Is War Bad For Business? 1. A scholarly debate has raged over the relationship between capitalism and conflict.

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1 Is War Bad For Business? 1 A scholarly debate has raged over the relationship between capitalism and conflict. Some contend that capitalists act as imperialists to make money from the business war and open up markets abroad to be dominated. Others find that war is bad for business, leading to reduced prits and greater government control over the economy. These arguments are tested using data on economic freedom and conflict. Results indicate that while some economically free countries engage in internal and external conflict, these tend to be less severe in nature and less likely to occur than cases involving economically unfree countries. Capitalism & Conflict: Allies or Adversaries Years ago, gangsters put aside their feuds in exchange for prits, leading some to question whether war was bad for business. Now, with the rise capitalism and economic freedom, as well as the relative decline in conflict worldwide, one might wonder whether the tables have turned, and economic liberalism acts as a source for peace. Such arguments seem to contradict capitalism s critics. Long ago, Machiavelli concluded that liberal democracies would be ideally suited for imperialism. Because they commanded greater levels popular legitimacy, their citizenry would have fewer qualms about providing manpower and supplies for armies, since they would be people s armies. Governments could channel competitive economic and political energies into fighting abroad to expand state power. Later, as 1 An earlier version this paper Assessing Capitalism and Conflict, was presented at the annual meeting the International Studies Association, New Orleans, Louisiana, March 24, The author would like to thank Tracy Lightcap, Bernadette Jungblutt and Quan Li for their helpful comments regarding the paper and Jay Simmons for funding the presentation the paper.

2 Lenin argued that imperialism is the highest stage capitalism, it became fashionable to associate big business with big international conflicts. A lust for prits became synonymous with a desire for international domination. More recently, political scientist Michael Doyle argued that liberal states deliberately targeted their illiberal counterparts to promote democracy and protect private property. Such arguments explain the connection between liberal states and external conflict, but what about internal forms conflict? Jack Donnelly (1998: 159) argues that free markets produce gross economic inequalities. These domestic distortions are likely to produce grievances feeding insurgencies or societal protests. Donnelly (1998: 156) goes on to paint economic liberals as opposed to strong and active human rights policies. Therefore, governments with free markets may engage in repressive policies to ensure that economic operations remain undisturbed, triggering the potential for an internal backlash and possible war within the state. But not all have concluded that respect for economic freedom produced conflict. Joseph Schumpeter reached the opposite conclusion, finding that capitalism and imperialism mix like oil with water. He contended that wars tend to impoverish national economies, with costs dramatically outweighing any potential economic gains from military pursuits. Additionally, with the presence free trade, states need not conquer another to have access to desired goods; the world marketplace assures that necessities are available for purchase. Schumpeter also pointed out that states which embrace economic freedom have strong peace parties, less support for expansion, and reject politically dominant pressional armies. Conflicts, according to

3 Schumpeter, arise from those who demand special protections from free markets and autocrats who only derive their legitimacy from a xenophobic nationalism. Political scientist Rudolph J. Rummel agrees. Long known for his work showing the connection between democracy and peace, Rummel conducted a five-year study which found support for the hypothesis that economically free states are less likely to engage each other in conflict. He demonstrated that free market systems tend to encourage an exchange goods and services, not gunfire. But his research only focused on 24 countries between the years 1976 and A more recent study that included a larger number countries would go a long way toward confirming the connection between capitalism and peace. Other writings examine the role that regional economic integration could play in promoting peace and security for a region. De Lombaerde (2005) writes about not only the role closer economic ties and interdependence can play for regions, and not just Europe; many these links involve a lesser role for mercantilist policies involving a strong role for the state in the economy. Testing the Relationship In testing the relationship between economic liberalism and conflict, I used the Heritage Foundation s (IEF), a dataset which provides information about the degree independence between the public and private sector. Beach and O Driscoll (2001: 43-44) conceptually define economic freedom as the absence government coercion or constraint on the production, distribution, or consumption goods and

