takes place in former European colonies. The after-effect of colonialism on former resource-rich colonies was political instability, as there lacked a structured government following the withdrawal of European powers. These former colonies became nesting grounds for warfare as a result of well-organized militaries and militias take advantage of politically unstable countries with poor policies to prevent such actions. Additionally, impoverished nations instigated conflicts over precious resources, opting to obtain such resources as a means of capital to provide growth for its economy. However, the risk of going to war remains high. As both countries can sustain long-term damage to their infrastructure, labour force, and economy. This becomes detrimental as countries affected, or have emerged from conflict, have a 44% chance of returning to conflict within ten years, further harming a nation’s institutions. An example of this is the United States, as it has globally involved itself in conflicts, usually in resource-rich regions. The tendency of armed conflict over natural resources has plagued developing countries as poverty, inequality, and the deprivation of human rights become evident in developing countries with the greatest natural resource deposits. This is seen with the exploitation of the oil-rich Middle East with countries such as Saudi Arabia and Afghanistan in which the United States prolonged its occupation in order to cultivate fossil fuels. Likewise, countries such as Pakistan, Chad, Papua New Guinea, Burma, Nigeria, Angola, and Sudan share a common theme of armed conflict over their natural resources, typically their oil and natural gas. The perpetrator of armed conflicts over natural resources may not always be competing nations, but rebel insurgent groups aiming to use these deposits as a means of funding their operations. Such is the case in Syria, in which the terrorist organization ISIS forcibly took control over oil refineries to finance their operation. The Department of Comparative Politics estimated that the dependence of fossil fuel exports for revenue increase a nation’s likelihood of civil war by 10%, showing that developing countries with a weak governing body are more likely to be the victim of armed conflict, as stated prior with Syria. In addition, established nations with a solidified political system with the capabilities to prevent domestic conflict may intervene on behalf of rebel movements to gain access to its natural resources. A modern example of this can be seen through the 2014 Maiden Revolution in which Russia’s intervention in the Ukrainian civil disputes, to which the population became divided between those who wanted to join the European Union and rebels who advocated reuniting with Russia. This conflict caused damages to Ukraine’s infrastructure, evidence of 33 recorded attacks on medical institutions from 2014-2016 by combatants supported by the Russian army. The attacks on medical facilities aimed to weaken the Ukrainian government and its people so that Russian may have access to its natural resource deposits, as Russia’s alliance with the rebels has sparked further conflict, making Ukraine into a war zone. Alongside a crippled infrastructure, 10000 have been killed and 2 million people were displaced since Russian troops entered Ukraine in 2014. Previously, Ukraine was once a part of Russia prior to the accident of Chernobyl in 1986 in which a failure in one of the Soviet nuclear reactors occurred, causing 9.6 tons of radioactive material to be released into the atmosphere, affecting an estimated 600,000 people with low radiation doses. As a result of the nuclear reactors failing at Chernobyl, Ukraine then sought independence from the Soviet Union. The failure of Chernobyl not only cost the Soviet Union a vital source of power with the failure of the nuclear facility, but the plethora of minerals located in Ukraine’s mines. With Ukraine owning one of the largest iron ore deposits in the world, alongside its coal mines, natural sulphur, mercury, natural gas, titanium and petroleum, coupled with its large steel industry, Russia was then restricted from these precious resources. Along with the opportunity to regain access to precious resources in Ukraine, Russia also had the option to restrict natural gas exports to the countries of the European Union to gain political extortion who remain dependant as 30% of Europe's gas and 35% of its oil comes from Russia and Ukraine. Hence, the armed conflict over natural resources has a sizeable effect on the countries affected, as attacks on the Ukrainian provinces of Donetsk and Luhansk, which make up 16% of Ukraine’s GDP has negatively impacted its economy while Russia soon has complete influence over Ukraine’s natural resources to support its own infrastructure. Similarly, the conflict over natural resources in history is evident through the Battle of Plassey in 1757, in which the British East India Company engaged in a battle with France over the colonization of India and the acquisition of its labour and natural resources. From events such as the Battle of Plassey to the armed conflict in Ukraine, armed conflict over natural resources is set to continue in the future. Estimates have shown the world’s oil reserves are set to dissipate in 47.7 years, natural gas in 49.2 years, and coal in 111 years. This estimation by Hannah Ritchie, an environmental research student at the University of Oxford, then portrays the possibility for armed conflict over natural resources in the foreseeable future. In conclusion, the presence of natural resources in politically unstable countries acts as a feeding ground to establish nations to obtain vital resources through the means of armed conflict.

