Competitive Intelligence and the Economics of Warfare

Competitive Intelligence (CI) is a window looking out onto  the landscape that affects strategy and future prospects. Therefore, economic issues play a large part in how we view the competitive landscape. However, I never thought CI work would take me in the direction that it has recently.

Two or three years ago the economic issues were the effects of the asset inflation credit bubble and the effects of the resultant growth of the money supply. Now the strategic issue is the causes and effects of huge government deficits.

In this new strategic concern, there exist two subjects of importance for understanding the competitive environment. The first is the effect of stimulus spending and the second is the ongoing cost of warfare. Military spending has brought down governments and impoverished nations throughout history. Today, companies that produce products and supply services need to understand the markets that modern military spending have created and they must understand the effects such spending has on both the national and the world economy. To understand this topic, one must begin by understanding the evolution of modern warfare from the Napoleonic wars and onward.

Beginning with Napoleon, we have seen four generations of war fighting. The first generation of warfare (1GW) was the beginning of modern technological warfare involving conscription, industrial scale production of weapons, and financial systems designed to fund warfare. This also heralded the end of the Mercenary due to the formation of large standing national armies.

Next came the economic organisation of the nation state to put the full resource potential of the nation at the disposal of the war effort for financial gain. These were the wars of empire.

The third generation of warfare (3GW) was industrialized war fought for land and resources using established abilities from 1GW and 2GW. This evolved into the war of maneuver that we saw in WWII.

Fourth generation  warfare is a moral conflict often using ad hoc fighters with an ideal for command and control, not a unified command structure. This was Vietnam and it is Iraq today. Winning this is a matter of getting  people to reject an existing  ideal for something more productive, while maintaining military superiority that can overcome the actions of small flexible groups of enemy combatants. This type of counterinsurgency, to borrow David Kilcullen’s shorthand, is described as “armed social work.”

The industrialized world knows how to fight 3G type of war. The experiences of Vietnam and Iraq taught us what it takes to fight the fourth generation war (4GW). While the 4GW is expensive, a cost can be assigned to the war with some accuracy based upon experience. This reduces uncertainty which is the most hated thing in both business and military planning. It also creates business opportunities. For example, the mercenary has become important to the success of this type of warfare after a 200 years of absence from the battlefield. Secure computer networks for command and control are essential in this environment. New types of vehicles are required to move personnel around. All the housing and equipment must be serviced. All these areas, and more, offer agile companies an opportunity to make profit.

On the other hand, we shouldn’t downplay the economic damage a 4G war can do to the combatant nations. For example, the cost of the Vietnam war forced Nixon to abolish the gold standard to stop the redemption of US Dollar holdings by foreign governments which would have wiped out the US gold reserve. A devalued dollar, stagflation, and recessions followed — and so did the lack of monetary discipline that created the most recent economic crises.

The potential emergence of 5GW consumes much of my current research time. The costs of this are truly frightening. The next article will explain why this is so.

2 thoughts on “Competitive Intelligence and the Economics of Warfare

  1. David, it’s hard to write something like this from start to finish in one short article.

    Ultimately, the point is that high government spending and budgetary deficits are a drag on the economy. National security and military spending in the US has an effect throughout the allied nations. If they jump on the 5GW bandwagon, then we are in big trouble, even if you work for an agile entrepreneurial company that recognises the opportunity that this represents.

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