ECONOMIC WARFARE

HEAVY DAMAGE WITHOUT BLOODSHED

Harald PÖCHER

Abstract: The essay discusses economic warfare on the basis of the author’s definition. To
introduce the reader to this topic, the author gives some examples of economic warfare in history
for a better understanding of the deeper meaning of the term economic warfare. Based on the
introductory information, the paper lists and explains the methods and weapons used in economic
warfare in present at a glance. Just like conventional wars, fought with military means, the
importance of leadership and the professional training of estimate of the situation also play an
important role for a successful warfare; therefore the author discusses in a separate chapter these
fundamental basic conditions and furthermore gives some advice what kind of leader is best
qualified to plan and lead operations in economic warfare as well as what kind of training
institutions are best suitable to train leaders for economic warfare. In the final chapter, the author
summarizes his ideas and gives some advices to public institution how to prepare the country best
possible for economic warfare.

Keywords: definition, methods and weapons, leadership and training-system of

economic warfare

Preliminary remarks
The main purpose of this essay is to present the results of the research work of the author
within the last decades on a few available pages. The author published his first ideas about
this topic in the Austrian Military Journals (ÖMZ-Österreichische Militärische
Zeitschrift) in 2005 for the first time and later after his habilitation at Hungarian Military
University in Budapest. A secondary purpose is to persuade policy-makers to deal with
the topic critically. To reach a very large readership, the author points out, that the essay
therefore may have some deficiencies considering the scientific structure. An additional
reason is to emphasize the importance of Military Universities which have a training
institute for economics to train and educate future leaders for economic warfare.

1. Introduction
Conflicts and wars are like laws of nature an integral part of humankind. During all
epochs of humankind these conflicts and wars were not only fought by well armed and
equipped soldiers but also with weapons created by economic scientists. It wasn’t
analyzed until now, which from both kinds of war were more successful in the long
history of humankind, but it is evident that both different kinds of warfare led to heavy
damage to the society. Because of the use of different weapons or weapon-systems, the
war with military weapons mostly goes hand in hand with bloodshed while the economic
warfare leads to heavy damage without bloodshed. This fact is one of the most important
differences between the two different systems of warfare.

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The following essay discusses “Economic Warfare” as a whole beginning with the
presentation of a definition, developed by the author as a result of his research work on
this topic within the last decade. Based on the definition the author explains three
interesting historic examples of economic warfare. The following chapter four - the
centrepiece of the essay - discusses the most important weapon systems of economic
warfare and their efficiency in the target area. In every kind of warfare important is the
education and training of leaders and the estimate of the situation. To underline the
importance of this fact, the author therefore discusses the estimate of the situation for
economic warfare and leadership in economic warfare in a separate chapter. In a
concluding chapter the author summarizes the results of his research work and gives some
advices how sovereign states should deal with economic warfare.

2. What does the misleading expression “Economic Warfare” stand for?

The war, Carl von Clausewitz once wrote, is an act of power to force an enemy (opponent)
fulfilling the own intention [1]. Wars which were fought with military methods were the
objects of many scientific surveys. Special kinds of wars like “economic warfare” haven’t
been extensively analyzed until now. Therefore it exist no detailed entire description what
economic warfare really means. Economic warfare in the sense of the survey will not
include the warfare against the enemies’ armament industry and important facilities for
the daily life during a war with military forces.
In the essay economic warfare will be discussed on the basis of the authors own definition:
“Economic Warfare is a warfare based on non- military methods and means with the
purpose to hit the opponent economy. At the end of the warfare the opponent’s economy
should have lost market shares and the own economy should be better off.”
As the definition shows no battle-tanks, fighter planes or submarines are the bearer of the
fighting in such a war and in normal case no high ranking generals or admirals are the
protagonists in the warfare and head of the war-rooms of economic warfare, except
generals or admirals studied economic science besides their higher military education.

