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Jamie Galbraith:
Yesterday was a very long, very intense, very successful day. Today will be intense and successful, but not quite so long.
I do want to give you an update on one matter that I mentioned at dinner two nights ago. Since many of you are concerned about it, that’s just the situation of my mother. It develops that she was up in Vermont, as I said, taking the first swims of the season, and on Sunday night she slipped carrying a tray of glasses, managed to put the tray down without breaking a glass, got up, was helped up, seemed to be okay. Next day she went swimming, she went to a party, she stayed at the party, quite happily the life of the party till midnight. The following day she was driven back to Cambridge, and it wasn’t till the day after that that she began to realize something was wrong and went to the hospital, got a scan, and realized that she’d fractured her hip.
Anyway, they of course admitted her, she was operated on last night, got a partial hip replacement, and the word I have is that things were fine.
Jurgen, you have something to say about the journal.
Jurgen Brauer:
Thank you very much for giving me a minute. Thea was so kind to place on your seat a card. Maybe some of you sat on it as you came into the room. This is the Economics of Peace and Security Journal. It’s an outgrowth of some publication activity of EPS. As you know, we have a number of international affiliates, and this particular journal is sponsored by the affiliate in the United Kingdom. The co-editors of the journal are myself from the United States and then Professor Paul Dunn from the United Kingdom. The idea of this particular journal is to present essentially to non-economists what economists are thinking, but without the equations, so to speak. International civil servants, and NGOs and members of peacekeeping services, and people in the religious community ordinarily don’t read economic equations. So the idea is to have a journal here that is very well edited and in very understandable language, transmits to primarily non-economists what economists think and how economists think about issues of war, peace, conflict, [?], resolution, and so on.
At the moment the journal comes out twice a year. Maybe later on it will be at a higher frequency. The subscription rate is, I believe, something like twenty dollars a year. It’s done electronically as PDF files so we don’t have to deal with shipping costs and printing costs and so on. On one of the sides of the card you see articles that already have been printed, as well as some of the plans for future issues and topics. So I would encourage you, if you’re interested, a) to subscribe yourself, and b) to maybe pass the word around, particularly in the various communities that I mentioned. Thanks.
I should add that the funds raised from the subscriptions, since this is all done electronically, the cost of production is near-zero, apart from my time. But the subscription funds are meant to help fund conferences essentially. In England we have an annual conference such as this one we have here in the United States. There’s one in England every year, and often we get applications from people in Africa and Asia. They really have no access to funding whatsoever, and they’re not in their community at all because they can’t travel. And so the idea is to use the subscription funds to maybe help or the other person attend that conference and be brought into the network. Thank you.
Jeff Madrick:
I guess it’s my turn. I’m moderating this panel. I am so happy to be here. My name is Jeff Madrick. I’m an author and editor based in New York City. I don’t normally write about these subjects, but I’m intensely interested in them. I can’t think of any subject more important in general than economic security, especially since nuclear weapons were developed 50 years ago.
I was thinking, at the risk of boring you all, that I’ve never written anything about this subject. This is not entirely true. This is slightly self-serving and name-dropping, but for many years now I’ve been a close friend of Donald Sutherland’s, and he did a show with Geena Davis on TV, where she played the president of the United States. And he called me up and he said, Jeff, Geena is giving her State of the Union message on the show, and we need a speech. We need a few ideas about what she should say. Did I mention this to you? We need a speech about what Geena Davis should say.
And I’m sitting there, of course, writing about minor issues like poverty or public investment, saying, what the heck could Geena Davis want to say? I say to Donald, Give me an hour, okay? I just have to finish this little piece. I was writing columns for The New York Times at the time. And I sit down and I say, What we have to do is cut our arsenal by one-half. That would be a great thing to say.
Well, Donald, who has long been an anti-nuclear activist—a lot of you may not know that—was delighted to see this, and he sent it to Geena Davis. I immediately get a phone call. She loved it. This little thing I wrote was written into the program. By the time the program got on, it will not surprise you, it was reduced to a little conversation between her and her assistant; but indeed she did advocate cutting our nuclear arsenal by one-half.
That is my personal contribution to this. This is why I was asked to moderate this panel.
Being at Bard College, I’m reminded of one other thing. I find these times desperately difficult and sad. It’s hard for me to comprehend how this administration has made this world so much more dangerous than it was five or six years ago, even than it was on September 12, 2001. But Jim Chase used to teach here, as you know, and I remember not long after the end of the Cold War, Jim wanted to do a study, and he got me involved in it. He tried to raise money from a foundation talking about how, when a nation like the United States is the only super-power in the world, how it has to develop new ideas about its responsibility, as opposed to, say, some ideas that were advocated like creating a new empire. Jim couldn’t raise money for this. Foundations just didn’t want to hear about it back then. It was hard to say anything that might appear—well before 9/11—hard to say anything that might appear critical of the U.S. It was a desperately needed project, I think that’s clear in retrospect, and the lack of thinking about that and the lack of the nation’s ability to be self-critical, even including and maybe especially in the Clinton administration I believe has led to the current circumstances we’re in.
Let me get right to the experts who know a lot more about this subject than I.
I’d like everybody to talk, if possible, for no more than 12 or 15 minutes, so we can leave enough time for Q&A among yourselves and with the audience. Let’s get right to it. I’m going to go according to how it’s listed in the program. Our first speaker, I’m delighted to see, is Clark Abt. The subject is “Inexpensive Economics of Preparing for Terrorist Attacks and Disaster.” I won’t read his bio, I see they’re all listed here. I think you probably know it anyway. Clark, please.
