Economics of War and Peace: Economic, Legal, and Political Perspectives: Volume 14

The book includes a set of chapters primarily to investigate the link between economics and conflicts. Although the subject matter has been presented in some other volumes in this series, this book spans a wider area covering cross fertilisation of disciplines and the role of law and institutions. The cross-disciplinary approach is necessary because some pure economists are presenting their findings in the area of politics and international relations. Some contributors are asking the questions about the economic value of peace. For that purpose they are using sophisticated scientific methods to analyze domestic and international conflicts. A related specific question is asked about the cost saving by privatising military prisons rather than contracting. This substitution has implications in other areas such as contracting military operations at the time of war. Of course, this cost savings should be weighed against motivation of the soldiers to fight. The question of comparative cost also arises in the technology transfer of military goods without giving out sensitive information and at the same time, concerned about competition from indigenous capabilities of substitutions. This alternative will induce proliferation of arms capabilities of other countries.

In their chapter, ‘A method to compute a peace gross world product by country and by economic sector’, Jurgen Brauer and John Tepper Marlin present a novel method to assess the economic value of peace, in both the domestic and international realms. This is not only a tool for assessing and forecasting the potential benefits of reduced violence, but it is an example of best social science practice in that by design it incorporates the best existing knowledge on the effects of peace. This approach combining meta-analysis with a novel integrating framework is quite promising. For the purposes of the book, it sets the stage nicely for the subsequent chapters by highlighting the big picture of expected welfare gains from peace, within a rigorous scientific context, rather than one of advocacy. Estimating the potential economic benefits of internal and international peace is also fundamental in understanding the potential economic incentives which might drive political and business leaders to avoid deadly conflict, and pursue peace.

Purpose – The chapter reports on an attempt to compute the size of gross world product (GWP) under the assumption that all violence ceases.

Methodology/approach – Spreadsheet-based simulations, given seed values taken from extensive literature review; this is done, for 2007, in nominal foreign exchange–based US dollars (USD) as well as in purchasing power parity (ppp)–based dollars (international dollars).

Beneficial economic effects from more internal peace (nonviolence within countries) as well from external peace (nonviolence between and among countries) are calculated for each of 140 countries. In addition, we compute sectoral economic effects for the United States.

Findings – For 2007, the simulations suggest that in a state of nonviolence the world economy could have been larger by 4.8 trillion dollars, or 8.7 per cent of actual GWP, when measured in nominal, foreign exchange–based USD, or by 6.0 trillion international dollars, or 9.2 per cent of GWP, when measured in purchasing power parity values.

Limitations – The simulations are based on disparate values found in the literature to seed the spreadsheet calculations; various assumptions are made that would need to be confirmed through country- and sector-specific studies.

Practical implications – Knowledge of the potential size of forgone economic benefits due to violence can assist to set out global violence reduction goals in order to achieve measurable economic results.

Originality/value of chapter – To our knowledge this is the first attempt to calculate the size of the worldwide economic benefits forgone due to violence.

Purpose – This chapter aims to contribute to the policy debate on private sector involvement in traditionally core defence activities through rigorous economic analysis. Punishment and correction in the US military prisons have traditionally been considered as a core activity that has been governed, regulated and managed by the military service personnel. It has been shown however, that military facilities such as stockades and brigs have often failed to meet their correctional objectives – a quality issue.

Methodology – The chapter constructs a case study to illustrate the method of analysis. Well-trained and motivated military custodial personnel play an important correctional role but are not available in sufficient numbers in military prisons. It is therefore proposed to source these services through the private sector. Specifically, the chapter proposes that private sector providers should provide custodial personnel for stockades and brigs. Traditionally the private sector has been employed to reduce costs, rather than improve quality. This chapter adapts and applies the framework developed by Hart, Shleifer and Vishny (1997) to study the governance model and incentive regime that could enable the use of the private sector, reduce the risk of excessive cost cutting and enable quality outcomes to be achieved.

Findings – This chapter argues that private sector involvement could effectively increase the contestability of supply.

Implications – The chapter demonstrates the scope for private sector involvement to increase quality, rather than just decrease costs. It follows that the private sector can contribute to core national security outcomes. However, this implication needs significantly more exploration for specific contexts.

Value – The adopted mode of analysis provides a template for rigorous analysis of similar proposals in the future.

Purpose – To examine the implications of arms export controls on the international spread of weapons production and innovation.

