War has long been a driver of economic activity, shaping industries, redirecting resources, and generating employment across various sectors. Despite the humanitarian and ethical imperatives to end conflicts, the cessation of wars can have significant economic repercussions, particularly for businesses that directly or indirectly rely on conflict-driven demand. The following explores the complex relationship between war and business, highlighting how the end of wars can impact economies and specific industries, with illustrative examples from history and contemporary times.
The Military-Industrial Complex
The term “military-industrial complex,” popularised by U.S. President Dwight D. Eisenhower in his farewell address, refers to the intertwined interests of governments, armed forces, and industries that produce military equipment. The scale of this relationship is vast, with billions of pounds allocated annually to defence budgets worldwide. When wars end, demand for military hardware, ammunition, and associated services declines, leading to a contraction in this sector.
For example, during the post-Cold War period in the 1990s, the reduction in defence spending led to significant layoffs and a slump in revenues for defence contractors. In the United Kingdom, companies like BAE Systems experienced reduced profits due to cutbacks in military expenditure. Similarly, the end of the Gulf War saw a sharp decline in orders for military vehicles and weapons systems, affecting manufacturers such as General Dynamics.
Employment and Local Economies
Wars create substantial employment opportunities, both directly within the armed forces and indirectly in supporting industries. Manufacturing jobs, logistics roles, and technological development thrive during periods of conflict. When wars end, these job opportunities diminish, leading to unemployment and economic stagnation in regions dependent on military contracts.
For instance, towns in the United States that house large military bases or defence contractors faced economic downturns after the Iraq War. Cities such as Fayetteville, North Carolina, which depends heavily on the nearby Fort Bragg military base, experienced economic challenges as troop deployments decreased and military spending was scaled back.
The Technology Sector and Innovation
Conflict often accelerates technological advancements. During wars, governments prioritise research and development to gain strategic advantages, leading to innovations that often have civilian applications. The cessation of wars can lead to a slowdown in technological progress due to reduced funding and urgency.
The Second World War, for example, spurred innovations like radar, jet engines, and early computing technologies. Similarly, the Cold War’s space race resulted in significant advancements in aerospace and satellite technology. In peacetime, the impetus for such rapid development diminishes, potentially stalling innovation in industries that benefit from military-driven research.
Resource Extraction and Commodities Markets
Wars can create demand for raw materials such as oil, steel, and rare earth elements, driving up prices and incentivising extraction. When wars end, the demand for these resources often declines, impacting businesses in the commodities market.
The Vietnam War is a case in point. During the conflict, the demand for oil surged to fuel military operations, benefiting oil companies worldwide. However, the war’s conclusion contributed to a subsequent dip in oil prices, adversely affecting the energy sector. Similarly, mining companies that supply materials for weapons production, such as tungsten and copper, face reduced demand when conflicts cease.
Private Security and Reconstruction Industries
Wars also give rise to booming private security and reconstruction sectors. Private military companies (PMCs) like Blackwater (now Academi) flourished during the Iraq and Afghanistan wars, providing security services to governments and corporations. When conflicts end, these firms often struggle to find alternative sources of revenue.
Reconstruction projects are another lucrative area during and after wars. Companies involved in rebuilding infrastructure, such as Halliburton and Bechtel, benefited enormously from contracts in post-invasion Iraq. However, as stability returns and reconstruction winds down, these opportunities dwindle, leaving businesses to pivot or face decline.
Geopolitical Stability and Market Dynamics
Paradoxically, while wars create immediate disruptions, they also establish long-term dependencies and markets for certain industries. Prolonged conflicts often embed businesses within a war economy, where profits are tied to the continuation of hostilities.
For instance, the arms trade thrives on sustained geopolitical instability. Nations engaged in or preparing for conflict are major purchasers of military hardware. The cessation of hostilities can lead to reduced orders, as seen after the signing of the Good Friday Agreement in 1998, which brought an end to The Troubles in Northern Ireland. The subsequent decline in paramilitary activity affected local businesses engaged in security and surveillance equipment.
Current Examples: Gaza and Ukraine
The ongoing conflict in Gaza and the war in Ukraine provide contemporary examples of how war drives economic activity. In Gaza, the military operations and associated destruction create opportunities for arms manufacturers, construction firms, and private security providers. For instance, companies supplying surveillance technology, drones, and weaponry to Israel have reported increased demand during escalations in the region. Furthermore, reconstruction efforts in Gaza, often funded by international aid, create a lucrative market for construction and logistics firms.
Similarly, the war in Ukraine has revitalised the defence sectors of NATO member countries. Governments across Europe have ramped up defence spending, purchasing arms and military equipment to support Ukraine or bolster their own defences. Companies like Lockheed Martin, Raytheon, and Rheinmetall have seen surges in profits due to increased demand for anti-aircraft systems, armoured vehicles, and ammunition. The conflict has also spurred investment in energy and infrastructure as nations seek to reduce reliance on Russian energy supplies, creating opportunities in renewable energy and natural gas sectors.
Historical Case Studies
Post-World War II
While the end of the Second World War brought relief and reconstruction, it also led to significant challenges for industries tied to wartime production. In the UK, the transition from wartime to peacetime economy required massive reorganisation. Factories producing military equipment faced closure or conversion to civilian manufacturing, often resulting in layoffs and financial strain.
The End of the Cold War
The Cold War’s conclusion in 1991 led to a substantial “peace dividend,” with governments scaling back defence budgets. This shift adversely affected defence contractors and related industries. For example, the British aerospace sector faced redundancies as demand for military aircraft diminished. Additionally, the downsizing of NATO operations impacted businesses reliant on supplying bases and troops stationed across Europe.
The Iraq War
The withdrawal of US-led coalition forces from Iraq in the early 2010s significantly impacted companies providing services to the military. Firms like KBR, which had secured lucrative logistics contracts during the conflict, saw declining revenues as troop levels reduced. The ripple effects were felt in industries supplying everything from catering to telecommunications.
Moral Considerations Versus Economic Realities
The economic arguments against ending wars must be weighed against the ethical imperative to pursue peace. The human cost of war—including loss of life, displacement, and long-term trauma—far outweighs economic considerations for most policymakers and citizens. However, the businesses and communities dependent on wartime economies often bear the brunt of transitions to peace, necessitating targeted interventions to mitigate economic shocks.
Strategies for Mitigation
To address the economic fallout of ending wars, governments and businesses can adopt several strategies:
- Diversification: Companies reliant on military contracts should diversify their portfolios to include civilian markets. For example, aerospace firms can pivot to commercial aviation or renewable energy technologies.
- Retraining Programmes: Governments can implement retraining programmes for workers displaced by the decline in military industries, equipping them with skills for alternative sectors.
- Infrastructure Investment: Post-war periods often require significant rebuilding efforts. Governments can channel resources into infrastructure projects, creating jobs and stimulating economic growth.
- Support for Innovation: Redirecting military research funding into civilian applications can spur innovation in sectors like healthcare, renewable energy, and information technology.
While the end of wars is a desirable goal from a humanitarian perspective, it poses undeniable challenges for businesses and economies deeply entwined with conflict-driven demand. Historical and contemporary examples illustrate the economic disruptions that accompany the cessation of hostilities, from reduced defence spending to contractions in resource markets. Capitalism depends on war and destruction to benefit the few, which is why capitalism needs to go and stay gone.
