Impact of Wars on Long-Term Economic Growth
Discussion
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).