Cooperation for a Peaceful and Sustainable World 9781781903360, 9781781903353

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COOPERATION FOR A PEACEFUL AND SUSTAINABLE WORLD PART 1

Contributions to

Conflict Management, Peace Economics and Development Volume 20 SERIES EDITOR

MANAS CHATTERJI BOOKS IN THE SERIES

Eurasia: A New Peace Agenda, edited by M. D. Intriligator, A. I. Nikitin and M. Tehranian Military Missions and Their Implications Reconsidered: The Aftermath of September 11th, edited by ¨ mmel G. Caforio and G. Ku Managing Conflict in Economic Convergence of Regions in Greater Europe, edited by F. Carluer Cultural Differences between the Military and Parent Society in Democratic Countries, edited by G. Caforio Conflict and Peace in South Asia, edited by M. Chatterji and B. M. Jain War, Peace, and Security, edited by J. Fontanel and M. Chatterji Armed Forces and Conflict Resolution, edited by G. Caforio, G. Ku¨mmel and B. Purkayastha Regional Development and Conflict Management: A Case for Brazil, edited by R. Bar-El Crisis, Complexity and Conflict, edited by I. J. Azis Putting Teeth in the Tiger: Improving the Effectiveness of Arms Embargoes, edited by M. Brzoska and G. A. Lopez Peace Science: Theory and Cases, by P. Gangopadhyay and M. Chatterji Advances in Military Sociology: Essays in Honor of Charles C. Moskos (Two Volume Set), edited by Giuseppe Caforio Arms and Conflict in the Middle East, by Riad A. Attar Economics of War and Peace: Economic, Legal, and Political Perspectives, edited by Benjamin E Goldsmith and Jurgen Brauer Conflict, Complexity and Mathematical Social Science, edited by Gordon Burt Frontiers of Peace Economics and Peace Science, edited by Manas Chatterji, Chen Bo and Rameshwar Misra Ethnic Conflict, Civil War and Cost of Conflict, edited by Raul Caruso Governance, Development and Conflict, edited by Manas Chatterji, Darvesh Gopal, Savita Singh New Wars, New Militaries, New Soldiers: Conflicts, the Armed Forces and the Soldierly Subject, edited by ¨ mmel and Joseph Soeters Gerhard Ku

Contributions to Conflict Management, Peace Economics and Development Volume 20

COOPERATION FOR A PEACEFUL AND SUSTAINABLE WORLD PART 1 EDITED BY

CHEN BO Central University of Finance and Economics, Beijing, China

MANAS CHATTERJI Binghamton University, State University of New York, USA

HAO CHAOYAN Central University of Finance and Economics, Beijing, China

United Kingdom – North America – Japan India – Malaysia – China

Emerald Group Publishing Limited Howard House, Wagon Lane, Bingley BD16 1WA, UK First edition 2012 Copyright r 2012 Emerald Group Publishing Limited Reprints and permission service Contact: [email protected] No part of this book may be reproduced, stored in a retrieval system, transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without either the prior written permission of the publisher or a licence permitting restricted copying issued in the UK by The Copyright Licensing Agency and in the USA by The Copyright Clearance Center. Any opinions expressed in the chapters are those of the authors. Whilst Emerald makes every effort to ensure the quality and accuracy of its content, Emerald makes no representation implied or otherwise, as to the chapters’ suitability and application and disclaims any warranties, express or implied, to their use. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: 978-1-78190-335-3 ISSN: 1572-8323 (Series)

CONTENTS LIST OF CONTRIBUTORS

vii

FOREWORD

ix

ACKNOWLEDGMENTS

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THE GLOBAL PEACE INDEX AND THE STRUCTURE OF PEACE Clyde McConaghy

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THE EUROPEAN EXPANSION TOWARD MIDDLE EAST: CONFLICTS AND ECONOMIC CONVERGENCE (2000–2010) Fernando Barreiro-Pereira

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A FOUNDATIONAL MATHEMATICAL ACCOUNT OF A SPECIFIC COMPLEX SOCIAL REALITY: CONFLICT IN A MIDSUMMER NIGHT’S DREAM Gordon Burt

69

LANGUAGE AS A TOOL OF RECONCILIATION AND ETHNIC HARMONY: A CASE STUDY OF SRI LANKA Padma D. Jayaweera

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THE ALCHEMY OF GLOBAL EMISSIONS TRADING SCHEME (GETS): SPECULATION AND REGULATION Partha Gangopadhyay

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DECENTRALIZATION AND MILITARY COUPS Ruixue Jia and Pinghan Liang

149

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CONTENTS

CONFLICT OF CIVIL-MILITARY APPROACH IN PAKISTAN: ITS REGIONAL IMPLICATIONS Riaz Ahmed Shaikh

171

KNOWLEDGE CREATION AND INNOVATION IN MEDIUM TECHNOLOGY CLUSTERS Riccardo Cappellin

185

THE TERRAIN OF WAR: HOW USING THE WORD ‘‘MOUNTAIN’’ BIASES CONFLICT RESEARCH Steve Pickering

217

PEACE-BUILDING AND GEOPOLITICAL FANTASIES Vladimir Rukavishnikov

243

SATYAGRAHA: GANDHI’S APPROACH TO CONFLICT RESOLUTION Jai Narain Sharma

265

INTERNATIONAL ECONOMIC AND FINANCIAL CRISIS: RELEVANCE OF A GANDHIAN APPROACH S. K. G. Sundaram

277

PERSPECTIVES ON DEMOCRACY AND CIVIL SOCIETY IN INDIA Rajaram Tolpadi

293

LIST OF CONTRIBUTORS Fernando BarreiroPereira

Department of Economic Analysis II, Faculty of Economics and Business, National University for Distance Learning, Spain

Gordon Burt

Formerly of Open University, UK; Conflict Research Society, UK

Riccardo Cappellin

Faculty of Economics, University of Rome ‘‘Tor Vergata’’, Italy

Partha Gangopadhyay

School of Business, University of Western Sydney, Australia

Padma D. Jayaweera

Independent Scholar, Sri Lanka

Ruixue Jia

Institute for International Economic Studies, Stockholm University, Sweden

Pinghan Liang

Research Institute of Economics & Management, Southwestern University of Finance and Economics, China

Clyde McConaghy

Institute for Economics & Peace (IEP), Australia

Steve Pickering

Department of Government, University of Essex, UK

Vladimir Rukavishnikov Member, Russian Academy of Social Sciences and Private Consultant on Conflict and Peace, Moscow, Russia Riaz Ahmed Shaikh

Faculty of Social Sciences, Shaheed Zulfikar Ali Bhutto Institute of Science and Technology (SZABIST), Karachi, Pakistan

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LIST OF CONTRIBUTORS

Jai Narain Sharma

Department of Gandhian Studies, Punjab University, Chandigarh, India

S. K. G. Sundaram

Department of Economics, S.N.D.T Women’s University, India

Rajaram Tolpadi

Department of Political Science, Mangalore University, Mangalore, India

FOREWORD Conflicts exist not only in political arenas. They take place within the family, between countries, ethnic and religious groups, etc. There are also resource conflicts such as in energy and water resources. Resource conflicts also lead to political conflicts. Conflict itself is not bad in all circumstances. In many situations it is necessary to have conflict for development and growth. What is needed is cooperation between parties to reach a solution by nonviolent peaceful means. This book contains chapters related to the factors that lead to international, regional, ethnic and resource conflicts and how to manage them. To start with we need a measure of peace and to rank the countries accordingly. Such ranking of the countries has been presented in a chapter which discusses the work of the Global Peace Index. One important question is to investigate which type of political economies, that is, capitalist, socialists, Marxists produce peace and what kind of peace. Again if there is disequilibrium particularly between geographical regions, what is the process of convergence? There has been extensive research in the area of economic convergence. In this book there is a chapter which discusses the peaceful process of regional convergence. Cooperation not competition is the way to reduce conflict. Cooperation processes need negotiation and mediation. Language is the medium through which the reconciliation process can be conducted. One chapter in this volume discusses how it can be used to handle ethnic conflicts. Decentralization and participation of people at large are essential to regional and communal harmony. However, an excessive amount of decentralization creates other problems. There are many areas, such as defense, where centralized control is essential. In conflict there is a need of a third party which can reconcile the differences. This has been discussed in one of the chapters. Internal conflict and disharmony can lead to international conflict as shown in another chapter. Knowledge creation and its transmission and innovation in communication are also crucial. Considerable research in this area has been conducted in many areas of social sciences. In conflicts, cooperation, negotiation,

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FOREWORD

mediation, and not competition are the keys. Whatever strategy is chosen, it must be nonviolent as Mahatma Gandhi has shown with his own life. This nonviolent approach has been emphasized in some chapters. Manas Chatterji Series Editor

ACKNOWLEDGMENTS We would like to thank the Institute of Defence Economics and Management, Central University of Finance and Economics, Beijing, China for strong support. We are especially grateful to Professor Wang Guangqian, Chancellor of Central University of Finance and Economics and Professor Li Junsheng, Vice-Chancellor of Central University of Finance and Economics. We wish to thank Ms. Yang Jing and Mr. Zhang Guangtong, Vice-Dean of the Institute of Defence Economics and Management for their hard work. We also wish to express our gratitude to Associate Professor Yu Dongping and Ms. Zhang Haiyan for their assistance to prepare this volume.

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THE GLOBAL PEACE INDEX AND THE STRUCTURE OF PEACE Clyde McConaghy ABSTRACT This article discusses the work of the Global Peace Index and how peace itself can be characterized in order to analyze its relationship with society. This article explores the various notions and definitions of peace which exist, such as the differences between “Positive Peace” and “Negative Peace.” Peace cannot simply be thought of as “the absence of violence,” there are many complex aspects to take into consideration and which influence the creation of peaceful societies, including political stability, economics, types of government, and business environments, to name but a few.

INTRODUCTION Using the Global Peace Index (GPI), it is possible to analyze the relationships between peace and society so as to develop a fact-based approach to determining what type of society will deliver the optimum environment for peace. However, peace does not exist in isolation; in many ways it can be seen as a proxy for the things that really matter such as wellfunctioning government or personal freedoms, because peace resides in Cooperation for a Peaceful and Sustainable World, Part 1 Contributions to Conflict Management, Peace Economics and Development, Volume 20, 1
33 Copyright r 2012 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1572-8323/doi:10.1108/S1572-8323(2012)0000020004

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societies that have certain characteristics, and these characteristics are what create optimal performance. An example is that peaceful societies are resilient. This is the ability to bounce back from external shocks. Additionally, the structures that create peace also create the structures needed for superior economic performance. The GPI, an asset of the Institute for Economics and Peace, is the first ever study to rank the nations of the world by their peacefulness. Since 2007, it has ranked 149 nations by their peacefulness and uses as its definition of peace the “absence of violence,” a concept often referred to as “Negative peace.” This definition is both intuitive and empirically measurable. The GPI uses 23 indicators to measure both the internal peacefulness of nations and their external peacefulness to create a composite index. Another view of peace is “Positive peace” (Galtung, 1996), which is the structures and attitudes that create peaceful societies. This can be identified through statistical analysis by analyzing other data sets, indexes, and attitudinal surveys in conjunction with the GPI to arrive at the most statistically relevant relationships. Identifying the structures, attitudes, and institutions that create and maintain peace is the key objective of this paper. The statistical analysis undertaken by the IEP uncovered eight structural and attitudinal “elements” related to peace. Figure 1 presents a visual representation of the interactions among the elements. The three first-order structures being a sound business environment, well-functioning government, and equitable distribution of resources within a society. These are the critical components that create peace. The secondary elements are what make the primary elements work effectively and are heavily interconnected with each other and the primary structures. When peace is viewed as consisting of these characteristics or attributes, then the word “peace” can be seen as a proxy for describing an interrelated set of structures that create an environment that is optimal for human potential to flourish. There are many benefits that societies can derive from the aforementioned structures. Some of these benefits are an improved security outlook, lower levels of business risk, higher per capita income, a better developmental environment, and improved human happiness. Throughout this paper, several examples are used to illustrate how the attributes of peace help to create a productive and resilient society. These Structures of Peace act and react with each other in many and varied ways and generally form virtuous cycles, meaning that causality can

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What Creates Peace: Structures and Attributes

Free flow of information Sound Business Environment

Peace and Resilience

Acceptance of the rights of others

Wellfunctioning Government

Equitable Distribution of Resources

Fig. 1.

Low levels of corruption

High levels of education Good relations with neighbors

The Structural Attributes of Peaceful Countries.

run either way between the various structures. The best way of thinking about the Structures of Peace is that they are an interdependent set of structures that reinforce each other with peace being greatly weakened by the absence of any one. It’s a bit like a brick wall—removing one brick reduces the strength of the wall dramatically. A core finding of the research is that peace creates resilience, allowing societies to absorb shocks more easily. Peace, when viewed through this lens, is a collection of activities that creates an optimal environment for human potential to flourish. The resilient nature of peaceful societies is one of the most profound observations of the GPI. In one sense, resilience is “. . . merely the capacity of systems to absorb stress and maintain or ever repair themselves” (Quinlan, 2010); yet it also accurately describes the inner toughness of countries that overcome adversity and solve problems using peaceful methods. The characteristics that make countries resilient are also those that the most peaceful countries share in common.

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This paper highlights the main significant structural correlations between the GPI and each of the elements described above. All correlations presented, other than societal attitudes, have a level of significance . 0.5 or , 20.5. The threshold for a statistically meaningful correlation from global surveys was considered more appropriate at r . 0.4 or , 20.4. A wide variety of statistical techniques have been used in arriving at the conclusions, and the results are a collection of many different research initiatives based on the GPI.

WELL-FUNCTIONING GOVERNMENT The first structural attribute discussed in this paper is related to the ability of a government to function effectively. For this, the GPI has been tested against a number of different indexes that measure effective government. These include the World Bank’s World-Wide Government Indicators, the Freedom House Freedom in the World survey, the Economist Intelligence Unit’s (EIU) PoliticalDemocracy Index, Bertelsmann Stiftung’s (2009) Sustainable Governance Indicators, and the Index of State Weakness in the Developing World from the Brookings Institution. These are summarized in Table 1. What was striking about these indexes when compared to the GPI was that many of the subindexes also correlated strongly, meaning that no one aspect of a well-functioning government was meaningful on its

Table 1. Functioning of Government Correlations with the GPI. Index Name Worldwide Governance Indicators Voice and Accountability Political Stability Government Effectiveness Regulatory Quality Rule of Law Control of Corruption Sustainable Governance Indicators Index of State Weakness in the Developing World Political Democracy Index Freedom in the World Survey

Source

Correlation Coefficient

World Bank

Bertelsmann Stiftung Brookings Institution Economist Intelligence Unit Freedom House

2 0.61 2 0.87 2 0.70 2 0.67 2 0.76 2 0.72 2 0.72 2 0.67 0.64 0.57

What Creates Peace: Structures and Attributes

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own. Some of the subindexes that correlated most strongly were civil liberties, political stability, political rights, independence of judiciary, rule of law, regulatory quality, and voice and accountability. It appears that well-functioning governments need to have many aspects working correctly if they wish to help create peace. It does not appear that it is good enough to have just one or two aspects of government functioning correctly. This has relevance in the approach that developed nations take to building competencies in “failed” or fragile states or even in their approach to Official Development Assistance. All too often governments have focused on the acute problems rather than looking at the interrelated aspects of overall nation building. In this regard, the Brookings Institution ranks 141 developing nations according to their relative performance across the economic, political, security, and social welfare spheres (Rice & Stewart, 2008). This index correlates strongly with the overall GPI (r= 2 0.67), highlighting the observation that effective governments perform well in many areas. To further illustrate the point, we have selected the “functioning of government” measure from the Political Democracy Index (Economist Intelligence Unit, 2008). This is a qualitative assessment of whether freely elected representatives determine government policy and whether there is an effective system of checks and balances on the exercise of government authority. It is collected by the Economist Intelligence Unit (EIU) analysts and correlates strongly with the overall GPI (r=0.64). In fact, it correlates higher with the GPI than does the overall Political Democracy Index (r=0.56), which would imply that being a democracy alone does not guarantee a more peaceful society. There are also some societies, such as Singapore, Oman, and Qatar, that are peaceful but are either not democratic or only partly democratic and have a well-functioning government. However, the top 10 most peaceful nations in the GPI are all wellfunctioning democracies. Several positive outcomes can arise where there is a well-functioning government, each of which are linked to the common structures of peaceful countries. Generally speaking, political instability and corruption are lower, while law and order and the legal process in general are more robust and equitable, which then create community buy-in. The provision of education and health services are generally of a higher standard and more evenly distributed than when governments are ineffective. Additionally, the World Bank has shown that improved governance strengthens development and improves living standards, not the other way around (Kaufmann, Kraay, & Mastruzzi, 2009).

