On estimating the warmaking potential of the world's regions

Discussions on the economic history of the nations taking part in WW2, from the recovery after the depression until the economy at war.
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Re: On estimating the warmaking potential of the world's regions

Postby Guaporense » 21 Apr 2017 04:04

I have found a good estimate of German GDP evolution during the war (Ritschl and Spoerer (1997)), so that I can compare the evolution of GDPs during the war. Apparently, there was "economic growth" in WW2, even though some countries didn't grow (France, Italy, Belgium, more precisely). This growth was fundamentally the result of people working harder to reduce the fall of consumption in light of resource mobilization by governments plus distortionary effects of inflation (inflation tends to boost GDP growth in the short run). Kuznets GDP estimate for the US was made in light of these distortionary effects.

Here are my final results:

https://docs.google.com/spreadsheets/d/ ... sp=sharing

Note that for the USSR I used two GDP figures: Maddison's and using 1913 official exchange rates, they differ by 8%. And Germany's GDP in the beginning of the time series is 3% lower than in the table for 1937. The reason for this discrepancy is that I adjusted German GDP downwards using data from Ritschl and Spoerer (1997) time series from 1905 onwards, to make it consistent with the wartime GDP series (since the 1905 PPP and the new 1937 PPPs match with discrepancy of less than 1%, using this difference in their time series from 1913 onward to correct for a lower German GDP appears sensible).

Overall, the ratio between these territories didn't change from 1937 to 1943:

Germany + occupied Western Europe + Italy + Japan / US+UK+USSR
1937: 67%
1943: varies 77.6% or 68.8% depending on which US time series to use and which USSR's GDP estimate to use

Overall, the Allies enjoyed indeed a superiority in aggregate resources over the Axis (because the Axis only get to reach 89% of the Allies' GDP if I reduce the USSR's GDP by the measure of the occupied regions and put that figure into the Axis' GDP which is not a good because the Germans didn't manage to extract almost anything from the Eastern front's territories if compared to Western Europe). Overall though, it's not true the Allies enjoyed a massive superiority, it was a 30% to 50% superiority which is significant but highly asymmetric: while Japan was fighting against an enormously superior US's resources (6 to 8 fold difference depending on the measure used), the USSR was fighting against an enemy who controlled most of Europe, so it was a 390% to 360% difference in aggregate GDP size in 1941-1943 between Germany + Italy + occupied Western Europe against the USSR on average (if using Maddison's figures or 1913 market exchange rate for the USSR's GDP). Not quite as big as Japan versus the US (650% to 770%, depending on the estimate on US GDP growth during the war but almost as big).
"In tactics, as in strategy, superiority in numbers is the most common element of victory." - Carl von Clausewitz

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Re: On estimating the warmaking potential of the world's regions

Postby Guaporense » 21 Apr 2017 07:42

Note: German growth over 1937 to 1943 was tremendous, at 94%, it was much greater than growth in other countries, in Britain, US and Japan it was around 30% (or over 50% using Kendrick's more "inflationist" view of wartime GDP). Why was that? 3 reasons.

1st - The population of Germany expanded from 68 million in 1937 to 99 million in 1943, this includes the population of the annexed territories plus the massive population of foreign workers who "migrated" to work in Germany.

2nd - The German economy was badly hit by the great depression and in 1937 it was far below it's long run growth trend (growth in per capita income from 1905 to 1937 was about 45%, a healthy economy would expect growth of about 75%), so by the late 1930's, Germany's economy was operating far below it's inherent capacity: the growth in per capita income from 1937 to 1943 was still less than enough to bring German per capita income back to it's "normal" level which is given by a trend growth from 1905 to 1943 of about 1.7-1.8% a year.

