Download the role of local business communities in civil war

THE ROLE OF LOCAL BUSINESS COMMUNITIES IN CIVIL WAR
ABATEMENT AND PEACEBUILDING: SOME CONCEPTUAL ISSUES
S Mansoob Murshed*
Institute of Social studies (ISS)
PO Box 29776
2502 LT, The Hague, The Netherlands.
The Birmingham Business School
University of Birmingham
Edgbaston, Birmingham B15 2TT, UK.
Centre for the Study of Civil War (CSCW)
PRIO, Oslo, Norway.
[email protected]
19th January 2005
Summary
The causes of conflict are complex and diverse, poorer countries appear to be at a greater risk, as
institutional quality and performance seem to be highly correlated to per-capita income levels.
Despite that most civil wars have some foundation in greed as well as grievance, which in most
instances go hand in hand. Relative inequalities between groups (grievance) are a major determinant
of the onset of conflict. The desire to control resource rents (greed) may be a strong motivating force
in countries endowed with minerals and illegal narcotic related crops. Oil in particular is closely
associated with the start of secessionist civil wars. These wars are also the most difficult to end.
Other lootable gemstones and narcotics tend to lengthen the duration of civil war. Countries that
export mainly agricultural based commodities, other than narcotics, seem, on average, to be less at
the risk of civil war. Despite their having been a decline in the number of countries involved in civil
war in the past decade, the length of the average civil wars shows little sign of diminution. Civil
wars that are based on sons of the soil dynamics (mainly secessionist wars) and those that are
financed by gemstones and contraband substances seem to be the most protracted. Other factors that
contribute to the length of a civil war include over-optimism with regard to the prospects for military
victory, and an inability to credibly commit to peace treaties. The latter is a particularly seriously
problem; commitment failure is closely related to short-term time horizons which make the future
benefits of peace appear small compared to present-day profits from war. The institutional setting is
also important, as it offers mechanisms for securing commitment via the governance structure and
constitutional arrangements. National business groups in conflict countries may mitigate the civil
war or do the reverse. When the economy is mainly point-sourced, which means it mainly exports
mineral based products and/or narcotics. The business community (apart from small businesses
associated with services) is likely to be more pro-war, particularly if the other side may gain control
of the lootable commodities, as in secessionist wars. This tendency will be reinforced the closer are
business and political ties, the shorter the time horizons are, and the more difficult it is to make
credible commitments to peace. If the economy exports mainly agricultural products excluding those
mentioned above or manufactures (diffuse or manufacturing) the commercial case for peace is
stronger because of the diffused nature of the core business activity. Even here, there will be some
groups who profit from war contracts and arms deals. They will lobby in the opposite direction to
preserve their short-term profit. The peace lobby is likely to dominate in societies where business
and political actors are more sharply separated, as well as in countries that have longer time horizons
and better institutions of political commitment. The pro-peace business lobby may have a stronger
case in secessionist wars compared to rebellions, as the former are more likely to be longer and more
intractable to purely military solutions.
*
Prepared for International Alert, London.
National Business & Conflict
S Mansoob Murshed
Civil war is a complex phenomenon. Not only does it produce human tragedies on a
colossal scale, but it creates humanitarian crises that are of concern to the
international community, as well as contributing to global and regional insecurity.
Civil war is also a major cause of underdevelopment and civil war (see Murshed,
2002; Collier et. Al. 2003). The number of countries embroiled in a civil war
increased up to 1994, and has since declined (Hegre, 2004). See Eriksson and
Wallensteen (2004) for an enumeration of the number of recent armed conflicts. The
number of new civil wars emerging also seems to have fallen in the last decade
(Hegre, 2004). But the average duration of civil wars, standing at 16 years in 1999,
does not exhibit a downward trend (Fearon, 2004). The number of fatalities in civil
war may be declining recently, but the numbers of refugees and internally displaced
persons is rising (Human Security Report, 2005). For all of these reasons ending
conflict or reducing its intensity must be a very high policy imperative in the
development policy agenda.
