Historically, war and economy have been believed to be of benefit to the economies of superpowers. Experts proposed that war is one of the great agencies by which human progress is made. It is also suggested that it is a scourge, curse and tormentor the practice of which is to be deplored. They suggest that human beings must recognize war as the operation of the economic laws of nature. It stimulates national growth, solves otherwise insoluble problems of domestic and political economy, and purges a nation of its absurdities, incongruities and irrationalities.
Conventional wisdom holds that once hostilities are cast, military expenditures and war stimulate state economy. This idea in part showers from the World War II era, when the US emerged from the Great Depression as a buttress of the European nations. As economist Joseph Stiglitz pointed out, there was a problem of insufficient demand. World War II created a demand for tanks and armaments; the economy ran at full steam; everyone who wanted a job could get one and the war even demanded that those who could work two shifts did so.
However, there is evidence that war has the potential to harm economies as well. Experts describe this apparent contradiction as “The Iron Law of War.” They theorize that war is only economically beneficial to a country under certain “conditions”: When that country has slow economic growth and low use of resources prior to the war; when there are large and sustained government expenditures during the war; when the war is not local, is of moderate duration, and is financed responsibly.
In line with the idea that insufficient demand prior to WW II has helped create the economic conditions that made the war effort “fruitful” for the US. However, the effects on the European economy after the WW II has historically been and continues to be one of the costliest endeavors for citizens, governments, and states. Countless lives are lost in war, and civilians make up the majority of war casualties. In the developing countries that were engaged in civil wars, millions of people were displaced from their homes due to war. In Ethiopia, the TPLF junta had massacred thousands of children and internally displaced persons (IDPs). The junta had maimed or permanently disabled those children and IDPs, who had escaped death by chance.
There are direct and indirect impacts on the economies of Ethiopia aside from the loss of life and the incidence of disability that had been inflicted by the TPLF junta. Among these are military expenditures in billions of dollars, the loss of physical capital and the destruction of infrastructure which had been deliberately caused by the junta. There was also the decline of internal and external investment due to instability that had been created by the junta. The war spending has decreased government spending in other areas of the economy. The war in question is financed entirely through taxation and financial and material support by Ethiopians.
The TPLF junta had incurred costs negatively affecting the growth of the Ethiopian economy. Experience in other countries indicated that there might be an initial “positive” association between war and economic growth. But, in Ethiopia the war economy initiated by the junta had “negative” impacts on the economic growth of the country.This showed that when war occurred, there might be a decrease in internal investment and production.
War can be expected to affect economies in such ways as depleting human capital and physical capital stock, increasing or slowing the development of technology, strengthening or weakening existing institutions, and affecting prices by raising the cost of capital. After a war, political and economic uncertainty has the potential to increase perceived risk and decrease expected returns, leading to shorter investment horizons. This in turn may reduce investment and raise the cost of capital. There are also social and structural changes that are in part or fully a consequence of war. Productive capacity rose astonishingly, while there was a boom in technological advancement. Many were completely new industries of great importance for the future.
A wide range of therapeutic drugs were all due largely to research for military purposes. There was also an increase in the cooperative efforts. Cooperation was not only a by-product of the quest for unity, the devastation of states after the war was so great that the road to quickest recovery was through cooperation in industry and a free flow of trade. Additionally, the WW II helped to create the conditions under which superpower interests increasingly clashed. A decimated Europe laid the groundwork for the Cold War, having raised superpower concerns about influence in the region.
It was necessary to observe the effects of a single war on the economic growth of a state during war and after war. Such a war is defined as armed conflict that involves military action inside state borders between the national government and an entity within its borders. There must be effective resistance by both sides, and it must incur deaths during the war. Studies on war situations used variables such as total population of a country; duration of the war, cost of the war in terms of military expenditures and battle deaths. The cost is defined as the direct expense of the war as reflected in military spending. This cost is compared to pre-war military spending. Cost is derived from observed differences in spending. This is measured by observing per capita GDP growth before and after the war period.
