Neoliberalism and the Political Economy of War

By Bruce K. Guenther

60.4100/3 Senior Seminar in International Development Studies

Jerry Buckland
Menno Simons College
University of Winnipeg
April 15, 2005
 2

Neoliberalism and the Political Economy of War

“If somebody hides a thing behind a bush, seeks it again and finds it in the selfsame place, then there is not
much to boast of, respecting this seeking and finding; thus, however matters stand with the seeking and
finding of ‘truth’ within the realm of reason.” – Friedrich Nietzshe, “On Truth and Lie in an Extra-Moral
Sense”, 1911

“Violence always rides on the back of lies.” – Stanley Hauerwas, 2004

Chapter 1: Neoliberalism SAPs and Conflict

Though the topic of this essay is quite broad, its thesis emerges out of my

practicum experience working for a human rights organization, Jamaicans for Justice, in

Kingston, Jamaica. The main area of focus during my one year term through Mennonite

Central Committee was responding to complaints of human rights violations by the state

(i.e. police, military, prison officials). Dealing daily with the cycle of violence in Jamaica

caused me to ask questions about the source of this pervasive violence.

Though there are a variety of root causes associated with Jamaica’s poverty and

violence including the legacy of colonialism and the plantation system, many Kingston

inner-city residents point to the 1970s as a time when a large shift occurred.1 In the 1970s

to 1980s, the conditionality of Structural Adjustment Programs (SAPs) imposed by

organizations such as the International Monetary Fund (IMF) shifted economic and social

burdens on the poor through layoffs and less investment in social services. 2 For inner-

city residents this time period was characterized by a sharp increase in the cost of living

(due to high inflation and currency devaluation) as well as high unemployment.3 One

1
Horace Levy, They Cry 'Respect'!: Urban Violence and Poverty in Jamaica, (Kingston, Jamaica:
Centre for Population, Community and Social Change, University of the West Indies, 1996), 10.
2
Anthony Harriott, Police and Crime Control: Problems of Reforming Ex-Colonial
Constabularies, (Kingston, Jamaica: The University of the West Indies Press, 2000), 3.
3
Levy, They Cry 'Respect'!: Urban Violence and Poverty in Jamaica,, 10. For an excellent
documentary on the affects of the SAPs on Jamaica, see “Life and Debt” by Stephanie Black (New Yorker
Video), 2001.
 3

Jamaican academic, Anthony Harriot, describes SAPs as a “globally dominant neoliberal

paradigm which associates inequality and individualism with efficiency and economic

progress.”4 This neoliberal paradigm, through cuts in government spending, currency

devaluation, trade and finance liberalization, caused polarization between the rich and the

poor in Jamaica.5 According to Harriot, this deregulation of the economy in Jamaica has a

tendency towards rent-seeking rather than wealth creating activities. The consequence of

this increased marginalization and inequality has generated “powerful, socially

destructive tendencies and induced the use of greater (but ineffective) coercive force by a

weakened state in support of this mode of development.”6 Through studying the

pervasive violence in Jamaica, he concluded that this “high level of inequality and

competitive individualism are associated with high rates of violent crime.”7 It is this

observation by both Jamaican academics and inner-city residents regarding the

correlation between increases in violence and neoliberalism which has spurred me to

further explore these linkages.

Using a global political economy approach which attempts to analyze the power

embedded in economic relationships, this essay will argue that neoliberal policies rather

than fostering peace and prosperity, have actually created global instability by fuelling

armed conflict. This happened in three significant ways: 1) the increasing influence of

transnational corporations, 2) the widening of income inequality and 3) the dismantling

of the state.

4
Harriott, Police and Crime Control: Problems of Reforming Ex-Colonial Constabularies,, 4.
5
Patrick Bryan, Inside Out and Outside In: Factors in the Creation of Contemporary Jamaica,
(Kingston, Jamaica: Grace Kennedy Foundation, 2000), 81.
6
Harriott, Police and Crime Control: Problems of Reforming Ex-Colonial Constabularies,
xxviii..
7
ibid., 4.
 4

This is an essay about the causes of armed conflict, but I must be clear about what

I am and am not saying. My argument is that neoliberalism and its policies such as

Structural Adjustment Programs have in many cases engendered and fueled conflict. The

intention of this paper is not to gloss over historical and contextual particularities but

rather to explore the ways in which neoliberalism feeds armed conflict in the Global

South. Nationalist, independence, political and ideological struggles, ethnic and religious

divisions, as well as other historical grievances and marginalization, all play a role in

contemporary conflict. Yet, it is my contention that often contemporary conflicts have

more to do with struggles over resources and are thus related to neoliberal economic

globalization.8 In John Bowen’s article, “The Myth of Global Ethnic Conflict,” he argues

that when conflict gets pinned on religious or ethnic differences we see those in conflict

as “tribal” and less modern, making it easier for us to tolerate suffering because conflict

is “natural” of a people or region: “it distracts us from the central and difficult question of

just how and why people are sometimes led to commit such horrifying deeds.”9

However, the North is involved in this process of neoliberal globalization often

benefiting from this new imperialism. While benefiting the North, neoliberal policies

continue to allow for the exploitation and marginalization of already peripheral regions

causing further suffering and violence.

It is also important to clarify that my intention is not to replace one universal

claim for another – that is, while neoliberal policies have been implemented in a one size

fits all fashion, my argument is not that in every instance neoliberalism has led to

8
John R. Bowen, "The myth of global ethnic conflict," Journal of Democracy 7, no. 4 (1996): 3.
9
ibid.
 5

violence and conflict. Rather, it is my claim that in many cases where civil conflict is

present, neoliberalism plays a role.

Before jumping into my argument, however, it is important to outline what is

meant by neoliberalism. Neoliberalism claims that the market is the most efficient

mechanism for the distribution of private goods and services in society and that state

intervention is a distortion of these market principles. Marketization and liberalization

will allow for economic growth to “take off” while the benefits of these policies will

eventually “trickle down” to the poor. This neoliberal ideology has been encapsulated in

what has become known as the “Washington Consensus”, as coined by John Williamson.

This anti-interventionist approach was developed by the International Monetary Fund

(IMF), World Bank and other lenders who advocated for radical marketization.10 If

neoliberalism is the economic theory encapsulated in such policies as the Washington

Consensus, then the World Bank and the IMF’s Structural Adjustment Policies (SAPs)

are its embodiment. SAPs can be summarized by the following prescriptions: 1. strict

budgetary policies (primarily the elimination of government deficits and a reduction in

government spending); 2. privatization of state-owned enterprises; 3. price deregulation

(including the elimination of subsidies and liberalization of exchange rate policies); 4.

liberalization of exchange and interest rates as well as dollarization; 5. trade liberalization

through reduction in protectionism (quotas, tariffs, etc); and 6. the promotion of foreign

investment by removing barriers in various sectors. These policies were originally a

response to the debt crisis of the 1970s and the inadequacy of past development

10
Michael P. Todaro and Stephen C. Smith, Economic Development, Eighth Edition (Toronto,
ON: Addison Wesley, 2003),702-703. See Todaro & Smith for a summary of the key components of the
consensus.
 6

approaches. Despite widespread criticism of these policies, these market-friendly

reforms continue to be advocated by the international financial institutions.

In the second chapter of this essay, the global political economy framework will

be presented. This will be followed by the third chapter, where through using a political

economy lens, we will analyze how neoliberalism has contributed to armed conflict. The

fourth chapter will conclude with a reflection on neoliberal hegemony. Despite the

narrowness of this pure economic approach for development and peace-building,

proponents still point to the rationalism of neoliberal policies. Unfortunately, in many

cases, the continual aggrandizement of market driven development breeds and fuels

violence and conflict around the world.