The purpose of this paper is to provide the conceptual background with regard to the
potential and actual contribution of the national business community in conflict
countries, particularly institutions such as chambers of commerce and other business
groups, towards conflict abatement, negotiations and termination. It has to be borne in
mind that local business associations may not always be able to provide a positive
input in this regard. On occasion, the business influence on the peace process may be
neutral or negative. This makes appreciating the circumstances under which positive
interventions can be made, in contrast to negative scenarios, all the more important. In
turn, this requires us to revert back to the root causes of civil war, and the reasons for
its persistence even when peace is generally desirable. The generation and sustenance
of domestic wars requires leaders who may be viewed as ‘conflict’ entrepreneurs.
And business is also about entrepreneurial leadership, although it is normally
conducted in peaceful states. This establishes the saliency of the rational choice
approach to understanding conflict (based on strategic behaviour) in this connection.
The rest of this paper is organised as follows: section 1 provides the background as to
the origins and persistence of civil war, section 2 is concerned with when and how the
local business community can assist or hamper the peace process, and final section 3
concludes with a summary of scenarios where national business groups are most
likely to be able to contribute to a peaceful resolution to the conflict.
1
The Origins of Civil War and its Persistence
In broad terms, the contemporary rational choice literature on the origins of conflict
and civil war offers two possible explanations for the origin of conflict. They are,
respectively, grievance and greed. The former notion refers to historical injustices and
inter-group inequalities that could be both economic as well as involving unequal
political participatory rights. The latter concept emphasises the role of rents, which
are occasionally lootable, in producing inter-group rivalry for their control; a
competitive process that can descend into outright war. Here, the role of natural
resource rents is crucial, as some types of resource rents are more easily
appropriated.1 In practice both motivations may co-exist simultaneously; it is difficult
1
For example, it is easier to steal alluvial diamonds compared to Kimberlite (deep mine shaft)
diamonds. Similarly, it is more feasible to exact rent by obstructing a land oil pipeline than when the
oil is offshore.
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to motivate groups to fight one another without historical grievances even when
valuable resource rents are at stake. Also, wars motivated mainly by grievances can
also degenerate into greed, once war produces new avenues for profit for the few.
Thus, greed and grievance are inextricably intertwined. Furthermore, societies with
well established mechanisms for peaceful conflict resolution tend not to experience
outbreaks of war. In this connection, it has to be pointed out that per-capita income
levels tend to be the single most important factor in explaining civil war across
nations. In other words the poorer and less developed a nation, the greater the risk of
civil war, see for example Collier et. Al (2003). Greed and grievance are secondary
factors to per-capita income in explaining the risk of onset of civil war on an average
across all conflict cases. A country’s economic status or relative affluence dominates
all other factors in predicting the risk of a start of civil war. This is because poorer
countries tend to have correspondingly inferior institutions of conflict management,
greater short-termism in decision making and less to lose from war. This does not
mean, however, that we can ignore factors related to greed and grievance. Poverty
also plays a major role in this regard, as it makes soldiering less unattractive and
predation a more obvious survival strategy.
To organise the discussion in this section I will first summarise the role of relative
deprivation (grievance), then go on to the contest over resource wealth (greed) and
finally present some ideas as to why civil wars tend to persist even when peace is
desirable for all parties involved.
1.A
Relative Deprivation2
Relative deprivation—the perception by one or more parties that they are unjustly
treated—is a major cause of civil war. Many conflict societies are characterised by
large inequalities in access to the productive assets necessary for livelihoods and in
public spending on economic and social infrastructure and services. Research on
conflict has emphasised the importance of horizontal or inequalities between groups,
classified by ethnicity, religion, socio-economic class, etc, as sources of conflict, see
Stewart (2000) for example. Three dimensions of the problem are noteworthy:
o Discrimination in Public Spending and Taxation. Discrimination in the
allocation of public spending, and unfair tax burdens, lead to serious unrest.
