Learning the ropes
Violent conflicts do not always aggravate poverty. Contrary to widespread belief, communities in Indonesia, the Philippines, Colombia and Sri Lanka that have experienced large-scale violent conflict had a higher chance of escaping poverty than communities that have lived in a relatively peaceful environment. This is the challenging conclusion of
Many studies in the past decade have shown how important economic motives are in explaining why wars break out and why their average duration is so much longer than in the past.
Much of the literature still builds on the ‘liberal peace’ theory, which takes market-led economic development for granted, once the rule of law is re-established.
Post-conflict discourse has largely been dominated by a ‘fragile states’ rhetoric during the past decade.
It concentrates on state structures and governance, and largely neglects the economic aspects of post-conflict development.
The policy of international financial institutions in the 1990s was to curtail the role of the state in the economy of developing countries as part of ‘structural adjustment’ policies. The rediscovery of the state in the present century is based on the acknowledgment that the state does play an important role not only in guaranteeing security and law and order, but also in stabilizing the economy. To fulfil this role, the state needs to be able to collect and manage resources. But many post-conflict states do not. As James K. Boyce and Madalene O’Donnell argue in their introduction to
Much has been written on public finance in developing countries, but little on how to tailor these policies to the circumstances of post-conflict countries.
Another reason why switching to taxes is not the best idea, according to the editors, is that in most post-conflict countries there is a dramatic ‘mismatch between fiscal capacities and needs as well as ongoing societal tensions that could precipitate the renewal of violent conflict’.
Aid has to be massive, according to Deepa Narayan and Patti Petesch, editors of
This will prevent people from letting their sons be recruited by armed groups. It will help get the production process underway and create local and national markets. Conflict-affected communities in Aceh, Indonesia, where the government provided cash to individuals and groups, saw the share of people classified as poor decrease by 11 percentage points. This is in contrast to a decline of less than one percentage point throughout Indonesia between 1996 and 2004.
Jobs for millions can only be generated through market-led recovery, Narayan and Petesch say – ‘but with a new twist’ (good market information and organizational advice). Credit only becomes transformational when borrowers are supported (by government agencies or non-governmental organizations) so they ‘enhance the quality of their product, connect to markets, and aggregate their goods for marketing in order to achieve scale and bargaining power’.
These programmes offer a broad choice between different projects at the community level and a transparent participatory process, in the hope that a culture of accountability will grow bottom-up and ultimately also lead to changes at government level. The question is whether this is not somewhat over-optimistic.
What it ultimately comes down to, according to
International financial institutions and some governments (Kosovo’s, for example) put tremendous hope in foreign direct investment. The latter is meant to flow in once fighting stops. Derek Sweetman also sees a major role for foreign companies in post-war reconstruction. They could make a direct contribution to mediation and reconciliation. In his 2009 book,
Sweetman argues that foreign companies can do more than serve purely as economic catalysts. They can also be decisive in creating more peaceful relations between (formerly) conflicting groups. There are more foreign than local private companies explicitly trying to combine business (which provides employment) with an attempt to contribute to reconciliation. Extractive industries that are sensitive to unrest in their operational areas often use tri-sector partnerships, in which business, government and non-governmental organizations work together.
Derek Sweetman gives several more examples of conscious efforts by companies to bring people from different factions together in common projects.
However, he fails to analyze the highly disputed role foreign capital will play in all this. There will often be an internationalist faction advocating, along with the warring factions, open markets. Opposing them will be a statist coalition advocating the use of local capital and arguing in favour of the protective role of the state. This can easily be observed in the new Balkan countries. That there are always domestic economic winners and losers from the transition to peace is well described in Galia Press-Barnathan’s 2009 book
A great deal can be learned from these situations about post-war reconstruction in countries torn apart by civil war. Political gains (in terms of reconciliation) from economic cooperation between former warring parties (such as the gas deal between Egypt and Israel) usually do not materialize, and it is very difficult to formulate broadly accepted economic policies in countries with wide disparities of economic power.
Foreign investment can only be attracted in post-conflict countries, which are typically at the bottom of business climate rankings, when special conditions are created and concessions are made to win over foreign companies. These conditions have to be directly negotiated with government authorities. Unfortunately, this provides ample opportunity for shady under-the-table private deals. The need to attract foreign investment may well be associated with a strong incentive to put the house in order and stamp out corruption, but history shows that the opposite is often true. The political elite tends to cooperate with a handful of foreign companies, while most other firms stay away because the business climate is not attractive enough.
There is often a tension between measures used to improve the business climate (by increasing productivity) and the need to create employment.
Subsidize domestic enterprises, financed through aid
Hire and train targeted groups
Support agricultural production
Create special ‘reconstruction zones’ for exports and encourage investment by micro- and small-sized enterprises
Invest in infrastructure.
These measures alone, however, probably will not provide enough jobs, which should be the most important objective of post-war economic development. Some bold national projects are needed to create employment and a common vision of a better future.
Governments would do well to choose a strategic, specialized niche. R
None of the books reviewed makes this point, but these kinds of projects have a dual benefit. First, they create jobs and income. But they are also alluring projects that appeal to a large part of the young population, instil new national pride and help overcome historic cleavages. Such ambitious, large-scale projects could go in different directions. They could, for example, focus on large-scale environmental ventures, or on initiatives to create a regional hub for higher education. They could encourage innovation in health care, introduce intensive forms of agriculture or set up alternative energy initiatives. But these kinds of projects have little historical precedent.