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Arms embargoes in themselves are not able to achieve political goals. At least in the past, they neither stopped wars, nor did they change the political behavior of the targeted states or groups.

This historical example of the creation of the arms industry in the Connecticut River Valley in the 1800s provides new insights into the value of government venture capital (GVC) and government demand in creating a new industry. Since current theoretical explanations of the best uses of governmental venture capital are still under development, there is considerable need for further theory development to explain and predict the creation of an industry and especially those industries where failures in private capital supply necessitates governmental involvement in new firm creation. The purpose of this paper is to provide an in depth historical review of how the arms industry evolved spurred by GVC and government created demand.

This study uses abductive inference as the best way to build and test emerging theories and advancing theoretical explanations of the best uses of GVC and governmental demand to achieve socially required outcomes.

By observing this specific historical example in detail, the authors add to the understanding of value creation caused by governmental venture capital funding of existing theory. A major contribution of this paper is to advance theory based on detailed observation.

The relatively limited research literature and theory development on governmental venture capital funding and the critical success factors in startups are enriched by this abductive investigation of the creation of the historically important arms industry and its spillover into creating the specialized machine industry.

In the early 1990s, the single-party regime of the Mouvement Révolutionnaire Nationale pour le Développement (MRND), headed by President Juvénal Habyarimana, came under growing pressure both internally and externally. Rwanda experienced widespread destitution and famine as state revenues from coffee exports fell from an annual US $144 million in 1985 to a mere US $30 million in 1993 (Debiel, 2003, p. 166). A Structural Adjustment Program (SAP), imposed upon Rwanda by the Bretton Woods institutions in September 1991, was largely irrelevant, if not conducive, to the rising impoverishment of the Rwandan people (Chossudovsky, 1994, p. 21). Between 1989 and 1993, the proportion of the population consuming less than 1,000 calories a day doubled from 15 percent to 31 percent (Maton, 1994).

On December 24, 1989, an armed insurrection began in Liberia. Charles Taylor, a former government official, led a rebel force, the National Patriotic Front of Liberia (NPFL), into the north-eastern Nimba County. A breakaway faction, the Independent National Patriotic Front (INPFL), led by Prince Yormie Johnson gained control of central Monrovia – the capital – and killed the President Samuel Doe. The Economic Community of West African States (ECOWAS) intervened in August 1990, sending monitoring troops (the ECOWAS Military Observer Group, ECOMOG), and convened a national conference which elected an Interim Government of National Unity. In October 1990, ECOMOG established a neutral zone in Monrovia where Dr. Amos Sawyer was installed as Interim President in November. Various different factions and opposition groups were formed and clashes between the rebel groups and the Liberian army continued.

The dependent variables for this analysis include three measures of arms embargo effectiveness, which were referred to as ‘levels of effectiveness’ in the Framework Chapter. These are the embargo's success in causing a targeted policy change (level I effectiveness), success in changing arms flow to the target (level II effectiveness), and a measure of effectiveness to capture the arms embargo initiators satisfaction with the operation of the embargo (level III effectiveness).

Since the end of the cold war, the arms industry has been experiencing a deep structural transformation. The logical consequence of such short-term and structural evolutions is that companies in the arms industry are looking to access markets beyond national borders. Such transformation becomes a policy concern, since the core regulatory framework has been built on a national basis and there are very limited structural and regulatory means for dealing with an international, or even a transnational, industry in such a sensitive activity as weapons development and production. This chapter wonders whether it is possible to qualify such transformation of the arms industry as an internationalisation process and whether it can be compared to the globalisation of commercial activities. It compares what has happened and continues to happen in the arms industry with the globalisation experienced by commercial industries.

Following Iraq's invasion of Kuwait in August 1990, the international community took vigorous, unprecedented steps to curb Saddam Hussein's military ambitions. The central component of these actions was a set of comprehensive arms, aviation, maritime, and economic sanctions, each imposed by the United Nations Security Council (UNSC). When the multinational coalition forces ousted Iraq from Kuwait the following year, the UNSC made these sanctions and embargoes a component of the armistice agreement. Over time, these sanctions were subsequently used as leverage to press for Iraqi compliance with relevant UNSC resolutions calling for Iraqi disarmament.¹

United Nations Secretary-General Kofi Annan’s creation of the United Nations Global Compact (UNGC) in 1999 inspired great hopes. As we explain, however, the noble initiatives of the UNGC are undermined by the arms industry. Arms are expensive. The expenditure on arms diverts a nation’s “resources from ‘productive’ to ‘unproductive’ ends.” The arms industry is a major employer in most arms manufacturing nations. It generates much needed revenue for those countries. Therefore, attempts at thwarting the supply of arms are doomed to failure. Instead of halting the supply of arms, we argue as to the advantages of restraining the demand for arms. Michael Walzer is the only moral philosopher who has considered the ethics of appeasement. We explore Walzer’s arguments for appeasement and consider how a United Nations Secretary-General could appease those nations demanding arms. In doing so, the UN Secretary-General would make it possible for the UNGC to achieve what was initially envisaged for the UNGC.

Only two days before the UN imposed a mandatory arms embargo on Eritrea and Ethiopia, the German Minister for Development, Heidemarie Wieczorek-Zeul, issued a communiqué wherein she described the ongoing absence of international export restrictions against the warring countries as nothing less than a “scandal” (Agence France Press, May 15, 2000). Indeed, the war between Eritrea and Ethiopia had pre-dated the embargo by two years.

The popularity of arms embargoes makes sense on the one hand but can be puzzling on the other. Since arms are a type of good often linked directly to war and peace as one of the central objects of international politics, stemming the flow of arms to a country or group accused of acting against international peace and security is a logical response. However, while this reaction is frequent, it is not generally regarded as being effective. In fact, arms embargoes have a reputation of not functioning well. One can find many references, in academic literature and policy papers alike, which state that arms embargoes “do not work” that they are “ineffective” or that they are “not worth the paper they are printed on.” The paradox that sanctions are deemed to be of little consequence but are still popular among policy-makers (Baldwin, 1997) is particularly striking.