Winner of the New Statesman SPERI Prize in Political Economy 2016

Monday 2 April 2012

The Falklands War: a simple cost benefit analysis

                It is the 30th anniversary of Argentina’s attack on the Falklands islands. I was against the UK responding with a counter invasion. The key justification for taking the islands back by force was that the people there wanted to live under British rather than Argentinean rule. The population at the time was about 1,800. Nearly 900 soldiers lost their lives in that conflict. The financial cost for the UK was estimated at around $2 billion. 
                My argument at the time was very simple. The order of magnitude of the financial cost was pretty well known in advance.The UK government could have offered each islander $1 million dollars, either as compensation for living under Argentinean rule, or for being relocated in some part of the UK. (The Highlands of Scotland is pretty empty and would be the closest substitute.) The financial cost to the government would be the same, but no lives would be lost.
                There were various counterarguments to this ‘crude’ utilitarian reasoning. One was that, if the UK had not attempted to fight, this would set a precedent which would encourage other dictators to use force in a similar manner. All that was demonstrated, of course, was that the UK was prepared to fight to protect one of its dependencies, against another side it thought it could beat. I do not think the Falklands war has really stopped Spain invading Gibraltar. Another argument was that the UK had a moral duty to protect its citizens. Strangely, this moral duty seemed not to apply to the similar number of residents of Diego Garcia some 10 years earlier, who were removed by the British from their homes to make way for a US airbase.
                Unfortunately I think the actual decision to fight back had little to do with principles. The moment Mrs Thatcher was told she could win, it would have been too humiliating for her government not to go to war. What I find much more depressing is that the war was hugely popular in the UK. National honor was at stake. Just before hostilities began, an opinion poll had only 18% of people saying that the UK government had been too willing to use force. Tellingly, however, only 14% of those polled were prepared to sacrifice more than 100 UK servicemen’s lives to regain the islands. 
                The conflict had huge consequences for both countries. It helped keep Mrs Thatcher in power for another decade, but it was fatal for the Argentine junta.  The ‘Falklands factor’ may have encouraged Tony Blair’s military interventionism. This, together with a feeling of gratitude to the US for their intelligence support during the conflict, may have played a part when it came to UK involvement in Iraq. Any ex post cost benefit analysis is hugely complicated and uncertain, but I still think my ex ante crude utilitarian view is compelling.
                The UK declared war three days before my wife and I were due to fly to Peru for a month long holiday. We went as planned, despite knowing that Peru would be very supportive of Argentina. In the first three weeks the Peruvians we talked to regarded the whole thing with bemused curiosity, and there was no ill feeling towards us. The atmosphere changed a bit just before we left after the General Belgrano was sunk. Lives were being lost as two countries attempted to salvage their national pride.                


  1. See, this is why this petty nonsense national pride kind of stuff would be done away with if economists were in charge of the world, right?


  2. Using your method, was it worthwhile from an argentine point of view? Were the lives lost (on both sides) a price worth paying to get rid of the junta?

  3. Given how costly each of the world wars were for Britain, perhaps we should not have fought these wars either? If we had not done so, many lives would have been saved, we would be much stronger economically, and we might still have an empire.

    Ironically, since the world wars encouraged the socialization of our economy and the consequent reduction in individual freedom, we may have ended up more prosperous and more free by staying out of Germany's way.

    On the other hand, a good war justifies any cause, as Nietzsche said.

  4. You ignore two other big costs.

    The Falklands factor not only kept Thatcher in power, it was surely a big factor in later decisions to go to war - in Kuwait, Iraq and Afghanistan. The trajectory of George W Bush'd first term was almost identical to that of Thatcher's - domestic failure followed by an unnecessary war which united enough people behind him to win an election.

    And the war prevented the UK downsizing its Navy, then and since, and we're now stuck with a Navy required to be capable of refighting that war for the forseeable future. Massive waste of money.

  5. I agree with Prof. Wren-Lewis. I remember at the time of the Falklands invasion some senior U.S. military individual saying something like, “Whenever there is trouble anywhere in the World we normally find the British have an island nearby, and that’s worth two aircraft carriers to us.”

    The U.S. did make it clear whose side they were on. But I’ve always wondered whether a secret U.S. promise that they’d make sure we re-gained the Falklands come Hell or high water was what tipped Thatcher in favour of re-taking those islands.

  6. You forget the other end product was that Argentina became a Democracy due to the fall of the Regime so perhaps it was 2 billion well spent and if Argentina had wished to avoid a war then they should have offered the Islanders the million each and as for your assumption that the Falklanders would all want to come back to the UK is probably unlikely as sheep farmers from underpopulated islands each with a million, they might have more likely chosen New Zealand rather than a pathetic mother country who had not stood by them in their our of need. Only an economist could choose to give away 2 billion to the islanders and accept the loss of face of backing down. You also forget that Argentina claim South Georgia and all our antartic territories as a job lot. As for Gibraltar the Spanish are unlikely to invade but what about places like Belize who also require a little looking after.

    1. What you did not ask yourself is... What F*****G business have you 10000 miles away from your own coastline, and that the islands were stolen from the Agentinians beforehand. It is just some d***s still think there is an empire to be had, ITS GONE!!

    2. hello
      first of all thanks for this which I think is an ice cool argument. My one concern is that the Falklands war did end the dictatorship in Argentina and that is a partial justification. Does anybody in Argentina feel the same way. It is clear to me that if your view on the conflict is based on nationality then you are not objective. I would also add that it is a bit rich to regard British possession of the Falklands as colonial when the near genocide of the native people of Argentina was much more aggressive than in Latin America generally and matched only by the United States.


Unfortunately because of spam with embedded links (which then flag up warnings about the whole site on some browsers), I have to personally moderate all comments. As a result, your comment may not appear for some time. In addition, I cannot publish comments with links to websites because it takes too much time to check whether these sites are legitimate.