Methodology/approach – The chapter analyses predicted responses to arms export controls, drawing on existing literature. It considers incentives to potential buyer countries to develop their own substitutes and a case study of Australia's response to US denial of access to electronic warfare self-protection (EWSP) technology for fighter aircraft.

Findings – Spurred by the US denial of access to relevant EWSP, Australia devoted many years to developing a homegrown substitute. Although Australia achieved some success, the United States ultimately granted Australia access to the technology. Australia then abandoned research, design and development (RD&D) on EWSP for fast jets in 2009. Cause and effect remain a matter of debate.

Research limitations/implications – Insight into the real-world value of the theory is limited by the use of a single case study. Such cases supported by publicly available information are, however, scarce. Countries seeking to circumvent export controls must expect to incur high costs and uncertain outcomes.

Practical implications – Policy-makers should be wary about committing large budgets in developing substitutes for new technologies denied them through export controls. Such efforts may, however, offer the possibility of putting suppliers under pressure unavailable from other actions.

Social implications – Arms export controls designed to limit proliferation of weapons create incentives for states to develop their capabilities for new arms production and to develop new weapons-related knowledge.

Originality/value of the chapter – This chapter provides a new case study which illustrates an innovative approach to arms export control analysis.

Purpose – This chapter aims to explore the causes of civil war in West Africa, including the perspectives of those directly involved, both those involved voluntarily and those involved against their will. To this end, we examine the three contiguous war – afflicted coastal countries of Sierra Leone, Liberia and Ivory Coast and as a counterweight, Ghana which has escaped civil war.

Methodology – Brief country case studies are used to explore the motivations of leaders and followers which often diverge. This chapter examines four West African countries:•Sierra Leone and Liberia, which have suffered classic brutal, ‘third war’ civil wars (Holsti, K. (Ed.). (1996). Wars of the third kind. In: The state, war and the state of war. Cambridge: Cambridge University Press).•Ivory Coast, once seen as the West African ‘beacon of stability’ (Royce, E. (2003). Testimony. US House of Representatives Subcommittee on Africa, 2nd February, p. 12) but now suffering a seventh year of civil conflict.•Ghana, the counter case, which has so far survived multiple military coups without descending into national conflagration.

To demonstrate the basic features these countries share in common and to suggest some areas where they diverge, we present core socio-economic data in Table 1.

The respondent data on which much of the analysis is based was collected by Dele Ogunmola from individual interviews, and focus group discussions. In the case of Ivory Coast, there was also an e-interview with a medical missionary who experienced the early stages of the war. Given the tense nature of the situation, for both the individual interviews and the focus groups the selection of participants was purposive. People were selected who were willing to talk about their involvement and could represent a range of different roles and experiences. Thus, for example, the Makeni focus group quoted was recruited at Sumbaya village, which was virtually razed by the rebels. Minor warlords were interviewed but not, regrettably, randomly selected. We also refer to the interviews of ex-rebels conducted in 2009 by John-Idriss Lahai, a former member of the Sierra Leonian Civil Defence Forces and current PhD Student at the University of New England.

Findings – Interviewing in these countries still requires courage on both sides, and while we accept that respondents (especially those at risk of prosecution) may well prevaricate, the overall impression is one of the striking frankness. Most argued that the war was messy and the participants had mixed motivations. The findings confirm that, while grievances play a significant role in providing the fuel for West African civil wars, the greed of both national and international players serves to prolong them. Though Sierra Leone and Liberia experienced opportunistic wars, the Ivory Coast is torn apart over the definition of citizenship. Ghana has survived due to leadership which facilitated economic growth, curbed corruption and prioritised provision of basic services.

Limitations – This is not the place to detail the multitude of coups, wars and treaty negotiations that make up the troubled history of the region (see Adebajo, A. (2002). Building peace in West Africa: Liberia, Sierra Leone and Guinea-Bissau. Boulder, CO: Lynne Rienner. Parallel timelines for each country would demonstrate many interactions across the region, such as the spread of subaltern coups, but at the cost of presenting a long and confusing history. It is enough to stress that these colonially defined countries are linked across borders that are porous to ideas, rebels, refugees and diamonds alike.

