Examining War's Economic Incentives and Sanctions

To what extent do economic considerations affect a nation’s strategic calculus, and can they be used deliberately as part of a nation’s defensive strategy? Can economics be a key element of national power, and a vital component of statecraft? The central thesis of this piece consists of two parts; first, the contemporary rules based global order, considers the economic incentive for war to be both futile and immoral; and second, economic sanctions can be effective tools for the peaceful pursuit of strategic objectives.

Removing the Economic Incentive for War

Over 100 years ago, Norman Angell argued in his 1909 book The Great Illusion, that war for economic gain is futile and that the prosperity of a nation’s people cannot be improved upon through military conquest.[2] His thesis was built around three key ideas:

  1. The purpose of a society is to maximise the material well being and economic prosperity of its people and that governments act in the best interest of their citizens when pursuing this aim.[3]
  2. Due to the increasingly transnational nature of trade and finance (in developed economies), brought about through the increasing division of labour and rapidly increasing speed of communication, any act of aggression against an economic competitor also amounts to an attack upon one’s own customers and suppliers resulting in a situation that impoverishes its own citizens as well as those of its target.[4,5]
  3. The prosperity and wealth of a state’s population (in the modern context) is largely independent of that state’s military power. Angell offers Denmark and the Netherlands as examples of states with a higher GDP per capita than the great military powers of the time (Britain, Germany, and Russia).[6] Angell concludes the underlying cause of this prosperity must be economic factors independent of physical might.[7]

For a modern comparison, the 2016 Human Development Index (which measures life expectancy, knowledge, and living standards) had as its top five nations (in order): Norway, Australia, Switzerland, Germany, and Denmark. The U.S., Russia and, China, meanwhile, were ranked 10th, 49th, and 90th respectively.[8] If it were true that military power leads to prosperity then the U.S., Russia, and China could be expected to appear higher on this list.

At this point it is important to note that rather than claiming that war between great powers was no longer possible, Angell was in fact making the case that unless a significant change in collective attitude across Europe was achieved, war between the Great Powers of the day was all but inevitable.[9] This was particularly the case between Britain and Germany as a result of the Dreadnought arms race.[10] This situation has come to be described as an example of “Thucydides’ Trap,” whereby the rise of a new power threatens the position of an existing power in a way which usually results in war. The current example of this is U.S. and China.[11]

By arguing that the goal of civilised society is to maximise the population’s living standards through economic prosperity, and by demonstrating that war could no longer serve that goal, Angell was offering a path to de-escalation through the pursuit of mutually beneficial aims. This view rests on the idea that prosperity is not a zero sum game, that global wealth can be increased rather than simply redistributed between competing powers.

Despite this, to point to the outbreak of the First World War (1914) shortly after The Great Illusion, was first published (1909) as proof of its fallacy is wrong. The fundamental change of philosophy did not occur and war resulted as Angell predicted it would.[12] It is also important to note that while the causes of the First World War were more complicated than mere economics (including among other things alliance entrapment), complexity alone does not invalidate Angell’s thesis, a fact recognised by the international community when in 1933 he was awarded the Nobel Peace Prize as a result of the publication of The Great Illusion.[13] The significant change in collective attitude that Angell spoke of, would not occur until after the Second World War. This is due to the fact that Angell’s ideas were largely antithetical to the prevailing imperialist views of the day.[14]

The legacy of Norman Angell’s thesis of the economic futility of war is best demonstrated by two examples (one specific and one general) from the contemporary global order. The first (specific) example is the European Union while the second (general) example is the United Nations.

The first example to be considered, the European Union, takes Angell’s thesis of peace through international cooperation for economic prosperity the furthest of any modern society. During the late 1940s and early 1950s Western Europe began to pursue greater economic and political integration between nations in an attempt to secure lasting peace. This idea was formalised in 1957 by the Rome Treaty which founded the European Economic Community (predecessor to the European Union) with six member states Belgium, France, Germany, Italy, Luxembourg, and the Netherlands.[15] Over time this grew into the 28-nation (27 excluding the United Kingdom) block that it is today, which at least anecdotally has been successful in achieving its goal to “promote peace, its values and the well being of its citizens.”[16] While this correlates well with Angell’s thesis it is difficult to attribute causation due to the overarching and enduring threat posed by the Cold War during much of the second half of the twentieth century.

