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May 07, 2020

For VEDay75: Economic Warfare in Two World Wars

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In two world wars the Allies employed economic warfare against their principal adversaries – Germany in World War I, German and Japan in World War II. Economic warfare meant attacking the enemy not head on by a clash of military forces, but indirectly by attacking their supply chains. In World War I this meant a naval blockade of German ports and restrictions on Germany’s neutral trading partners. In World War II there was a novel dimension: bombing of the enemy’s industrial towns and ports.

What difference did economic warfare make? Its most resolute advocates saw it as a war-winning weapon, one that would avoid wasteful attrition on the battlefield. Sceptical observers saw it as a waste of lives and resources on a project that distracted from the main task, that of defeating the enemy’s armed forces on the battlefield. The truth lay somewhere in between, but where?

I’d taught this subject for twenty years, maybe more, but never written about it. Last year I wrote a short piece on economic warfare in World War II, for The Economics of the Second World War: Seventy-five Years on, edited by Stephen Broadberry and me, and published by CEPR earlier this week. I decided to write a longer paper that would wrap up the issues with others I had been thinking about and seeking to integrate into my thinking.

This was much more difficult than I anticipated. I hoped to write a short, zippy paper with a few bullet-point takeaways. That didn’t happen. My paper is a long read. Much of it is about one campaign – the Allied air offensive against Germany, the most comprehensive and controversial episode of economic warfare in two world wars. The answers to my questions depended. I knew, on the effects of economic warfare, which could be understood only after considering how the adversary’s economy and society responded to being attacked. There was no one answer to what happened next.

On the internet, “TL;DR” stands for “”Too long; didn’t read.” It’s a signal to stop droning on and cut to the finish. In that spirit I’ll paste in my conclusions, of which there are seven. If they make you want to read the paper, the full text is linked here.

This survey points to seven conclusions. (1) It was often hoped that economic warfare would act as a substitute for combat, but experience showed that this was largely an illusion. The complementarities between economic warfare and combat were much stronger.

(2) The most important effect of economic warfare was to raise the overall costs of the adversary’s war effort. This was a gradual process, one that gave the adversary ample opportunity for countermeasures.

(3) The main countermeasures were Olsonian substitution, nationalism, and the escalation of violence. Substitution and nationalism did not nullify the effects of economic warfare, but they redistributed them and postponed them. Heightened violence aimed to pre-empt the effects of economic warfare by breaking out. Whichever of the three routes was taken, the one thing that was certain was that economic warfare found its logic only in protracted wars of resources.

(4) Wars of resources evoked vast productive efforts, and it was easy to conclude from this that the objective of economic warfare should be to attack production. The example of the Allied air war against the German economy in World War II suggests that the most effective way to prevent production from taking place was not to attack production facilities directly, but to demolish the transport system, which provided the means of supply-chain cooperation and coordination. This had to be done at many points at once, which could not be done without air superiority. Thus, success in economic warfare relied on success in combat – another aspect of their complementarity.

(5) Wars of resources were also wars of attrition. Economic warfare was sometimes seen as a way to avoid the attrition of armed forces. Instead, economic warfare turned out to be a phase of the war of attrition. This too emphasizes the complementarity between economic warfare and combat, because the resources available to each side for attrition in deployment and combat were limited to those that survived the attrition arising from the other side’s economic warfare. From another perspective it suggests that economic warfare and combat were not so much separable elements of warfare as neighbouring bands on the continuum of warlike activities.

(6) The complementarity of economic warfare and combat is further illustrated by cases in which choosing one over the other carried high costs. It was inefficient to engage in combat without considering the possibility of striking at the enemy’s supply chain, as the Soviet Union did in 1941. It was reckless to embark on economic warfare without the readiness to engage in combat, as the United States did in 1940; this encouraged the adversary to respond by aggression.

(7) While the age of mass warfare is hopefully over, similar lessons may apply to the peacetime use of trade sanctions to resolve disputes. When an economy is sanctioned, losses to civilians are inevitable. A country under siege can exploit Olsonian substitution and nationalism to mitigate the effects. If sanctions raise the cost of resistance by enough, violence may become an attractive option. If trade sanctions heighten the risks of militarized conflict, strong defences or credible deterrents are required to manage them.

I am a professor in the Department of Economics at the University of Warwick. I am also a research associate of Warwick’s Centre on Competitive Advantage in the Global Economy, and of the Centre for Russian, European, and Eurasian Studies at the University of Birmingham. My research is on Russian and international economic history; I am interested in economic aspects of bureaucracy, dictatorship, defence, and warfare. My most recent book is One Day We Will Live Without Fear: Everyday Lives Under the Soviet Police State (Hoover Institution Press, 2016).

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