“Inexpensive Economics of Preparing for Terrorist Attacks and Disaster”
by Clark Abt:
Thank you. On a personal note, I learned in the 1960s that deterrence requires escalation dominance. I learned from Ken Galbraith’s strategic bombing survey that bombing doesn’t defeat a determined and dispersed opponent. I learned from Viet Nam of those days that pacification of a large and hostile popular insurgency requires more occupation forces and time than are rarely worth the gains, if any in security.
Now several speakers at this conference have reminded us of some of these lessons of conflict history. Michael Lind has cautioned us that the neo-Cons’ will to world dominance is neither exhausted nor corrected. Lloyd Dumas reminded us that bombing an opponent does not work; Jamie Galbraith, that increasing inequality provokes increasing conflict; David Gold, that the current dominant U.S. regime wants to and can spend even much more to pursue its dangerous dream of American hegemony; and Warren Mosler reminded us in some of his comments that the U.S. public does not feel the pain of our disastrous policy, and so is unlikely to stop the war or other follies of our current leadership, or just doesn’t give a damn.
Now, when a strategy of offense fails, as retaliatory bombing, or preemption, or preventive war, or invasion, occupation, and pacification--if these fail, a prudent strategist looks to defenses, active and passive, ideally non-violent and peacefully productive, and replicable by adversaries and allies alike in following the Golden Rule and the categorical imperative.
Having studied countering terrorists for the last 40 years, and catastrophic terrorists since 9/11, and ways of defending ourselves against them actively, I satisfied my mind in the last couple of years that active defense versus catastrophic terrorism with weapons of mass destruction, particularly loose nukes or biological weapons, is feasible and costly. I did studies for the Ford Foundation on bio-defense, and for the Department of Transportation on defense against nuclear weapons introduced in containers. It’s feasible and it’s costly at about ten billion a year; but it’s unlikely to be financed by this administration, as it indeed has not been.
So that forces me to reconsider more economical passive defenses meeting the above criteria of morality and utility. And I think it’s pretty clear that terrorism, catastrophic or less, is going to be with us for possibly many years; so that prompted the inexpensive economics of preparing for terrorist attacks and other disasters, natural or man-made.
Why inexpensive economics? Because no special equipment is needed other than in common everyday usage by most even modest-income persons and commonly available public education channels.
Why prepare for catastrophic terrorist attacks if we in the United States have the world’s strongest military forces, most advanced technologies, and the greatest wealth to afford it all? And a very patient electorate. Because we’ve been unable to de-motivate, deter, or deny entry to terrorists, and they’ve proven they can evade the most sophisticated defenses, and still produce the deadliest attacks. And I think that is our fate for the next probably 10 or 20 years. So i
Why prepare for natural disasters when we have government agencies like FEMA and the Department of Homeland Security to protect us? And wouldn’t it be nice if our defenses against catastrophic terrorist attacks did double duty as defenses, or at least reductions of damage, of natural disasters such as tsunamis, hurricanes like Katrina? And why do we have to make special preparations, since we have FEMA, and the Department of Homeland Security, and the military reserves, and so on? Quite simply, because they’re inadequate protection against large-scale disasters. Theoretically they could be protection against local disasters, if you think of Katrina as a fairly local event; but they can’t defend us against generalized disasters like a pandemic, which simultaneously hits whole countries and areas so that localities are on their own.
And finally why prepare peacetime non-military defenses against both terrorists and natural disasters? Because being dual-use or multiple-use, they gain economies of scale, and being in regular peacetime use, they require less specialized, costly equipment, less warning and mobilization time, and contribute to overall non-crisis productivity. And because being peaceful and domestic, rather than foreign and military interventions, they don’t provoke greater hostility, expanded terrorist recruitment, or revenge attacks.
So how do we do this? Well, when both catastrophic terrorists and natural disasters fail to be deterred, defended against, or contained, passive defenses can sometimes be more effective, and less provocative and less costly. Actually, mitigation of damages serves as an indirect means of deterrence of terrorist attacks if you assume that the terrorists’ objectives are to bring down our economy and our political economy by damaging it enough so that people lose confidence in the survivability of our form of government. And I completely agree with Michael Lind that the terrorists aren’t going to bring us down. We might bring ourselves down in overreaction; but we can’t be defeated by this means. We can’t even be defeated by nuclear terrorism or biological terrorism.
Preparation of survival of both man-made and terrorist disasters and natural disasters, such as pandemics, hurricanes, floods, earthquakes ideally share important characteristics that can yield inexpensive economies of non-violent defense. In general, prevention of catastrophic terrorist attacks with nuclear and biological or chemical weapons of mass destruction is very costly and uncertain, and apparently we are unwilling to pay the price of inspecting 100 percent of cargo containers and scanning them for weapons of mass destruction, something that’s quite feasible and would cost about 10 billion a year, but we’re not going to spend it, at least not in this administration, despite the Democratic Party calling for such an effort.
So we’re left with, and we can’t prevent natural disasters; we can just ride them out. The most threatening natural disaster right now to the world population is the humanly communicable pandemic influenza, avian influenza. This took roughly 700,000 American lives when our population was 100 million in 1918, and somewhere between 50 and 100 million fatalities in 1918. If the HVN1 virus comes back in a humanly communicable form--it’s endemic now in wild foul and has already cost somewhere between 10 and 20 billion dollars in losses to poultry, particularly in Southeast Asia—if that comes back, it’s estimated that the world fatality level could be in the 100-200 million level, and something like half the world’s population will be infected. Now most people who are infected, even in 1918, survive. Probably a third to a half of our population, 30-50 million people at that time, were infected; but fewer than a million died. So it’s not as completely deadly as smallpox, for example; but it is very serious. And what is unique about pandemic flu, and uniquely threatening, is that it will appear simultaneously, or nearly simultaneously, in most parts of the world if it gets out because of globalization, because of air transport, and because you become infectious a couple of days before you become symptomatic. So it’s a major threat, and WHO and the CBC have major detection networks out to watch for it and to try and contain it.
