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  • Writer's picturePavel Kohout

The Economy as a Weapon

Imagine you are Xi Jin Ping or Vladimir Putin. Your goal is to maximise your power. You can do this by weakening your enemies. But how do you harm other countries at minimal cost and without much risk?

One way was used in the Soviet Union: to finance anti-Western movements and political forces. These were organisations supporting nuclear disarmament, communist parties and terrorist groups. The protracted conflict in Northern Ireland fizzled out shortly after losing its source of funding from Moscow and Semtex from Semtín, formerly in the Czechoslovak Socialist Republic.

Today, too, anti-Western movements abound in the West. From anti-capitalist and "environmental" movements to race-hate organisations to groups defending the "Palestinian cause", which tend to be ordinary anti-Semites. We must not forget the support of various fundamentalist groups, including the Taliban. Although it officially remains a terrorist organisation for Moscow, high-level talks are taking place and Russia is quite friendly towards the radical government. China itself has offered aid and investment to the mullahs. It also supports the Black Lives Matter movement and the extreme anti-Western left in general.

However, all this is still just ankle-biting. Supporting loudmouths who are capable of making a mess on the streets will certainly not destroy the West, its economy and its political and legal basis. However, the Cold War knows more advanced and powerful weapons. Ones that have been used successfully by the other side: the United States against the Soviet Union.

Let us go back to the 1950s. Both superpowers are arming themselves for the not entirely unlikely event of a third world war. There is also a war of brains. Albert Wohlstetter (1913-1997), a mathematician whose interests include philosophy, law, economics, social science, and military strategy, is involved in shaping American strategy during the Cold War.

Wohlstetter used mathematics and statistics to address fundamental strategic questions. In 1953, he wrote a paper on optimising the deployment and manning of US air bases around the world. He criticised the doctrine of mutually assured destruction as immoral and ineffective. He argued that mere reliance on nuclear deterrence leads to a loss of flexibility and severely limits the options for active intervention. His theory led in practice to the development of precision-guided, "smart" weapons. He also opposed arms limitation agreements. And this is a point worth noting.

Wohlstetter, who was, among other things, an economist, saw a decisive advantage on America's side in the strength of its economy. In his view, the United States could bear a much higher cost of defence than the 12 percent of gross domestic product in the late 1950s. The Soviet Union at that time had to spend as much as a quarter of its GDP on defence to keep pace. If America had armed more, Wohlstetter argued, the Soviets would have run out of money and their regime would have collapsed under the weight of the economic crisis.

But America wanted to arm less, not more. Defence spending had fallen to less than 5 per cent of GDP by the late 1970s. The subsequent rise to 6.8 per cent during the Reagan administration does not look like much of a change numerically, but in those days it was a major issue. It was the proverbial straw that broke the camel's back. Soviet finances, which for many years had suffered from a barely concealed deficit, completely unraveled under the weight of demands for more arms spending during the 1980s. This would probably have happened in time even without Reagan's Star Wars project (inspired by Wohlstetter), but it certainly accelerated the process - perhaps by many years.

Putin or Xi could have retaliated against the West with the same trick. Western economies are heavily indebted. America carries a debt on its back weighing 125.5 percent of GDP (Q2 2021). The debt has been accumulated over time by the invasions of Iraq and Afghanistan, the Great Financial Crisis, and finally the covid pandemic. Western Europe is not doing well either. The culprits are mainly the expansion of the welfare state, which began in the 1970s, and the extremely expensive euro crisis. And, of course, covid.

A hybrid war of sending migrants en masse via Belarus could further aggravate the situation of an already heavily indebted Europe. A Chinese military threat (development of hypersonic missiles) would in turn put pressure on the US federal budget.

The West is now in such a bad shape that it has to monetise its debt: pay it off with freshly issued money, a practice that has long been considered utterly unacceptable. Europe is worse than the US in this respect, but neither the eurozone nor America (nor Sweden, Switzerland and Britain) can afford to raise rates, even if rising inflation demands it. The US, eurozone and Britain cannot because of their debts; Sweden and Switzerland, paradoxically, because their public finances are too healthy and a rise in rates would lead to an undesirable appreciation of the domestic currency.

But the West has not yet had its last word. After all, it has managed to get out of the huge debts of all the previous wars. And both Russia and China have their Achilles heels.

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