The signing ceremony of the Treaty of Rome. (Wikimedia)

During this period, Western Europe largely relied on a doctrine of collective defence within the NATO framework.[17] Notably since the end of the Cold War in the early 1990s the European Union has worked to strengthen the framework of European collective defence, a policy formalised with the creation of the European Defence Agency [EDA] in 2004.[18] The policy provides for the pooling and sharing of resources between member states which in turn delivers a disproportionately large defence effect for a relatively small investment.[19] As of 2017, the European Defence Agency has a combined military force of 1 423 000 personnel with a combined defence budget of 195 billion Euro.[20]

The second example is that of the United Nations, founded in 1945 in the immediate aftermath of the Second World War. [21] In 1948 the Universal Declaration of Human Rights (UDHR) was adopted by the UN General Assembly and in 1966 the International Covenant on Economic, Social and Cultural Rights was adopted along with the International Covenant on Civil and Political Rights.[22] Together these three documents (plus two optional protocols) form the International Bill of Human Rights which provides much of the basis of international human rights law.

Importantly, article 22 of the Universal Declaration of Human Rights states: ”Everyone, as a member of society, has the right to social security and is entitled to realization, through national effort and international co-operation and in accordance with the organization and resources of each State, of the economic, social and cultural rights indispensable for his dignity and the free development of his personality.” Article 25.1 goes further, stating “Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.”[23]

Taken together articles 22 and 25 convert Angell’s assertion that the goal of the state should be to maximise the prosperity of its citizens into a moral obligation enshrined in one of the capstone documents of the contemporary system of global governance, a document that Yuval Noah Harari described in his book (Homo Deus) as “perhaps the closest thing we have to a global constitution.”[24] Another important point is that despite being liberal in nature, articles 22 to 27 of the UDHR do not imply a logical endpoint of neoliberalism.[25][26] Finally, by including economic protections in the International Bill of Rights, the international community has come to view the economic incentive for war to be immoral and illegal further contributing to its futility. Unfortunately since states can and do sometimes seek ways to undermine the global order it is important that there are mechanisms (short of war) to address transgressions.

United Nations General Assembly hall in New York City. (Patrick Gruban/Wikimedia)

Economic Sanctions In Pursuit of Strategic Objectives

Economic sanctions are defined by the Council of Foreign Relations as, “the withdrawal of customary trade and financial relations for foreign and security policy purposes.”[27] Sanctions can be general (broad) or targeted (smart) in nature and they can be applied unilaterally, multilaterally and with or without the backing of a UN Security Council (UNSC) resolution (which nations are obliged to implement under international law).[28] As an example the Australian Government (acting through the Department of Foreign Affairs and Trade) currently pursues 13 sanction regimes against various state and non-state actors mandated by the UN Security Council as well as a further five sanctions regimes as part of non-UNSC mandated arrangements (these may be unilateral, bilateral or multilateral in nature). [29]

The type of sanction has a strong impact on its likely success or failure. Broad sanctions are those sanctions that target large tracts of a state’s economy such as the comprehensive sanctions enacted against Iraq in accordance with UN Security Council resolution 660 (1990) that prohibited the purchase of goods from Iraq, the sale of products (not including medicine and food) to Iraq or the provision of finance to Iraq.[30] The comprehensive sanctions applied against Iraq were first implemented in response to Iraq’s invasion of Kuwait, however they remained in place for over 12 years. The sanctions themselves became (and still remain) the subject of controversy as a result of the ongoing humanitarian crisis that unfolded in Iraq during this period coupled with their relative lack of verifiable impact upon the behaviour and decisions of the ruling elite.[31] The result has been that broad economic sanctions such as those used against Iraq in the 1990s have come to be seen as ineffective, indiscriminate and potentially even illegal. The argument for illegality is based on the 1977 protocols of the Geneva Conventions that prohibit economic sieges against civilians (and an associated interpretation of comprehensive sanctions as a form of economic siege). As a result of the legal and ethical ambiguity, the UN Security Council now only uses targeted sanctions against specific individuals, entities, or key resources.[32] Targeted sanctions, such as those currently in use against multiple state and non-state actors may be considered more ethical but that does not mean that they are any more effective.

The opening of the World Economic Forum 2017. (Eric Bridiers)

There is currently significant debate within policy circles regarding the ability of targeted sanctions to change behaviours. Despite the lack of overall consensus, some specific trends are still evident. The World Economic Forum (WEF) notes that sanctions almost always cause damage to the instigators own economy by virtue of the fact that sanctions are enforced by a given state banning its own citizens and businesses from interacting commercially with the target of the sanctions. The World Economic Forum goes on to note though that the instigator is usually able to structure the sanctions regime so that more damage is inflicted onto the target than is incurred in return thereby making the application of targeted sanctions a non-zero sum game and giving rise to situations where the desired outcomes justify the self imposed costs.[33] The Brookings Institute makes the following observations regarding the efficacy of economic sanctions: sanctions alone are unlikely to achieve the desired outcome if the aims are large or time is short; unilateral sanctions are ineffective because the target is usually able to easily work around the sanctions either directly or through an intermediary; and, secondary sanctions applied to third parties rarely work and can damage otherwise healthy diplomatic relationships [34] The implications of such observations (for the use of economic sanctions) for policy formulation can be summed up as follows:

