The Challenge of Confl icts

Paul Collier, Lisa Chauvet and Haavard Hegre

Summary

This paper was produced for the Copenhagen Consensus 2008 project.

The fi nal version of this paper can be found in the book, ‘Global Crises, Global Solutions: Second Edition’,

edited by Bjørn Lomborg

(Cambridge University Press, 2009)

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The Security Challenge in Conflict-Prone Countries Paul Collier, Lisa Chauvet and Haarvard Hegre

Overview We have a more restricted focus in this paper than for the 2004 Copenhagen Consensus event: to prevent the recurrence of violence in post-conflict societies. This allows us to consider options in more depth, while still addressing a major problem: about half of all civil wars are flare-ups of previous conflicts. Modern civil wars in low-income countries overwhelmingly affect civilians and have persistent effects arising from the difficulties of integrating child soldiers into a peaceful society. As well as the direct GDP loss, we also consider a range of other more speculative costs of conflict. In recent years, we have had examples of civil wars which have ended but would very likely have flared up again were it not for international intervention, for instance Timor Leste and the Democratic Republic of Congo. There is also an opportunity to discourage coups in weak societies. In this paper, we focus on international military interventions as instruments to stabilise post-conflict situations, and benchmark them against aid. Introduction Since the collapse of the Soviet Union, there is little threat of conflict between (or within) rich countries or even large middle-income states. Nevertheless, there is considerable violence still in a group of poor, small countries, which we consider to be structurally dangerous. Global trends in armed conflict Although wars between states have been relatively rare since the Second World War, there are now more small wars. Although they may be "small" in terms of battle-related deaths, the impact on the civilian population can be large and the consequences for the country as a whole severe. Most conflicts in recent years have been in Africa and Asia, particularly in two ellipses: from Turkey to the Philippines and around the Great Lakes and Horn of Africa. The total number of conflicts has been fairly constant, but mainly because new ones have broken out as others have ended. An trend towards fewer conflicts since 1992 is because there have been more successful terminations of wars. The consequences of violent internal conflict The direct cost of a typical civil war in a small, low income country is around $43bn, rising to $60bn if mortality and morbidity are taken into account. But these large figures are not the end of the story: there are five other important considerations. First, internal conflicts affect the world's poorest people disproportionately: low income in itself predisposes society to conflict. Conventional economics would suggest that interventions which help such people are less valuable than those targeted at more prosperous societies, but in fact the reverse is true. Not only does intervention make a larger relative improvement to people's well-being, but it helps people whose prospects even without war would be relatively bleak.

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Second, conflict frustrates all other possible interventions. If there are useful, cost-effective projects identified, it makes sense to invest in conflict prevention first, otherwise there is little chance of them being satisfactorily implemented. Third, we have to take account of the fact that the consequences of civil war are concentrated in a single society rather than spread diffusely through a much larger population. This effectively threatens the very existence of a society, and the global community may feel that significant resources are warranted to ensure this does not happen: we can consider that societies may have an intrinsic "existence value". Fourth, the costs of internal conflict can be highly persistent. We estimate the average length of a civil war to be seven years, followed by a recovery stage of 14 years. However, some consequences, such as a collapse in standards of health, can have consequences which last considerably longer. A related issue is the appropriate discount rate to use for such long-term, inter-generational effects. The Stern report on climate change makes a strong case for the use of a much lower discount rate, which is arguably also valid for conflicts. All in all, the overall costs of civil wars are likely to have been under-estimated. The final omission is of three global spill-over effects: crime, disease and terrorism. Countries in conflict can often provide effective safe havens for international criminals, conditions for the spread of disease (possibly including AIDS) and the opportunity for terrorists to establish bases. However, there is no one-to-one connection for any of these, and estimates of their costs would inevitably be huge and speculative. For this reason, it is difficult to include these factors in any analysis. There are clearly big difficulties in taking proper account of these five omissions. However, their influence is likely to be large, so it is difficult to ignore them totally. It is reasonable to consider that the first issue – that conflicts afflict the poorest and least hopeful people on Earth – doubles the costs in broad terms, while suggesting that the other four each contribute a further 20% does not seem unjustified. Using these figures, we arrive at a cost of $250bn for a civil war: a 4.2 fold increase over our previously calculated figure of $60bn. For further analysis, we take $60bn as a lower bound and $250bn as an illustrative figure which is probably closer to the centre of the range. International policy options: abstention versus intervention Some observers have argued that countries in conflict should be left alone for peace to be restored and stable government to evolve. However, impoverished societies tend to be structurally insecure, and both compassion and self-interest lead us to suggest that intervention by the international community should have a high priority. In addition to helping poor, insecure societies become stable and have a chance to develop, interventions reduce the risk of the insecurity spilling over into neighbouring countries, or of countries in conflict becoming havens for international criminals and terrorists. This is not to suggest that military intervention is the only option. Given the nature of the challenge, the international community has to be prepared to engage in a well-prepared, long-term strategy rather than a mix of neglect and invasion. A good example is the Cold War, where a high level of military spending, a giant aid program (the