Grossman (1991) develops a theoretical model of insurrection against the state
by the peasantry reacting to over taxation, where the state is a tax-farmer
interested in maximising the income of the rentier class. Discrimination in the
allocation of public employment is particularly resented in societies in which
public employment represents the principal avenue for personal advance. In
addition, the over taxation of smallholders encourages insurrection, and
indigenous peoples often face discrimination in access to schooling, health
care, and public-sector jobs; many of these factors are present in Nepal’s
current civil war, for example, see Murshed and Gates (2005). Where there are
inter-group fiscal transfers, which may take the form of spending on education
and health for disadvantaged groups, or including them in government
employment, commitment to the transfer by those in power may be imperfect.
This lack of credibility of the transfer can eventually lead to civil war.
2
This sub-section draws on the work of Addison and Murshed (2002a).
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o High Asset Inequality. Agrarian societies with high income inequality—for
example El Salvador, Guatemala, Nepal, the Philippines, and Zimbabwe—
have high asset inequality, and are very prone to conflict. In these societies,
agrarian elites use their collateral to further leverage their existing wealth
through a financial system that they control by means of family/business
cross-holdings. Asset redistribution such as land reform to lessen inequality is
more difficult than public finance reform. Besançon (2005), however, points
out that purely ethnic conflicts, as opposed to revolutions and genocides, are
more likely when a greater degree of income equality3 has been achieved
between contending ethnic groups. Inclusion in the political process is more
crucial to preventing this type of conflict, which are not usually civil wars, as
the state is not involved.
o Economic Mismanagement and Recession. In Africa, Latin America and the
former Soviet Union conflict ridden countries have also suffered prolonged
economic mismanagement and growth collapse. Successive IMF and World
Bank supported adjustment programmes in DRC-Zaire, Somalia, Russia and
elsewhere not only proved incapable of promoting economic recovery, but
given the level of corruption within the state, themselves became targets to be
captured by elite groups. Economic mismanagement is often associated with
an uneven and unfair distribution of the burdens of subsequent adjustment;
public spending benefiting the elite and the military is protected, often
favouring particular ethnic groups, with the burden of adjustment placed on
expenditures of value to the poor and disadvantaged groups. A related issue
concerns whether or not democracy prevents conflict. Hegre et. Al. (2001)
point out that the risk of conflict is lower in both well established democracies
and autocracies, suggesting that the risk of conflict is at its highest during the
transition to democracy, or in fledgling democracies.
1.B
The Contest over Natural Resource Wealth
Collier and Hoeffler (2004) find empirical evidence showing that a relatively high
dependence on primary commodity exports is correlated with the occurrence of war, a
finding that is not entirely robust as a cause of civil war, see Ross (2004). Natural
resources constitute 'booty' and this fact has been used to emphasise the greed
motivation for civil war (see also the papers in Berdal and Malone, 2000).
Belligerents in the wars of natural-resource rich countries act in ways that are closer
to what Mancur Olson (1996) called 'roving bandits'—who have no encompassing
interest in preserving the state or its people but are simply intent on loot—than to
'stationary' bandits who take control of the state and seek to maximise their own profit
by encouraging stability and growth in their new domain. Civil wars motivated by the
desire to control natural resource rents are akin to “warlord competition”, a term that
owes its origins to the violent competition between leaders in the context of medieval
European cities, Skaperdas (2002).
Greed is rarely the sole cause of conflict. Addison, Le Billon, and Murshed (2002)
construct a game-theoretic model of contemporary conflict involving the competition
for resources. In addition to resource rents, grievances also play their part in fuelling
conflict by explaining inter-group non-cooperation and serving to lower the cost of
3
Note that income equality is different from asset equality, which concerns wealth.
