The Opportunity Cost of conflict – GDP numbers.

1. Peace is the normal state; war is an exception

Both traditions treat peace as something to be sought, even while recognising that conflict may sometimes be unavoidable.

The Hebrew Bible says:

“Seek peace and pursue it.”
Psalm 34:14

The Qur’an similarly teaches:

“If they incline toward peace, then incline toward it also, and trust in Allah.”
Qur’an 8:61

That complements the central economic claim of this article – the economics of trust. Defence may be necessary, but no society should mistake perpetual mobilisation for its desired state.

2. Human life is the greatest capital

Your article already speaks about human capital.

Both traditions elevate the value of human life itself.

The Mishnah teaches:

“Whoever saves a single life, it is as though he has saved an entire world.”
Mishnah Sanhedrin 4:5

The Qur’an echoes almost exactly:

“Whoever saves one life—it is as if he has saved all mankind.”
Qur’an 5:32

Economists speak of human capital. Scripture begins one step earlier. Every human being is already an investment of immeasurable worth.

3. Giving due measure and being just. 

Leviticus 19:35–36

“You shall do no wrong in judgment, in measures of length or weight or quantity. You shall have honest balances, honest weights, an honest ephah, and an honest hin: I am the LORD your God, who brought you out of the land of Egypt.” (ESV)

2. Deuteronomy 25:13–16

“You shall not have in your bag two kinds of weights, a large and a small. You shall not have in your house two kinds of measures, a large and a small. A full and honest weight you shall have, a full and honest measure you shall have… For all who do such things, all who act dishonestly, are an abomination to the LORD your God.” (ESV)

Notice that dishonesty in commerce is not merely considered unfair—it is called an abomination. This is further in the Proverbs as below.

3. Proverbs 11:1

“A false balance is an abomination to the LORD, but a just weight is His delight.”

The Qur’an likewise says:

“Give full measure and weight in justice.”
Qur’an 6:152

And finally,

Isaiah famously says:

“They shall beat their swords into ploughshares.”
Isaiah 2:4

The Quran similarly states :-

“There is no good in much of their private conversation, except for those who enjoin charity, kindness, or reconciliation between people.”
Qur’an 4:114

We can take these verses to be the axiomatic basis on which the rest of the article is based. Let’s delve in.

THE FUNDAMENTAL QUESTION

Every economy answers the same fundamental question.

Where shall we invest our finite resources?

Money spent in one place cannot be spent somewhere else.

Economists call this opportunity cost.

It is among the simplest ideas in economics.

It is also one of the most profound.

When a nation invests billions in missiles, fortifications and emergency mobilisation, it may be making a necessary decision. Every sovereign state has the right—and indeed the obligation—to protect its citizens.

But necessity should not obscure economics.

Every shekel or pound or dollar devoted to war preparedness is money that cannot simultaneously finance laboratories, universities, hospitals, housing, advanced manufacturing or entrepreneurial capital.

The question is therefore not whether defence has value.

It clearly does.

The question is whether a society trapped in prolonged conflict can ever realise its full economic potential.

History suggests the answer is no.

The Hidden Variable: Psychological Safety

Economists measure capital.

Psychologists measure trust.

Increasingly, the two are proving inseparable.

Amy Edmondson’s work on psychological safety demonstrated that innovation flourishes when individuals feel safe to take intellectual risks, admit mistakes and exchange ideas without fear. While her research focused on organisations, the principle scales. Societies characterised by predictability, trust and institutional confidence tend to foster entrepreneurship, investment and creativity.

War produces the opposite conditions.

Uncertainty.

Hyper-vigilance.

Trauma.

Interrupted education.

Reduced willingness to invest.

Flight of talent.

The nervous system adapts to threat.

When a population lives under continual stress, its cognitive resources are naturally redirected toward survival rather than exploration.

Innovation requires curiosity.

Conflict rewards vigilance.

They are not psychologically identical states.

Trust Is Economic Infrastructure

Modern economies are built upon this invisible foundation.

Investors trust contracts.

Businesses trust supply chains.

