USAID Conflict Prevention Workshop Notes

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SESSION IV: ECONOMIC GROWTH AND CONFLICT

Emmy Simmons, DAA, Global Bureau

June 7, 2000

I want to move the discussion now from science to art...specifically, the art of crafting externally-funded programs that meet two conditions, first, that they reduce the risk of violent conflict internal to a country and, second, that that reduced risk is perceived as a development "success" and therefore worthy of continued external funding. I want to conclude with a few speculative remarks about the potential for growing inter-state conflict in an increasingly global world.

First -- Can an externally-funded program (such as one funded by USAID) reduce the risk of violent conflict internal to a country?

According to the analyses of Collier and his colleagues, the risk of violent intra-state conflict is raised when a number of factors are trending in directions that raise individuals' and groups' incentives to rebel against established authority at what they perceive to be relatively low personal costs.

On the incentives side, we find a number of political, economic, and social factors -- potential to increase political power, to better incomes, to gain access to resources needed for further increasing incomes and power, etc.

On the costs side, we note the provision of the instruments for rebellion by others (the diaspora), low opportunity costs for time spent (as incomes are low), and unvalued social or political cohesion.

As has been said by other presenters at this workshop, programs externally funded by governments or public organizations can affect this balance of incentives and costs -- both wittingly and unwittingly.

What is definitely true is that external assistance is never neutral.

So, recognizing this, is it possible for an external organization like USAID to craft an assistance strategy in conflict-prone countries that will actually reduce the risk of actual conflict?

In theory, I would say yes, but in practice I think it depends (1) on how conflict-prone the particular country is, (2) how politically-important the country is to the US, (3) the relative scale of resources (both financial and human) that the US is ready to bring to the situation, and (4) the past history of USAID programming in the country.

On the YES side:

We at USAID do know a lot about how to foster broad-based economic growth -- and therefore about reducing poverty. We understand about policy dialogue and institution building -- about developing ownership and capacity. And we have a firm grasp on the underpinnings of democracy and governance -- particularly with regard to the evolution of civil society, local organizations, and the rule of law.

We are not seduced by the "easy fix" of tapping natural resources without building the other institutions that a modern market economy requires: trade openness, macroeconomic stability, a rule of law, increasingly skilled human resources, access to technology and the human and institutional capacity to use it to increase productivity.

But we are also keenly aware of the relative ineffectiveness of development assistance when the host government policy environment is not 'right' and the institutions are too weak to support a partnership. The recent David Dollar paper nicely lists some lessons of experience:

Financial aid works in a good policy environment
Reform happens when societies desire reform
Effective aid complements private investment
The value of development projects is to strengthen institutions and policies so that services can be effectively delivered
An active civil society improves public services

Yet these are exactly the conditions that are NOT likely to be present in a conflict-prone country: NOT a good policy environment, NOT a good climate for private investment, BAD institutions to deliver services, and a civil society that is disorganized and alienated from the larger government.

When you combine these unpromising country conditions with the reality of limited assistance budgets and USAID leaders will always go for greater effectiveness rather than less. This may be called the "Dollar and Sense" constraint to pursuing an aggressive conflict prevention strategy. We are aware of the DOLLAR conditions for effective aid so it makes SENSE to focus assistance in those countries (or "select" those countries) where they obtain.

There are other organizational characteristics that drive USAID strategic choices. We are an Agency geared to action rather than inaction. This will always lead us to do what is feasible at the moment rather than to develop, in chessgame fashion, a more tactical approach that may involve NOT doing something. While one of the additional Dollar lessons is that: Aid can nurture reform in even the most distorted environments, he notes that it may be long-term and needs a focus on ideas, not money.

Finally, we are an Agency that responds to conflicting interests in the American polity and society. We do not have the clout organizationally to take a "technocratic" path. Rather, we must struggle for a minimum of policy coherence even within our own organization; when we try for policy coherence across the USG, we have an even tougher time.

What does this add up to?

USAID is likely to be most capable of devising and implementing a coherent country development assistance strategy that will actually contribute to reducing the risk of internal conflict when:

the country has a relatively low risk of conflict to start with -- incomes are stagnant rather than falling, short violent conflicts have not already occurred in recent years, and there are no easily -monopolized natural resources;
the country is politically-important to the US so there is at least a minimal impetus to assure policy coherence and the relative volume of resources (both financial and human) that the US is ready to bring to the situation is relatively significant, and
USAID programming in the country has involved both indirect and direct approaches to poverty reduction and democratic governance, institutions are thick, and the assistance program has been successful in some measurable way.

All other cases are more problematic and the risk of failure for USAID would be high.

Let me then turn to my second concern. Even if USAID programs can contribute to reducing the risk of violent conflict in a country, will the long-term risk capital needed to support the programs be forthcoming? While Dollar talks about "ideas" being the needed input that will eventually improve the development prospects for even severely-distorted economies, the delivery of ideas requires money, people, and enormous persistence over long periods of time.

Perhaps a "risk rating" methodology based on Collier's work could be used to demonstrate progress in turning down the heat over long periods of time -- but we still need to do a larger model that enables us to judge the marginal effect of a development assistance dollar in increasing broad-based economic growth in a good-policy country vs. the effect of that same dollar in reducing the risk rating by 10 points.

Further, and this is my last speculative point, we have been focussing on the intra-state conflict situation. With globalization, increasingly porous national boundaries, and an elevation of the rule of law and governance to the international level, is there an increasing potential for intra-state conflict stemming from the same incentive and cost factors that Collier has analyzed with regard to internal conflict? Multinational water resources can be "captured" by upstream countries as water grows scarce. Constraining migration opportunities from poorer to wealthier countries might be perceived -- where armed resources are similar -- as a reason for violent conflict.

USAID Workshop on Conflict Prevention Management

SESSION IV: ECONOMIC GROWTH AND CONFLICT

USAID Workshop on
Conflict Prevention Management