When all types of war are included, researchers suggest that there is a positive relationship between war and long-term growth. The greater the duration and severity, the higher the subsequent growth is, while current growth is negative. Studies on war fatality address levels of fractionalization, democracy, and rule of law, among others. As fatality in conflict increases, it reduces the real GDP per capita. These indicate that wars lead to more unemployment and poverty in the long-run. Decline in per capita income causes lesser demand for goods and services. Investors are not encouraged to invest in the production of goods and services in the long-run.
The difference between the average rate of growth during the war period and after the war is calculated to show the effects of war on economic growth. Some ways in which the effects of war might vary include the size of the economy of the country prior to the war, the type of war, whether or not the war is waged on home territory, how the war is financed, and the severity and duration of the war, to mention a few. Clearly, more research is needed in order to determine economic effects of war.
Studies on the effects of increased military spending during civil war on the economies of countries were based on definitions of war. It may be defined as a sustained combat between or among military organizations involving substantial casualties and deaths. It is also defined as a war where in two members of the same country is engaged in combat. Extra-state war is defined as the involvement of a country in combat with a political entity that is not a recognized member of the country. This may be a country that has not yet been recognized, or a non-state entity. Extra-state wars are fought outside the country’s own territory.
War might also create “uncertainty” within markets and eventually discouraged investment in some countries. Lower military spending encouraged investment and promoted growth. Higher military spending eventually crowded out investment, thereby reducing growth. An analysis of the relationship between civil wars and income per capita should be analyzed by Ethiopian scholars to learn lessons from other countries that had conducted similar wars.
Studies show that wars permanently alter the economic potential of a country. It is reasonable to conclude that wars are pervasive and shelters are destroyed. Also, the fear of nuclear war is an immense part of the existence of superpowers. Also, internal disturbances within a state that might approximate war effects are political instability and regime change. Researchers have found that in countries and time periods with a high degree of political instability, growth is significantly lower than otherwise. There are both direct and indirect costs of war.
War incidence and duration in several countries are examined to establish the relationship between war and growth. Experts found out that war tends to reduce income growth on average. “Civil wars” have negative effects in almost all cases. Conversely, it is determined that the average rate of growth in per capita real output is influenced by civil war. Having anticipated economic destruction, the TPLF junta had conducted civil war in Ethiopia. But, the people and government of Ethiopia are determined to reverse the economic destruction of the country that had been planned by the juntaand its Western masters.
It has also been explained how growth during a period of war has been affected by the wars that took place in the previous period. Studies suggested that there was a positive relationship between war and long-term growth, while in the short-run economic growth was negative. It was also negative in countries engaged in war with other countries. The experience of these countries revealed that fatality during a conflict resulted in areduction in real GDP per capita. Ethiopia may not be an exception and it has to be ready for any economic eventualities.
In conclusion, the direct costs of the TPLF war include the military costs, costs of damage to physical and social infrastructure, damage to capital assets, and the costs of providing for the displaced and disabled persons. The total direct cost of the war is calculated to reach several billions of dollars. Indirect costs included lost income due to the loss of human capital in Ethiopia, forgone investment, and lost income from reduced tourism.
The proxy war financed by the superpower and shamelessly conducted by the TPLF junta against the people and government of Ethiopia will be reversed. Of course, the military expenditure will have a negative and significant effect on investment in the long run. This implies that the military spending decreases government investment. The costs of military expenditures impact production and productivity. However, War Economy may lead to creative way of survival. It also leads to consumption of locally produced goods and services thereby saving foreign exchange that would have been used for importing non-essentials. Whatever the case may be, Ethiopia is not new to War Economy and it will surmount all possible hurdles designed by the Superpower through the intermediary of the junta.
BY GETACHEW MINAS
THE ETHIOPIAN HERALD DECEMBER 9/2021
