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The economics of peace

How to rebuild and reconcile countries torn by war has been a dominant theme in the global debate for half a century or more. The number of conflicts in the world is going down but the need for better policy has not decreased in any way if we look at what is happening in places like Afghanistan, DR Congo, Libya or Syria.

This debate has mainly involved social scientists and policy makers. Economic theory came late to the academic debate in the 1990s, but has gained strength in recent years. UNU-WIDER, for instance, made a well appreciated effort in 2009 with the book ‘Making Peace Work: The Challenges of Social and Economic Reconstruction’ edited by Tony Addison and Tilman Brück, now newly appointed director at Stockholm International Peace Research Institute, SIPRI. This book specifically underlined the fact entrepreneurship is a key element of reconstruction in post-conflict states. A more recent contribution in how to look at war and peace through the economics lens is The Oxford Handbook of the Economics of Peace and Conflict, published in May this year.

In this edition of the ReCom newsletter Graciana del Castillo, from the US based Macroeconomic Advisory Group, argues on the necessity of economics of peace as part of reconstruction after a violent conflict or war. She defines the theoretical concept as an interim phase in the transition from policy making framed by economics of war and economics of development. Further, she also provides policy recommendations based on experiences in an African country, Liberia that reached peace in 2003 after fourteen years of war.

The record of countries coming out of war is dismal: around half of them fall back into crises and there is little time for long-term policymaking. In the case of Liberia, the risk of a new conflict arising is great since the long-term growth strategy adopted by the government is not addressing urgent problems such as lack of jobs, public education, and the provision of basic services. The security situation is stable, but fragile.
The overriding objective of the economics of peace is to avoid this and therefore policymaking needs to be pragmatic and ad hoc, del Castillo notes. Many principles that should be considered during more normal times need to be set aside. This means that donors waiting for the right conditions to appear before disbursing grants need to think over their priorities once more.

Here Graciana del Castillo proposes policies similar to one she has endorsed for Afghanistan and Haiti; establishing reconstruction zones (RZs) that could jump-start the economies of conflict- and disaster-affected countries. These would be attempts to, in a limited format that is possible to manage with the help of foreign aid, ensure that there is production both for local consumption as well as for exports.
The economics of peace is certainly bringing important arguments to the debate on development and fragile states. Governance failure and conflict are perceived to be the two most important reasons for countries not reaching the Millennium Development Goals, at least according to the participants in the ReCom jobs results meeting on 8 October, 2012 in Copenhagen. The audience was asked what the biggest obstacles are, and 75% answered ‘governance failure’ while 25% voted for ‘conflict’ (table 1).

Yet, despite the difficulties of securing peace, success can still be achieved. Mozambique is a notable example of a country where peace building and foreign aid secured the transition from war to peace, and where economic recovery, assisted by aid, has been robust since 1992. This process have been analysed in several ReCom working papers, for instance with regards to foreign aid, transitions and democracy.

Carl-Gustav Lindén is Senior Communications Specialist, UNU-WIDER