Wartime Economics in the Pandemic 

Introduction: What is a War Economy?

The term War Economy refers to the reorganisation of a country’s production and distribution capacities in times of conflict[1]. In essence, while a war economy tries to produce goods for supporting the war effort, it also tries to sustain and strengthen the national economy as a whole. To this end, governments utilise their revenues and re-allocate resources towards the requisite sectors. For example, in World War II, the US government reallocated resources towards the production of defence goods, while also taking measures to ensure workers’ welfare, higher taxation of corporate bodies etc, all of which directly or indirectly supported its transition to the war economy. Of course, WWII-era USA may not be the perfect example of a war economy, given that normal life went on for most of its citizens, and that the actual warzones were separated from the mainland by the entire Atlantic and Pacific Oceans. More conventional examples of war economies would be of countries like Germany or the USSR in WWII, or of Pakistan in 1971.

The War Economy in the 20^th Century

In many ways, it can be argued that economics and the state of war influenced each other in the former half of the 20^th Century. On the one hand, the Industrial Revolution harkened the mass armament and mobilisation of the European powers in the run-up to World War I, leading to the rising escalation and distrust which culminated in the war. Similarly, international tensions and German populism fuelled by the discontent of the global Great Depression was an important factor driving the world towards World War II.

On the other hand, WWI led to vast economic changes. It led to the crippling of the German economy following the harsh terms of the Treaty of Versailles, and discontent in Tsarist Russia over the suffering induced by the war exploded in 1917, with the Bolsheviks seizing power and establishing the first Communist state in history. WWII was followed by the US economy emerging far stronger than before, its industrial producing capacity being augmented, and the adoption of the Bretton-Woods global financial system, regulated for the first time by international watchdogs like the UN, IMF, and World Bank. Meanwhile, the USSR’s opportunist expansion in the war led to the de facto partition of Europe, with the Eastern half being subsumed under Communist regimes. Similarly, the defeat of the Japanese in Asia harkened the rise of the Communists in China as well. Further, the collapse of the global European empires led to the independence of scores of Asian, African, and Latin American states, all newly sovereign actors in the global economy.

The adoption of a wartime economy in WWII led to a revolutionary reallocation of resources across the world. All the antagonists—Germany, Italy, and Japan—had reorganised their production capacities in the preceding years and had turned their economies into war machines, pouring out military goods at a phenomenal rate. The rapid German rearmament was particularly interesting, with the Nazi regime having built up an Air Force and a Navy from practically nothing, and expanding its Army from a mere 100,000 troops to the largest in Europe, and perhaps the most powerful one in the world. Following the outbreak of hostilities, the Allied nations were also forced to reorganise production. This was most stark in the US, whose already formidable industrial capacities were set to the task of rolling out tanks, planes, ships, and guns at a minute-by-minute rate. This phenomenon also had social implications, with women being encouraged to seek industrial employment in large numbers, given that the men were being sent off to war. In an America which was still racially segregated, workers of all nationalities, ethnicities, and races were encouraged to work together to support the war effort. In the words of then-President Franklin Delano Roosevelt:

“It is the duty of employers and labour organisers to provide for the full participation of all workers without discrimination because of race, creed, colour, or national origin.”

While the war economy had several positive implications in the US, others, like the UK, only suffered. Lacking the vast industrial capacity of behemoths like the US or USSR, the UK was forced to fall back on leeching off of its colonial possessions, draining them of the last drop of economic and human resources. Natives were conscripted, high taxes were levied, and all sectors other than military and administration were neglected and left emaciated. A stark instance of the consequences of this resource-drain was the Great Bengal Famine of 1943, which led to over 2 million deaths in Bengal, under British-ruled India. Unsurprisingly, after draining its own national resources, along with those of its colonies, the British faced greater resistance from their colonial subjects than ever, and lacked the strength or means to impose their fiat beyond their island off the European coast. Subsequently, the coming years saw the independence of a large portion of the world from European colonialism.

World War II is but one example of the characteristics and far-reaching implications of a war-economy on nations and on the globe.

The Coronavirus Pandemic: Another War Economy?

In the present-day Coronavirus Pandemic, one can reasonably draw an analogy to the war economy. The pandemic saw a mass mobilisation of human resource (medical professionals in this case, rather than soldiers), and a great re-allocation of resources, for increased production of medical supplies: oxygen cylinders, medicines, vaccines, ventilators, beds, and so on. The analogy of this pandemic being a state of war has already been widely drawn by political leaders across the world, so it would seem natural that the resultant economic measures also resemble those of a war economy. Another commonality between the Pandemic and War economies would be the huge setback to the production of basic goods and services, and to that of other sectors of the economy. In a state of war, sectors of the economy like education, non-military industry, and services tend to take a hit, mostly because of the destruction, loss of life, and loss of territory, apart from the re-allocation of resources to the defence sector. In the pandemic, due to restrictions and public fear of infection, demand for goods and services falls, while supply also falls due to lost productivity (since workers are also subject to pandemic restrictions). Further, education also took a serious hit in the pandemic. While many institutions are unable to adapt to the norm of online classes, even those that can make that transition are at a disadvantage, given that the utility of online classes is nowhere close to that of learning in an actual physical environment.

