Wars have marked Humanity in the worst ways imaginable. Making millions of orphans, widow, widowers … For the last centuries, physical and psychological traumas have affected hundreds of millions of families, the economy of many countries, different firms forced to close or in contrary, rose up during the war. This can lead us to wonder, what if a war was held in the 20th century. How would companies be impacted? Can companies benefit from wars? Can firms reduce the damages made to their business and be prepared?
Today’s topic will be “How can war impact companies and economies worldwide?”
Firstly, let’s categorize the different costs into 2 groups: concrete costs of war and intangible cost of war. The concrete costs of war regroups (un)employment, damages and losses done to the country and its citizens … Whilst, for the intangible part: innovation, inflation, psychological traumas, opportunity costs, GDP, national debt…
Each point mentioned above will be developed into the possibilities of outcomes, based on previous historical facts.
(Un)Employment: Employment during and after war tend to either be great or catastrophic for some. For instance, soldiers may struggle to be employed, due to multiple reasons: years following WW1, returning soldiers struggled to find jobs because many had been replaced during the war. While it benefited others, following WW1 and WW2 a growth in female employment can be noted, full employment of the citizens due to the urgent situation of the country, higher economic growth and innovation rate as the government invests more in new technologies.
The damages/Losses: War is always destructive regardless of the lives of innocent or historical values of material goods. Therefore, resulting in enormous human losses, and stolen, damages or destructed historical properties of a country. Potentially destroying small shops and stores as well as tall buildings, leaving many firms with no place to sell products or services.
Inflation: In many cases, war leads to loss of people’s savings, rise to uncertainty and loss of confidence in the financial system. Less consumers, meaning less revenue, higher difficulty for business to grow and survive. High inflation hits middle class savers the most as they see the value of their savings wiped out.
During wars, the economy can also experience cost-push inflation. Mainly due to war participating countries may decide to take hold of their oil distribution agency, creating shortages of goods and services and rising price of raw materials.
The 2022 Russian invasion of Ukraine led to a rise in the price of oil and gas, resulting higher global prices for fuel. As Russia is a major supplier of oil and gas. It is most likely, economic sanctions will be taken in Russia in response to the invasion. It is also expected that they will react by reducing supply and putting upward pressure on gas prices.
Impacting thousands of businesses that transport goods by trucks and/or oil/gas combustibles.
Psychological traumas: the pain of death, suffering, fear and disability of hundreds million soldiers and civilians that would stay traumatized for the rest of their lives.
Opportunity cost of war: For obvious reasons, wars are extremely expensive. The money invested in weapons, operations and the military in general is money that could have been invested into building/renovating/upgrading hospitals, schools, and other public institutions…
GDP: Countries experiencing civil war will see a collapse in tourism, foreign investment and domestic investment. It can lead to shorter life-expectancy and lost GDP.
Criminality: Ongoing war increases the availability of weapons in the country. Possibly leading to the rise in rates of armed violence and organised crime.
National debt: Because the government is willing to borrow more because there is patriotic support for the war effort. The US profited from selling arms and equipment to the UK during the early years (on generous lend-lease terms). The UK relied on US loans during the Second World War and took many decades to pay them off.
Because, if war detriments some, it also benefits others. A name has been decided for them: war profiteers. Present in the arm and ammunition producing industry for clear reasons, but also Aerospace, Defence, Transport, Security, Electronics …
Due to how expensive (terms of money and resources) war is, it is also very destructive (human cost and capital), and it is disruptive and noticeable in trades, labor management, and resource availability. These effects can affect the international market in one way or the other.
Even though, firms cannot stop the war from happening and events will depend on the magnitude of the conflict. What businesses can do, is reduce as much as possible the possibility of a total stop in their operation or irreparable damages. Here is a few of them : invest in regions recovering from conflict, avoid conflict risks in your supply chain, create local jobs, promote local enterprise development, Reduce climate change risks in your operations and your supply chain, build trust through an ongoing dialogue with communities …