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Marshall Plan), international engagement via NATO and promotion of free trade ultimately resolved the threat posed by the Soviet bloc. The quantitative analysis of security Politicians are not used to quantifying the costs and benefits of interventions, and economists are equally uncomfortable with dealing with situations which are so difficult to quantify properly. Nevertheless, the record of policies based just on qualitative political analysis suggests that quantification may provide useful additional guidance. In particular, the establishment in 2005 of a permanent UN Peacekeeping Commission provides an opportunity for the international community to focus on the imperatives of peace-keeping rather than just funding initiatives in education and healthcare. The scourges: civil wars and coups Although there are many other security problems in the world, we focus on civil wars, because of their prolonged negative impacts, and coups, which can usher in a long period of military rule. Civil wars The costs of civil war A typical civil war reduces a country's growth by, on average, 2.2% and lasts for seven years, thus leaving the country 15% poorer than if it had been at peace. Destruction is more rapid than reconstruction, and it takes 14 years (or more) for a country to recover. The total direct costs of the war can therefore be estimated by discounting the total difference between the actual and counterfactual size of the economy during the conflict and recovery phases. There is also a negative impact on neighbouring countries. Although, not surprisingly, smaller than that on the conflict country itself (typically estimated at 0.9% loss of growth per annum), each country experiencing a civil war usually has several neighbours, and their economies are generally larger. The overall effect on neighbouring countries – not counting any wider regional impacts – is therefore probably greater than in the country itself. In such circumstances, neighbours may have a legitimate national interest which could be seen to override national sovereignty. The United Nations has recently formulated a principle known as the "responsibility to protect" which covers this situation. The costs of a civil war to the country itself, based on the average figures above, gives a present value of 10% of one year's GDP; for each neighbour, the cost is 4.2% of their own GDP for a year. On average, at purchasing power parities, this represents $20bn for the country itself and $23bn in aggregate for its neighbours; $43bn in total for one civil war. We can estimate an additional cost of $15bn in loss of life and disability. Accounting for the increase in military spending during the war itself (around 1.8% of GDP) and a continued spending at only 20% less than this figure in the post-conflict decade, adds 18% of a year's GDP to our estimate ($3.6bn). The total cost of a civil war to a country which has already experienced a conflict thus comes to $61.6bn. Since there have been two wars starting each year on average since 1960 (albeit that the rate appears to have declined recently) this implies a total cost of