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These are some of the reasons why well-performing governments tend to be more peaceful. Table 2 demonstrates this by highlighting the strong relationship between the “functioning of government” indicator from the Political Democracy Index and various additional indexes from a variety of sources. It is clear from the breadth of measures that influence or are influenced by well-functioning government that this is a core structural attribute of peacefulness. Political stability and institutional effectiveness are key attractors of foreign capital. This then enables countries to attract higher levels of investment. This can be key to economic development and countries with strong economies do tend to be more peaceful. Figure 2 demonstrates through a scatter diagram the strong relationship between the political stability measure1 of the World Bank’s Worldwide Governance Indicators and the GPI.

Table 2.

Significant Correlations between Well-Functioning Government, Selected GPI Indicators, and Other Selected Indexes.

Index Name WGI Voice and Accountability Index Civil Liberties Index Political instability WGI Government Effectiveness Index Political Rights Index WGI Regulatory Quality Index WGI Corruption Control Index WGI Rule of Law Index Corruption perceptions Empowerment Rights Index Economic Freedom of the World Index Global Competitiveness Report Economic Freedom Index Freedom of the press 15
34 year old males as a % of adult population WGI Political Stability Index The extent of regional integration GDP per capita Ease of Doing Business Index Respect for human rights WGI=Worldwide Governance Indicators.

Source

Correlation Coefficient

World Bank Freedom House Global Peace Index World Bank Freedom House World Bank World Bank World Bank Transparency International Cingranelli-Richards Fraser Institute World Economic Forum Heritage Foundation Reporters without borders UN World Population Prospects

0.85 2 0.83 2 0.81 0.81 2 0.80 0.80 0.79 0.78 0.76 0.73 0.67 0.66 0.66 2 0.63 2 0.62

World Bank Economist Intelligence Unit Economist Intelligence Unit World Bank Political Terror Scale

0.62 2 0.62 0.61 2 0.60 2 0.60

What Creates Peace: Structures and Attributes

Fig. 2.

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World Bank Political Stability Index and Overall GPI Scores.

It is evident from the concentration around the lower end of this trend line that societies that exhibit political stability tend also to be the most peaceful. The two indices correlate at 0.87. European countries generally score highly on the GPI, fifteen of the top 20 countries are in Western or Eastern Europe. Generally, neither authoritarian regimes nor countries that are transitioning from one style of government to another perform well in regards to a well-functioning government; however, there are some exceptions. These exceptions include Taiwan and South Korea, both formerly ruled by authoritarian governments and both now scoring highly on the wellfunctioning government index. They rank 35 and 43, respectively, on the 2010 Global Peace Index and both score 7.50 out of 10 on the wellfunctioning government measure.

Box 1: Resilience and Government Effectiveness Violence is unpredictable and generally requires an immediate response. It is usually accompanied by the destruction of tangible or intangible items such as lives, health, and property. Peaceful societies have less destruction and less unplanned negative events allowing for more forethought and planning, which in turn creates a more

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predicable future. Effective governments provide a quality of public service that gives societies the capacity to deal with violence in a way that doesn’t threaten the societal structure.

SOUND BUSINESS ENVIRONMENT A sound business environment is critical in creating a peaceful society as business creates jobs, thereby providing personal wealth and empowerment. A healthy business and employment environment also creates a tax base upon which governments can fund the structures necessary to provide effective government institutions and services. Several indicators of business competitiveness and freedom, as well as GDP per capita, were compared with the GPI to determine their importance in relation to peace. The results are contained in Table 3. Published by the World Economic Forum, the Global Competitiveness Report (GCR) defines competitiveness as “the set of institutions, policies and factors that determine the level of productivity of a country (World Economic Forum, 2009).” This index correlates with the GPI at 20.59, indicating that the more competitive and business-friendly societies tend to be those that are the most peaceful. A core assumption in the GCR is that the productivity level determines the rates of return obtained by investments within a country. This relationship therefore validates the intuitive hypothesis that peaceful countries allow for greater worker productivity. Work undertaken by Tepper-Marlin and Brauer2 for IEP estimated that liberating the human, social, and physical capital that had been suppressed by violence would potentially add U.S. $4.8 trillion to the global economy Table 3.

Economic Correlations with the GPI.

Index Name Global Competitiveness Report Economic Freedom of the World Index GDP per capita Economic Freedom Index Ease of Doing Business Index

Source World Economic Forum Frazer Institute Economist Intelligence Unit Heritage Foundation World Bank

Correlation Coefficient 2 0.59 2 0.58 0.57 2 0.57 0.52

What Creates Peace: Structures and Attributes

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annually (Brauer & Tepper-Marlin, 2009). This additional economic output is essentially the result of greater productivity and represents an 8.7% increase on global GDP. To put the meaningfulness of this figure into perspective, the Global Financial Crisis of 2008/09 saw world economic output fall by 0.6%. Creating a world that is totally at peace is not yet possible but a reduction of 25% in violence is a reasonable expectation. This would create an additional U.S. $1.2 trillion in global economic activity. Figure 3 is a scatter diagram depicting the relationship between the World Economic Forum’s Global Competitiveness Report and the GPI. The trend-line helps to visualize the distinct relationship between business competitiveness and peace. At a similar level of significance to the World Economic Forum’s Global Competitiveness Index is the correlation between the GPI and the Frazer Institute’s Economic Freedom of the World (EFW) Index at 0.58. It measures the degree to which the policies and institutions of countries are supportive of economic freedom (Frazer Institute, 2009). The 2009 Frazer Institute’s report goes on to state that there is a positive relationship between changes in economic freedom and the growth of per-capita income, a topic we discuss in more detail below.

Fig. 3.

World Economic Forum Global Competitiveness Report and Overall GPI Scores.

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Another measure of Economic Freedom that correlates significantly with the GPI is the Heritage Foundation’s Economic Freedom Index (r= 2 0.57). This measures an individual’s ability to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state (Heritage Foundation, 2010). In economically free societies, governments allow labor, capital, and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself. Per capita income also increases as peacefulness increases. On average, per capita income increases by US$3,100 for every 10 places that a country rises up the Global Peace Index.3 Additionally, for every 10 places that a nation raises on the Global Peace Index per capita expenditure on footwear and clothing increases by US$87 per person and expenditure on food and non-alcoholic beverages increases by US$132. Such increases in expenditures can be observed for many other consumables and underscores the positive interdependence between peace and market-based economies. This can be seen as a virtuous cycle and is typical of many of the Structures of Peace. While employment is increasing, so is household wealth, and under these conditions people are less likely to need to commit crime or opt out to fight a system in which they struggle to find their place, thereby increasing peace. Another important element in a sound business environment is the presence of a regulatory system which is conducive to business operation. The World Bank’s Ease of Doing Business Index ranks 181 countries on this measure across ten indicators and correlates with the GPI at 0.52. Peaceful countries have sound regulatory environments, coupled with high levels of competitiveness and economic freedom, thereby highlighting how important these attributes are to peace. Additionally, increasing peace creates a safer environment for capital investment than would otherwise be the case. Investment is stimulated because of the reduced business risk, thereby creating economic growth and higher living standards. Thus a virtuous circle between peace and prosperity can emerge. This statement is supported by a school of thought dating to the sixteenth century, where the French philosopher Charles Montesquieu declared “The natural effect of commerce is to lead to peace (Montesquieu, 1748, p. 338).” Table 4 shows the relationship between the earlier-mentioned Global Competitiveness Report and various related indicators from a variety of sources.

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Table 4. Significant Correlations between the World Economic Forum’s Global Competitiveness Report and Other Selected Indexes. Index Name WGI Government Effectiveness Index WGI Rule of Law Index Corruption perceptions WGI Corruption Control Index WGI Regulatory Quality Index GDP per capita Economic Freedom Index Economic Freedom of the World Index Life expectancy Human Development Index Political instability Secondary school enrolment ratio Infant mortality per 1,000 live births Ease of access to weapons of minor destruction Political culture WGI Political Stability Index Functioning of government Higher education enrolment Likelihood of violent demonstrations Number of homicides per 100,000 people

Source

Correlation Coefficient

World Bank World Bank Transparency International World Bank World Bank Economist Intelligence Unit Heritage Foundation Fraser Institute World Bank United Nations Global Peace Index UNESCO World Bank Global Peace Index Economist Intelligence Unit World Bank Economist Intelligence Unit UNESCO Global Peace Index Global Peace Index

0.92 0.88 0.87 0.86 0.85 0.77 0.76 0.75 0.74 0.74 2 0.72 0.71 2 0.71 2 0.68 0.68 0.67 0.66 0.63 2 0.63 2 0.61

WGI=Worldwide Governance Indicators.

The extremely strong correlation between business competitiveness and factors such as government effectiveness, corruption and economic freedom is worthy of note. Additionally, business competitiveness is associated with many of the indicators associated with the equitable distribution of resources such as life expectancy, infant mortality and school enrolment. The sheer number of significant correlations is in itself an indication that competitiveness and productivity are inherently linked to a number of characteristics important for peace. The above table demonstrates that high GDP per capita countries that are peaceful also tend to be associated with comparatively effective health and education services, which are generally available to all or most members of the society. The distribution of health and education services through a society can be seen as proxies for the equitable distribution of wealth (McKenzie, 2004). It is important to note that the equitable distribution of resources through society is one of the key structures of peace.

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Additionally, a broad education base creates a larger pool of human capital and can assist in a better flow of accurate information throughout society. This free flow of information also helps to improve life choice strategies, creates the knowledge to cope with social change, and creates a more flexible and better skilled workforce. All of these effects help to create a better functioning business environment.

EQUITABLE SHARING OF RESOURCES The third core structural attribute of peace is the equitable distribution of resources through society. Statistical analysis has found that there are several characteristics, such as infant mortality and life expectancy, as well as wealth-distribution measurements such as the Gini coefficient correlated positively with the GPI. These are listed in Table 5 and the results provide further insight into how peaceful societies operate. In conceptual terms, inequality is much broader than poverty, which measures only individuals or households below a certain poverty line, and is much narrower than welfare, which in some societies is given to those with substantial assets. If members of society feel that they are marginalized then they are less likely to conform to the norms of the system. This then creates moral risk for the system. There are also many government functions that when spread broadly through society, such as health, will create a sense of belonging or participation in the system. Some of these elements will be discussed further. The links between education, peace, and equitable distribution of resources are strong. High participation in education is in itself a structural attribute of the most peaceful countries, and is discussed at length later in this paper. It is also a public good and, when broadly accessible, indicates how equitable resources are being shared. UNESCO’s mean years of Table 5.

Development Correlations with the GPI.

Index Name Mean years of schooling Infant mortality per 1,000 live births Life expectancy Human Development Index Gini coefficient

Source

Correlation Coefficient

UNESCO World Bank World Bank United Nations UNHDI, WBDI, EIU

2 0.58 0.53 0.52 2 0.51 0.45
internal

What Creates Peace: Structures and Attributes

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schooling indicator correlates strongly with the GPI at 2 0.58, indicating that societies sharing resources more equitably also tend to be more peaceful. Low infant mortality rates are significantly correlated with the more peaceful countries in the GPI (0.53), indicating a strong connection between peace and access to neonatal services. This measure, along with educational rates, can also be seen as a proxy for wealth distribution as societies where government resources are fairly distributed do see broad access to health and education. The infant mortality figures collected by the World Bank and correlated with the GPI can be seen in the scatter diagram in Figure 4. The trend line clearly rises, indicating higher mortality rates with decreasing peacefulness. It is the clump of data points in the bottom left hand corner that are of the most interest. This group of countries is essentially the top 20% from each index, suggesting a strong relationship between very high levels of peace and very low child mortality rates. Countries where life expectancy is longer also tend to be more peaceful. This measure is collected by the World Bank and correlates with the GPI at 0.52, a similar rate to that of infant mortality. The WHO also estimates

Fig. 4.

World Bank Infant Mortality per 1,000 Live Births and Overall GPI Scores.

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that sub-Saharan Africa, which bears 25% of the global disease burden, has only 4% of the world’s health workers. The Human Development Index (HDI), produced by the United Nations Development Programme (UNDP) ranks countries in areas such as life expectancy, education, standard of living, and GDP. The overall score for this index correlates significantly with the GPI at 2 0.51. The aim of the HDI is to “shift the focus from national income accounting to people-centered policies” by evaluating development not only by economic advances but also by improvements in human well-being. Several additional equality-related data sets were compared to the GPI and its sub-components to better understand how the sharing of resources through society is linked to peace. Of these, the Gini coefficient4 is perhaps the best known. The Gini coefficient measures the income distribution between the rich and poor within a country. However, it is often considered to be an imperfect measure for many developing countries due to issues of accurate data collection, and therefore has not been used widely in this analysis. Although the correlation is slightly lower than other significant factors, there are a number of interesting observations that can be made. The Gini coefficient and the Global Peace Index internal peace measure correlate at 0.45. This implies that countries that exhibit the greatest levels of internal peace typically have a more equal income distribution than countries that are internally violent. Perhaps of most interest is that two of the subcomponents of the GPI were significantly related to the Gini coefficient. These are the Level of Homicides at 0.59 and Level of Violent Crime at 0.50. What this would point to is that there is a relationship between crime and inequality. If better data were available, then the Gini coefficient might become much more meaningful. Other research also points to how inequitable resource distribution is associated with a number of social problems. Studies done by the World Health Organization5 have shown a relationship between inequality, mental illness, and drug abuse. Similarly, societies with high levels of imprisonment tend also to be the most unequal (Wilkinson & Pickett, 2007). Likewise, violence has been shown to be greater in societies with high levels of income inequality (Wilkinson, 2004). Trust is a key ingredient in positive “social capital,”6 and cohesion within society is very difficult without it. Less equal societies have lower levels of trust, partly due to the divide between societal strata. Social mobility is also linked to equality, and researchers at the London School of Economics have shown that more equal countries have greater social mobility.7 Related to these factors is the prevalence of drug and alcohol addiction, which tends

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to be higher in countries with greater income inequality. An obvious conclusion from this finding is that people in more equal societies are less likely to use illegal drugs. Homicide, mental illness, and imprisonment are lower in more equal societies, while educational performance is higher. Another measure of equal resource distribution is the Gender Gap Index, which is published by The World Economic Forum. It measures the size of the gap between men and women across four categories: economic participation and opportunity; educational attainment; political empowerment; and health and survival. The GPI correlates at r= 2 0.43 to the overall Gender Gap Index, a significant relationship, but not as strong as other factors. The importance of the equitable sharing of resources is highlighted in Table 6, which correlates the Human Development Index with a number of GPI indicators and other indexes. Its component parts (life expectancy, education rates, and GDP per capita) have been excluded but it is interesting to note that many other measures are closely related to it. Some of the stronger correlations are in areas of government, such as effectiveness, rule of law, and regulatory quality, as well as business competitiveness and corruption. Box 2: Equality Leads to Cooperation In times of crisis peaceful societies are more likely to cooperate and support each other. High levels of distrust or inequities leave fault lines within societies, which fracture during crises. This leads to blame and incrimination, which lessen a society’s ability to respond to the crisis at hand.