But if you look at the plans for mitigation or containment of avian influenza—and I’ve looked at the WHO plans and reviewed those, and the German and the French and the British and the U.S. plans, and the state plans—you’ll find that they talk a lot about vaccine development and vaccine distribution; but at the very end of the planning document, they say, well, we have to be realistic and admit that there isn’t any vaccine, and it will take us many months and possibly years to develop and produce one when this disease emerges, and so we should institute the usual public health measures of isolation, quarantine, travel restrictions, and that’s it. So states and localities and cities and governments have been planning these.
Now against the deadliest terrorist attack, which is either a primitive or not-so-primitive nuclear weapon detonated in a major city, we can not really mitigate that greatly; but the relatively lesser threat of the nuclear terrorist attack is that it’s unlikely to hit more than one or maybe two cities. It’s very different from the threat of a nuclear holocaust which we survived and endured in the Cold War, and it’s extremely unlikely to trigger a massive nuclear exchange. The best way to prevent this is to eliminate nuclear weapons. The next best way is to really reduce proliferation and the opportunity of terrorists to buy or capture nuclear weapons. But failing those efforts, and they’re likely to fail for the next five years anyway, the best defense here is to limit the damage as much as possible.
Now against both the worst pandemic threat and many of the natural disasters and epidemics, the best preparation is a combination of five inexpensive and commonly available essentials in both home and workplace, and these are: sheltering in place in the home or workplace when there is broadcast warning from the media—not from the government; the media will be way ahead of the government because the government is deathly afraid of false alarms and its political and economic costs. So the media will probably give the first alarm of either the outbreak of humanly communicable influenza or of a nuclear terrorist attack. Sheltering in place in home or workplace. Communications access to media such as a car radio or a battery radio. Enough non-perishable food for 30 days—stuff you eat anyway in cans or containers that will allow you to ride out a pandemic or radioactivity from fallout in your home or your workplace. Essential medicines for 30 days—very important for diabetics and others. And access to backup labor to assist dependent children or handicapped folks, if you are at work and you have to stay at work, if you’re, say, a hospital worker or a municipal worker, so your family can be taken care of.
Now, hurricanes, tsunamis, flooding, and large-scale fires may require evacuation; but in almost all other disasters, especially pandemics and epidemics, sheltering in place and avoiding crowds, and avoiding going out is the way to protect yourself independent of the capabilities or lack thereof of government agencies to support you.
So what’s missing in almost all disaster preparation and mitigation planning to date has been a recognition that both material supply chains and normal electronic two-way communications are likely to be interrupted for at least several days, and possibly, in the case of widespread nationwide or worldwide disasters such as humanly communicable avian influenza or a national cyber-terrorist attack, as happened to Estonia only last month, logistic supply chains and two-way communications may be disrupted for quite a while. And so we have to be prepared for that, and we have to be prepared on an individual, family, and community basis.
Even the U.S. Secretary of Homeland Security, Michael Chertoff, still doesn’t get this. He said recently that people living in vulnerable coastal areas—that’s roughly half the U.S. population now—should stockpile enough food and water to last at least 72 hours. That’s three days. In Massachusetts, the advice is you should stockpile for at least a week. I asked the official in charge, Why a week? Why not four weeks? You understand that we need more than a week. He said, Yes, but we didn’t want to frighten people. Stupid answer.
And Chertoff said, Your state, federal responders, they will not be there instantly. Not only will they not be there instantly; they won’t be there in 72 hours either, or maybe even 700 hours, particularly if the disaster is nationwide, as in pandemics, and all states, cities, and communities are essentially on their own.
So, in conclusion, the most urgent and inexpensive corrective to the potential supply chains breakdowns in disasters is public education, which is inexpensive to try, on the need for and the feasibility of family and workplace self-reliance by knowing where and how to shelter in place and have the essential food and medical supplies stockpiled there to sustain themselves without outside assistance long enough to outlast the worst part of the threat, be it deadly contagion, radioactive fallout, poisonous air, or blizzards, or storms, unless you’re subject to flooding, in which case evacuation still has its place. Thank you very much.
JM:
Right to Solomon Polachek. Thank you, Solomon, “Democracy, Peace, and Trade” is the name of his presentation.
“Democracy, Peace, and Trade”
by Solomon Polachek:
It’s a real pleasure to be at this conference. I think it’s wonderful to have so many people of various disciplines here so that we can learn from each other. Indeed, I’m going to motivate my paper, or my presentation, by some of the papers that we had yesterday, indeed a few of them.
One thing that we learned from Alan Kuperman—and I’m going to paraphrase his paper in a different way than he gave it—he was talking about a moral hazard yesterday, and I’m going to paraphrase what he said essentially in the language of insurance. He said, really—he was talking about genocide—what he really said, I think, is that the reason that we have so many auto accidents is because the auto insurance is too generous. That’s a paraphrase—he was talking about genocide in the countries going to other countries essentially to prevent the genocide, and because these countries go in to prevent the genocide, that causes more genocide. But you can make the same argument for auto insurance. Essentially the reason we have so many auto accidents is because we have auto insurance to pay for the auto accidents. So his solution essentially was to make the auto insurance claims more stringent, in a sense to tighten up on the auto insurance.
