Impact of Wars on Long-Term Economic Growth

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Joshua Goldstein:


"War may be economically profitable for one country under special circumstances if the war is fought on foreign territory, knocks out some sizable economic competitors, and one's own side wins the war. World War II met all three conditions for the United States. Japan in World War I experienced similar benefits while sitting out the war. The U.S. war in Vietnam, which met only the first condition, was clearly not good for the U.S. economy and seems to have played a major role in the production stagnation that began in the late 1960s. The impact of wars on long-term economic growth has been statistically analyzed by Wheeler (1980) and by Rasler and Thompson (1985b). Wheeler (1980) uses the data and methods of the Correlates of War project to analyze postwar industrial growth (measured by iron production to 1870, then energy consumption) in major nations since 1815. Using multivariate regression analysis for forty-four national cases, Wheeler finds that except for World War II, the effects of war on industrial growth were "overwhelmingly" negative (p. 275).21This conclusion converges with the conclusions of five earlier studies by other authors (Wheeler 1980:261-62). Rasler and Thompson (1985b) use a Box-Tiao statistical analysis in which wars are regarded as an "intervention" in the process of economic growth. The scope of the study was defined by the availability of GNP data Britain since 1700, the United States and France since about 1800, and Germany and Japan since about 1875.

"Global wars" as defined by Modelski's leadership cycle theory (see chapter 6) are distinguished from other interstate wars. Rasler and Thompson find that interstate wars "in general... have no statistically significant impact on economic growth." But for global wars, each of which they test separately, eight of the thirteen country war combinations are statistically significant at the.05 level. Rasler and Thompson's conclusions are tentative (the statistical significance is borderline and the methodology somewhat ad hoc), and they point out that their results largely contradict those of Wheeler (1980) in terms of the effects of World Wars I and II on economic growth in specific countries. Nonetheless, they conclude that at a minimum, "the evidence indicates that global war does not seem to pay" and does "cost... in terms of permanently increasing the costs of maintaining and operating competitive states" (p. 534). The empirical evidence thus corroborates war's negative impact on production. Theoretical arguments support this conclusion as' well.

Wars cost money to fight and use up limited resources. And in the war zone itself existing capital plant is damaged and economic output reduced. War conditions, with centralized governmental control and sacrifices on the part of the population, may manage to "squeeze" the maximum production out of the economy in the short-term (using full capacity). But those very conditions disrupt the long-term growth of the economy (growth of capacity)."


"At least three countereffects can be postulated, nonetheless, in which war exertsa positiveeffect on production. While these are weaker than the negative effects, they deserve mention.

First, in the short term, war can effectively "squeeze" maximum production out of a national economy.

Pigou (1940:32) reasons that productive power can increase in wartime "by the direct action of patriotic sentiment. Volunteers flow into the army and munition-makers readily accept long hours, just as a family would do which suddenly discovered its house burning and in crying need of salvage." These effects are augmented by direct and indirect coercion (conscription and taxation).

Second, war seems sometimes to "shock" a national economy into a reorganized mode based on a new "technological style".

After a sharp drop in production during the war, production may resume growth at a more rapid rate than before the war as was the case for French national production discussed above (fig. 12.4). Organski and Kugler (1980) refer to the "phoenix factor" in which a country that has been decimated by losing a major war recovers economically and within fifteen to twenty years restores its capabilities to levels competitive with the other leading powers (the distribution of power that would have ensued had the war not taken place). West Germany and Japan are the two most recent and most striking such cases.

But John Stuart Mill refers to the same kind of phenomenon centuries earlier:

- The great rapidity with which countries recover from a state of devastation... has so often excited wonder.... An enemy lays waste a country by fire and sword, and destroys or carries away nearly all the moveable wealth existing in it: all the inhabitants are ruined, and yet ina few years after, everything is much as it was before.

A third possible positive effect of war on production, although beyond the scope of this book to explore, is war's role in shaping the formation of the nation-state itself and hence the overall context of production.

As Tilly (1975:42) puts it, "war made the state, and the state made war." These three positive effects of war on growth operate on different time scales. The squeezing of higher production can be sustained only over the short-term (a few years); the "phoenix effect" is relevant to a period of decades following a major war; and the role of war in state-making operates on an even longer time-scale more relevant to hegemony cycles than long waves."