Economic Statecraft and Foreign Policy

Jean-Marc F. Blanchard, Norrin M. Ripsman

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781136225819
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: International Relations
• Index: Politics & International Relations

This book develops a unified theory of economic statecraft to clarify when and how sanctions and incentives can be used effectively to secure meaningful policy concessions.

High-profile applications of economic statecraft have yielded varying degrees of success. The mixed record of economic incentives and economic sanctions in many cases raises important questions. Under what conditions can states modify the behaviour of other states by offering them tangible economic rewards or by threatening to disrupt existing economic relations? To what extent does the success of economic statecraft depend on the magnitude of economic penalties and rewards?

In order to answer these questions, this book develops two analytic models: one weighs the threats economic statecraft poses to the Target's Strategic Interests (TSI); while the other (stateness) assesses the degree to which the target state is insulated from domestic political pressures that senders attempt to generate or exploit. Through a series of carefully crafted case studies, including African apartheid and Japanese incentives to obtain the return of the Northern Territories, the authors demonstrate how their model can yield important policy insights in regards to contemporary economic sanctions and incentives cases, such as Iran and North Korea.

This book will be of much interest to students of statecraft, sanctions, diplomacy, foreign policy, and international security in general.

1 A political theory of economic statecraft

Introduction

The literature on economic statecraft suffers from two important limitations. First, despite David Baldwin’s observation that various forms of economic statecraft follow a similar logic and Albert Hirschman’s assertion that economic incentives influence states because of the possibility they create for future economic sanctions, the existing literature treats economic sanctions and economic incentives as analytically distinct.¹ Second, much of the literature consists of a rather sterile debate about whether economic sanctions or incentives can achieve important foreign policy objectives, with less attention to the more policy-relevant issue of when and under what conditions economic statecraft can achieve these goals.² Consequently, the literature has been dominated by the extreme positions occupied by commercial liberals, who assume that economic incentives and economic sanctions succeed when they maximize the economic incentives they present to states, and political realists, who doubt that economic tools of statecraft can ever achieve important political objectives.

The smaller literature that does evaluate the conditions for success tends to focus almost exclusively on international political variables and downplays domestic political factors in the target state that can affect its willingness to comply.³ Even the few analysts who privilege domestic variables tend to oversimplify the target state’s domestic political environment, utilizing such crude variables as the regime type of the target state.⁴ In so doing, they overlook the complexity of the domestic political environment.

To remedy these problems, in this chapter we develop our own conditionalist model of economic statecraft, hinging upon the international and domestic political costs that the sender generates for the target government. To this end we develop two key explanatory clusters of variables, one international and one domestic, to capture the political costs and benefits that are likely to accrue to the target government as a result of economic statecraft. Internationally, we argue that target states will pay most attention to the degree of threat to strategic interests (TSI) associated with accepting or rejecting a sender’s demands. TSI is a function of the extent to which compliance/non-compliance would endanger vital national interests (i.e., the target state’s sovereignty or national independence), hinder the target’s efforts to protect its national security, or risk compound political or military sanctions, as well as the ability of the target to counter such pressures with third-party support. Our key domestic political variable is target state stateness, comprised of the target government’s autonomy, capacity, and legitimacy, which determine the likely domestic political consequences of defying the sender. With these variables, we develop a comprehensive model of economic statecraft, together with hypotheses that flow from this model that can be tested against the leading commercial liberal, political realist, and conditionalist alternatives in the balance of the book.

We begin this chapter with a critical discussion of existing approaches to economic statecraft. Next, we detail the assumptions about leader motivations that underlie our model and explain what they mean for policymakers who confront economic sanctions and inducements. Based on these assumptions, we present our political theory of economic statecraft, with detailed discussions of our central variables: TSI and stateness. We then present our full model of target state decision making in the face of economic statecraft and overview our plans to test hypotheses drawn from it against other leading approaches in subsequent chapters of this book.

Compliance with economic statecraft: three schools of thought

We identify three schools in the literature on economic statecraft: commercial liberalism, political realism, and the conditionalist approach. Commercial liberals believe that economic policy tools can have powerful political effects. Therefore, they expect policy success to correlate directly with the magnitude of the economic incentives or punishment offered. In contrast, realists doubt that economic factors are ever sufficient to persuade states to abandon important political or strategic policies. Their judgment, therefore, is that economic statecraft is never likely to achieve important political objectives. Finally, conditionalists view the relationship between economic statecraft and political behavior as a contingent one, arguing that political variables condition the ability of states to achieve policy goals through economic statecraft.⁵ We discuss each approach in turn and explain why we find them unsatisfactory.

Commercial liberals

Commercial liberals assume that expectations of economic gains and losses are of crucial importance to policymaking.⁶ Decision makers, in their view, are very attentive to economic pressures when they construct policy, and are eager to maximize economic benefits and minimize economic losses. Consequently foreign governments should be able to influence national decisions by employing economic statecraft that threatens high economic costs or promises considerable economic gains. In other words, as illustrated in Figure 1.1, commercial liberals expect a direct relationship between the value of economic statecraft and target state compliance.⁷

This logic infuses much of the economic sanctions literature. M. S. Daoudi and M. S. Dajani, for example, argue that sanctions become more effective when they are longer-lasting, comprehensive, and imposed collectively—i.e., when they are as economically painful as possible.⁸ George Shambaugh IV asserts that the higher the level of target state economic dependence on the sender, the more likely that economic sanctions will work.⁹ In the same vein, A. Cooper Drury asserts that economically distressed targets are more vulnerable to sanctions, and that to increase the prospects for success, “senders should make their sanctions as costly as possible to the target.”¹⁰ HSE similarly conclude that “cases that inflict heavy costs on the target country are generally successful” and that sanctions have the greatest likelihood of success when they represent more than 1 percent of the target state’s GDP.¹¹