 7

Chapter 2: Global Political Economy

The beginning of the global political economy discourse can be traced back to an

influential article by Susan Strange entitled “International Economics and International

Relations: A Case of Mutual Neglect” where she notes that there has been little

interaction between the disciplines of international relations (politics) and economics. 11

Strange notes that a lack of developing a study of international political economy at the

university “is allowing the gulf between international economics and international

politics to grow yearly wider and deeper and more unbridgeable than ever.”12 Martin

Staniland, in outlining the political economy discussion states that the study of political

economy generally arises out of the radically incompatible perspectives of economics and

political science with economics (in its classical/neoclassical sense) emphasizing market

and with politics emphasizing power: “the assumptions and working logics of economics

cannot easily accommodate, except as ‘externalities’, the phenomenon of coercive power,

since they rest on the axiom of the freely choosing individual.”13

Recent literature also points to a continued lack of cooperation between

disciplines, particularly between international development studies and economics. John

Harris in his article “The Case for Cross-Disciplinary Approaches in International

Development,” indicates that this cooperation between disciplines, as in the case of

global political economy, is essential in order to “save disciplines from themselves.”14

Harris points to the limitations of an economic methodology which is based on an

11
Susan Strange, "International Economics and International Relations: A Case of Mutual
Neglect," International Affairs (Royal Institute of International Affairs 1944-) 46, no. 2 (1970): 304-315.
12
ibid., 307.
13
Martin Staniland, What is Political Economy?: A Study of Social Theory and
Underdevelopment, (New Haven, CO: Yale University Press, 1985), 4.
14
John Harris, "The Case for Cross-Disciplinary Approaches in International Development,"
World Development 30, no. 3 (2002): 487.
 8

individualist and rational choice “set of rules” without the broader perspective of other

disciplines.15 Ravi Kanbur, past author of a World Bank’s World Development Report,

also points out that “economics cannot do it on its own” and that “the social sciences

need to come together to address specific and general problems in development studies

and development policy.”16 What Susan Strange was observing in the field of

international relations and economics continues to happen today; economists’

contributions to the study of international economic relations shows political naiveté

writing “as though political factors and attitudes simply did not exist, and could be

brushed aside as some kind of curious quirk or aberration.”17

It is precisely because of this existing gap, that the political economy approach

becomes an important framework for the discussion of broader issues of peace, conflict

and development. Robert Gilpin defines “political economy” as a framework to evaluate

a set of questions which uses a mixture of analytical and theoretical perspectives and

“these questions are generated by the interaction of the state and the market as the

embodiment of politics and economics in the modern world.”18 The fundamental

assumption of the political economy perspective is that the domains of politics and

economics cannot be separated in any meaningful sense; but rather, “the dynamics of

economic and security issues, of government and the market, are intimately bound up

with each other in international politics, a premise that contrasts with the assumptions of

15
ibid., 492.
16
Ravi Kanbur, "Economics, Social Science and Development," World Development 30, no. 3
(2002): 477.
17
Strange, International Economics and International Relations: A Case of Mutual Neglect, 304-
315.
18
Robert Gilpin, "The Nature of Political Economy," in International Political Economy: State-
Market Relations in a Changing Global Order, ed. Goddard, C. Roe, Patrick Cronin and Kishore C. Dash.
(Boulder, CO: Lynne Rienner Publishers, 2003), 10.
 9

traditional approaches to the discipline of international relations or, indeed, economics.”19

Recently however, a number of economics scholars have stated that political economy

itself is just a methodology of “formal economics” that falls within the rational actor

model; this is obviously inadequate in that it once again marginalizes political and non-

economic factors.20 In contrast, Robert Cox notes that the contribution of political

economy has highlighted economic foundations of power.21 Political Economy or Global

Political Economy, has not merely expanded the subject matter of international relations

but has changed the way we think about power and the world order.22

In discussing political economy, the literature typically compares it to three

different theoretical frameworks: realism, liberalism and Marxism.23

The realist tradition in international relations theory focuses primarily on the

competition between state actors.24 Realism believes that nation-states pursue power and

shape the economy to this end. Unlike Marxists and liberals, realists assume the primacy

of politics over economics: the state is the dominant actor in the global political

economy.25 “For Realists, politics underlies economics. In the pursuit of power, nation-

states shape the international economy to best serve their desired ends.”26 The

19
Geoffrey R. D. Underhill, "Conceptualizing the Changing Global Order," in Political Economy
and the Changing Global Order, ed. Richard Stubbs and Geoffrey R.D. Underhill. (Toronto, ON: Oxford
University Press, 2000), 3-21.
20
Gilpin, The Nature of Political Economy, 10
21
Robert W. Cox, "Political Economy and World Order: Problems of Power and Knowledge at
the Turn of the Millenium," in Political Economy and the Changing Global Order, ed. Richard Stubbs and
Geoffrey R.D. Underhill. (Toronto, ON: Oxford University Press, 2000), 32.
22
ibid., 32.
23
See Jeffry A. Frieden and David A. Lake, "International Politics and International Economics,"
in International Political Economy: State-Market Relations in a Changing Global Order, ed. Goddard, C.
Roe, Patrick Cronin and Kishore C. Dash. (Boulder, CO: Lynne Rienner Publishers, 2003), 25-7.;
Underhill, Conceptualizing the Changing Global Order, 3-21.; Staniland, What is Political Economy?: A
Study of Social Theory and Underdevelopment, 229.
24
Underhill, Conceptualizing the Changing Global Order, 3-21., 9.
25
Frieden and Lake, International Politics and International Economics, 30.
26
ibid., 31
 10

international system is anarchical under which nation-states are sovereign and, through

rational self-interested actions, states maintain a “balance of power.” This stark

separation between the political and economic factors contrasts a global political

economy perspective which understands those spheres to be an integrated whole. 27

Security becomes the primary issue from a Realist perspective which clashes with a

global political economy approach where security has just as much to do with economic

factors of “who gets what, when and how.”28 In summary, realism is inadequate as it

attempts to divorce the interplay between the state and the economy.

A liberal approach, in contrast to the realist perspective, sees the individual, not

the state, as the primary actor in society. “Liberalism is thus permeated with a concern

for enhancing the freedom and welfare of individuals; it proposes that humankind can

employ reason better to develop a sense of harmony of interest among individual and

groups within the wider community, domestic or international.”29 The liberal approach

assumes that individuals are rational, utility maximizing actors making cost-benefit

calculations across a wide range of possible options. Individuals maximize their utility

when they choose the result which yields the highest rate of subjective satisfaction.30 The

interaction between individuals occurs within the economic sphere. If individuals are

free to interact as economic agents, this will ensure the most beneficial distribution of

wealth.31 The state exists primarily to facilitate the free exchange of goods between

individuals within the market.32 At first glance, liberalism seems diametrically opposed

27
Underhill, Conceptualizing the Changing Global Order, 10.
28
ibid., 11.
29
ibid., 13.
30
Frieden and Lake, International Politics and International Economics, 26.
31
Underhill, Conceptualizing the Changing Global Order, 13.
32
Frieden and Lake, International Politics and International Economics, 27.
 11

to realism however they share the same problematic assumption: that the realm of politics

and economics are separate and governed by their own laws and relationships.33 Markets

cannot be separated from the political institutions in which they exist and are formed.

Moreover, one cannot understand the behaviour of economic agents outside of their

particular socio-political location and their particular historical developments.34

A neoliberal strategy flows logically from the liberal framework. Neoliberalism

sees actions of the state as a market distortion which inhibits economic growth.

Neoliberalism, as outlined in chapter 1, is characterized by the rise of transnational

capital, the decline of the state and emphasis on global market-friendly policies.35

Neoliberalism has become the dominant paradigm thus representing the context for our

discussion of the global political economy of war.

Marxism emerged as a response to liberalism in the late 19th century. Karl Marx

developed a new discourse where capitalism and the market were seen as creating

extremes of wealth for capitalists and poverty for workers.36 The basis of the capitalist

economy is the exploitation of labour for the sake of capital. According to Marx

capitalism is an inherently conflictual system that will be overthrown and replaced by the

“classless society.”37 From a political economy perspective the principal strength of the

Marxist approach, as opposed to that of liberalism and realism, is that it “focuses

precisely on the connection between the social and economic structures of the capitalist

33
Underhill, Conceptualizing the Changing Global Order, 13.
34
ibid., 14.
35
See Jorge Nef and Wilder Robles, "Globalization, Neoliberalism, and the State of
Underdevelopment in the New Periphery," Journal of Developing Socities 16, no. 1 (2000): 27-21.
36
Frieden and Lake, International Politics and International Economics, 25-7., 28.
37
ibid., 27
 12

economic system, on the one hand and the exercise of the political power in the

international system, on the other.”38

Just as Marxism arose in response to liberalism, the Dependency school arose

alongside and in response to modernization theory articulated most clearly by Walt W.

Rostow.39 Dependency theorists postulated that development is not simply dependent on

a country’s endowments and the ability of the economy to “take off”; rather, development

and underdevelopment is determined by relationships of power. According to

Dependency theory, development, or a lack of, is a product of those who set the rules of

the international economic game: industrialized nations (the core/metropolis) expand at

the expense of the developing world (the periphery/satellite). 40

What Marxism, Dependency and Neo-Marxist approaches contribute to the

political economy approach is how intimately power is tied up with economic

globalization. These approaches take into account the complex interdependence among

states, their societies, and economic structures at domestic and global levels of analysis. 41

It is in not questioning these global structures of power, where many approaches to

development and peace-building fall short. A political economy approach sees power

embedded in both economic and political spheres.

