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The Economic Consequences of War

An educational presented by BC Labour Against War

A report by Rachel Tutte

To understand the economic consequences of war we must look at Canada's role in world politics and in the world economy; we must look at Canada's role in Pentagon Wall Street Capitalism. This premise kicked off thought-provoking presentations by Dr. Ingo Schmidt, labour economist and journalist, and lively discussions during two recent BC Labour Against War evening educationals.

Dr. Schmidt started out by telling us about military spending in Canada and the USA. Canada will spend $15 Billion this year, the U.S. $511 Billion.

Although this seems like a lot of money, Dr. Schmidt said that it is relatively insignificant economically. In Canada it is only 1.2% of GDP, and 3.8% of GDP in the U.S. (compared to 10% of GDP and 15% of GDP respectively for health care). Thus, military spending is not the critical factor causing the economic effects of war that we must be concerned about.

The real problem, Dr. Schmidt suggested, has to do with oil prices, exchange rates, and Pentagon Wall Street Capitalism.

What is this Pentagon Wall Street Capitalism? The Pentagon's role, we learned, has been to provide the security for companies to access resources and maintain supply chains around the world. This has been essential for the relocation of production to areas where labour is cheaper, and environmental and safety standards are lower. Wall Street has a double role. One is to direct capital internationally in order to spur on global economic growth. The other, by riding on a wave of debt and speculation, is to funnel money into the coffers of U.S. financial companies.

The rich people inside Pentagon Wall Street Capitalism accumulated enormous wealth, workers in the rich countries suffered from the neoliberal onslaught on the welfare state, which went hand-in-hand with Pentagon Wall Street Capitalism, and workers in poor countries suffered outright economic and social devastation.

But, Dr. Schmidt reminded us, the Pentagon is having trouble maintaining secure access for the rich to the world's economic resources. The “War on Terror,” an ideological disguise for capitalists’ desire to control the world economy, has been escalating: from Iraq in 1991, to the Yugoslavian wars in the 1990s, to Afghanistan and Iraq today, there is now permanent war and the Pentagon is not winning. They are very capable of destroying whomever they declare an enemy, but they have been incapable of installing effective governments of their liking. Trust in the Pentagon's military capacity to provide security and stability is being questioned, and therefore, capital flows into the U.S. are diminishing.

Wall Street is having its problems too, Dr Schmidt told us. Low interest rates in the U.S. in the early 2000s triggered a U.S. housing boom and world economic growth. However, drastically increasing U.S. imports and current account deficits had to be matched with ever increasing capital imports.

To attract these capital imports, U.S. interest rates were increased during the course of the boom. As a result, ever more U.S. households found it difficult to pay their mortgages. Thus, the housing boom went bust and triggered an economic crisis. This crisis in the U.S. affects all its partners, including Canada.

Two other economic factors that are influenced by war and are specific to Canada, said Dr. Schmidt, are oil prices and the Canada/U.S. dollar exchange rate. In 2001, before the attacks on Afghanistan and Iraq, a barrel of oil cost US$20. Today, the price is US$130 per barrel. It is only at these higher oil prices that getting oil from the tar sands in Canada is profitable. Unfortunately, the environmental disaster and social costs of this tar sands industry are very high and affect us all.

Also, the high oil prices raise the costs of farming and of the transportation of food. These higher food and oil prices hurt people with lower incomes far more than those with higher incomes.

As the price for oil climbs steadily above the level that makes the tar sands profitable, Canada gets increasing oil revenues. Along with high prices for other mineral resources, this increased export revenue leads to an increase in value of the Canadian dollar over the U.S. dollar, to a high exchange rate for the Canadian dollar. Dr. Schmidt explained how this high loonie has had a drastic effect on the manufacturing sector in Canada. There have been workers laid off by the thousands, an acceleration of the replacement of unionized by non-unionized jobs, and reductions in wages and benefits. A real manufacturing crisis to be added to the list of consequences that Canada's economy is suffering as a result of the wars being waged today.

In conclusion, Dr. Schmidt stated that the economic consequences of war are inextricably interwoven with neoliberal policies that negatively affect workers around the world, albeit to differing degrees. These consequences are felt in countries like Canada even when the war is fought in far away countries. Therefore, workers along with labour, peace, and social justice movements must work together across borders.

There won't be peace without social justice, and workers won't have economic security without peace.

Dr Ingo Schmidt is a labour-oriented political economist and journalist working for Athabasca University in Alberta, Canada. If you want to know more you can contact him at ischmidt@shaw.ca.