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Department of Economics

Mark Harrison: Inactive Papers

  • Harrison, Mark. 2020. Economic Warfare in Twentieth-Century History and Strategy. CEPR Discussion Paper no. 14649. This version 20 April 2020. This is a paper to a conference on the economic history of war at the Northwestern University Center for Economic History, currently rescheduled to take place in a calmer time.

In two world wars, both sides committed substantial resources to economic warfare. Before the event, influential thinkers believed that the threat of blockade (and later of bombing) would deter aggression. When war broke out, they hoped that economic action might bring the war to a close without the need for a conclusive military struggle. Why were they disappointed, and what was the true relationship between economic warfare and combat between military forces? The answer to this question depends on the effects of economic warfare, which can be understood only after considering the adversary’s adaptation. When the full range of adaptations is considered, it becomes clear that economic warfare and combat were usually strategic complements; they acted together and did not substitute for each other. The paper examines this question both in breadth and more narrowly, focusing on the Allied air campaign against Germany in World War II. There are implications for history and policy.

The paper provides a rare case study of terrorism and counter-terrorism within a closed society, carried out under a blanket of official secrecy. This case is unexpectedly revealing in what it tells us about terrorism, counter-terrorism, and the relative strengths of open and closed societies. Documents from the archive of the Lithuania KGB show how the Soviet authorities managed the hunt for the perpetrators of bombing attacks carried out in Moscow in January 1977. Lithuania, a sensitive border region with a troubled history, was far distant from the epicenter of the conspiracy in Soviet Armenia, but the authorities did not know this beforehand, and made considerable efforts to establish or rule out a Lithuanian connection. It was a problem that the KGB, like other Soviet organizations, was vulnerable to box-checking and other kinds of perfunctory working to the plan. The career concerns of regional KGB leaders appear to have countered this tendency. The paper evaluates the strengths and weaknesses of a counter-terrorist operation carried out under conditions of the intense secrecy that was normal in the Soviet police state.

Richer countries had an advantage in both world wars, because they were able to mobilize the greatest quantity of military resources. To investigate the impact of income on mobilization statistically, we analyzed pre-war income, as well as structural (persistence of agriculture) and institutional (financial and political) mechanisms. In mobilization of total economic resources, pre-war income had a positive impact. Neither income nor institutions played a substantial role in mobilizing troops, but fiscal mobilization was explained well by all the mechanisms. Income had a positive impact, as did various financial and political institutions. The richer countries possessed an advantage in fiscal mobilization due to their superior institutions.

We draw on the experience of the major combatant countries in World War I to analyse the role of economic factors in determining the outcome of the war and the effects of the war on subsequent economic performance. We demonstrate that the degree of mobilisation for war can be explained largely by differences in the level of development of each country, leaving little room for other factors that feature prominently in narrative accounts, such as national differences in war preparations, war leadership, military organisation and morale. We analyse the effects of the war on subsequent economic performance in terms of the scale of destruction of physical and human capital. Although the growth rate between 1918 and 1929 was highest in the economies which experienced the worst destruction, over the period 1913-1929 as a whole, per capita income growth in Europe was reduced. Thus there was some rebound, but not enough to undo the negative effects of the capital destruction and the damage to the international institutional framework caused by the war.

In Stalin’s command system secrecy was used to conceal information and decisions. We look at the uses of secrecy in a hierarchical system of the Soviet type in the context of the fundamental problem of command. Secrecy was a conditional choice. Principals gained by making economic information secret when the agent’s expected profit opportunities in private trade were tempting, horizontal trust was fragile, and secrecy itself was cheap. It paid them to make decisions in secret when unexploited opportunities, and the wage that the principal could afford to pay the agent, were both low. Under some circumstances secrecy benefited both principal and agent. Secrecy was one element in an equilibrium that enabled principals and agents to participate in the command system and enabled the system itself to persist.

  • Harrison, Mark. 2003. Are Command Economies Unstable? Why Did the Soviet Economy Collapse? This version: 19 February 2003. Paper to the second Oxford-Houston conference on "Initial Conditions and Russia's Transitional Economy," University of Houston, 19 to 21 April 2001. Previously circulated as The Warwick Economics Research Paper Series no. 604, University of Warwick, Department of Economics. First draft: 3 May 2001.

The collapse of the Soviet economy that began in 1989 was not a "transformational" recession; there was a recession, but little transformation. The economy collapsed when the stability conditions required for a successful command system, that had been present in the Soviet Union for seventy years, ceased to hold. These conditions can be defined by the equilibrium of a game of strategy played by a dictator and a producer. The available output must be able to cover the producer’s effort costs and the dictator’s monitoring costs. Adverse trends in production and monitoring costs eventually rendered the command system unsustainable.

The paper considers the influence of the budget for military spending in the Soviet command economy. A specific problem is that the Soviet strategy of concealment left us without good measures of the military burden on Soviet resources. The paper surveys previous western attempts to fill this gap alongside post–Brezhnev revelations. A new documentary source from 1982 that appears authoritative suggests much higher figures than anything proposed or revealed so far, and supports these higher figures in detail. However, the figures contain many puzzles and the authenticity of the document itself cannot be fully assured.

Postscript. Following circulation of this paper, and the "Konoplev Report" that provided the occasion for it, I received helpful advice and comments from many colleagues. My paper also aroused comment on the Russian internet, for example on Boris L'vin's Journal. The arguments and other evidence that were put forward inclined me more strongly to the conclusion that the "Konoplev Report" is a forgery. Thus my paper has proved to be more useful in terms of the authentication of historical documents than for historical economics. I thank in particular Julian Cooper, R. W. Davies, James Noren, and Lennart Samuelson for their advice.

Early life -- The economic analyst -- The economic planner -- The wartime leader -- The rival -- Voznesensky in retrospect.

Mark Harrison

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