The plague of civil conflict to a nation’s economy is evident through the destruction of infrastructure and a diminished labour force that results in negative economic growth. During civil conflict, a nation’s labour force is used to fight, as opposed to producing tangible goods to benefit the country’s economy. In doing so, production declines, causing the country to economically fail. The displacement of citizens during a civil conflict seeking refuge in neighbouring nations attributes to the declined labour force. People emigrate from a country during civil conflict because of the fear of harm to themselves and their family. The conscious effort not to immigrate to countries with civil conflict further affects a nation’s labour force, contributing to the failure to manufacture and trade goods, causing an economic decline of that country. In a study done by the Journal of Peace Research, 20 countries that were affected by civil war were analyzed and it was found that on average, the GDP per capita declined 17.5% during the time of conflict, showing the negative short-run effects of civil conflict. Additionally, those affected by civil conflict experienced an income reduction of 1.5%-3% per year of conflict exposure on average, with prolonged exposure causing a sizeable financial decline. This results in the reduction in consumer confidence, causing further negative effects to a country’s wealth, similar to the financial crisis of 2009. However, unlike the United States, nations plagued by civil conflict have a trend to be developing countries that lack the fiscal and monetary policies that ensure events such as the financial crisis don’t occur and may lead to more detrimental effects to the affected nation. The inflow of foreign investment on top of consumer investment decreases, as an average decline of 50% foreign investment is seen during the conflict, amounting to 2-4 billion dollars USD on average. The confidence in a country to ensure the safety of its citizens is another declining factor that results in a mass amount of people seeking refuge. According to the United Nations High Commissioner for Refugees (UNHCR), over 50 million people are presently recognized as refugees or internally displaced, with a sum total of $93 billion USD allocated to providing aid for these refugees worldwide. With cases as extreme as the civil war in Nigeria during the early 1970s in which it is estimated that around 8,000 to 10,000 people were killed daily, resulting in a sum of a minimum of 500,000 and maximum of 6 million deaths, resulting in tremendous fear for one’s safety, causing emigration. Neighbouring countries may admit those seeking refuge, carrying the financial burden of another nation’s civil war to provide food, water, shelter, and jobs. Such a deficit can be seen with the United States and their updated refugee budget for the next five years in which the economic superpower has set aside $8.8 billion USD for refugee support. Other countries such as Germany have admitted 500,000 refugees from Saudi Arabia as a result of the constant conflict within the state. Alongside Pakistan, accepting more than 1.5 million Afghan refugees. In the case of Germany, their economy has faltered as a result of accepting this mass amount of refugees, as the former enemy of the world now provides Saudi Arabia refugees with an allowance of $464.16 USD per month, adding up to a sum total of $232 million USD per month allocated for refugees alone. Unlike its neighbouring nations, the countries that remain as the hosts of civil conflict are the ones who financially suffer the most. This can be seen in the civil conflict within Syria between the government and the terrorist organization known as ISIS. The Syrian civil war, which began in 2010, resulted in major damages to the country’s infrastructure. The electrical infrastructure of Syria has been heavily damaged from 43,164 GWh produced in 2010 to 16,208 GWh in 2015, a 62.5% decrease in electricity production, resulting in many structural institutions without power. The levels of production for oil and natural gas have also declined as the usage of oil dropped 70%, while the usage of natural gases dropped 54%. The decline in production is the result of the diminished labour force as a result of the conflict displacing many of Syria’s citizens. This can be seen through the unemployment rate comparison of the pre-crisis period of 2005-2010, and the post-crisis period of 2010-2015 in which the annual unemployment rate prior to the crisis war of 5.1% compared to a staggering 49.2% during the period of conflict. The conflict in Syria has contributed to the country’s economic downfall as seen with its GDP prior to the crisis compared to during the period of conflict. In 2010, Syria’s GDP stood at $60 billion USD, declining continuously to $20 billion USD in 2015, followed by a GDP of $15 billion USD in the following fiscal year of 2016, a 75% decline from 2010 to 2016. The decline in GDP also reflects the decline of revenue generated from exports, as seen in 2010 with $7.9 billion USD generated, declining to $631 million USD in 2013. The decline of revenue generated from exports can specifically be seen through one of Syria’s largest export, oil, in which the oil GDP has declined 93% during this conflict. This extreme decrease of oil exportation is the result of the conflict between the Syrian government and the terrorist organization of ISIS. For a means of revenue, ISIS has occupied many of the oil refineries in Syria, selling an estimated 50,000 barrels of oil a day in 2014 to other countries to finance their operations. The additional funding for the terrorist organization has allowed it to continue its war against the Syrian government. The result of this conflict is the damage to