My argument against that would probably be, well, why don’t we just make cars safer, and that would probably be a better solution? Why don’t we get to the root cause of the problem, as opposed to tinkering with auto insurance? So what I actually want to talk about today is a root cause of peace, or a root cause of war. And that root cause I’m going to claim is related to something that Jeff Dumas said yesterday. And Jeff really said yesterday that it’s not bombs, or bombs don’t stop wars; but relationships do. And I’m going to actually talk about relationships, and this is related to in a certain sense what Jamie Galbraith said, is that we want to look single causes, important causes. And I’m going to look at the cause of relationships between nations as a root cause for cooperation between nations, or how these relationships, or a particular kind of relationship, causes cooperation in peace as opposed to war.
And it goes back—there’s a long history in looking at the relationship, or the kind of relationship that I’m going to look at. It goes back at least to Baron de Montesquieu, who claimed that peace is the natural effect of trade. And if you pick up a copy of the paper that we back there, or they have back there that I’m presenting, I start out actually with a quote from Baron de Montesquieu, namely, “Peace is the natural effect of trade. Two nations who traffic with each other become reciprocally dependent; for if one has the interest in buying, the other interest in selling, and thus their union is founded on the mutual necessities.”
So what I’d like to actually do today is to talk about some of the work I’ve done on this trade-conflict relationship, that is, with trade as the root cause of creating cooperation, which is basically a kind of a relationship, how this relationship of trade between countries can actually serve as a cause, or as a root cause for peace, and the lack of trade could create conflict. What I’m going to do is I’m going to make the case for it, and I’m going to make the case in four steps, and then present some evidence.
The first step is I’m going to claim that relationships are important. Mainly to understand peace, one has to examine what political scientists call dyads, or what economists would call bilateral relationships.
Secondly, I’m going to claim that the important characteristic of dyads, or pairs of nations, is trade and essentially the gains from trade.
The third thing that I’m going to claim is that conflict, that if there’s conflict between pairs of nations, that will lead to the cessation of trade.
And therefore what I’m going to claim next is that the higher the trade and the higher the gains from trade in particular, the higher the cost of conflict, and hence the lower the amount of conflict.
And that’s what I’d like to make the case today.
I’m going to present some evidence. Some of the evidence presented before on events data, some of the evidence I’m going to present is going to be new on events data, and then I’m going to present some evidence from something called MIDS data, and I’ll explain what that is. Then I’m going to look at an application, if you permit me to have enough time … on something called the democratic peace, and whether it’s democracy per se which causes peace, or something about democracies, namely the trade that democracies have. And then I’m going to look at some anomalies, if we have time, and then try to see how we can solve some of the anomalies.
So let’s look at the data. Now, if you recall, the first thing I want to look at is that dyads are important in understanding peace. Why do I say that? This is basically data from a particular study called events studies. In political science, you have political scientists that have gone through newspapers essentially—and this one is called Cooperation and Peace Databank—where they’ve gone through essentially 50 newspapers from the period 1948 to 1973, approximately, and they rated all bilateral interactions as cooperative or conflictual. And if you look at this, like for example the U.S. the Canada, a positive sign here means cooperation; a negative sign would mean conflict. So if you look at this, the U.S. is cooperative with Canada, conflictual with China, conflictual with Russia at that time; but cooperative with Israel, cooperative with Japan; cooperative with the U.K.
And you can actually see this in another data set too. This is another events data set called WEIS, which stands for World Events Interaction Survey, coming from The New York Times. And I’ll mention another events survey later. But you see the same kind of effect. This is from 1966-91. And again, if you take any one country, one country cooperates with some countries, but yet it’s hostile towards others. The United States is friendly with Canada, a little bit less friendly with Mexico, not very friendly at all with Cuba.
And that’s true in personal life too. We’re friends with some people, but we can’t stand other people. So it’s not the person; it’s the relationship which is important. There’s something about the bilateral relationship which either causes cooperation or conflict. And so my one first point is that we have to really look at pairs, and not at single countries.
Having said that, what is it about pairs which creates the impetus for cooperation or conflict. Well, what is a relationship? A relationship is trade of some kind. With people, it’s interaction, personal interactions. With countries, it’s essentially trade of some sort, and usually it’s international trade of economic commodities, or commodities in essence. So I’m going to claim that what we look at in pairs is where there’s trade, whether there’s gains from trade, or whether there isn’t gains from trade.
Actually, if we were theoretical economists, this is the simple graphic depiction, and I want to go through it because of time constraints, but there are ways either graphically or mathematically to illustrate these gains from trade. And I’m not going to do that here, but we can discuss that later.
The claim that I’m going to make is that if there’s conflict between countries, that would lead to the cessation of trade. So if Country A conflicts with Country B […?], then Country B will stop trading, or at least diminish the trade. And that’s true with human interactions. If there’s conflict between two people, they’ll just stop seeing each other. They’ll stop interacting if there’s conflict. And there’s a lot of evidence that conflict does lead to at least a diminution of trade. And I’m going to quote from Chuck Anderton, and this is one of the graphs that he has in his paper, and you can see that during World War I, the amount of trade between Italy and Germany essentially decreases. And he has a number of charts which indicates the decline in trade when you have conflict or when you have war. So there’s a lot of evidence, although some of it’s mixed, but there’s a lot of evidence that conflict to the cessation of trade.
So what am I going to claim? What I’m going to claim, as I said before, is that countries with the greatest gains from trade face the highest costs of conflict, and hence engage in the least amount of conflict. And that’s what I’d like to present some evidence about and test.