Governments across the world have dedicated finances, physical capital, and human capital to battling this pandemic. While the pandemic itself targets human life indiscriminately, states across the world have made the eradication of this threat a foremost objective. To this end, medical infrastructure has been mobilised, and a variety of measures have been implemented to contain the spread of the virus. In the meanwhile, populations are being inoculated with vaccines to render them immune to the virus, while treatments such as Remdisivir are being administered to lessen the suffering of those infected.

In this turbulent situation, it is also the job of the state to maintain the strength of the national economy, and similarly it is the job of the international community of states and institutions to maintain the strength of the global economy. The infection in most cases either leads to loss of life or temporary incapacity of the affected individuals, thus having the large-scale effect of lowering the productivity of the workforce. Further, pandemic-related restrictions, lockdowns, and a general sense of fear among the populace has led to losses for businesses large and small (with exceptions like Amazon), leading to increasing instances of unemployment and slower economic growth.

In particular, the global knee-jerk reaction of imposing lockdowns in the face of the pandemic clearly set back economic recovery. Lockdowns are clearly unsustainable, as they render large sections of the population unemployed and thus make sustenance difficult. Eventually, governments across the world learnt their lesson the hard way and were forced to roll back nationwide lockdowns, instead resorting to localised containment and general restrictions.

At this point, the analogy between the war economy and the pandemic economy is more evident. Reallocation of production capacity; fighting for the eradication of a strategic, economic, and political threat; mobilisation of human resource for combatting the threat—all of these are threads common to both scenarios. This analogy is also helpful in order for us to understand which policies are more favourable than others. For example, the imposition of general lockdowns in a pandemic is like pausing the production of all goods except for basic essentials and defence goods in wartime, while the entire non-fighting population is forced to hole up in bunkers. In wartime, such a policy would reduce the production capacity of the country, thus depending purely on the capabilities of the fighting force. History gives us evidence that often, it is a robust production capacity that is the decisive factor in a conflict, especially a protracted one. While the example of the American defeat in Vietnam may seem like a contradiction, it is also true that the Ho Chi Minh trail was what allowed for a strong supply chain for the Communist fighters, thus allowing them to be regularly stocked up on defence material and essential goods. Similarly, the Taliban’s ability to hold out in Afghanistan can be attributed to its vast finances accruing out of drug trade, arms trade, and support from the Middle East and Pakistan. Then of course the example of the US victory in WWII is testament to the decisive power of industry in wartime. It is true for every conflict, that a robust source of financial, human, and physical capital is necessary for victory. The same logic applies to the handling of this pandemic, and thus lockdowns are clearly not an option.

On the other hand, localised containment is the more viable option, which may be likened to civilians temporarily sheltering in bunkers following an air raid warning. Such a policy does not have too many far-reaching negative implications, and only implements the bare necessary conditions required for human survival in the face of a fatal threat.

India and the Second Wave: Moving Forward

Irresponsible crisis management and prioritisation of short-term political gimmicks has led India to a crippling second wave. Just when the infection and death curves were on the low and human life was inching closer towards normalisation, Indian politicians in four states in different corners of the country began mass campaigning for elections. Surprisingly, India’s Election Commission allowed for these mass gatherings to occur, despite flagrant violations of social distancing norms. To add fuel to the already raging fire, the Government of India also decided to move forward with organising the famous Kumbh Mela, a Hindu pilgrimage and celebration, notorious for the large crowds and mass congregations it attracts. The Indian Government ostensibly implemented precautions to ensure screening of pilgrims, social distancing, and so on. However, a single internet search of the 2021 Kumbh Mela evidences the on-ground reality that all the precautions were of no avail, with pilgrims sauntering sans masks, coming in close contact in huge crowds, and collectively bathing in the River Ganga in scores.

Together, the Kumbh Mela and the election rallies contributed to a sudden and large surge in coronavirus cases in the country, with new mutations only exacerbating the situation. As of today, states like Delhi, Maharashtra, and Uttar Pradesh are suffering the debilitating consequences of this massive fiasco, with hundreds of thousands being infected and thousands of fatalities occurring per day. Despite being in pandemic-overdrive for over a year, India was taken aback by the sudden ferocity with which the virus struck back, and for the past several weeks, places like Delhi and Uttar Pradesh have been suffering from an acute shortage of hospital beds, ICUs, medicines, and oxygen.