ACCEPTANCE OF THE RIGHTS OF OTHERS Acceptance of the rights of others is a category designed to include both human freedoms and societal attitudes towards others. Interestingly, “others” doesn’t necessarily mean citizens of other countries; it also applies to ethnic, religious, or socioeconomic groups within a country. The following analysis first examines relationships between the GPI and indicators on human freedoms and then considers how the results from global attitudinal surveys can be used to describe the nature of peaceful countries.

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Table 6. Significant Correlations between the Human Development Index, Selected GPI Indicators and Other Selected Indexes. Index Name

Source

Infant mortality per 1,000 live births Global Competitiveness Report WGI Government Effectiveness Index Ease of doing business 15
34 year old males as a % of adult population WGI Rule of Law Index WGI Regulatory Quality Index Environmental performance WGI Corruption Control Index Corruption Perceptions Economic Freedom of the World Political instability WGI Polstab

Correlation Coefficient

World Bank World Economic Forum World Bank World Bank UNESCO

2 0.90 0.74 0.72 2 0.71 2 0.69

World Bank World Bank Yale World Bank Transparency International Fraser Institute Global Peace Index World Bank

0.68 0.67 0.67 0.65 0.65 0.63 2 0.61 0.60

WGI=Worldwide Governance Indicators.

A. Human Freedom One of the strongest sets of correlations with the Global Peace Index is in relation to human freedom and the rights associated with it. To better understand the relationship between human rights and peace, the Global Peace Index was correlated with the Human Rights Index from the Escola de Cultura de Pau in Barcelona, the Cingranelli-Richards Physical Integrity Rights Index, and the University of North Carolina’s Political Terror Scale. All three were strongly related at significance levels greater than 0.75 and are listed in Table 7. The Political Terror Scale index is used within the GPI as its measurement of levels of respect for human rights. This indicator is sourced from the University of North Carolina (Gibney, Cornett, & Wood, 2008), which draws its information from the Amnesty International Yearbook and country reports from the U.S. State Department. Countries are rated (on a 1 to 5 scale) based on their level of civil and political rights violations, which can include factors such as political imprisonment, unlimited detention, torture, executions, and disappearances. The GPI has an extremely high correlation with this index (0.85). Peaceful countries tend not to support the use of violence to achieve their political goals, thus exhibiting

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What Creates Peace: Structures and Attributes

Table 7. Human Rights Correlations with the GPI. Index Name Political Terror Scale CIRI Physical Integrity Rights Human Rights Index

Source

Correlation Coefficient

University of North Carolina Cingranelli-Richards Escola de Cultura de Pau

0.85 2 0.77 0.76

and reinforcing the behavior that makes them peaceful. There are also linkages to the functioning of government, which is discussed earlier. The average score for the Political Terror Scale has been consistent at 2.7 (on a scale of 1 to 5) across each year of the GPI with the spread of scores roughly evenly distributed among the categories. This would imply that although global respect for human rights is not deteriorating it certainly is not making gains. Countries that score poorly on this indicator are those that have been associated with so-called “failed states” such as Somalia and Afghanistan, or repressive regimes such as Myanmar and Sudan. Countries that perform well on this score are much more diverse and include liberal democracies such as New Zealand but also former authoritarian regimes such as Nicaragua and Taiwan, which demonstrates the ability of nations to change and sometimes do it relatively quickly. Additional correlations with the Escola de Cultura de Pau’s Human Rights Index (2010) (r=0.76) and the Cingranelli-Richards Human Rights Data Project (Cingranelli & Richards, 2010) (r= 2 0.77) support the importance of a commitment to human rights for peace. The Human Rights Data Project spans back to 1981 and measures a government’s human rights practices. The Human Rights Index is now in its second year of publication and measures the degree of noncompliance of the obligations of states to human rights and international humanitarian law. It covers 22 indicators that are grouped into the following three dimensions: (i) failure to ratify the principle instruments of human rights and international humanitarian law, (ii) violation on the international law on human rights, and (iii) violation of international humanitarian law. Figure 5 shows the strong relationship between this index and the GPI. There is also a strong relationship between human rights, as measured by the Political Terror Scale, and a number of other societal measures. As expected, the three indexes are closely related to one another but there are also strong relationships with organized internal conflict, perception of corruption, political instability, perceptions of criminality, and press

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Fig. 5.

Human Rights Index and Overall GPI Scores.

freedom. Table 8 shows these results in more detail. As a set of related indexes, these strong correlations make a powerful statement about how a peaceful country, through its government, outwardly promotes peace while at the same time providing the necessary institutions and structures to develop a peaceful society within. Box 3: The Virtue of Tolerance Peaceful societies are less likely to create alienation. Qualities such as tolerance and respect for human rights mean that more members of society are likely to be heard and included in decisions, especially when the decisions materially affect their lives.

B. Attitudinal Surveys Various global attitudinal surveys have helped to shed light on the relationship between public attitudes and peace. Included in Table 9 are

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What Creates Peace: Structures and Attributes

Table 8.

Significant Correlations between the Political Terror Scale, Selected GPI Indicators and Other Selected Indexes.

Index Name Physical integrity Rights Index WGI Political Stability Index Human Rights Index Level of organized conflict (internal) WGI Corruption Control Index WGI Rule of Law Index Corruption perceptions WGI Government Effectiveness Index WGI Voice and Accountability Index Political instability Civil Liberties Index Economic Freedom of the World Index Perceptions of criminality in society Economic Freedom index Number of deaths from organized conflict (internal) The extent of regional integration Empowerment Rights Index Ease of access to weapons of minor destruction Freedom of the press Functioning of government

Source

Correlation Coefficient

Cingranelli-Richards World Bank Escola de Cultura de Pau Global Peace Index World Bank World Bank Transparency International World Bank World Bank Global Peace Index Freedom House Fraser Institute Global Peace Index Heritage Foundation IISS

2 0.87 2 0.82 0.78 0.74 2 0.71 2 0.70 2 0.69 2 0.68 2 0.67 0.64 0.64 2 0.63 0.62 2 0.62 0.61

Economist Intelligence Unit Cingranelli-Richards Global Peace Index

0.61 2 0.61 0.60

Reporters without borders Economist Intelligence Unit

0.60 2 0.60

WGI=Worldwide Governance Indicators.

correlations between the GPI and a number of global surveys, which were collated for the Institute for Economics and Peace by the Program on International Policy Attitudes at the University of Maryland (Program on International Policy Attitudes, 2009). The surveys measure attitudes on military, leadership qualities, media freedom, culture, foreign policy, and foreign values. In this section of the paper, we have used a threshold for statistical significance at . 0.4 or , 20.4. Analysis of these surveys also supports the relationship between hostility to others and peace. People in countries that are rated more peaceful on GPI tended to have the values that are listed below. The hostility to foreigners/private property survey is conducted by the EIU and it measures society and governments’ attitudes to foreigners and

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Table 9.

Attitudinal Survey Correlations with the GPI.

Value More likely to reject any use of torture, including against terrorists More likely to support leaders who take a cooperative and compromising approach Hostility to foreigners/private property More likely to say that the media in their country have a lot of freedom Less likely to see their culture as superior More likely to see their country as having average morality in its foreign policy More likely to think that it is important to understand other preferences in building good relations Less likely to think that their way of life needs to be protected against foreign influence

Source

Correlation

World Public Opinion

2 0.72

World Values Survey

2 0.68

EIU World Public Opinion

0.59 2 0.56

Pew Global Attitudes World Public Opinion

0.50 2 0.47

World Values Survey

0.47

Pew Global Attitudes

0.39

their attitude to foreign investments in any given country. It correlates strongly with the overall GPI (r=0.59). The remaining correlations listed in Table 9 are collected by organizations that use surveys to understand public opinion on a range of global issues. Responses from three World Public Opinion surveys showed answers on the topics of torture (World Public Opinion, 2008a), media freedom (World Public Opinion, 2008b), and foreign policy (World Public Opinion, 2009) were significantly correlated to the Global Peace Index. Two World Values Surveys (2005) showed that citizens of peaceful countries tend to support leaders who take a compromising and cooperative approach as well as think that it is important to understand other preferences in building good relations. Similarly, a Pew Global Attitudes survey (2004) showed that countries whose citizens are less likely to see their culture as superior are generally more peaceful. A second Pew Global Attitudes survey showed that countries ranked higher on the Global Peace Index when they were less likely to feel the need to protect themselves against foreign influence. Table 10 lists a further set of significant correlations between the hostility to foreigners measure from the EIU and other selected indexes. Interestingly it appears to be most strongly connected to violent demonstrations, political instability and the perception of corruption. Nationalism, ethnicity and religion are often reported to be a factor in conflicts. If hostility to foreigners is evident at the government level, then

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What Creates Peace: Structures and Attributes

Table 10. Significant Correlations between Hostility to Foreigners, Selected GPI Indicators, and Other Selected Indexes. Index Name WGI Political Stability Index Likelihood of violent demonstrations WGI rule of Law Index Political instability Corruption perceptions WGI Government Effectiveness Index WGI Corruption Control Index WGI Regulatory Quality Index

Source

Correlation Coefficient

World Bank Global Peace Index World Bank Global Peace Index Transparency International World Bank

2 0.61 0.60 2 0.59 0.55 2 0.54

World Bank World Bank

2 0.53 2 0.53

2 0.54

WGI=Worldwide Governance Indicators.

relations with neighboring states are likely to be adversely affected. Countries that, on balance, are relatively hostile to foreigners tend to be the least peaceful nations as ranked by the GPI. They include several countries currently at war and several so-called “failed states.” Additionally, studies conducted by researchers at the Victoria University of Wellington on societal values and the GPI (Fischer & Hanke, 2009) showed strong and consistent correlations between harmony, hierarchy (negative), and intellectual autonomy.8 Overall an integrated set of values was systematically related to the GPI. Effects remain strong and stable even when controlling for economic, societal, and political development and perceptions of corruption. One of the findings from this research was that although societal values correlated strongly, economic and developmental indicators consistently correlate higher with the GPI than values. When considered together, commitment to human freedoms and societal attitudes toward foreigners describe how the citizens of a country accept the rights of others. Strong correlations in these areas make a compelling case that acceptance of the rights of others is highly relevant to peace.

GOOD RELATIONS WITH NEIGHBORING STATES As a measure of external peacefulness, the quality of relations with neighboring states is an important structural element identified in the most peaceful countries. This is in part because a country’s overall state of peace

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is heavily reliant on the way it conducts relations with its immediate neighbors. Aggressive neighborly relations tend to accompany higher than average military expenditure, armed services personnel, number of aggregate heavy weapons per capita, and number of displaced people. In addition, hostile relations virtually prohibit the possibility of regional economic integration, eliminating the chance of mutual gains from trade (Khan, 2008). Countries rated as aggressive are grouped around hot spots in Asia, Africa, and the Middle East and are often linked to poorly functioning governments, a topic discussed in more detail earlier in this paper. Violent or hostile countries also have a tendency to spread these effects onto their neighbors. By contrast, peaceful neighborly relations are characterized by countries that reject conflict as a means of dispute settlement, encourage strong diplomatic and business links, and avoid aggressive posturing. Table 11 lists correlations between the “relation with neighboring countries indicator” and a number of selected indexes, including the overall GPI score itself. This data infers that countries with positive external relations tend to be more politically stable, have well-functioning governments, are regionally integrated, and have low levels of organized internal conflict. Measured by EIU analysts, the “relations with neighboring countries” indicator is a qualitative assessment of the intensity of contentiousness between neighbors. Using a 1 to 5 scale where 1 is peaceful and 5 is very aggressive, countries are rated on the frequency of conflict, level of aggression, and economic and diplomatic openness. It is interesting to note that 90% of countries scored as having good to very good relations with other states. Table 11.

Significant Correlations between Relations with Neighbors, Selected GPI Indicators and Other Selected Indexes.

Index Name GPI Score Political instability The extent of regional integration Level of organized conflict (internal) Functioning of government Willingness to fight Respect for human rights Political Democracy Index Corruption perceptions Freedom of the press

Source

Correlation Coefficient

Global Peace Index Global Peace Index Economist Intelligence Unit Global Peace Index

0.68 0.62 0.59 0.59

Economist Intelligence Unit Economist Intelligence Unit Global Peace Index Economist Intelligence Unit Transparency International Reporters without Borders

2 0.56 0.54 0.53 2 0.52 2 0.51 0.51

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What Creates Peace: Structures and Attributes

Table 12. Region Asia-Pacific Central and Eastern Europe Latin America Middle East and North Africa Sub-Saharan Africa Western Europe

Relations with Neighbors by Region. Average GPI Score 2010

% Change on 2009

2.50 2.61 2.02 2.66 2.41 1.15

1.60% 2 1.42% 1.08% 2 4.17% 5.92% 0.00%

A positive change is an improvement in peace while a negative change is a decrease in peacefulness.

Though not exclusively a European phenomenon, many of the EU members fall into the most peaceful category (Institute for Economics and Peace, 2010). The tolerance exhibited by this group of countries supports their ability to react appropriately in times of high stress and leverage the linkages that have been created during the absence of hostilities. European history has been marked by a millennium of nearly constant conflict, and after the ending of the Second World War the European countries made conscious efforts to build the appropriate relations and structures to avoid conflict. This is reflected in their high ranking in peace and is a good example of resilience. Table 12 highlights the regional variation for the Relations with Neighboring States indicator. Western Europe is clearly the region exhibiting the most peaceful and stable neighborly relations. Changes between 2009 and 2010 are also included in this table showing improvement in Sub-Saharan Africa and deterioration in Middle East and North Africa.

