World economy: Is war good for business

FINANCE MINISTERS from the seven largest economies in the world met recently to debate how to revive the sick world economy. However, there was little agreement on how to revive the patient.

European ministers were worried that the re-emerging ’twin deficits’ in the US of trade and the budget would eventually cause a run on the dollar. This would reduce its value against other currencies, thereby strengthening others such as the euro, which would make their exports dearer. They were also worried that Bush’s $695 billion tax cut plan would not revive the economy enough because it was aimed largely at the rich who would not spend the windfall.

As well, the effectiveness of interest rate cuts is diminishing all the time. US interest rates are now 1.25% and the economy is still slowing, while Japan’s interest rates are virtually zero and its economy continues to experience recession and deflation. However, the hard-line European Central Bank has reduced its interest rates to help the beleaguered German economy.

The big hope of the finance ministers and others is that somehow the immediate problems facing the world economy are largely due to the uncertainty caused by the war. They wish for a resolution of the conflict without resort to the kind of military action proposed by Bush and Blair.

However, if there has to be war they believe a short, sharp war, where the costs are kept to a minimum and there is a quick victory for imperialism, would be best for the financial markets. Then there could be a rapid return of confidence and the world economy could return to an upward swing.

A war dividend?

But would any of the conditions afflicting the world economy be resolved by a war?

Even before the threat of war loomed, the bosses were cutting capital spending. Business confidence has fallen around the world and some anecdotal evidence suggests that war with Iraq is a reason for companies to hold back spending.

But the underlying problems of the world economy (huge overcapacity, massive indebtedness, etc.) the hangover from the 1990s, will remain.

On the other hand, could war make the situation worse? That’s possible. There are at least two risks: firstly, the costs of war itself and the reconstruction of Iraq will widen the US budget deficit. Unlike 1991, there will be no grateful oil sheikhs to foot the bill; none of them, nor Germany and Japan, can afford to.

The US Congress suggested $90 billion for military expenditure and reconstruction. But Bush’s former economic adviser Lawrence Lindsey offered a more pessimistic estimate of $100 billion – $200 billion, which would be much more devastating for a budget already under pressure from lower growth and massive tax cuts.

Secondly, the price of oil could rise at least for a short period. Already the uncertainty has pushed up prices, which has been exacerbated by the political crisis in Venezuela. "There has never been an oil spike which has not been followed by a recession," said Professor Andrew Oswald of Warwick University.

Moreover, global fund managers who place billions of dollars every day are worried that because the US economy relies so heavily on international capital a war could frighten foreign investors.

This would prompt them to sell out of US stocks and drive down the dollar, at a time when the US economy is more dependent on global capital than at any time during the past 50 years, according to David Bowers of Merrill Lynch.

Finally, the US population is now showing signs of exhaustion as the consumer of last resort. US consumer confidence has plunged to levels last seen in the deep recessions of 1990 to 1993, 1979-1982 and 1974-1975.

So war is unlikely to help the troubled finance ministers, in fact, it may give them even more to argue about.


WHILE SOME optimistic economists believe that the price of oil will drop to $20 a barrel after a war, as it did in 1991, others say that it will only fall back to $27 or $28.

This will make fabulous profits for oil companies but it’s estimated that each $5 rise would cut world economic growth by 0.1% or $32 billion. If the oil price remains $8 higher this year it will cost the global economy $51 billion.

MARK CLIFFE, chief economist at ING Barings, says world economic growth could be cut by up to 1.7% because of the Iraq conflict – a staggering £530 billion this year.


Iraq conflict: The human cost

BUSH AND Blair claim that civilians won’t suffer in the coming war. Two recent reports disagree. Collateral Damage, published by MedAct, the UK affiliate of International Physicians for the Prevention of Nuclear War, warned that Iraq after a war could face "possible civil war, famine and epidemics, millions of refugees and displaced people."

Per Olsson

Another new report by Canadian experts in health, nutrition and child psychology say war on Iraq will cause "a grave humanitarian disaster".

"Iraq’s 13 million children are at grave risk of starvation, disease, death and psychological trauma. Iraqi children are more vulnerable than ever", said Dr. Samantha Nutt, who visited Iraq in January, in a report named Our Common Responsibility; The impact of a New War on Iraqi Children.

The 1990-91 Gulf War and 12 years of economic sanctions have had a devastating effect on Iraq’s poor, particularly children and women.

One-quarter of Iraqi children under five are already chronically malnourished. Death rates of children under five years have more than doubled over the past decade, with 70% of deaths attributed to diseases such as diarrhoea and respiratory infections.

The report says: "Iraqi children are far more vulnerable to the effects of armed conflict in 2003 than they were in 1990. This is particularly true if there were to be disruption in the food rationing system".

Only 60% of Iraqis have access to drinkable water. Further disruption to these services, as occurred during the 1991 Gulf War, "would be catastrophic."

16 million Iraqis are 100% dependent on the present food rationing system, so "any disruption will mean death, malnutrition and starvation." There is only one month’s food supply in Iraq. If war occurs, food imports will be disturbed or stopped.

More than 50% of Iraqi families now live below the poverty line and unemployment has reached 60%. Iraq has become like a vast refugee camp. 40% of the children interviewed in the report "do not think life is worth living".

The 1991 War led to a complete breakdown of Iraq’s civilian infrastructure. "The sanction regime crippled basic services and made it impossible to recover economically", says the report.

The MedAct report warns that there’s no such thing as a humanitarian imperialist war. "Declassified documents from the US Defence Intelligence Agency show that a deliberate decision was made to destroy electricity-generating facilities and water treatment [in the 1991 Gulf War], and then put chlorine and medicine on the UN embargo list. The wide-ranging and cumulative effects provided the preconditions for famine and epidemic".

The military forces of imperialism are preparing for the same kind of warfare as in 1991, but with more deadly weapons and against a more fragile society.

From The Socialist, paper of the Socialist Party, CWI in England and Wales

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March 2003