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participation in conflict. Additionally, they distinguish between two main types of
resource exploitation: point resources, which mostly (but not exclusively) involve the
extraction of non-renewable resources (minerals), require less labour input and are
geographically concentrated; and diffuse resources, such as those which mostly
involve the production of renewable resources (crops), require large amounts of
labour, and are spread geographically (see also Murshed, 2004). In this regard, a high
mineral endowment is correlated with a high incidence of conflict, while an
abundance of renewable resources is not. Ross (2003) points out that lootable
minerals, such as alluvial diamonds, as well obstructable resources such as oil
pipelines may be highly relevant to conflict. Ross (2004) confirms that an economy
dependent on legal agricultural goods (excluding valuable contraband such as cocaine
and heroin) is less likely to experience conflict. He also suggests that oil is closely
linked to the onset of secessionist wars in particular. Other lootable mineral resources
may not be the initial cause of civil wars, but once started these wars tend to persist
for a long time, as the rents from these commodities help to finance war besides being
a source of profit.
In summary, the type of economy matters in explaining either or both civil war onset
and its duration. Mineral based economies, and countries where there is a substantial
production of crops from which illegal drugs are produced are at a greater risk.
Certainly, this generalisation can be further nuanced by considering the type of
mineral: petroleum being the source of greatest risk, but the proposition that a
substantial mineral or drug crop endowment (point source economy) contributes to
the risk of civil war onset and especially its persistence, seems to hold true in recent
decades.
1.C
Getting Credible Commitments to Peace
Even if civil war onsets are diminishing, the duration of the average civil war shows
little sign of declining. Are there special difficulties in achieving peace in intra-state
wars? In a detailed empirical study Walter (2001) finds that negotiations to end civil
wars break down more frequently than negotiations to end wars between states. This
may be the case, even when the continuation of the war is ‘irrational’ for the
leadership of both sides. Fundamentally war is irrational4, as both sides can do better
in a negotiated settlement; it only becomes rational in a second best environment,
because of institutional breakdown, mistrust and misperception that make the choice
of outright armed conflict appropriate (Skaperdas, 1992). Thus, when mediation is
made available, the persistence of war can only be explained either by misperceptions
about the benefits of war, or an inability to commit to a peace agreement credibly.
To deal with misperceptions first, the most obvious candidate that prevents peace in
this category of explanations for civil war persistence is an overestimate of the
probability of military victory, see Collier, Hoefller and Söderbom (2004) in this
connection. The same authors also emphasise that the state of war may also be highly
profitable for one or more of the belligerent groups. As indicated earlier, this is likely
in the case of contraband substances and lootable minerals such as diamonds. Fearon
(2004) has also pointed out that secessionist wars with ‘sons of the soil’ dynamics are
notoriously difficult to resolve. This is because of an encompassing interest and
4
Pareto sub-optimal in the lexicon of economics.
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attachment to the land and territorial sovereignty by both parties to the conflict. Wood
(2003) highlights indivisibility as a major impediment to peace deals. This arises
when territory, symbols or revenue in a post-conflict situation cannot be divided up so
as to achieve peace. The problem is more acute with territory or religious sites5 than
with resources which can be divided more readily. The answers, in the more
intractable cases, must lie in power sharing, equal user rights and other ‘federal’
arrangements.
The commitment problem to an agreed peace treaty is also a serious problem. This
difficulty arises when it is in the interest of one or either side to renege on the promise
of peace, and the actions that peace involves. In that situation, commitments lack
credibility. Sometimes agents or groups cannot commit credibly because there are no
institutions or mechanisms upon which to anchor promises. For governments, this is
more likely in the context of weak state capacity, as it is difficult for a state to
guarantee pledges when its own legitimacy and power base is fragile.
