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There’s a number of economic tools that may be effective in preventing conflict. Most seem to fall under good governance. The first one that comes to my mind is export diversity. If you depend on one item for 44% of your exports and that one item is a commodity as it is with Sierra Leone’s diamonds, your economy is extremely vulnerable to global price fluctuations in that commodity. A downward dip in prices can have a devastating effect when all your eggs are in one basket. If people have to be laid off or you have to cut their wages, then social dissent can escalate as a result.
The second item that comes to mind is avoiding growth without development. If a nation choose to ignore its infrastructure and social services at the expense of corruption and out-of-control government spending, or spending on things that do not have a long-term impact like million dollar conferences, then that nation will suffer the consequences in decreased foreign direct investment and increased social dissent.
The third economic tool I can think of is well-developed economic and market institutions that are capable of opening up the economy to increased trade. Peter Sutherland adds that increased trade may “challenge domestic corruption, encourage competition, release entrepreneurialism, ensure affordable services, “provide cover for reformers”, increase foreign investment (examples: Saudi Arabia, Cambodia, China), and increase personal civil rights and freedoms by virtue of access to greater levels of information via the internet, cell phones, etc.” (2008).
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Developing nations should be encouraged not to over-borrow, keep a tight lid on inflation, and closely monitor exchange rates. The argument could be made that Sierra Leone needed to devalue its currency to become more competitive and diminish corruption. Secondly, it is one thing to develop a comparative advantage in one export, like diamonds; it is another not to put any resources in developing a Plan B or some other type of export that can balance the commodity risk in the one export you have.
The IMF can helps stabilize temporary balance-of-payments disequilibria (Spero and Hart 15). The Paris Club and London Club can also provide needed mechanisms for restructuring public and private debt respectively (Spero and Hart 36). However, structural adjustments cannot be so austere that they become long-term policies (rather than short-term corrective action) and drive the nation into economic paralysis. Moreover, organizations like the IMF and World Bank need to make sure their resources are going for what was intended. In 1997, only two years before the military coup, “Côte d’Ivoire was receiving 1,276 times more aid per capita than India … but had almost nothing to show for this in terms of economic improvement” (Chirot 70).
The development of strong economic institutions can also help establish “economic security.” Miles Kahler points out that the definition of economic stability prior to enhanced globalization was “centered on (reducing) economic vulnerability to other states” (485). The definition has changed, Kahler argues, and must now include reducing “risks posed by cross-border networks of non-state actors and by the economic volatility of the new global environment” (494).
Thus, spending money on things like the police and military are a good idea for developing nations. I would add to the definition of economic security the presence of an environment that improves the standard of living of its citizens, increases production and produces good jobs and adequate wages on a long-term, consistent basis. This will help reduce crime, lawlessness and disillusionment among youth who could be attracted to rebel movements or illicit sources of income.
Good policies of natural resource governance would also help avoid conflicts. The “resource curse” has heavily inflicted African nations rich in mineral resources, but poor in their ability to manage and secure the production process. Compliance with the Kimberly Process is a step in the right direction for good resource governance, but there are other vulnerable resources like gas, oil, gold or other cash crops like cocoa.
Avoiding uneven development is another good economic tool. If all the development is in one part of a state or with one ethnic group in particular, the other parts of the state and other ethnic groups that have been ignored may not be too happy about it and be more prone to violence.
Martin Wolf had a great summary of how developing states need to use economic tools to their advantage. He essentially says to avoid the practices of failed states. Successful nations achieve the opposite of these (failed state) indicators, especially in the political sphere. As Martin Wolf explains, states that succeed “fully exploit the opportunities (of the market),” “maintain macroeconomic stability,” “sustain high rates of savings and investment,” “let markets allocate resources,” and have “committed, credible and capable governments” (“Useful”).
As James Miskel points out in our week 5 notes, economic sanctions is a tool that can be used to help with conflict containment. Foreign aid and economic sanctions provide the “sweet and sour” options according to Miskel (1). As Miskel rightly points out, one has to be careful about driving activity into the black market, regulatory limitations, effects on legitimate business interests who depend on the “banned export,” a lack of cooperation from other nations needed to enforce the sanctions, and the threat of retaliation from sub-state groups who depend on the illicit trade (Miskel 1-5).
Negative economic sanctions can be effective if all the other extraneous factors go well, but affected players seem to have a lot of work-arounds. Positive provision of economic aid can be helpful if the mechanism for monitoring the use of that aid is credible. If not, the money simply goes down a rat hole, probably into weapons to prolong the conflict. Sierra Leone is a good example of how diamond sanctions and the Kimberly Process did help contain the conflict and even diffuse it into a manageable situation to where the Sierra Leone military and security apparatus could be built back up to handle the situation more successfully. But the British military probably deserve more of the credit than the sanctions do.
Chirot, D. (2006). The Debacle in in Cote d’Ivoire. Journal of Democracy, 17 (2), 63-77. Web. Academic Search Premier. Retrievd from NorwichUniversity Library
Kahler, M. (2004). Economic Security in an Era of Globalization. The Pacific Review, 17 (4), 485-502. Web. 08 Mar 2010. Academic Search Premier. Retrieved at NorwichUniversity Library
Spero, J. E., & Hart, J. A. (2010). The Politics of International Economic Relations. (7th, Ed.) Boston, MA: Wadsworth Cengage Learning.
Sutherland, Peter D. “Transforming Nations: How the WTO Boosts Economies and Open Societies.”Foreign Affairs,March/April 2008: 125-136
The Fund for Peace. (2009). Failed States Index . Retrieved April 6, 2010, from The Fund for Peace: http://www.fundforpeace.org/web/index.php?option=com_content&task=view&id=99&Itemid=140
Wolf, M. (2008, June 3). Useful Do’s and Don’ts for Fast Economic Growth. Retrieved April 4, 2010, from Financial Times: http://www.nyu.edu/fas/institute/dri/Easterly/File/FTjune07_2.pdf