Is war bad for business?
Author: John A. Tures
Originally published at Peace and Conflict Monitor on 07/12/2005
Years ago, gangsters put aside their feuds in exchange for profits, leading some to question whether war was “bad for business.” Now, with the rise of 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 of 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 Lenin argued that “imperialism is the highest stage of capitalism,” it became fashionable to associate big business with big international conflicts. A lust for profits 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 of 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 of 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 professional armies. Conflicts, according to 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 of goods and services, not gunfire. But his research only focused on 24 countries between the years 1976 and 1980. A more recent study that included a larger number of 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 of 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 Index of Economic Freedom (IEF), a dataset which provides information about the degree of independence between the public and private sector.
Beach and O’Driscoll (2001: 43-44) conceptually define economic freedom as “the absence of government coercion or constraint on the production, distribution, or consumption of goods and 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 of 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 “Free,” “Mostly Free,” “Mostly Unfree,” and “Repressed.”2
To measure conflict, I used the KOSIMO dataset provided by the Heidelberg Institute of International Conflict Research (HIIK). The KOSIMO database contains information on political conflicts occurring between 1945 and 1999. Conflicts are defined as “the clashing of overlapping interests (positional differences) around national values and issues (independence, self-determination, borders and territory, access to or distribution of domestic or international power). The conflict has to be of a given duration and involve at least two parties (states, groups of 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 of a conflict may include negotiations, authoritative decisions, threat, pressure, passive or active withdrawals, or the use of physical violence and war” (Heidelberg Institute of International Conflict Research, 1998-1999).
KOSIMO was employed because the list of conflicts includes cases where violence has not been used, allowing us to compare results across a wider range of dispute types. The database therefore eschews the Correlates of War (C.O.W.) quantitative criterion of 1,000 battle dead. The list, however, builds upon the work of 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 of analysis is the nation-state in a given year. This generated 688 cases.
A check of the data shows that a little more than half of 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%) of all conflicts are external (between states), as opposed to internal conflicts involving a government and a domestic group. There were 224 severe conflicts (coded by HIIK as either a war or mostly violent crisis, as opposed to a nonviolent confrontation) or nearly one-third of the total. The majority of 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 of 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 of 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 of the severe conflicts. None of 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 of liberal states in conflicts (severe or less violent) is dwarfed by the behavior of repressed or mostly unfree states. Additionally, the more economically repressed a country is, the more likely its conflict will become severe. Forty-six percent of all conflicts involving repressed societies became severe, while 38.4 percent of conflicts with a mostly unfree government escalated to a war or mostly violent crisis. Only 22 percent of mostly free disputes were severe, while none of 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 of 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 of conflicts than their less capitalistic counterparts, but these conflicts involving free states tend to be resolved short of war.
Free 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 of 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 of free markets have generally concluded that war is “bad for business.”
2. “Free” countries include those with a rating between 1 and 1.99; “mostly free” countries are designated as those states with an annual average of 2-2.99.2 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 “4.99.” Some of the sources of information include the Economist Intelligence Unit country reports, the International Monetary Fund’s Government Finance Statistics Yearbook, the Office of the United States Trade Representative, and the U.S. Department of Commerce country reports.
3. Critics may point out that this analysis only covers five years of analysis in the late 1990s. However, it is important to note that Rummel’s widely respected analysis also examined five years of conflict between nations (1976-1980). Furthermore, this analysis covers many more countries and country-cases than Rummel did in his work.
4. This information is available in a series of statistics tables listed at the end of 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 of a country having five internal or five external conflicts. Table 1 is capturing the aggregate number of conflicts. Therefore, it is possible to have one country have several internal and external conflicts simultaneously.
Bio: John A. Tures is an assistant professor of Political Science at LaGrange College in Georgia. He has published articles in the Journal of Peace Research, International Studies Quarterly, the Journal of Conflict, Security and Development, American Diplomacy, the Whitehead Journal of Diplomacy and International Relations, the Journal for the Study of Peace and Conflict, and the Online Journal for Peace and Conflict Resolution.
Beach, William W. and Gerald P. O’Driscoll, Jr. (2001) “Methodology: Factors of the Index of Economic Freedom,” The 2001 Index of Economic Freedom. 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, 2nd. 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 (1998-1999) KOSIMO Manual Heidelberg, Germany: Heidelberg Institute for International Conflict Research (HIIK).
Lenin, Vladimir I. (1964) Imperialism: The Highest Stage of Capitalism, Chapter 10 (Published in Volume 22 of 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 2001 Index of Economic Freedom. 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 1919.
Rummel, Rudolph J. (1983) “Libertarianism and International Violence,” Journal of Conflict Resolution Vol 29, pp. 419-455.
Schavey, Aaron B., Denise H. Froning, and Ana I. Eiras (2001) “The 2001 Index of Economic Freedom: The Countries,” The 2001 Index of Economic Freedom. Washington DC: The Heritage Foundation & Dow Jones Inc.