3rd - Germany imported a lot of commodities from the occupied countries for super low prices because the currencies of occupied countries were kept far below their equilibrium values. This lowered prices inside Germany and so allowed the GDP deflator to not increase while nominal GDP increased, making the economy appear bigger than it really was thanks to it's artificially inflated currency.
"In tactics, as in strategy, superiority in numbers is the most common element of victory." - Carl von Clausewitz

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Re: On estimating the warmaking potential of the world's regions

Postby Guaporense » 22 Apr 2017 18:53

Using these time series data I also estimated the evolution of the aggregate GDP of the territories under German control after the Battle of France from 1937 to 1944:

https://docs.google.com/spreadsheets/d/ ... sp=sharing

By 1943 GDP was up 21% from 1937, less than the UK's 28% or Japan's 30% or the US's (either 32% or 56% depending on how "liberal" the time estimate series is). Germany's growth of 94% came at the expense of the economic decline of the rest of continental Europe and the annexation of territories with about 22 million people plus 8 million imported slaves.
"In tactics, as in strategy, superiority in numbers is the most common element of victory." - Carl von Clausewitz

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Re: On estimating the warmaking potential of the world's regions

Postby Guaporense » 24 Apr 2017 02:26

In this table I made using Gregory Clark's estimate of average British real earnings in 2010 pounds and the relative per capita incomes (which were very strongly correlated with earnings, in Germany in 1905, real per capita income was 79.5% of the UK's and reak earnings were 79.9% of the UK's, so I think that it's ok in using per-capita income as a proxy for real earnings and it gives an idea of living standards back them for several countries and the overall economic growth from 1905 to 1950.

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I also computed per capita incomes in wartime and populations (used Rischlt and Spoerer (1997) estimated German wartime population) while estimated Soviet wartime population using Harrison's estimate of the size of the labor force and the population figure for 1940:

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To check on the accuracy of these GDP figures I compared them with indexes of industrial commodities production (steel, coal and electricity) of 4 countries:

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Overall, it appears to be true, for instance, that Germany's economy was slightly larger in 1942-1943 than the UK and the Soviet Union combined.

Overall accurate. Although I lack complete data on the US I suspect US industrial commodity output on average to be relatively higher than estimated GDP (well, coal was about 5/3 of Germany's but steel and electricity were more than twice German levels).
"In tactics, as in strategy, superiority in numbers is the most common element of victory." - Carl von Clausewitz

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Re: On estimating the warmaking potential of the world's regions

Postby Guaporense » 06 May 2017 20:04

Europe compared to the US in aggregate economic size, my estimates and Broadberry & Klein (2011) estimates. B&K (2011) use the same methodology as Maddison of using 1990 Geary-Khamis dollars while I use mostly direct benchmark PPPs using bilateral fisher indexes.

In millions of 1905 pounds:

Mine -------- 1913 ------------ 1937
Europe ----- 14,260 ---------- 20,103
USA -------- 5,254 ------------ 8,417

In millions 1990 dollars:

B&K -------- 1913 --------------- 1937
Europe ----- 1,326,312 ------ 1,825,889
USA --------- 517,383---------- 832,469

In my estimates Europe is slightly (6-7%) larger relative to the US than in B&K. Europe also grew a little more than in B&K estimates.
"In tactics, as in strategy, superiority in numbers is the most common element of victory." - Carl von Clausewitz

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Re: On estimating the warmaking potential of the world's regions

Postby Guaporense » 07 May 2017 07:41

I put some extra data on that spreadsheet I posted before (someone might notice I revised the figures for Germany in 1905 and 1913 compared to previous versions I posted here):

https://docs.google.com/spreadsheets/d/ ... sp=sharing
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Re: On estimating the warmaking potential of the world's regions

Postby Stiltzkin » 08 May 2017 13:45

thanks for the effort.

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Re: On estimating the warmaking potential of the world's regions

Postby Guaporense » 09 May 2017 01:53

One problem with these GDP estimates is that they are made using consumption goods PPPs so that they measure more living standards than the capacity of the economy in producing munitions and supplying armies. So I decided to compute PPPs of goods relevant for military purposes (steel, iron, rails, locomotives, trucks, electric engines, generators, electrical machines, ships, firearms, etc). I found out that the US's GDP is about 10% bigger than using these PPPs, Germany as well while Japan's GDP is 10% smaller, relative to the UK, producing PPPs of these capital goods and heavy industrial products. The reason is that the US and Germany had well developed chemicals and heavy industry and so their warmaking potential was greater in proportion to the size of their economies relative to the UK or Japan (and perhaps also relatively to most other countries in the world, the US and Germany had higher rates of automation/mechanization in manufacturing as well measured in terms of horsepower per worker, at least if compared to the UK, Netherlands, Switzerland and Japan. I would suspect the Soviet Union's GDP measured in terms of capital goods PPPs

For transparency sake, this is the UK-US Capital Goods PPP:

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This is Germany-US PPP:

Image

This is Japan-US PPP:

Image

I also did a Germany-UK PPP to see if I get similar results as the indirect PPP with the UK and the discrepancy was less than .02%.