It is thus interesting to look at approaches that have emerged as a result of

widespread criticism of the neoliberal agenda. Doug Porter and Patrick Craig argue that

neoliberalism has moved beyond its ‘more market’ phase (as through Structural

38
Underhill, Conceptualizing the Changing Global Order, 14.
39
See Rostow, The Stages of Economic Growth: A Non-Communist Manifesto, 93. Though
Rostow was a strong advocate of the linear growth model, he differs from neoliberals in that his approach is
remains quite state-driven.
40
Patrice Franko, The Puzzle of Latin American Economic Development, 2nded. (New York, NY:
Rowman and Littlefield Publishers Inc., 2002), 53 & 74.
41
Underhill, Conceptualizing the Changing Global Order, 19.
 13

Adjustment Programmes) and has turned toward embedding, legitimizing and securing

liberal reform by promoting an “inclusive liberalism.”42 In reaction to widespread

distrust and angst toward neoliberal globalization, ‘inclusive’ liberalism seeks to cloak its

market policies under the veil of “poverty alleviation”, “security”, and “participation”. 43

Instead of questioning the current power and exploitive nature of the current market

system, like Marxists and radical political economy approaches, this liberal

‘inclusiveness’ recommends policies which attempt to tweak and manage economic

globalization (i.e. good governance and democratization).

The Human Security approach, made popular by persons such as Lloyd

Axworthy, is a good example of a theory firmly grounded in liberal thought which

appeases our desire for more “human” globalization but does not question the underlying

assumptions of liberalism and neoliberal economic globalization.44 Inclusive liberal

strategies such as human security, “represent a temporary pre-emptive, strategic

inoculation, against a more broadly and socially contested double movement, the kind of

political double movement arguably most feared by proponents of a wider liberal

project.”45 Liberalism, as articulated earlier, refuses to acknowledge the power dynamics

and interconnectedness of the economy and the political environment in which it exists.

Liberal perspectives are not alone in refusing to question fundamental

assumptions, but a political economy framework can also fall into this trap. Though

42
Doug Porter and David Craig, "The Third Way and the Third World: Poverty Reduction and
Social Inclusion in the Rise of 'Inclusive' Liberalism," Review of International Political Economy 11, no. 2
(2004): 390.
43
ibid., 392.
44
See Sakiko Fukuda-Parr, "New Threats to Human Security in the Era of Globalization," Journal
of Human Development 4, no. 2 (2003): 167.; Lloyd Axworthy, "Human Security and Global Governance:
Putting People First," Global Governance 7, no. 1 (2001): 19.
45
Porter and Craig, The Third Way and the Third World: Poverty Reduction and Social Inclusion
in the Rise of 'Inclusive' Liberalism, 418.
 14

political economy should be commended for its recognition of the interconnectedness of

politics and economics, much of the literature falls short in continuing to assume that the

state is the primary political actor.46 I agree with David Harvey in The New Imperialism

when he states that, “there is considerable evidence that the transition to capitalist

development was and continues to be vitally contingent upon the stance of the state.”

And that, “the development role of the state goes back a long way, keeping the territorial

and capitalist logics of power always intertwined though not necessarily concordant.”47

Though I would make a departure from Harvey’s articulation that the only realistic

answer to the current problems with neoliberalism is the reformulation of state power

along more interventionist and state lines where the power of financial capital,

oligopolies and monopolies is curbed.48 This is indeed an outcome that should be

applauded if realized but it once again places the power of governance in the hands of

nation-state and inter-national actors, discounting the importance of local communities

and the political space located therein to make change.

As articulated in Lydia Herbert-Cheshire and Geoffrey Lawrence’s essay

“Political Economy and the Challenge of Governance,” power should not be relegated to

state actors but:

From a Foucauldian governmentality perspective, on the other hand, modern

forms of power are seen to occur less through the formal structures of the
nation state – or for that matter, through supra-national authorities – and more
through a complex network of localized power relations. These relations
cannot be reduced to any one way domination of one class by another, but are

46
See Underhill, Conceptualizing the Changing Global Order, 3-21.; C. Roe Goddard, Patrick
Cronin, and Kishore C. Dash eds., International Political Economy: State-Market Relations in a Changing
Global Order, , 2nd ed. (Boulder, CO: Lynne Rienner Publishers, 2003), 513.
47
David Harvey, The New Imperialism, (New York, NY: Oxford University Press, 2003), 145.
48
ibid., 209. This is similar to the critique stated by Porter & Craig.
 15

made up of shifting alliances between individuals and groups, which fracture

and re-form according to different issues and interests.49

Power does not only lie within the function of the state but rather, power lies also within

communities who mobilize, take action and embody the ethic that they wish to see in the

world. The modern state should no longer be seen as the primary locus of where

processes of change occur.50 This makes possible a new order where ‘civil society’ or a

network or organizations present rather than represent those interest which represent “the

people.”51 This is particularly informative when looking at the political economy of war

since many, if not the majority, of the political actors within contemporary conflicts are

non-state actors.

If political economy looks at the dynamics between the political and economic

realms, a political economy of war perspective explores the role of economic factors

which “lead to state collapse, give rise to and sustain conflict, and complicate

peacebuilding.”52 A political economy of war perspective allows for a critical look at

regional linkages and violent cross-border spillover.53 Michael Pugh and Neil Cooper

acknowledge that traditionally, the effects of globalization and outside economic factors

have not been considered as causes of conflict but rather conflict is caused by purely

indigenous factors.54 Rather, globalization and economic and political liberalism are

49
Lynda Herbert-Cheshire and Geoffrey Lawrence, "Political Economy and the Challenge of
Governance," Journal of Australian Political Economy 0, no. 50 (2002): 141.
50
Kenneth Surin, "Marxism(s) and "The Withering Away of the State"," Social Text , no. 27
(1990): 35-54.
51
ibid.
52
Pugh, Michael and Neil Cooper, War Economies in a Regional Context, Challenges of
Transformation, (Boulder, CO: Lynne Rienner, 2004), 1.
53
ibid., 2.
54
ibid., 2.
 16

primary causes of contemporary conflict.55 In discussing the political economy of war in

Sub-Saharan Africa, Cramer notes that “now that the classical liberal interpretation of

war – with its assumptions of war as exogenous and wholly negative in its socio-

economic effects – has been overtaken by more nuanced analyses of the dynamics of

wartime economies and societies, it may well be that this area of research will expand

productively in coming years.”56 In contrast to a neo-classical economic framework (i.e.

Collier), Cramer advocates for a political economy perspective which takes seriously

social relations, material conditions, the drive for political power as well as an analysis of

capital and class formation.57 As already stated, this essay will intend to do just that,

analyze the ways in which neoliberal policies have contributed to fuelling conflict and

civil unrest. Through a global political economy framework, this discussion will explore

three of the mechanisms by which neoliberalism has fueled conflict: the growing power

of transnational corporations, widening income inequalities and the decline of the state.

This will be supported by a review of the contemporary literature as well as through

particular case studies.

55
Timothy M. Shaw, "Peace-building partnerships and human security," in The Companion to
Development Studies, ed. Desai, Vendana and Robert B. Potter. (New York, NY: Oxford University Press,
2002), 450.
56
Chris Cramer, The Economics and Political Economy of Conflict in Sub-Saharan Africa,
(London, UK: Center for Development Policy & Research, 1999), 20.
57
C. Cramer, "Homo Economicus Goes to War: Methodological Individualism, Rational Choice
and the Political Economy of War," World Development 30, no. 11 (2002): 1856. The work of persons
such as Collier will be discussed further in the next chapter.
 17

Chapter 3: TNCs, Inequality and the Transformation of the State

Using this global political economy which looks at the power embedded in

economic relationships, this chapter will analyze how neoliberal policies rather than

building peace, foster global instability by fuelling armed conflict. This has happened in

three significant ways: 1) the increasing role of transnational corporations, 2) the

widening of income inequality and 3) the dismantling of the state.