An aspect of the commitment problem that has received scant attention is the very
high discount rates, or the short time horizons of the parties involved (Addison and
Murshed, 2002b). In situations of poverty and high uncertainty, agents strongly prefer
a dollar today to a dollar tomorrow. Although the absolute value of future peace may
be much higher than that of continued warfare, the present value may be much lower
when the discount rate is very high and there is an impatience to consume. The same
argument can be applied to reputation, a factor that is key to the credibility of
peacemaking. Breaking an agreement damages future reputation, but with a high
enough discount rate it might pay to renege because the cost comes in the future. Each
failure of the peace process raises the discount rates of the belligerents, thereby
increasing the difficulty of making peace. Given the tarnished reputations of
belligerents it is even harder to establish credible peace. The problem is particularly
apparent in Africa where most indicators of political risk are substantially greater than
elsewhere in the world. Solutions lie in directly increasing the cost of reneging on
peace agreements and devising commitment technologies through institutional
innovation, particularly at the international level. Improving the quality of
peacekeeping forces is an urgent need, as is increased commitment to bringing war
criminals to trial. We need to assess why some 'post-conflict' countries returned
frequently to war (Angola) while others have managed to sustain peace
(Mozambique). Again, economic motivations may lie at the root of the problem—
Mozambique has few valuable minerals over which to fight while Angola has
several—and this may help explain several peace commitment failures in Angola.
2
National Business Communities and the Peace Process
In this section I will outline the role that national business communities and
associations can play in conflict abatement and the peace process. It should be
emphasised that reference is being made to business groups that are composed mainly
of nationals of the conflict country, not foreign businesses operating in countries in
civil war. Furthermore, the negative, neutral, as well as the positive role that can be
played by national business interests needs reiteration. In order to organise the
discussion in this section, I will sub-divide the challenges facing groups in civil war
5
For example, Har’m El Sharif or Temple Mount in Jerusalem.
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countries into four different analytical points: the typology of conflict, the type of
economy, business incentives for peace or war and the importance of time horizons as
well as commitment technologies.
2.1
Typology of the Conflict.
Civil wars are not a homogenous phenomenon. Their origins, motivations and
objectives do vary. A useful guide to the typology of conflict can be found in
Besançon (2005) and Fearon (2004). Hirshleifer (1995) describes conflict between
small homogenous groups, where each rival faction chooses between peaceful
production, defensive measures against attack and predation on others. This, perhaps,
is most akin to inter-tribal warfare seen since time immemorial, but is of limited
relevance to modern civil war, except arguably in the Western Darfur (Chad and the
Sudan). Such conflict does not, normally, take place in societies with organised
business associations that can exercise leverage over the choices society makes
between production and predation. I shall confine the discussion on the typology of
conflict into four broad types: genocides, revolutions, secessionist wars and
internationalised wars.6
o Genocide: this is a systematic attempt to physically eliminate a particular
ethnic, religious or linguistic group. These episodes, brutal though may be, are
relatively short. The state is usually an active participant in these actions.
Besançon (2005) has suggested that they are correlated to significant income
inequalities between groups. In that context, the role the business community
can play is a preventive one; by being socially responsible and encouraging a
diminution of income inequalities. A similar function can be envisaged in
post-genocide situations.
o Revolutions: these involve attempts to overthrow the state by armed force.
Revolutions can be sub-divided into coups d'etat and rebellions. Military
coups, as has been pointed out by Fearon (2004), tend to have the shortest
duration of the various types of conflict, making the role of the business
community in their abatement and resolution largely irrelevant. Business
interests may, however, be aligned with factions in the military engendering
the coup, in which case they play a negative role. Rebellions against the state,
for example the Maoist insurgency in Nepal, and of the type modelled
analytically by Grossman (1991) imply a more pro-active role for chambers of
commerce and the business community. This is because their duration tends to
be protracted. Whether this role is positive or not depends upon the nature of
the three other factors to be enumerated below, which are to do with the nature
of the economy, incentives and the time horizon involved.
o Secessionist Wars: refer to areas struggling to separate from the centre, usually
containing sons of the soil dynamics, such as with Tamil separatism in Sri
Lanka. As Fearon (2004) has emphasised these wars have the longest duration
on an average, and furthermore they are most likely to be associated with the
intractable indivisibilities of the type described by Wood (2003). These make
Besançon’s (2005) typology involves genocides, revolutions and ethnic wars. Ethnicity or ethnic
dimensions can, however, run across all varieties of civil wars. I am, therefore, eschewing this
categorisation. This definition of pure ethnic conflict is more likely to be applicable to ‘intercommunal’ conflict such as between Hindus and Muslims in India, Christians and Muslims in
Indonesia. The state is usually not an active or explicit combatant in these, even if it takes sides. They
are not, therefore, civil wars.
