economic warfare

economic warfare

1. Introduction

The phrase ‘economic warfare’ does not seem to have come into common use until the 1930s and it has no unambiguous definition. In its broadest sense, the term could cover almost any phase of war in which economic weapons are used, but essentially it can be defined as the economic proceedings taken by a government to achieve its own purposes against another power.

Economic blockade is sometimes used as a synonym for economic warfare, and for the UK and USA, as the world's greatest naval powers during the war, it was inevitable that a naval blockade would constitute the corner-stone of any Anglo-American economic strategy against the Axis powers. But economic warfare during the Second World War had a broader meaning and in the summer of 1939 the mission of the British ministry of economic warfare was described as follows in its official handbook:
The aim of economic warfare is so to disorganize the enemy's economy as to prevent him from carrying on the war. Its effectiveness in any war this country may be engaged in will vary inversely with the degree of self-sufficiency which the enemy had attained, and/or the facilities he has, and can maintain, for securing supplies from neighbouring countries, and directly with the extent to which (1)his imports must be transported across seas which can be controlled by His Majesty's ships,(2)his industry and centres of storage, production manufacture and distribution are vulnerable to attack from the air, and(3)opportunities arise for interfering with his exports originating from his territories.

Economic warfare therefore was not simply naval blockade, but also involved such diverse actions as diplomatic negotiations with neutral countries and the bombing of industrial targets. It also covered the employment of any means by which a country's production capacity could be effectively reduced, and it is significant that the British sabotage organization SOE (Special Operations Executive) came under the political aegis of the minister of economic warfare.

On the Axis side the phrase was hardly used, and the concept played little or no part in Axis strategy. With the battle of the Atlantic the German submarine fleet certainly implemented a wide-ranging campaign against merchant shipping supplying the UK, and the Blitz was partially directed against British ports, but neither was part of a greater strategic plan, nor were they co-ordinated with any programme aimed at undermining Allied economies.

2. Allied goals and organization

In his official British history of the subject (see below) W. N. Medlicott formulated Allied goals as: (1)a drastic limitation of German imports from non-European sources;(2)to create an encirclement neurosis, which would have an adverse impact on German political and military strategy;(3)a direct hampering of the Axis armament efforts through raw material shortages;(4)an indirect hampering of the Axis wartime economy by additional strains on transport and manpower; and(5)the strengthening of neutral resistance to Axis powers, both by economic aid and by threats of retaliation.

In addition to this list, the Allies also tried to secure vital raw materials and products from neutral countries which might otherwise all have gone to Germany, the ultimate aim being to deprive Germany of aid from neutral sources. Wherever possible, control was exercised at the source of the materials, in order to prevent goods from being shipped to Germany and techniques devised during the First World War were developed and refined to achieve this. Lists of goods which were considered of strategic value to the Axis were published, and proclaimed as contraband. The contraband list was wide, and embraced practically all commodities that could be considered of economic value in wartime. Furthermore, compulsory navicerts were supplemented by ship warrants, which were issued when a ship's owner agreed to comply with British regulations. Without this document no facilities were provided by or at British ports. Blacklisting was also used whereby firms which were blacklisted were denied the essential materials they needed to continue production. For example, it was employed against the important Swiss engineering firm of Sulzer in 1943, in order to force the company and the Swiss government to reduce Sulzer's exports of machinery to Germany. The blacklist also led to a new trade agreement which was less favourable to Germany.

In the UK the ministry of economic warfare, with a sphere of activities planned since 1936, was set up at the outbreak of war in September 1939. The experiences of the First World War were of great importance in the formulating of its programme. In the USA the board of economic warfare, a counterpart to the British ministry, was set up in 1941 (it was later renamed the office of economic warfare, and still later, the foreign economic administration). A close collaboration developed between the two organizations especially after Pearl Harbor, when the American trade embargo against Japan merged with the British one against Germany. The US Government's economic offensive relied heavily on the control of foreign funds. It also licensed exports to neutrals, instituted a proclaimed (black) list, and undertook preemptive buying of scarce items essential to the Axis war effort. The London and Washington blockade committees had members in each other's capital.

Close though Anglo-American collaboration was, the two Allies were not always in agreement over the carrying through of economic warfare, especially where the politics of blockade were concerned. The fact that representatives of the USA became partners in an organization that was already functioning created some difficulties. To some extent, the more cautious British and the more aggressive American attitudes were a result of the fact that the USA entered the war more than two years after the UK. The Americans regarded blacklisting firms, or the threat of doing so, as a form of pressure, and were more active and less considerate about it than the British. They also had a more positive conception of the possibilities of economic warfare, unhampered as they were by the precedents of past wars or the compromises of two years of defeats. The British had in general a greater respect for neutrals, and feared that if they adopted over-forceful measures they would damage their post-war international trade.