To present some evidence, what we can do is we can do a correlation essentially between the amount of trade and the amount of conflict the countries have. And if what I said before is correct, we should see an inverse correlation; that is, the countries who have the most trade, the most gains from trade, should face the highest costs of conflict, and hence engage in the least amount of conflict. Put another way, if you want to get into personal life, husbands and wives that have the highest trade, the highest compatibility, should have the lowest probability of divorce, in essence. That’s a form of conflict.
So what we should expect to see, then, is an inverse correlation, and these yellow outlined numbers represent essentially inverse correlations of various experiments between countries. This is, again, with the [?] data from 1948 to 1973. And we look at exports, we look at imports, and we look at what other variables we hold constant; and essentially in all cases we find a strong inverse correlation. Essentially these circled-in-red numbers show that essentially if you double trade between countries, you should get between 15 and 20 percent decline in conflict. And that’s some of the numbers.
Now, we tried this out with various other data sets. The [?] was ‘48 to ‘78; the WEIS, from 60s to ’92, and there’s another data set which is not from newspapers, but machine readable, called the VRA data, Virtual Resource Associates, and that also has an inverse correlation, and that’s data for essentially the 1990s, and it’s the yellow inverse correlations which are important. I’m not going to talk about the other variables, what we hold constant. So there appears to be strong evidence that nations, or pairs of nations that trade with each other have less amount of conflict.
Now some of this has been reported before. Column I and Column II has been reported before. Column has not; that’s relatively new. And so I’m going to present some more new evidence on this, and then talk about a few other things.
MIDS data is data that political scientists use, and that’s data on conflicts itself. MIDS stands for Militarized Inter-state Disputes, and these are events which are kind of warlike events, but don’t necessarily have battle death. It’s military-type activities between countries. And what I’m going to just do is present two pieces of evidence on two aspects. One is on dispute duration. And I’m going to claim that this theory is right if there are disputes which happen if countries that trade, that are involved in disputes, the disputes should be of shorter duration [sic]. And sure enough, that’s also the case. If you look at trade, there’s an inverse correlation between the length of a dispute and the amount of trade. So countries that have more trade, if they do get into a dispute, they even have shorter disputes. It’s probably true in marriages too. If you love your wife, the arguments don’t last very long. I think that’s true. […?] is certainly true.
This is on fatalities in Militarized Inter-state Disputes. If there are two countries that are involved, there’s much much lower probability that the dispute will be a dispute involving fatalities. This is certainly true with marriage. So the case I’m trying to make is that I think one root cause of peace and cooperation is essentially if partners have trade, they depend upon each other, then that causes the relationship to be better, more cooperation, and essentially less hostility.
Now I’m going to look at one example, and then some anomalies. One example is nowadays a lot of political scientists talk about what’s called the democratic peace. Two democracies in essence—let me say it another way—democracies apparently don’t fight each other, and one would be very very hard-pressed to find a war between two democracies. And indeed, I think this has motivated the State Department a bit, because they want to democratize essentially the world, and they think by democratizing the world, we will not have anymore conflicts. I’m going to claim that I’m not sure that’s correct; so this might be a little bit controversial. And I’m going to claim it’s not democracy per se that causes the cooperation, but it’s the fact that democracies tend to have more trade. They happen to be freer countries, in a sense, less trade restrictions, more open; and the higher the grade of the trade, that’s what’s causing the greater peace. And it’s not the democracy per se which is causing the peace. And so I’m going to try to present some evidence which makes the case for that.
Now, the evidence that I’m going to present is essentially I’m going to look at a couple of columns here. Now what I’ve done here in this first yellow -.0, it says that there’s an inverse correlation between trade, […?] is essentially a variable called trade, and what I’ll call conflict. So if you look at-- This is similar to what I showed before; namely there’s an inverse correlation between trade and conflict.
Now, we also have data on whether these countries are democracies or not. And this thing if you have a pair of countries and they’re mutually democratic, it finds an inverse correlation. Also that -1.50 shows that democracies also have a lower probability of conflict.
Now, it turns out though that when you add trade to this equation, that is, if you look at the impact of democracies on conflict as negative, that is, democracies don’t fight with each other, it turns out once you adjust for trade, this inverse correlation between democracy and trade essentially goes to zero. So it’s the trade which is causing the democracies to have more cooperation, and not democracy per se, which is what I’m trying to say. And that, I think, underlies the importance to a certain extent of why I think that trade is important in creating peace, because it’s not the democracies per se which causes the peace; but it’s the trade that democracies have.
Now I’m just going to talk about one anomaly, a solution to the anomaly, and why I think we should study this issue of trade and cooperation, or trade and peace, more. Now this is going to be complicated, so let me explain this quickly—[end Side A] –between pairs of countries. There are lots of pairs of countries, so if you have a hundred countries, the hundred countries is like a hundred times a hundred pairs of countries. So each of these lines reflects the trade-conflict relationship between a pair of countries over time. And for most countries you get an inverse correlation. In other words, for most countries, the more trade they have with each other, the lower the amount of conflict, or more cooperation.
But there are exceptions. And here’s an exception, here’s an exception. And so there are some exceptions. So the question, why does this trade-conflict relationship not work always? Now it could be that the theory is wrong, or what I think is the case is that we don’t measure trade in the right way. And what we’re looking at is we’re looking at the level of all the empirical studies, what economists and political scientists have done is look at the levels of trade; but they haven’t looked at the gains from trade, and the gains from trade is what’s crucial.