Universities trust collaboration.

Neighbours trust one another.

The economist Kenneth Arrow famously observed that virtually every commercial transaction contains an element of trust.

Once trust erodes, transaction costs rise.

Insurance becomes more expensive.

Security becomes more expensive.

Financing becomes more expensive.

International partnerships become more cautious.

The economy pays a hidden tax on uncertainty.

BEYOND ZERO SUM THINKING

The defence sector undoubtedly produces genuine technological innovation. Aerospace, communications, cybersecurity and medicine have all benefited from military research. However, these are tangential. They are a positive externality not part of the design these systems were intended for. There is also no guarantee that future technological innovations geared to defence will produce commercial benefits for the larger population. 

Yet defence manufacturing differs from most sectors of the economy in one important respect.

Its principal purpose is deterrence or the management of conflict.

A thriving civilian economy, by contrast, creates value through voluntary exchange.

When a software company succeeds, both buyer and seller generally benefit.

When a medical breakthrough occurs, health improves.

When an engineer develops a more efficient manufacturing process, productivity rises.

These are positive-sum activities.

Their success expands the economic pie.

Defence has an indispensable role, but it does not substitute for the broad-based prosperity generated by peaceful commerce.

LESSONS FROM HISTORY

The decades following the Second World War illustrate this vividly.

Japan rebuilt itself into a global manufacturing and technology leader.

West Germany experienced the Wirtschaftswunder—the economic miracle.

The Netherlands expanded its role in international trade, logistics and finance.

South Korea transformed itself from one of the world’s poorest nations into a technological powerhouse.

In more recent decades, India has become a global centre for software, pharmaceuticals and engineering.

Each country faced immense post-war challenges.

Their greatest economic gains came not from prolonged mobilisation, but from sustained investment in education, infrastructure, manufacturing and innovation.

Peace did not solve every problem.

It created the conditions under which solutions became possible.

THE COST OF PERMANENT MOBILISATION

There is another opportunity cost that receives less attention.

Human capital.

A brilliant engineer designing more efficient irrigation systems may instead design military systems.

An entrepreneur building medical devices may instead build surveillance technologies.

A physicist developing renewable energy may instead optimise missile guidance.

These are not morally equivalent activities, nor is defence research inherently undesirable. Nations require capable defence industries.

The question is one of balance.

An economy that becomes permanently organised around conflict risks diverting talent away from sectors that compound prosperity over generations.

History shows that prolonged militarisation can distort economic priorities. Civilian innovation, private investment and entrepreneurial activity may continue, but they often compete with the fiscal and human demands of sustained security expenditure.

ONE ECONOMY, TWO POLES

Too often, discussions of Israel and Palestine begin with borders.

Perhaps they should begin with balance sheets.

The combined population of Israelis and Palestinians represents millions of people with diverse skills, educational aspirations and entrepreneurial ambitions.

Engineers.

Doctors.

Scientists.

Teachers.

Software developers.

Artists.

Manufacturers.

Every young person educated rather than traumatised represents future productive capacity.

Every business partnership creates new value.

Every university collaboration expands knowledge.

The economy is not merely GDP.

It is accumulated human potential.

Conflict suppresses that potential on every side.

THE MOST VALUABLE PEACE DIVIDEND

Political negotiations often focus on territory.

Economics points elsewhere.

The largest dividend of peace is not simply lower defence expenditure.

It is the restoration of confidence.

Confidence encourages investment.

Investment creates employment.

Employment strengthens communities.

Communities build trust.

Trust reduces risk.

Reduced risk attracts further investment.

The cycle becomes self-reinforcing.

Psychologists describe positive feedback loops.

Economists describe compound growth.

They are often describing the same phenomenon from different perspectives.

The Back of the Envelope

No spreadsheet can fully quantify the cost of fear.

No national accounts measure interrupted childhoods.

No GDP statistic records the ideas never pursued because survival took precedence over discovery.

Yet these are among the largest costs any society bears.

Defence is sometimes necessary. History gives us ample reason to recognise that.

But permanent conflict should never be mistaken for prosperity.