FREE FLOW OF INFORMATION Freedom of information has many flow-on effects for a society. These include both economic efficiencies as well as many social benefits. It is closely linked to many of the other structural attributes of peace discussed in this paper and it can be measured through understanding press restrictions as well as the population’s perceptions of freedom of speech. In their Press Freedom Index, Reporters Without Borders measure the degree of freedom journalists and news organizations experience in each country and the efforts made by the state to respect and ensure this

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Table 13. Significant Correlations between Freedom of the Press, Selected GPI Indicators and Other Selected Indexes. Index Name WGI Voice and Accountability Index Civil Liberties Index Political Rights Index Empowerment Rights Index Civil liberties Political Democracy Index Electoral process Regulatory Quality Physical Integrity Rights Index Political participation Economic Freedom Index Functioning of government Human Rights Index WGI Control of Corruption Index Political instability Respect for human rights GPI Score

Source

Correlation Coefficient

World Bank

2 0.85

Freedom House Freedom House Cingranelli-Richards Economist Intelligence Unit Economist Intelligence Unit Economist Intelligence Unit World Bank Cingranelli-Richards Economist Intelligence Unit Heritage Institute Economist Intelligence Unit Escola de Cultura de Pau World Bank Global Peace Index Global Peace Index Global Peace Index

0.83 0.81 2 0.81 2 0.79 2 0.76 2 0.74 2 0.70 2 0.68 2 0.67 2 0.65 2 0.63 0.63 2 0.61 0.61 0.60 0.52

WGI=Worldwide Governance Indicators.

freedom (Reporters Without Borders, 2009). Its correlation with the GPI (0.52) is listed in Table 13 along with a number of other correlations with several of the GPI indicators and other selected indexes. Several strong linkages are evident from this set of numbers, particularly between the indicators relating to political process, participation, and civil liberties. Global attitudinal surveys also support the correlation. A World Public Opinion poll correlated at 0.56 with the GPI on the question of whether citizens felt “that their country had a lot of media freedoms” (World Public Opinion, 2008b). Similarly, a significant correlation was found that peaceful societies are less likely to believe that their governments should be able to limit the expression of ideas (r=0.42) (Program on International Policy Attitudes, 2009). On balance, a society with a free flow of information can disseminate information in a way that helps the community react appropriately. A better flow of information through society can help to provide citizens and decision makers with the balanced viewpoints necessary to make rational responses during times of crisis. Additionally, freedom of information can also apply to financial information. An informed market will allow for

What Creates Peace: Structures and Attributes

25

the appropriate pricing of financial instruments, thereby allowing for a broader capital base and greater community participation. Countries that tightly control the flow of information often do so to protect their grasp on power. There are many countries identified in the index that restrict the free flow of information, but they tend to be authoritarian. Figure 6 shows a scatter diagram of the correlation between the GPI and the Press Freedom Index. The cluster of about 15 countries in the bottom left-hand corner of the chart identifies those that are both highly peaceful and allow the most journalistic freedoms. Box 4: Information Control—How Open Societies Respond to Crises A society that has a free flow of information is more capable of making intelligent and better informed decisions. Similarly, the free flow of information allows more accurate pricing of financial instruments and investments and helps to create a transparent environment for governments to operate within.

Fig. 6.

Reporters without Borders Press Freedom Index and Overall GPI Scores.

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HIGH PARTICIPATION IN EDUCATION—MEAN YEARS OF SCHOOLING Effective educational institutions play an important structural role in the most peaceful countries. The GPI correlates with many, though not all, indicators in this area suggesting that peace and education is closely linked. The strongest correlation with the GPI is the mean years of schooling, which is collected by the United Nations Educational, Scientific, and Cultural Organization (UNESCO). This data counts the primary to tertiary school-life participation in years of schooling and shows the overall level of development of an educational system (UNESCO Institute for Statistics, 2009). At 20.58, the correlation is statistically significant and Figure 7 displays a visual representation of the correlated data. The downward-sloping trend line indicates more years of schooling (x axis) is common to the most peaceful countries (y axis). A broad education base creates a larger pool of human capital in which societies are more likely to continue to learn and adapt and to make more

Fig. 7.

UNESCO School Life Expectancy (Years) and Overall GPI Scores.

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What Creates Peace: Structures and Attributes

reasoned responses to crisis situations. Well-educated societies are usually successful at attracting foreign investment because skilled workforces are typically more valued. Well-educated societies also tend to have wellfunctioning governments because the delivery of educational services is generally supplied by government. Low levels of school life expectancy are evident in impoverished countries throughout the world, but particularly in Africa and parts of Asia. In these regions, the average is significantly under 10 years of total schooling while in some developed countries, such as the Scandinavian countries, the total exceeds 18 years. Where secondary education is absent, unemployed youths often fall into a cycle of violence, which can easily become an intractable problem for the society to fix. There is a strong negative correlation between 15- to 24-years-old males as a percentage of adult population (the so called male youth bulge) and the Global Peace Index at 0.56.9 There is more likelihood of violence when there are large groups of unemployed young males within a society. At the other end of the scale, aging populations are often a characteristic of the most developed societies, and the correlation between the GPI and the portion of population over 60 is 2 0.5. This measure also relates closely to other indicators such as life expectancy, literacy, and GDP per capita. Other indicators that correlate with the GPI are listed in Table 14. The World Bank collects data on school enrolment as subsets of the World Development Indicators,10 and the moderate relationships between this data and the GPI indicate that countries with relatively high enrolment ratios tend to be the most peaceful. It is interesting to note that the amount of money that governments spend on education does not correlate with the GPI. As demonstrated in table 14, the percentage of GDP spent on education is the weakest correlation with the GPI of all the education factors examined ( 20.33). Table 14.

Education Correlations with the GPI.

Index Name Mean years of schooling Secondary school enrolment ratio (% net) Primary school enrolment ratio (% net) Higher education enrolment (% gross) Adult literacy rate (% of population over 15) Current education spending (% of GDP)

Source

Correlation Coefficient

UNESCO World Bank World Bank World Bank UNESCO UNESCO

2 0.58 2 0.50 2 0.48 2 0.46 2 0.45 2 0.33

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Box 5: Educating for Peace High participation rates in primary and secondary schooling will create a society that contains a larger pool of skilled human capital. Better skills help fulfill the individuals’ needs and create a more flexible and prosperous economy.

Table 15. Index Name Control on Corruption Corruption Perceptions Index

Corruption Correlations with the GPI. Source

Correlation Coefficient

World Bank Transparency International

2 0.72 0.70

LOW LEVELS OF CORRUPTION Corruption has long been associated with poor peace. Two indexes focusing on corruption were tested against the GPI to better understand how it relates to peace. Both were strongly correlated at a very similar level of significance and are listed in Table 15. These strong correlations have been consistent across each year of the GPI, and in fact the Transparency International correlation has improved in significance from 2008 to 2009 while remaining stable between 2009 and 2010. Transparency International’s Corruption Perception Index uses expert assessments and opinion surveys to rank societies’ perceptions of public sector corruption (Transparency International, 2009). It is one of the determinants most closely correlated to the GPI ( 20.70) and is, of course, intuitively linked to the functioning of government that is discussed above. Countries are rated using a 1
10 scale and a visual representation of the correlation between the two data sets can be seen in Figure 8. The chart shows a clear dichotomy between two types of societies: those that have low peace and are corrupt and those that are relatively peaceful and have little corruption. Strong correlations have been found with similar indexes as well. The World Bank Worldwide Governance Indicators subindex of Control on Corruption (Kaufmann, Kraay, & Mastruzzi, 2009) correlated at 2 0.72

What Creates Peace: Structures and Attributes

Fig. 8.

29

Transparency International Corruption Perceptions Index and Overall GPI Scores.

with the GPI. This indicator captures perceptions of the extent to which power is exercised for private gain, as well as the “capture” of the state by elites and private interests. The strong correlation supports the claims made in this section that the most peaceful countries also tend to be the least corrupt. In societies with high corruption, resources are inefficiently allocated, often resulting in essential services such as schools and hospitals missing out on appropriate funding. The resulting inequality can manifest into civil unrest and in extreme situations can be the catalyst for violence. Low corruption, by contrast, can support confidence in institutions, which in turn helps to create peaceful societies. The numerous linkages between corruption, as measured by the TI Corruption Perceptions Index, and other societal measures are displayed in Table 16. It is interesting to note that corruption is very highly correlated with political instability and GDP per capita. Other strong relationships appear to exist between corruption and crime-related indicators such as homicide and levels of violent crime as well as equality-related indicators such as life expectancy and infant mortality.

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Table 16. Significant Correlations between Corruption Perceptions,a Selected GPI Indicators and Other Selected Indexes. Index Name

Source

WGI Corruption Control Index WGI Rule of Law Index WGI Government Effectiveness Index Global Competitiveness Report WGI Regulatory Quality Index GDP per capita Political instability Ease of Doing Business Index Economic Freedom Index WGI Voice and Accountability Index WGI Political Stability Index Economic Freedom of the World index Political Democracy Index Civil Liberties Index Respect for human rights Mean years of schooling Likelihood of violent demonstrations Physical Integrity Rights Index Ease of access to weapons of minor destruction Life expectancy Human Development Index Political Rights Index Level of organized conflict (internal) Infant mortality per 1,000 live births

Correlation Coefficient

World Bank World Bank World Bank World Economic Forum World Bank Economist Intelligence Unit Global Peace Index World Bank Heritage Foundation World Bank World Bank Fraser Institute Economist Intelligence Unit Freedom house Political Terror Scale UNESCO Global Peace Index Cingranelli-Richards Global Peace Index

0.98 0.95 0.94 0.87 0.87 0.83

2 0.69 2 0.69 0.68 2 0.67 0.66 2 0.66

World Bank UNDP Freedom House Global Peace Index World Bank

0.65 0.65 2 0.62 2 0.61 2 0.61

2 0.81 2 0.78 0.76 0.74 0.72 0.72 0.71

WGI=Worldwide Governance Indicators. a As measured by Transparency International’s Corruption Perceptions Index.

CONCLUSION To date, the overwhelming emphasis within peace and conflict studies has been placed on understanding the causes of war. The Global Peace Index is a pioneering attempt to systematically expand and explore our understanding of peace. Through expanding the definition of peace to the “absence of violence” and measuring internal indicators such as violent crime, a richer set of data has become available to help understand the

What Creates Peace: Structures and Attributes

31

mechanisms that nurture and sustain peace. This paper has introduced an original conceptual framework that is fact based, linking peace with the societal structures and attitudes observed in the most peaceful countries included in the GPI. Our analysis shows that the most peaceful countries in the GPI tend to have a set of structures and attitudes in common that appear to be intricately linked to their peacefulness. Using statistical correlations and other means, eight key structures of peace have been identified. These structures are each heavily interconnected with causality running both ways depending on the individual circumstances within the societies. When viewed together, these characteristics promote resilience in society, allowing these societies to overcome adversity and solve problems using peaceful methods. In summary, peaceful societies are determined by the following factors:  Well-functioning government—Strong relationships across a number of governance indicators show that well-functioning governments need to have many aspects working correctly if they wish to help create peace.  Sound business environment—Business competitiveness and economic freedom are both associated with the most peaceful countries, as is the presence of regulatory systems that are conducive to business operation.  Equitable sharing of resources—Low infant mortality and high life expectancy are characteristics shared by peaceful countries, while the Gini coefficient is moderately correlated with the GPI’s internal peace measure.  Acceptance of the rights of others—A commitment to human integrity is a key characteristic of peaceful countries, a claim supported by very strong correlations with three indexes measuring human rights. Also important are societal attitudes toward fellow citizens, minorities, ethnic groups, and foreigners.  Good relations with neighboring states—Countries with positive external relations are more peaceful and tend also to be politically stable, have well-functioning governments, are regionally integrated, and have low levels of organized internal conflict.  Free flow of information—Peaceful countries tend to disseminate information in a way that leads to better decisions and rational responses in times of crisis.  High participation in education—Higher mean years of total schooling are closely related with the most peaceful countries.  Low levels of corruption—Strong correlations with corruption-related indexes suggest that the most peaceful countries are also often the least corrupt.

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As a fact-based body of analysis, this paper provides many useful insights for a broad range of decision makers including policy analysts, business, academics, and other international institutions. A major purpose of the paper has been to set the scene to initiate wider debate and discussion in the area. It is hoped that our analysis here will guide subsequent research both by the Institute for Economics and Peace and other interested partners.

NOTES 1. The World Bank Political Stability Index rates the likelihood that the government will be de-stabilized or overthrown by unconstitutional or violent means, including politically-motivated violence or terrorism. 2. John Tepper-Marlin is former Adjunct Professor at the Stern School of Business at New York University and Jurgen Brauer is Professor of Economics, James M. Hull College of Business, Augusta State University. 3. Huang, S. & Throsby, D., Macquarie University. 4. The Economist, http://www.economist.com/research/economics/alphabetic. cfm?letter=G#ginicoefficient 5. World Health Organization (2007). World Drug Report. 6. Social capital is about the value of networks, bonding similar people and bridging between diverse people, with norms of reciprocity (http://www.social capitalresearch.com/defintion). 7. Blanden J, Gregg P, and Machin S, (2005). Intergenerational Mobility in Europe and North America. 8. Intellectual Autonomy: People are viewed as autonomous bounded entities; they are expected to cultivate and express their own ideas and intellectual directions. 9. UN World Population Prospects, 2008. 10. World Bank, World Development Indicators, http://data.worldbank.org/ indicator

REFERENCES Bertelsmann Stiftung. (2009). Policy performance and executive capacity in the OECD: Sustainable governance indicators 2009. Brauer, J., & Tepper-Marlin, J. (2009). Defining peace industries and calculating the potential size of peace gross world product by country and economic sector. Sydney: Institute for Economics and Peace. Cingranelli, D., & Richards, D. (2010). The Cingranelli-Richards human rights dataset. Economist Intelligence Unit. (2008). Index of democracy 2008. Escola de Cultura de Pau. (2010). Alert 2010. Bellaterra: Escola de Cultura de Pau. Fischer, R., & Hanke, K. (2009). Are societal values linked to global peace and conflict? Journal of Peace Psychology. Frazer Institute. (2009). Economic Freedom of the World 2009 Annual Report. Frazer Institute.

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Galtung, J. (1996). Peace by peaceful means: peace and conflict, development and civilization. Sage Publications. Gibney, M., Cornett, L., & Wood, R. (2008). 2008 Political terror scale. Heritage Foundation. (2010). Index of economic freedom. Institute for Economics and Peace. (2010). 2010 Global peace index: Methodology, results and findings. Kaufmann, D., Kraay, A., & Mastruzzi, M. (2009). Governance matters 2009. World Bank. Khan, S. R. (2008). Regional trade integration and conflict resolution. Routledge. McKenzie, D. (2004). Measuring inequality with asset indicators. Stanford: Stanford University. Montesquieu, C. (1748). The spirit of the laws. Cambridge. Pew Global Attitudes Project. (2004). A global generation gap. Program on International Policy Attitudes. (2009). The GPI and multi-national attitude research. University of Maryland. Quinlan, A. (2010). Building resilience in Ontario: More than metaphor or Arcane concept. Resilience Science. Reporters Without Borders. (2009). Press freedom index. Rice, S., & Stewart, P. (2008). Index of State weakness in the developing world. Brookings Institution. Transparency International. (2009). Corruption Perceptions Index. UNESCO Institute for Statistics. (2009). School life expectancy. Wilkinson, R., & Pickett, K. (2007). The problems of relative deprivation: Why some societies do better than others. Social Science and Medicine. World Economic Forum. (2009). The global competitiveness report 2009
2010. Geneva: World Economic Forum. World Public Opinion. (2008a). World public opinion on torture. World Public Opinion. (2008b). Freedom of the media. World Public Opinion. (2009). Most people think their nation’s foreign policy is morally no better than average: Global Poll. World Values Survey. (2005). World values survey.