Purpose – Since September 2001, most studies of terrorism have focused on the motives and operations of transnational terrorist groups, especially Islamist jihadi groups. Yet statistics from the past decade indicate that most terrorist attacks occurred within violent internal conflicts. Indonesia is a case in point. Following the fall of the Soeharto regime in 1998, terrorism became a hallmark of separatist and inter-communal violence that cost the lives of thousands of Indonesians. The aim of this chapter is to look beyond the jihadi-focused prism of terrorism studies and to examine the secessionist conflicts in Aceh and Papua to determine why and to what extent terrorism was used by the Free Aceh Movement (GAM) and the Free Papua Movement (OPM) respectively, and the role that economic factors played in the process.

Methodology – By synthesising the causes of violent internal conflicts and of terrorism, a framework of societal and organisational factors is constructed to explain why terrorism was used by GAM and OPM, and why, in the case of GAM it stopped, while in the case of OPM, it continues.

Findings – In general, socio-economic and political factors rather than religious ideology explain why terrorism was used by GAM and continues to be used by OPM in their respective secessionist conflicts. Economic grievances fuelled by resource exploitation and inequitable sharing of resource rents have been contributing factors.

Originality/value of chapter – The analysis departs from previous approaches, which have focused primarily on the causes and course of the conflicts themselves and not on when and why such conflicts have included terrorist attacks.

Purpose – This chapter examines the impact of oil price volatility on domestic political stability in a key supplier state.

Methodology – This chapter uses prospect theory to analyse socio-political instability based on significant changes in a supplier state's largest revenue source. Prospect theory posits that decisions are framed around a pivotal reference point which may or may not correspond to the status quo, but which nonetheless directly affects risk appetite. This analysis uses Iran as a case study, and relative oil price as the reference point to analyse risk-acceptant decision-making surrounding the 2009 Presidential election.

Findings – Dramatic economic context could be a contributing factor to risk-acceptant behaviour in domestic politics. Specifically, volatile price swings in Iran's main source of income, oil, which contributes over 80 per cent in direct and indirect revenue, and perceived external decline therein, may have been a destabilising factor. Combined with loss aversion, this context may have facilitated measures beyond those dictated by rational utility calculus to secure conservative rule in the 2009 election, and in the ensuing unrest.

Research Limitations – Prospect theory is difficult to test outside of carefully framed laboratory experiments. Although its insights have been applied to investment behaviour, management and domestic politics, in conflict studies, robust empirical support remains underdeveloped. Moreover, since prospect theory is an individual model of decision-making, difficulties arise when dealing with nation states with multiple centres of power.

Implications – Prospect theory may be a useful analytic tool for analysing risk-acceptant decision-making in the context of dynamic economic situations.

Originality – Although this analysis complements research on rentier state theory, prospect theory integrates recent developments in behavioural economics and political psychology that may offer a new way to conceptualise the role of expectations and choice framing in decision-making which drives political stability.

Purpose – The chapter studies the impact of fiscal policy on the stabilisation of peace in the aftermath of a civil war.

Methodology – We use data from African war-torn countries and study the issue of post-conflict stabilisation from an empirical perspective. We employ probit analysis to formally estimate the effect of fiscal policy on the probability of maintaining peace in the post-conflict period.

Findings – The success of post-conflict transition does not require downsizing the government. On the contrary, successful post-conflict transitions are on average characterised by an increase in the size of the government. However, both expenditures and revenues increase at a comparable pace. Moreover, in successful post-conflict transitions, the increase in government size involves an increase in the incidence of capital expenditure relative to government consumption. On the revenue side, budgetary grants appear to strengthen the chances of success. A heavier debt burden does not seem to compromise the probability of successfully completing the post-conflict transition.

Research limitations/implications – Future research should (i) extend the sample to non-African countries, (ii) extend the analysis to other macroeconomic policy variables and (iii) supplement cross-country analysis on the role of fiscal policy with country case studies. A potential application of the findings of this chapter is the construction of a model to predict the evolution of currently ongoing post-conflict transitions.

Social implications – The findings bear implications on how governments should conduct fiscal policy in the aftermath of a conflict. They also provide guidelines for the international community on how best to assist post-conflict economies.

Originality – Papers concerned with the determinants of peace in the post-conflict period do not generally look at the potential contribution of fiscal policy. This chapter is the first attempt, to the best of our knowledge, to provide econometric evidence on the role of fiscal policy as a possible driver of peace stabilisation in the aftermath of a conflict.

