The Political Economy of Conflict in South Asia

M. Webb, A. Wijeweera, M. Webb, A. Wijeweera

• Publisher: Palgrave Macmillan
• Year: 2015
• Print ISBN: 9781137397430
• eBook ISBN: 9781137397447
• Topic: Politics & International Relations
• Subtopic: Development Economics
• Index: Politics & International Relations

Destructive conflicts have thwarted growth and development in South Asia for more than half a century. This collection of multi-disciplinary essays examines the economic causes and consequences of military conflict in South Asia from a variety of perspectives embracing fiscal, social, strategic, environmental and several other dimensions.

1

Introduction

Matthew J. Webb and Albert Wijeweera

The costs of conflict

South Asia comprises the states of Bangladesh, India, Sri Lanka, the Maldives, Bhutan, Pakistan, Nepal and Afghanistan. It is an area of enormous opportunity, staggering diversity but also pervasive poverty and instability. Home to 1.64 billion people – roughly 24 per cent of the world’s population – South Asia is an important and emerging market that has averaged an impressive rate of real GDP growth of six per cent over the last 20 years (International Labor Organization, 2013). The region’s economic importance is heightened by its geographical position adjacent to China and South East Asia and astride trade routes between these markets and those of Africa and Europe. Consequently, it is unsurprising that the rest of the world has started to wake up and take notice of the region, particularly following the 2008 global financial crisis when emerging markets in Asia and Latin America were looked to as the engine rooms of global economic growth. While the economies of North America and Europe languished with high levels of debt, low or negative growth and spiralling unemployment, the economies of Asia and the Pacific experienced an economic renaissance with impressive rates of economic growth and investment. This led some to speculate about the relative decline of Western economic and political dominance and the advent of an ‘Asian century’ which, for many, meant a Chinese century. However, as growth in China has slowed, and old enmities and competing territorial claims have threatened regional stability in Northeast Asia, attention has recently refocused on the economies of South Asia and their significance to the global economic order.

Indeed, after East Asia and the Pacific, South Asia experienced the fastest economic growth of any region in the last decade. A recent World Bank (2012) report addressing South Asia’s remarkable economic progress highlighted the region’s high rates of employment growth (800,000 jobs were created every month between 2000 and 2010) and increasing intra-regional trade flows (intra-regional imports and exports as a percentage of overall trade increased by 4.4 per cent in the 2006–2009 period). However, despite this impressive progress and South Asia’s growing importance to the global economy, a disconcerting array of contradictions and weaknesses threaten to derail its rise to prominence. The same World Bank report summarized the region’s challenges as: high rates of poverty (South Asia has the world’s largest concentration of poor and more than 500 million people live on less than US$1.25 a day); food insecurity (more than 330 million people are under-nourished); rising economic inequality and gender imbalances (South Asia accounts for more than 50 per cent of the world’s missing girls); high sovereign debt ratios as a percentage of GDP (more than 60 per cent in 2010); poor governance (all South Asian states experience high levels of corruption and poor service delivery); energy shortages; and rising inflation.

Not included within this list, but nonetheless a major determinant of South Asia’s economic potential, are the effects of military conflict. Much of the recent attention focused on South Asia has been in consequence of the American-led involvement in Afghanistan and subsequent efforts by the international community to transform it from a failed state. However, conflict in a variety of guises has been an important variable in the economic development of all the states that make up South Asia. Sharing a common political heritage as former possessions, outposts or allies of the British Empire, the formation and development of South Asian states have been marked by numerous wars, rebellions and attempted secessions. The 1947 partition of the sub-continent, in which an estimated twelve million people were displaced and at least several hundred thousand killed, marked the birth of modern-day India and Pakistan but not the end of the religious tensions that precipitated this momentous event. An enduring legacy of bitterness and rivalry saw a further partition in 1971 with the creation of Bangladesh and on-going conflict that has resulted in India and Pakistan fighting four wars in 1947, 1965, 1971 and 1999. Furthermore, with the exception of the Maldives and Bhutan, the states of South Asia have also faced sustained and violent internal rebellions. From the separatist campaign in Bangladesh’s Chittagong Hill Tract region to the Tamil insurgency in Sri Lanka, Maoist uprising in Nepal, Baloch separatism in Pakistan and a myriad of separatist and ideologically inspired insurgencies in India, the territorial integrity and viability of the states of South Asia have been severely tested. These internal conflicts have been exacerbated by the intersection of regional rivalries with sub-national demands for political reform as neighbouring states sought strategic advantage through interference in each other’s domestic affairs. For example, India provided significant assistance to rebels in East Pakistan to facilitate the creation of Bangladesh, as well as Tamil separatists in Sri Lanka, and is accused by Pakistan of also abetting unrest amongst its Baloch and Mohajir populations. India, for its part, charges Pakistan with having trained, funded and equipped separatists in Punjab and Kashmir and has joined many other states in questioning the nature and extent of Pakistan’s involvement with Islamic extremist groups, such as the Taliban.

