With the end of the Cold War, then the collapse of the Berlin Wall, European governments and populations had endorsed a pacified vision of their continent, at least in terms of armed conflicts taking place or affecting their territories. Since the 2000s, conflicts have intensified – but they are generally considered to be “elsewhere” on the planet. Terrorism is taking hold, but it is not a declaration of frontal state-to-state war. This is not a conventional war.
Unlike the United States or China, European countries have reduced their military budgets, drastically since the end of the 1990s, and/or transformed their armies into reserve armies. The population is no longer trained, because this type of expenditure is considered sterile and useless. The Russian-Ukrainian conflict has undermined these certainties. Then, with the increase in tensions between Russia and NATO, Emmanuel Macron, the French president, in particular, clearly decreed that we were in a war economy. The expression was widely used and publicized. But what exactly does it cover?
The war economy can be approached from a restrictive angle. In this case, the expression designates the capacity to increase production, particularly of weapons. It is this concept that is being promoted today in France since it involves: “putting the capacity to produce back at the heart of our concerns”: faced with the conflict launched by Russia in Ukraine, the French defense industry has entered into a “war economy” for several months. The objective: to be able to ensure a long-term effort if necessary for our armies or for the benefit of a partner, writes the Ministry of Defense on its website.
This French announcement should be put into perspective. The effort to be made today is all the more important as state spending on this item has been reduced since the 1960s. Over the period 2013-2022, France has increased its military spending by 15%. , which is equivalent to the Russian augmentation (but the starting point is not the same). In addition, this increase in expenditure must be put into perspective when we observe that over the same period Ukraine experienced an increase of 1.661%.
The affected economic situation
The expression “war economy” can also be understood with an extensive meaning. If, in this case, it is more protean, it presents some key characteristics whose real extent varies according to the direct involvement of the country in the war, according to the phase of preparation or engagement in the conflict and according to a confined position to more or less broad support. It is not necessarily restricted to a single effort confined to the military-industrial complex, which includes, in addition to the Public sector of the army, the private industrial sector (suppliers of the necessary equipment and services). In this case, the war economy can completely structure and reshape the cyclical characteristics of an economy. If involvement in the conflict is strong and directly affects the territory, economic growth declines. Public spending on the war effort is intensifying, capturing tax revenues, already reduced by the decline in growth. Public debt is increasing.
This reallocation of production towards the war economy destabilizes the productive fabric and segments it: those considered useful versus those considered non-essential to the objective pursued. The repositioning of demand in certain sectors leads to strategic reorientations of companies. Employment is in turn affected. The total volume is reduced and its composition between the different sectors is reviewed. As far as prices are concerned, inflation is asserting itself under the effect of a reduction in the range of everyday consumer goods offered.
Foreign exchanges can evolve in disparate ways depending on the country’s commitment, the needs for external resources, the generalization of the conflict and the practice of embargoes. However, as the capacity to export goods is restricted, the trade balance is eroding. Reflecting this degraded situation of wealth creation, present and future, the weight of debt, material destruction, and the dissemination of populations and specifically of young adults weighing down the future skills available, the exchange rate Currency, in general, depreciates, and interest rates increase, revealing the level of uncertainty. At the same time as a subsistence economy develops, an informal economy emerges. In this context, the State – the public force – strengthens its prerogatives and takes on the role of conductor with expanded scope. Two reasons explain this movement: the need to relay private initiative which has been more or less dormant, and the desire to safeguard the Nation.
Restriction of capital outflows
The State then determines the priorities, arbitrates, orders and plans the organization of target production. He reoriented fiscal and monetary policies to support this war effort. What is considered essential is thus protected: defense posts, aid (often linked to State orders/requirements) to the private military-industrial sector, the energy sector, the means of communication , like that of emergency medical structures. To ensure the food of the population and the armies, agriculture is also considered a priority. Tax and financing resources being limited, they are oriented towards the prerogatives set by the State. Monetary policy aims to support the financing of the war effort: capital outflows are restricted, the activity of banking and financial institutions is regulated to direct financing towards sectors identified as strategic, the central bank is mobilized to buy government debt securities.
Radical reorganization of the economy
Considering these criteria, France is not today in a war economy in an extensive sense. This does not mean that the reorganization of the economy is not relevant. We should indeed be able to mobilize some of the levers attributed to the “war economy” to respond not to an armed conflict, but to the colossal challenges represented by the socio-environmental crisis. Do we have time to undertake long-term transitions? Doesn’t an emergency require a conductor who decides, plans, supervises when the issues are vital? Therefore, how is the state apparatus organized and structured today to take charge of this function? Have not the liberal ideals which have so dominated Western economies and which have even spread beyond, coupled with the demilitarization of certain nations, at the same time stripped the state apparatus of these instruments and these capacity for action in an emergency context?
The Planning Commission, which appeared in France after the Second World War, has disappeared. The close links between the public actor and the private sector have weakened, whether it concerns plans or flagship long-term, industrial or regional equipment projects. However, they were key to facing certain challenges such as reconstruction in France. Or, for example in the United States (a nation which – itself – has preserved its defense spending), public-private links through the military-industrial complex constituted essential pillars of the industrial policy of the 1980s integrated into “the Star wars”. The approach was then considered necessary to restore the omnipotence of the United States which had been undermined following the Iranian revolution and the hostage taking at the United States embassy in Tehran. Therefore, beyond the discourse on the State’s commitment, what are the means and structures available to it to take on the role of conductor and support society in its ability to cope with shocks? ? Shocks which will multiply with geopolitical tensions and the socio-environmental crisis.
The original version of this article was published on The Conversation