THE EUROPEAN EXPANSION TOWARD MIDDLE EAST: CONFLICTS AND ECONOMIC CONVERGENCE (2000
2010) Fernando Barreiro-Pereira ABSTRACT The main purpose of this paper is to analyze whether sufficient conditions can be met for Turkey and the Balkan and Caucasian Republics to achieve future integration within Europe because Turkey’s accession to the European Union (EU) would provide opportunities for further enlargement of the Union toward the East. The paper is developed through three steps: In the first place we will select a group of countries belonging to the Southeastern Europe, Transcaucasia, and the Near-East, which could fulfill at medium term the requirements established by the European Councils of Copenhagen (1993), Madrid (1995), and Helsinki (1999) to be members of the EU in a future. Second, starting from the period 2000
2010, we estimate the possible existence of economic convergence in terms of real per capita income between these countries and the current EU at 27 members. Finally, we analyze whether the entrance of some of those countries in the EU could help to solve some local existing conflicts in the area, especially in the Middle-East.

Cooperation for a Peaceful and Sustainable World, Part 1 Contributions to Conflict Management, Peace Economics and Development, Volume 20, 35
67 Copyright r 2012 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1572-8323/doi:10.1108/S1572-8323(2012)0000020005

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For the above-mentioned purposes, first, we have selected potential candidates for a future adhesion to EU among the current official candidates, other countries that have already demanded the adhesion, and those other countries in the area for which the EU applies the neighborhood policy. We have selected these countries by using a multicriteria analysis. Second, following Quah (1996), we test the possible existence of several steady states in the EU at 27 members, and hence the possibility of Clubs Convergence in Europe. Also by using the Barro (1991) and Mankiw, Romer, and Weil (1992) models, we test Absolute and Conditional Economic Convergence among all EU-27 countries and between each potential candidate, weighted by surface and population, with the EU-27, during the period 2000
2010. The obtained results indicate the existence of Clubs Convergence in EU-27 because at least there are two steady states. Multicriteria analysis indicates that the following countries fulfill the requirements of the EU at medium term: Macedonia, Albania, Serbia, Turkey, Armenia, Azerbaijan, Georgia, and Lebanon. The convergence analysis indicates Conditional Convergence between the selected countries and the EU. The research limitations are that this paper only considers countries belonging to this area. The EU expansion could solve conflicts in the European
Asian border, like Cyprus, Nagorno-Karabakh, Kurdish, and other Middle East conflicts. Lebanon is a country that clearly belongs to Asia, but notwithstanding it appears as a possible candidate to enter in the EU considering our multicriteria analysis.

INTRODUCTION Originally, the foundations for the concept of a European Union (EU) were based on similar cultural and economic levels and the absence of conflict in Western Europe since World War II. One could also add to the previous list the respect for certain values such as democracy, the rule of law, and fundamental liberties, including the free market. The process that led up to the creation of a Common Market and a full Economic Union was continually subjected to legislators’ scrutiny and reflected in successive treaties and the accompanying reforms. In this sense, the birth of the customs union gave way to a great internal market, a common trade policy, and a single agricultural policy. Concern about the benefits and costs of

The European Expansion Toward Middle East

37

the process resulted in the introduction of a series of accession prerequisites for candidate countries during subsequent enlargements. Although never publicly stated, it seems that one of those prerequisites is belonging to the European continent. As for economic requirements, it is well known that certain conditions must be met for the integration process to be successful: The existence of relevant trade flows among candidates and club members
usually higher when transportation costs are lower, transportation costs being in turn determined by distance
turns the geographical location of candidate countries into an important element to take into consideration, and not only from an economic perspective. Equally important is the achievement of economic and social development levels that are convergent, if not identical, to those of the Community. Nevertheless, it would seem that the prerequisite of economic convergence between member and candidate states is losing weight in favor of political prerequisites. The last enlargement within the EU to 25 members has once and again deteriorated average development levels in the Union, leading to a new form of cooperation between the Union and the candidate countries aimed at getting them ready for membership before accession. Those Eastern European countries that recently became members of the Union did so from starting points that greatly differed from those of candidates that accessed the Union during the 20th century. The former, as well as those countries that have not accessed the Union yet, implemented changes in their political and economic systems, even though in some cases their development levels are comparatively much smaller than those exhibited by the former 15-member Union. The interest of the Union in reuniting the continent is promoting final adoption by new members of the fundamental principles governing the Union, now contained in the text of the future European Constitution. In such context, Turkey’s candidacy, whose desire to participate in future integration projects dates back to its ratification of the Treaty of Association back in the 1970s, has proved difficult under the strict provisions of the Treaty of Rome, which does not mean that the Union’s latest enlargement should be disregarded as a key experience for efficiently addressing a future integration scenario for Turkey. The country, although far from fully complying with all political and economic prerequisites, is striving to do so by promoting important structural reforms. The main purpose of this paper is to analyze whether sufficient conditions can be met for Turkey to achieve future integration within Europe. The second section analyzes the essential identity of the EU and how it is

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being preserved throughout its successive enlargements. The third section analyzes in detail Turkey’s candidacy. The fourth section provides a comparative study of reforms associated with integration and implemented by candidate countries to become members in 2007. The fifth section analyzes the impact of globalization in Turkey. The sixth section describes Turkish efforts and initiatives favoring integration in Europe. The seventh section selects some other possible candidates by applying ordinal multicriteria methods. The eighth section collects some economic and political data related to these new possible candidates. The ninth section analyzes potential real convergence between the new possible candidate countries, including Turkey, and the 27-member Union, and the tenth section summarizes some relevant findings.

IDENTITY AND ENLARGEMENTS OF THE EUROPEAN UNION The integration process experienced by Europe since 1952 (ECSC1) and, more generally, since 1958 (EEC2 and ECSC), was depicted at some point by its opponents as a club for rich countries. This was the Europe of the first six members, where the average per capita incomes were high. At the heart of this process stood France and the Federal Republic of Germany, in addition to Italy and the Benelux; the trademarks of the club were democracy and rule of law, respect for political and economic liberties, and high levels of economic development. But successive enlargements have redefined the relevance of high wealth rates when applying for Community membership. It is clear that the previous existence of relevant trade flows and the moderate divergence in development levels are crucial aspects for successful economic integration. Today, divergence in GDP3 per capita ranges from countries like Luxembourg, more than doubling the average of EU-25 in 2003, and Latvia, not even reaching 50 percent of that figure. At some point in time, the EU was faced with the dilemma of deepening integration or increasing the number of member states, and went on to choose both ways, which could only be done with the economic support of candidate countries and of member states with the lowest GDP per capita, eventually resorting to the system known as “multi-tier integration.” As illustrated by the EMU,4 this meant that a number of countries could reach new heights along the integration process and the rest would follow as soon as they fulfilled certain requirements. Throughout its history, the EU has developed mechanisms to address issues raised by the integration

The European Expansion Toward Middle East

39

process and thus, when it comes to imbalances in development levels, it set in motion a complete system of solidarity among member states based on redistribution policies directed at reducing divergence. Keeping reasonable levels of divergence within the Union, implementing the social policies
and also, partially, agricultural policies
contained in the Treaty of Rome, and modern tools introduced by the Treaty of the Union such as the regional or the cohesion policy all contributed to maintaining development levels among member states. Additionally, the European Community has made explicit a series of political criteria to be fulfilled by candidate countries. In this sense, it is worth noting that the integration process was deliberately born in the field of economic activity. The goal was to integrate the economies of the Six. On the other hand, there was no doubt about the fact that member states would be democratic and abide by the rule of law. This is why the different treaties focused almost exclusively on economic issues. As the frequency of enlargements increased, the European institutions were forced to specify the political conditions to be fulfilled by a candidate country. In 1993, the European Council met in Copenhagen to set forth a series of criteria to be fulfilled by future members of the Union; these are popularly known in communitarian language as the “Copenhagen Criteria,” summarized below:  Stable institutions capable of guaranteeing democracy, rule of law, human rights and respect and protection for minorities.  A viable market economy, capable of facing pressure by competitors and market forces inside the Union.  Ability to assume the obligations associated to accession and particularly that of subscribing to a political, economic and monetary union. In 1995, the meeting of the European Council in Madrid concluded that candidate countries had to adjust their administrative structures in such a way that Community legislation could be efficiently applied through the appropriate administrative and legal channels, which would raise, in turn, the level of mutual trust needed to join the EU. The 1999 Council of Europe in Helsinki added that candidate countries must share the values and goals of the EU as stated in the Treaties.

TURKEY’S CANDIDACY The nation of Turkey was concretely established by Mustafa Kemal Atatu¨rk in 1923, subsequently to Ottoman decline. The part of the country

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FERNANDO BARREIRO-PEREIRA

that lies in Asia is called Anatolia while the European section is called Thrace. The majority of the people of Turkey are original inhabitants of the land. However, there are people of other ethnicities too to be found. The other ethnic races in Turkey are Greeks, Armenians, Jews, Abkhazians, Syriacs, Albanians, Arabs, Gypsies, Bosniaks, Chechens, Ossetians, Circassians, Kabardins, Georgians, and Kurds. The long-standing relations between Turkey and the European Community date as far back as the 1960s (1963), when the former ratified the first Treaty of Association with the then EEC. The treaty contemplated the possibility of accession with full rights, and in 1996 the customs union was created. Undoubtedly, at that moment in time what was signed went far beyond what was feasible: The Six could not accept the absence of the ideal political conditions and Turkey’s degree of economic divergence. Since the 1920s, the Turkish republic had a strategic goal in mind: coming closer to European state models and forging tight cultural ties with Europe through their own elites. Nevertheless, the need for the army to support Ataturk’s nationalist regime revealed that, although formally a democracy with a political multiparty system, Turkey was in reality a state controlled by an army that interfered in all aspects of Turkish political and economic life. Throughout the years, the regime tried to establish links with the West. In this sense, the country’s geostrategic position was of great importance, promoting economic growth especially during the economic crisis of the 1970s. It was then that Turkey abandoned the development model based on import substitution and increased its presence in foreign markets. Finally, in 1999, Turkey acquired the status of “candidate country,” a request that had been turned down back in 1987. Circumstances within the EU and Europe had changed significantly, and Turkey began to devote considerable efforts to match its economy and political institutions to those of the Union. Taking into account the Commission’s reports, the European Council met in December 2004 and set a date for the beginning of negotiations by October 2005. Turkey is aware that it must fulfill the “Copenhagen criteria” and implement deeper economic reforms. The gap between its economy and that of the EU is not an insurmountable obstacle and, to a certain extent, it resembles the obstacles faced by Romania and Bulgaria, both candidate countries to join the Union in 2007. Furthermore, development levels and economic structure for the three candidates do not differ greatly, as shown in Tables 1 and 3, and thus their adjustment to the Union could serve as a reference for Turkey’s case.

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The European Expansion Toward Middle East

COMPARATIVE ANALYSIS OF REFORMS BY NEW CANDIDATE COUNTRIES IN 2007 The EU has issued opinions and reports on candidate countries in 2007 aimed at analyzing the extent of their adjustment to the Community acquis in order to prepare for accession. Tables 1 and 2 provide an overview of the economic structure for these candidate countries and Turkey, allowing in turn to draw comparisons with EU-25. (A) Romania: Since the fall of the communist regime, the country suffered both a political and economic crisis that hindered adjustment to the new economic system. Only after the November 1996 legislative and Table 1. Period

GDP According to Branches of Economic Activity (Percentages).

Fisheries and Agriculture

(A) Bulgaria 1999 16.31 2000 13.93 2001 13.40 2002 12.48 2003 11.75 (B) Romania 1998 15.95 1999 14.89 2000 12.36 2001 14.68 2002 12.95 (C) Turkey 1998 17.61 1999 15.52 2000 14.75 2001 12.22 2002 12.42 Period

Agriculture

(D) EU-25 1999 2000 2001 2002 2003

2.69 2.57 2.47 2.47 2.37

Source: Eurostat.

Manufactures Mining

Construction Trade Transportation Other Activities

Total

23.84 25.47 25.05 24.25 24.96

5.04 4.59 4.56 4.44 4.65

9.38 9.41 9.38 9.46 9.68

9.98 11.47 12.85 13.76 11.98

35.44 35.13 34.75 35.61 36.98

100.00 100.00 100.00 100.00 100.00

29.13 27.68 30.49 31.20 32.12

5.64 5.60 5.46 5.43 5.53

14.95 15.26 14.09 13.50 13.53

10.54 11.10 11.16 10.50 10.98

23.78 25.46 26.44 24.69 24.89

100.00 100.00 100.00 100.00 100.00

21.94 22.32 23.16 24.71 25.06

5.71 5.40 5.16 4.96 4.10

19.45 19.28 20.57 21.39 21.18

12.98 12.87 13.73 14.28 14.14

22.31 24.62 22.62 22.44 23.10

100.00 100.00 100.00 100.00 100.00

Financial Activities

Public Government

Total

25.60 25.86 26.18 26.14 26.40

20.92 20.61 20.61 20.83 20.80

100.00 100.00 100.00 100.00 100.00

Industry

23.55 23.63 23.24 23.00 22.88

Construction Trade

5.37 5.29 5.21 5.15 5.11

21.87 22.03 22.31 22.41 22.44

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FERNANDO BARREIRO-PEREIRA

Table 2.

Comparative Data Between Turkey and New Candidate Members to Join the EU in 2007.

Country Growth rate GDP against European average Inflation rate Public debt Foreign debt Unemployment rate

Turkey

Bulgaria

Romania

6.0% (1 11.0%) 28.0%

5.4% (1 3%) 22.0%

1.4% (1 4.6) 27.0%

64.9% 2 11.5% of GDP 50.5% of GDP 7.6%

2.6% 2 0.9% of GDP 79.8% of GDP 17.0%

45.8% 2 3.4% of GDP 23.7% of GDP 6.8%

Source: European Commission. Data for the year 2000.

presidential elections did the government begin to apply a drastic program for macroeconomic stabilization and structural reforms. Nevertheless, the 1988 Commission report found meager progress in the implementation of a market economy and its ability to face competing pressure from market forces. Between 1997 and 1999, Romania’s acute crisis resulted in a decreased GDP growth rate. In 2000, it finally went up 1.8 percent, bringing a 13 percent GDP accumulated fall to an end. Romanian economy grew significantly in the following 4 years. As far as its budgetary policy goes, caution has been exercised and discipline in public spending proved to be quite successful. By the end of 2002, public gross debt had decreased to 22.7 percent of the GDP. Considerable efforts were also undertaken to control inflation, bringing its rate from 117.5 percent in June 1997 down to 14.2 percent in August 2003. Some important structural reforms have been implemented: lowering significantly customs fees, decontrolling most prices, and accelerating privatization. Additionally, progress was made in restructuring the financial and agricultural sectors. In other words, the 2000 report confirmed the existence of a legal framework for a market economy in Romania, although the necessary institutions for its operation were still insufficient. In this sense and during that year, the private sector accounted for 60 percent of the GDP, whereas the hidden economy stood at approximately 30 percent. The Commission’s 2003 report concluded that Romanian economy was viable but needed to keep in place the progress achieved. (B) Bulgaria: The country suffered as well delays derived from its transition process and a deep economic crisis (in 1997, its GDP growth rate amounted to 2 7 percent), and the absence of political support to

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43

bring about structural reforms. In 1999, economic activity recovered, the real GDP increased 2.4 percent, and this trend persisted afterward. As for public expenditure, the applied discipline helped keeping deficit below 1 percent of the GDP throughout the years covered by the different reports (1998
2003). Inflation is also under control; the 2002 report found that the rate stood at 2.7 by May of the same year. Later on, during the first half of the year, it fell to around 2 percent, according to the 2003 report. Regarding structural reforms, the Commission’s 2003 report observed that progress had been achieved in restructuring efforts directed at the economy and in the privatization process, although some difficulties remained. Private property increased, but the privatization program was slower than expected. Despite the existing obstacles, the Commission found Romanian economy to be viable and therefore capable of facing competitive pressure within the Union in the mid term, as long as it fulfilled its reform agenda.

