Can Accounting Help Us Understand the Economic Impact of Global Issues?

There are plenty of downsides to violent conflicts – things like loss of life and destruction of resources and the natural environment – but one that too rarely makes the news is how these clashes harm the global economy. Accounting calculations can help us understand the economic value of peace and the financial cost of war.

A Case in Point: The Israeli-Palestinian Conflict

In 2015, the nonpartisan think tank RAND Corporation reported the potential economic costs of the ongoing Israeli-Palestinian land conflict. The group looked at five of the possible paths that this conflict could take, ranging from a peaceful solution (both countries agreeing to creating two independent but adjacent states) to a hostile one (a violent uprising).

Peace would bring about “by far the best economic outcomes for both” countries, RAND Corporation found, while a violent uprising would “profoundly harm both economies.”

The potential gains are substantial. Both nations stand to grow their economies by billions of dollars – $123 billion for Israel and $50 billion for Palestine The New York Times reported. This translates to considerable increases in per capita income: five percent for Israeli citizens and as much as 36 percent for residents of Palestine.

How would peace create such significant benefits for the economies of these nations? For one thing, approximately 100,000 currently displaced citizens could return to the region, and to work, according to The New York Times. For another, trade between one of the countries – Palestine – and the rest of the Middle East is expected to triple in a peaceful, stable two-state environment, The New York Times reported.

If the conflict takes a more violent turn, the costs could be even more extreme. Israel could see a 10 percent drop in gross domestic product (GDP) per capita, while Palestine’s GDP could tank by as much as 46 percent, The New York Times reported. Tourism could decrease substantially in the wake of a violent uprising, while the countries could be forced to allocate more of their budgets to military spending.

It won’t necessarily take a sudden, hostile action to harm the economies of these clashing nations. Already, the conflict has led to boycotts and sanctions. Continuing on this path could severely harm tourism and investments and displace foreign workers who lose their work permits. The loss of qualified workers, tourism and investment income and other financial sanctions can only be bad for the economy of these nations.

What Does This Mean for Accountants – and Citizens of a Global Society?

Obviously, the costs of war – or even a continuation of the current conflicts – go far beyond the calculations. People die. Soldiers suffer life-changing injuries. Families lose their homes. While the economic costs of violence are far from the only reasons to end political conflicts, they allow professionals in the field the opportunity to use accounting principles to illustrate the point that sustained clashes only harm everyone involved – and that a peaceful solution is, in fact, best for everyone.