3. Economic Warfare in the past-Selected classic examples

Human history is full of interesting examples of successful or less successful economic
warfare. For the purpose of the essay the author discusses three outstanding examples,
the biological warfare against Mongols in 14th century, the continental system of
Napoleon at the beginning of the 19th century and the Operation Bernhard of Third Reich
against Great Britain during World War Two.
Biological Warfare against Mongols
On the basis of a 14th century report, the Black Death is widely believed to have reached
Europe from the Crimea as a result of a biological warfare attack [2].
In 1343 the Mongols under their leader Janibeg besieged Caffa at the Crimea peninsula.
The siege of Caffa lasted until February 1344, when it was lifted after an Italian relief
force killed 15,000 Mongol troops and destroyed their siege machines. Janibeg renewed
the siege in 1345 but was again forced to lift it after a year, this time by an epidemic of
plague that devastated his forces. During the siege the Mongols hurled plague-infected
cadavers into the besieged Caffa, thereby transmitting the disease to the inhabitants and
subsequently the survivors of the siege spread the plague from Caffa to the Mediterranean
Basin.
Such a measurement of the besiegers was deadly because in the 14th-Century medical
standards were extremely low and antibiotics against plague were successfully used
firstly in the 20th-Century.

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Continental System of Napoleon
After Napoleon could not invade England with military methods he thought, that England
could be defeated by economic warfare. Great Britain was an important factor financing
alliance against Napoleon. In May 1806 Great Britain organized a naval blockade of
French and French-allied coasts. As a reaction Napoleon issued on 21 November 1806
the so-called Berlin decree which brought into effect an embargo against British trade [3].
The Berlin decree forbade every trade of European Countries allied with or dependent
upon France. The French measurement led to some damage of British economy between
1808 and 1811 by hiding the British exports which were falling between 25% and 55%
compared to pre-1806 level. The British economy was able to compensate the damages
otherwise encouraging British merchants to seek out new markets and to engage in
smuggling with continental Europe.
Within Europe on the one hand side some parts benefited from the embargo of British
economy, especially Belgium and Switzerland saw significantly increased profits due to
the lack of competition from British goods. But on the other hand side the embargo had
some negative effects on France itself. Shipbuilding and rope-making declined and with
few exports and a loss of profits, many industries were closed down.
It is only mentioned in passing that the famous Swedish economist Heckscher showed
how the economic policy of Napoleon against Great Britain failed.
Operation Bernhard
The result of the battle of Britain between summer and autumn 1940 taught the Third
Reich that it was not possible to conquer the British Isle with military means. Therefore
Germany organized an economic warfare against Great Britain using plans which were
prepared in 1939.
Britain was especially vulnerable because its effort was founded upon, and sustained by
an economy which was global. It consisted of its directly ruled colonial possessions; its
self-governing Commonwealth Dominions; and, the Empire’s commerce with neutral
powers around the globe. All of them were accepting (in exchange for goods and
services); and holding British Pounds Sterling, in their currency reserves for transaction
with; and within the Empire. Confidence in the integrity of the Pounds as a world wide
excepted currency, was essential to sustaining the vitality of the Empire, and the war
effort. It is evident flooding the British economy with a large amount of forged bank-
notes it is able to shake the foundations of the monetary system of Great Britain’s
economy and to restore the British economy into the age of barter economy.
The operation Bernhard [4] was named after the German SS Major Bernhard Krüger who
was responsible to organize the printing of the forged bank-notes. The operation consisted
of production of forged bank-notes and the infiltration of the 5, 10, 20 and 50 bank-notes
into the British Economy to destabilize the Economy. The initial plan was to drop the
bank-notes from aircraft on the assumption that while some honest people would hand
them in most people would keep the notes, in practice this plan was not put into effect
because the German Luftwaffe had not enough planes to deliver the forgeries, and
therefore the operation was placed into the hands of SS foreign intelligence.
The production of the forged bank-notes were organized in the concentration camp of
Sachsenhausen (35 km north of Berlin) employing more than 142 skilful prisoners for the
production of the appropriate rag-based paper with the correct watermark and the
engraving of the printing plates. In April 1945 the printing press had produced nearly 9
million bank-notes with the total value of 134,610,810 (today worth 3 billion Pounds).
The forged bank-notes are considered the most perfect counterfeits ever produced. The