4 services beyond the extent necessary for citizens to protect and maintain liberty itself. Beach and O Driscoll (2001: 44) go on to note that while some government coercion is accepted by society in order to provide for certain public goods (i.e. provision for a common defense), the growing capacity for state interference in economic affairs increases the likelihood encroaching upon personal and property rights. The IEF scores how much influence a country s government has over the following economic sectors: trade policy, fiscal policy, capital flows and foreign investment, banking and finance, wages and prices, property rights, regulation, and black market activity. Data from these scores is aggregated into a four category scale which includes, Mostly, Mostly, and Repressed. 2 To measure conflict, I used the KOSIMO dataset provided by the Heidelberg Institute International Conflict Research (HIIK). The KOSIMO database contains information on political conflicts occurring between 1945 and Conflicts are defined as the clashing overlapping interests (positional differences) around national values and issues (independence, self-determination, borders and territory, access to or distribution domestic or international power). The conflict has to be a given duration and involve at least two parties (states, groups states, organizations or organized groups) that are determined to pursue their interests and win their case. At least one party is an organized state. Possible instruments used in the course a conflict may include negotiations, authoritative decisions, threat, pressure, passive or active 2 countries include those with a rating between 1 and 1.99; mostly free countries are designated as those states with an annual average States averaging between 3 and 3.99 are judged to be mostly unfree. Finally, repressed states encompass countries which score between a 4 and a Some the sources information include the Economist Intelligence Unit country reports, the International Monetary Fund s Government

5 withdrawals, or the use physical violence and war (Heidelberg Institute International Conflict Research, ). KOSIMO was employed because the list conflicts includes cases where violence has not been used, allowing us to compare results across a wider range dispute types. The database therefore eschews the Correlates War (C.O.W.) quantitative criterion 1,000 battle dead. The list, however, builds upon the work C.O.W. researchers and adds cases collected by European researchers. The time frame for the analysis is 1995 through 1999 (the five years where both datasets overlap). 3 Each unit analysis is the nation-state in a given year. This generated 688 cases. Statistical Results A check the data shows that a little more than half the cases (56%) had governments with illiberal economic policies (mostly unfree or repressed) during these five years. 4 Of the 688 cases, 54% reported conflict. These 372 cases produced 699 conflicts. Most cases (76.8%) tend to have one or two conflicts in a given year, but 21 cases have five or six conflicts in a year. 5 Slightly more than half (54%) all conflicts are external (between states), as opposed to internal conflicts involving a government and a domestic group. There were 224 severe conflicts (coded Finance Statistics Yearbook, the Office the United States Trade Representative, and the U.S. Department Commerce country reports. 3 Critics may point out that this analysis only covers five years analysis in the late 1990s. However, it is important to note that Rummel s widely respected analysis also examined five years conflict between nations ( ). Furthermore, this analysis covers many more countries and country-cases than Rummel did in his work. 4 This information is available in a series statistics tables listed at the end the article. 5 Some may wonder why the results from Tables 2 and 3 do not add up to the results from Table 1. For example, five free country cases are listed as having five conflicts. But there are no cases a country having five internal or five external conflicts. Table 1 is capturing the aggregate number conflicts. Therefore, it is possible to have one country have several internal and external conflicts simultaneously.

6 by HIIK as either a war or mostly violent crisis, as opposed to a nonviolent confrontation) or nearly one-third the total. The majority these severe conflicts (78%) are internal in origin. Assessing the connection between economic freedom and all conflicts shows that governments with illiberal characteristics wage the majority conflicts. Of the 699 conflicts between 1995 and 1999, 434 were waged by mostly unfree and repressed states. In fact, the 93 repressed government cases accounted for 150 the conflicts. It is important to note that the 46 cases with free states produced 59 conflicts. As Rummel asserted, economically liberal states do wage conflict, but free states are least prone to international violence and war. This is confirmed by an analysis the severe conflicts. None the 46 free state cases produced a single war or mostly violent crisis, the strongest evidence yet for linking capitalism and peace. Mostly free states were involved in 46 severe conflicts, but these pale in comparison to the 178 wars and mostly violent crises generated by mostly unfree and repressed states. The results show that while economically free states do sometimes become involved in conflicts, their struggles are typically waged without violence. The participation liberal states in conflicts (severe or less violent) is dwarfed by the behavior repressed or mostly unfree states. Additionally, the more economically repressed a country is, the more likely its conflict will become severe. Forty-six percent all conflicts involving repressed societies became severe, while 38.4 percent conflicts with a mostly unfree government escalated to a war or mostly

