Traditionally, economists have looked at war in one of two ways. First, in terms of the cost of the resources expended on military and the other expenditures associated with war. This approach tries to measure the costs of war not just in terms of the human suffering involved, but also the losses in terms of expenditure foregone, which could otherwise have contributed to development and provision of basic needs to the people.

The second way in which economists have looked at war is as an economic stimulus. Thus, war can be a source of increase in aggregate demand (as in the so-called “war booms”) and therefore cause economic activity and employment to increase.

In the South Asian subcontinent in recent times it can be argued that both of these approaches, while important, may not fully capture the interrelationship between wars and the economy. In fact, these economic aspects of war may have become less important in the recent past, especially in India and Pakistan.

It is not that military expenditures have come down – on the contrary, they have increased. But both governments still have scope to increase other necessary social expenditures well beyond current levels. The reason they do not do so is not because they have diverted all their resources towards military expenditure, but because they are caught in the vice-like grip of a mistaken brand of economic thinking, which prevents them from increasing expenditure generally, and because the pattern of domestic politics thus far has allowed both these governments to get away with this.

Further, the positive economic linkages of war are also weak in these economies. While the defense forces are large employers in both Indian and Pakistani societies, they are still not enough to make a significant dent in the huge pool of available labor, or to affect overall rates of unemployment. Also, much of the hardware expenditure in both countries has a high degree of import content. This import leakage reduces the possible linkage effects that could affect these economies.

Given this, it is necessary to consider two other aspects of the interrelation between war and economy. The first is that of war as a source of diversion, not only of resources but also of public attention. This could broadly be called the political economy use – or abuse – of war. When governments fail to deliver, whether in terms of providing basic needs to the people, or ensuring adequate rates of growth, or even in providing minimum security to all citizens, it can prove useful to divert people’s attention from their own shortcomings by concentrating on an enemy.

It can be argued that this particular feature of war has been one which has been quite significantly used by both Indian and Pakistani governments in the recent past. Even as the [Indian] government fails in terms of fulfilling its most basic duties, even as people in Gujarat continue to suffer absence of minimum security, even as the economy continues to stagnate and various economic problems worsen, the government is seeking to keep everyone’s attention focused only on the single issue of immediate threat of war with Pakistan.

It is possible that General Musharraf across the border may be finding it just as convenient to have this threat divert Pakistani citizens’ attention from their own problems of absence of democracy and lack of accountability of the state. So, in a peculiar way, the governments of India and Pakistan, which are apparently so antagonistic and on the verge of war with each other, may need each other precisely to fulfill this function of the “other” who can be used to divert attention. When just the threat of war becomes insufficient, it may even be possible that these governments may indulge in more open war, albeit of a limited kind, just to bolster their own positions internally.

But there is a fourth economic aspect of war, which needs to be taken into consideration as well. Nearly a century ago, Lenin had pointed out that in late capitalism, imperialist wars are the expression of the struggle over economic territory, whether such territory is in the form of resource, markets or labor.

When wars occur in the wider context of super-imperialism as today, then they also involve a trade-off between economic and geo-political space on the part of the antagonists.

Thus, Pakistan has, for some time, been able to use the political leverage gained with the U.S. because of its support for U.S. military action in the region to garner economic benefits of various kinds. Conversely, the BJP-led government has been willing to give in to the United States in most fundamental economic ways, including the giveaway of important resources and contracts to U.S. firms, to maintain a superficial political independence expressed in forms such a nuclear tests and the right to commit internal pogroms without external interference.

Such a trade-off is always complex and changing. But certainly it is the case that any actual war between these two countries would change the equations which have allowed this kind of trade-off so far. This brings in one more element of uncertainty in the fragile balance of economic and political power in the region.

Jayati Ghosh is an economic columnist for Ganashakti Newsmagazine (, an online news source of the working class and communist movement in India. This is an abridged version of a column that appeared in the May 27, 2002 issue.