Purpose – This chapter uses the work of Oxford economist Paul Collier to explore the conditions under which financing systems can be created to support the governance and economies of fragile states. This support is especially needed in the immediacy of a crisis or as a practical strategy to potentially change the dynamics of a particularly vulnerable state. The focus is on his 2008 proposal for Haiti, for a partnership of domestic and international financial institutions. Central to the proposal is the establishment of an Independent Service Authority (ISA) to fund and implement government policy, especially in delivery of basic services. Representatives from aid donors, Haitian expatriates or diaspora and members of the government would sit on the ISA board, sharing responsibility for effectively administering public funds. This model was proposed to the United Nations in late 2008 to stabilise and transform the government and economy of Haiti (Collier, 2008, 2009b).

Methodology – The chapter explores the issues raised in the model using a case study of the Regional Assistance Mission in the Solomon Islands (RAMSI).

Findings – “The work concludes that the RAMSI process worked well to stabilise financial systems and survived significant political challenge due to a framework of local agreements, regional or international resolutions, treaties, statutes and contracts. This suggests that such a framework will help to ‘buttress’ any mixed local–international financial institutions in the event of domestic political or legal contest in Haiti (or wherever else this model is considered).

Limitations – The chapter does not compare Haiti and the Solomon Islands as societies or economies, or go into the details of how the proposed financial institutions would operate and transition to other arrangements. Space also prevents consideration of the other international partnership models applied in Haiti from 2006–08 (e.g. the Haiti Economic Governance Reform Operation or EGRO; see the case study on Haiti by Bradford and Scott (forthcoming), 76–84). After the earthquake in January 2010, Collier re-visited Haiti and stressed the importance of longer-term economic transformation (a Haiti Marshall plan) as well as emergency relief.**Collier, P., & Warnholz, J.-L. (2010a). Haiti earthquake: Social and economic fabric must be rebuilt too. The Guardian, Sunday, 17 January. Available at http://www.guardian.co.uk/world/2010/jan/17/haitiearthquake-social-fabric-rebuilt; Collier, P., & Warnholz, J.-L. (2010b). We need a Marshall plan for Haiti. Globe and Mail, 13 January. Available at http://www.theglobeandmail.com/news/opinions/we-need-amarshall-plan-for-haiti/article1430309/ A key element of the international community's assistance will be finding mechanisms to handle finances. However the details of the new proposals are yet to be made public, hence this chapter focuses solely on Collier's 2008 proposals.

Purpose – This chapter assesses the extent to which ‘Econophoria’ (all problems seen as surmountable though development and economic growth) is justified with regard to the maintenance of peace in Northeast Asia where, despite ongoing tensions, outright war has been averted for half a century. Given that peace talks, international organisations and democratic dyads (alternative explanations for the absence of war) are in short supply, and in the context of regional economic ‘miracles’, the various economic peace mechanisms are addressed through analysis of Northeast Asian data.

Design/methodology/approach – The impact of economic development in relation to war and peace is seen to operate at both the macro-level between states (trade, interdependence) and at a micro, transformative level within them. This chapter applies Northeast Asian data to each of the theoretical traditions of economic peace to assess whether there is sufficient fit to provide grounds for optimism and therefore econophoria.

Findings – Owing to the limitations of socio-economic transformation and interdependence the impact of the spread of commerce is felt more at a socially constructed rather than rational cost–benefit level. Peace in Northeast Asia has not come through trade, but trade has facilitated improved conditions for the construction of a peaceful regional community.

Originality/value – This chapter offers grounds for cautious optimism with regard to the relative stability of the peace regime in a region considered one of the most dangerous in the world. However, it also warns levels of economic development and interdependence which are insufficient to take an econophoric determinist stance.

Purpose – This chapter aims to position regional integration in the Kantian peace tripod and to test whether regional economic integration has a significant effect in reducing militarised interstate disputes.

Methodology – It uses logistic regression on cross-sectional–time-series data and a generalised estimating equation.

Findings – The analysis shows that regional integration had a significant impact in reducing militarised interstate disputes between 1950 and 2000.

Practical implications – This chapter may provide a new dimension to the academic discussion on the Kantian peace proposition, and encourage policy makers in less integrated regions to integrate with their neighbouring states in a bid to minimise political tensions.

Originality – The chapter is based on original data on regional integration collected by the author.

Purpose – This chapter draws on several areas of scholarship to consider the impact of economic crises on the utility of economic costly signalling theory (ECST).