The Rise of Transnational Corporations

Michael Todaro and Stephen Smith note that few developments have played as

critical a role in the extraordinary growth of international trade and capital flows during

the past few decades as the rise of the transnational corporation (TNC).58 As a result of

neoliberal policies, TNCs are free to move capital as well as goods and services on a

global scale. Increasing foreign direct investment has been rapid during the past couple

of decades rising from an annual rate of US$2.4 billion in 1962 to over US$185 billion in

1999 in constant dollars.59 Recently, the role of TNCs in conflict situations has been

highlighted by non-governmental organizations including Human Rights Watch,

Amnesty International, Global Witness and International Alert.60 This private sector

activity, both licit and illicit, is a significant factor influencing the shape and intensity of

many conflicts.61 Recently, UN Secretary-General Kofi Annan pointed out the ways in

which armed groups use TNCs to their benefit in a report to the Security Council on

armed conflict:

58
Todaro and Smith, Economic Development, 635.
59
ibid.
60
See www.amnesty.org, www.hrw.org, www.globalwitness.org, and www.internation-alert.org .
61
Jessica Banfield, Virginia Haufler, and Damian Lilly, Transnational Corporations in Conflict
Prone Zones: Public Policy Responses and a Framework for Action, (London, UK: International Alert,
2003), 1-89.
 18

The impact of the pursuit of economic interests in conflict areas has

come under increasingly critical scrutiny. Corporations have been
accused of complicity with human rights abuses, and corporate ties
have continued to fuel civil wars. It has become common
knowledge that by selling diamonds and other valuable minerals,
belligerents can supply themselves with small arms and light
weapons, thereby prolonging and intensifying the fighting and
suffering of civilians.62

Moreover, nongovernmental organizations indicate that TNCs in countries as diverse as

Colombia, Indonesia and Nigeria, continue to exacerbate conflict.63

Paul Collier, at the University of Oxford’s Centre for the Study of African

Economies, has been at the forefront of the discussion regarding the role of resource

exploitation in civil war.64 His analysis is helpful in pointing out the significance of

TNCs and natural resources in civil conflict.65 The main thesis of his ongoing work is that

“grievance” motives for conflict: inequality, political rights, ethnic polarization, and

religious fractionalization are not significant motivators for conflict; but rather, civil

conflict is motivated primarily by the availability of finance, what he calls the “greed”

motive.66 Collier argues that countries which have a substantial share of their income

(GDP) coming from the export of primary commodities are radically more at risk of

conflict.67 Thus as a result of these commodities being used for extortion, makes civil

62
Kofi Annan, Report to the Security Council on the protection of civilians in armed conflict,
(New York, NY: UN, 2001).
63
Banfield, Haufler, and Lilly, Transnational Corporations in Conflict Prone Zones: Public
Policy Responses and a Framework for Action, 1-89.
64
See, Paul Collier, Economic Causes of Civil Conflict and their Implications for Policy,
(Washington, DC: Development Research Group, World Bank, 2000), 1-23.; Paul Collier and Nicholas
Sambanis, "Understanding Civil War: A New Agenda," Journal of Conflict Resolution 46, no. 1 (2002): 3-
13.; Paul Collier, Anne Hoeffler, and Måns Söderbom, "On the Duration of Civil War," Journal of Peace
Research 41, no. 3 (2004): 253-273.; Paul Collier and Anne Hoeffler, "Greed and Grievance in Civil War,"
Oxford Economic Papers 56, no. 4 (2004): 563-95.; Paul Collier, "Doing Well out of War: An Economic
Perspective," in Greed and Grievance: Economic Agendas in Civil Wars, eds. Mats Berdal and David M.
Malone. (Boulder, CO: Lynne Rienner Publishers, 2000), 91-21.
65
Later when discussing inequality we will look at the limits of Collier’s analysis and conclusions.
66
Collier and Hoeffler, Greed and Grievance in Civil War, 588.
67
Collier, Economic Causes of Civil Conflict and their Implications for Policy, 6.
 19

conflict both feasible and attractive.68 Collier writes: “the true cause of much civil

conflict is not the loud discourse of grievance but the silent force of greed.”69 From a

political economy perspective, the role of transnational corporations is crucial here as

they play a major role in extracting and transporting these resources. Though Collier

does not speak directly to the role of TNCs, many agencies including the UN and other

NGOs as well as numerous academics point to the significance of TNCs in extracting

these war-financing commodities (including conflict in Afganistan, Burma, Cambodia,

Colombia, DRC, Indonesia (Aceh, Kalimatan and West Papau), Liberia, Nigeria, Papau

New Guinea and Sierre Leone).70 Cramer as well as Frynas and Wood share my thesis by

questioning the neoliberal notion that increased trade flows will lead to peace; rather,

they indicate that TNCs exacerbate conflict by allowing new opportunities for

accumulation by elite segments.71 Moreover, citing Collier’s analysis, Nafziger and

Auvinen, point how rulers and warlords use exclusive contracts with foreign firms

involved in resource extraction in order to consolidate power and secure income.72 They

point particularly to how Charles Taylor used transnational commercial networks to

amass power over Liberia as well as parts of Sierra Leone. Thus, Collier’s contribution

in highlighting the “greed” motive is important for our discussion.

68
Collier and Hoeffler, Greed and Grievance in Civil War, 588.
69
Collier, Doing Well out of War: An Economic Perspective, 101.
70
See Paula Richardson, “Corporate Crime in a Globalized Economy: An Examination of the
Corporate Legal Conundrum and Positive Prospects for Peace,” Journal of Public and International Affairs
15 (Spring 2004): 165-189.
71
Jedrzej George Frynas and Geoffrey Wood, “The Liberal View of the Trade-Peace Relationship
Re-considered: Oil and Conflict in Angola,” Paper presented at the VAD Conference 2002; Christopher
Cramer, “Capitalism, violence and war,” Anti-capitalism: a Marxist introduction. ed. A. Saad-Filho.
(London, UK: Pluto Press, 2002).
72
E. Wayne Nafziger and Juha Auvinen, “Economic Development, Inequality, War and State
Violence,” World Development 30 (2002): 157-158.
 20

International Alert, in a report on the operation of TNCs in conflict zones,

indicates that there are two basic categories for the ways in which corporations contribute

to violence: the impact on the local/micro level and the impact of foreign investment on

the host country’s political/economic structures (macro-level).73 The micro-level impacts

include the relationship between TNCs and local security forces, employment relations

and community relations. Community relations and employment relations are defined as

those activities both internal and within the community that may reinforce tensions and

create further inequality with only certain people benefiting from the company’s

operation.74 When it comes to security, companies contract either public or private

security forces to protect their investments. Sometimes these security personnel can be

repressive, violate human rights and can potentially play a role in the conflict.

One example of this is found in a report by Amnesty International documenting

human rights abuses by security personnel in the Democratic Republic of Congo.75 The

mining company MIBA is a state run diamond corporation with transnational companies

such as De Beers owning portions of the company. Government security personnel kill

dozens of unarmed civilians each year in order to prevent stealing from diamond

concessions.76

Of more importance to this study however, are the macro impacts. In many

conflict-prone regions the political economy is so weak that the disruption of the foreign

73
Banfield, Haufler, and Lilly, Transnational Corporations in Conflict Prone Zones: Public
Policy Responses and a Framework for Action, 18.
74
ibid., 19-20.
75
Democratic Republic of Congo: Making a Killing - the diamond trade in government-
controlled DRC, Amnesty International, 2002), 1-37.
76
ibid.
 21

investment has a huge impact.77 Foreign investment often targets specific regions which

benefits some and disadvantages others; this inequality may reinforce existing tensions

either ethnically or religiously. When natural resources are concentrated in one region of

the country, as in the case of oil in Nigeria, residents do not receive a fair share of the

benefits from the resource extraction but are left burdened with the environmental and

resettlement consequences which may fuel violence.78 In some cases, bribery and

corruption are common where either public officials or rebel groups seek self-

aggrandizement, promising security and/or ease of operation.79 The existence of the TNC

itself allows for combatants to have easy access to global markets whether illegally or

legally. Because of increased liberalization through neoliberal globalization, diamonds,

timber, oil and other resources move freely and quickly with the assistance of TNCs

providing the financial income necessary for the purchase of armaments.