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Bank of England detected the existence of the notes in 1943, and declared them “the most
dangerous ever seen”.
After getting knowledge about the existence of forged bank-notes the Bank of England
initiated defence measurements which were able to contain the damage caused by forged
bank-notes.
The German operation has been dramatised in books, the BBC comedy-drama miniseries
Private Schulz and a 2007 Oscar-winning Austrian film, The Counterfeiters (Die
Fälscher).
The operation was not successful because it started too late. Therefore most of the notes
produced ended up at the bottom of Lake Toplitz of Austrian province Styria. It cannot
be completely excluded, that certain forged bank-notes could have directly went into the
pockets of former bigwig NAZI who were able to flee to safe countries, which have
decided not to pursue NAZIS, to finance a relatively trouble-free life after the end of the
World War Two.

4. How to fight an economic war successfully?

Just like conventional wars which were fought with military weapons, an economic
warfare had to be planned in detail and leaders of this type of war had to be best possible
trained and educated. While the core element of the planning process is the situation
assessment the most important parts of training and education are higher military
leadership training and studies of economics at a university.
4.1 Methods and weapons of Economic Warfare
As I mentioned above, economic warfare is as old as humankind. While in the early days
of economic warfare the methods and weapons were simple, they became more and more
sophisticated within the course of history. Due to its practical results, we can distinguish
between different groups of methods and weapons. For the purpose of the essay we will
distinguish between, fiscal, monetary, trading, espionage methods, head hunting and
biological warfare and the use of goal-oriented information as a weapon.
4.1.1 Fiscal methods and weapons
In the eyes of Europeans, the production, marketing and sale Airbus passenger liner is a
success story which is based on an economic warfare between the European aircraft
industry and the aircraft industry of the USA, especially Boeing the worldwide leading
commercial aircraft produces until the foundation of Airbus-Industries.
Thought it costs billions of US-Dollar to design and engineer a new airliner in detail -
money that aircraft producers must borrow up in front, and pay interest on every day
during the several years that pass from the start of design to the first sale of a complete
aircraft - Airbus-Industries is virtually exempt from such financial agonies, because it
was subsidised in the past with millions of Euro by the Airbus owning countries, i.e. the
development of the first model of Airbus which was launch in May 1969, the A300, was
subsidies with 800 million US-Dollar and the development of one of the modern plans,
the A330 and A340 family, was subsidised with 4.5 billion US-Dollar by the governments.
Due to best conditions for the granted loans, Airbus-Industries were able to calculate a
lower price than the most important competitor Boeing [5].
Boeing stayed not inactive and hit back during a public tender of the Ministry of Defence
of USA (Pentagon) for new tanker aircraft. In the first round of the tender, Airbus-
Industries offered with its strategic partner Northrop-Grumman, a large US-based defence
armament producer, a tanker plane granting good conditions to the Pentagon, but in the
final period of the tender Northrop-Grumman dissolved the strategic partnership and left

