The Prussian military commander and military theorist Carl von Clausewitz called war "an act of violence to force our adversary to do our will." This is a perfectly fair definition, but, among other things, war is an economic phenomenon closely related to trading, investment in technology, and the price of certain goods. Today we decided to talk about the latest events in the world, in particular in Ukraine, and understand why the development of the economy is now very important for Ukraine.
In this Article:
What is happening in Ukraine
Early in the morning of February 24, 2022, Russia launched missile strikes on the territory of Ukraine and launched a direct full-scale invasion. The intensive advance of Russian troops deep into Ukraine has been stopped for the time being, but the enemy is still planning an offensive operation. Russian troops continue to shell the residential areas of Ukrainian cities, including Kyiv and use strategic bombers to carry out missile strikes. Russian attacks continue to kill children, women, and older people who are trying to leave the war zone. There are already about three million Ukrainian refugees in European countries. According to British intelligence, the Russian navy blocked the Black Sea coast of Ukraine, cutting off the country from international maritime trade. As a result, Ukraine's economy is falling dramatically. Therefore, it needs the external support of everyone who became an observer of these events.
What is the role of the economy in military conflicts?
War historically depends on the readiness of the state to invest in capital-intensive technologies. For example, US military spending in 2021 amounted to $738 billion. This is more than all of Russia's government spending last year or three full budgets of Portugal for the same period. England became an empire thanks to a powerful navy, in which the country actively invested. The First and Second World Wars were strongly tied to the military-industrial complex; the success of military operations depended on the loss of aircraft, ships, and tanks. In terms of the success of military operations, equipment was more important than human losses.
In our time, these traditions continue, in the second Karabakh war that happened in 2020, drones, in particular kamikaze drones, became the most notable weapon. War is a colossal cost, and a strong economy is needed to enable a country to afford it. Therefore, the economy traditionally plays a serious role in military conflicts. And this role has only increased over the years.
How the economy of the war works
There are two types of military conflicts: between countries and within one state. In the twentieth century, the number of internal conflicts dominates. For example, we can recall Afghanistan or regular military coups in African countries.
The war economies of these two types of conflicts are different. An external war can sometimes even be beneficial, especially in terms of long-term economic development. Historian Charles Tilly, in his work Coercion, Capital, and European States, calls coercion and the preparation for war the main driving force of the historical process. Why did Europe manage to take a dominant position in world politics? Because countries threatened and fought each other all the time, which means that states had to build institutions and develop their economic power in order to fight with their neighbors.
However, there is a subtle point in this logic: the threat of war is useful, which stimulates the economy. Wars themselves are certainly bad. They undermine the economy and damage the assets of the state. An exception may be a "small, victorious war," but this is where the positive economic impact of external conflicts on the country's economy ends.
Much modern scientific research is devoted to conflicts, and scientists have already made some interesting conclusions. In particular, what can provoke a war? On this occasion, there is an analysis of what is happening in Colombia, which clearly shows how the price of various goods can extinguish or, on the contrary, incite conflicts.
Colombia exports oil and coffee. It turned out that the rise in coffee prices and the rise in oil prices lead to absolutely opposite effects. If the oil price rises, then the number of conflicts also grows because the production of petroleum products is capital-intensive: few people, many factories. Accordingly, factories become profitable, average wages do not increase, and there is an incentive to take over the enterprise. With coffee, the story is just the opposite — there is not much capital, but a lot of people are employed in the production process. So when the price of coffee goes up, wages go up. And the more attractive an economically peaceful life, the less likely war will break out. Because, unlike external conflicts, civil wars do not have a single mechanism that would give a positive result. The destruction of capital, the destruction of people, the collapse of state mechanisms — any conflicts have extremely negative effects.
What happens to foreign trade during a war?
Foreign trade does not stop even in wartime. The UN estimates that the export of minerals, including lapis lazuli, brings the Taliban the most income after earning from the sale of opium. Everyone knows it's unethical to trade with the Taliban, but the super profits from lapis lazuli, made popular by the "great crystal boom," outweigh the moral issues.
In some cases, the UN imposes sweeping sanctions and prohibits trade with belligerents in order to end the conflict. And then any deliveries, for example, weapons, become illegal. But as studies show, these sanctions only work in relation to those countries where the level of corruption is low. If a conflict breaks out somewhere and the UN imposes sanctions, then in countries with a low level of corruption — in America or Sweden — the shares of arms manufacturers do not grow. And for manufacturers based in countries with high levels of corruption, shares magically go up. Everyone understands perfectly well what this is connected with: incomes have grown, albeit illegal ones, and the value of the company has also increased. But to prove the fact of direct sales is almost impossible.
How the war in Ukraine affects different regions of the world
In addition to the human suffering and humanitarian crisis caused by Russia's invasion of Ukraine, the global economy will be feeling the effects of slowing economic growth and accelerating inflation.
Economic consequences will spread through three main channels. First, higher prices for commodities such as food and energy will lead to even higher inflation, which in turn will affect income and negatively affect demand. Second, neighboring countries, in particular, will face trade, supply chain, and remittance disruptions, as well as a historic surge in refugee influxes. And third, declining business confidence and increased uncertainty for investors will weigh on asset prices, tightening financial conditions and potentially accelerating capital outflows from emerging markets.