This brings us to the topic of this book – the relationship between conflict and economics in South Asia. Conflict – both domestic and inter-state – has been recognized as exerting a negative economic effect, with one study that analysed data from 1960–1999 suggesting that states that experienced civil war experienced an annual 2.4 percentage point decline in their GDP growth rate (Hoeffler and Reynal-Querol, 2003). In the case of South Asia, states have allocated increasing resources to defence spending from US$23 billion in 1988 to US$60.2 billion in 2013 when measured in constant 2011 US dollars, with India’s spending accounting for US$47.3 billion of this total (Stockholm International Peace Research Institute, 2013). Indeed, the military occupies a disproportionately large segment of central government spending in South Asian states, estimated at ten per cent in Afghanistan and Bangladesh, 15 per cent in India and Sri Lanka and 18 per cent in Pakistan. This is compared to a relatively meagre 3.2 per cent in conflict-affected states worldwide (World Bank, 2011). Moreover, South Asia suffers a higher degree of human loss in comparison to other conflict-affected regions because of the number of conflicts it experiences as well as their length and severity. In 2008 four South Asian states (Afghanistan, Pakistan, India and Sri Lanka) were amongst the top ten states in the world that experienced direct deaths from armed conflict (Iyer and Santos, 2012). Similarly, in 2009 approximately 20,000 people in South Asia died directly as a consequence of armed conflict – more than a third of the worldwide figure for that year (International Institute for Strategic Studies, 2010)

In addition to direct government expenditure and loss of life, the heavily militarized and conflict-affected states of South Asia suffer from other economic maladies including high levels of government indebtedness, low tax revenues and high dependency on foreign aid (Iyer and Santos, 2012) that combine with the consequences of conflict to cast a pall over the region’s future. Of particular concern is the nexus between economic under-development and continued conflict, and the mutually reinforcing effect that each exerts upon the other evidenced by the frequently pursued strategy of inflicting economic harm to win concessions from opponents. Separatists and other state opponents frequently engage in tactics such as the destruction of government offices, killing of state employees and targeting of infrastructure in an attempt to reduce the state’s ability to collect revenue while also imposing a direct financial cost through the destruction of property and investments. The damage wrought by the suicide attack on the Central Bank of Sri Lanka in 1996 by Tamil insurgents, for example, extended beyond the 41 Central Bank employees killed in the attack to the paralysis of Sri Lanka’s financial system for months afterwards. Indeed, the direct economic costs of conflict exist in addition to the human costs that can also have knock-on economic effects through, for example, lives lost, able-bodied workers permanently disabled, property destroyed, reduced investment, misallocation of government resources from essential services to less-productive sectors, diminished job opportunities, forced migration and environmental degradation. However, rather than diminishing the scale or costs of conflict by weakening an opponent’s ability to continue hostilities and raising the opportunity costs of doing so, attacks on economic infrastructure frequently have the opposite effect as economic and political life are increasingly militarized and violence escalated.

