Is the business of war tied to economic growth?

By William Keegan

LONDON: On Sunday, Nov. 12, the last Remembrance Sunday of a devastating century, some of the links between war and the economy should be pointed out. Economic growth is essentially the result of technological progress, which can have good and bad consequences. Wars had always been a feature of history but it was technological "progress" that contributed to the escalation of the damage to armed forces and civilians in the twentieth century.

Between 1919 and 1944 Remembrance Sunday was known as Armistice Day. Alas, its observance did not prevent war in 1939. The 1914-1918 war was not "the war that will end all wars".

The European debate that dominates so much of British politics now stems from the aftermath of the World War II. Germany had invaded France in 1870, 1914 and 1940. The Founding Fathers of what is now known as the European Union were determined that this should never happen again. Germany and France were to be bound together in a way that would make future wars between them unthinkable.

The end was thus political, although the means were to be economic. It is not for nothing that the single currency owes its origins to the setting up of the European Coal and Steel Community in 1952. Coal and steel were the raw materials of armaments production.

There were many reasons why Britain did not sign up for this first "European" venture: one of them was the difficulty a British Labor (or Socialist) government had with the idea of surrendering these "commanding heights" to some supra-national institution.

It is noteworthy that among the strongest "Europeans" in British politics are those senior politicians who served in some capacity in the World War II, or who grew up during it. They remember that the United States came not once but twice to the rescue of Europe. But they also remember how late those rescues were, and how difficult it was for the East Coast establishment to triumph over their own isolationist contingent.

The U.S.-financed Marshall Plan was essential to Europe's post-1945 economic recovery, and laid the foundations for the subsequent German "economic miracle". But Dean Acheson, U.S. Secretary of State after Marshall, once observed: "What citizens and the representatives of Congress alike always wanted to learn in the last analysis was how Marshall Aid operated to block the extension of Soviet power and the acceptance (by Europe) of Communist economic and political organization and alignment."

The U.S. defense effort associated with the Cold War inspired all manner of technological progress in the United States. "Private Enterprise" and "Keep Government Off Our Backs" may have been the slogans; but in practice U.S. capitalism and Washington were involved for many years in a common economic effort.

By contrast the Cold War had very damaging effects on the Soviet economy. It was in the CIA's and the U.S. defense lobby's interest to exaggerate the strength of both the Soviet economy and its defense capability. But U.S. intelligence seriously overestimated the size of the Soviet economy, and underestimated the degree to which it was essentially an "arms economy".

It was most unfortunate that the collapse of Soviet Communism coincided with the triumphalism associated with extreme free market economics. Luckily, Eastern European countries still had people with memories of how market economies worked. But Russia had been exposed to Communism for rather longer.

There is no doubt that the fall of the Wall was a great historic event. But there is equally no doubt that last week's celebrations of the 10th anniversary of that event were overshadowed by the knowledge that the adjustment of the former Communist countries to capitalism had been poorly handled.

Which brings us back to that quintessential capitalist economy, the United States. In current discussion the United States rules the roost. People have forgotten that as recently as the mid-1980s the United States was being written off as an ailing, de-industrialized giant. The mighty U.S. economy fought back and won. Meanwhile, the Japan that the United States had helped back on its feet after the war has lost faith in the economic model of which, oddly enough, the United States once approved.

Of course, with most Americans, when "the war" comes up in conversation it is usually assumed that one is referring to Vietnam. The inflationary financing of that war caused trouble for the dollar, and for the world financial system. It was partly in reaction to that period that the European Exchange Rate Mechanism was set up.

President Jacques Chirac reminded us of this the other day when arguing that the EU should stand up more to the United States. The United States is criticized in this post-Cold War world for being isolationist and dominant. The two are not necessarily contradictory. It is possible to be parochial while trying to shape the world economy in an image that suits your "parish".

As the retiring International Monetary Fund managing director Michel Camdessus observes, he is criticized in the rest of the world for being a lackey of the United States, while Congress complains that he does not do enough to advance the U.S.'s interests.

-- Observer News Service