infrastructures such as roads, schools and hospitals. In a study done by the World Bank Group, 10 major cities in Syria were analyzed in which 30 km of paved roads have been destroyed as a result of explosions and other casualties of armed conflict. Damages to other infrastructure such as housing units have fallen victim to armed conflict as in the region of Aleppo has sustained 23.3% damages to their housing units, other regions such as Dayr Az-Zawr with 31.2% damages, Idilb 25.3% damages, Tadmur 32.8% damages to their housing units. Similar to paved roads, Syria’s railway system of 2,423 km has remained decommissioned during the crisis, causing further inefficiencies with the exporting of goods, as represented by the decline of Syria’s export GDP. The treatment of water has also declined, as 63% of water treatment plants have experienced damage as a result of armed conflict, 25% sewage treatment plants with damage, and 100% of sanitation offices experiencing damage from conflict. Additionally, 16% of all health facilities have been completely destroyed, with 42% obtaining partial damage in the attacks on over 400 medical facilities. In the region of Aleppo, 53% of schools were damaged with other regions such as Dayr Az-Zawr (62%), Douma (90%) Idlib (68%), Raqqa (63%), and Tadmur (83%) incurring similar damages to their educational facilities, causing a reduction in the quality in the labour force. According to article 25 of the Declaration of Human Rights, adequate shelter, health care, clean drinking water, and education, amongst other rights are considered and accepted by the majority of countries to be the basic rights for any human person. However, the armed conflict in Syria has defied most of the rights listed in the Declaration of Human Rights. This takes a heavy toll on a country’s human capital as both the quantity and quality of their workforce is negatively affected. Returning to the macroeconomics of the armed civil conflict in Syria, the debt incurred during the crisis has caused inflation. In 2010, Syria’s debt represented 30% of its GDP that year, however, since the conflict begun, public debt has increased as in 2015, Syria’s debt stood at 150% of its GDP that year. The inflation took effect on Syria’s currency and the price of goods as between the year 2010 and 2015, the Syrian pound depreciated by 459%, the price for rice rose 723%, the price of bread rose 418%, and the price of flour rose 388%. Additionally, in 2013 30% of the banks in Syria were destroyed or decommissioned, contributing to Syria’s extreme poverty rate of 62.7% in 2016. With Syria as a prime example, it becomes evident of the economic failure that occurs within a nation experiencing civil conflict.

The equation of aggregate demand as theorized by John Maynard Keynes, in which increased government spending contributes to an in increasing economic growth is best seen during the Second World War when the United States underwent a second industrial revolution. The result of increased government spending into its industries at the cost of raising taxes impacted the economy as production increased, unemployment had virtually vanished, and further social services were implemented. According to the theory of aggregate demand, economic growth is the result of consumer spending, private investment, government spending, and net exports. During World War II, the United States of America managed to increase all four pillars of aggregate demand on an unprecedented scale. This second industrial revolution is all the more impressive due to the emergence of the Great Depression. As stated previously the stock market crash remains as one of the two events in economic history that had resembles the effects that armed conflict has on the economy. The Great Depression caused one of the greatest economic droughts in the history of the United States, with unemployment consistently over 14% from 1931-1940, with that rate being above 20% during 1932-1935. The effects of the Great Depression brought havoc to the economy of the United States, with house prices dropping 30%, and international trade plummeting by 60%. In 1929, the United State’s nominal GDP stood at $105 billion USD, by 1932, the country’s nominal GDP dropped to $57 billion USD, approximately 50% less than before the stock market crash. Similar to the financial crisis of 2009 in which many banks declared bankruptcy, by 1930, 650 banks had failed since the stock market crash, causing mass deficits and impacting consumer confidence. During his presidency from 1929-1933, President Herbert Hoover’s laissez-faire economy faltered greatly, placing doubts in the capitalistic system adopted by the United States, resulting in Franklin D. Roosevelt’s election as the 32nd President in 1933. In an attempt to jumpstart the economy, President Franklin D. Roosevelt introduced The New Deal. The New Deal represented the shift from a market economy to a mixed economy in the United States in which government spending was increased to jumpstart the economy. From 1934 to 1937, which stood as the lifespan of this doctrine, GDP grew 37.7% as a result of increased government spending. As a result of the Keynesian economic system President Roosevelt introduced, alongside the preparations for the American intervention in World War II, the Great Depression officially ended in 1939 and begun America’s second industrial revolution. During the Second World War, major strides were made in employment, the production of goods, and the introduction of women in the workforce. World War II virtually eliminated unemployment in the United States, with unemployment consistently less than 2% during 1943-1945, with the lowest percentage in the country’s history in 1944 with a 1.2% unemployment rate. With the increase in the