The economics of conflict

Economics – or the study of the consequences of choices made concerning the production, distribution and consumption of scarce resources – is relevant not only to the consequences of conflict in South Asia, but also its causes. By shedding light on the motives and decisions of elites and ordinary participants to engage in violence, economic analyses may significantly assist in understanding the causes of conflict. This is because many of the costs and benefits of conflict are foreseeable, measurable and, therefore, subject to calculations of rational self-interest. States and other actors do not precipitate, enter into or continue a violent conflict without some consideration of the potential risks and rewards of doing so. Arms are purchased, positions staked out, threats and ultimatums issued and violence enjoined for a reason. In addition, once the die is cast and the consequences – intended or otherwise – begin to accrue, then the effect upon the willingness of actors to continue or de-/escalate a conflict may be profound. Even disputes motivated by primarily non-economic considerations – for example, the resource-poor territory of Kashmir that is coveted by India and Pakistan primarily for its strategic and ideological significance – may produce economic consequences capable of affecting the conflict’s trajectory and balance of power in the wider region. In summary, regardless of the underlying motivations, decisions to engage in, continue or end a conflict are amenable to economic analysis.

Despite the utility of economic inquiry to understanding the causes and consequences of conflict, scholarship on the economic dimensions of conflict in South Asia has been remarkably sparse in comparison to other regions. Africa, for example, has been widely studied and provides an interesting context in which to examine the relationship between conflict and development given the contrasting economies of the region that include both resource rich and poor states as well as numerous examples of states (e.g., Mozambique, Angola and Uganda) that appear to have ‘turned the corner’ by ending seemingly intractable wars and embarking on programmes of economic development and modernization. In contrast, perhaps because South Asia’s economic significance has only recently become apparent and many of its conflicts continue to appear intractable, examination of the economic dimensions of conflict in the sub-continent has been much more limited. While some areas of study, such as the economic dimensions of India and Pakistan’s nuclear arms race, have received considerable attention (e.g., Dittmer, 2005; Ganguly and Kapur, 2010), there is generally a dearth of economic analysis of conflict in South Asia, particularly of a kind that ties sub-national (micro) drivers of conflict to broader, national and regional (macro) factors. This is despite the role of economic considerations in ending two of the most bloody and enduring conflicts in South Asia in Sri Lanka and Nepal; economic and military assistance from China were significant factors in the Sri Lankan government’s victory over Tamil separatists, while addressing economic grievances were crucial to convincing Nepal’s Maoists to disarm.

This book

The purpose of this collection of essays is to begin to fill this void of understanding by bringing together scholars from a variety of fields to provide a multi-disciplinary, comparative perspective capable of serving as a resource for further study. We have intentionally broadened the scope of the volume to incorporate various dimensions of conflict including regional and (sub-)state perspectives. The varied and multi-dimensional character of conflict in South Asia requires a broad perspective that includes non-/state actors, inter-/intra-state conflicts and rebellions versus secessions – all of which are addressed within the volume. In addition, we have attempted to strike a balance between specificity and generality by including a range of studies that focus on particular instances of conflict and their economic antecedents and consequences in detail, while complementing these with other analyses that take a wider, national and regional perspective. The selection of a suitable theoretical approach was a more vexing. Given the multi-dimensional character of conflict in South Asia, a plurality of theoretical approaches is required to say anything of substantive importance on the topic. Different instances of the same type of conflict frequently exhibit dissimilar characteristics and have widely divergent causes and effects. For example, the dynamics, causes and trajectories of sub-state political mobilization and rebellion are significantly distinct from those that characterize inter-state conflict and geo-strategic rivalry. At the same time, however, it is important to recognize that sub-state conflict in South Asia is frequently tied to, and cannot be addressed in isolation from, national and regional contexts. Consider, for example, the assistance given to separatist movements in neighbouring states as a strategic tool to achieve regional dominance discussed earlier, or the imagery of an Islamic caliphate stretching from the Middle East to South East Asia that serves as a powerful recruiting tool for Islamic extremists as well as those who oppose its creation. Just as broader ideological and national objectives are frequently played out on a local stage, the agendas of ethnic and religious sub-groups are also influenced by national decision-making in an iterative and constantly emergent process.