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Airbus-Industries alone. In the final end and after the last best offer process in the tender
Boeing received order worth 52 billion US-Dollar.
As we showed above, fiscal policy is an important weapon to improve competiveness of
the own economy. With the purposeful use of taxes, contributions, customs duties states
can thereby strengthen their own economies competiveness.
4.1.2 Monetary methods and weapons
The current situation in Russia shows us how vulnerable a currency really is. Due to the
limited space for the essay, it is not possible to tell the true story about the dubious
monetary measurement fired by some think tanks against the Russian Rouble and which
happened parallel to the open asymmetric military conflict in Eastern Ukraine.
In principle, monetary measurement can be used both as defensive or offensive weapons.
Important is the devaluation of the own currency to reduce the price of own exports. Also
important is money laundry to legalize earnings. With the legalized money further
economic warfare can be financed.
Another weapon is stock exchange speculation. With this weapon share prices could be
devaluated and as a result enterprises could loose market shares.
4.1.3 Trade related methods and weapons
Trade is an important factor in economic activity. Trade makes every country better off.
Trade can be steered by using exchange rates as key elements of control the stream of
goods and services across borders. To stimulate exports or imports, a country can use
depreciation or a appreciation of a currency as a measurement.
Another successful weapon in trade is embargo. The word “Embargo” comes from
Spanish and it means “Distraint”. Embargo is the complete prohibition of commerce and
trade with a particular country or group of countries. In nearer past, embargoes were
imposed on Cuba by the USA, and, in the special case of arms trade, USA imposed
embargoes to Peoples Republic of China. The effects of embargoes could be widespread
and efficient for the own economy, but some scientist voiced concerns against embargoes
because of negative effects on the own economy.
4.1.4 Espionage methods and weapons
Espionage was and is an important factor in warfare. Political and military leaders need
all available information to judge the current situation. Therefore they normally use all
available human and non human resources to get all necessary information about the
enemy’s position, economy and so on. Espionage is in the chain of information collecting
the practice obtaining secrets from rivals or enemies for military, political, or economic
advantage. It is usually thought of as part of an organized effort.
During the cold war intensive espionage between the NATO and Warsaw Pact had taken
place, but recently, espionage agencies have targeted the illegal drug trade and those
considered terrorists. Besides these targets espionage daily happen the so-called industrial
espionage conducted for commercial purpose. Countries and most large corporations
spend considerable amount on espionage of opponent enterprises and on precautions to
protect against more cloak-and dagger varieties.
Modern warfare of the 21th Century is characterized by intensive use of electronic and
communication technology. Network centric warfare is one of the most modern words in
modern military discussions. The use of new technology allows a more efficient
reconnaissance, deception and security measurements. In the economic warfare receiving
and veiling of information has got a vigorous importance.

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4.1.5 Head Hunting
Today among economists it is widely accepted, that investment in education and human
capital is one of the most important factors to achieve economic progress. For the further
development of a developed country it is vital to have excellent research and development
capacities at one’s disposal. Developed countries head-hunt the most qualified scientists
to make use of their research results and thereby strengthen their own economy.
In relation to head-hunting exist many examples in the past. Imagine the large emigrations
waves to the United States of America. During these waves many excellent European
scientist left Europe to make further research work in USA. As a result of all these
research works, the USA earned a lot of money. In a critical accounting estimate Europe
had the high costs for educating all these emigrating scientists and the USA earned a lot
off money.
4.1.6 Biological economic warfare
Biological economic warfare is a special case of biological warfare and a modern
biological economic war is different from ancient time biological economic war due to
the rapid changing standard of medical treatment of victims of biological warfare.
Biological economic warfare includes elements of uncertainty because it is not possible
to exclude all neutral or friendly people from the attack, i.e. during an attack against a
production facility with influenza-virus to bring a production to a standstill the virus can
also infect other people who are not employed in the attacked facility.
4.1.7 Information as a main weapon-system
An interview with the current director of ècole de guerre économique in Paris, Christian
Harbulot, published in the German newspaper “Der Spiegel” on April 20, 2006 makes
one sit up and takes notice: In the interview he clearly stated, that the European Unions
acts like a “headless chicken “, because in respect of economic warfare the European
Countries are total beginners and all the states have no ideas what concentrated effects in
information as a weapon lie and he explained from his own experience that within a
successful economic warfare the information-management plays a decisive role. The
economic warfare with the weapon “information” is warfare in real time, i.e. if a
competing company launched falsehood about a product of a competitor it is necessary
that the competitor had weapons for retaliation in his arsenal.
4.2 Types and organization of economic warfare
Modern military science identified different kinds of wars fought with military means. In
principle we can differentiate between nuclear, conventional, civil and asymmetric
warfare. The most interesting appearance of military warfare is the asymmetric warfare
which can be characterized as a conflict between two or more opponents of drastically
different levels of military capabilities or size. An economic warfare classified using
similar characteristic as military warfare. Categorically we can differentiate between a
conventional economic warfare and an asymmetric economic warfare. Conventional
economic warfare is an economic war between two or more countries. Such an economic
war is planned and fought by official authorities of the involved countries. An asymmetric
economic warfare is similar to military
Fought between opponents of different levels of capabilities, i.e. between an official
authority of a country and a private enterprise or between two or more private enterprises.
As a result of analyzing the situation of all the independent states in the world, we can
summarize, that only a few of the 194 independent states recently fought wars, but all of
them established a Ministry of Defence. None of them maintains a Ministry of Economic
Warfare. Merely the great powers have installed special governmental institutions to
collect information, which are useful for managing the economic warfare to impose the