Specifically, when one looks at the cases in Africa, war in Angola, Sierre Leone,

Sudan and the DRC have all shown a high integration into the global economy through

the operation of TNCs which have both intensified and prolonged the conflict.80 As

already alluded to, De Beers has had a long history of buying “conflict diamonds”

originating from areas such as Sierre Leone, DRC and Angola. Particularly in the DRC,

there are a plethora of natural resources which continue to be exploited and thus fuel the

war economy. According to Amnesty International the eastern regions of the DRC are

77
Banfield, Haufler, and Lilly, Transnational Corporations in Conflict Prone Zones: Public
Policy Responses and a Framework for Action, 1-89.
78
James K. Boyce, Aid, Conditionality, and War Economies, (Amberst, MA: Political Economy
Research Institute, University of Massachusetts Amhert, 2003), 5.
79
Banfield, Haufler, and Lilly, Transnational Corporations in Conflict Prone Zones: Public
Policy Responses and a Framework for Action, 1-89.
80
Charles Cater, "The Political Economy of Conflict and UN Intervention: Rethinking the Critical
Case of Africa," in The Political Economy of Armed Conflict: Beyond Greed and Grievance, eds. Karen
Ballentine and Jake Sherman. (Boulder, CO: Lynne Rienner, 2003), 19-26.
 22

rich in gold, diamonds, coltan, cassiterite, copper, cobalt, wolfram, zinc and oil, as well

as timber, coffee and palm oil. Moreover, considerable diamond deposits exist in

Kisangani, Bafwasende and Watsa, high quality gold in Ituri, and coltan deposits

throughout the eastern DRC.81 Amnesty points out that the UN Panel of Experts has

documented various international connections with the exploitation of coltan in eastern

DRC. In particular, the UN alleges the involvement of several European companies or

individuals and one US Company in the coltan trade. Rebel leaders in the Goma area are

estimated to raise approximately US$200,000 per month on the Coltan trade involving

Northern TNCs.82 Many of the companies named in the UN Panel reports, particularly in

the final October 2002 report, have denied any involvement in contributing to the

conflict.83

However, the influence of transnational corporations and the overall world wide

trade of primary commodities has not only been a factor in African conflicts but also in

other regions. For example, the timber trade has played a large role in conflict in Asian

countries such as Burma (Myanmar), Cambodia, Indonesia, and the Philippines.84

Similarly, the ongoing conflict in Colombia has been fuelled by the illicit drug cultivation

and trade which has both been made necessary and easier via the forces of economic

globalization.85

81
Democratic Republic of the Congo: "Our brothers who help kill us" - economic exploitation
and human rights abuses in the east. (London, UK: Amnesty International, 2003)
82
Kent Hughes Butts and Arthur L. Bradshaw, Central African Security: Conflict in the Congo,
(Carlisle Barracks, PA: Center for Strategic Leadership, U.S. Army War College, 2001),28 & 34.
83
Democratic Republic of the Congo: "Our brothers who help kill us" - economic exploitation
and human rights abuses in the east.
84
The Logs of War: The Timber Trade and Armed Conflict - Economies of Conflict: Private
Sector Activity in Armed Conflict, (London, UK: Global Witness, Fafo Institute for Applied Social Science,
2002), 1-65.
85
Alexandra Guaqueta, "The Colombian Conflict: Political and Economic Dimensions," in The
Political Economy of Armed Conflict: Beyond Greed and Grievance, eds. Karen Ballentine and Jake
 23

The case of Angola provides one of the best examples of how corporate

exploitation of natural resources fuels civil war. As Phillipe Le Billon points out, since

the integration of Angola into the Western economy five hundred years ago, “the

demands placed on its wealth have been associated with repression and suffering.”86 The

country has been placed under continuous stress: Angola’s people were shipped to

Brazil’s plantations, colonists expropriated land for agricultural surpluses for Portugal’s

provision, and the new industrial economy of the twentieth century, coupled with

neoliberal globalization has facilitated the need for Angola’s oil and diamonds. In

Angola, the rival parties of the ruling People’s Movement for the Liberation of Angola

(MPLA) and the National Union for the Total Independence of Angola (UNITA) both

benefited from the extraction of natural resources facilitated by TNCs: MPLA – oil and

UNITA – diamonds.87 Oil exports from Angola have financed capital intensive

militarization of the state while also filling the bank accounts of political elites through

the operation of large TNCs such as ChevronTexaco and TotalFinaElf.88 These

companies have been backed by both the French and U.S. governments facilitating state-

backed loans, insurance, and corporate mercenary contracts as well as the French

government’s role in facilitating arms-for-oil.89 Oil revenue in 1999 for the government

was estimated at US$ 2, 377 million.90

Sherman. (Boulder, CO: Lynne Rienner, 2003), 92. The example of Colombia will be discussed more fully
in the next section.
86
Philippe Le Billon, "Angola's political economy of war: The role of oil and diamonds, 1975–
2000," African Affairs 100, no. 398 (2001): 55.
87
ibid., 57.
88
Cater, The Political Economy of Conflict and UN Intervention: Rethinking the Critical Case of
Africa, 32.
89
ibid., 32.
90
Le Billon, Angola's political economy of war: The role of oil and diamonds, 1975–2000, 62.
 24

On the other hand, the diamond industry helped finance the rebel group, UNITA

who controlled 60-70% of the diamond industry.91 Companies such as De Beers are both

directly and indirectly buying from Angola. Though De Beers is upfront stating that

“there is no doubt that we buy many of those diamonds that emanate from the UNITA-

held areas in Angola, second-hand in the markets of Antwerp and Tel Aviv,” they deny

the purchase of UNITA diamonds directly.92 Recently, in 2002, the Kimberly process

was initiated in order to stop the flow of conflict diamonds; yet this process has been

hindered by the implementation of the regulations with 83% (25 out of 30) companies

surveyed falling short of implementing the protocols.93

Though the conflict in Angola has killed 500,000 people with thousands more

suffering from landmines, and other injuries, TNCs refuse to acknowledge their

responsibility in the conflict. One oil company representative perhaps put it best when he

stated: “As our boss keeps telling us: we are not Jesus Christ . . .We came to this country

to find oil and to make money. That’s our job.”94

Transnational Companies benefit significantly from the liberalization of global

market and are thus able to take advantage of the South whose governments are desperate

for their financial investment. Meanwhile, as we have seen from an extensive review of

the literature and numerous examples (particularly the case of Angola), the operation of

TNCs in conflict areas contributes to further suffering by helping fund insurgency and

expanding military budgets. As Macartan Humphreys has pointed out, TNCs receive the

91
Broken Vows: Exposing the 'Loupe' Holes in the Diamond Industry's Effort to Prevent the
Trade in Conflict Diamonds, Global Witness, 2004), 7.
92
Le Billon, Angola's political economy of war: The role of oil and diamonds, 1975–2000, 76.
93
Broken Vows: Exposing the 'Loupe' Holes in the Diamond Industry's Effort to Prevent the
Trade in Conflict Diamonds, 32.
94
Le Billon, Angola's political economy of war: The role of oil and diamonds, 1975–2000, 77.
 25

booty from war – companies finance warring factions in exchange for the rights to the

spoils of conflict.95

Embedding Inequality

Just as there is a reluctance to acknowledge the role of corporations in civil

conflict, some neoliberal proponents continue to deny the increasing inequality created by

such policies. 96 According to recent research, and using numerous testing strategies, there

is substantial evidence supporting the view that income inequality is rising globally. 97

The neoliberal growth model, not only produces an overabundance of goods available to

western consumers and Southern elites but it also creates deeper inequality and economic

exclusion.98 Following neoliberal structural adjustment policies, we now have “trickle up

or recessive income distribution on a global scale. . .”99 and the present structure of the

neoliberal global economic order is “transnational, centralized, concentric, and

institutionalized at the top.”100 In fact, it is well documented that market-oriented

policies always tend toward disequilibria when one looks through a lens of class, income

distribution and geographic location.101

This growing gap has contributed substantially to armed conflict. According to a

UNESCO report, “agreement is growing on the effect of inequality and social exclusion

on the creation and worsening of conditions leading to events that threaten people’s
95
David Hecht, "Why war zones love monopolies," Fortune 149, no. 11 (2004): 66-68.
96
See for example, Standing up for the global economy: key facts, figures and arguments in
support of globalization, (Paris, France: International Chamber of Commerce, 2004).
97
Robert Hunter Wade, "The Rising Inequality of World Income Distribution," in Development
and Underdevelopment: The Political Economy of Global Inequality, eds. Mitchell A. Seligson and John T.
Passe-Smith. (Boulder, CO: Lynne Rienner, 2003), 36.
98
Gilbert Rist, The History of Development: from Western Origins to Global Faith, trans. Patrick
Camiller. (New York, NY: Zed Books, 1997), 239.
99
Nef and Robles, Globalization, Neoliberalism, and the State of Underdevelopment in the New
Periphery, 32.
100
ibid., 41.
101
Victor Segesvary, From Illusion to Delusion: The Contradictions of the Late Modernity,
(Lanham, MD: University Press of America, 2001), 237.
 26

security, including violence.” The recent report studying “Human Security, Conflict

