Sep. 13: Calculating the costs of the continuing conflict in Syria
Who would benefit from international intervention in Syria?
Despite the apparent acceptance of a Russian plan to disarm Syria of its chemical weapons, the United States and its allies, including France and the United Kingdom, have not ruled out the possibility of a military attack against the regime in Syria. However, what is missing from the current debate is the question of the economic consequences of such an attack. Research shows that war is always more expensive than planned. Furthermore, the question of who ultimately benefits from such an attack remains—as ever—controversial and unanswered.
The world economy is in a generally fragile state. The USA is still suffering from the financial and economic crises that first appeared in 2008, Europe remains weighed down in its own crisis, brought on by a lack of confidence in the Euro, while Russia’s energy reserves decline in importance and China’s economy is slowing down .
Could it be that a US-led intervention in Syria would provide a fiscal stimulus to a lagging world economy, given the large costs of such military operations? And if so, who benefits economically and who pays the price?
Calculating the real costs and benefits of war
Empirical studies on the costs of war reveal three main findings. First, an international war in which an alliance of Western powers wages war from a distance to limit its own casualties is always very costly from a fiscal perspective, and usually more expensive than expected. In the USA, several studies have shown that the actual cost of the Iraq war exceeded the expected costs.
Second, the macroeconomic costs of war are extremely high around the world. Some first calculations suggest that year after year war will burden the global economy about as much as climate change. From an economic perspective, peace is always a good deal. If we could completely avoid war, the world would generally be more prosperous.
Third, the problem is that the costs and benefits that war entails are extremely uneven. Although war pulls down the average economic growth in the world, there always are players or single countries, which benefit. Those who profit include not just the arms industry, the military services industry and the oil industry but also many other more or less legitimate dealers and smugglers.
In every war—legal or not—people are increasing their sales and making money on the basis of that war continuing. Since the USA has privatized parts of its army, its supplier companies have an even greater structural interest in maintaining the continued violence and insecurity.
The mixed Keynesian effects of war
The uneven distribution of costs and benefits also occurs between states. Quite obviously, the Syrian economy is the biggest loser in the current conflict. However, empirical studies show that a belligerent country’s neighbours often benefit tremendously (provided that the war does not spill over onto their territory).
At the macro level, most European countries, as well as Canada and Australia, benefit tremendously from war spending—which comes, primarily, from the budgets of the United Kingdom and the USA. In contrast, countries such as Afghanistan, Iraq, Sudan and Somalia predictably suffer greatly from war.
This so-called Keynesian effect works like this: a country which is not invaded or otherwise involved in a war benefits enormously if one or more of its trading partners is involved. For the belligerent countries, however, the costs and benefits must be counted in a different way—citizens in these countries experience the effects of increased spending in the form of higher debt and higher taxes.
Therefore, US defense spending on the wars in Iraq and Afghanistan has a positive effect on the economy of for example Canada. The more the US Army buys from its suppliers, the greater the demand in Canada—thanks to US war spending.
War completely destroys state institutions and economies
In opposition to such ‘positive’ Keynesian effects of Western military expenditure is the local cost of the war in the affected countries. War leads to the destruction of financial, physical and human capital. Equipment, infrastructure, and other investments are destroyed and people are killed, wounded, and displaced.
Any kind of ‘reconstruction’ in postwar periods has rarely been a genuine restoration of former capital. War alters structures, incentives, prices and institutions. It destroys not only the economic building blocks in these countries but also their mortar—in other words, everything that keeps an economy running.
In a civil war trust in the government and its institutions is also damaged, and this is especially true for the police and the judiciary. The longer a war lasts, the more the state’s institutions become de-legitimized and even completely destroyed. The examples of Afghanistan, Iraq and Somalia clearly show how a war first destroys the economy and then the state, which will be weakened, eventually fall apart and become a ‘failed state’.
Which investors are willing to buy land, build a factory or lend money unless they feel that commercial contracts can be enforced in court? Who expects to conduct trade with a regime that kills its own people, using either conventional or chemical weapons?
Overall, the wars of the last 50 years have made the world much poorer. In other words, now is the chance to point out to the international community that peace in Syria has more benefits fighting the war, with or without Western intervention.