Russia and Ukraine are major commodities producers, and the destabilization has already caused world prices to soar, especially for oil and natural gas. Food prices have skyrocketed, and wheat, which accounts for 30 percent of world exports to Ukraine and Russia, has hit record highs.
In addition to global spillovers, countries exposed to direct risks in trade, tourism, and finance will experience additional pressure. Countries that depend on oil imports will face widening budget and trade deficits, as well as rising inflationary pressures. Still some exporters, such as those in the Middle East and Africa, could benefit from higher prices.
Sharper increases in food and fuel prices could increase the risk of unrest in some regions, from sub-Saharan Africa and Latin America to the Caucasus and Central Asia, and parts of Africa and the Middle East are likely to suffer further food insecurity.
In the longer term, a war could fundamentally change the world economy and geopolitical order if there is a shift in energy trade, a realignment of supply chains, a fragmentation of payment systems, and a revision by countries of the structure of foreign exchange reserves. Rising geopolitical tensions further heighten the risks of increased economic fragmentation, especially in trade and technology.
Energy is the main conduit for spillovers for the European Union because of natural Russian gas imports. Larger economic disruptions in the supply chain can also have serious consequences. These consequences will increase inflation rates and slow down the post-pandemic economic recovery. In Eastern Europe, there will be an increase in the cost of financing and an influx of refugees. According to the United Nations, they have already received most of the 3 million people who have left Ukraine recently.
How can we help support Ukraine's economy?
Keep working with Ukrainian companies which can supply services during the war
Business activity in the country has declined significantly. However, a large number of enterprises continue to operate, including the IT sector. Therefore, you can transfer the development process to Ukrainian outsourcing companies if you want to support Ukraine. You will not only support the country's economy but also support those people who are left without housing, work, and even food. For example, the Geniusee outsourcing company continues working on 30+ projects for foreign clients, thereby helping not to collapse the economy of Ukraine. In addition to being a place of work for more than 150 families, it also gives all the proceeds for February, March, and April to the country's military needs.
Financial support for Ukrainian soldiers and volunteers
The easiest and most effective way to support the Ukrainian army in the fight against militants. Your money will go to equipment, armored vehicles, fuel, medicines, and much more. The stronger our army is, the sooner the hostilities in Ukraine will end, the fewer our soldiers, children, and civilian casualties.
Direct assistance to the army and volunteer battalions with the necessary things
In some cases, supplying the right things to soldiers directly is even better than sending money. Money tends to be converted into useful items at the front with the inertia of many days, so in the ideal case, it would be to bring the necessary goods already purchased so that the soldiers can use them right now, and not wait until they reach them.
Help for the wounded war veterans and the families of the dead
I don't think there is much to write here. During the hostilities, more than 500 children were left orphans, and all of them need families. Also, wounded soldiers need medicine, and their families need financial assistance.
Help for refugees.
As a result of hostilities in Ukraine, about 1.5 million people were forced to leave their homes. Even if you don't want to support the soldiers, you can still help the refugees, most of whom have nothing to do with politics. Most of them prefer to go to Poland, Hungary, Slovakia, Switzerland, and other European countries. A humanitarian catastrophe must be prevented.
Boycott of goods from Russia
Why should we do it? There are several reasons. Firstly, Russian companies pay taxes to the treasury of the Russian Federation, and some of this money goes to finance the war in Ukraine — you need to stop sponsoring terrorism. Secondly, suppose Russian business suffers tangible financial losses around the world. In that case, there is a chance that the pressure of business people on the Kremlin to end the war in Ukraine will increase. Thirdly, we will reduce trade dependence on the Russian Federation and will be able to support manufacturers from other countries. Fourth, the Kremlin has been waging a trade war for a long time, in every possible way interfering with the sale of many different goods in the Russian Federation, and a symmetrical answer must be given. Barcodes of Russian goods start with 460-469 (at the very beginning).
The information war on the part of the Russian Federation is senseless and merciless. Hundreds of paid fighters of the Internet front are now writing nasty things about Ukraine. They are trying to convince the world as much as possible of the legitimacy of the Russian aggression against Ukraine.
Getting involved in long disputes on "who is right and who is wrong" is pointless, only if you have the desire and a lot of free time. But, in my opinion, the following three strategies of behavior can be useful:
- A) Blocking of Kremlin bots on various Internet resources.
- B) Debunking the myth of the "Nazi junta."
- C) Parrying the lies of the Russian media is one of the most effective tactics to counterpropaganda.
Registration in the ranks of the army of Ukraine, the National Guard, and volunteer battalions
Comments, in my opinion, are unnecessary. In Ukraine, the army needs not only military professionals but also signallers, sappers, doctors, cooks, engineers, and many others. Moreover, in addition to humanitarian considerations, one must keep in mind that Ukraine is now a place where you can make a promising military/police career or acquire excellent start-up political capital.
In conclusion, I would like to say that the Ukrainians won the war in the eyes of their own compatriots and the eyes of the whole world. The Russian Federation definitely lost the war because its economy will still roll back 30 years even if it advances geographically in Ukraine. Russia has no good way out of this war. All peace agreements will result in her paying for Ukraine's economic recovery. After 22 years in power, Putin will leave Russia to his followers, a Russia much worse than he took it. This is the fate of dictators and tyrants and the trace that they leave in the country's history and the world. Slava Ukraini! Glory to Ukraine!