7 violent crisis. Only 22 percent mostly free disputes were severe, while none the conflicts involving free states ever employed violence. It is important to note that there is some evidence supporting both sides. There are confirmed cases economically free and mostly economically free states engaging in conflict. But evidence confirms arguments by Schumpeter and Rummel that capitalism is not generally imperialistic. Not only do the free states have much fewer incidents conflicts than their less capitalistic counterparts, but these conflicts involving free states tend to be resolved short war. markets do not eliminate conflict, but provide mechanisms to peacefully resolve domestic and international issues, or prevent such conflicts from escalating to violence. Liberal states forge so many economic and political ties that any gains from imperialistic adventures are outweighed by the costs severing such links. Whether one perceives capitalists as champions or criminals, private sector supporters are less likely to have the stomach for international or internal conflict. Supporters free markets have generally concluded that war is bad for business.

8 Table 1: The Impact on All Forms Conflict HIIK s KOSIMO Data, All Conflicts Mostly Mostly Repressed Total Table 2: The Impact on All Internal Conflicts HIIK s KOSIMO Data, All Internal Conflicts Mostly Mostly Repressed Total Table 3: The Impact on All External Conflicts HIIK s KOSIMO Data, All External Conflicts Mostly Mostly Repressed Total

9 Table 4: The Impact on All Severe Conflicts (Wars & Mostly Violent Crises) HIIK s KOSIMO Data, All Severe Conflicts Mostly Mostly Repressed Total Table 5: The Impact on All Severe Internal Conflicts (Wars & Mostly Violent Crises) HIIK s KOSIMO Data, All Severe Internal Conflicts Mostly Mostly Repressed Total Table 6: The Impact on All Severe External Conflicts (Wars & Mostly Violent Crises) HIIK s KOSIMO Data, All Severe External Conflicts Mostly Mostly Repressed Total

10 Sources: Beach, William W. and Gerald P. O Driscoll, Jr. (2001) Methodology: Factors the, The Washington DC: The Heritage Foundation & Dow Jones Inc. De Lombaerde, Philippe (2005) Regional Integration and Peace. Peace & Conflict Monitor, May 9. Donnelly, Jack (1998) International Human Rights, 2 nd. Edition. Boulder, CO: Westview Press Doyle, Michael W. (1986) Liberalism and World Politics, The American Political Science Review Vol. 80, no. 4 (December). Heidelberg Institute for International Conflict Research ( ) KOSIMO Manual Heidelberg, Germany: Heidelberg Institute for International Conflict Research (HIIK). Lenin, Vladimir I. (1964) Imperialism: The Highest Stage Capitalism, Chapter 10 (Published in Volume 22 the Collected Works) Moscow: Progress Publishers. Machiavelli, Niccolo (1950) The Prince and the Discourses. Max Lerner, ed. Luigi Ricci and Christian Detmold, trans. New York: Modern Library. O Driscoll, Jr. Gerald P., Kim R. Holmes and Melanie Kirkpatrick (2001) The Washington DC: The Heritage Foundation & Dow Jones Inc. Schumpeter, Joseph (1968) Imperialism and Capitalism, in Imperialism/Social Classes: Two Essays by Joseph Schumpeter, Heinz Norden, trans. (Cleveland), originally published in Rummel, Rudolph J. (1983) Libertarianism and International Violence, Journal Conflict Resolution Vol 29, pp Schavey, Aaron B., Denise H. Froning, and Ana I. Eiras (2001) The 2001 : The Countries, The Washington DC: The Heritage Foundation & Dow Jones Inc.

11 John A. Tures is an assistant pressor Political Science at LaGrange College in Georgia. He has published articles in the Journal Peace Research, International Studies Quarterly, the Journal Conflict, Security and Development, American Diplomacy, the Whitehead Journal Diplomacy and International Relations, the Journal for the Study Peace and Conflict, and the Online Journal for Peace and Conflict Resolution.

Politics. Written Assignment 3

Politics. Written Assignment 3 University of Lancaster Politics Written Assignment 3 Compare and contrast two theories of international relations by their ability to account for war Student number: 32786263 Word Count: 1900 Tutor: Ian