- How does the war economy work?
- How does it affect the economy of a country?
- Other consequences
- Promotion of technological development
- References
War economy is a term that refers to all the actions or measures that a country undertakes at a certain critical moment, which may be some type of war conflict or after a situation of this type.
The term has its origin in the way in which States traditionally behaved in a situation of war: basically focusing financing on this action with the firm intention of obtaining victory but reducing investment in other sectors of the economy or making cuts important.
During World War II there was food rationing. This is a common practice in the war economy. Source: United States Office of War Information, Overseas Picture Division
Although this way of acting tries not to abandon the citizen, it does directly influence the fiscal, commercial and goods and services area, among other areas.
It is important to highlight that the war economy is faced by each country according to the needs that arise as a result of the specific situation. Therefore, it is difficult to determine an absolute or unique operation of it.
However, certain general features that are frequently generated in war economy cases are usually mentioned. Some of these are self-sufficiency generated by import substitution, the production of consumer goods, and greater state control of the economy.
As explained before, each State adopts measures that will depend on the circumstance that it has to face, so the consequences that are generated will also be diverse and even unpredictable. For some authors, the positive or negative effects on a country will also be linked to various factors related to the specific situation.
How does the war economy work?
The economy of war is based on delicate actions of an exceptional nature that a State assumes in a circumstance of necessity generated by extreme situations, such as precisely a warlike conflict.
The State tries at first to be self-sufficient, or as far as possible to offer its inhabitants all the products and services that they require in their daily lives. This action is carried out in anticipation that there could be a possibility of blocking by the adversary that manages to harm its citizens.
In this way, an attempt is made to mitigate the dependence on the outside. However, this generally goes hand in hand with food rationing, which implies that the food supply decreases by eliminating the import factor. There are also often important measures related to energy saving.
Likewise, in a country under a war economy, industrial production also adapts to the demands that arise from a warlike conflict. Therefore, efforts are usually framed in the production of everything that is required in the framework of the special context.
With regard to the control of monetary policy, the State acts in this area in order to try to moderate inflation. In a war economy one can observe the creation of new taxes, budgetary preferences for the tertiary sector over the primary and secondary sectors, and protectionism.
Within a war economy, financing is also common through so-called war bonds, which seek to obtain resources from the citizens themselves.
In exchange for favorable interest rates, they buy the bonds and thus the State can have another source of income to invest in the areas it considers essential in the context of the conflict.
How does it affect the economy of a country?
As mentioned above, the consequences of a war economy may depend on various factors related to the measures taken in the context of the conflict.
Among the elements that have an influence in this context are the length of time that the implemented measures last, the damage to the infrastructure generated as a result of the problem and the direct impact suffered by the population as a result of the situation, among others.
However, there are historical examples that reflect how countries that have been subjected to this type of mechanisms implemented during a critical situation have been affected.
Some effects that a country may suffer as a consequence of the war economy are:
- Emergence of black markets for products with higher prices.
- General deterioration in the quality of life of citizens.
- Complications for the acquisition of basic goods and services.
- Decrease in the quality of food intake.
- There may be cases in which state control does not stimulate private initiative, and thus complications are generated in the national productive apparatus.
Other consequences
The war economy can be defined as an unfavorable situation for a country, because apart from the measures adopted (which are usually difficult to adopt), there is the situation itself that may have generated significant structural damage.
However, there are other consequences that can be positive for the State and that are generated precisely from the application of these decisions taken by the rulers.
Promotion of technological development
Sometimes the war economy can promote research and technological developments, which in turn enhance the capabilities of the country once the conflict or the exceptional situation ceases.
This is supported by the economic theory known as Keynesianism, since it establishes that military spending contributed to the stabilization of economic cycles, fought recessions and stimulated demand in countries with conflicts.
In this context, two historical examples can be mentioned in which it can be observed how war economies generated consequences that were positive for their nations in some sectors.
The first is the case of the Great Depression of 1930, when the United States managed to overcome a totally adverse economic circumstance and was later able to consolidate itself as one of the main world powers.
This was achieved after focusing its efforts on the arms industry and perfecting its machinery to enter the Second World War.
Also the product of many studies is the case of German industry of the 1930s and 1940s, which developed in the fields of medicine, transport, logistics and technology. These advances are also attributed to the actions implemented in the context of the war in which they were immersed.
References
- Castillo, V. "Economy of War" (December 4, 2014) in ABC of the week. Retrieved on July 9, 2019 from ABC of the week: abcdelasemana.com
- Corre, R. “Economy of war” (2014) in Sumamente Consultores. Retrieved on July 9, 2019 from: Sumamente Consultores: sumamente.com.mx
- González, M. “The economic effects of the war” (2017) at the University of Seville Research Deposit. Retrieved on July 9, 2019 from the University of Seville Research Deposit: idus.us.es
- "Economics and Violent Conflict" (February 2003) in Unicef. Retrieved on July 9, 2019 from Unicef: unicef.org
- "What is the war economy?" (February 25, 2019) in the CaixaBank Blog. Retrieved on July 9, 2019 from The CaixaBank Blog: blog.caixabank.es