Now what I tried to do is actually—I’ll just do this and then be able to stop--is essentially what I tried to do is actually measure gains from trade in a better way. And the way you can measure gains from trade in a technical sense is you look at what they call consumer and producer surplus in economics; that is, a measure actually of the real gains. And they’re very very difficult to measure these things on an international level. But you have some proxies of these gains from trade, it turns out that when you introduce this—I’ll just talk about it—when you introduce this gains from trade, it turns out that that inverse conflict-trade relationship becomes stronger, and you get a very interesting finding that this coefficient over here which measures some aspect of the gains from trade is supposed to have a positive sign, and it actually does. I don’t have the time to go into why it has the positive sign, but I’m saying that if you measure the trade by gains from trade, you get far better results, and that’s what I think what’s causing some of these anomalies of these positive relationships.
So I’m going to conclude by saying a couple of things: One is, is trade good, or [regressive?]? I think that trade actually turns out to be something which is good and important. They found that out, [Comden and Bright?] found that out back in 1852, which is […?]. And it turns out that there was an article in the Milwaukee newspaper a few months ago which I actually I think illustrates it, that consumers benefit from trade, but more than in low prices, the benefit lies also in better odds for peace. And that’s essentially the story that I want to say, or tell; namely, that I think that trade between countries and high gains from trade can actually lead to peace, and that can be an underlying cause for peace. And that’s my story.
JM:
Let’s go right to Charles Anderton, “Institutionalizing and Safeguarding Peace.”
“Institutionalizing and Safeguarding Peace”
by Charles Anderton:
I’d like to thank the Economists for Peace and Security and the Levy Institute, as well as the sponsors of this conference for inviting me here today.
What I would like to do is offer a few perspectives on institutionalizing and safeguarding peace, and I will rely a little bit on the Hershleifer Model of Conflict to highlight some of my points.
Let me start out here with something that I think just about everybody would agree to in this room, and that is that in mainstream economics, peace tends to be viewed as the norm. Jack Hershleifer, in his 1994 address to the Western Economics Association, described how this idea in mainstream economics came about, and he used this definition of economics from Alfred Marshall to highlight the point. Marshall defined economics as “the study of mankind in the ordinary business of life.” And of course violent human conflict is not ordinary. And therefore many economists tend to see conflict as lying outside the domain of economics, and thus conflict tends to be ignored in mainstream economic textbooks. And furthermore, economists who specialize in studying issues of peace and war and security are sometimes viewed as doing political science, which is fine, but they’re not really viewed as economists. Hence, we see relatively few courses in fields in conflict economics in graduate and undergraduate economics programs.
Now of course we know that there are many ways in which economics and conflict go together. I’ve listed out a few here. Conflict affects economic activities. Economic activities such as trade can affect the risk of conflict. Conflict is a choice and thus can be studied as a form of economic choice. Conflict can be a mode of wealth acquisition for some economic agents. And point five here is, if we go to an earlier strain in the history of economic thought, Nassau Senior claimed that security is the most important of all services. It might be an interesting theme statement for Economists for Peace and Security. And so the fates of economics and conflict are intertwined, they go together, even if our economics textbooks pretend that they don’t. These two elements of human behavior go together.
What I would like to suggest today is that this idea of peace being the norm also is, I think, a tendency even among specialists in the field of the economics of peace and security. Peace, I think, is often viewed as the norm in conflict economics. For example, we often view wars as occurring due to misinformation and/or irrationality. So point one here: War diverts resources to military production, it destroys people and property, and it disrupts economic activities. I call those the three D’s, diversion, destruction, and disruption. So war is clearly very costly. We saw in Linda’s talk yesterday that clear point. Therefore, point two here, whatever outcome arises from war, it could have been achieved without war at a much lower cost; therefore players initiating war are either misinformed, or irrational, or possibly both. So I think that view is pretty dominant in our field. We tend to see peace as the norm in the work that we do, as war as an aberration from that norm.
I want to suggest in this following slide that we have too many cases of enduring conflict, and that that then calls into question this point that peace is a norm and war is an aberration. I have a slide here of selected countries and the number of years that they have been involved in conflict, mostly intra-state conflict, but in a few cases or a few years for these countries we would have inter-state conflict as well. And you can see here, for many of these countries they spend most of their time in some form of conflict. Conflict is a norm for many countries, and so actual or threatened violence is the norm for many people in the world.
This is a disturbing result to me, this idea that conflict, at least in some places and for many people, is a norm. The next slide here looks at the average duration of civil conflicts terminated in the decade shown. And what we see here is that civil conflicts last a long time and the duration has been rising in recent decades. This also is a perplexing phenomenon and a disturbing phenomenon.
So the question I want to address briefly today is why at least in some places is conflict so enduring and what can economists understand about this phenomenon, what can we in a sense bring to the table in understanding these problems and how they might be in some way improved upon.
So I’m going to turn a little bit here to the Herschleifer Model to address a few of these issues. And again, I can only touch upon these ideas here. So here’s the Herschleifer Model of Conflict. We have two players, A and B, who could be nations, or groups within a nation, and prime is the settlement opportunities frontier showing the income possibilities available to A and B should they avoid violent conflict and settle instead and perhaps enjoy the gains from trade that Sol spoke of. E is the expected distribution of incomes to A and B if they have a war, if they fight. Since war diverts, destroys, and disrupts things, E often lies inside this settlement opportunity frontier, as shown here. UA and UB represent the utilities of A and B from a war, that is, from achieving point E. And as shown in the graph here, both players are better off in this region here, this region of mutual gain. And we see the segment of the settlement opportunities frontier S prime that lies that region; hence both players would prefer to settle rather than fight a war.