And this is the table showing the GDPs converted using these PPPs:

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And this is how the coalitions GDPs look like with the consumption goods PPPs and the capital goods PPPs:

Image

For the territories under control by the Axis powers' their relative GDP decreases about 3.2% relatively to the Allies using these capital goods PPPs: since the US's economy featured high levels of engineering/chemicals/heavy industry productivity it's economy had a comparative advantage producing munitions which implies that per capita the US's capacity to produce munitions was perhaps the highest in the world even if living standards measured in purchasing power of consumption goods were not actually higher than in Switzerland or Denmark.

Still, 1942 market the high point in terms of the Axis' powers relative economic size vis the Allies: in WW1 at the begging the Central Powers controlled territories with 60% of GDP of Entente powers, decreasing to about 43% with the US's entry in the war, in WW2, the Axis Powers controlled 72% of the GDP of the Allies before the battle of France (Germany+Italy vs UK+France+Netherlands+Belgium+Canada+Australia+New Zealand) and by mid 1942, the Axis' power controlled about 84-87% of the GDP the Allies controlled. The Allies had a small superiority in aggregate resources but this superiority was uneven: against Japan, the US's GDP was 6-7 times bigger, while the USSR's GDP was less than 1/3 of the Axis territories in Europe.

Compared to Maddison's my figures differ from his by about 3% between coalitions (for the consumption PPP's that's it). Using the capital goods PPPs for US, Germany, UK and Japan for 1939 yields a discrepancy of 1.6% with Maddison's estimates in terms of the relative size of Axis' powers GDP compared to the Allies' GDPs.
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Re: On estimating the warmaking potential of the world's regions

Postby Guaporense » 30 May 2017 22:44

My (kinda) final calculations for GDP (I even computed China's GDP as well, it matches Maddison's calculations closely):

Image
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Re: On estimating the warmaking potential of the world's regions

Postby Guaporense » 02 Jun 2017 21:03

And to take a long run view of levels of per capita GDP:

Image

Russia actually improved a lot over the past 100 years although the biggest improvement of all was obviously Korea and Taiwan, from 6-12% to 89-113% of the UK's per capita income in only 66 years.
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Re: On estimating the warmaking potential of the world's regions

Postby Guaporense » 03 Jun 2017 21:29

To test my methodology I decided to estimate 2016's GDPs using Numbeo's price data and I also decided to produce an alternative measure of economic growth by converting 1937 pounds into 2016 dollars:

Image

This is the 1937 pound to 2016 dollar PPP:

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Which implies in British per capita income in 1937 of 15,000 dollars, or about the same level as China and Brazil today.

This PPP from 1937 to 2016 would also imply in the following long term growth patterns:

Image

The rise of Asia is spectacular as Japan and China's income grew by a factor of 10-11 while Korea and Taiwan grew by a factor of 21 and 17 respectively. It surely shows how our world changed over time: living standards improved dramatically all over the world (with the exception of Argentina, whose income didn't double over nearly 80 years) but Asia's rise has produced a tremendous process of des-eurocentrification of the world.
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Re: On estimating the warmaking potential of the world's regions

Postby Stiltzkin » 03 Jun 2017 21:48

with the exception of Argentina, whose income didn't double over nearly 80 years

Do you know the reasons? If we compare it to Chile and Brazil, those ones seemed to have risen adequately.

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Re: On estimating the warmaking potential of the world's regions

Postby Guaporense » 04 Jun 2017 01:11

@ Stiltzkin, beginning in 1930 Argentina followed an economic policy that said: "trade is bad for the economy" based on the "brilliant" theories of the Argentinian economist Raúl Prebisch (https://en.wikipedia.org/wiki/Ra%C3%BAl_Prebisch), they closed off their economy to international trade and tried to produce everything domestically. Since they are a small country, lacking the internal market to subsist without external trade, the economy suffered tremendously: their per capita income fell from 83% of the US's level in 1913 to 31% of the US's level by 1980. The most stupid economic policy in human history (the USSR's policies were also stupid but since they were very big their large internal market allowed for self sufficiency to a much higher degree than Argentina's).