While on the one hand, the government’s abdication of responsibility in the elections and Kumbh Mela are singularly responsible for the outbreak of the Second Wave in the first place, the situation is exacerbated due to its failure in having allocated resources sufficiently during the First Wave. A controversy that occurred at the height of the First Wave was the government’s decision to move ahead with the construction of the ‘Central Vista’, including a new Parliament building, in the heart of Delhi, involving an expenditure worth crores of rupees (Rs. 20,000 crores to be exact, or $2.8 billion). The First Wave and its many horror stories proved time and again the crippling inadequacies of India’s health infrastructure, which simply lacks the capacity to deal with something of the scale of this pandemic. However, a failure to reallocate resources effectively, like in a war economy, led to the country being grossly unprepared for the Second Wave. Again falling back to the wartime analogy, this decision would be like the Germans constructing a new Reichstag (the German Parliament building) whilst the Allied forces were on the verge of crossing the Rhine. Arguments of national pride and employment generation are meaningless if actual lives are being lost due to a lack of resources. The humanitarian, social, moral, and economic consequences of the daily spike in fatalities are too great a cost, and one which could have been significantly cushioned had the requisite resources been invested well in time. While the Central Government appears to be mitigating the situation through the delayed use of funds under the PM-CARES scheme, its financial situation continues to remain tenuous at best, vividly reflected in the 2021 Union Budget. Further, the allocation of resources right now, in the midst of the second wave is still far too late, as a lot of damage has already been done. Had resources been directed to improvement and expansion of health infrastructure and greater distribution of oxygen plants across the country, then India would have had something to fall back on right as the Second Wave hit. This would be analogous to arming the military before deciding to go to war, not deciding to manufacture equipment after initiating hostilities. Note that here I reference initiation of hostilities, which is precisely what the election campaigns and the state-organised Kumbh Mela amount to in the face of an unresolved pandemic. The tenuous financial situation of the government does nothing to alleviate fears.

The fiscal deficit of the Financial Year 2021 is projected at over 9% of GDP. While the government’s commitment to high spending is necessary to avoid recession, it reflects on an already unstable financial situation for the government. The government’s debt liabilities are close to 90% of the GDP. In the short to medium run this may not be an issue, and the government will need to procure finances however it can, to deal with the raging pandemic. However, in the long run, this may cause complications for the country and put it at risk of defaulting on payments. Further, the large-scale privatisation envisioned in the 2021 Budget also reflects the government’s dire need for greater revenue, given low tax collections.

However, the government’s decision to increase capital expenditure on physical infrastructure may help mitigate this problem. Once the pandemic wanes and infrastructure development gains speed, then assets will be created, employment will be generated, and investment from home and abroad will be encouraged, thus providing a financial cushion for the government and for the economy as a whole.

Another source of optimism is the recent global surge of commitments to provide aid to India. The US, EU, and several others have committed to sending much-needed medical supplies to India. Notably, even Pakistan and China—whose relations with India are tenuous at best and outright hostile at worst—have expressed their willingness to support India with aid, and India agreed to purchase equipment from China, despite its many policy moves in 2020 to muscle out Chinese producers from its economy following the Ladakh escalation. While India has still expressed reluctance on purchasing Pakistani goods, its decision to accept foreign aid reflects a major policy shift. For the first time in 16 years, India has decided to accept foreign aid. In most crisis situations in the past two decades (the 2004 Tsunami, 2013 Uttarakhand Floods, 2014 Kashmir Floods, and 2018 Kerala Floods, among others) India has stressed self-reliance and refused foreign aid even when it was willingly offered by other nations. Drawing another parallel with a wartime economy, the global community is today doing with India what the US decided to do with Europe in the 1940s. The growing realisation of the existential threat posed by Fascism and its pan-European expansionism led the US to assist the USSR on the Eastern Front whilst itself invading Europe from the West. In 2021, the world realises that if the Coronavirus is allowed a victory in India—a nation of continental-size with one-seventh of the global population—no other country will be safe from a global resurgence of the virus.

Not unlike the USA’s Marshall Plan for reconstructing Europe following WWII, the increased capital expenditure under India’s 2021-22 Union Budget Plan will likely boost economic recovery rapidly, just like it did for both the US and Europe. Further means of securing greater revenue, such as the imposition of wealth tax and a carbon credit system, among other solutions, will not only be long overdue policy measures that are necessary for sustainable development, but will be invaluable for a post-pandemic India, which will need to rebuild, get its growth back on track, and manage its borrowing liabilities.

Responsible policymaking could have avoided most of the suffering India and her people are enduring today—one dares to hope that those in power have learnt their lesson, though precedent would tell us otherwise.

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[1] Kenton, Will. “War Economy”. Investopedia. October 15, 2019. https://www.investopedia.com/terms/w/war-economy.asp