2 Overview Economic statecraft: instruments and objectives Economic sanctions: not always successful, but still usefulEconomic incentives: an under-appreciated instrument of statecraft?Economic interdependence: source of political harmony or conflict?
3 Economic statecraftStatecraft: the use of instruments by central political authorities to serve foreign policy purposes (diplomatic, military, economic)Economic statecraft: the use of economic tools and relationships to achieve foreign policy objectives. Part of the wider array of foreign policy instruments, where economic measures are used in conjunction with military and diplomatic tools
4 Economic Statecraft - overview Long history of use, at least to ancient GreeceBut used much more heavily in modern times174 recorded use of sanctions betweenStrong economies with many economic instruments are more likely to use economic statecraft than weaker economies
5 Despite widespread use, economic sanctions don’t often appear to be that successful However, many argue that still have important role, even if they don’t solve major problemsCan be useful to signal intentions, build consensus, or even set stage for military action
6 Economic statecraft: instruments and objectives Tools of economic statecraft include:Trade restrictionsFinancial sanctionsInvestment restrictionsMonetary sanctions
7 Trade restrictionsTrade restrictions are placed on given exports or imports of a particular countryCountries that rely heavily on imports or exports, or in general, or of particular commodities, are more vulnerableExamples:1973 OPEC crisis, UN sanctions against Iraq, US trade embargo of Cuba
8 Financial SanctionsOften used alongside trade restrictions in effort to increase pressure on a governmentIncludes things like cutting off of economic or military aid or the blocking or freezing of access to lending institutions (e.g. World Bank)Sometimes target specific assets of government leaders held in other jurisdictionsExamples:US freezing Iranian assets during hostage crisis, freezing assets of suspected terrorist/supporters
9 Investment restrictions Restricting foreign direct investment (FDI), which affects the state’s infrastructureParticularly powerful for countries that are highly dependent on FDI for economic growth and developmentHave been used by Western nations against Iraq, Iran and LibyaAlso used against South Africa during the 1980s
10 Monetary sanctionsDestabilizing a given currency/exchange rate (buying and selling of large quantities of a target state’s currency)If effective can create serious financial crisis for target stateExamples: US against the UK during the Suez Crisis
11 Negative uses of sanctions (sticks) Governments use economic sanctions to satisfy a range of foreign policy objectives:Altering the domestic politics of a target country (e.g. over human rights practices)Influencing the foreign policy behaviour of a target country (forcing an end to a conflict, or the withdrawal of troops)
12 Affect the economic or military capabilities of a target country (e. g Affect the economic or military capabilities of a target country (e.g. slowing military growth)Attempting to bring about regime change (forcing political capitulation)
13 Positive uses of sanctions (carrots) Trade promotion (promise or actuality of expanded trade)Increase aid/transferring of significant resources (Marshall Plan)Encourage foreign investmentSupport a country’s currencyPromise of economic rewards to lock in a series of desirable, long-term changes (EU enlargement)
14 Economic sanctions: not always successful, but still useful Economic sanctions offer a possible alternative to war as a means to settle disputes and contain aggressionBoth League of Nations and the UN encouraged members to use sanctions before warCumulative post-war experience suggest that economic sanctions were for the most part an ineffective form of statecraft.
15 Implementation difficulty So why is it so hard to for sanctions to work?Difficulty of maximizing economic painTarget states always have options to work around sanctions, even the majority of states are cooperating with sanctionsStates can respond over time to diversify their economy to produce what can’t get
16 Even the imposition of economic pain does not necessarily translate into desired political changes Instead of creating political disarray and pressure domestic pressure on the government can have the opposite effectCan create solidarity, political integration with the target country or rally around the flag effect - unit against external enemyE.g. Castro in Cuba
17 Sanctions can be costly to the ‘sanctioner as well as the target, making political support difficult to sustain over time.In increasingly integrated economy hard to impact economy of one country without creating ripple effects on others (allies or own)Examples - Reagan lifting US grain embargo on USSR, China-US today
18 Can create political and public relations problems for sanctioners when the effects fall disproportionately on vulnerable groupsCan’t guarantee how the sanction will be felt inside the country and by whomThose with means inside the country can still find access, while the poorest and most vulnerable can be most impacted
19 Sanctions can be so effective actually create a humanitarian crisis inside the country, which can cause backlash against sanctions themselvesE.g. Iraq, HaitiHas led to ‘smart sanctions’ that attempt target damage more preciselyE.g. target certain sectors of economy (e.g. weapons imports), or the assets of leaders & supporters
20 UsefulnessIn spite of the challenges, governments still find sanctions useful for a number of reasons:Sanctions may satisfy some, if not all, of a state’s goals.Sanctions may pave the way for use of military force.Sanctions may be a relatively attractive option in the absence of alternatives.
21 An instrument increasingly used in post-Cold War era (though not necessarily more effective) Globalisation: has important cross-cutting implications for economic sanctions (increases both vulnerability and options)
22 Economic incentives: an under-appreciated instrument of statecraft? Positive economic statecraft:Promise or provision of economic benefits to get a state to do something. Two basic types:1) Tactical linkage: Operates at the immediate level, offer a specific benefit for a specific actionThe economic reward is tactically calculated to gain maximum effect.The reward usually conditional on the action
23 2) Structural linkage: more of a long-term effort to use a steady stream of economic benefits to reconfigure the balance of political interests within a target state.It tends to be unconditional
24 Given the importance of economic relations in foreign policy it’s not surprising that scholars have begun to rediscover the agenda of positive economic statecraftSome argue that US foreign policy objectives would be better served by employing carrots rather than sticks, even in relations with seemingly intractable states such as Iran and North Korea
25 Economic interdependence: source of political harmony or conflict? Liberals argue that economic interdependence decreases incentives for conflict.Realists argue that economic interdependence is more likely to lead to state conflict.Each position has its own empirical support. It may be useful to search for intervening variables that help to explain the circumstances under which economic interdependence leads to war or peace.
26 ConclusionEconomic statecraft is important and widely used aspect of foreign policySanctions, despite not always achieving major objectives, are widely used and can have important impacts on foreign policyHave seen a growth in use of sanctions since the end of the Cold War