6
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the role of local business groups vital to conflict intensity and the peace
process, the effect once again depending upon the factors described below.
o Internationalised Conflict: refers to a situation when neighbouring countries or
other external powers are involved. This is not necessarily a separate category
in the typology of war. Often a civil war zone abuts another country.
Sometimes rebel groups flee to, or seek succour in, neighbouring countries, as
with Maoist insurgents in Nepal. Powerful nations adjoining the conflict may
interfere in the conflict process, as was the case with Indian involvement in
the Sri Lankan civil war. The great powers may also get involved in active
peacekeeping, as with the British in Sierra Leone. The civil war may involve a
variety of other states, some neighbouring and others from far, who take active
sides in the civil war, as in the case of the Democratic Republic of the Congo
(DRC). The internationalisation, regionalisation or globalisation of conflict is
likely to raise local business stakes in either war or peace, depending on
whether they serve other business interests whose incentives are for peace or
war, and the types of commodities the affected nation trades in.
In practice, the typology of civil war enumerated above can be mixed in practice.
Many examples of contemporary conflict do not fit neatly into solely one of the boxes
described above, striding across more than one of the categories above. Rebellion and
secessionist motives may sometimes go hand in hand, as can be argued to be the case
in the conflict in Aceh in Indonesia.
2.2
Typology of the Economy
This, as seen in the previous section, is crucial to the greed versus grievance debate. It
can be central to business incentives to promote peace or war as well. In this
connection what is most important are the principal exports of the economy, as it best
describes what the economy truly specialises in. Following Murshed (2004) let us
consider the following export categorisation:
o Point Source Economies: these refer mainly to mineral exporting economies.
As mentioned earlier they are more concentrated in production and
distribution than mainly agricultural goods. Within this category, it is not
uncommon to also include some agricultural commodities that are also
marketed in a concentrated manner, such as coffee/cocoa and crops that lead
to the production of illegal substances such as heroin and cocaine. Such
commodities are closely linked to civil war, as some are readily lootable
(alluvial diamonds, drugs say) or obstructable (oil pipelines for example)
according to Ross (2003). Oil, in particular, is found to cause civil war, and
lootable commodities are found to help perpetuate civil war (Ross, 2004). In
these circumstances, business interests are most likely to be for the
perpetuation of war.7
o Diffuse Economies: these countries principally export agricultural
commodities other than those enumerated above. According to Ross (2004)
these economies are not systematically linked to civil war, but this does not
mean that there are no examples of diffuse economies in civil war, Sri Lanka
in the 1980s for example. The business interest in such an economy is likely to
7
This is not to deny that small traders will be in favour of peace.
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militate against the persistence of civil war, given the diffused nature of the
production and distribution process.
o Manufacturing Economies: these countries export mainly manufactured goods.
Many developing countries mainly in Asia, and now some in Latin America
have become major exporters of manufactured goods in the last quarter of a
century. These economies, especially in Asia, have enjoyed the best economic
growth rates since 1980, as well as having some of the better institutions in the
developing world (see, Murshed, 2004). A nation in civil war with this type of
an economy is most likely to have at least some national business groups
pressing for an end to the civil war, as these types of exports, and the growth
in these kinds of activities, are often severely disrupted by civil war. They are
also likely to be characterised by the other factors that assist peaceful conflict
resolution such as a longer time horizon and institutions that assist
commitment because of the more diversified economic structure.
