Economic Development, Inequality, and War

1
Economic Development, Inequality, and War

• Paper Presented to the Faculty of Comparative
  CultureSophia University 23 May 2005
• E. Wayne NafzigerUniversity Distinguished
  Professor Kansas State University

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Economic Development, Inequality, and War
3
Introduction Economic Development, Inequality,
and War

• Media focus on threat from failed states to rich
  countries.
• Huntington predicts inevitable clash between the
  West and Islam.
• However, war, state violence, and rebel
  resistance threatens the livelihoods of millions
  of poor.
• 20 of African countries disrupted by war or
  state violence.
• Cost include
• refugees,
• military spending,
• damage to infrastructure,
• disruption of trade and investment, and
• diversion from development.

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Economic Development, Inequality, and War

• War in Africa lowers GDP per capita by 2.2
  points annually.
• World Bank
• Need focus on
• survival income and
• human rights of the worlds poorest.

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Purpose of the Study

• Economic stagnation and deadly political violence
  interact in several ways.
• We analyze how
• economic decline,
• income inequality,
• a weakening state,
• rent seeking, and
• competition over minerals
• contribute to humanitarian emergencies.
• Emergencies comprise a human-made crisis in which
  large numbers of people die and suffer from
• war,
• state violence, and
• refugee displacement.

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Sources of Humanitarian Emergencies

• Stagnation and decline in real income,
• high income inequality,
• high ratio of military expenditures,
• slow growth in food production, and
• a tradition of violent conflict.
• Failure to adjust to chronic external deficits
  another source.
• Political variables
• predatory rule,
• authoritarianism, and
• state decay
• interact with economic variables.
• The focus of the talk is on political economic
  factors, not econometrics.

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Research Projects and Studies

• Research project, 1996-2004
• UNU/WIDER, Helsinki, and
• QEH, Oxford.
• 17 case studies of 17 war-affected less-developed
  countries (LDCs),
• political and economic analysis, and
• econometric analysis of 124 LDCs since 1980.
• Sources
• - Nafziger Auvinen, Economic Development
  Inequality, and War, Palgrave Macmillan, 2003.
• - Nafziger Auvinen, "Economic
  Development, Inequality, War, and State
  Violence, World Development, 2002 and Auvinen
  Nafziger, "The Sources of Humanitarian
  Emergencies," Journal of Conflict Resolution,
  1999.
• - Nafziger Väyrynen, eds., The Prevention
  of Humanitarian Emergencies, UNU/WIDER Studies in
  Development Economics, Palgrave/Macmillan, 2002.
• - Nafziger et al., eds., War, Hunger, and
  Displacement The Origins of Humanitarian
  Emergencies, 2 vols., UNU/WIDER, Oxford
  University Press, 2000.
• .

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Stagnation and Decline in Incomes

• Emergencies in low-income LDCs.
• Many are weak or failing (Holsti).
• Countries more likely stagnant in real GDP per
  capita.
• Stagnation state failure affect
• relative deprivation,
• peoples perception of injustice from differences
  between what they expect and can keep.
• Deprivation often results from class or communal
  inequality.
• Relative deprivation spurs social discontent
  (Gurr).

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More Findings about Humanitarian Emergencies

• Emergencies are highly correlated with war,
  hunger, disease, and refugee flows.
• Reduced living conditions during high
  expectations
• more likely produce discontent
• mobilized into political violence.
• 200 million people killed in war or state
  violence in 20th century.
• Few from rebel action or fighting between
  belligerents (Rummel).
• Policies of power elites at root of most
  emergencies, not recognized in other research.
• Holsti (2000)

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Terrorism and State Violence

• Major contributor to deaths
• Focus NOT on terrorism by opponents of state
• but on terrorism by state or warlords.
• Falkterrorism
• political violence by government during the
  French Revolution
• How can terrorism exempt state violence against
  civilians?

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Slow Growth Analysis and Consequences

• Slow growth or economic collapse puts pressure on
  ruling coalitions.
• Elites can expand private benefit by political
  leaders, reducing their legitimacy.
• To stop threats, political leaders use repression
  to suppress discontent or capture more surplus.
• Repression may include direct violence or
  withholding food from disobedient groups (1980s
  Sudan), increasing relative deprivation and
  mobilization.
• Slower growth can break apart ruling coalitions
  worsen discontent.
• Increase in wars and emergencies in Africa in
  1980s and 1990s linked to economic collapse in
  1970s and 1980s and stagnation in 1990s.
• Africa (1.5, 1960-95) highest death rate from
  1990s wars (0.5 Middle East, 0.3 Asia, 0.1
  Latin America.
• Income per capita lower in late 1990s than end of
  the 1960s (World Bank 2000).
• If Africas economic performance had been that of
  other LDCs, Africas incidence of conflict would
  have been similar to other LDCs.

