Written By: Isaac Brown

The geopolitical turmoil in Ukraine is a tragedy that continues to unfold. Approximately 15,000 Ukrainian civilian casualties reported by the United Nations Human commission, most of which are from indiscriminate shelling of civilian urban centers from Russian heavy artillery and rocket systems (1). 

Needless to say, the humanitarian costs of this conflict greatly exceed any perceived utility of war, but from an economic standpoint, the conflict has had far reaching negative externalities. As a result of the unified implementation of economic sanctions from many Western countries, most Russian exports and foreign direct investments (FDI) have been cut off to the rest of the world. Since February 24, 2022, Canada has enforced the Special Economic Measures (Russia) Regulations which has banned Russian imports, nullified FDI contracts originating from Russia, and blacklisted the finances of senior Russian officials in Putin’s regime (2). In terms of international relations and geopolitics, both sides of the conflict have exercised their hard power, defined as a “coercive power executed through military threats and economic inducements and based on tangible resources such as the army or economic strength” (3). It is in this engagement of great power competitors, one utilizing economic sanctions and the other military coercion, that such global costs have been incurred. But the question begs itself: in the midst of this bloodshed, are there any winners? This article will examine the key nations, institutions and corporations who have deliberately or fortuitously profited from this conflict, and whether any degree of morality exists in this market. As social revolutionist Vladimir Lenin exclaimed, “Yes, war is terrible… terribly profitable” (4).

 

Historical Significance

War profiteering is a term that specifically relates to the excess profits derived from selling weapons and lethal aid to others. A famous anecdote of war profiteering comes from the First World War, where an emphasis on profit margins lead to countless unnecessary Canadian casualties. The Mark 2 Ross Rifle was adopted by the Canadian military as the primary weapon of all infantry in 1911, as it was produced in Canada, and thus it was the primary armament brought to the front lines of the First World War by most soldiers. Charles Ross, the inventor of the rifle, set up factories in Quebec City to produce the weapon, intentionally utilized poor materials and cheap labour to rush the manufacturing process. When the scandal was discovered by Canadian troops who continually had their weapons jamming during battle, Ross and the minister of Militia and Defence, Sir Sam Hughes, were publicly shamed and labelled war profiteers by the public (5). The main offence was that Ross was more concerned about increasing profit margins, rather than supporting the national war interests.

 

Russia-Ukraine War Profiteering

In the context of modern conflict, war profiteering is far more complex. In addition to financial and non-lethal aid, the American government is sending 6,500 Javelin anti-tank missile systems designed by Lockheed Martin and Raytheon, and another $40 billion spending for arms was passed last May (6). Roughly half of that funding will go directly to American arms manufactures, such as Lockheed Martin and Raytheon, with each missile and launcher costing $78,000 and $100,000 respectively. Raytheon has also been contracted to send 1,400 Stinger anti-aircraft missile launchers with a $625,000,000 up-front contract to immediately replenish stocks (7). Ukraine will also have received 50 millions rounds of ammunition from Olin, an American firm, and Britain has contracted BAE Systems to send 400,000 rounds (8).

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The full breakdown of lethal support from the United States Department of Defence can be seen in the image above. Other key players in the industry are Thales, Northrop Grumman and Rheinmetall, all arms manufacturers. The flow of capital to arms manufacturers has led to profits not seen since, tragically, the war in Afghanistan. Dan Grazier, a senior defence policy fellow at the Project on Government Oversight in Washington DC noted “In August when the Afghanistan war ended, when you had some of the CEOs of defense contractors lamenting the fact that the war ended and they were expecting a hit to their bottom line” (6). The surge in demand led to inflated stock prices, as the following image illustrates.

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While the rest of the financial markets were down a few percent over the past two quarters (shown by the S&P 500), the advent of the Russia-Ukraine war sparked massive interest in defence contractors, with Lockheed Martin up 14% and Rheinmetall up over 120% since the first shot was fired in late February (7). Rheinmetall alone, a German tank and artillery manufacture is set to have sales grow by 25% for 2022 and 2023. The political climate in Europe further props up these company valuations, as Chancellor Olaf Scholz of Germany has committed to increasing defence spending to 2% of German GDP “from now on” (7). Moreover, Norway is increasing spending by three billion Krone, Latvia will increase defence spending from 2.2% of GDP to 2.5% of GDP and Finland is committing an additional 700m Euros to defence. Polish, French, Italian and Swedish governments have enacted similar commitments. With all this excitement about armament, it is no wonder that the markets are propelling defence contractors into the triple digits of growth. Economically, the big winners will be the nations-of-origin for the largest companies, namely the US, France, Britain and Germany, as this presents great political opportunities for manufacturing, employment and GDP stimulation.

 

Simply Supply and Demand…?

