No.

5

2015
The Economics of Peace
Dominic Rohner

Can “Swiss” Institutions Do the Job?

In the 5th edition of the UBS Center Public Paper Series, Dominic Rohner (University of Lausanne) shows how conflict-torn countries can escape the vicious cycle of war and destruction.

When it comes to peace and understanding, the 20th century was a mixed basket. On the dark side, politically motivated violence led to two World Wars, mass killings, and purges carried out by a series of totalitarian regimes, as well as of dozens of recurrent ethnic civil wars that took place mostly in poor countries. Furthermore, the resurgence of terrorism has become a major problem. Overall, conflict-related violence has led to unimaginable human suffering and to a death toll of over 100 million human lives.

But there is also a bright side: For the first time for centuries, much of Europe has been at peace since 1946, and the creation of the European Union has brought many traditional foes and enemies closer together. There has also been an impressive spread of democracy around the world, which can be one of the strongest warrants against political violence under some circumstances. There has also been a massive increase in prosperity around the world, which is also one of the pillars of peace.

Much of the economics and political science literature on wars and conflict has focused on things that are hard for policymakers to change (natural resources, ethnic composition, weather shocks). While this paper also touches on them, the focus clearly lies on the parts that policymakers can affect.

Switzerland as a political role model

The 5th edition of the UBS Center Public Paper Series begins with a historic overview of the evolution of conflicts around the world. How have different types of conflicts been distributed between regions? How has their frequency evolved and how has the prevailing typology been changing over time? Next, the author focuses on the costs of wars and their impact on human lives, explaining why wars are a major obstacle to growth and development.

A major part of this essay is dedicated to defining the main drivers for conflict. The economic and political science literature on conflict has been booming in the last decades, and a series of important drivers of conflict have been identified. The factors that have been found to matter substantially for political violence range from asymmetries in recourse holdings to ethnic and religious diversity, as well as to income levels and demographics.

Having outlined the different factors of risk, the author consequently presents a number of institutions and policies that have the potential to reduce the risk of conflict. Using the “Swiss model” as a template, for instance, could well inspire political reforms in divided and war-torn societies.

In the 5th edition of the UBS Center Public Paper Series, Dominic Rohner (University of Lausanne) shows how conflict-torn countries can escape the vicious cycle of war and destruction.

When it comes to peace and understanding, the 20th century was a mixed basket. On the dark side, politically motivated violence led to two World Wars, mass killings, and purges carried out by a series of totalitarian regimes, as well as of dozens of recurrent ethnic civil wars that took place mostly in poor countries. Furthermore, the resurgence of terrorism has become a major problem. Overall, conflict-related violence has led to unimaginable human suffering and to a death toll of over 100 million human lives.

But there is also a bright side: For the first time for centuries, much of Europe has been at peace since 1946, and the creation of the European Union has brought many traditional foes and enemies closer together. There has also been an impressive spread of democracy around the world, which can be one of the strongest warrants against political violence under some circumstances. There has also been a massive increase in prosperity around the world, which is also one of the pillars of peace.

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Key findings

The most dangerous situation is when most natural resource fields are concentrated in the ethnic homelands of ethnic minority groups that would be economically better off if they were to split from the rest of the country.
Reading this paper will make you realize that getting the institutions and policies right can bring peace and prosperity, while getting them wrong can bring war and destruction.

Introduction

When it comes to peace and understanding, the 20th century was a mixed basket. On the dark side, politically motivated violence led to two World Wars, mass killings, and purges carried out by a series of totalitarian regimes, as well as of dozens of recurrent ethnic civil wars that took place mostly in poor countries. Furthermore, the resurgence of terrorism has become a major problem. Overall, conflict-related violence has led to unimaginable human suffering and to a death toll of over 100 million human lives.

But there is also a bright side: For the first time for centuries, much of Europe has been at peace since 1946, and the creation of the European Union has brought many traditional foes and enemies closer together. There has also been an impressive spread of democracy around the world, which can be one of the strongest warrants against political violence under some circumstances. There has also been a massive increase in prosperity around the world, which is also one of the pillars of peace.

Much of the economics and political science literature on wars and conflict has focused on things that are hard for policymakers to change (natural resources, ethnic composition, weather shocks), and this essay will also touch on them. However, I will devote much attention to things that policymakers can affect. Getting the institutions and policies right can bring peace and prosperity, while getting it wrong can bring war and destruction.

When it comes to peace and understanding, the 20th century was a mixed basket. On the dark side, politically motivated violence led to two World Wars, mass killings, and purges carried out by a series of totalitarian regimes, as well as of dozens of recurrent ethnic civil wars that took place mostly in poor countries. Furthermore, the resurgence of terrorism has become a major problem. Overall, conflict-related violence has led to unimaginable human suffering and to a death toll of over 100 million human lives.