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Predatory states

• Amid decline, predatory rule and ethnic
  competition for state largess.
• Predatory rule degrade the state
• personalistic rule through coercion,
• economic lures, and
• personality politics
• Elites extract resources from state rather than
  providing incentives for growth.
• Holsti Ruling elites and allies use positions to
  plunder economy through
• graft,
• corruption, and
• extortion in private business
• Ake the African state is privatized
• elites appropriate for private interests.
• Use state funds for corruption,
• from petty survival for clerks to thefit
  (kleptocracy) at the top.
• Väyrynen Humanitarian crises are more likely to
  occur where the state is weak and thus subject to
  widespread policies to acquire private benefit
  from public resources.

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State Failure and Predatory Behavior

• State failure not necessarily from poor
  (inadequate) public institutions.
• Instead, state failure harms most people but
  benefits government elites allies.
• Ruling elites may not benefit from
• free entry,
• upholding rule of law, and
• fighting corruption.
• Instead political leaders may benefit more from
• profit-seeking in politics they control
• than from building a prosperous democracy.
• Such tactics widespread in diamond and petroleum
  exporters,
• e.g., Sierra Leone, Angola, Congo - Kinshasa, and
  Liberia.
• Predatory behavior has lower pay-off in
  mineral-poor economies
• e.g., Tanzania.

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Stagnation conflict

• Most emergency countries, with population near
  subsistence, have experienced long periods of
  stagnation.
• LDC growth in 1960s 1970s faster than 1980s
  1990s.
• Early 1990s increased emergencies partly
  connected to LDCs poor growth of 1980s
  accompanied by state decay.
• Ruling groups had fewer benefits to distribute to
  allies and ethnic communities.
• To repress potential rebels, rulers struggled for
  control of resources, allied with other
  strongmen, and strengthened their military.

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Slow growth causes emergencies

• Evidence indicates that (other things equal)
• slow real growth explains humanitarian
  emergencies.
• Emergencies in turn reduce growth.
• But econometrics shows that causation
• is stronger from growth to emergencies
• than vice versa.
• Negative growth interacts with political plunder
  in a downward spiral,
• such as in Angola, Ethiopia, Sudan, Somalia,
  Liberia, Sierra Leone, and Zaire (Congo).

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TABLE 1HUMANITARIAN EMERGENCIES OLS REGRESSION
MODELS
Note The figures are parameter estimates and
standard errors (in parentheses), respectively.
LGDPGRO ln real GDP growth LGINI ln gini
index LGNPCAP ln GNP per capita LIMFGNP ln
use of IMF credit/GNP LCPIDIFF ln consumer
price index, annual change LMILCENT ln
military expenditures/GNP LDEATRAD ln deaths
from domestic violence 1963-77 except for
LDEATRAD, all explanatory variables are lagged
one year -1. Coefficient significant at
the 1 per cent level (2-tailed test), 5 per
cent level and 10 per cent level a not
significant DW Durbin-Watson test statistic
for serial correlation.
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Stagnation and Adjustment

• Stagnation is often accompanied by chronic trade
  deficits, necessitating economic stabilization
  and reform.
• Failing to adjust is costly.
• The longer this failure, the more painful the
  adjustment. Most LDCs face frequent
  balance-of-payments problems, which reduce
  control by political leaders.
• However, minerals and a strong military can
  provide the warlord with security that postpones
  adjustment.
• LDCs changed strategies in 1980s 1990s,
  following slow growth, reduced aid, increasing
  debt, and the increasing market orientation of
  DCs international agencies.
• New strategies challenged existing rulers,
  increasing private use of public resources, and
  repression.
• Spending cuts reduced money for clients
  increased military and police power for survival.
  

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Income Inequality

• High income inequality increases risks of
  emergencies.
• Income inequality fuels social discontent
  political instability (Alesina and Perotti).
• Predatory and authoritarian rulers policies
  increase inequality.
• We found relationships between income inequality
  and war
• by using income concentration measures from
  Deininger and Squire (1996)
• Others lacked data on distribution

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Grievances, Greed, and Emergencies

• Collier argues
• Inequality does not seem to effect the risk of
  conflict. Rebellion does not seem to be the rage
  of the poor. . . . Conflict is not caused by
  divisions, rather it actively needs to create
  them. . . . However, it is the military needs of
  the rebel organization which have created this
  political conflict rather than the objective
  grievances.
• World Bank researchers
• Greed rather than grievances drive civil wars
• Our findings indicate both grievances greed
  drive war emergencies.
• High inequality may contribute to emergencies
  even with rapid growth.