The greatest wealth of a nation is not ultimately found in its weapons, but in the confidence of its people to imagine, build, invent and cooperate.

Perhaps the most valuable strategic asset any society can possess is not merely military strength.

It is a generation that wakes each morning expecting to create more than it must destroy.

For that is the economy in which innovation flourishes, trust compounds and peace becomes not only a moral aspiration, but the most profitable investment a nation can make.

A BACK OF THE ENVELOPE CALCULATION

Consider the combined human capital of Israel and the Palestinian Territories.

• Israel’s population: ~10 million
• West Bank + Gaza: ~5.5 million
• Combined population: ~15.5 million people

Israel’s economy currently produces roughly US$600–650 billion of GDP annually, with GDP per capita around US$60,000–65,000. The Palestinian economy is far smaller, constrained by conflict, restrictions, infrastructure damage and political fragmentation.

Suppose—not as a prediction but as a thought experiment—that over the course of two decades sustained peace allowed the region to converge towards a high-income innovation economy.

Even if the combined economy eventually achieved an average GDP per capita of only US$45,000–50,000—still below Israel’s current level—the numbers become striking.

15.5 million × US$50,000 = approximately US$775 billion of annual GDP.

If productivity continued to converge toward Israel’s current levels over a longer horizon:

15.5 million × US$60,000 = approximately US$930 billion annually.

In other words, the region could plausibly support an economy approaching US$0.8–1.0 trillion per year over time if institutions, education, security and investment aligned.

That is not merely an accounting exercise.

It represents millions of jobs, thousands of start-ups, universities, laboratories and manufacturing businesses.

THE OPPORTUNITY COST

Israel already spends a substantial share of its national income on defence.

Depending on the security environment, defence expenditure has ranged from around 5% of GDP to significantly higher during wartime mobilisation.

For an economy producing roughly US$600 billion, every additional 1% of GDP devoted to defence represents approximately:

US$6 billion per year.

To put that into perspective:

US$6 billion could alternatively finance combinations of:

• world-class research universities;
• AI research institutes;
• semiconductor fabrication;
• thousands of technology start-ups;
• advanced manufacturing;
• transport infrastructure;
• scholarships for tens of thousands of students.

This is not an argument against defence.

It is an illustration of opportunity cost.

Human Capital Is the Largest Untapped Resource

Economists increasingly agree that long-term prosperity depends less upon natural resources than upon human capital.

A child completing university contributes to GDP for forty years.

A scientist may create technologies worth billions.

An entrepreneur may employ thousands.

Conflict delays or destroys those returns.

Every year of interrupted schooling compounds across decades.

Every talented graduate who emigrates represents not only one lost worker but potentially hundreds of future jobs never created.

TRUST COMPOUNDS LIKE INTEREST

One of the least appreciated forms of capital is trust.

The economist Kenneth Arrow described trust as a lubricant of economic activity.

When trust increases:

• investment rises;
• borrowing becomes cheaper;
• entrepreneurship expands;
• tourism grows;
• international collaboration accelerates.

The reverse is equally true.

Conflict functions like a hidden tax.

Insurance premiums increase.

Supply chains become more fragile.

Foreign direct investment becomes more cautious.

Capital seeks stability.

The Peace Dividend

Imagine that sustained peace increased long-run annual productivity growth by just 1 percentage point.

An economy growing at 3% instead of 2% does not merely become slightly larger.

Over twenty-five years, compound growth produces an economy roughly 25–30% larger than it otherwise would have been.

For an economy approaching US$800 billion, that difference is on the order of US$200 billion in additional annual output.

That is the mathematics of compounding.

Peace is not simply the absence of war.

It is the presence of conditions under which trust, education, innovation and investment can compound over generations.

“Defence is an essential public good, but unlike broad civilian innovation, its economic returns are often indirect and are justified primarily by security rather than by productive exchange. Every society therefore faces the challenge of maintaining sufficient defence while ensuring that conflict does not permanently divert talent, capital and creativity away from the civilian economy.”

It’s time to return to the economics of trust.