THE GLOBALIZATION PROCESS IN THE SOUTHEASTERN EUROPE AND MIDDLE EAST During the 1980s and 1990s, Turkey was not immune to the globalization process. Economic globalization is related to foreign direct investment, portfolio investments, and international trade and information networks, all of which have become so acute as to generate a high level of economic interdependence worldwide. It is possible to detect the degree of globalization in a market from a number of symptoms: first, a decrease in transportation and communication costs within the private sector, and a reduction in barriers to international trade; second, as we have already noted, an increase in the level of convergence with the club among countries in terms of real income per capita. Also, as pointed out by O’Rourke and Williamson (2000), there is an increase of convergence in basic goods prices. Furthermore, in all globalization processes, we find a constant increase in the relative importance of international trade, approximated through the ratio between total exports and imports with respect to the GDP (share of trade). To these main facts common to all globalization waves we need to add factors that are specific to the present wave: production of new technologies, R 1 D5 investment, foreign direct investment, international mobility of technology, perfect mobility of capitals worldwide, and international migration of both qualified and nonqualified workers. Generally, countries

44

FERNANDO BARREIRO-PEREIRA

affected by globalization improve rapidly their macroeconomic framework just because of this, and thus international interdependence associated to globalization could turn out to be asymmetrical, causing disparities to arise in countries not affected by the process. The effects of the present globalization wave in Turkey are reflected in convergence with the EU, and particularly in the spectacular increase of its share of trade (see Table 3). Levels of investment in R 1 D per capita are still low, although similar to those of other OECD6 member countries such as Mexico. Its income per capita is similar to Croatia’s and higher than Romania’s or Bulgaria’s. On the other hand, net foreign direct investment in Turkey is higher than in Greece. In any case, the combined effect of globalization and economic measures directed at stabilizing the integration process in Europe have contributed to Turkey’s economic recovery, which in turn facilitated its membership in the OECD. Today, for the first time in 30 years, inflation has decreased 20 points, down to 25.3 percent, partially due to the restatement of exchange rates; similarly, production growth rates increased to 5.8 percent in 2003, although employment has not been generated. The European scene is already becoming a stabilizing factor allowing Turkey to gain confidence in the long run, attracting particularly foreign investment. Its political and economic reforms always aimed at making it to the appointment with the European Council in December 2004, when it was decided to finally begin accession negotiations with Turkey.

EFFORTS IN FAVOR OF INTEGRATION IN THE SOUTHEASTERN EUROPE Regarding Turkish efforts to achieve the minimum threshold to negotiate accession to a block such as the 25-member EU may be classified according to two types of action mentioned above, and the Turkish government has played a key role in both. The present Turkish administration came into office at the end of 2002 and belongs to the AKP party (Justice and Development Party). Despite its liberal-conservative nature and ties to a certain Islamic tradition, the government has been able to keep a constant pace of reforms directed at adjusting Turkey to the criteria set forth by the Community in Copenhagen and reiterated again in 2002. Since Turkey is already a parliamentary democracy, progress in its political and social development, contained in the European Commission reports on Turkish candidacy, may be summarized into eight main reform

Transportation Cost 1990

2 0.21 0.35 0.27 0.95 0.12 0.27 0.42 0.18 0.86 0.21 0.60 0.14 3.65 0.57 0.14 0.36 3.26

Transportation Cost 1978

1 0.30 0.38 0.25 1.27 0.23 0.34 0.65 0.19 0.87 0.30 0.55 0.15 4.65 0.58 0.45 0.36 2.08

3 2 0.01 2 0.01 0.01 2 0.02 2 0.01 2 0.01 2 0.01 2 0.11 2 0.01 2 0.01 0.01 2 0.01 2 0.08 0.00 2 0.02 0.00 0.76

Transportation Cost Trend 197821990 4 48.1 66.4 101.5 75.4 60.9 28.9 55.6 41.3 41.9 85.1 109.6 43.9 59.7 52.8 54.6 55.5 14.1

Share of Trade 1978 5 57.3 79.1 139.1 65.9 69.3 37.2 46.3 47.3 49.0 104.2 117.8 40.7 53.4 81.2 50.8 61.4 42.3

Share of Trade 1990 6 0.014 0.016 0.024 0.004 0.022 0.066 0.056 0.038 0.071 0.008 0.042 0.067 0.001 0.082 0.022 0.045 0.019

Standard Deviation of Goods Prices 1983
1986

Preglobalization Criteria in Turkey and Europe.

7 0.022 0.024 0.016 0.006 0.018 0.025 0.036 0.004 0.091 0.031 0.023 0.040 0.147 0.047 0.028 0.063 0.121

Standard Deviation of Goods Prices 1987
1990 8 2 2 2 1 3 3 2 3 2 2 2 2 1 2 1 1 1

Globalization Criteria Fulfilled 1978
1990

Source: United Nations Statistical Yearbooks. Note: “Decrease in transportation costs” is shown under column 3, resulting from comparing columns 2 and 1. “Increase in Share of Trade” results from comparing columns 5 and 4. “Convergence of basic goods prices” or convergence σ is obtained by observing a decrease in time of standard price deviation shown in columns 7 and 6. The figures shown in bold face indicate a criterion fulfilled, and the number of fulfilled criteria is listed under column 8. a Only West Germany. b Including Slovakia.

Germanya Austria Belgium Czech Republicb Denmark Spain Finland France Greece Netherlands Ireland Italy Poland Portugal United Kingdom Sweden Turkey

Countries

Table 3. The European Expansion Toward Middle East 45

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FERNANDO BARREIRO-PEREIRA

packages implemented from January 2003 to May 2004: (1) authorizing the use of languages other than Turkish in the media; (2) promoting freedom of expression and association, mainly aimed at religious minorities; (3) providing a new definition for the concept of terrorism; (4) commuting the death penalty for life sentence; (5) enforcing laws addressing discrimination against women; (6) acknowledging supremacy of international legislation over civil liberties, especially over freedom of expression; (7) curtailing or decreasing the power of the National Security Council; and (8) reinforcing the role of the parliament in order to tighten control over the domestic budget. These reforms have been welcomed by European institutions to the extent that the European Council started to change its opinion on the Turkish political scene since the spring of 2004. Nonetheless, as in any other transitional periods, certain institutions are opposing reform, hindering their real implementation and acting in ways contrary to the Union’s principles, as illustrated by the sentence imposed on a group of former representatives of the Democratic Labor Party (DEP), of Kurdish nationalist nature, or by some cases of torture and corruption. Other reforms included in the government’s agenda but not needed for accession to the EU have been postponed for now: reform of the public administration, decentralization, or liberalization of higher education. Furthermore, until now, the AKP government has not yet adopted any religious measures that may spark controversy, for instance, decreeing a mandatory authorization request to wear veil at the university and creating a statute for the schools of imams. As for the main efforts to raise the country’s economy to acceptable levels for future integration in the EU, the present government deems it necessary to preserve a stable commitment with the EU. Turkey is equipped with the institutional framework required by a market economy, but the lack of a stable macroeconomic framework hinders its normal operation. In the Turkish case, efforts on the part of economic authorities must be aimed at the real convergence process with the EU and at the acceptance of EMU goals, although strict fulfillment of convergence criteria is not a must in order to join the Union. As for economic activity, in 1999, the GDP dropped 5 percent, followed by a serious recession. The recession was mainly caused by the combined effect of stabilization programs implemented during the previous year and the earthquakes of August 1999. Since 2002, the economy went back into a period of expansion: Its GDP grew at a 7.8 percent rate that year and at 5.8 percent during the first half of 2003. Public deficit remains one of the

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47

main problems for Turkish economy, although the 2003 report highlighted the improved condition of public finances, despite the fact that deficit had reached 10 percent by 2002 (28.0 percent in 2001). The battle against inflation is yet another target to be met, and efforts should continue in this direction. The annual price increase in January 1998 amounted to 101.6 percent but slowly decreased to the point where the Commission’s 2003 report underscored the 28 percent average inflation rate observed for the first 8 months of the year. On the other hand, structural reforms have been implemented during the past 3 years, including the following economic measures: (1) designing an agenda for economic austerity under the supervision of international financial institutions; (2) stabilizing public accounts; (3) enforcing a sound fiscal policy; (4) implementing structural reforms in the field of energy; (5) beginning an agricultural reform of some sorts; and (6) reforming the banking system. The above measures may help overcoming the important challenges still to be faced by the Turkish economy: Agriculture is little efficient but considerably important, the financial sector needs reinforcement, and there are several gaps in the social and economic sphere. Chronic monetary instability is an additional factor adding to Turkey’s fragile position. Despite the slow pace of reforms, the measures adopted are yielding positive results. Among the new measures, the Commission highlighted the adoption of a legal framework for foreign direct investment, reform of direct tax-related legislation, creation of a public employment agency, and adoption of labor laws. The liberalization of the energy market has experienced great progress. Finally, the Central Bank’s independence has improved, although the 2003 report pointed out that inflation targets were still being decided jointly by the Central Bank and the government.

ASSESSING NEW POSSIBLE CANDIDACIES TO THE EU BY ORDINAL MULTICRITERIA ANALYSIS We will analyze now the possible countries that could belong to the EU in the future, starting from three groups of countries, although only a small group of them can complete the requirements to enter in the EU at medium term: 1) The current official candidates: Iceland (in 2010), Croatia (2004), FYR7-Macedonia (2005), and Turkey (2004).

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2) The potential candidates with an initiated procedure of adhesion to EU: Albania and Serbia. On the other hand, Bosnia, Montenegro, and Kosovo8 are not considered in this analysis because they are new countries and do not have sufficient data. Montenegro and Kosovo are not still recognized by several important countries. 3) Other countries where the Neighborhood Policy is being applied by the EU: Morocco, Algeria, Tunisia, Libya, Egypt, Israel, Jordan, Lebanon, Syria, Armenia, Azerbaijan, Georgia, Moldova, Ukraine, and Belarus. However, we will limit our analysis to the countries situated in the Balkans, Transcaucasia, and Middle East areas. To establish a ranking among the possible candidates to enter in the EU in a future, we have selected 12 criteria according to the requirements of Copenhagen (1993), Madrid (1995), and Helsinki (1999), besides other nonofficial requirements that affect the public opinion of the population of the EU, like it is the case of the religious question, the membership of the country or not to the NATO, the number of inhabitants of the country, or the establishment or not of the dead penalty. The criteria we use for this selection, coming from the United Nations Developed Program 2010, are: (1) The Human Development Index without components related with income (HDI) (2) Per capita annual GDP at power parity purchasing in thousand US dollars (YPPP) (3) Population in millions inhabitants (POP) (4) Percentage of Imports coming from EU (IMP) (5) Percentage of Exportations to the EU (EXP) (6) Female participation in labor (FEM) (7) Press freedom (Press) (8) Democracy degree (DEM) (9) Degree of human rights violated (HR) (10) Percentage of Christian religion (REL) (11) NATO membership degree (NATO) (12) Dead penalty adoption (DP). We will apply the multicriteria analysis to select possible candidates to EU at medium term, as well as the possible order of entrance in function of the grade of execution of the mentioned requirements. Many ordinal rankings have been proposed since 200 years. Borda (1781) is one of the first who examined the problem. His rule consists of ranking the alternatives according to the sum of ranks (see Tables 4 and 5). The Condorcet & Marquis de

0.928 0.916 0.805 0.803 0.798 0.794 0.789 0.788 0.787 0.775 0.769 0.763 0.755 0.742 0.729 0.716 0.710 0.679 0.657 0.627 0.594

40.02 28.20 4.86 13.03 18.54 7.34 10.79 5.27 6.85 14.53 8.62 12.29 5.31 9.15 7.96 6.69 3.17 13.13 5.89 4.75 4.35

YPPP

0.32 2.04 4.25 4.22 4.43 46.00 7.31 3.08 3.15 6.41 8.77 9.65 6.09 2.04 10.43 34.88 3.60 74.82 82.99 21.08 31.98

POP 53.9 35.8 20.6 35.1 62.6 41.3 17.0 36.1 62.0 48.7 35.3 21.4 5.9 59.5 68.1 54.3 31.6 34.4 31.9 18.0 57.8

IMP 75.7 26.3 24.5 11.3 59.3 24.8 0.0 42.8 81.5 79.1 59.2 43.1 31.8 50.7 73.2 49.9 32.0 43.3 37.0 26.6 59.0

EXP 81.7 61.1 59.8 24.1 58.9 62.3 50.5 68.6 55.5 25.1 66.3 68.1 24.7 50.4 27.7 38.2 53.4 26.9 24.4 22.0 28.7

FEM 2.0 23.8 18.8 15.4 17.2 22.0 15.5 31.1 21.8 64.5 53.5 59.5 31.9 8.8 61.5 49.6 33.8 38.3 51.4 78.0 41.0

Press

Multicriteria Data.

3 2 2 1 2 2 2 2 2 0 1 0 0 2 1 1 2 2 1 0 0

DEM

Source: International Monetary Fund 2010 and United Nations Development Program 2010.

Iceland Israel Georgia Lebanon Croatia Ukraine Serbia Armenia Albania Libya Azerbaijan Belarus Jordan Macedonia Tunisia Algeria Moldova Turkey Egypt Syria Morocco

HDI

Table 4. 0 3 3 3 1 3 1 3 2 3 2 3 4 2 2 3 3 3 3 4 3

HR 93.8 2.1 88.6 39.0 92.6 68.0 70.0 98.7 30.0 3.0 6.6 95.0 6.0 32.6 0.5 0.4 98.2 0.1 9.0 10.0 0.2

REL 3 0 2 0 3 2 1 1 3 0 1 1 0 2 0 0 1 3 0 0 0

NATO

1 0 1 0 1 1 1 1 1 0 1 0 0 1 0 0 1 1 0 0 0

DP

The European Expansion Toward Middle East 49

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

1 2 18 6 3 12 8 17 13 4 10 7 16 9 11 14 21 5 15 19 20

YPPP

Source: Author’s elaboration.

Iceland Israel Georgia Lebanon Croatia Ukraine Serbia Armenia Albania Libya Azerbaijan Belarus Jordan Macedonia Tunisia Algeria Moldova Turkey Egypt Syria Morocco

HDI

1 12 7 6 8 19 11 3 4 10 13 14 9 2 15 18 5 20 21 16 17

POP 7 11 18 13 2 9 20 10 3 8 12 17 21 4 1 6 16 14 15 19 5

IMP

Table 5. 3 15 20 16 5 13 21 12 1 2 7 11 18 6 4 9 17 10 14 19 8

EXP 1 6 7 20 8 5 11 2 9 17 4 3 18 12 15 13 10 16 19 21 14

FEM 1 9 6 3 5 8 4 10 7 20 17 18 11 2 19 15 12 13 16 21 14

Press 1 2 2 12 2 2 2 2 2 17 12 17 17 2 12 12 2 2 12 17 17

DEM

Borda Ordinal Criterion.