But there is also a bright side: For the first time for centuries, much of Europe has been at peace since 1946, and the creation of the European Union has brought many traditional foes and enemies closer together. There has also been an impressive spread of democracy around the world, which can be one of the strongest warrants against political violence under some circumstances. There has also been a massive increase in prosperity around the world, which is also one of the pillars of peace.

Conclusions

As soon as wars are seen as a fate that cannot be avoided, this erroneous prophecy becomes self-fulfilling and the combat against conflict is lost. Maybe surprisingly, governments and the international community dispose of a vast array of measures that are able to reduce the risk, intensity, or duration of fighting drastically. Getting the joint economics and politics right makes a huge difference. The worst enemy of peace is poverty. Sound macroeconomic policies that promote economic growth also display a complementarity with democracy. The impact of democracy is strongest and most positive when the economy is thriving. Generally speaking, all institutions that reduce the stakes of gaining power reduce the risk of conflict: Proportional representation, federalism, power sharing, bicameralism, and referenda all protect ethnic and religious minority groups and guarantee them appropriate representation and freedom of choice. They all drive down the gains of seeking to overturn the central government or pursuing secession by the sword. The power sharing and checks and balances applied by the “Swiss model” at all levels (coalition government with rotating presidency, bicameral parliament overrepresenting small regions, federalism, and direct democracy with popular votes) could thus well inspire political reforms in divided and war-torn societies, and the lessons drawn by Switzerland after its civil war in 1847 may well still apply today.

Furthermore, institutions and policies that favor trade and the building of trust are key ingredients in reducing the conflict potential. Further promising policies include promoting public education and putting in place well-organized pacification interventions taking the whole network complexities of a given war into account. Trying to prevent war is never easy, but the payoffs of peace are so high that it is well worth the effort.

Scientific research can help ease the burden by providing concrete answers to specific questions about policy effectiveness. For example, a direct test of policy interventions has been confined until recently to other fields of economics such as labor or taxation. Very recently, however, several studies championed by scholars from Chicago and Columbia have started evaluating factors that were previously elusive, such as reconciliation in the aftermath of massacres or the reintegration of former child soldiers, with the help of large scale studies where participants are randomly allocated to a group benefitting from the intervention and a comparable control group not treated. In Europe as well, the role of policies and institutions for curbing conflict is receiving increasing attention, with the European Research Council recently funding research on the impact of political institutions, education, and health initiatives on promoting peace.34 For this scientific knowledge to be truly useful for policy, a missing puzzle piece is the diffusion of scientific results to stakeholders in politics, business, and the administration – which is a main challenge for the future and one of the main aims of this paper.

As soon as wars are seen as a fate that cannot be avoided, this erroneous prophecy becomes self-fulfilling and the combat against conflict is lost. Maybe surprisingly, governments and the international community dispose of a vast array of measures that are able to reduce the risk, intensity, or duration of fighting drastically. Getting the joint economics and politics right makes a huge difference. The worst enemy of peace is poverty. Sound macroeconomic policies that promote economic growth also display a complementarity with democracy. The impact of democracy is strongest and most positive when the economy is thriving. Generally speaking, all institutions that reduce the stakes of gaining power reduce the risk of conflict: Proportional representation, federalism, power sharing, bicameralism, and referenda all protect ethnic and religious minority groups and guarantee them appropriate representation and freedom of choice. They all drive down the gains of seeking to overturn the central government or pursuing secession by the sword. The power sharing and checks and balances applied by the “Swiss model” at all levels (coalition government with rotating presidency, bicameral parliament overrepresenting small regions, federalism, and direct democracy with popular votes) could thus well inspire political reforms in divided and war-torn societies, and the lessons drawn by Switzerland after its civil war in 1847 may well still apply today.

Furthermore, institutions and policies that favor trade and the building of trust are key ingredients in reducing the conflict potential. Further promising policies include promoting public education and putting in place well-organized pacification interventions taking the whole network complexities of a given war into account. Trying to prevent war is never easy, but the payoffs of peace are so high that it is well worth the effort.

Authors

Professor of Economics, University of Lausanne
Prof. Dominic Rohner

Dominic Rohner is Professor of Economics at the University of Lausanne. His research focuses on topics related to development, civil conflict and political economics.

Professor of Economics, University of Lausanne
Prof. Dominic Rohner

Dominic Rohner is Professor of Economics at the University of Lausanne. His research focuses on topics related to development, civil conflict and political economics.