Prevention and Peace,” indicates that violence created by economic disparities “is not just

a question of poverty, but about how people perceive it in a context of increasing

inequality of opportunity and social exclusion in societies which, at the same time,

include them (only) symbolically in their development horizons, thus greatly raising their

expectations.”102 Other reports concur with this conclusion regarding the effects of

inequality. According to Francis Stewart, economic differentiation among groups is of

fundamental importance to group mobilization toward conflict.103

This seems to contradict the basic findings of Paul Collier who indicates that

factors such as inequality do not play a role in the engendering of civil armed conflict:

“Inequality, whether measured in terms of income or landownership, has no affect on the

risk of conflict according to the data.”104 For Collier, it is greed not grievance which

motivates civil conflict. Collier acknowledges that this is surprising but states that the

result cannot lightly be dismissed since his analysis with Anne Hoeffler has experimented

with hundreds of variables in which inequality is never found as a significant cause of

conflict (whereas primary commodity exports are always significant).105 In a discussion

of the “Economics and Political Economy of Conflict in Sub-Saharan Africa,” by Chris

Cramer, he summarizes Collier as one who “ties the insight that there are economic

factors involved in the origins of and motivations for conflict to a rigorous neo-classical

framework,” but that “arguably what this analysis gains in the elegance of its formal

102
Francisco Rojas Aravena and Moufida Goucha, Human Security, Conflict Prevention and
Peace in Latin America and the Caribbean, (Santiago, Chile: UNESCO, 2001), 1-383.
103
Frances Stewart, "The Root Causes of Humanitarian Emergencies," in The Origins of
Humanitarian Emergencies: War and Displacement in Developing Countries, eds. E. Wayne Nafziger,
Francis Stewart and Raimo Vayrynen. (Oxford, UK: Oxford University Press, forthcoming), 13.
104
Collier, Doing Well out of War: An Economic Perspective, 97.
105
ibid., 97-98.
 27

model it loses in social understanding.”106 As Cramer points out, there is the danger that

economic motivations become too reductionist and simply replace one simplification

(tribal or cultural difference) with another, such as economic opportunism.107 It is here

that Collier’s neo-classical framework falls short verses a more holistic political economy

perspective. Though Collier’s “greed” analysis is helpful in highlighting the relationship

between resource access (such as diamonds, oil, timber) and armed conflict, he does not

recognize how those factors contribute to further embedding horizontal and vertical

inequality creating “grievance” both locally, nationally and regionally. It should also be

noted that others have used the Gini measurement used by Collier and Hoeffler and have

found a relationship between inequality and conflict.108 A regression analysis by Nafziger

and Auvinen using Gini coefficient data indicates that “high Gini or income

concentrations contribute to humanitarian emergencies.”109 Christopher Cramer notes that

any econometric analysis appears capable of supporting completely contrasting claims

through modest changes in specification data.110 Cramer through a political economy

analysis notes that economic inequality is “hugely important” in explaining civil conflict

but only if the analysis is considered embedded within the social, political, cultural and

historical, considering factors such as colonialism, ethnic and regional differences, and so

on.111 Moreover, Collier also forgets that resource extraction by Transnational

Corporations, during times of conflict and weak government control, almost guarantees

that the benefits of this foreign investment will be distributed unequally resulting from

106
Cramer, The Economics and Political Economy of Conflict in Sub-Saharan Africa, 15.
107
Ibid.,16.
108
Nafziger & Auvinen, “Economic Development, Inequality, War and State Violence,” 156.
109
ibid., 156.
110
Christopher Cramer, “CDPR Discussion Paper 1501: Economic Inequalities and Civil
Conflict,” Centre for Development Policy & Research, School of Oriental and African Studies, University
of London, 2002, 11.
111
ibid., 18.
 28

corruption between rebel groups, government and corporations as well as the significant

regional differences in the location of these primary commodities.112

In a book on the causes of humanitarian crises, Nafziger, Stewart and Vayrynen

also point to the role that inequality plays in engendering conflict and the interplay with

race and ethnicity: “high rates of inequality are associated with a high propensity to

conflict, especially if it reflects or contributes to high inequality among regional, ethnic

or class groups.”113 Chua indicates that whether it is deserved of not, “market-dominated

minorities”, with access to capital, skills and business networks, drive global capitalism

and foster not only a backlash against the dominant minorities but against the free

markets themselves.114 Rather than reinforcing the market liberalization and its apparent

wealth production, this inequality and the frustration/empowerment of the poor threatens

the peace and prosperity that proponents of the market envision.115 The inequality

fostered by neoliberal globalization actually hurts market liberalization and efficiency by

fuelling and instigating conflict.

Colombia is an excellent example of how inequality fuels armed conflict. In

Colombia, the guerrillas have historically claimed that they are fighting against

systematic political and socioeconomic exclusion of the majority by the small urban

elite.116 Inequality remains one of the primary causes of the conflict in Colombia and has

been exacerbated in the past few decades despite the progress made in the 60s and 70s.

112
Banfield, Haufler, and Lilly, Transnational Corporations in Conflict Prone Zones: Public
Policy Responses and a Framework for Action, 18-20.
113
E. Wayne Nafziger, Francis Stewart, and Raimo Vayrynen, "Case Studies of Complex
Humanitarian Emergencies," in The Origins of Humanitarian Emergencies: War and Displacement in
Developing Countries, eds. E. Wayne Nafziger, Francis Stewart and Raimo Vayrynen. (Oxford, UK:
Oxford University Press, forthcoming), 3.
114
Amy Chua, World On Fire: How Exporting Free Market Democracy Breeds Ethnic Hatred
and Global Instability, (Toronto, ON: Anchor Books, 2004), 261.
115
ibid., 261.
116
Guaqueta, The Colombian Conflict: Political and Economic Dimensions, 95.
 29

Rural inequality has increased substantially due to neoliberal reforms and expanding

capitalist agriculture.117 The well-being of small peasant property owners has steadily

declined as a consequence of more open markets and lower protective tariffs.118 This

rising inequality “has undoubtedly aided the expansions of the guerilla movement and

also led to an increase in the number of peasants with links to the illegal drug

economy.”119 The conflict has embedded these inequalities further as people are forcibly

displaced and as drug traffickers’ land holdings increase.120

The ongoing conflict and inequality has resulted in a large group of peasants

relying on the drug economy. In addition to liberalization, the drop in coffee prices and

other cash crops have made illicit crops the only viable alternative making up an industry

of approximately 1.5-3 billion per year.121 Nazih Richani specifically points to the strong

correlation between those areas which are dominated by violence and the high levels of

inequality. Uneven economic development has led to high numbers of assassinations in

areas where the agroindustry, raising of livestock, mining and textiles are concentrated.122

The profits that the elite are able to make off of the war through extortion and the control

of the drug trade, “make peace a very expensive commodity.”123 As a result of the

uncertainty created by insurgents, narco-trafficking, peace negotiations, etc., there was

little time for Colombians to oppose these neoliberal policies which have fed the conflict.

117
Jason Thor Hagen, Agrarian Interests in a Liberalizing Economy: Colombia's Law 101 of
1993, (Guadalajara, Mexico: Prepared for delivery at the Latin American Studies Association, 1997), 1 &
7n. Whether inequality remains the sole motivation for the guerillas can definitely be debated considering
the large profits that armed groups are making through trade and criminal activity.
118
Nazih Richani, "The political economy of violence: The war-system in Colombia," Journal of
Interamerican Studies & World Affairs 39, no. 2 (1997): 37.
119
ibid.
120
Guaqueta, The Colombian Conflict: Political and Economic Dimensions, 95.
121
Richani, The political economy of violence: The war-system in Colombia, 37.
122
ibid.
123
ibid.
 30

In fact, it has been suggested that President Gaviria used these issues as a distraction

meanwhile deepening the liberalization process.124 The inequality created by the

expansion of neoliberal policies through structural adjustment has not only led peasants

into the arms of the guerillas but has also forced farmers into the illegal trade which funds

the insurgency.