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civil conflict of around $123bn each year, which is the same order of magnitude as the total of development aid. Since, as we have seen, our estimates do not include a number of other less quantifiable factors, we suggest that we take an illustrative total cost of £250bn per war as an upper bound, with $62bn as a lower bound. The causes of civil war Although the progress to war is a highly complex process, there are three underlying economic characteristics which make a country particularly prone to conflict: low income, low growth rate and a substantial contribution to the economy of primary commodity exports. In addition, small countries, those with many ethnic divisions, those which are mountainous and those with a high proportion of youth have increased risks. This analysis of the risks enables us to make an appropriate diagnosis, and in this paper we focus on military intervention. This is not to say that this should by any means be the first option: properly targeted aid can and should be an important instrument, but in the present climate of international opinion we need to be reminded that military intervention remains the most effective option in some circumstances. Building democracy is desirable as well, of course, but this should not blind us to the fact that democratic governance is not a sure way to prevent conflict: at low income levels it even makes insurrection more probable. Prognosis Although there has been a recent downward trend in new conflicts, there are three developments which may reverse this. First is the discovery of mineral resources in fragile states, encouraged by the current commodity boom. Below a certain level of governance, which is higher than we might imagine, there is strong evidence of a commodity curse, which reduces growth and provides the seeds of conflict. Second is the large number or recently negotiated peace settlements. Historically, negotiated settlements as opposed to military victory have had a high risk of relapse. Third, the spread of democracy – often in an imperfect form dubbed "anocracy" – in low income countries can increase risks of conflict once the immediate post-election period is over. Taken together, it is arguable that civil conflicts could soon be on an upward trend again. Coups The costs of coups Although nowhere near as costly as civil wars, coups are still common and come with costs. The direct cost to the economy of a post-coup drop in GDP followed by recovery amounts to about 6% of annual GDP. There is also generally an increase in military spending by the new government although, since many coups merely replace one military government by another, this amounts to only some 0.5% of GDP annually. Total costs for a typical small state are 10% of GDP, or $2bn. At an average rate of successful coups in Africa, the global cost is around $4bn annually. Taking account of the facts that coups, as for civil wars, affect the world's poorest and that there is an intrinsic value to democracy and thus a loss due to its overthrow, it would be reasonable to put the cost of a coup at $8bn per country, or $16bn annually for Africa as a whole. Causes of coups Poverty is again a main determinant together, unfortunately, with democracy: repressive regimes are harder to overthrow.

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Prognosis As democracy spreads, we might expect coups also to increase, but we should note that coups generally seem to be going out of fashion. Four military-related instruments Depending on the assumptions, civil war costs the global community at least as much as the total of development aid. Coups, although far less damaging, have substantial costs. Although the case for military intervention has been coloured by the involvement in Iraq, it is nevertheless an appropriate response to consider and deserved dispassionate analysis. We consider four instruments below. International curtailment of domestic military spending Empirical results suggest that the increased level of government military spending post-conflict is counter-productive, since it increases risks by signalling to rebel groups that the authorities do not intend to implement inclusive policies. So, although an additional expenditure of $100m on the military (0.5% of GDP) is a cost in itself, it contributes to an increased risk of further conflict (by about 2.5%). A mid-range estimate of the cost of this is $6.3bn, about 60 times the apparent direct cost, without accounting for the encouragement of neighbouring "arms races". Expanding the role of peacekeeping forces International peacekeeping in post-conflict situations is now a major activity, and has become much more common since the Cold War ended. Quantitative analysis can add value to decision making which is currently often highly politicised. Guaranteeing security from “over the horizon” France for 30 years implicitly guaranteed the security of all of Francophone Africa without a permanent garrison in each country. This policy was abandoned after the Rwandan genocide, but a similar policy has since been operated very successfully by the British government in Sierra Leone. Only 80 troops are stationed in the country, but a large force could be flown in overnight. This is potentially a superior and more cost-effective approach than conventional peacekeeping. A cost-benefit analysis of interventions to reduce the risk of civil wars and coups The benchmark intervention: the instrument of post-conflict aid Post-conflict aid is the most effective form of aid in reducing the risk of conflict, and is generally more politically acceptable than military intervention. To what extent it should be used instead of military action depends on its cost effectiveness. We take this as the benchmark intervention for comparison. Aid and post-conflict growth There is now a degree of scepticism about the effect of aid in general on economic growth. However, there is evidence which suggests it can be most effective in post-conflict situations, where infrastructure has been devastated and there is no risk of moral hazard. It enables governments to halt damaging inflationary policies and there is little risk of unwanted currency appreciation because of the low level of exports. Aid worth 1% of GDP has been estimated to boost growth by 0.5% annually.

