Politics: managing a war economy

By Richard North - May 11, 2022

I know that the Queen’s Speech is only supposed to give a rough outline of the government’s legislative intentions for the current parliamentary session. But, for all that, it doesn’t seem to much to expect a programme that has some semblance of coherence and is focused on the problems of the day,

Try as I might though, I see nothing in the actual speech which addresses the issues of concern in such a way that one walks away with the impression of a government that has a grip on things. Even with the help of the briefing notes, the package doesn’t make much sense.

Many others have gone into print saying much the same, from across the political spectrum, not least Daniel Finkelstein in The Times who suggests that “Boris Johnson’s Tories have lost their bearings”.

The Guardian front page headlines: “Tories ‘bereft of ideas’ to tackle cost of living ideas” and Philip Johnson in the Telegraph asserts that, “Politics has become a dismal race to pass as many pointless laws as possible”.

If it is possible to summarise the response to the speech, it is that we are facing a political vacuum. Conditions will steadily deteriorate, while the government fiddles round the edges with a series of irrelevant and largely ineffective measures, aimed mainly at electoral groups which are most likely to favour the Tories in the next general election.

To a certain extent, though, a totally inadequate response was going to be on the cards, ever since Putin’s tanks rolled over the Ukrainian border precipitating a war which shows no sign of ending any time soon. In effect, his action created a wartime economy, over which no single (or any) government has control.

For sure, the main economic evils that we are currently confronting were already with us before Putin’s homicidal action – specifically the onwards march of inflation, increasing costs of energy and supply chain disruptions triggering shortages and price hikes.

All manner of reasons can be adduced for these ills, from Brexit to Covid, together with the effects of global trends which were pushing us towards a crisis that was probably going to happen anyway.

But the Ukrainian conflict is not so much the icing on the cake as the superglue injected into the machine that inhibits effective responses at any level – global, regional and national. While our political leaders are charged with managing the economy, they no longer have all the tools they need to do the job.

Front and centre is the energy crisis, where pricing is out of control and shortages are almost a certainty, especially if the Europeans are able to formulate a plan to boycott Russian gas. The Russians didn’t invent this crisis, but they’ve made it so much worse that there is no remedy in sight.

Taking less of the headlines but nonetheless probably just as serious is the burgeoning food crisis, as farmers, food producers and retailers are being hit by a triple whammy.

Firstly, there is the downturn in agricultural production in war-torn Ukraine, made worse by the capture of Black Sea ports and the Russian sea blockade which prevents Ukraine from exporting its produce. This will intensify over time, leading to price hikes and the possibility of global shortages of key commodities.

Then there is the effect of gas prices and availability on fertiliser prices, pushing levels into the stratosphere. Uncertain of their returns and, in many cases unable to get supplies, farmers are cutting back on usage, which will have a devastating effect of yields, exacerbating price pressures and shortages.

Added to this is the increased costs of energy for farming, processing, refrigeration and transportation, plus wage rises and other inflationary pressures, all of which will create a perfect storm, driving soaring retail prices.

Inflation then has the knock-on effect of pushing up interest rates, increasing mortgage rates and reducing investment, driving national and global economies into recession, leading to a spiral of reduced economic activity which will feed upon itself.

Under normal circumstances, all manner of corrective mechanisms would kick in but where there is, in effect, an undeclared global war, international economic cooperation is less effective and domestic measures are blurred, as feeding the war machine takes precedence.

The big problem here is that, after the failure of Putin’s three-day blitzkrieg, with the allowance of a couple of weeks for mopping up, it now looks as if we’re in for the long haul, with a conflict running on for years at level which cannot be ignored.

This is certainly the view of Avril Haines, Director of National Intelligence, giving evidence yesterday to the US Senate committee on armed services (video).

Speaking for the entire US intelligence community, she assesses that Putin “is preparing for a prolonged conflict in Ukraine, during which he still intends to achieve goals beyond the Donbass”, which is also set to become “more unpredictable and escalatory” due to a “mismatch” between his ambitions and Russian military capabilities.

The US does not believe that victory in the Donbass region is likely to end the war. Haines says Putin is focused on developing and controlling a land bridge from the Donbass to Transistria, but will likely require some military mobilisation in order to maintain it.

Putin, Haines says, is more willing “to endure challenges than his adversaries” and is probably counting on US and EU resolve weakening as food shortages, inflation and energy prices get worse.

She also warns of possible flashpoints in the weeks and months ahead as Russia seeks to interfere with western security assistance to Ukrainian forces. And she says that Russia is likely to continue using nuclear rhetoric to deter the US and its allies but does not envision him using nuclear weapons unless he perceives an existential threat to the Russian state or regime.

“We’re supporting Ukraine, but we also don’t want to ultimately end up in World War III and we don’t want to have a situation in which actors are using nuclear weapons”, Haines concluded.

The intelligence community believes Putin has at least four “near-term military objectives”, the first being to capture and establish a “buffer zone” in the Donbass, where Russian-backed separatists have declared “people’s republics”.

They expect his forces to attempt to encircle Ukraine’s military west of the Donbass “in order to crush the most capable and well-equipped Ukrainian forces fighting to hold the line in the east”.

Thirdly, it sees Putin wanting to consolidate control of the land bridge that Russia has established from the Donbas along the southern coast of Ukraine to Crimea, allowing Russian forces to occupy the Kherson region and control Crimea’s water supplies.

Finally, the US sees “indications” that Russia wants to extend the land bridge further west to capture the historic port city of Odesa and connect with the pro-Russian breakaway region of Transnistria in Moldova, fully cutting Ukraine off from the sea.

These are objectives that the western nations, and their global allies, simply cannot afford to ignore. And, with so much invested emotionally and politically in the support of Ukraine, the they will have to match the Russian capacity for endurance, without pushing Russia so far that he perceived Russia is losing in Ukraine and presses the nuclear button.

With the nuclear threat hanging over us, and the risk of escalation to a global exchange of nuclear warheads, even a major economic crisis is of secondary importance. That puts managing the war economy first, leaving the mere plebs to endure the adverse results.

Our is not to reason why. The greater glory of our leaders is at stake.