It is clear that neoliberal policy imperatives and structural adjustment programs

create increasing inequality entailing intensified impoverishment for the majority.125 The

presence of this income inequality not only leads to poverty but enhances the potential for

insurgency and armed conflict.126

The Transformation of the State

Not only are the operations of transnational corporations and rising inequality

causes of instability but the retreat or “hollowing out” of state structures can also be a

catalyst for violent conflict. Though the implementation of neoliberal macroeconomic

policies through structural adjustment programs are said to facilitate adjustments to more

positive economic realities, they often create increased political instability as public

expenditure decreases and as the state loses control over economic decision making. The

new structures of global governance (including international financial institutions such as

the World Bank and the IMF) as well as the increased strength of local-global

interconnections undermine state authority and democratic accountability.127 Neil Cooper

points out in his discussion of the “political economy of post-modern conflict” that weak

124
Hagen, Agrarian Interests in a Liberalizing Economy: Colombia's Law 101 of 1993, 1 & 7n.
125
Shaw, Peace-building parnerships and human security, 450.
126
Edward N. Muller and Mitchell A. Seligson, "Inequality and Insurgency," in Development and
Underdevelopment: The Political Economy of Global Inequality, eds. Mitchell A. Seligson and John T.
Passe-Smith. (Boulder, CO: Lynne Rienner Publishers, 2003), 93-95.
127
Angus Cameron and Ronen Palan, The Imagined Economies of Globalization, (London,
Thousand Oaks, New Delhi: Sage Publication, 2004), 139.
 31

states in the developing world have become virtual states where their autonomy has been

destabilized by the influence of globalization, aid dependence and structural adjustment

programs. These neoliberal influences have both reduced the authority and the

legitimacy of the state.128 Looking particularly at conflicts in Sierra Leone, Congo and

Liberia, Nafziger and Auvinen indicate that humanitarian crises, particularly conflict, are

more likely to occur when the state is weak.129 Another study points out that “the

occurrence of civil conflict in Africa is intimately related to the failure of governments to

deliver the type of public expenditures that the people want, i.e., with a strong

redistributive component such as health and education.130 Giving examples as diverse as

Colombia, Kosovo, Afghanistan and the DRC, Neil Cooper point to how increased global

free trade has contributed to the weakening of the state.131 I quote at length:

When the structural violence created by these legitimate trading

networks is combined with the impacts of neo-liberal globalization,
structural adjustment and aid dependence the effect is to produce a
particularly acute version of the crisis of the state which creates the
conditions for, if not the inevitability of, collapse.132

However, Nicolas van de Walle has difficulty with those who quickly point to the

international financial institutions and SAPs as reasons for state failure.133 According to

Van de Walle, “there has not been a neoliberal assault in low-income Africa,” but yet he

128
Neil Cooper, "Warlords and Logo Warriors: The Political Economy of Post-Modern Conflict,"
in Arming the South: The Economics of Military Expenditure, Arms Production and Arms Trade in
Developing Countries, eds. Jurgen Brauer and J. Paul Dunne. (New York, NY: Palgrave, 2002), 39.
129
Nafziger & Auvinen, “Economic Development, Inequality, War and State Violence,” 154.
130
Jean-Paul Azam, “The Redistributive State and Conflicts in Africa,” Journal of Peace
Research 38 (July 2001): 442.
131
See Neil Cooper, “State Collapse as Business: The Role of Conflict Trade and the Emerging
Control Agenda,” Development and Change 33 (2002): 935-955.
132
ibid., 952.
133
See Nicolas Van de Walle, "The economic Correlates of State Failure: Taxes, Foreign Aid and
Policies," in , ed. Robert I. Rotberg. (Princeton, NJ: Princeton University Press, 2004), 94-115; Nicolas
Van de Walle, African Economies and the Politics of Permanent Crisis, 1979-1999, (Cambridge, UK:
Cambridge University Press, 2001), 291.
 32

acknowledges that structural adjustment processes have created instability.134 Speaking

specifically about Africa, he states that initially the flow of resources to the area through

multilateral lending helped to stabilize governments by providing an economic boost.

While at the same time he points out that donor efforts have not helped to bring about the

renewal of economic growth and that the persistence of economic crises for over two

decades has had a negative effect on political stability.135 Moreover, though Van de

Walle expresses reservation about those who make blanket statements in regards to SAPs

and the IFIs, he concedes that:

Local technocrats often take a back seat to semestrial missions from

the Washington institutions. Economic decision-making power is
moved away from the ministries and their procedures to ad hoc
donor-financed structures . . .which typically lack transparency and
accountability. National budgetary and planning structures
atrophy.136

Joseph Stiglitz, former advisor to President Bill Clinton and chief economist at the World

Bank, asserts that the Bretton Woods institutions have failed to bring about global

stability but for many countries have made matters worse, crippling the developing

world.137

When we adopt a political economy framework, we see that this crippling of the

state also fosters increasing inequality and creates an environment where transnational

companies can operate with little accountability. This dislocation of conventional

political structures thus permits further social exclusion.138 Inequality is further

embedded as access to public services of education and health decrease and while “weak

134
Van de Walle, The economic Correlates of State Failure: Taxes, Foreign Aid and Policies,
111.
135
ibid.
136
ibid.
137
Joseph E. Stiglitz, Globalization and its discontents, (New York and London: Norton, 2002).
138
Cameron and Palan, The Imagined Economies of Globalization, 139.
 33

state elites” (whether government or rebel leaders) use privatization and the presence of

TNCs to exploit local resources and linkages with the global market place.139

As the poor become increasingly frustrated during this phase of “adjustment”,

there are often violent outbursts against the state. In fact, this negative perception of the

state by the local population has a negative effect on the structural adjustment programs

themselves because of social and political unrest.140 For example, privatization and

liberalization was highly unpopular in Haiti as many argued that the problem was the

political will to make public companies run efficiently.141 Moreover, IMF policies hurt

Haiti’s rural population (70%) with the shift to export-orientation creating massive

migration into urban slums which caused further discontent with the government.142

Since there is no effective governance in Haiti, policies which further disenfranchise the

population breed civil unrest continuing to whittle away at the state.

A similar comparison can be made to the restructuring that occurred in Somalia

prior to the crisis in 1991. Michel Chossudovsky argues that the Bretton Woods

recommended fiscal reforms contributed to the collapsing of the state.143 Chossudovsky

draws a direct correlation between SAPs and the formation of the famine because of its

systematic undermining of the categories of economic activity which do not directly

serve the interests of the global market system, specifically Somalia’s pastoral economy

and the exchange between nomadic herdsmen and small agriculturalists:

139
Cooper, Warlords and Logo Warriors: The Political Economy of Post-Modern Conflict, 39.
140
Eirin Mobekk and I. Spyrou, "Re-evaluation IMF Involvement in Low-Income Countries: The
Case of Haiti," International Journal of Social Economics 29, no. 7-8 (2002): 527.
141
ibid., 533. For further discussion on IMF involvement in Haiti see "Haiti's latest coup:
Structural adjustment and the.." Multinational Monitor 18, no. 5 (1997): 20.
142
Mobekk and Spyrou, Re-evaluation IMF Involvement in Low-Income Countries: The Case of
Haiti, 533.
143
Michel Chossudovsky, "The Real Causes of Somalia's Faimine," in Justice Denied!: Human
Rights and the International Financial Institutions (Geneva, Switzerland: Women's International League,
1994), 27-33.
 34

Import substituting industries for the internal market are dismantled

as a result of the lifting of tariff barriers and the collapse of internal
purchasing power, small artisans are impoverished, and food farming
is undermined in favor of export crops. In turn, the State apparatus
is undone through the imposition of fiscal austerity, civil society
collapses, and the nation-State becomes politically fragmented.144

Though, Somalia and Haiti are good examples of how already weak states became

crippled by neoliberal policies, it is the case of Rwanda which is perhaps the most

horrific and noteworthy.

In an essay entitled “How multilateral development assistance triggered the

conflict in Rwanda”, Regine Andersen notes that both multilateral and bilateral agencies

promoted strategies of economic structural adjustment, democratization and peace in

Rwanda.145 Though a multitude of factors contributed to the crisis (i.e. ethnic tensions,

economic malaise, etc), the policies played a role in instigating the genocide. During and

economic downswing, the Habyarimana regime was forced into negotiations with both

the IMF and the World Bank on structural adjustment loans which in turn made a

conditional link between aid and democratization, as well as the implementation of the

Arusha Accords. 146 Even Nicolas van de Walle agrees that aid contributed to the

mobilization of ethnic minorities despite his reservations about such arguments.147 SAPs

undermined the legitimacy of the government as perceived by the majority of the

population as Rwanda’s currency was devalued numerous coupled with significant price

increases which led to rapid inflation.148 Though exports increased, farm earnings

144
ibid. 27 & 32.
145
Regine Andersen, "How multilateral development assistance triggered the conflict in
Rwanda," Third World Quarterly 21, no. 3 (2000): 442. In some ways this coupling of marketization and
democratization echoes previous arguments in Chua, World On Fire: How Exporting Free Market
Democracy Breeds Ethnic Hatred and Global Instability, 346.
146
Andersen, How multilateral development assistance triggered the conflict in Rwanda, 450.
147
Van de Walle, African Economies and the Politics of Permanent Crisis, 1979-1999, 291., 210.
148
Andersen, How multilateral development assistance triggered the conflict in Rwanda, 448.
 35

decreased sharply by 20%. 149 Meanwhile the simultaneous multiparty democratization

process led to the fragmentation of political groupings into new radical racist groups

which further weakened the position of the government and led to the deterioration of the

peace process. 150 It was therefore the tensions between these economic and political

processes which led to the weakening of the regime contributing to the formulation of the

genocide.151

The particular examples of Rwanda, Colombia and Angola along with the

extensive review of the contemporary literature has revealed the numerous ways in which

neoliberalism has contributed to civil conflict. By looking simultaneously at political and

economic factors, one can see that dominance of TNCs, growing inequality and the

retreat of the state has perpetuated and fuelled these violent conflicts.

