Feature

The Market for Civil War

The Market for Civil War

Every time a civil war breaks out, some historian traces its origin to the 14th century and some anthropologist expounds on its ethnic roots. Don’t buy into such explanations too quickly. Certain countries are more prone to civil war than others, but distant history and ethnic tensions are rarely the best explanations for a conflict. Look instead at a nation’s recent past and, most important, its economic conditions.

Once a country has reached a per capita income rivaling that of the world’s richest nations, its risk of civil war is negligible. Today, about 900 million people live in such societies. Four billion more live in countries that are either already middle income or on track to becoming so, thanks to rapidly growing and diversifying economies. This group, which includes the economic success stories of the post-World War II era, faces fairly low risk of civil war. The potential for conflict is concentrated among the countries inhabited by the world’s remaining 1.1 billion people. These countries typically have poor and declining economies and rely on natural resources — such as diamonds or oil — for a large proportion of national income. As the British, French, Portuguese, and Soviet empires successively dissolved during the last century, the number of such countries increased in waves.

Such at-risk countries are engaged in a sort of Russian roulette. Every year that their dismal economic conditions persist increases the odds that their societies will fall into armed conflict. Whether by luck or prudence, many such nations have so far escaped civil war. Others have not. And once civil war has started, the decline in income and the accumulation of arms, fighting skills, and military capabilities greatly increase the risks of further conflict.

To date, academics and policymakers alike have misdiagnosed the nature of the problem; little surprise, then, that their efforts to prevent civil wars have been ineffective. When the world’s leaders can identify the real factors most likely to drive such conflicts, they will have a better chance of preventing future wars.

THE MYTH OF ETHNIC STRIFE
Between 1960 and 1999, there were 52 major civil wars for which comprehensive data is available on social, political, historical, economic, and geographic circumstances. Such wars spanned the developing regions, with the typical conflict lasting around seven years and leaving a legacy of persistent poverty and disease in its wake. To understand the causes of these conflicts, economist Anke Hoeffler and I studied each five-year period from 1960 to 1999 and identified preexisting conditions that helped predict the outbreak of war.

For example, income inequality and ethnic-religious diversity are frequently cited as causes for conflict. Yet surprisingly, inequality — either of household incomes or of land ownership — does not appear to increase systematically the risk of civil war. Brazil got away with its high inequality; Colombia didn’t. And, in fact, ethnic and religious diversity actually reduces the risk of civil conflict. One important exception: Where the largest ethnic group constitutes a majority but lives alongside a substantial minority, such as in Sri Lanka and Rwanda, the risk of civil war roughly doubles. Once wars start, they also tend to last much longer if the nation in question displays two or three dominant ethnic groups.

Conflicts in ethnically diverse countries may be ethnically patterned without being ethnically caused. International media coverage of civil wars often focuses on history and ethnicity because rebel leaders adopt this sort of discourse. Grievances are to a rebel organization what image is to a business. The rebel group needs to stimulate a sense of collective grievance to build cohesion in its army and to attract funding from its diaspora living in rich countries.

Much to the dismay of democratization activists, democracy fails to reduce the risk of civil war, at least in low-income countries. Indeed, politically repressive societies have no greater risk of civil war than full-fledged democracies. Countries falling between the extremes of autocracy and full democracy — where citizens enjoy some limited political rights — are at a greater risk of war. Low-income societies with new democratic institutions are often at enhanced risk: Just consider the current catastrophe in Ivory Coast, where uncertainty over who could stand for the presidential election in 2000 triggered violent clashes and ongoing political instability.

Wherever a civil war occurs, observers will invariably find some deep history of conflict. But overwhelmingly, conflicts in the distant past are not generating civil wars in the present. The history that matters is recent history, not that of the 14th century. If a country recently experienced a civil war, it is much more likely to have another one. This risk fades the longer peace endures.