demand for goods, 17 million civilian jobs were created to produce the goods necessary to win the war. The United States army stood as a primary source of employment during the early 1940s with many men gone to fight the war as 20% of the population was employed by the armed forces. This was made possible because of the government spending during the war, as this economic indicator increased from $408 billion USD in 1941 to $1.6 trillion USD in 1944, allowing for production to be efficient, while employing nearly the entire populace. The increase in government spending was made possible due to war bonds, a progressive tax system, and a profit tax on corporations accumulating to 11.4% of GDP in 1951. The increased tax aided consumer confidence in America, as the wealthiest 1% of Americans only controlled 11% of the wealth in 1945, compared to the modern statistic in which the top 1% owns nearly half of the wealth, allowing for more disposable income amongst the middle-class to make larger purchases to fund the war efforts. The productivity can be seen through companies such as Henry Kaiser’s Shipyard, a company that produced military cargo vessels called liberty ships. Usually taking a full year to produce one ship, this changed during the war as the company at one point managed to produce a single liberty ship a day during the war, increasing their production by 365%. The spike in productivity in Henry Kaiser’s Shipyard reflected the overall productivity in American companies as industrial productivity increased by 96% during the war, translating to corporate profits doubling despite the increased tax. Scientific advancements were made during the war as well, with synthetic rubber being used for the first time in history, in addition to the various technological advancements made to other industries such as military grade aluminum. However, the increase of production was greatly contributed to the nationalistic pride endorsed in America during the Second World War. The pride felt by Americans for their country and the troops fighting abroad encouraged the working class to produce more efficiently. One method used by companies who made products for the armed forces were to bring in Air Corp pilots who would thank the manufacturers of the planes they flew in, invoking further patriotism in America. For the working class, the Second World War brought many progressive changes in the treatment of employees. From 1939-1944, wages, and overtime pay before taxes both increased by 50%, gradually establishing the United States as a middle-class society. Additionally, the Second World War stood as the first time that women and African Americans were accepted into the workforce on a national scale. This progressive change opposes the ideals of the Great Depression, in which women who had working husbands were not allowed to be employed. The social services provided for the labour force were greatly improved as well, with the first union for workers taking place at Ford industries in 1941, alongside organized softball games held at production plants to boost the morale of workers. Companies such as Henry Kaiser’s Shipyard in California were funded to not only build their liberty ships but to provide 24-hour child care for their employees, with early education programs that some children of low-income families would be receiving for the first time. The progressive changes in America cannot be solely credited to President Franklin D. Roosevelt, as the first lady, Eleanor Roosevelt aided in the progressive change. Known for leading the committee that drafted the Declaration of Human Rights in 1948 for the United Nations, Eleanor Roosevelt advocated for women in the workforce, having restaurants prepare hot meals for working women to bring home to their family. When analyzing why the Second World War began the United State’s second industrial revolution, the Keynesian economic system is credited, as it brought America out of the great depression with The New Deal to eventually becoming the world’s greatest economy.

To conclude, the effect that armed conflict has over a nation’s economy can be quantified as greater than any other economic indicator through conflict over natural resources, civil wars negatively impacting a nation’s economy, and war creating the opportunity to expand industrialization. Firstly, the mass expansion of industry during World War II within the United States can be credited to the Keynesian economic system implemented by President Roosevelt, began with The New Deal in 1934, which resulted in the United State’s ability to sustain a second industrial revolution. Secondly, the negative effects that nations affected by civil war experiences are the regression in their economy due to the depleted labour force resulting in the decline in production and destruction to infrastructure, as seen with the conflict in Syria, and how the conflict has economically handicapped the country. Finally, the effect of a natural resource surplus on a developing country results in a healthy grounds for armed conflict in which other countries may attempt to obtain the vital source of power and trade through armed conflict, as seen through the Russian intervention in the Ukrainian civil war. The applications of war have a drastic positive or negative effect on a nation’s economy, with the magnitude of the effects of war comparable only to the stock market crash of 1929 causing the Great Depression, and the financial crisis of 2009. Consequently, while there may be an economic benefit to war, the relations between countries are further hindered, with families losing loved ones as a result of armed conflict; hence it becomes the responsibility of governments to apply the theories of wartime economy instead of applying war itself.