  1. Broad economic sanctions that target large tracts of the economy should not be used on ethical grounds due to their indiscriminate nature that raises the potential of undue civilian hardship that is likely to disproportionately affect the most vulnerable members of the target population.
  2. Sanctions should be targeted in nature, directed towards those individuals and entities involved with or responsible for the issues that triggered the sanctions.
  3. Sanctions are most effective when applied as part of a multilateral effort.
  4. Multilateral sanctions should be backed with a UNSC resolution where possible as this confers a legal obligation upon UN member states to enforce the sanctions.
  5. Sanctions work best with modest aims and long time frames. e.g. attempts at regime change are likely to fail.
  6. Secondary sanctions should not be used as they risk damaging otherwise healthy diplomatic relationships.

Conclusion

Over the past 100 years economics has been transformed from a prime motivator for war, through the imperialist ideals of national prestige and territorial expansion, to a tool best used as a means to try and avoid war. Additionally through the establishment of the rules based global order that emerged after the Second World War the economic motivation for war has not only been diminished but has effectively been rendered illegal and immoral. While economic considerations may be enshrined in the architecture of the current global order and serve to provide a means for modern nations to collectively pursue peace through mutual prosperity (as demonstrated by the EU), economic considerations do nothing to deter an irrational actor motivated by non-material means. The legally binding nature of the UNSC sanctions combined with the inclusion of the International Covenant on Economic, Social and Cultural Rights in the International Bill of Human Rights come together to put economic considerations right in the heart of the contemporary global political, economic and security framework.


Chris Bulow is an engineering officer in the Australian Army. He has completed a Bachelor of Mechanical and Aerospace Engineering and is currently studying a Master in Project Management. The views contained in this article are the author’s alone, and do not represent the views of the Australian Army.


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Header Image: A reflection of a yearly chart of U.S. dollars and Russian rubles is seen on ruble notes. (Kacper Pempel/Reuters)


Notes:

[1] J. Mearsheimer (1983) Conventional Deterrence.

[2] Norman Angell (1909) The Great Illusion: A Study of the Relation of Military Power to National Advantage (4th ed). P. x [Online]. Available at: http://www.gutenberg.org/files/38535/38535-h/38535-h.htm (Accessed: 08 Nov 17).

[3] Norman Angell (1909) The Great Illusion: A Study of the Relation of Military Power to National Advantage (4th ed). P. 1-406 [Online]. Available at: http://www.gutenberg.org/files/38535/38535-h/38535-h.htm (Accessed: 08 Nov 17).

[4] Norman Angell (1909) The Great Illusion: A Study of the Relation of Military Power to National Advantage (4th ed). P. 31 [Online]. Available at: http://www.gutenberg.org/files/38535/38535-h/38535-h.htm (Accessed: 08 Nov 17).

[5] Norman Angell (1909) The Great Illusion: A Study of the Relation of Military Power to National Advantage (4th ed). P. 82 [Online]. Available at: http://www.gutenberg.org/files/38535/38535-h/38535-h.htm (Accessed: 08 Nov 17).

[6] Norman Angell (1909) The Great Illusion: A Study of the Relation of Military Power to National Advantage (4th ed). P. 32 [Online]. Available at: http://www.gutenberg.org/files/38535/38535-h/38535-h.htm (Accessed: 08 Nov 17).

[7] Norman Angell (1909) The Great Illusion: A Study of the Relation of Military Power to National Advantage (4th ed). P. 41 [Online]. Available at: http://www.gutenberg.org/files/38535/38535-h/38535-h.htm (Accessed: 08 Nov 17).

[8] One World Nations Online (2016) Human Development Index 2016, Available at: http://www.nationsonline.org/oneworld/human_development.htm (Accessed: 10 Nov 17).

[9] Norman Angell (1909) The Great Illusion: A Study of the Relation of Military Power to National Advantage (4th ed). P. 341-352 [Online]. Available at: http://www.gutenberg.org/files/38535/38535-h/38535-h.htm (Accessed: 08 Nov 17).

[10] Norman Angell (1909) The Great Illusion: A Study of the Relation of Military Power to National Advantage (4th ed). P. 351 [Online]. Available at: http://www.gutenberg.org/files/38535/38535-h/38535-h.htm (Accessed: 08 Nov 17).

