Mohammad Al-Ubaydli’s blog

Thoughts on why war is good for the economy

Posted in Books, History by Dr Mohammad Al-Ubaydli on April 16, 2006

I do not like war, but some people do.

Certain sectors of the American economy do well from wars. Obviously the weapons manufacturers benefit, like Raytheon which got to test out and successfully market its Patriot missile system in the 1990 Gulf War.

But more interesting are other companies which make civilian technology but require the government military contracts to get start. In 2003 a lobbyist friend of mine in DC took me to the offices of a startup that began with voice recognition software. Their first real customer was the US government in Iraq.

That contract was for garbage collection. Apparently, garbage was not being collected, instead it was left to rot in some neighbourhoods. However, the US military was not very good at talking to Iraqi citizens so could not find out about the location and frequency of these problems. The company created a freephone hotline that allowed citizens to report the problem from their neighbourhoods to the software. The government then had a map of the problem hotspots.

I doubt that the garbage was collected in response – the reason that Iraqis were not talking to the Americans was the same reason that the garbage was not being collected, ie the areas were too dangerous to be seen cooperating with Americans. What Iraq needed was better engagement with and cooperation from American troops. But that is difficult and does not serve the American economy. Instead, giving a military contract to that startup contributed to the innovations and export products of the American economy and that is what happened.

As I said earlier I have recently discovered Peter Drucker‘s books. I was intruiged to find this passage from the “Now That Arms are Counterproductive” chapter of “The New Realities” book:

Arms and military forces were pure burden and drain on the civilian economy and society for untol centuries[…] Then, in the seventeenth century, things changed drastically. For two hundred fifty years, through World War II, the defense economy and the civilian peactime economy moved in tandem, mutually enriching each other. The turning point was the Dutch invention in the late seventeenth century of the first ship capable of carrying a substantial cargo in addition to its crew and their provisions. This ship, a man-of-war originally designed to carry heavy guns, was soon converted into the world’s first efficient freight carrier. It was one of the greatest technological breakthroughs that peacetime economy ever experienced-as great a breakthrough as the steam egine or the computer or biotechnolog. It brought about the commercial revolution of the eighteenth centurey in which, for the first time in history, trade was worldwide. Europeans started their march toward economic penetration and dominationce of the entire globe. For two hundred fifty years almost every advance in military technology thus quickly provided new energy for the civilian economy. And civilian technolgy rapidly was applied to military technology. Military technology created the first modern roads, designed and built primarily for the attempt of Louis XIV of France to become master of the European continent in the early eighteenth century. They immediately became roads for inland trade. To provide the engineers to build the roads, the first technical university, the Ecole des Ponts et Chaussees, was founded (in 1747). With it emerged the profession of engineer and te systematic application of science and technology to the design and production of goods and services.

Conversely, every major innovation in the civilian economy during the two hundred fifty years afer 1700 found military application almost immediately: the steam engine, the telephone, the wireless, the automobile, the airplane. And wars, for all their destruction and waste, provided economic impetus for two hundred fifty years, greatly speeding up technical dvelopments that otherwise would have taken many decades to reach commercial application. The textbook example is Napoleon’s paying for the forced-draft development of beet sugar to break Great Brtain’s monopoloy on the supply of cane sugar to Europe; it is the first instance of “governmental defense research”.

But fo World War I, radio would probably not have been developed until thirty years later, that is, until the 1950s. Because of the poor performance of the field telepones during the battles of World War I, engineering talent and large uantities of government money were provided for the development of wireless transmission of voice and music. The computer might well have taken thirty or forty years loner but for World War II. The first working computer, the famous ENIAC, was built for military needs and with military money. The Cold War a few years later then gave IBM world leadership in computers. The military orders for “early warning systems” in the Canadian Arctic enabled IBM to design and manufacture the first working computers in substantial numbers.

Equally important: during the two hundred fifty years that began in the late seventeenth century, militar aid and civilian production facilities were interchangeable. Civilian production facilities and civilian products could easily be converted to wartime production and wartime use, and could then be reconverted almost immediately to peacetime use. A major reason for Britain’s surge into economic leadership in the early nineteenth century was its ability to convert the shipyards that hadbuilt Nelson’s fleet to building the newly designed packet boats and clipper ships that came to dominate oceangoing trade for the next fifty years. This also happened on the other side of the Atlantic in the shipyards that had been built during the American Revolution and expanded during the War of 1812 to build and American navy. When the United States entered World War II in December 1941, it had literally no war production capacity. It took less than four month, however, to convert a plant that had been assembling Buick, Oldsmobile, and Pontiac automobiles in Linden, New Jersey, into the largest producer of carrier-based fighter planes. And by January 1946, five months after World War II had ended, the plant was again producing Buicks, Oldmobiles, and Pontiacs.

The next paragraph begins “But now this is over” (his emphasis) but still this is a fascinating description of the advantages of war.

I will finish with a quote from another book I am now reading, “The Rise of the Meritocracy“, which I had read about in “Is It Me or Is Everything Shit?”. From page 32:

[P]eople used to say that in war there were no victors; victor and vanquished, all suffered alike. In the perspective of history we can see how untrue this was. Before nuclear fission arrived, war benefited everyone, especially the defeated countries – witness Russia, Germany, China. War stimulated inventions, and, even more important, war stimulated the betteruse of human resources. In the First World War the U.S. Army put two million recruits through intelligence test, so succesfully that practically armies adopted the same practice when they were mobilized on later occasions. In the Second World Ward the British Army again demonstraed the extraordinary effectiveness of psychological selection. These were in their time great achievements. War woke people up to the fact that the nation possessed a supply of ability never ordinarily use to the full. Every child from an elementary school who became an officer in the Hitler war – many as they were, once merit rather than parentage became the test – was an argument for educational reform. It was no accident that the three great education Acts of the first half-century, 1902, 1918, and 1944, were put on the statute book at the end of the three wars, nor that the cause of reform, in civil service and army alike, was in the previous century so strongly assisted by the Crimea.

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