THE BEAR'S
LAIR The unequal impact of
war By Martin Hutchinson
We are frequently told that modern
democracies are "soft" and unable to bear the
stress of a major war, compared with our
iron-hearted ancestors with less affluent lives.
However, contemplation of the likely relative
effects of the possible war between Colombia and
Venezuela makes one realize: a society that finds
the costs of a major war unbearable isn't
decadent, it's civilized.
In agrarian
economies, war's costs could be immense, but they
were short-term. If crops were burned by marauding
armies, villagers starved to death. If cities were
sacked, they had to be rebuilt. The economic and
political life of the community nevertheless went
on as previously in the areas not directly
assaulted by foreign enemies. People had few
possessions, so little to lose and the ability to
tax them was limited. The ability
of
the
entire Jane Austen oeuvre to ignore the Napoleonic
Wars is symptomatic of this existence.
In
a modern industrial economy the effects of a war
that is large enough to disrupt economic life is
much greater, with one caveat. Countries with
gigantic economies that are more or less
invulnerable to direct attack, like the United
States, can fight quite substantial wars overseas
without much adverse effect. Even World War II,
which began with a direct attack on the United
States, was largely positive in its effect on the
US, since at the cost of vastly increased
government debt it made the US the preeminent
economic power for two decades thereafter.
The adverse effects of war are compounded
in a democracy. War allows government to take
control of large swathes of the economy, control
that is only rarely relinquished afterwards. It
also removes the connection between sound economic
policy and good results, so that if a war begins
with an economically sound government, there is
very little likelihood of it ending with one, or
regaining one for a considerable period
afterwards.
To see this in action,
consider World War II. The Soviet Union went into
the war with a primitive command economy and
massive surplus in manpower. It thus already had
in place the controls, including concentration
camps, which it needed to fight the war
effectively. Its inability to produce high quality
technological goods was overcome by the simple
expedient of begging them off the United States,
using its undoubted sufferings and pretended
leftist brotherhood to ensure supplies kept
flowing. After the war, it was able to use
technology received from the US or stolen from the
ruins of Germany and Czechoslovakia to construct
during the 1940s and 1950s a highly effective
military apparatus and communism's most successful
years.
The Third Reich entered the war
with a partially capitalist economy, excellent
technology that had not been devastated by civil
war as in Russia and a highly efficient police
state. It already had in place all the controls it
needed for a war machine; there were no
difficulties in commandeering resources from the
private sector. In addition, it was able to
sequester further resources from the countries it
conquered; until late 1941 the war was an
economically highly profitable exercise. Germany
was thus able to continue producing war materiel
much longer than might have been thought in the
face of Allied bombing.
More important for
the long term, in the postwar period state control
was at least partially discredited, reducing the
appeal of social democracy, which would otherwise
have been considerable in conditions of penury and
economic collapse. Consequently, the pro-market
Konrad Adenauer was able to achieve power and
produce the wirtschaftswunder economic
miracle, making Germany by 1960 the richest and
most economically vibrant country in Europe, a
position it relinquished for only a few years in
the 1990s.
Dragged down by
war Britain on the other hand was
dragged into World War II after a decade of
excellent free-market economic management under
chancellor of the exchequer and then prime
minister Neville Chamberlain. It had instituted a
modest "Imperial preference" tariff binding
together its colonial system, cut taxes, and
emerged from the Great Depression by 1934, several
years before other countries.
It had also
enjoyed a decade of successful innovation
unequalled elsewhere, developing a notable
collection of new industries in chemicals,
automobiles and aircraft manufacture. For example,
the British Lagonda V-12, a luxury sedan with a
cocktail cabinet in the back seat, captured the
speed record on the new German autobahn against
competition from Mercedes and others. That AND
splitting the atom! Contrary to the myth later
propagated by the Chamberlain government's
successors and enemies, by 1938 Britain was the
freest and most successful society in the world.
All that changed with the war. Britain
already had experience with controls from the last
year of World War I; these were reintroduced in
full force. Taxes were massively increased - and
were to stay at confiscatory levels for over three
decades after the war. Draconian exchange controls
were introduced, not to be removed until 1979.
Rationing of food and other goods, even food
produced domestically, was introduced and not
removed until 1954. Britain's overseas assets,
notably Courtaulds' American Viscose subsidiary,
the world leader in artificial fibers, were sold
off at knock-down prices in exchange for obsolete
military equipment.
Most damagingly, the
left was allowed to conflate the foreign policy
error of Munich with domestic policies, to produce
a "black legend" that was to produce hardline
socialism in 1945 and prevent the return of a
free-market government until 1979. Britain, which
in 1938 had been among the happiest of the world's
nations, ruler of a vast and benign Empire, was by
1979 reduced to a small and insecure island,
poorer than almost all the economically recovered
countries of continental Europe.