Nonetheless, we recognized early on that something more than geographical proximity and the assumptions of rational self-interest that characterize economic analysis would be required as a conceptual thread to link the constituent chapters of the volume together. After much deliberation, we settled on the inclusion of a variety of mainstream approaches centred on several recurrent themes arranged in ascending order of scope. Accordingly, the volume begins with analyses of sub-state conflicts in Bangladesh’s Chittagong Hill Tract, the Indian state of Punjab, Pakistan’s province of Balochistan and the Maoist uprising in Nepal. Collectively these analyses challenge the twin dichotomies – greed versus grievance and primordialist versus situationalist – that have come to dominate the scholarly literature on explanatory theories of sub-state violence. State-wide analysis is provided in the subsequent three chapters addressing attempts to indigenize Indian defence production, the economic dimensions of the ‘War on Terror’ in Pakistan and financial consequences of terror attacks in Sri Lanka during that country’s bloody, three decade long civil war. Finally, the scope is widened in the remaining four chapters to a regional focus that examines the role of diaspora in some of South Asia’s separatist campaigns of violence, the environmental consequences of development and conflict in the Himalayan ranges, econometric analyses of the effects of military spending in South Asia and why wars there are so prolonged and destructive.

Chapter 2, by Syed Serajul Islam, examines post-independence development in Bangladesh which, because of its relative homogeneity, was expected to exhibit little domestic violent conflict. Contrary to expectations, however, economic strategy became a battleground issue between the ruling elites that, when coupled with ideological struggles over national identity, outstanding grievances from the country’s 1971 war of independence, Islamic radicalism and other issues, exerted a considerably negative economic effect and undermined national unity. Examining the inter-play of economic and political factors while assessing the effects of government policy, Islam takes a critical look at the causes of violent separatism in the Chittagong Hill Tract region and rejects simplistic primordialist accounts that attribute the conflict to the distinct ethno-cultural identity of the region’s inhabitants. Instead, he argues, while ethnic and cultural diversity are important to understanding the conflict, they acquired their significance in consequence of political and economic neglect and mismanagement.

This multifaceted approach to separatist violence is continued in Chapter 3 where Jugdep S. Chima turns our focus westward to the Indian state of Punjab which experienced a particularly bloody separatist insurgency from the mid-1980s to 1990s. Focussing on agricultural reforms and their effects upon Punjab’s disproportionately rural economy, Chima examines the effects of these changes upon political mobilization, the prevailing economic class system and their salience to understanding the separatist violence that continues to plague India. Amongst the factors identified as responsible for the conflict are a rise of the economies of scale necessary for profitable farming, lopsided government policies that over-emphasized agricultural output and the fusion of these and other economic factors with calls for political decentralization. Consequently, argues Chima, satisfactorily accounting for Punjab’s descent into violence requires a hybrid approach that cuts across conceptual divisions between explanatory theories that emphasize rational self-interest (greed) and remedial justice (grievance).

The intersection of issues pertaining to economic development with political and ethnic factors to fom...

Table of contents

• Cover
• Title
• 1  Introduction
• 2  The Economics of Conflict in the Chittagong Hill Tract Region of Bangladesh
• 3  The Political Economy of Sikh Separatism: Ethnic Identity, Federalism and the Distortions of Post-Independence Agrarian Development in Punjab-India
• 4  The Political Economy of the Ethno-nationalist Uprising in Pakistani Balochistan, 19992013
• 5  Nepals Protracted Transition: Explaining the Continuing Political and Economic Impasse
• 6  Indias Indigenization of Military Aircraft Design and Manufacturing: Towards a Fifth-Generation Fighter
• 7  The Political Economy of Pakistans War on Terror
• 8  Terrorist Activities and Financial Market Performance: Evidence from Sri Lanka
• 9  Greed, Grievance and Violent Separatism in South Asia
• 10  The Himalayan Ranges, Glaciers, Lakes and Rivers: An International Ecological, Economic and Military Outlook
• 11  Defence, Security and the Economy in South Asian Countries
• 12  A Survival Analysis of the Onset of Peace in South Asia
• 13  Conclusion
• Index