149
ibid.
150
ibid., 452.
151
ibid., 452.
 36

Chapter 4: The Construction of the Neoliberal Hegemony

In a recent report on globalization, the International Chamber of Commerce (ICC)

argues that globalization, more particularly neoliberal globalization, is a “much-

misunderstood phenomena.”152 The report insists that a more open economy and more

accountable governance will lead to a higher standard of living for persons around the

globe. The report defines globalization as the spread of market reforms and open trade

policies. The benefits of globalization include: faster economic growth, a rise in living

standards, easier access to capital and technology, high productivity and lower prices;

while the “challenges” of globalization are listed as transition problems as well as social

and cultural impacts.153

As we have seen, Structural Adjustment Programs (SAPs) and neoliberalism have

led to increasing global inequality which disputes the findings of this report which

indicates that the inequality gap is closing.154 But perhaps the biggest inadequacy of the

ICC Report on Globalization is its recommendation that it is “conflict and bad

governance” which are holding countries back from reaping the benefits of economic

globalization.155 What the report fails to recognize is how in many instances neoliberal

globalization in fact undermines Southern governments as well as fuels global instability

through increasing inequality. Moreover, the expansion of transnational corporations

(TNCs) around the world has actually been associated with an increase in distributional

152
Standing up for the global economy: key facts, figures and arguments in support of
globalization, (Paris, France: International Chamber of Commerce, 2004).
153
ibid.
154
See for example: Frances Stewart and Albert Berry, Inequality, Globalization, and World
Politics, (New York, NY: Oxford University Press, 1999) & Oscar Altimit, "Income Distribution and
Poverty Through Crisis and Adjustment," in Poverty, Economic Reform, and Income Distribution in Latin
America, ed. Albert Berry. (Boulder, CO: Lynne Rienner Publishers, 1998), 43-80.
155
Standing up for the global economy: key facts, figures and arguments in support of
globalization,18.
 37

conflicts around the globe with conflicts arising over oil, gas, minerals, etc.156 Similarly,

neoliberal policies and the influence of the “Washington Consensus” by the International

Financial Institutions have undermined local government authorities by imposing strict

guidelines on public expenditure and fiscal policy. Though armed conflict is a concern

for development, the ICC report seems to be confusing cause and effect.

What this paper has argued from a political economy perspective is that in many

cases it is precisely that neoliberal economic hegemony which has fueled conflict.

Neoliberal policies allow for warring factions to fund their operations with the help of

transnational corporations such as the case of Angola; radical liberalization causes further

social polarization and inequality like in Colombia; and programs such as structural

adjustment or the “Washington Consensus” have led to a hollowing out of the state in

instances such as Somalia and Rwanda. What is needed and what is not explored in this

work is an understanding of the types of macro-economic policies which foster peace-

building and sustainable development. Some continue to advocate that liberalization,

“commercial freedom” and the general promotion of capitalism will bring peace;157 but as

we have seen from the literature and numerous examples, the idea that such pure market-

based approaches bring peace is an illusion. We must seek alternatives to the

“Washington Consensus” if development policy is going to promote peace. However, the

development discourse remains fragmented with very little alternatives to the dominant

neoliberal model.

156
Joan Martinez-Alier, "Environmental Justice as a Force for Sustainability," in Global Futures:
Shaping Globalization, ed. Jan Nederveen Pieterse. (New York, NY: Zed Books, 2000), 159.
157
See Erich Weede, "The Diffusion of Prosperity and Peace by Globalization," Independent
Review 9, no. 2 (2004): 165-186. & John A. Tures, "Economic Liberalization and International Order,"
Cato Journal 23, no. 3 (2004): 423-31.
 38

It has become difficult to engage alternatives to the neoliberal model when the

forces of economic globalization are so pervasive. Neoliberalism’s linear growth model

has not only led to a widening gap between the rich and the poor, given rise to large

transnational capital flows and weakened the position of the state, but the shear

dominance of this ideology has led to the fragmentation of development discourse.

Growth is assumed and many of the so called “alternatives” only cloak themselves in a

new language in an attempt to hide the same linear thinking.

Because Marx’s model is no longer considered viable due to the fall of Soviet

communism, the neoliberal growth paradigm has become the governing model in the

present ideological vacuum.

If the South were to just follow the recipe for growth there would be

‘development.’ Yet, the current neoliberal model has caused great hardship for the poor

as a result of increasing global inequality. Neoliberal policies have created a world

where the richest one percent receives as much income as the poorest 57 percent.158

Gilbert Rist even argues that “it is in the nature of development not only to make the

overabundance of goods available to consumers but also to produce inequality and

exclusion.”159 The proponents of the growth ideology insist that the poor will eventually

benefit as a result of the trickle-down effect; yet the benefits of this hyper-growth most

often trickle up.160 The model assumed that once the pie gets big enough, then it can be

158
Henry Veltmeyer, James Petras, and Steve Vieux, Neoliberalism and class conflict in Latin
America : a comparative perspective on the political economy of structural adjustment, (New York, NY:
St. Martin's Press, 1997), 5.
159
Rist, The History of Development: from Western Origins to Global Faith, 239.
160
"A Critique of Corporate Globalization," in Alternatives to Economic Globalization: A Better
World is Possible (San Francisco, CA: Berret-Koehler Publishers Inc., 2002), 21.
 39

divided. The neoliberal growth paradigm maintains an inequitable social order, which is

exclusionary, class-biased and thus fuels conflict.161

While on the one hand, advocates indicate that this growth will eventually trickle

down to the poor, there is an acknowledgement that before one reaches “development”

there will be some growing pains. Inequality, the destruction caused by TNCs and cuts to

government spending are then perhaps just necessary growing pains of this neoliberal

agenda. Rist links the neoliberal model to Western Christian thought saying that

neoliberalism, like any religion requires sacrifice.162 It appears then that armed conflict is

not unexpected but that such hardship for the poor and marginalized is part of the

turbulence required for the “take off.”

Neoliberalism has become the dominant discourse because “it has on its side all

the forces of a world of relations of forces, a world that is contributes to making what it

is.”163 This discourse legitimates the elitist interests of national and international regimes

such as transnational corporations and the international financial institutions and of

course the economic policies of those very elites who benefit from such a regime.164 The

globalization of this ideology has eroded political power by forcing nations to follow the

logic of the market and the god of growth.165 Neoliberalism is a construction; yet this

‘logic’ has become hegemonic because of the institutions which continue to preserve the

same violent evolutionist creed. The need for economic growth continues to be the

161
Nef and Robles, Globalization, Neoliberalism, and the State of Underdevelopment in the New
Periphery, 35.
162
Rist, The History of Development: from Western Origins to Global Faith, 240.
163
See Pierre Bourdieu, “The essence of neoliberalism: Utopia of endless exploitation,” Le Monde
Diplomatique (Dec 1998).
164
See Ken Kempner and Loureiro Jurema, "The Global Politics of Education: Brazil and the
World " Higher Education 43 (2002): 331-354.
165
Rist, The History of Development: from Western Origins to Global Faith, 224.
 40

imperative for every “new” development model proposed. Development discourses have

become fragmented as a result of the neoliberal ideological empire.

If there is going to be hope for the people of Colombia, Sudan, the DRC and

Jamaica, then we are going to need to imagine alternatives to the existing paradigm. Our

political economy approach teaches us that we cannot assume that a narrow neoliberal

approach will bring peace and development. Perhaps more importantly as development

practitioners and theorists, we must be conscious about how the construction of

knowledge can initiate violence and promote the continued suffering of the global south.
 41

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