GENEVA — A possible war in Iraq and its implications for the world economy have for months galvanized the minds of economic and political leaders — which is why it’s no surprise that it dominated the agenda at this year’s World Economic Forum in the Swiss mountain resort of Davos.
Forget the usual discussions of trade, technology, the Third World or other economic issues. All most attendees wanted to speak about was the ramifications of a war. But analysts and corporate executives were divided on what impact a showdown in Iraq would have on the highly interdependent world economy.
Many economists believe a drawn-out war, coupled with a sustained spike in world oil prices, could push the frail world economy into a deep recession marked by rising unemployment and declining demand. This would affect not only the major advanced industrial economies — the U.S., western Europe and Japan — but also could put the brakes on dynamic emerging economies such as China and India.
A war would result in a dramatic increase in the price of oil, especially if Saddam Hussein destroyed all of Iraq’s oil wells, said economists such as Claire Harasty of the International Labor Organization. Harasty said a war would have grave consequences for employment, especially in emerging countries, and would further sap investor confidence.
Alan Blinder, professor of economics at Princeton University, said the extra security costs since the attacks of 9/11 could amount to 1 percent of U.S. gross domestic product. Blinder told the business leaders in Davos that the 1991 Gulf War cost $80 billion during the first Bush administration. The present Bush administration puts the costs of a possible war at $60 billion, while some academic experts estimate the tag could be up to $1.6 trillion.
“Nobody knows because nobody knows the duration,” Blinder said.
Kenneth Rogoff, director of research at the IMF, however, told WEF delegates the price of oil will come down by $5 a barrel this year. It currently stands at $29.86 a barrel.
Another school of thought argues that if the war is brief and the Saddam regime is defeated or ousted, the global economy could bounce back, boosting consumer and investor confidence. But a possible casualty of the war on terror, some top business executives such as the chairman of Unilever Niall FitzGerald said, is that the global trade talks are unlikely to end as planned on Jan. 1, 2005.
Some Western experts reckoned the use of chemical or biological weapons by terrorist groups on a mass scale could have a more adverse impact on the world economy than a clash in Iraq. Such action, they argued, could spread panic and stifle a recovery in a host of key areas of the global economy from the retail trade to tourism, travel and basic foodstuffs. The increasing tendency by terrorist groups to go after “soft” civilian targets could spread terror in many urban centers, unless authorities take the necessary steps to put in place security, civil defense and an emergency response infrastructure, they added.
Indeed, U.S. Health Secretary Tommy Thompson, in an interview with the Financial Times Monday, after meeting health ministers from 20 rich and developing nations in Davos, warned there is going to be a bioterrorist attack that could kill thousands.
“There is going to be an attack,” Thompson said. “Whether it is in western Europe, the U.S., Africa, Asia, or wherever…every country is at risk.” He went on to argue that rich and poor countries are unprepared and need to spend tens of billion of dollars to cope with the threat.
Thomas Donohue, president of the U.S. Chamber of Commerce, said the challenge of the security threat “is to move people to where they want to go, to free people to participate in the economy as they wish.”
Bill Owens, governor of Colorado, proposed to delegates that “offense instead of defense” is the way to proceed on the global security front, and said he “hopes the world doesn’t kneecap the world’s policeman.”