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nation’s economic interests on other nations. A planning process of economic warfare is
not the responsibility of a government alone it could also be made by enterprises.
Successful leaders in the economic warfare normally act in the same way as military
leaders do. Therefore in some parts the education of leadership and the training of leaders
could be the same.
4.3 Estimate of the situation, leadership and training system
After discussing economic warfare in general we had to answer questions like what are
the main responsibilities of planers or who are the leaders of the economic warfare and
what role should career officer play in this warfare?
Today, it is state of the art in military training of military leaders to teach the estimate
process. The estimate process had its origins in the Prussian Army’s attempt in the early
1800ies to develop a systematic and logical approach to the solution of military problems.
In economic warfare the estimate of the situation also plays an important role and
therefore had to be trained carefully similar to the training programs of military education
institutions. It is evident that on a careful estimate of the situation guarantees best possible
success in the following operation.
In the warfare with military means the success of military leaders depend on the use of a
balanced combination of talent and the successful use of military knowledge trained at
military universities. In the economic warfare the success also is the result from well-
based use of knowledge about the influence of the taken measures on the economic
process and the talent for analyzing economic interrelationships trained at universities.
The complex requirements for leaders of economic warfare more or less require an all-
in-one solution of education and training suitable for all purpose. The best possible
preparation to achieve well educated and trained leaders for economic warfare could be
taken place in military universities which are not only teaching the military core subjects
like assessment of situation, issue of orders, leadership and control but also economics as
a science discipline.
Looking around in the world we can find a shining example for an educational institution
for economic warfare. In 1997 General Jean Pichot Duclos founded the Ècole de Guerre
Èconomique (www.ege.fr) in Paris. The current director of école de guerre économique
is Christian Harbulot. Since its founding, the école de guerre économique has been
educating students to learn all the necessary knowledge to fight an operation in an
economic war successfully. It is worthwhile looking at the training curriculum presented
at the homepage mentioned above to gain an impression what will be thought at école de
guerre économique.
5. Prospects
For a long time power and influence of states has been based not only on military power
but also on economic strength. With their economic policy, states attempt to guarantee
the best possible standard of living for their population. These could only be achieved by
conquering desirable roles in the world economy and by further protection against attacks
from opponents. For this reason states have vital interests to strengthen their economies.
A strengthening of the economy could be achieved by organizing the national economy
in the best possible way and by organizing an economic warfare which is fought with the
purpose to hit the opponent economy but doesn’t destroy the opponent’s economy
completely.
Every country is been well advised to establish academic educational training centres
which are able to teach leadership and economics for an economic warfare.

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 References

The available literature is full of books and papers about this topic, which shows the
importance of Economic Warfare for Geo-Economics in a globalized world. The author
published his first result on this topic in “Österreichische Militärische Zeitschrift (ÖMZ)
4/2005 and after his habilitation at former Military University in Budapest in
Hadtudományi szemle 2009.

[1] see Carl Philipp Gottlieb von Clausewitz: Vom Kriege (Band 1.3), Ferdinand
Dümmler, Berlin 1832, Buch I, Kapitel 1, Abschnitt 2
[2] see Wheelie M.: Biological Warfare at the 1346 Siege of Caffa, in Historical
Review, Volume 8, Number 9, September 2002
(wwwnc.cdc.gov/eid/article/8/9/01-0536_article) (retrieved 5 March 2015)
[3] see www.historyhome.co.uk/c-eight/france/consys.htm (retrieved 5 March 2015)
[4] see www.jewishvirtuallibrary.org/jsource/Holocaust/operationbernhard.html
[5] see Boeing Wins Contract to Build Air Force Tankers, in The New York Times,
February 24, 2011

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