3. Relations with neutral states

Before the USA entered the war its Office of the Co-Ordinator of Inter-American Affairs helped combat Nazi commercial influence in neutral South America (see also Latin America at war), and once it became a combatant it was practically impossible for Germany to import any commodities from South America or anywhere else outside Europe, except by blockade runners from Japan. But Germany's trade with neutral neighbours in Europe presented a more difficult problem for the Allies to handle. There were in fact only six countries on the continent of Europe that remained at peace during the war: Liechtenstein (then of no economic importance), Spain, Portugal, Sweden, Switzerland, and (until the last weeks) Turkey.

At the start of the war, the UK negotiated war trade agreements with neutral countries such as Belgium, Sweden, Norway, the Netherlands, and Denmark which precluded re-exports and limited shipments to ‘normal’ pre-war levels. It was necessary to negotiate carefully with those neutrals on whom the UK itself was dependent for certain imports, and when Germany stood at the height of its military successes, British negotiators had little leverage. If too much pressure were applied, or a blockade was too complete, neutrals could easily be driven into the German camp. Later in the war, as success on the battlefields shifted, it became more and more possible to persuade neutrals to limit deliveries to Germany. For instance, the export to Germany of iron ore and ball-bearings from Sweden, manufactured goods from Switzerland, chrome ore from Turkey, and wolfram ore from Portugal and Spain were all curtailed. But until as late as 1944 neutral states did largely maintain their pre-war pattern of trade, balancing it between the combatant Great Powers, and therefore providing small, but very important, supplies to the German war economy.

4. Impact of economic warfare

At the outbreak of war, knowledge in the UK of German resources and storage capacity was fairly limited and inaccurate. Many investigations of Axis resources had been pure guesswork. The temptation to be optimistic, or to hope for a quick solution, was sometimes strong, especially among Americans and many incorrect assumptions were made (see below regarding German ball-bearings production). This over-optimistic Allied view was due in part to a mistaken estimate of the achievements of blockade in the First World War, and to the fact that the German economy in the 1930s had shown many weaknesses. Economic targets were selected from an interplay of intelligence information, knowledge of pre-war economic conditions, decisions by the military forces and diplomatic services about what was feasible, and actual changes in the strategic situation.

In Germany on the other hand there had been economic growth during the later part of the 1930s and a programme of self-sufficiency had been prepared. Synthetics were developed, and substitute products used, in a partly successful attempt to replace essential imports such as petroleum, certain alloy materials, and rubber. It had also been possible to build up some stocks of raw materials, arms, and munitions, especially of products which had to come from non-European sources. Germany's economic position in 1939, and during the next three years of war, was far stronger than Allied experts had believed possible. On the other hand, no fundamental change of the German economy, to prepare for a long and exhausting war, had really taken place. It was only partially mobilized for war in 1939; not until 1943 was it adjusted to meet the demands of a large-scale war of attrition in the face of the vast combined output of the UK, the USSR, and above all the USA. Germany's original concept of the war had been a series of blitzkriegs, so rearmament had taken place rather in width than in depth; more extensive preparations for war had not been thought necessary. The rapid and successful campaigns in 1939–41 put no heavy demands on the German economy and Germany, less isolated than it had been during the First World War, could draw on supplies from a large area, particularly after it had overrun most of the European continent and Italy had entered the war as its ally. Most countries in Europe therefore came well within the German Grossraumwirtschaft (wider economic sphere) which made a total economic blockade impossible and rendered the Allied naval blockade only partially successful. One of the most serious blows to its effectiveness was the signing of the German–Soviet trade agreements which arose out of the Nazi–Soviet Pact of August 1939. These made possible not only imports of corn and raw materials from the USSR, but also a land transport link to the friendly power of Japan. Meanwhile, the Germans had managed to find substitutes for almost every product of which they were deprived.

However, Hitler's fear of the consequences of the Allied blockade played a part in his invasion of the USSR in June 1941 (see BARBAROSSA), involving Germany in a two-front war which ultimately proved disastrous for it. The need for a victory in the USSR to free Germany from the menaces of the blockade was expressed by Grand Admiral Raeder on 26 August 1942 at a Führer's conference:‘1. It is urgently necessary to defeat Russia and thus create a Lebensraum which is blockade-proof and easy to defend. Thus we continue to fight for years.2. The fight against the Anglo-Saxon sea powers will decide both the length and the outcome of the war, and could bring England and America to the point of discussing peace terms.’

So the fear of blockade, the encirclement neurosis mentioned by Medlicott, may have been more important than the blockade itself in bringing Germany to its ultimate defeat.

From 1943 onwards air bombardment of economic targets, particularly in western and central Germany (see strategic air offensives, 1) was increasingly important in reducing the enemy's economic strength. The bomber forces came under the command of the RAF and the USAAF, but the ministry of economic warfare had an important role in selecting targets for them. RAF long-range bombers were used against civilian targets and thus eliminated the distinction between combatant and non-combatant personnel, placing factory workers in dangers as mortal as those faced by infantry.