Civil war is self-perpetuating, partly because it changes the balance of interests within countries. Groups engaged in conflict invest in armaments, skills, and infrastructure that are only good for violence. These groups’ leaders, and indeed all those who gain from lawlessness, prosper during war, even though society as a whole suffers. The part of the elite that prefers peace will have shifted much of its wealth outside the country. Hence, as a result of the conflict, the balance of elite interests shifts toward further conflict.

Geography matters, too. If a country is mountainous and has a large, lightly populated hinterland, it faces an enhanced risk of rebellion. Presumably, rebels are harder to find and defeat in such terrain. Nepal is therefore more at risk of civil war, geographically speaking, than Singapore.

DIAMONDS, A REBEL’S BEST FRIEND
All these factors notwithstanding, economic conditions remain paramount in explaining civil wars. For the average country in our study, the risk of a civil war in each five-year period was around 6 percent, but the risks increased alarmingly if the economy was poor, declining, and dependent on natural resource exports. For a country with conditions like those in the Democratic Republic of the Congo (formerly Zaire) in the late 1990s — with deep poverty, a collapsing economy, and huge mineral exploitation — the risk reaches nearly 80 percent.

Once started, wars last longer in low-income countries, which are prone to rebellion for many reasons: Recruits have less of a stake in the status quo, and central governments are typically weak. Each additional percentage point in the growth rate of per capita income shaves off about 1 percentage point of conflict risk; conversely, wars are more likely to follow periods of economic collapse — such as the conflicts that have surged in Indonesia since the East Asian economic crisis of the late 1990s. If a country’s per capita income doubles, its risk of conflict drops by roughly half. Simply put, economic growth matters because opportunities for youth depend upon a robust economy.

Conflict is also more likely in countries that depend heavily on natural resources for their export earnings, in part because rebel groups can extort the gains from this trade to finance their operations. Diamonds funded the National Union for the Total Independence of Angola (UNITA) rebel group during Angola’s long civil war, as well as the Revolutionary United Front (RUF) in Sierra Leone; timber funded the Khmer Rouge in Cambodia. Indeed, methods of extortion abound. For example, multinational corporations that extract natural resources must often pay huge sums to ransom kidnapped workers and to protect infrastructure from sabotage at the hands of rebel groups. Laughably, such payments are sometimes charged to the companies’ "corporate social responsibility" budgets.

Natural resources also fuel war because they make secession more likely. When valuable natural resources are discovered in a particular region of a country, the people living in such localities suddenly have an economic incentive to secede, violently if necessary. Since most countries are ethnically diverse, the lucky, resource-rich locality is likely to be ethnically distinct as well. Often, the weak political force of ethnic romanticism latches on to the stronger force of economic self-interest so that secessionist movements voice ethnic grievances — Biafra (Nigeria), Cabinda (Angola), and Aceh (Indonesia) come to mind. The incentive to secede is probably compounded by the corrupt, incompetent way in which governments commonly use natural resource wealth: The greed of a resource-rich locality can seem ethically less ugly if a corrupt national elite is already hijacking the resources.

THE WAR DIVIDEND
One striking lesson from these patterns is that the motivations for rebellion generally matter less than the conditions that make a rebellion financially and militarily viable. Civil wars only occur if a rebel organization can build and sustain a private army. These organizations are unlike traditional opposition groups such as political parties or protest movements. They are hierarchical, authoritarian, expensive, and usually small. Where such organizations are financially and militarily feasible, rebellions are likely to emerge, promoting whatever political agenda their leaders happen to support.

Global efforts to curb civil war should therefore focus on reducing the viability — rather than just the rationale — of rebellion. Of course, policies should address legitimate grievances, not because addressing them paves a royal road to peace but because they are legitimate.

Those nations currently at war and those that have recently emerged from civil war constitute the core of the problem. Many countries have fallen into a conflict trap: a damaging war that sharply increases the risk of further conflict, followed by a fragile peace, and then back to war. The expected duration of a civil war is currently about eight years — double what it was before the 1980s. Wars therefore do more damage now and thus more powerfully provoke further conflict.