1 8 8 8 2 8 2 8 4 8 4 8 20 4 4 8 8 8 8 20 8

HR 4 17 6 9 5 8 7 1 11 16 14 3 15 10 18 19 2 21 13 12 20

REL 1 13 5 13 1 5 8 8 1 13 8 8 13 5 13 13 8 1 13 13 13

NATO

1 12 1 12 1 1 1 1 1 12 1 12 12 1 12 12 1 1 12 12 12

DP

50 FERNANDO BARREIRO-PEREIRA

The European Expansion Toward Middle East

51

(1785) rule is based on a pairwise comparison between all alternatives considered.9 Some other rules have been proposed where the score of each alternative naturally defines a weak order, such as the rules proposed by Copeland (1951) or Simpson (1969). Many ranking rules have been modeled as optimization problems. The compromise ranking is a linear order that optimizes a certain objective function. Arrow and Raynaud (1986) suggested that the compromise ranking should be a prudent order, that is, a compromise ranking such that the strongest opposition against this solution is minimal. Arrow and Raynaud propose a sequential procedure that is also based on some principles of the Condorcet rule. In order to rank the possible candidate countries to the EU in a future, we will apply in the first place a modified method of Borda, without weights in the selection criteria. The modification consists of assigning an inverse punctuation to which Borda applies, assigning to the winner of each criterion the punctuation of 1, continuing the assignment in upward order. The Borda winner in this case will be the alternative that obtains the smallest total punctuation, once made sum of the punctuations obtained in the 12 criteria. Really, Borda punctuates the approaches in descending order, giving zero points to the alternative that is in last place in each criterion, and the alternative with more high punctuation is the Borda winner in the general case. However, the 12 criteria that we consider are qualitatively heterogeneous, and therefore it would be convenient to value them with a weight. To avoid subjective valuations, we have preferred to calculate the weight that each criterion really has in the 27 countries that are already inside the EU. To carry out this valuation, we have established the order of execution of these criteria in the countries of the EU-27 and we have made a regression of this ranking on the 12 considered criteria. The estimated coefficients for each criterion are the weights10 that we will apply to the 12 approaches that we assume must be fulfilled in different degrees by the new candidate countries to enter in the Union. Using these weights, we have the Borda weighted ranking. However, some authors think ordination by Borda can only guarantee truly the selection of the first position. To obtain a concrete alternatives ranking, perhaps it is better to use the method of Condorcet. As mentioned above, the Condorcet rule is based on a pairwise comparison between all alternatives. For each pair, a concordance index is computed by counting how many criteria are in favor of each alternative. In this way, and following Matarazzo (1988), once eliminated the countries not belonging to the study area, a frequency matrix must be built (see Table 6), and

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

ISR(P)GE ISR(P)LB ISR(P)AZ ISR(P)TK GE(P)LB GE(P)SB GE(P)AZ GE(P)TK LB(P)SB SB(P)AL SB(P)AZ SB(P)MAC SB(P)TK AM(P)AZ AM(P)TK AL(P)AZ AL(P)MAC AL(P)TK MAC(P)TK AZ(P)TK

1 1 1 1



1 1 1 1









YPPP

IMP 1 1 1 1
1

1



1 1 1 1 1 1 1

POP



1 1
1 1 1 1
1
1 1
1
1 1 1 1 1


1

1





1 1 1 1 1

EXP 1 1
1 1 1
1


1 1 1 1
1 1 1 1

FEM

1 1

1 1 1 1 1
1 1 1 1
1 1


Press /2 /2
1 /2 1 /2

1 /2
1 1 1 1
1 /2 1 /2 1 /2 1 1 1

/2 1 1 1 /2 1 1 /2 1 1 /2
1/ 2 1 1 /2 1 /2 1 1 /2 1 1 /2 1/ 2 1 /2
1

1

HR

1

DEM

The Matrix of Preferences (P). NATO
1 /2

1 1 1

1 1 /2

1/ 2
1 1 1/ 2



REL


1 1 1 1 1
1 1 1 1 1 1 1
1 1 1


1 /2

1 1 /2 1 1 /2
1/ 2 1 /2 1 /2 1 /2 1/ 2 1 /2 1 /2 1 /2 1/ 2 1 /2 1 /2

DP 6 7.5 6 8 6.5 8 7 6.5 6 7 8 6 7 8 6.5 9 6.5 9.5 9 7.5

SUM

Source: Author’s elaboration. Note: (1) (P) reminds “preferable to.”; (2) 1/2 reminds “tie”; (3) Israel (ISR); Georgia (GE); Lebanon (LB); Serbia (SB); Armenia (AM); Albania (AL); Azerbaijan (AZ); FYR-Macedonia (MAC); Turkey (TK); (4) The preferences marked in bold face in the first and last columns complete atleast half of the all criteria.

IDH

Preferences

Table 6.

52 FERNANDO BARREIRO-PEREIRA

53

The European Expansion Toward Middle East

Table 7. ISR GE LB SB AM AL AZ MAC TK

The Condorcet Criterion Outranking Matrix.

ISR

GE

LB

SB

AM

AL

AZ

MAC

TK

0 6 4.5 6.5 8 8.5 6 8.5 4

6 0 5.5 4 7.5 7 5 7.5 5.5

7.5 6.5 0 6 8.5 8 6.5 9 6.5

5.5 8 6 0 6.5 5 4 6 5

4 4.5 3.5 5.5 0 7 4 8 5.5

3.5 5 4 7 5 0 3 5.5 2.5

6 7 5.5 8 8 9 0 9 4.5

3.5 4.5 3 6 4 6.5 3 0 3

8 6.5 5.5 7 6.5 9.5 7.5 9 0

Source: Author’s elaboration. Note: Numbers in bold face remind that the majority of criteria have been fulfilled.

also an outranking matrix (see Table 7), whose elements hold the constant sum property (aij 1 aji 5 number of criteria. In our case, they are 12). The pairs whose concordance index is higher than the 50 percent of criteria are selected (in our case p . 6), and using the transitivity property we can isolate a final Condorcet ranking. A weak point in the Condorcet method is the high probability of the presence of cycles (see Fig. 1), but their solution normally implies some rules of thumb to solve cycles. There exist two rules to solve cycles: (i) the Simpson (1969) rule: Consider alternative a in the outranking matrix. The Simpson score of alternative a is the minimum number in the file a of the outranking matrix excepting (aa), whose value is zero. (ii) The Copeland (1951) rule: Compare alternative a with every other alternative x. Score 1 1 if for a criteria a is preferred to x; score 21 if for a criteria x is preferred to a; and score 0 when a and x are equally preferred. Summing up those scores over all x yields the Copeland score of a. The alternative with the highest score is the Copeland winner (see Table 8). Comparing the results obtained by the four ordinal methods analyzed above, we can order the preferences to enter in the EU, according to the above-mentioned 12 specific criteria (see Table 9).

ECONOMIC AND POLITICAL SURVEY ON THE NEW POSSIBLE CANDIDATES Today in Turkey, while the agricultural segment is a major contributor to the economy, there is a new services sector of banking, transport, and

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FERNANDO BARREIRO-PEREIRA

Fig. 1. Cycles Related with the Condorcet Criterion. Source: Author’s elaboration. Notes: (1) Numbers between parentheses are the times that a country overcomes horizontally six in the outranking matrix. (2) Numbers enclosed into a square remind the corresponding sum in the preference matrix. (3) Arrows remind that a country is preferred to other, following the results of the outranking matrix.

communications. The agricultural sector produces tobacco, sugar beets, cotton, olives, pulse, grain, and citrus. The new industrial sector, which has export value, includes textiles, processing and packaging of food, transport equipment, electronic goods, mining of coal, chromites, copper, boron,

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The European Expansion Toward Middle East

Table 8.

The Copeland Rule.

ISR

GE

LB

SB

AM

AL

AZ

MAC

TK

Score

0 0 21 11 11 11 0 11 21

0 0 21 21 11 11 21 11 21

11 11 0 0 11 11 11 11 11

21 11 0 0 11 21 21 0 21

21 21 21 21 0 11 21 11 21

21 21 21 11 21 0 21 21 21

0 11 21 11 11 11 0 11 21

21 21 21 0 21 11 21 0 21

11 11 21 11 11 11 11 11 0

22 11 27 12 14 16 23 15 26

ISR GE LB SB AM AL AZ MAC TK

Source: Author’s elaboration.

Table 9. Borda AL (23) MAC (71) AM (82) GE (101) SB (102) ISR (109) AZ (113) LB (122) TK (129)

Ordinal Criteria Comparison and Final Ranking.

Borda Weighted

Condorcet

Copeland Rule

Ranking

AL (5.48) MAC (15.3) AM (17.9) GE (22.6) SB (23.0) ISR (25.2) AZ (27.7) TK (27.8) LB (32.1)

AL (7) MAC (6) AM (6) GE (4) SB (4) ISR (2) AZ (2) TK (1) LB (0)

AL (16) MAC (15) AM (14) SB (12) GE (11) ISR (22) AZ (23) TK (26) LB (27)

ALBANIA MACEDONIA ARMENIA GEORGIA SERBIA ISRAEL AZERBAIJAN TURKEY LEBANON

1 2 3 4 5 6 7 8 9

Source: Author’s elaboration.

iron, steel, petroleum, construction, and paper. Turkey has not petroleum but has capacity to refine it. Aside of all these commodities, the tourist sector is another flourishing revenue earner. Moreover, Turkey is now discouraged to entry in the EU due to the persistent delay in the final negotiations. Some countries belonging to the EU reject the Turkey candidacy. Among the causes for this rejection, we can situate its great population (74 million inhabitants), being 99 percent of them Muslims, and a very high population growth rate (1.197 percent). The reject causes that Turkey attempts now some agreements with other neighboring countries, and with Iran and Brazil to uranium treatment in the end 2010. With respect to the other possible candidate countries, their efforts and situation, advantages and inconveniences face to a future integration with the EU are the following.

56

FERNANDO BARREIRO-PEREIRA

The worldwide financial crisis affected strongly Iceland that was forced to request the adhesion to EU in July 2009 to obtain some financial stability. During 2010, it had a descent of the GDP of 6.5 percent, and had a rate of inflation of 8.5 percent. On the other hand, Croatia is currently carrying out economic and political reformations, and they are managing the existent tense relationships carefully with Serbia. As for the economic reformations, Croatia has made reforms in the agricultural sector, and a good management of the structural European funds has been made. On the political reformations, Croatia has fought against the corruption, and reformations in the justice system have been made. With respect to Israel, the country has a parliamentary democracy and an excellent economy, but its immigration policy and the great troubles with its neighboring Arab countries cause severe distort in its human rights policy, being today impossible the incorporation to the EU. Hence, we will not consider this country in our analysis. FYR-Macedonia is known for its financial stability. It is a parliamentary democracy. This is a very important aspect of this economy, although the educational infrastructure is not strong enough and there are not employment opportunities. That is because the cream of the talents of the nation is moving outside the country in search of jobs. At the end of 2010, the total population of the country was 2,045,800 of which 67 percent were Christian Orthodox and 30 percent were Muslims. Among this population, the major part is covered by the native Macedonians. Some other ethnic groups are Albanian, Gypsies, Serbs, Turks, and Greeks. Some secessionist movements exist in the Albanian community of the region of Ilirida. The Macedonian economy basically depends on Greece, Germany, Slovenia, and Italy, but there are a very high unemployment (35 percent in 2010) and underground economy (20 percent of GDP). The entrance of the Republic of Macedonia in NATO was vetoed by Greece. Yugoslav war took place in the country, affecting the economy. However, Macedonia gradually made up for that damage. The population of the Armenia Republic was 3.1 million in 2010, comprising 93 percent Armenians, and the remaining 7 percent Azeris, Russians, and other groups. It has been part of the Roman, Byzantine, Ottoman, and Russian empires. Armenia has great cultural and historical bonds with Europe in spite of being located geographically in South Caucasus. Armenia was the first country in adopting Christianity, in 301 AD, and 94 percent of Armenians are now Orthodox Christians. The country is highly urbanized with 67 percent of the residents living in cities or towns. In July 1995, Armenia held its first parliamentary elections as an

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57

independent country. The Republican Bloc won a decisive victory to claim the majority of seats. Since 1991, the economy has switched to small-scale farming away from the colossus agricultural complexes of the Soviet era. The service sector and small enterprises contribute highly to the economic growth of Armenia. The role of the IT industry and its development is important in the Armenian economy. Tourism could have a great potential in the future. The reforms carried out in the Armenian economy include sharpening competition through structural and institutional reforms, creating competitive conditions for economic activity and job creation, improving financial intermediation, fostering innovation, and integrating international services and factor markets. With regard to the economic and financial crisis, their impact in 2009 has produced a fall of 15 percent in GDP. In 2010, the per capita GDP at power parity purchasing was an estimated US$ 5,273. In fact, Armenia’s skilled workforce is considered an advantageous tool for the progress of the Armenian economy. While the agricultural sector has long-term needs for more investment and updated technology, the privatization of industry has been at a slower pace, although it is being given renewed emphasis by the current administration. The Armenian main exportation is the electricity, and the major project in the Armenian economy is now the construction of the pipeline to transport oil from Iran to Europe. From 1994, there is a cease-fire in Nagorno-Karabakh but the tensions continue being very high. In March 1997, Armenia governments reached a peaceful resolution for the Nagorno-Karabakh territorial conflict with Azerbaijan, but it remained unsolved despite several high-level talks. Armenia has stopped in 2010 some agreements with Turkey. It continues being dependent on Russia since Russia is its first investor. Armenia continues controlling the journalistic information, and in 2010 the manifestation rights are still little developed. Armenia maintains good relationships with all members of EU, especially with France and Greece. Opinion surveys carried out in 2007 indicate that 80 percent of the Armenians are in favor of a possible adhesion to EU. The population of Albania is mainly composed of the native people forming 95 percent of the population (3.1 million inhabitants in 2010). The remaining 5 percent consists of 3 percent of Greek population and 2 percent of the Gypsy, Serb, and Bulgarian population. The religions practiced in the country are Islam (70 percent), Orthodox Christianity (20 percent), and Roman Catholicism (10 percent). The political regime is parliamentary. The economy rebounded in 1995 after a severe depression in 1990. The government, installed in July 1997, has taken strong measures to restore public order and to revive economic activity and trade. In 1998,

