As published in CFR Development Channel
Over the past decade a new conventional wisdom has emerged that security and development are mutually reinforcing, and that long-term security is not possible without reducing poverty and promoting economic development. This implies that economic development in unstable regions that pose potential threats to U.S. security should be a key pillar of U.S. foreign policy, a viewpoint embraced by top officials in the Obama Administration.
Global poverty and economic crises pose risks on four fronts.
First, sudden drops in income, so-called “negative growth shocks,” generate political instability and violence. When people living on the brink lose their livelihoods, they are more likely to turn to arms—either because they are angry at perceived injustice, or because they see few other options and feel they have little to lose. One highly regarded study of African conflicts, lead by U.C. Berkeley economist Edward Miguel and NYU political scientists Shanker Satyanath and Ernest Sergenti, found that a negative growth shock of 5 percent increases by 50 percent the likelihood that a country will be engulfed in conflict.
Economic crisis, accompanied by public perception that some benefited unfairly from prosperity while the burdens of austerity fall most heavily on those who were left out, creates a dangerous search for scapegoats. The violent mob attacks and forced out-migration of ethnic Chinese in Indonesia in 1998 were caused in large part by a belief that Chinese shopkeepers were benefiting from the sharp price increases of rice and cooking oil that were caused by the Asian financial crisis. The turn towards virulent anti-Semitism in Weimer Germany can in part be attributed to the runaway inflation and crushing economic contraction that gripped Germany after World War I. Economic collapse generated despair and outrage and hopelessness, and made ordinary Germans receptive to the xenophobic racism that eventually produced a terrible genocide and spawned Germany’s imperial aggression.
Second, low per capita income weakens states: poor states have severely limited financial, administrative, legal, and military capabilities. A number of well-known studies—by Stanford political scientists James Fearon and David Laitin, Oxford economists Paul Collier and Anke Hoeffler, and others—have found a strong relationship between poverty and civil war. Political rebellion and quasi-political criminal activity are more feasible when central governments are weak and incapable of mounting effective counterinsurgency efforts. Poverty also makes civil war more likely because a weak state lacks the resources to provide critical social services like health and education, creating an opening for fundamentalists and would-be rebel groups to win hearts and minds by stepping into the gap. In Lebanon, for example, Hezbollah has built strong support beyond its Shi’a base—throughout a broader population of Sunni, Druze, and Christians—by operating schools and hospitals for thousands of Lebanese. Paradoxically, poverty increases the public’s need for government help while reducing a state’s capacity to meet these demands, creating fertile ground for rebel and terrorist groups.
Third, when ordinary people are left with no viable economic opportunities other than traffic in drugs and other illicit commodities, they are likely to sympathize with the rebel groups who make those kinds of livelihoods possible. Guerrilla organizations in Afghanistan, for example, sustain themselves through drug trafficking. They buy raw crops from poor farmers, and, in turn, protect growers from government prosecution and eradication efforts. Afghanistan’s economic decimation has left poor farmers with no real choice other than opium. An Afghan farmer can gross significantly more from poppy than from wheat—$254.28 per kg from dry opium, compared to only $0.40 per kg for wheat. At the same time, the cost of opium production and distribution is low, as poppy is drought resistant and easy to transport and store. Limited irrigation, poor transport infrastructure, lack of access to markets, and the unenforceability of business contracts due to weak court systems make opium the most lucrative crop by a wide margin. Drug-related exportscurrently account for roughly 15 percent of Afghanistan’s Gross National Product.
However, it would be cavalier to conclude that the risks of conflict and instability posed by economic crises and poverty requires the substitution of military adventurism with a package of coercive economic aid policies. History also has important lessons to teach about the perverse unintended consequences of American economic intervention in developing countries.
Foreign aid can undermine democratic accountability, generate corruption, and reduce the incentive of rulers to meet the needs of the broader public. When developing country governments receive large amounts of financing from abroad, rulers often dance to the tune set by donors instead of responding to the needs of local citizens. Lack of democracy has been shown to make famine more likely: when the poor have no voice in determining spending priorities, politicians do not prioritize delivering on programs and policies that help the most vulnerable. This lack of accountability also breeds corruption on the part of recipient country government bureaucrats, since they ultimately must answer neither to domestic voters nor foreign donors. And, historically, aid dollars have often been misspent supporting large-scale extractive industries, like the World Bank-financed oil pipeline in Chad and Cameroon. But in the absence of good governance, economic dependence on natural resource extraction reduces economic growth, weakens democracy, fosters corruption, and increases the likelihood of conflict.
Done wrong, well-intended development aid can even exacerbate violence directly. Detailed analysis by political scientist Peter Uvin of conflicts from Rwanda to Afghanistan to Sierra Leone reveals that prior to the conflicts, development and humanitarian aid reinforced tensions and repression by favoring some factions over others, and increasing the disparities between ethnic groups. Warring factions were then incentivized to fight to capture aid resources. Aid, when funneled into the hands of local actors, strengthens certain groups at the expense of others: reinforcing unjust local power structures, increasing inequality, and exacerbating grievances.
In sum, the connections between economic development, foreign assistance, and security are complex. Failure to grapple with these complexities can actually increase instability, conflict, and terrorism, while leading the U.S. further down the rabbit hole of long-term entanglement without an exit strategy.
So that’s the bad news. There are no simple answers, and no clear strategies to generate long-term economic growth. But now the good news: we do know what can be done to reduce poverty and improve basic levels of human development, especially in the areas of health, education, and agriculture. Foreign aid can achieve significant concrete improvements in the lives of the poor, if attention is paid from the outset to inequality and distributional challenges, and if the power to shape development policies is placed in the hands of the intended beneficiaries themselves. Stay tuned as the Development Channel continues to explore what works (and doesn’t work) in fostering equity and opportunity in the global economy and improving the lives of the global poor.