No one knows why wars last longer now. Perhaps global markets in both natural resources and arms make rebellion easier to finance and equip. Rebel groups can now sell the future rights to mineral extraction (conditional on rebel victory) to raise funds for weapons purchases. A similar arrangement reputedly helped French oil giant Elf Aquitaine (now TotalFinaElf) gain its current access to oil in the Republic of the Congo.

So, what specific measures can countries take to reduce the occurrence and likelihood of civil war?

For developing countries already growing rapidly, the most significant risk may be episodes of economic crisis, such as that experienced by Indonesia in the late 1990s. The opportunity to prevent war in such cases only strengthens the justification for international efforts to avert economic crises. In this light, initiatives to reform and rethink the workings of the global financial system are not merely an academic debate or an effort to ease investors’ concerns, but rather a much more serious matter with immediate life-and-death consequences.

Poor countries that are not developing but have so far escaped civil war, such as Zambia and Malawi, are also racing against time. If they do not find ways to accelerate their economic growth and development, they will likely stumble into conflict. Recent casualties include Ivory Coast and Nepal. Nations in these conditions should get the message that change is urgent. Often, the remedy should go beyond the standard package of market access, debt relief, and aid programs from the developed countries to include credible policy reform and honest governance within vulnerable countries.

Due to their heavy dependence on natural resource revenues, the governments in many at-risk nations face acute problems of corruption and exposure to international price shocks. But natural resources need not be a curse. Twenty-five years ago, Botswana and Sierra Leone were similarly poor countries, both sitting on vast diamond deposits. Over the ensuing quarter century, Botswana harnessed this opportunity, becoming the fastest-growing economy in the world. Sierra Leone used the same resources to impoverish itself, experiencing the most rapid sustained decline of any country; it now ranks at the bottom of the Human Development Index put out by the United Nations Development Programme. These contrasting examples show that good policy and governance are especially vital where natural resources are discovered.

So far, the record has been dismal: There are many more Sierra Leones than Botswanas. But some encouraging signs are emerging. The "Fowler Report" to the U.N. Security Council in 2000 detailed how UNITA evaded U.N. sanctions against arms smuggling and diamond-based financing; as a result, scrutiny of the international diamond trade increased. Such attention may well have contributed to the demise of UNITA in Angola and the RUF in Sierra Leone, two highly durable, diamond-dependent rebel organizations. Moreover, diamonds are now being tracked through the new Kimberley Process certification scheme, making it harder for rebel groups to obtain financing from these goods. Transparency is the first step toward effective national scrutiny.

And if such strategies work with diamonds, why not replicate the process for timber? The Group of Eight industrialized nations flagged the problems posed by natural resources in its 2002 meeting and may take up the issue again in June 2003 at the Evian summit. Specific political leaders have also begun taking action. British Prime Minister Tony Blair has launched an initiative for greater transparency in the reporting of resource revenues by multinational companies in extractive industries; by nationally owned oil companies such as Angola’s Sonangol, which are often a state within a state; and by recipient governments. And in a complementary effort, French President Jacques Chirac has recently called for better mechanisms to cushion low-income countries when the prices of their commodity exports plummet. A new compact could emerge: Rich nations take action to cut rebel financing and cushion adverse shocks, while low-income nations adopt better governance of their revenues from natural resources.

ESCAPING THE CONFLICT TRAP
From 1960 to 1999, international interventions — whether economic or military — intended to shorten civil wars were disappointing. Some strategies may have succeeded in individual cases (as in the recent destruction of the Taliban regime in Afghanistan), but no type of intervention has worked regularly.

