First Posted on by Solomon Appiah
Economic warfare has been around for a while and has been used by world powers to gain leverage in world affairs so as to meet national interests. Let us consider a definition of Economic Warfare used by the Roosevelt government. It defines this type of warfare as follows:
The battle of economics: It is a war of commerce and shipping, of barter and buying, of loans and agreements, of blacklist and blockade. It is starvation for our enemies and food for our friends… It means fighting the Messer- schmitt before it is a Messerschmitt, fighting the tank before it is a tank, smashing the submarine before it can go to sea. It means preventing the Axis from getting raw materials. It means getting raw materials for our production (quoted in Medlicott, 1959. p. 51).
Source: Journal of Peace Research, vol. 28, no. 2, 1991, pp. 191-204
‘Economic Warfare’ and ‘Strategic Goods’: A Conceptual Framework for Analyzing COCOM* by Tor Egil Førland, International Peace Research Institute, Oslo
According to the same journal article by Tor Egil Førland, that definition was later modified by the US Department of Defense to include ‘aggressive use of economic means to achieve national objectives’ (US Joint Chiefs of Staff, 1974, p. 118).
Historical Evolution of Economic Warfare
Economic warfare in olden times was waged before actual conventional warfare. It was used to weaken one’s opponent before conventional war. Comparing finances with blood as a metaphor, Economic warfare was a way to bleed ones opponent before actually fighting with them. It was also used to bend an opponent to the will of the aggressor. It involved cutting off a country’s main channel of food or energy supply. An example is the blocking of trading routes. Later it developed into annexing whole nations by imperial powers to meet national interests of their home countries. Home countries needed raw materials to feed their home industries or the industrial revolution and hence developing nations suffered colonial rule. Till today many countries suffer the fallouts of that system of brutality. In more recent years, Economic warfare could be described as being carried out through policies such as the economic structural adjustment programs, inequitable international trade policies, blacklists, blockades and embargos—all of which has done more harm than good for the globe as a collective human family.
Tor Egil Førland for example sees the Coordinating Committee for Multilateral Export Controls (COCOM) as “peacetime economic warfare: the Cold War successor to the blockades of the two world wars”.
Based on the book “Unrestricted Warfare – Assumptions on War and Tactics in the Age of Globalization” authored by two senior Chinese Air Force Colonels, Qiao Liang and Wang Xiangsui, economic war in the 1990s included, “the use of domestic trade law on the international stage; the arbitrary erection and dismantling of tariff barriers; the use of hastily written trade sanctions; the imposition of embargoes on exports of critical technologies; the use of the Special Section 301 law; and the application of most-favored-nation (MFN) treatment“. The authors maintain that the Asian financial crisis was triggered as a result of economic war waged by international financiers against the Tiger nations setting them back at least a decade. According to them, this war spiraled out of control when Japan and Russia got involved in the conflict hence transforming an otherwise localized financial crisis into a global phenomenon. Are their assertions true? I do not know but I was quite astonished to find out that in this book of theirs published in 1999, these two PLA Colonels predicted the 9/11 attack on the World Trade Center in the USA. They wrote:
Whether it be the intrusions of hackers, a major explosion at the World Trade Center, or a bombing attack by bin Laden, all of these greatly exceed the frequency band widths understood by the American military. The American military is naturally inadequately prepared to deal with this type of enemy psychologically, in terms or measures, and especially as regards military thinking and the methods of operation derived from this. This is because they have never taken into consideration and have even refused to consider means that are contrary to tradition and to select measures of operation other than military means.
History proved these Chinese colonels right. They may be correct also about the Asian Crises. For what it’s worth these men got the attention of the federation of US scientists and hopefully the government as seen by the report sent by the US Embassy in Beijing.
In conclusion, Economic Warfare is not a myth. It exists but like all warfare, most of its stratagems are shrouded in mystery for security reasons. Developing nations are well acquainted with this kind of warfare. Ghana was subject to it in the Nkrumah and Acheampong regimes leading to the “Ye ntua” saga. Many times, justly democratically elected governments on different continents have been toppled simply by application of some of these economic warfare strategies. The aim of the strategy like a Boa Constrictor is to strangulate an economy until the point where citizens out of economic frustration or hardship revolt against a governing regime because of the financial lack and resulting lack of confidence generated as a result of the warfare.
Tackling Loopholes
I argue that loopholes in the global financial system exist and need to be taken seriously.