Statistics and quantitative analysis of economic growth are interesting datum to look at, but one must remember that this discussion surrounds the brutal treatment of innocent Ukrainian citizens, tied to an unjust geopolitical conflict they had no part in orchestrating. Looking past the macroeconomic effects of war, there are harmless children being killed daily, and millions displaced because of the conflict. So what role do these multinational defence companies play in this injustice, and how are they to be held morally responsible? Greg Heyes and Jim Taiclet, the CEO’s of Raytheon and Lockheed Martin respectively, have both boasted about the financial benefits of conflict in company earnings calls, with Taiclet stating “great power competition (between the US and Russia over Ukraine) bodes more business for the company” (9). CEO of BAE Systems Charles Woodburn told shareholders “We see opportunities to further enhance the medium-term outlook as our customers address the elevated threat environment” and CEO of Rheinmetall Armin Papperger noted “Security… is the bedrock of our life in peace and freedom” (9). Every single CEO of the major defence firms discussed in this article has expressed contentment with the correlation between profits and conflict escalation. When the CEO of BAE Systems uses terminology such as enhanced medium-term outlook, it is easy to forget that he is referring to the capacity of Ukrainians to defend their lives from Russian war crimes. It is no surprise that war is in the interest of armament manufactures, and they have stated as such themselves.

 

Conclusion

For arms manufacturers, profit margins and global conflict are positively correlated, thus, one may argue that there is a serious moral dilemma surrounding arms manufacturers’ ability to lobby for political change, however that is another discussion entirely. Focusing on our economic discussion of war profiteering, it seems that the military industrial complex transcends any moral issues. The global market demands arms manufacturers, and as the CEO of Rheinmetall notes, these defence firms are simply supplying the economy with the competitive equilibrium it needs. There exists a thin line between firms fulfilling legitimate market demands and firms profiteering off the maiming of innocents. In our modern economy, such a line is becoming increasingly subjective and blurred. The only thing that may illuminate legitimate moral failures in this portion of the global economy is public acknowledgement of what is occurring, which is why any global citizen should be versed in economics of war profiteering.

 

Works Cited

 

• United Nations Human Rights Office of the High Commissioner. (2022, October 3). Ukraine: Civilian casualty update 3 October 2022. OHCHR. Retrieved November 9, 2022, from https://www.ohchr.org/en/news/2022/10/ukraine-civilian-casualty-update-3-october-2022#:~:text=Total%20civilian%20casualties%20from%2024,6%2C114%20killed%20and%209%2C132%20injured
• Canada, G. A. (2022, October 28). Government of Canada. GAC. Retrieved November 9, 2022, from https://www.international.gc.ca/world-monde/international_relations-relations_internationales/sanctions/russia-russie.aspx?lang=eng
• Wagner, J.-P. N. E. (2021, March 29). The effectiveness of Soft & Hard Power in contemporary international relations. E. Retrieved November 9, 2022, from https://www.e-ir.info/2014/05/14/the-effectiveness-of-soft-hard-power-in-contemporary-international-relations/
• Malachi, K. (2022, June 30). Arms profiteering peaks as capitalists spy an opportunity in Ukraine. IDOM. Retrieved November 9, 2022, from https://www.marxist.com/arms-profiteering-peaks-as-capitalists-spy-an-opportunity-in-ukraine.htm
• Ross Rifle. The Canadian Encyclopedia. (n.d.). Retrieved November 9, 2022, from https://www.thecanadianencyclopedia.ca/en/article/ross-rifle
• R., Reisdorf, P., & |, P. C. (2022, May 24). Weapons makers profit handsomely off Ukraine War, three months after Russian invasion. CorpWatch. Retrieved November 9, 2022, from https://www.corpwatch.org/article/weapons-makers-profit-handsomely-ukraine-war-three-months-after-russian-invasion
• Ukraine War: How weapons makers are profiting from the conflict. Sky News. (n.d.). Retrieved November 9, 2022, from https://news.sky.com/story/ukraine-war-how-weapons-makers-are-profiting-from-the-conflict-12624574
• Al Jazeera. (2022, October 13). Which weapons might the US send to Ukraine? Russia-Ukraine war News | Al Jazeera. Retrieved November 9, 2022, from https://www.aljazeera.com/news/2022/10/13/explainer-all-the-weapons-the-us-is-sending-to-ukraine#:~:text=That%20aid%20has%20included%20hundreds,60%20million%20rounds%20of%20bullets
• Hartung, W. (2022, October 20). Promoting stability or fueling conflict? the impact of U.S. Arms Sales on national and global security. Quincy Institute for Responsible Statecraft. Retrieved November 9, 2022, from https://quincyinst.org/report/promoting-stability-or-fueling-conflict-the-impact-of-u-s-arms-sales-on-national-and-global-security/