One further factor to consider in this connection is that most African economies are
point sourced, whereas most South and East Asian economies are not. While many of
these Asian8, as well as some Latin American, economies have made the transition
from being commodity exporters to exporters of manufactures, most African
economies are yet to achieve this transformation. Business pressures for peace are
likely to be the keenest in economies that export manufactures, other things being
equal.
2.3
Business Incentives for Peace
Even when the typology of conflict and the nature of the economy create strong
incentives for some businesses to lobby strongly for a peaceful and negotiated end to
the civil war, there will always be other business interests in favour of perpetuating
war. This is because some commercial interests are linked to the war; they may be
recipients of war related contracts, or facilitate arms deals; see Addison and Murshed
(2003) who analyse this problem from the government point of view in cases of debt
relief granted in cases of civil war. Similarly, rebel groups may make profits out of
extortion and trafficking. They may have also set up a functioning and profitable
parallel economy, as in the case of the LTTE controlled areas in Sri Lanka. We have
seen that it is difficult to end civil wars when drugs and gemstones are at stake. Even
without these commodities there are groups, including commercial interests, who
profit from the war economy. As in Addison and Murshed (2003), there are likely to
be two parties within the business camp: one for peace, as they profit from peaceful
export of manufactures, and another group who reap substantial rents from the war, as
is arguably true for Sri Lanka. Which side becomes more dominant, particularly on
the government side, also depends on external mediation and donor activity. One
factor that could help the peace party is a decline in the prices of narcotics or
gemstones, or restrictions on their export, as with the Kimberly process. This, of
course, only applies to countries that are endowed with these commodities, as in
Colombia. In the final analysis a lot will depend on the institutional setting and the
time horizon of business actors.
2.4
8
Time Horizons and Commitment Technologies
Notwithstanding Afghanistan and Myanmar.
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There are three factors that can be considered here: the separation of business and
politics, time horizons and institutional settings.
o Business and Politics: there may be situations when the conflict and business
entrepreneurs are one and the same as in many cases in Africa. This makes the
local business case for peace less likely, compared to societies with a
relatively stricter dichotomy between those who rule (politicians) and those
who conduct business. This is because in the former case the political and
business interests are clearly and unambiguously pro-war. In the latter case
there is some room for competition between different interests. Even when
there are links between the two groups, the greater the institutional separation
through parliament and the political process, the better are the chances for a
national business for peace case, other things being equal.
o Time Horizons: This turns out to be a crucial feature in decisions of firms and
individuals. When a future is seen to feasibly exist, this results in more
peaceful decisions and attitudes. Generally speaking investment, which only
bears fruit in the future, requires a long time horizon. More secure and affluent
societies tend to have a longer time horizon. By contrast severely war torn,
insecure and poorer societies have shorter time horizons, with a very strong
preference for a dollar today compared to an uncertain prospect of more than a
dollar in the future. Short-term income may be readily obtainable in a war
situation, even if war destroys future prospects. In the language of economics,
this is referred to as a high discount rate applied to future income, as opposed
to the high value put on present consumption. All of this means discounting
the future cost of conflict, as well as undervaluing the tarnished future
reputation which arises from an excessive zeal for short-term profit.
Furthermore, societies with faulty and degenerating institutions of governance
and democracy tend to have a high discount rate, as the future is uncertain.
New and fledgling democracies are often characterised by these high discount
rates, as the future is uncertain due to the fact that the political system may
collapse. The state apparatus in this situation run the risk of descending into
kleptocracy. The important point here is that businesses in these situations are
also characterised by similar short-term mentalities, making them often prefer
current profits in a war situation when compared to investing for a far greater
income that peace might bring in the future. Also, investment in trying to
bring about future peace can have substantial present-day costs in terms of
foregone profit.