So given the assumptions herein, we should not see war. We do see war, and we see enduring conflict; so some aspects of this picture must be a poor reflection of the way things are, at least in some cases. So let’s look at how we do get war in this kind of framework. So if I look at the next slide, one of the risk factors for war that’s common in the literature is divergent and optimistic expectations of returns for war. What we see here are points EA, where player A thinks incomes will be if there is a war, this is where player B thinks incomes will end up if there is war. They are divergent and relatively optimistic. The mutual settlement zone here lies outside this region of mutual gain. Because of divergent and optimistic expectations, we have a high risk of war in this framework.
However, this is really not an adequate explanation for why we see [it?] during conflict. Many authors describe conflict as a learning process, where the players come to see and learn how costly war really is, as, for example, we are in the current situation in Iraq. And this learning should cause a convergence of the expected returns from war such that a settlement would emerge over time; yet we see many countries with very long conflicts, enduring conflicts, so this picture really can’t explain for us that problem.
So I want to turn to the next slide here that points to the idea of high settlement cost. And this is the notion that peace itself is costly. Clearly war is costly, but peace is not free; peace can be costly. So I want to emphasize that point. If peace is costly, if we have high settlement costs, the settlement opportunities frontier here will be shifted in, and even a convergent expected return-from-war point like here at E will give us a region of mutual gain that lies beyond that settlement frontier. So I want to suggest this notion that peace is costly, and that can be an obstacle, then, to the resolution of war.
I won’t have time to get into the next slide. This is just some data on the costs of peace, pointing out this idea that peace indeed has a cost.
Let me turn to the next slide here that raises the idea that there can be misperceptions of the returns to peace. I think since we tend to view peace as the norm and war as an aberration, we tend to look for misinformation in the realm of war, in the realm of the expectations of the returns from war and what the costs of war are. But I think we could just as well have misperceptions of the returns from peace. So on this graph here we have the real settlement opportunities frontier, but the players perceive it to be much lower. For example, the players might not be aware of what the real gains from trade could be, what a world of peace could be. They’re habituated to conflict. They do not understand or perceive what the gains from trade might be. They may not believe Sol. Most people are not big fans of free trade. I do believe Sol, but there may be many players in many circumstances that do not believe that the returns from peace are as high as they really might be.
And therefore I think Economists for Peace and Security can emphasize the gains from peace, as well as pointing out, as we did so well yesterday, the costs of war. I think we need to do both. We need to consider how people need to understand these gains from peace.
I won’t have time to get into the next slide. This looks at mutual malevolence and how things other than material returns to the players might matter, and how that too can be a source of conflict even when we have convergent expectations of the returns from war. So I don’t have time to get into that issue.
The next one that I want to point out is something that especially political scientists have been emphasizing in these conflicts of long duration, and it’s known as the commitment problem. Again, I don’t have too much time to cover this, but let me just point out a few aspects of this idea.
One here is Period I, two is Period II. Here we have the players expecting that the returns from war would be here at [?]. There are clearly settlement opportunities that are better for both at .SI. They ought to settle. We would expect there would be a high probability of settlement in a scenario like that. Yet if the players do settle here, it very well could be that one player will take that settlement and use it in the future to essentially come down hard on the other players, so that in a future scenario, expected returns from war in Period II would be over here. So the original player that might have agreed to this settlement would look at these future possibilities and abstain from a settlement that would otherwise be mutually beneficial. That’s known as the commitment problem. And this suggests that there can be-- This and a few other examples that I’ve shown suggest that there can be conditions for conflict even under full information or under convergent expectations of the returns from war.
So I think the Herschleifer Model is a valuable tool for trying to think through these issues.
In the last minute that I have I would like to cover this final slide here. I will not cover the remaining slides, but I want to also offer this following point here at this conference. And that is, I want to consider conflict conditions and the entry of violence-producing organizations. I think we see a lot of vicious circles in conflicts in the international system, especially civil conflicts. I’ve listed out here many of these kind of vicious circles, where conflict causes things to happen, which creates greater problems for further conflict. And here are just a few examples of those.
And I want to point out this idea that the conditions for conflict, I believe, invite entry of violence-producing organizations. And I think that many of us, myself included, and many inter-governmental organizations and nations focusing on negotiation and mediation among players involved in conflict—we tend to focus on the players that are involved in conflict, and we should. And we try to find ways in which we can get these players to settle rather than fight. And all of that is very important. But if the underlying conditions of conflict remain, then I believe that entry of violence-producing organizations will occur. This is the entry-exit principle of economics, where firms enter into an above-normal profit opportunity. We in a model like that are not really concerned about the particular identity of the firms, just that if there are conditions of above-normal profitability, firms will enter. I think in the conflict arena, violence-producing organizations will enter if the conditions are there.
So I think we continue to need IGOs and nation-states and mediators to focus on players in conflict and how to get negotiation; but we need to also think about the underlying conditions of conflict. And I think it’s here that many NGOs may have a comparative advantage. I tend to view this as inter-governmental organizations and nations and mediators are doing a kind of top-down effort toward peace, focusing on the players and negotiation among the conflicting players. I think NGOs are doing kind of bottom-up work. There are exceptions to these tendencies, but they’re focusing perhaps somewhat more on the underlying conditions of conflict; and both elements are important. I think we have a lot more work to do to understand this bottom-up effort of the NGOs in the international system. Thank you very much.
JM:
Thank you all. We have 10 minutes for questions. I think we should get right to it.