Design/methodology/approach – The chapter introduces the problem of economic crises into the debate over ECST to better understand its practical utility. It first highlights the pacific benefits anticipated by ECST to provide a conceptual baseline. It then reviews contemporary economic and political science literature that links economic integration, economic crises and external conflict. Finally, it introduces a perspective on how the conditions created by economic crises reduce the ability and willingness of states to send economic costly signals.

Findings – The chapter finds that the value of ECST to security policy is problematic when considering the occurrence of economic crises.

Originality/value – This chapter advances the debate over capitalist peace theory by introducing the problem of economic crises to the discourse.

Purpose – The chapter seeks to contribute to the discourse concerning the United Nations Security Council's role in strengthening a rules-based international system and maintaining international peace and security under the rule of law. Its particular purpose is to examine the Security Council's Al-Qaida and Taliban sanctions regime (1267 regime) from a rule of law and due process perspective.

Methodology – To this end, the chapter reviews the 1267 regime's controversial listing and de-listing procedure and identifies shortcomings in relation to traditional due process guarantees. It then discusses reform options available to the Security Council as far as forms and modalities of an effective review mechanism are concerned.

Findings – The chapter has two main findings. First, it concludes that the ‘individualisation’ of Security Council sanctions in terms of targeting individuals directly has not been accompanied by the creation of a means for the new targets to appeal the measures imposed on them. Second, it finds that a lack of political will has so far prevented comprehensive reform of the 1267 regime but that such reform is becoming increasingly urgent. The chapter suggests that reform initiatives need to address the value, effectiveness and sustainability of the 1267 regime more broadly. The Security Council, in particular, needs to consider what it is prepared to give up to maintain the 1267 regime as an effective UN sanctions regime, or whether it is prepared to give up the 1267 regime to maintain the authority it interprets to have from the UN Charter.

Purpose – The purpose of this chapter is to highlight the current limitations in compensating the civilian victims of armed conflicts and to examine the possibility of extending this practice.

Methodology/approach – The first half of the chapter employs legal and political analysis of the current framework of international law and the practice of the United States. The latter half of the chapter examines the literature on theory of liability in economics and philosophy.

Findings – The framework of international law, which does not require compensation for the victims of lawful attacks, is increasingly at odds with the current trend in which military force is used by a powerful state against a much weaker state on the grounds that the local population would benefit from the operation. The system developed by the United States is the most extensive and can form a model for other states and international institutions. Keating's analysis of enterprise liability can be applied to compensation of victims in military operations that are deemed to be beneficial to the population. Economic analysis, on contrary, suggests that compensation of civilian victims has minimal effect on the level of risks.

Originality/value – This chapter makes a unique contribution by applying theory of liability to a situation that widely diverges from the context in which the theory has developed. It critically examines the current practice and proposes a morally preferable and economically sustainable alternative model.

Purpose – The main purpose is to provide ideas about an intellectual framework for considering the role of “economic factors” in conflict and to suggest some potentially useful future areas of research. I selectively reference some relevant findings from the other chapters in this volume.

Methodology/approach – This chapter is speculative, but raises important issues. It might seem that economic factors should be considered “hard” constraints on the dynamics of large-scale conflict and peace, whereas political factors are “soft.” I propose the opposite. I argue that we should consider political factors as causally primary and economic factors as contingent on them. I present statistical analyses that call into question some recent research on the apparent primacy of economic factors in international conflict.

Findings – These models challenge a strong belief in the primacy of a “capitalist peace” or “economic peace” over political factors such as democracy. But my purpose here is no more than to suggest that this is a promising area for further inquiry. Economic factors are of course hugely important, but they are filtered through norms and institutions, which are political creations. If the basic logic of my thinking holds, similar results would be obtained for studies of civil conflict initiation and escalation.

Originality/value of paper – This chapter raises the issue of the appropriate place of economic and political factors in understanding organized conflict at various levels of analysis. It suggests how the chapters in this volume help advance thinking about the relationship between economic factors and conflict in this context and provides some novel empirical results to suggest the plausibility of the argument that economic factors may be less theoretically fundamental than political ones.

Aditya Agrawal is a scholarship graduate from Bond University (2006, first class honors in Management Science) and the 2007–2008 summer scholar at the Strategic and Defence Studies Centre, Australian National University. He commenced work at the University College, Australian Defence Force Academy in June 2008 and is currently reading for his doctorate in military outsourcing. Previously he has worked with both the corporate sector and the government departments. He has published in scholarly journals and peer-reviewed conferences and was awarded the Best Paper Prize at the national Australian Conference on Information Systems (ACIS 2007).