More effective interventions could target the systems that finance and equip rebel organizations, beyond solely focusing on the trade in diamonds and other commodities. Many rebel movements also receive illicit support from neighboring governments. Such support can be exposed and penalized, and the penalties should outweigh the benefits of rebel alliances. Moreover, governments can discourage huge ransom payments by corporations — such as the $20 million reputedly paid in 1984 by the German engineering company Mannesmann-Anlagenbau AG to the Colombian rebel group ELN, or National Liberation Army, for the release of three of the company’s staff. Should such payments be tax deductible and so, in effect, subsidized? Governments could ban the insurance arrangements that facilitate and inevitably inflate such payments. National authorities have started to improve scrutiny of national and international banking systems; recent evidence that al Qaeda is shifting its assets into diamonds suggests that this strategy is becoming effective. National and multilateral policymakers should also look again at drug policy. Wouldn’t it be easier and more effective to curb the demand for criminally supplied drugs? And certainly, the flow of arms can be curtailed, especially if efforts are made earlier to catch the big operators, like suspected gunrunner Victor Bout, who is thought to have supplied arms to rebel groups in several African nations, including Angola.

The best way to break out of the conflict trap is to ensure that countries that have just ended one conflict do not quickly become enmeshed in another. In some nations, the risks of renewed conflicts are so high that an external military peacekeeping force is normally necessary. The operative word is "external" because high military spending by a post-conflict government actually increases the risk of another war. That external military presence must be credible. In Sierra Leone, the RUF took hostage a large U.N. force that it sensed would not fight, yet when confronted by a smaller British force, the rebel group collapsed.

Unfortunately, peacekeeping missions normally do not last long enough to allow economic recovery to take hold and help keep the peace. The peak time for economic recovery is usually during the middle of the first post-conflict decade. That is also when aid is most effective in promoting economic growth. Unfortunately, international aid is frequently mistimed. It pours in during the first year of peace, when the country’s institutions are too weak for the money to be used effectively, then tapers out just when it would be most useful.

Governments in countries recovering from civil war also must give greater priority to economic reform: The post-conflict period is a good time to reform because vested interests are loosened up. For example, after the end of civil conflict in Uganda in 1986, the country’s economic policies moved from among the worst in Africa to among the best in the following decade.

Finally, diasporas in rich countries pose a particular danger in post-conflict situations. They tend to be more extreme than the populations they leave behind, and they finance extremist and violent organizations. For example, the Tamil and Irish diasporas in North America have both been gullible financiers of murder in the past. Diaspora organizations can play an important role in economic recovery; their networks of skills and businesses are potentially valuable.

Afghanistan is now trying constructively to deploy its diaspora, for example. But governments of rich nations should help keep the behavior of diaspora organizations in their borders within legitimate bounds.

LOCAL WARS, GLOBAL CASUALTIES
Civil war is not just disastrous for the countries directly affected; it hurts the surrounding regions and often poses risks for even remote, seemingly unaffected nations. Within the country at war, combat-related deaths represent just a small if gruesome part of the costs: War-related economic ruin also intensifies poverty and disease. Throughout the region, economic growth declines and investment flows dry up. Disease spreads across borders through the flow of refugees. And higher military spending induced by real or potential civil war can fuel pointless regional arms races.

Finally, civil war creates territories beyond the control of recognized governments. These no-go areas can be damaging to the international community. Around 95 percent of the global production of hard drugs is located in civil war countries. Witness how sources of supply shift in response to the changing pattern of conflict: As the Shining Path guerrillas were defeated in Peru in the early 1990s, drug production shifted to territory held by the FARC, or the Revolutionary Armed Forces of Colombia. These lawless areas also provide safe havens and training for international terrorists.

Over the last several decades, national, regional, and global organizations seeking to end or prevent civil wars have often focused on the wrong challenges, or on the right challenges but at the wrong time. Certainly, no single, magic policy will fix the problem; a range of initiatives is urgently required across a broad front. But if governments and multilateral organizations can help curb rebel financing and armament, accelerate the economic development of the countries most at risk, and provide an effective military presence in post-conflict settings, the global incidence of civil war will decline dramatically. These are viable objectives, and they are likely much cheaper than the long-term consequences of continued conflict and neglect.