Q:
This question is for Solomon Polachek. One of the things that Professor Dumas emphasized in his talk was that relationships needed to not be exploitive, and I think that that was echoed in your emphasis on the gains from trade in addition to trade. So I was wondering if maybe you could comment on how we can insure that trade relationships are not exploitive and are maximizing the gains for both parties, and not sort of the one-way relationships.
SP:
I think it’s a good question, and I didn’t actually have time to talk about how the gains from trade are divided. And I think actually we probably do need more work to understand the process of how the gains from trade are divided. But one point that I’d like to emphasize is the question on whether the trade is exploitative or not.
Generally we think that they’re not exploitative; that is, that there are gains. If there’s exploitation, then clearly the gains are negative, and that kind of trade would lead to conflict and not to peace. So one way to get at this— And I think it’s an empirical question. Most economists don’t think there’s exploitation in trade. Or let me put it another way: Non-Marxist economists don’t think there’s exploitation in trade; but it’s quite possible that there is. That’s an empirical statement, and I think what we need to do to understand this is to break down the trade to types of commodities, and to see which kinds of commodities lead to the normal, what I would call the normal relationship of an inverse relationship between trade and conflict, and which type commodities lead to those anomalies that I was talking about.
So when I talked about the anomalies, my solution was essentially we’re not measuring the gains from trade right. But you might be right, that we’re not measuring the gains from trade right [sic]. It might be that the trade in some commodities—maybe diamonds, maybe oil—but maybe the trade in some commodities reflects exploitation. And if there is that kind of exploitation, that should lead to more conflict and not less. And that’s the kind of trade which should be avoided, or at least gains from trade should be distributed in a more equitable way. And so I think the anomalies could lead to the important question that you raided, and we need to study those particular kinds of commodities.
JM:
Sounds like some more room for research.
Bill Hartung:
Somewhat related: How can we promote situations where you increase gains from trade? If you have neighboring countries, they’re resource-dependent. Might they be competing for the global market, therefore have minimal trade amongst each other. You alluded to the illicit trade in resources—corruption and so forth and [?] war lordism. How do we get at these things to promote more trade that’s mutually beneficial for more countries and more groups?
SP:
Well, I’m not exactly sure how to promote more trade which is beneficial, but my best guess is to have freer trade so that anyone who thinks that there are possible gains can actually engage in the trade; that is, reduce tariffs and open up the world economy so that trade actually can take place and you can have mutual interdependence, so that everyone can gain from each other, rather than closing off trade. That would be my best guess.
JM:
Let me move on, but there may be some comments on that.
Q:
[……?]
SP:
Let me say two things: My thought is that the increased trade will cause more net cooperation. I will say that more trade causes more interactions. And we often talk about either conflict or peace as being either of two possibilities. There’s a whole array of interactions, from very very cooperative to very very hostile. Any kind of trade increases more interactions, and these interactions, or some of which, can be hostile in some ways, and it could be cooperative in some ways. My guess is that as trade increases and interdependencies increase, you’ll get more of all interactions; but on balance, the cooperation will outweigh the conflict. And you see this in your personal relations. You see this marriage. Husbands and wives do fight, but they don’t kill each other usually.
Q:
[……?]
JM:
Any comments on that. Let’s try to get a few other subjects in, because that one could really occupy us for quite a long time.
Q:
I think inter-state war shouldn’t be the only concern when we talk about trade […….?].
JM:
Distribution of gains is obviously an issue. Did either of you guys want to comment on this issue.
CA:
I just wonder if your sort of modification of your theory, Sol, about gains from trade versus absolute amount explain the anomaly of Britain and Germany in 1914 being each other’s best customers and also being related by blood, the ruling families of both. So they had both marital trade and economic trade, and was this explained by some missing variable in [?].
JM:
Can proximity cause conflict?
CA:
I just wanted to make a point, and I’m curious if Sol would agree with this. Sol, I think what you’re saying is trade reduces the risk of conflict; it’s not a panacea. We’re talking about variable among other variables that affect the risk of conflict. I think you don’t see trade, more trade—It’s something that will help, but it’s not a panacea.
SP:
I think you can state it that way, but I also think that we don’t measure the trade in the correct way. It’s really the gains from trade, and we don’t have measures of the gains from trade, which goes back to the distribution question as well.
But let me answer a couple of questions. One is civil conflict versus inter-state conflict. And I actually that there’s a lot of literature by political scientists on civil wars, a lot of literature on inter-state wars, so it’s intra-state versus inter-state. And they’re all independent studies. I actually think they are related. I think that a lot of civil wars are indeed coming about because there’s inappropriate trade between members of a country within a country; that is, there are what you might call north-south differences; that is, they are differences between the rich and the poor. There’s not enough trade. There’s an inequality of income. So this inequality of income is what’s causing the unrest within a country because there’s not enough distribution of the gains from trade, and there’s not enough trade within the country. So on the one hand, you can have trade between countries causing greater cooperation between the countries; but within the country you should have trade as well so that there’s not the impetus for essentially civil unrest.
The question about World War I I think goes back to, again, the question of how we measure trade. What happened is that there was a lot of trade between the countries involved in World War I; but it’s not clear about which commodities were traded. For example, nowadays there’s some research, and not just on commodity trade, but with foreign direct investments. And in the years leading up to World War I, there was commodity trade, but not actually a lot of foreign direct investment, and I think foreign direct investment is something which actually causes cooperation as well, and I think that’s the case. And there’s been an article or two written on World War I, particularly the case that you mention, that there was not foreign direct investments.
Proximity—
JM:
You can talk afterwards. We should maybe append a plenary session to the end of this subject.
We’re running out of time … [end tape]
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