How wars affect the economy
War has happened throughout human history and is always devastating. Recovering from war is not only rebuilding physical infrastructure but also restoring social order and political facilities. War destruction also affects the economy, particularly damaging streets, buildings, traffic, and sewage systems. Wars also disrupted the job markets, causing mass unemployment, high inflation, and governments running a huge budget deficit to finance the war. However, history has shown that post-war economic growth tends to be enormous, with staggering rates decades later, mostly due to the rapid recovery of buildings, employment, and international aid received from other countries. (Federle, 2024)
Reconstructing Infrastructure
Source: https://www.ntu.ac.uk/about-us/news/news-articles/2023/10/expert-blog-what-happens-when-a-war-ends
The first thing governments do after a war is to rebuild the remnants of destroyed infrastructure, to make sure transportation and services within the economy run smoothly. Physical Infrastructure includes transportation construction, water and energy production plants, sewage and sanitation systems, and telecommunication towers. Re-establishing these will create jobs and reduce unemployment, boosting the production and delivery of goods and services, hence increasing the economy’s productivity. Then, social infrastructure such as schools, hospitals, and housing is restored, ensuring the normal function of households, education is resumed, promoting social stability and enhanced human capital development. To optimize the reconstruction of the infrastructure, a good strategy is to let governments collaborate with private organizations. That way, the public sector can provide the necessary funding, while private companies can look for opportunities to leverage their investment and technical expertise to maximize operational efficiency. (Anand, P.B.,2005)
And employment
Source: https://www.history.com/news/post-world-war-ii-boom-economy
The landscape of the job market shifts drastically during the war. After that, a lot of job displacement tends to occur, as human resources are diverted to support the war. This means that some industries are more prioritized over others throughout the battle. For instance, heavy metal manufacturing was one of those most valued during this time in terms of providing weapons. Governments also support farming, medical, and health industries to support the well-being of soldiers, especially in prolonged fights. Meanwhile, consumer goods, tourism, and fashion industries are normally underinvested in war times. Therefore, after wars, there tends to be significant structural unemployment. On a small scale, companies can solve this by implementing additional training programs for displaced workers. For example, supermarkets constantly have programs that educate employees on quality customer service, a common sense that anyone can learn from. On a larger scale, regulatory bodies can impose policies that encourage the growth of Small and Medium Enterprises (SMEs). Emerging SMEs can be a decent source of employment, as these firms tend to be more flexible and adaptable when it comes to hiring new talents if governments provide generous subsidies for them. (Chang and Anderson, 2022)
And don’t forget the help from other countries
Another important source of funds to consider is international aid. This is aid received from other countries to support the country’s post-war recovery. The aid can come in many forms, including humanitarian and development assistance. Humanitarian assistance is given instantly after conflict, concentrating on providing food and shelter. The aid is normally delivered by international organizations such as the United Nations or World Bank. Meanwhile, development assistance is aid provided for rebuilding infrastructure, social services, and governance. These are often long-term funds from the World Bank and the International Monetary Fund (IMF) to help countries reform their economy and society. However, the downside here is that this money comes with conditions from these organizations. Therefore, the method is controversial, as many argue this approach can make war-torn nations rely on the dictate of developed economies that are members of these international institutions. (Panić, 2008)
For instance, under the Marshall Plan of the United States, Germany received a total of more than $12 billion in aid between 1948 and 1952. The aid supported restoring key infrastructure such as schools, hospitals, and roads and reduced unemployment, which significantly improved the country’s economic growth and brought Germany’s economy back to its pre-war potential. This comes with the condition that West Germany had to move toward a democratic and capital society. (Office of the Historian, 2019)
To wrap up
War is inevitable throughout the development of human society, and the world we live in today has grown through destroyed buildings and remnants of war. Every time war happens, the economy recovers faster than before due to international assistance and aid, prompting a reconstruction of buildings and building a more stable job market.
References
Anand, P.B.(2005) Getting Infrastructure Priorities Right in Post-Conflict Reconstruction. Research Paper 2005/042. Helsinki: UNU-WIDER.
Chang, J.-W. and Anderson, H. (2022). Labour Market Tightness during WWI and the Postwar Recession of 1920–1921. [online] CEPR. Available at: https://cepr.org/voxeu/columns/labour-market-tightness-during-wwi-and-postwar-recession-1920-1921 [Accessed 20 Jul. 2024].
Federle, J. (2024). Economic Fallout: the Price of War. [online] Kiel Institute. Available at: https://www.ifw-kiel.de/publications/news/economic-fallout-the-price-of-war/ [Accessed 24 Jul. 2024].
Panić, M. (2008). POST-CONFLICT COUNTRIES: AID EFFECTIVENESS AND PERMANENT PEACE. [online] Available at: https://www.un.org/en/development/desa/policy/wess/wess_bg_papers/bp_wess2008_panic.pdf [Accessed 21 Jul. 2024].
Office of the Historian. (2019). Marshall Plan, 1948. [online] Available at: https://history.state.gov/milestones/1945-1952/marshall-plan [Accessed 23 Jul. 2024].