Economic Development in Post-Civil War Societies

1. Economic Development in Post-Civil War Societies

2. Outline • The post-civil war state • Traditional economic responses • Disaster relief • Economic liberalization • Economic priorities • Reviving the economy • Financing the peace • Sustaining economic reforms

3. BLUF • Private sector development is fundamental to stabilization and recovery from conflict • Sustained economic growth is the only long-term solution to poverty and economic inequality • “Shock therapy” style reforms in post-civil war states have a high likelihood of igniting renewed violence • Programs must focus on local level development in conjunction with rebuilding effective state institutions

4. Why Focus on Post-Civil War States? • Civil warshave become the most frequent and deadly forms of armed conflict since the end of World War II • 4 times as many civil wars as inter-state wars • Have killed 25 million people and displaced 75 million • 42% of civil war states return to conflict • Economic factors are arguably the most common reason why parties within a state return to violence

5. Characteristics of Post-Civil War States • Intense societal conflicts • Weak conflict dampeners • Lacks tradition of peaceful dispute resolution • View adversaries as morally inferior • Regard other groups with distrust, detestation, and fear • Deep and cumulative social cleavages • Ineffective political and economic institutions • State lacks the capability to implement policies • Creates security dilemma

6. Conflict’s Economic Impact • Micro-level • Loss of business assets • Increased operating costs • Migration of skilled labor • Mid-level • Market networks and producer associations disappear • Illicit trade networks are strengthened • Decreased ability to trade • Macro-level • Ineffective government institutions • Incapable of enforcing laws • Lack of governmental services • Destruction of infrastructure

7. Natural Disaster Response • Assistance agencies often approach the post-conflict environment from a disaster relief standpoint • Goal: Meeting basic needs by the fastest means possible • Problem: Relief programs undermining economic development • Direct provision of goods/services available locally from the private sector • Lack of focus on development and sustainability

8. Economic Liberalization • Structural-adjustment mandatory for IMF and World Bank loans • Typically require institutional and economic reforms • Privatization of state owned enterprises • Reduction of subsidies and other market-distorting government interventions in the domestic economy • Liberalization of regulatory structures • Transparent and efficient institutions • Reduction in government spending • Goal is to produce an economic system that encourages peaceful allocation of goods • Free market competition Þ efficient and fair allocation of goods and services • Freedom for individuals to pursue interests

9. Scope versus Strength Quadrant I Quadrant II United States & Chile EU, Saudi Arabia, Russia, & Venezuela Economist’s ideal position Strength of state institutions (y axis) Quadrant III Quadrant IV Somalia Zimbabwe & Iraq Economist’s worst position Scope of state functions (x axis)

10. Dangers of Economic Liberalization • Structural adjustment programs create immediate social costs • Causes unemployment • Shuts down state owned enterprises • Reduces the number of government employees • Impact segments of population dependent on government subsidies • Increase the disparity in wealth distribution • Economic dislocation spawns political unrest and violence • Capitalism is inherently competitive – it creates winners and losers • Market reforms often impact organized groups: university students, civil servants, and urban workers

11. Economic Priorities of Peace Implementation • Three sets of economic tasks are necessary to help secure post-civil war peace • Sufficiently rapid economic revival to buy confidence in the peace • Funding to implement specific commitments in the peace process • Economic foundations necessary to sustain peace over the long-term

12. Reviving the Economy • Provision of basic services • Garbage collection, sewage, electricity, power plants, and clean water • Comparatively inexpensive, but often difficult to secure funding • Essential to building confidence in the government • Signal that there will be a “peace dividend” • That the benefits of peace will outweigh the costs • Allows population to make an investment in rebuilding their lives • Distribution of dividend must be equitable to all parties • Domestic security (law enforcement) essential for economic investment

13. Development at the local level • Understand and account for current key market actors • Increase sustainability by promoting commercial relationships • Work with many lightly rather than a few intensively • Identify opportunities for leverage and scale • Have an exit strategy

14. Financing the Peace • Some activities are essential to the peace process and must receive adequate funding • Demobilization and reintegration of armed groups • Resettlement of refugees • Salaries and training of civil servants

15. Sustaining the Peace • Institution focused • Legalization of property rights • Creation of judicial systems • Reorientation of production structures from war economy to civilian industries and exports • Developing the capacity to survive without external assitance

16. Backups

17. Market Democracy: Peace Through Conflict • Both democracy and capitalism encourage conflict and competition • Democracy • Political contestation – competitive multiparty elections • Civil society and private associations • Markets • Competition for profits • Freedom for individuals to pursue interests • Requires a framework of institutions • Competition is not self-regulating • Rules and regulations to govern the operation of the polity and economy • Problems arise if societal contestation becomes so intense that it cannot be channeled through existing institutions

18. Scope versus Strength • Scope • Different functions and goals taken on by governments • Category ranges of minimal, intermediate, & activist • Strength • Ability of states to plan and execute policies and to enforce laws cleanly and transparently.

19. Scope versus Strength • Minimal functions • Providing pure public goods • Defense • Law and Order • Property rights • Macroeconomic management • Public Health • Intermediate Functions • Addressing externalities • Education • Environmental Protection • Activist Functions • Coordinating private activity • Fostering Markets • Cluster Initiatives

20. Scope versus Strength Quadrant I Quadrant II Economist ideal position Strength of state institutions (y axis) Quadrant III Quadrant IV Economist worst position Scope of state functions (x axis)

21. The New Constitutional Wisdom • Institutions Matter • Institutions are the critical variable in development.

22. The Supply of Institutions • Organizational Design and Management • Study of management of private sector and public administration. (CH 2) • Political System Design • Institutional design of the level of the state as a whole rather than the individual agencies that compose it. • Basis of Legitimization • Includes the systemic institutional design and the normative dimension • Cultural and Structural factors • Institutional capacity is subpolitical and related to norms, values, and culture.

23. Transferrable Knowledge

24. The Demand for Institutions • Game Theory is often applied to understand different bargains that might be achieved to bring about reform. • Demand is created by exogenous shock such as, currency crisis, recession, hyperinflation, revolution, and war. • Nation Building

25. Making Things Worse • International community knows how to supply government services • much less effective at creating self-sustaining indigenous institutions. • Focus on those dimensions of stateness that can be manipulated and built.

26. Defining Iraq's Post-war Economy Iraq's post-war economy was a complicated mix of different models, each of which required a different policy remedy.

27. Conflict-Reducing Economic Policies • Social investment funds – money disbursed to local projects that create temporary employment, build infrastructure, and provide basic services to low-income populations