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Relative absolute deprivation

• Igbo elites in Nigeria experienced absolute
  deprivation during growth in the early 1960s.
• The East lost oil tax revenues from federal
  change in mineral export allocation to regions.
• High income concentration increases relative
  deprivation.
• Rising income disparities by class, region, and
  community increase the risk of political
  disintegration.
• Regional factors include
• educational and employment differences,
• revenue allocation, and
• language discrimination.
• Examples include 1960s Nigeria, 1950s 1960s
  Pakistan, Hutu Tutsi conflict in Burundi
  Rwanda, 1980s early 1990s Yugoslavia, Sri
  Lanka.

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Inequality and war

• Large inequality associated with war
  insurgency, especially if less advantaged can
  identify perpetuators of poverty.
• Relative deprivation from inequality may occur
  with growth, as in 1960s Nigeria, or even when
  the disadvantaged group's relative position is
  improving, as non-white South Africans 1960s-from
  the 1960s through early 1980s.
• Nigeria, South Africa, Chiapas, Mexico
  illustrate diverse patterns of government
  discrimination, economic inequality, fuel social
  discontent, and emergencies.
• Once a population is dissatisfied with income
  inequality, as majority nonwhites in white-ruled
  South Africa, rising expectations may spur the
  revolt and state hostile action that increases
  the risk of an emergency (Davies, 1962).

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Competition for Natural Resources

• Collier
• Primary commodities and their exports increase
  civil wars.
• Mwanasali
• Primary exports advantages to belligerents
• generic products so origin can be concealed
• heavily taxable and
• uncomplicated production processes.
• De Soysa
• civil war unrelated to per capita availability of
  natural resources
• agricultural
• mineral
• Once De Soysa includes only minerals, she finds
  the greater mineral wealth, the greater the
  incidence of conflict.

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Minerals, Conflict, and State Violence

• Why do minerals contribute to conflict and state
  violence?
• During cold war, superpowers provided aid for
  LDCs. LDCs extracted resources from major powers.
• Aid provided support for patronage.
• When cold war ended, LDCs required new strategies
  and fund sources.
• Many Afro-Asian LDCs needed control of resources
  for military and police power but only minimal
  services.
• With International Monetary Fund (IMF)/World Bank
  emphasis on the market, predatory rulers could
  undermine bureaucracies to build personal power
  at the expense of health, education, and
  agricultural development (Reno, Väyrynen).

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Minerals, Conflict, and State Violence

• The struggle for control over minerals and other
  natural resources are important sources of
  conflict.
• Rulers in Angola, Sierra Leone, Liberia, and
  Congo - Kinshasa used exclusive contracts with
  foreign firms for minerals to regularize
  sources of revenueno governmental agency for
  taxes (Reno).
• In comparison, Tanzania lacked the tradable
  resources to become predatory (Väyrynen).

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Liberalization and Adjustment in Sierra Leone

• With aid decline, Sierra Leone pressured by
  IMF/WB for liberalization and adjustment.
• In 1991, creditors of Sierra Leone offered loans
  and debt rescheduling worth 625 million, about
  80 per cent of GNP, if it reduced government
  expenditure.
• Freetown heeded World Bank's advice to use
  private operators to run state services.
• Privatization shifted clientage from government
  to private sector.
• Sierra Leone's ruling elites used foreign firms
  for power to defeat rivals.
• In the 1990s, Sierra Leon heads of state relied
  on contracts with foreign firms for diamonds to
  stabilize revenue, foreign mercenaries to replace
  the army, foreign contractors for providing
  other state services.

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Control territory destroy state

• Rulers sometimes destroy state agencies, using
  violence to extract resources from their people
  (Reno).
• In Liberia, Charles Taylor used foreign firms to
  amass power.
• Taylor's territory had own currency,
  telecommunications, airfields, export trade in
  primary products, arms imports, and port.
• Taylor, a warlord before 1997, controlled
  territory by building patronage, easier than
  building a state and its bureaucracy (Reno).
• Taylor-lands GNP was 100-200 million from 1990
  to 1996 (Reno 2000).

