Introduction to the Political Economy of War

Core Definitions of Political Economy and War

• Political economy is defined as an interdisciplinary approach that integrates concepts from economics, law, political science, and sociology. Its primary objective is to investigate how legal, economic, social, and political systems influence one another and determine various social outcomes.

• War, in its broadest sense, refers to organized violence occurring between distinct social entities. The entities involved categorize the type of warfare:

  • Inter-state war: Conflict between nation-states.

  • Civil war or revolution: Conflict between distinct social groups within a single state.

  • Proxy war: Conflict where third parties represent states or groups but choose not to engage in direct combat themselves.

• The Handbook on the Political Economy of War utilizes this interdisciplinary framework to explore the causes of war, the nature of revolutions, post-war occupation, and strategies for avoiding conflict.

Historical Foundations of the Political Economy of War

• Academic interest in the political economy of war is as old as the field of economics itself. Adam Smith addressed aspects of war in his $[1776]$ $1977$ work, "An Inquiry into the Nature and Causes of the Wealth of Nations."

• In Book V, Smith ($[1776]$ $1977$, p. $455$-$6$) identifies a direct correlation between war and the increase of public debt. He notes that governments are often functionally unable or politically unwilling to raise taxes to cover the sudden increase in expenses during wartime:

  • Governments fear that a sudden, significant increase in taxes would cause the populace to become "disgusted with the war."

  • Officials may lack the knowledge of which specific taxes would generate sufficient revenue.

  • The "facility of borrowing" provides a solution to this embarrassment, allowing governments to raise large sums of money with minimal immediate tax increases through perpetual funding.

• Smith warns that the accumulation of excessive public debt for military purposes can lead to long-term negative financial consequences, including national bankruptcy and total economic collapse.

Modern Developments in War Theory: 1960s to 1980s

• The modern era of analysis began in the $1960s$ with several foundational works:

  • Schelling ($1960$) introduced the use of game theory to analyze conflict dynamics.

  • Peck and Scherer ($1962$) studied defense contract competition and nonmarket facets of weapon procurement in "The Weapons Acquisition Process."

  • Olson and Zeckhauser ($1966$) analyzed military alliances within a public goods framework.

• During the $1960s$ and $1970s$, literature focused on agrarian revolutions and the role of inequality grievances in triggering conflicts (Blattman and Miguel $2010$).

• The $1980s$ saw the rise of contest models based on the work of Haavelmo ($1954$). These models provided theoretical explanations for war centered on resource competition (Hirshleifer $1988$, $1989$):

  • Garfinkel ($1990$) and Skaperdas ($1992$) used this framework to determine the probability of success in armed conflict based on how groups allocate resources between production and appropriation.

  • Jean and Rufin's ($1996$) "Economie des Guerres Civiles" further analyzed economic factors in warfare.

  • Berdal and Keen ($1997$) explored the interaction between political and economic agendas to derive policy implications.

• These models are unique because they operate under the assumption that property rights and contracts cannot be guaranteed, which deviates from standard economic tools.

Theoretical Shifts: Bargaining and Rational Warfare

• While contest models treated war as an equilibrium, newer research sought to explain why bargaining fails to prevent war.

• Fearon ($1995$) detailed the specific shortcomings of bargaining efforts that lead to rationalist explanations for war.

• Key theoretical explanations for why war may be a "rational" choice include:

  • Asymmetric Information: Powell ($2002$) posits that war occurs when one side overestimates its own strength or underestimates the opponent's strength.

  • Commitment Problems: Garfinkel and Skaperdas ($2000$), Powell ($2006$), and McBride and Skaperdas ($2007$) argue that shifts in the future balance of power can trap groups into choosing war in the present because they cannot credibly commit to future peace terms.

• Anderson ($1999$) examined how foreign aid impacts markets and warfare.

• Acemoglu and Robinson ($2001$, $2006$) developed bargaining models focusing on the relationship between elites and the poor.

Micro-level Perspectives and Individual Behavior

• Micro-level theories analyze individual behavior to understand the formation and operation of conflict groups. This includes:

  • Efficiency gains of group vs. individual action.

  • The size of groups and the establishment of group property rights.

  • The management of inter-group and intra-group conflict.

• Ethnicity has been a central topic of micro-analysis, as seen in the work of Horowitz ($1985$) and Easterly and Levine ($1997$).

• Post-conflict reconstruction remains a major debate, with significant contributions from Carbonnier ($1998$), Duffield ($1998$), and Coyne ($2008$).

Empirical Advances and Methodological Innovations

• Empirical testing of war theories is a relatively recent development, emerging primarily within the last $10$ to $15$ years.

• Notable empirical studies include:

  • Collier and Hoeffler ($1998$, $2004$): Famous for the claim that economic incentives ("greed"), rather than grievances, are the primary drivers of conflict.

  • Fearon and Laitin ($2003$): Used logit specification in cross-country regressions to analyze the onset of war.

• Early empirical work faced challenges such as data limitations and endogeneity. Recent advancements to improve accuracy include:

  • Constructing more descriptive and improved datasets.

  • Using exogenous variables as instruments to determine causality.

  • Designing regressions with tighter links to theoretical models.

  • Combining standard statistical techniques with in-depth case studies, as seen in Stewart and Fitzgerald's ($2000$) analysis of the economic and social costs of war.

• Leading journals publishing this research include: "Conflict Management and Peace Science", "International Journal of Conflict and Violence", "International Organization", "Journal of Peace Research", "Journal of Conflict Resolution", "Journal of International Affairs", "Public Choice", "American Economic Review", "American Journal of Political Science", "American Journal of Sociology", "American Political Science Review", "Journal of Political Economy", and "Quarterly Journal of Economics".

The Broader Significance of the Political Economy of War

• The study of the political economy of war remains critical for three primary reasons:

  1. Economic Development: Internal violence is a primary cause of economic stagnation in the world's poorest nations. Many countries are caught in a "conflict trap" (Collier $2007$), where poverty and violence are self-reinforcing. Social scientists are working to clarify the causal models between conflict and development stagnation.

  2. Weak and Failed States: Dysfunctional states fail to provide basic services, make detrimental policies, or act predatorily toward their citizens. Persistent conflict prevents the emergence of sustainable economic, legal, social, and political institutions required to fix these states.

  3. Post-Conflict Reconstruction: Determining the feasibility of reconstruction requires understanding the specific incentives and constraints present in post-war societies. This involves analyzing both formal institutions (e.g., written laws) and informal institutions (e.g., beliefs and norms).

Structural Overview of the Handbook Sections

• The Handbook is organized into seven distinct parts:

  • Part I: The Rationale for Waging War: Surveys causes of war, including ethnic fractionalization and psychological contributors.

  • Part II: Ways of Waging War: Analyzes tactics such as guerilla warfare, torture, terrorism, and conscription.

  • Part III: Civil War and Revolution: Explores the economics of internal conflicts and revolutions in developing nations.

  • Part IV: The Arms Trade: Specifically examines the trade of military equipment.

  • Part V: Economic/Political Systems and War: Discusses the capitalist peace thesis, democratic peace thesis, international regimes, alliance policy, and leadership tenure.

  • Part VI: Post-Conflict Reconstruction: Addresses complications such as transitional justice, military occupation, third-party intervention, and the problem of credible commitment during reform.

  • Part VII: Alternatives to War: Focuses on non-violent strategies including sanctions, negotiations, and peacekeeping.