Another way of estimating warmaking potential is to use Dupuy's estimates of combat effectiveness and multiply then by the manpower resources available to a country. Combat effectiveness essentially is a measure of per solder combat effectiveness considering the density of equipment/weapons per 10,000 soldiers was similar among the combatants (there was great variation in quality but this variation is mostly captured in the combat effectiveness statistic).

In that case if the nation is capable of fielding armed forces in the same proportion to their labor force the labor force multiplied by the combat effectiveness will yield an estimate of aggregate warmaking potential.

In 1940 these were the labor force sizes:

USSR ------- 86.8 million
USA -------- 54.8 million
Germany -- 40.5 million
UK --------- 22.9 million
Canada ---- 4.7 million

Dupuy's combat effectiveness estimate (Japanese = 1):

Germans - 1.64
WAllies -- 1.30
Russians - 1.04

Multiplied by the combat effectiveness statistic:

USSR ------- 90.3 million
USA -------- 71.2 million
Germany* --56.9 million
UK --------- 29.8 million
Canada ---- 6.1 million

*The German labor force statistics include 5.8 million "helping family members". I subtracted those from the figure above to get 34.7 million workers in the labor force, closer in proportion to the country's population of 80 million in 1939 (implies in a labor force participation rate of 44% compared to 41.5% in the US and 47.5% in the UK).

Despite having a much lower per capita income, the USSR managed to train and equip their soldiers well enough so that they were about 3/4 as effective as American and British soldiers. Given their labor force was much larger than any other great power this would imply that the Soviet Union was actually the most potentially powerful great power in the world in 1940. The higher per capita incomes of the WAllies didn't result in much higher levels of combat effectiveness (for instance, airpower, the WAllies weapon of choice, didn't increase a lot the degree of lethality of their armed forces). This is the economic principle of diminishing returns: if you increase your military expenditures per soldier by 100% it will not double the soldiers' effectiveness.

Their warmaking potential if measured by this metric was 130% of the US's while Germany's was about 80% of the US's. Germany managed to substantially increase their warmaking potential, however, by using 8 million foreign workers to complement their labor force during the war plus supplies from occupied countries, in that way they could field 12 million men in the Wehrmacht (equivalent in size to 35% of their pre-war labor force) by 1943-1944.

Interestingly, using this instead of GDP put things into a different perspective: using GDP the US is isolated the greatest great power with USSR and Germany far behind, at less than half of the US's GDP, using this measure (labor force times combat effectiveness), the USSR and Germany are much closer to the US in terms of warmaking potential, so we now have 3 superpowers instead of 1.
"In tactics, as in strategy, superiority in numbers is the most common element of victory." - Carl von Clausewitz

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Re: On estimating the warmaking potential of the world's regions

Postby Stiltzkin » 04 Jun 2017 12:04

In that case if the nation is capable of fielding armed forces in the same proportion to their labor force the labor force multiplied by the combat effectiveness will yield an estimate of aggregate warmaking potential.

Yes, thats what I used so far, it is overall a more reliable estimate, but do note that efficiency and skill are two different things.

The Soviets weren't less effective, it was a large military complex, their per capita equipment value was overall lower. They were more proficient in conducting modern warfare than most participants, actually only Germany, USSR and Japan mattered in terms of military effectiveness during WW2 (pure militarized systems). Of the Democracies, France mattered, but it was knocked out in 1940. Every other system was undermilitarized and/or inexperienced in warfare (we could add the British Empire or Poland into the list, Finland was forced to be effective but they did not possess the manpower nor the war industry to lead prolonged wars, Italy never made a coherent decision).

This is the economic principle of diminishing returns: if you increase your military expenditures per soldier by 100% it will not double the soldiers' effectiveness.

Correct, munitions increase beyond necessary levels has also diminishing returns.

3 superpowers instead of 1

Germany, too large for Europe, too small for the world.

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Re: On estimating the warmaking potential of the world's regions

Postby South » 07 Jun 2017 13:40

Good morning Guaporense,

Can "combat effectiveness" be geometricly augmented by technological innovations such as atomic ordnance ?

Can we also look at "pure" manual labor ? China had airfields built at relatively nominal costs using few survey instruments and earth moving machines.

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