o Institutions of Commitment: even when all parties agree to and recognize the
benefits of peace they need to credibly commit to peace and the conditions
stipulated therein. Generally, this requires institutions that help parties to
credibly anchor their commitment to the peace treaty. The fear of reversal in
the context of poor commitment technologies, leads to a peace treaty being
imperfectly credible. And if it is not credible, the peace agreement will not
last. Businesses are affected by such a situation characterised by poor
commitment technologies, and are less likely to themselves make a case for
peaceful settlements. A poor environment for commitment often arises when
the government or the rebel leadership’s power base is weak and/or lacks
legitimacy. Solutions here lie in devising better mechanisms to engender
credible commitment via institutional improvement. This includes better
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constitutional safeguards, greater respect for the rule of law and superior
regulatory capacities. In this respect externally enforced commitment
technologies via internationally enforced peace treaties may help. There is, of
course, scope for local business to also contribute to superior commitment
technologies by improving their own governance structures.
3
Conclusions: Whither the National Business Case for Peace
The causes of conflict are complex and diverse, poorer countries appear to be at a
greater risk, as institutional quality and performance seem to be highly correlated to
per-capita income levels. Despite that most civil wars have some foundation in greed
as well as grievance, which in most instances go hand in hand. Relative inequalities
between groups (grievance) are a major determinant of the onset of conflict. The
desire to control resource rents (greed) may be a strong motivating force in countries
endowed with minerals and illegal narcotic related crops. Oil in particular is closely
associated with the start of civil wars, particularly secessionist wars. These wars are
also the most difficult to end. Other lootable gemstones and narcotics tend to lengthen
the duration of civil war. Countries that export mainly agricultural based
commodities, other than narcotics, seem, on average, to be less at the risk of civil war.
Despite their having been a decline in the number of countries involved in civil war in
the past decade, the length of the average civil wars shows little sign of diminution.
Civil wars that are based on sons of the soil dynamics (mainly secessionist wars) and
those that are financed by gemstones and contraband substances seem to be the most
protracted. The type of the economy is, therefore, importantly related to civil war
onset and more particularly its duration. Other factors that contribute to the length of
a civil war include over-optimism with regard to the prospects for military victory,
and an inability to credibly commit to peace treaties. The latter is a particularly
seriously problem; commitment failure is closely related to short-term time horizons
which make the future benefits of peace appear small compared to present-day profits
from war. The institutional setting is also important, as it offers mechanisms for
securing commitment via the governance structure and constitutional arrangements.
The fact that national business groups in conflict countries may mitigate the civil war
or do the reverse has already been noted. What are the broad possible scenarios where
business groups can help to end conflict, as opposed to just being neutral or downright
harmful? In this connection, we need not detain ourselves for too long in conflict
situations involving genocides or military coups, as there is little that the business
community can do in these circumstances. My focus will be mainly with rebellions
and separatist wars.
o Scenario1: The economy is mainly point-sourced, which means it mainly
exports mineral based products and/or narcotics. The business community
(apart from small businesses associated with services) is likely to be more
pro-war, particularly if the other side may gain control of the lootable
commodities as in secessionist wars. This tendency will be reinforced the
closer are business and political ties, the shorter the time horizons are, and
the more difficult it is to make credible commitments to peace. Only in
situations of highly developed institutions and a long time horizon will
pressing for peace be a high priority for business.
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o Scenario 2: The economy exports mainly agricultural products excluding
those mentioned above or manufactures. The commercial case for peace is
stronger because of the diffused nature of the core business activity. Even
here, there will be some groups who profit from war contracts and arms
deals. They will lobby in the opposite direction to preserve their short-term
profit. The peace lobby is likely to dominate in societies where business and
political actors are more sharply separated, as well as in countries that have
longer time horizons and better institutions of political commitment. The
pro-peace business lobby may have a stronger case in secessionist wars
compared to rebellions, as the former are more likely to be longer and more
intractable to purely military solutions. If this line of reasoning has some
foundation, then one would expect, for example, a stronger business case for
peace in Sri Lanka compared to Nepal.
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