Some commercial liberal variants argue that in order to employ economic sanctions effectively, states must impose enough economic pain on the right target. David Cortright, George A. Lopez, and Elizabeth S. Rogers contend that targeted financial sanctions, which punish the regime’s leaders, are most likely to secure compliance.¹² In contrast, Solomon Major and Anthony McGann claim that the key to securing compliance is punishing the “innocent bystanders” whose spending is likely to have the greatest marginal effect on policy.¹³

Many who write about economic incentives also warrant classification as commercial liberals.¹⁴ Eileen Crumm, for example, proceeds from the assumption that “more valuable incentives are more likely to achieve policy goals.”¹⁵ Rawi Abdelal and Jonathan Kirshner argue that economic incentives independently can accomplish vital political goals by providing economic payoffs that can shift the balance of forces within a country.¹⁶ And Randall Newnham argues that generalized economic incentives can be even more successful than sanctions in bringing about policy change if they are sufficiently lucrative.¹⁷ Overall, then, the commercial liberal model suggests the following hypothesis:

Figure 1.1 The commercial liberal model.

Hypothesis CL: The higher the level of economic costs or benefits generated by economic statecraft, the higher the probability of target state compliance.

The evidence, however, that economic statecraft alone can reliably modify political behavior is quite poor. Massive Soviet economic assistance did not guarantee the fidelity of Egyptian President Anwar Sadat, who ousted Soviet advisers from Egypt in the 1970s.¹⁸ More recently, the prospect of hundreds of millions of dollars of American and European Union implementation assistance failed to convince Greek Cypriots to approve an UN-sponsored plan for the reunification of Cyprus during an April 2004 referendum.¹⁹ In 2003, the British Commonwealth and the US acknowledged in May 2003 that heavy economic sanctions against Zimbabwe—which helped push unemployment in the country above 50 percent and inflation over 200 percent—had so far failed to compel any political liberalization in the country.²⁰

Commercial liberal arguments on economic statecraft also suffer from several conceptual shortcomings. A key problem is that they treat the state as a black box, responding to economic stimuli in a uniform manner to maximize aggregate gains and losses. This approach ignores the facts that economic statecraft does not have merely an aggregate national effect, but affects domestic groups differentially; that disaffected groups do not necessarily have access to the state; and that the state itself may not have the ability to construct policy in accordance with its own preferences.²¹ Another flaw is the commercial liberal supposition that the state, special interest groups, and the mass public are motivated solely by economic considerations. Instead, domestic actors may be willing to accept economic losses to achieve important political, national, or religious goals.²² Furthermore, leaders have policy instruments they can employ to attempt to modify the economic costs and benefits they confront.²³ Finally, states do not operate in an international political vacuum. In fact, the international political context may significantly alter the political importance of external economic stimuli. Consequently, commercial liberals greatly oversimplify the dynamics of economic statecraft.

Political realists

At the other end of the spectrum, realist approaches assert that the political and strategic goals of national leaders take precedence over economic ones. Therefore, economic statecraft—premised as it is on the exchange of political concessions for economic gains or the avoidance of economic losses—should always fail, unless economic pressures are consonant with political ones or the sender’s political demands are inconsequential. Figure 1.2 illustrates the realist logic.

In the economic sanctions literature, Robert Pape represents the quintessential realist, arguing that economic sanctions almost never achieve their goals, since states are unwilling to trade important political objectives for mere economic considerations. He contends that whenever economic sanctions appear to have worked, the policy change is more appropriately traced to corresponding military or political pressures, or the inconsequential nature of the sender’s demands. Consequently, he concludes that economic statecraft is of only minimal utility, and far less useful than military force.²⁴ Drury and Li similarly conclude that sanctions are likely to be ineffective when attempting to change salient policies.²⁵

The economic incentives literature offers no explicit realists, largely because of a self-selection process.²⁶ The few authors who write about incentives implicitly begin with the assumption that they can be of significance. However, we interpret the dearth of attention paid to economic incentives as evidence of the widespread realist attitude that economic gains are unlikely to move states to alter their policies. Similarly, Baldwin writes that “[t]he overall impression one derives from the literature is that economic statecraft is so obviously useless as to raise questions about the good judgment of any policymaker who gives serious consideration to such techniques.”²⁷ The realist approach, therefore, suggests the following hypothesis:

Hypothesis R: economic statecraft should never succeed against a target state that adheres to the offending policy for strategic or political reasons.

Figure 1.2 The political realist model.

A quick scan of economic statecraft episodes, though, suggests that there indeed are instances when economic carrots and sticks can generate important political results. It would appear, for example, that international economic sanctions against South Africa helped to end its repugnant apartheid regime.²⁸ Similarly, Russia profitably used economic pressure to force newly independent states such as Kazakhstan and Turkmenistan to make major political and economic concessions to Moscow.²⁹ And the international community restored domestic stability to certain areas of Bosnia in no small part by offering various economic incentive packages, which encouraged key political groups to adhere to a cease-fire.³⁰ These cases suggest that we need more information than the political realists provide to understand when economic policy instruments will cause a target to undertake meaningful policy changes.

Conditional approaches

Between these extreme positions lie the conditionalists. The archetypal conditionalist assertion is that the economic costs and benefits associated with economic statecraft are only likely to have an important impact on decision making under certain political conditions. Historically, most conditional studies emphasized the international milieu within which economic statecraft is attempted. More sophisticated recent treatments, though, have begun to take the domestic political context into account.

Figure 1.3 diagrams the causal logic of conditional arguments that focus on the international political context. Such “international conditionalists” assert that policymakers facing economic statecraft have to bala...