[11] G. Rachman (2017) Destined for War? China, America and The Thucydides Trap, Available at: https://www.ft.com/content/0e1ac020-1490-11e7-b0c1-37e417ee6c76 (Accessed: 10 Nov 17).

[12] Norman Angell (1909) The Great Illusion: A Study of the Relation of Military Power to National Advantage (4th ed). P. 4 [Online]. Available at: http://www.gutenberg.org/files/38535/38535-h/38535-h.htm (Accessed: 08 Nov 17)

[13] Nobel Prize Organisation (2017) Sir Norman Angell - Facts, Available at: https://www.nobelprize.org/nobel_prizes/peace/laureates/1933/angell-facts.html (Accessed: 10 Nov 17).

[14] Encyclopaedia Britannica (2017) Imperialism, Available at: https://www.britannica.com/topic/imperialism (Accessed: 11 Nov 17).

[15] European Comission (2014) Europe in 12 Lessons, Available at: https://europa.eu/european-union/about-eu/history/1945-1959_en (Accessed: 06 Sep 17).

[16] European Comission (2014) Europe in 12 Lessons, Available at: https://europa.eu/european-union/about-eu/eu-in-brief_en (Accessed: 09 Nov 17)

[17] North Atlantic Treaty Organisation (2017) 10 Things You Need To Know About NATO, Available at: https://www.nato.int/cps/en/natohq/126169.htm (Accessed: 10 Nov 17).

[18] The European Union (2017) European Defence Agency - Quick Guide, P.6 Available at: https://www.qub.ac.uk/cite2write/harvard3l.html (Accessed: 10 Nov 17).

[19] The European Union (2017) European Defence Agency - Quick Guide, P.12-13 Available at: https://www.qub.ac.uk/cite2write/harvard3l.html (Accessed: 10 Nov 17).

[20] The European Union (2017) European Defence Agency - Quick Guide, P.5 Available at: https://www.qub.ac.uk/cite2write/harvard3l.html (Accessed: 10 Nov 17).

[21] United Nations (2017) History of the United Nations, Available at: http://www.un.org/en/sections/history/history-united-nations/index.html (Accessed: 10 Nov 17).

[22] Office of the United Nations High Commissioner of Human Rights (2017) Fact Sheet No 2. The International Bill of Human Rights, Available at: http://www.ohchr.org/Documents/Publications/FactSheet2Rev.1en.pdf (Accessed: 08 Nov 17).

[23] United Nations (2017) Universal Declaration of Human Rights, Available at: http://www.un.org/en/universal-declaration-human-rights/ (Accessed: 08 Nov 17).

[24] Y. Harari (2015) Homo Deus, : Harvill Secker.

[25] Encyclopaedia Britannica (2017) Liberalism, Available at: https://www.britannica.com/topic/liberalism (Accessed: 11 Nov 17).

[26] Encyclopaedia Britannica (2017) Neoliberalism, Available at: https://www.britannica.com/topic/neoliberalism (Accessed: 11 Nov 17).

[27] J. Masters (2017) What Are Economic Sanctions, Available at: https://www.cfr.org/backgrounder/what-are-economic-sanctions (Accessed: 11 Nov 17).

[28] Department of Foreign Affairs and Trade (2017) About Sanctions - Two Types of Sanctions, Available at: http://dfat.gov.au/international-relations/security/sanctions/Pages/about-sanctions.aspx (Accessed: 11 Nov 17).

[29] Department of Foreign Affairs and Trade (2017) Sanctions Regimes, Available at: http://dfat.gov.au/international-relations/security/sanctions/sanctions-regimes/Pages/sanctions-regimes.aspx (Accessed: 11 Nov 17).

[30] United Nations Security Council (2017) Resolution 660, Available at: http://www.un.org/ga/search/view_doc.asp?symbol=S/RES/661(1990) (Accessed: 11 Nov 17).

[31] Global Policy Forum (2017) Targeted Sanctions, Available at: https://www.globalpolicy.org/security-council/index-of-countries-on-the-security-council-agenda/sanctions/targeted-sanctions-new-tools-new-challenges.html (Accessed: 13 Nov 17).

[32] Global Policy Forum (2002) Iraq Sanctions: Humanitarian Implications and Options for the Future, Available at: https://www.globalpolicy.org/component/content/article/170/41947.html#1 (Accessed: 13 Nov 17).

[33] D. Trenin (2015) How Effective Are Economic Sanctions, Available at: https://www.weforum.org/agenda/2015/02/how-effective-are-economic-sanctions/ (Accessed: 07 Nov 17).

[34] R. Haass (1998) Economic Sanctions: Too Much of a Bad Thing, Available at: https://www.brookings.edu/research/economic-sanctions-too-much-of-a-bad-thing/ (Accessed: 07 Nov 17).