The same
dynamic is at work in the potential war between
Venezuela and Colombia. Venezuela has a
one-product economy, whose other sectors were
atrophied even before Hugo Chavez's advent in 1998
and have been run into the ground since. It has
one of the worst economic records on the planet
over the past 40 years. It can be damaged by
direct attack on the oil installations, but
neither economic decline nor international
bankruptcy are of any concern to its ruler -
stiffing international investors would give him
great pleasure, and he will always be able to get
the foreign exchange he needs for armaments and
materiel by selling oil to China. Any war short of
a military holocaust is highly advantageous to
Chavez; it would enable him to declare a crisis
and cement himself in power.
Colombia on
the other hand, while somewhat poorer than
Venezuela in terms of gross domestic product per
capita, has a much more balanced economy, much of
it in the private sector.
President Alvaro
Uribe won re-election in an open contest in 2006
at least partly because of his well-considered
economic policies and their success. War would
devastate the country's finely balanced economy,
possibly cause it to default to international
creditors, and cut off the flow of foreign
investment. It would bring great hardship to the
majority of Colombians who have been improving
their lot in recent years, and would make Uribe
and his policies highly unpopular, however
well-considered they are.
At the next
election, due in 2010, Uribe or his chosen
successor would almost certainly be overwhelmed by
the left, since he would no longer have a superior
economic record to point to.
In short,
like Nazi Germany, Venezuela would at least in the
short term benefit from the war, whereas like
Chamberlain's Britain, Colombia would be vastly
the loser, possibly for decades to come.
Assault
with benefits This problem is likely
to exacerbate itself in the decades to come, as
failed states with natural resources increasingly
see the benefits of assaulting their hard-working
neighbors. The United Nations could provide an
appropriate solution to this problem, could that
body be relied on to choose the right side in such
situations. Since it can't, the wealthy nations of
the world need to take advantage of situations
that arise to destabilize rogue regimes.
Had the US provided proper support to the
Venezuelan coup of 2002, for example, Chavez would
have become history before the oil revenues really
began to increase, and any hard feelings among the
Venezuelan poor could have been assuaged from the
enormous subsequent flow of funds that in the
event have been almost entirely wasted.
It
is however clear that intervention by the rich
nations themselves is not the answer. Even before
Iraq, an intervention from which there currently
appears to be no exit, the examples of Kosovo and
Bosnia should have convinced us of this. In both
cases, intervention produced an economically
counterproductive rule of the bureaucrats, which
left the two countries' economies as basket cases
a decade after intervention.
Since Bosnia
at least had been reasonably prosperous and
self-sustaining in the 1980s, intervention in both
cases was both economically and politically
damaging - Bosnia is now 20% poorer than
Macedonia, historically the most impoverished part
of the Yugoslav federation.
Apart from
Venezuela, other countries that might believe a
modest aggressive war could be to their advantage
are Russia and Iran. This is not because of the
uniquely evil political systems in those
countries; it is because their foreign exchange
source is entirely in the hands of the government,
and the rest of their economies underdeveloped.
In Russia's case, there is currently a
sufficient consumer society and non-oil economy to
make the leadership skeptical of military
adventurism, but in Iran no such constraint
exists. The neighbors of both countries, notably
Georgia, Ukraine under its current pro-market
government, Israel and possibly Iraq, should the
US leave (though that too is a primitive
commodity-driven economy) , should live in
appropriate fear and trembling.
Attraction of
violence Theoretically, other
authoritarian-ruled countries with a reasonably
sizeable population (for military service) and a
reliable source of foreign exchange income from
energy or minerals - one thinks of Chile and
copper - should also find aggressive war an
attractive option. In practice, there are
currently only the few such aggressors listed
above - a fact for which we must all be grateful.
If Canada or Australia ever suffers a deep
recession and chooses a man on horseback, the
world is in trouble!
Conversely, China is
much less of a threat. While well able to afford
an aggressive war, its economy is today too
complex and its people too affluent to make such a
war domestically acceptable. An attack on Taiwan
is thus much less likely than 20 years ago, though
if China were to enter a deep recession that might
change.
The primary solution to aggression
by oil exporting countries is to get the oil price
down. That can best be achieved by a sharp rise in
interest rates, which would take the world economy
off the boil and reduce commodity prices at least
to their long-term equilibrium levels. Since oil
shale costs no more than US$25-30 per barrel to
extract, and is plentiful, it is likely that the
equilibrium oil price, even with the Chinese and
Indian economies growing rapidly, is no more than
$50 per barrel. At that level, the Venezuelan,
Russian and Iranian military machines are much
less well endowed, and their threat to
civilization correspondingly less.
Martin
Hutchinson is the author of Great
Conservatives (Academica Press, 2005) - details
can be found at www.greatconservatives.com.
(Republished with permission from
PrudentBear.com. Copyright 2005-07 David W Tice
&
Associates.)
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