Countries have long used Economic Warfare to meet national interests by employing commerce and shipping tactics like blacklists and blockades. One could even argue that policies like Structural Adjustment Programs (SAPs) and inequitable international trade policies fall under the definition of Economic Warfare.
Today, with the battlegrounds shifting from the physical to the digital, Economic Warfare is used to exploit loopholes in the global financial system. For instance, in a 2008 electronic bank run the US economy was drained of $550 billion within just two hours, according to Congressman Paul Kanjorski, then-Chairman of the Subcommittee on Capital Markets. In a CSPAN interview, Kanjorski explained that, had immediate action not been taken, then “the world economy would have collapsed” that same day.
Since 2008, $50 trillion has been lost in the global financial crisis, according to a report authored by investment professional Kevin D. Freeman. Currency cannot be created or destroyed – its very name implies that, like energy, it flows from place to place – so it is worth asking, where is this money and who manipulated the system?
Freeman’s follow-up called “Secret Weapon” tries to answer this question. The report explains that the $50 trillion loss was made possible in part by vulnerabilities in the American economic structure that could have been exploited by financial terrorists or hostile foreign governments.
The report presents a three stage hypothesis behind these vulnerabilities, warning that the first two stages have already been executed with that last remaining.
The first stage was a speculative run-up in oil prices from 2007 to 2008, which resulted in the accrual of excess wealth for oil-producing nations of about $2 trillion, parked in Sovereign Wealth Funds. Naturally, this led to a rise in worth of OPEC reserves in the ground to about $137 trillion (based on $125/barrel oil) equivalent “to the value of all other world financial assets, including every share of stock, every bond, every private company, all government and corporate debt, and the entire world‘s bank deposits”. The report fingered OPEC as the culprit of this attack.
The second stage was a succession of targeted bear raids against U.S. financial services firms starting in 2008 that appeared to be systemically significant. In bear raids, traders short a target stock and then spread rumors to get the stock to drop so they can cover their short. While shorting a target stock is perfectly legal, the use of rumors makes it illegal. The report states that the collapse of Bear Stearns and Lehman Brothers were really the result of a carefully planned bear raid using naked short selling and the manipulation of credit default swaps.
SEC Chairman Christopher Cox’s letter to Dr. Nout Wellink, Chairman of the Basel Committee on Banking Supervision, reads like an admission:
…the fate of Bear Stearns was the result of a lack of confidence, not lack of capital…Beginning late Monday, March 10, and increasingly through the week, rumors spread about liquidity problems at Bear Stearns, which eroded investor confidence in the firm. Notwithstanding that Bear Stearns continued to have high quality collateral to provide as security for borrowings…
The problem with bear raids is that perpetrators cannot easily be found out because of lack of transparency in the existing financial system. Nonetheless, the report singled out two relatively small broker dealers who “emerged virtually overnight to trade trillions of dollars worth of U.S. blue chip companies”. These two are the number one traders in the financial companies which collapsed. Freeman calls for an independent investigation into the suspicious trading activities of these firms.
The last phase – as yet unrealized – is a possible attack on the U.S. Treasury and U.S. dollar. Such an attack could be launched through replicating the bear raids but this time against the U.S. financial system as a whole rather than isolated financial entities. Such an enormous feat could be carried out through “a focused effort to collapse the dollar by dumping Treasury bonds” on a massive scale. This would create the likelihood of “a downgrading of U.S. debt forcing rapidly rising interest rates and a collapse of the American economy”. This assertion seems absurd but if there exists even the remotest probability of such an occurrence, U.S. policymakers would do well to investigate it.
Time to Acknowledge the Problem
Though the way forward is unclear, the report does make some practical recommendations. At a basic level, it advocates the admission that bear raids do take place.
Additionally, current regulations that make it difficult to identify culprits of such schemes within the financial framework should be made more transparent so it is easier to identify perpetrators. The report calls for stricter regulation of Short Selling and Credit Default Swaps, both of which were used in the economic war. Another recommendation was the creation of a “specialized threat finance unit to develop and implement appropriate countermeasures to emerging threats in coordination with key defence, intelligence, and financial agencies.”
These are a few of the recommendations set forth by the report. If taken seriously, specialists should have been consulted, a proper situational analysis done and strategies formulated to mitigate the challenges. One hopes U.S. policymakers have taken this report seriously and formulated a cross-institutional strategy to plug up any regulatory loopholes and defend their financial system, which still plays a key role in the global economy.