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Warlord Approach

• Even Zaires President Mobutu Sese Seko
  (1965-1997) mimicked the warlord approach.
• Foreign firms served as source of patronage.
• Indigenous commercial interests tied to the
  states.
• Mobutu survived state collapse, but fell because
  his strategy of milking state assets had reached
  a limit, seriously weakening patronage.

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Benefit-cost for rulers

• Although state failure increases vulnerability to
  war, some rulers warlords profit more from war
  than peace.
• War and state failure may result from rulers and
  warlords benefiting from the harm of the
  population.
• Mineral wealth increases relative deprivation for
  allies and rebels.

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Democracy and Authoritarianism

• What is the relationship between political
  conflict and authoritarianism?
• Authoritarianism is conducive to conflict because
  repression increases opposition activity.
• An inverted U-relationship autocratic
  governments face much more revolutionary
  opposition than democracies.
• But mild repression incites conflict and intense
  repression deters it.
• Authoritarian regimes may cling to power during
  relative prosperity but are more prone to
  collapse during economic crises.
• Authoritarian regimes are also more dependent on
  foreign lenders to stay in power. During
  adjustment, Turkey and Morocco were supported by
  the IMF, World Bank, and other lenders.

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Other Factors

• Military expenditures/GNP contributes to
  emergencies.
• Military resources support predatory and
  authoritarian rulers.
• Authoritarianism lacks political mechanisms to
  settle grievances, increasing the risk of
  rebellion.
• Or a strong military is a constant threat to
  civilian LDC regimes.
• In very poor countries, increased spending for
  military may produce starvation and destitution.
• Finally a tradition of political violence
  increases susceptibility to war,
• e.g., Rwanda, Burundi, and Colombia.

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Ethnicity

• Ethnic identity is not a primordial given.
• Ethnicity is
• created,
• manifested,
• combined, and
• reconstituted
• in struggles to share benefits from modernization
  and self-government,
• but is not a source of these struggles (Nafziger
  et al., 2000).
• Widner (1999) e.g., Yoruba people in Nigeria.
• Elites use identification with ethnic
  communities, and even accentuate them, to
  transfer potential hostility from inequalities
  and power disparities from their communities to
  others.

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Conclusions

• A major factor responsible for 1990s increased
  emergencies was
• LDCs prior stagnation and its contribution to
  state decay.
• Slow growth and accompanying chronic external
  deficits increase vulnerability to emergencies.
• Large income inequality contributes to
• ethnic and class discrepancies
• that contributes to crises.
• The competition for mineral resources by warlords
  and traders in weak states increases
  vulnerability to war and state violence.
• Ethnicity is not usually a source of conflict but
  often emerges during conflict, sometimes as an
  invention of politicians.

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Conclusions

• The Third World, with the support of the
  international community, must strengthen and
  restructure the political economy of poor,
  unequal, and weak states.
• LDCs need to make economic and political
  institutional changes
• a legal system,
• financial institutions,
• increased taxing capacity,
• investment in basic education and infrastructure,
  
• well-functioning resource and exchange markets,
• programs for weaker segments, and
• democratic institutions that accommodate and
  co-opt the countrys ethnic and regional
  communities.
• Institutional development increases the
  productivity of private investment and public
  spending and enhances the effectiveness of
  governance.

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Conclusions

• DCs international agencies bear substantial
  responsibility for modifying the international
  economic order to enhance growth and adjustment.
• LDCs must demand consideration of their economic
  interests within present international economic
  and political institutions.
• The interests of the Third World can be served by
  
• its enhanced flexibility and self-determination
  in adjustment and liberalization
• a shift in the goals and openness of the IMF and
  World Bank
• the restructuring of the international economic
  system for trade and capital flows
• the opening of rich countries markets
• more technological transfer by foreign companies,
  
• bilateral donors, and
• international agencies
• a greater coherence of aid programs and
• increased international funding to reduce
• food crises,
• directly help the poor,
• ameliorate external shocks, and
• write down debt burdens.

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Conclusions

• Some vulnerable countries are not amenable to
  political economy solutions.
• Policies of governing elites are indeed at the
  root of most emergencies, and usually some
  powerful factions in society benefit from them.
• Yet a large number of countries vulnerable to
  emergencies have the will to change.
• Thus, there is much scope for
• international,
• national, and
• nongovernmental economic and political actors
• To co-ordinate long-term policies
• to reduce the developing worlds vulnerability to
  humanitarian emergencies.