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Growth and risk post-conflict There is clear evidence that growth in general reduces risk of civil war, and this has been specifically confirmed for post-conflict situations. The growth provides an additional reinforcement by raising incomes. Overall, each percentage point of additional growth reduces the risk of renewed conflict by 1.5%, and aid does not in itself contribute to any increased risks. Costs and benefits To reduce the risk of conflict by 1.5% annually in the post-conflict decade would require aid worth 2% of GDP each year: $4bn over the period, before discounting. Benefits (also without discounting) would amount to $900m over the decade for the lower bound estimate of the costs of renewed conflict, or $4.25bn for the mid-range estimate. Although only modestly cost-effective, the behaviour of the international community suggests that they place a higher value than this on the benefits, including to their own security. We should also remember that there would be an additional benefit of $10bn via the growth itself, so the overall BCR is around 3.5. Military intervention opportunity 1: a conditionality requirement limiting military spending Although this is clearly not the intention of the donors, about 11% of aid leaks into military expenditure. An effective conditionality clause would therefore increase the availability of funds, but the bigger benefit would be in avoiding the negative effects of military spending. 11% leakage from a typical aid package would augment the military budget by $44m, which in turn would generate costs of between $660m and $2.6bn by heightening the risk of further conflict. Preventing this would raise the benefits of aid to around $18.6bn for a mid-range estimate, increasing the BCR to 4.5. Such conditionality might be made effective by, for example, informing the government of the negative consequences of military spending, capping and monitoring such spending or providing external (perhaps over-the-horizon) peacekeeping. A package combining these approaches could be credible if orchestrated via the UN Peace Building Commission. Military intervention opportunity 2: peacekeeping in post-conflict situations The effect of peacekeeping on risk The risk of renewed civil war in post-conflict situations declines only slowly with time, and is significantly linked to income level and growth rate. Political interventions, in particular promoting democracy, do not seem to be the answer, whereas UN peacekeeping has a significantly positive effect. The degree of risk reduction depends, not surprisingly, on the scale of deployment. Since risks decline only slowly after a war, the appropriate model seems to be a long-term commitment at a constant level. The cost-benefit analysis of peacekeeping For a ten year intervention costing $100m per year, the undiscounted benefit we estimate to be in the range $12.9bn and $53.7bn, ie it is highly cost effective. However, we know that risks decline with time at that there will be a point where the marginal benefit equals the marginal cost. Using this as the criterion for ending the intervention, with a goal of maximising the overall benefit, we estimate the optimal scale to be $850m annually. Risk

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would be reduced by about 30%, with benefits of some $75bn for a cost of $8.5bn. While the benefit-cost ratio is reduced to 9, the overall economic gain amounts to an enormous $63.5bn. Military intervention opportunity 3: over-the-horizon guarantees We now look at internationally-guaranteed intervention to support democratically elected governments from rebellion or coup or in a post-conflict situation. In practice, over-the-horizon provision would have to follow a reduced period of direct intervention. The over-the-horizon guarantee and the risk of conflict The thirty year French security guarantee in Francophone Africa reduced the overall risk of war breaking out in the 13 countries covered by three quarters. The risks in post-conflict states are much higher, and here we make the conservative assumption that guarantees in this instance reduce the risks by 7.6%, the same in absolute terms as for the French model, although this would be equivalent to three quarters in the case of protection against rebellion. The cost-benefit analysis of a guarantee A guarantee can be assumed to avoid three out of the four new civil wars in low-income countries in a decade, with a benefit between $18bn and $75bn. For countries the second half of the post-conflict decade, we assume that an initial $500mn annual intervention can be reduced to $100m and the increased risk nullified via the security guarantee. For the average of six countries in this situation, the annual saving would be $2.4bn. Finally, we assume that the guarantee can also reduce the risk of a coup against democratic governments by three quarters, giving savings in the range $1.5bn to $6bn annually. Based on the French experience, we estimate costs of $2bn annually to provide a credible security force on the necessary scale. If this covers all three situations the benefit-cost ratio lies between 11.5 and 39. Packaging interventions: post-conflict aid + military spending limits + peacekeeping + guarantees All four components discussed are complementary and should be most effective as a package. The UN Peace-Building Commission has the potential to coordinate this. A combined package to cover the countries at risk would cost around $10.8bn a year, with benefits of between $57bn (lower bound) and $192bn (mid range). Overall benefit-cost ratios are in the range 5 to 19. Conclusions Civil war may be considered as development in reverse. Violence is highly persistent and concentrated among the poorest and least hopeful countries on the Earth. There is considerable evidence that international intervention is effective in reducing conflicts, and our estimates show the benefits to be much greater than the costs.