However, Allied bombing policy lacked consistency. Targets were not attacked long enough nor often enough. The Germans also took counter-measures: factories were moved underground, machines were protected, and component parts were stored away from factories. Ball bearings provide one example. The Swedish firm SKF delivered important quantities of high-quality ball bearings to Germany; but a combination of Allied diplomatic action in Sweden and bombing of the town of Schweinfurt, where the German ball-bearing industry was concentrated, did not succeed (see Table 1). Deliveries of ball-bearing steel and machines from Sweden were hard to control; the ball-bearing factories were difficult to hit; and even when the factories were damaged, the machines continued to work. Moreover, Allied intelligence had assumed that the Schweinfurt factories worked triple shifts; in fact they ran on single shifts until Speer took over. As a last resort the Germans could fall back on accepting a lower quality product.

Economic warfare, Table 1: Germanproduction of finished ball-bearings per thousand of pieces

	1943	1944	1945
Source: Webster C. K., and Frankland A. N., The Strategic Air Offensive against Germany 1939-1945, iv., p. 505.
Jan	7,189	6,866	6,891
Feb	7,285	5,662	4,594
Mar	8,576	5,165
Apr	7,623	3,909
May	8,567	5,168
June	7,896	6,716
July	8,379	7,080
Aug	7,600	7,547
Sep	8,130	8,565
Oct	7,216	8,775
Nov	8,082	8,496
Dec	7,634	7,865

In general, it can be said that the bombing raids only became really effective after the back of the German defensive system had been broken—late indeed in the war. Up to the autumn of 1944, Germany succeeded in increasing production; until 1945 such basic industries as steel and coal as well as the armaments industries (see Table 2) were relatively unaffected by Allied economic warfare. The only real shortages that resulted from Allied bombing were of oil and aviation fuel and this undoubtedly speeded up the process of defeating Germany, as did successive losses of territory acquired during the war.

Economic warfare, Table 2: Index of German armaments production (January–February 1942 = 100)

Year	Total prodn.	Weapons	Tanks	Air-craft	Munitions
Source: Wagenfuhr, R., Die deutsche Industrie im Kriege 1939-1945, pp. 178-81.
1941	98	106	81	97	102
1942	142	137	130	133	166
1943	222	234	330	216	247
1944	277	348	536	277	306
Jan '45	227	284	557	231	226

In Japan, by contrast, the country's strategic economic weakness was obvious. Japan's dependence on imports from overseas for the essential basic materials of modern industry, and even for a vital margin of food, had provided the basis even before the war for Anglo-American planning for economic warfare. Japan, like Germany, could demonstrate economic expansion; but during 1943 sinkings of its merchant ships (see Japan, 7) began to have effect, and by 1944 imports of essential raw materials had dropped sharply. Nor did Japan have the opportunity to obtain necessary supplies from neighbouring occupied or neutral countries.

The blockade of Japan was a task for naval and air forces, operating on the long and vulnerable passage from South-East Asia to the home islands; in the end they succeeded in this task. Almost cut off from the vast resources conquered at the start of the war, the Japanese economy was on the brink of ruin when the nuclear blasts at Hiroshima and Nagasaki gave the knock-out blow.

5. Conclusion

Economic warfare did have its tactical successes, and it played a role in the Allied victory. But it also fell far short of the extravagant hopes that had been placed on it, and a study of its effects is more a study of failures than of successes. Faced with the realities of war, its weapons proved less effective than pre-war strategists had hoped. One cause of the failure was that its tools were not as efficient as had been supposed. Both individual and national economies, and the international economy as well, were more complex than Allied plans for economic warfare had foreseen.

Until the summer of 1944, German and Japanese production continued to rise steeply; and by the time they began to fall, many other causes than economic intervention were at work. While it can be said that economic warfare undoubtedly had an effect in weakening Germany's war potential and war-making capacity, and contributed to Germany's ultimate defeat, it was not at any stage a decisive factor, nor did it alone cause the downfall of Germany.

The case of Japan was rather different. Lacking adjacent neutrals from whom supplies could be drawn, and vulnerable to interference with its shipping routes by air and sea attack, it was seriously affected by the traditional blockade tactics which were of only limited use against Germany. See also world trade and world economy.

Martin Fritz

Bibliography

Gordon, D. L., and and Dangerfield, R. , The hidden weapon. The story of economic warfare (New York, 1947, repr. 1976).
Medlicott, W. N. , The Economic Blockade, 2 vols. (London, 1952–9).
Milward, A. S. , War, Economy and Society 1939–1945 (Berkeley, Calif., 1977).
Wagenfuhr, R. , Die deutsche Industrie im Kriege 1939–1945 (2nd edn., Berlin, 1963).