58

FERNANDO BARREIRO-PEREIRA

Albania recovered the 8 percent in GDP growth of 1997 and pushed ahead by 7 percent in 1999, experiencing a further 7.8 percent growth in 2000. Currently, the government plans to boost energy imports too and improve the poor national road network. Albania is rich in deposits of high-grade chromium ores. The country has a mineral inventory dominated by crude oil, copper, nickel, iron, coal, phosphates, and natural gas. Albania entered in NATO in April 2008, and it is an official candidate to the entrance in the EU from June 2009. There exist movements that want the integration of Albania with the Albanian from Macedonia and the neighboring Kosovo, a new republic whose inhabitants are of Albanian origin. Some interviews carried out in this respect indicate that 62 percent of the population from Albania, 81 percent of the population from Kosovo, and 52 percent of the Albanian from Macedonia want their integration into an only country, i.e., Albania. Besides that, there exists other possible territorial conflict in Albania because Greece claims a part of the Albanian marine dominion. There are several national groups residing in Georgia, like the Georgians, Armenians, Russians, and Azerbaijanis. The population of Georgia in 2010 was 4.3 million. The religions that thrive within the country are Orthodox Christianity (88 percent), Islam (11 percent), and Judaism (0,1 percent). The economic growth of Georgia is basically due to the agricultural production and even to the tourism industry, which attracts tourists around the Black Sea coast. Citrus, tea, grapes, and hazelnut are cultivated across Georgia and it stabilizes the revenue growth within the country. The production of alcoholic and nonalcoholic beverages, metals, machinery, and chemicals add to the income earned by the state. The country suffices its needs through the goods imported from other nations like fuels, machinery, transport equipment, grain, and pharmaceuticals. Georgia exports manganese, copper, scrap metal, machinery, chemicals, fuel, citrus fruits, tea, and wine. Two important pipelines cross the country: Baku-Tiflis-Ceyhan and Baku-Tiflis-Erzerum (gas pipeline). Starting from 2007, the foreign direct investment fell in Georgia more than 80 percent. On the political side, Russia recognized in 2008 the independence for two regions currently belonging to Georgia, Abjasia and South Ossetia, and has installed a military base in each of them assuring their frontiers with Georgia. Arabic is the local dialect spoken in Lebanon, along with the presence of dialects like the French and the Armenian. English is even widely accepted within the region. The religious groups thriving here are Muslims (54 percent of the population), which include groups like the Chii Muslim who reside in huge numbers along with the Sunni Muslims. There are also Christians (41 percent) and Druze (5 percent). The population of Lebanon

The European Expansion Toward Middle East

59

in 2010 was 4.2 million. The Lebanese economy depends largely on the banking and tourism sector. Overseas exchange or capital movement is widely accepted, while the bank’s confidentiality is maintained. Lebanon has implemented a regulation for money discrimination within the region. Foreign assistances are boosted within the region. The government lays emphasis on privatization of the telecom and electricity industries. Lebanon enforced several reforms like reviving its financial structure, debt management, improving the private and public sectors, fiscal consolidation, tax reforms, and rationalizing expenditure. There was an agreement between Syria and Saudi Arabia to allow peaceful celebrations of the elections in Lebanon in 2009 and in 2010, but there exist a problem referred to the relationship among Lebanon, Syria, and the groups of Hezbollah, politically related with Iran. However, there is other recent agreement with Turkey, Syria, and Jordan to create a Shengen area. Religion and language are the distinguishing factors of ethnic groups in Serbia. They are traditionally Orthodox Christians (85 percent of the population) and Roman Catholics (6 percent), who speak Serbian although in different variants. Muslims (3 percent), also called Bosniaks, form a slight majority in the southwestern border. A statute of autonomy is now implanted in the region of Vojvodina. In 2009, the worldwide financial crisis has affected Serbia that has registered a descent of the GDP in 2.9 percent. Their foreign debt has increased during 2009 in a 8.3 percent with regard to 2008. In December 2009, Serbia requests the entrance in the EU. Azerbaijan is more populated than the other Transcaucasian states (8.7 million inhabitants in 2010). Most of the people stay in villages. The main religions that thrive within the country are Islam (93 percent) and Orthodox Christianity (5 percent). The Azerbaijan economy began to recover in 1995, with the introduction of new economic programs. All state-owned enterprises were converted into public sectors. In 2010, the per capita GDP touched US$ 8,620. Considering its extensive petroleum reserves, most of the foreign investments are now focused almost exclusively on the petroleum industry, and oil is 70 percent of the total exportations. In the same sense, in April 2010, Azerbaijan signed an agreement with Rumania and Georgia to build an oil pipeline that will unite the Caspian Sea with Hungary, probably not going across Turkey, due to the expensive toll fees. After having a discharge rate of economic growth (25 percent in 2007 and 15 percent in 2008), there has been a fall of 30 percent in the revenues coming from the export. Due to the production of petroleum, Azerbaijan registered in 2009 a growth rate of 3 percent. Azerbaijan has had an approach to Moscow due to the natural gas, but, however, any approach

60

FERNANDO BARREIRO-PEREIRA

to Armenia passes through the solution of the conflict of NagornoKarabakh. It is an authoritarian Republic and it has been enlarged indefinitely the period of permanency in the power for the president of the Republic, starting from 2009. There has been a deterioration of the human rights in Azerbaijan, as we can observe starting from the new imprisonments to journalists.

REAL ECONOMIC CONVERGENCE WITH EU-27 This section seeks to determine the speed of real convergence for the Turkish economy and the other seven11 new possible candidates toward a steady state identical to that of the 27-member Union. The concept of convergence is based on the principle that poor economies with steady-state low production levels per capita tend to grow more rapidly than wealthier economies. The first contributions to this debate came from Baumol (1986), who studied convergence among certain countries (Japan and Italy versus the United States and Canada), and DeLong (1988), Barro and Sala-i-Martı´ n (1992) analyzed convergence among the different states in the United States, whereas Barro (1991) and Mankiw, Romer, and Weil (1992) point at the importance of educational levels to explain divergence in terms of growth. When steady states vary from one economy to the next, the concept of convergence used is that of conditional convergence, being a more real concept. However, from Quah (1996), another concept of convergence emerges: Club convergence. This concept explains that the countries belonging to a group tend not only to one but also to a few steady states. In the case of the EU at 27 members, we detect five steady states, the highest of them attract the first 15 countries, following the structural HDI values. From this view point, the seven new possible candidate countries will be attracted by the fifth (the bottom) European steady state, where Bulgaria and Rumania are attracted. Formally, the starting point for analyzing real convergence is the neoclassical growth model, which we consider to be the only one able to predict the conditional convergence if the speed (β) at which any given economy converges toward its own steady state is inversely proportional to the time difference separating the current economy from its own steady state. According to Barro (1997), convergence speed is an indicator of the time spent by a country or region to achieve its own steady state. On the other hand, nonneoclassical or endogenous growth models are not able to predict the convergence12; for instance, Rebelo’s AK endogenous growth model predicts zero convergence speed,

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61

that is, no convergence at all. Due to heterogeneity and differences in development levels among the countries analyzed in the paper, it would be unwise to assume identical steady states for all, and consequently we resorted to the concept of conditional convergence. As we mentioned above, the best model to predict such convergence is the neoclassical growth model developed by Solow (1956) and Swan (1956), subsequently widened by Mankiw, Romer, and Weil (1992) through the introduction of the capital production factor, including human capital (H). The way these authors incorporated human capital into the equation was through an indicator (SH) that remains constant so that no increasing returns to scale are generated in the production function, which would in turn result in creating an endogenous growth model unable to predict convergence. The human capital indicator is related to the steady state in such a way that the interaction parameter13 is not necessarily related to the steady state, already linked to the human capital indicator. Our aim is to model the growth and convergence processes of any given economy endowed with exogenous technical progress, promoting the labor factor and neutral in the sense of Harrod, symbolized by the letter A, which we assume to grow externally at a constant rate, gA. To maintain the basic hypotheses for the neoclassical growth model, we need the production function to include globally constant returns to scale, nevertheless decreasing with respect to physical capital, which may be expressed as follows: y ¼ K α  H γ  ½A  L1
α
γ

ð1Þ

where y stands for production, L for labor factor, K for physical capital factor, and α and γ for two parameters such that α 1 γ 5 1. Expressing Eq. (1) in values per capita, we find that y Y ¼ ¼ K α  H γ  A1
α
γ  L
ðαþγÞ ð2Þ L Using logarithms and operating according to Mankiw, Romer, and Weil’s method (1992), we obtain the expression for the conditional convergence equation, which explains in turn the value for the real income per capita logarithm during a generic period t as a function of some determining factors of the steady state: ln Yt ¼ ½gA  t þ ð1
bÞlnA0  þ σlnðn þ 0:05Þ þ λ ln SK þ μ ln SH þ b ln Y0 ð3Þ In Eq. (3), SK and SH stand for certain levels of physical and human capital that reveal a steady state, staying constant in order to avoid the appearance

62

FERNANDO BARREIRO-PEREIRA

of increasing returns in these accumulative factors; SK and SH are ratios between final and initial amounts; t reflects the time lapse between the initial and final situation and the current one; A0 is the initial value for the coefficient of technical progress; n represents population growth rate; and Y0 stands for initial level of real income per capita. Once Eq. (3) has been regressed, convergence speed rate (β) is measured by estimator b for the initial income logarithm, since the relationship between them is b 5 e2βt. If coefficient β is greater than or equal to zero, then, given convergence, relatively poorer regions should grow faster than richer ones. If coefficient β takes on a negative value, it means that for the period analyzed the regions should experience a divergence process in their income per capita. The interaction parameter of the equation’s regression (3) is ½gA  t þ ð1
bÞln A0 . Data relative to different European countries have been gathered in the International Financial Statistics Yearbooks during the period 1999
2010, published in CD-Rom format by the International Monetary Fund, and the National Accounts Statistics published by the United Nations. For this paper, we chose as indicator of human capital the enrollment rate in high schools that takes into account the proportion of individuals with high school and university education. The indicator was obtained from the 2010 report on human development for the United Nations Development Program (UNDP). As for physical capital, we used the ratio between private investment and real income as a proxy for the frequency of use of the capital factor in the steady state. Following the above theoretical scheme, we proceeded to regress the convergence equation (3), after arranging it to introduce growth rate as endogenous variable, using panel techniques with data relative to the 27 countries making up of the EU today for the period 14 2000
2010, plus Island and Croatia , which will belong soon to EU, and each one new possible member. Results from several estimates provide the convergence speed rates between each country and EU-27 1 2, as shown in Table 10. According to the estimation results, Table 10 shows the existence of real conditional convergence between all countries and the EU, excepting Azerbaijan, because the coefficient of Natural logarithm of the ratio between Gross Fixed Capital Formation (LGFCF) and GDP is, in general, significant. The coefficient of LnYo reminds the speed of convergence (2β), and it is negative and significant for all countries, denoting real convergence for all countries. Solely in Azerbaijan, the convergence is less significant than in the other countries, but it is also significant at 10 percent. In the panel regression, the weight of each county has been weighted by population (National Logarithm of the country population [LPO]), but the

2 0.0011 (20.317) 0.00283 (0.71) 0.03738 (1.91) 2 0.0332 (2 5.17) 0.2448 (2.67) 0.0492 (0.37)

3.8724 (0.42) 0.2849 (0.59) 0.63 2.0115

20.0008 (20.255) 0.00325 (0.82) 0.04108 (2.16) 2 0.0351 (2 5.09) 0.2510 (2.88) 0.29836 (0.29)

3.6881 (0.45) 0.2077 (0.65) 0.61 2.0007

4.7710 (0.31) 0.3268 (0.56) 0.60 2.0026

2 0.0015 (2 0.438) 0.00312 (0.76) 0.02952 (1.52) 2 0.0317 (2 4.36) 0.2504 (2.40) 0.04847 (0.37)

OLS.AR1

Albania

1.1275 (0.89) 0.4793 (0.49) 0.57 2.0498

2 0.0007 (2 0.196) 0.00501 (1.09) 0.04393 (1.87) 2 0.0308 (2 4.28) 0.1856 (1.68) 2 0.08192 (2 0.63)

OLS.AR1

Georgia

2.8105 (0.59) 0.8031 (0.37) 0.61 2.0006

0.0003 (0.069) 0.00047 (0.06) 0.0563 (1.43) 2 0.0295 (2 1.96) 0.1634 (0.85)


VCM

Turkey

5.1786 (0.26) 0.8745 (0.34) 0.66 2.0515

2 0.0006 (2 0.130) 0.00045 (0.06) 0.0520 (1.29) 2 0.0293 (2 2.09) 0.1846 (1.00)


VCM

Lebanon

4.3694 (0.36) 0.4740 (0.49) 0.56 1.9950

2 0.0003 (2 0.086) 0.00262 (0.64) 0.05785 (3.01) 2 0.0277 (2 4.33) 0.1283 (1.58) 0.03585 (0.27)

OLS.AR1

Serbia

Regression of the Convergence Equation.

1.6565 (0.79) 2.1732 (0.14) 0.70 2.0697

2 0.0005 (2 0.091) 2 0.00227 (2 0.27) 0.036008 (0.84) 2 0.0262 (2 1.66) 0.2194 (0.99)


V.C.M.

Azerbaijan

3.9240 (0.42) 0.2093 (0.69) 0.60 2.0018

2 0.0009 (2 0.281) 0.00309 (0.76) 0.04047 (1.95) 2 0.0353 (2 4.77) 0.2556 (2.48) 0.03117 (0.23)

OLS.AR1

EU-29

Source: Author’s elaboration. Note: (1) Endogenous variable is economic growth rate. (2) All explanatory variables are in natural logarithms. (3) LPO: population; MATRI: enrolment in high school rate; LGFCF: ratio between private investment and real income; LnYo: natural logarithm of the initial per capita income. (4) VCM method: variance component model. (5) The corresponding speeds to convergence (βs) are measured by the coefficients to LnYo, which are in bold face.

OLS.AR1

OLS.AR1

Method: End:Growth Explanatory: LPO (t) MATRI (t) LGFCF (t) LnYo (2 β) (t) Constant (t) Rho (t) Tests Hausman (p-value) Lagrange. M. (p-value) R2-Adjust. DW

Armenia

Macedonia

2000
2010

Table 10.

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population growth rate has not been considered as explanatory variable like in Barro (1991), obtaining speeds of convergence more high than in Mankiw et al. (1992). In several cases, the autocorrelation has been corrected by assuming an autoregressive process in residuals (AR1). In general, the estimations have been made by ordinary least square (OLS) plain method, excepting for Turkey, Lebanon, and Azerbaijan, where the estimation method applied has been variance component model (VCM), due to the low value of the Hansman test and the high value of the lagrange multiplier. With respect to Turkey and the countries in the EU-29, the speed of convergence is β 5 1 0.0295, which reveals among other things that Turkey is affected by the current globalization process being felt as well in the whole of Europe, since the existence of convergence in real income per capita is one of the key symptoms of this process. It also reflects Turkish income per capita is nearing the EU’s average income in terms of purchasing power parity. Closing this gap will nevertheless take time: (1) Considering that today Turkey’s real income per capita is 28.6 percent that of the EU-25; (2) assuming that before the hypothetical accession of Turkey to the EU only two other candidates will have joined the Union by then (Bulgaria and Romania in 2007), which would imply, after Turkey’s accession, an 8.85 percent decrease in the EU’s average income per capita; (3) furthermore, assuming that such decrease in income per capita can be handled by the EU (the previous decrease, derived from the enlargement from 15 to 25 members, amounted to 8.55 percent); and (4) assuming that Turkey’s economic integration took place despite having barely one half (50 percent) of EU’s income per capita, then, according to Barro and

Table 11.

Comparison Between Convergence and Multicriteria Orders. Convergence Criterion

1 2 3 4 5 6 7 8

MACEDONIA ARMENIA ALBANIA GEORGIA TURKEY LEBANON SERBIA AZERBAIJAN

Source: Author’s elaboration.

Ordinal Multicriteria ALBANIA MACEDONIA ARMENIA GEORGIA SERBIA AZERBAIJAN TURKEY LEBANON

1 2 3 4 5 6 7 8

The European Expansion Toward Middle East

65

Sala-i-Martı´ n (1995), the time that Turkey would need to achieve 50 percent of the EU’s income per capita would be approximately: t¼

1  lnð2Þ  23:5 years β

ð4Þ

since 2000 in order to merely achieve the economic integration, and as long as current growth rates remain stable. In a similar form, we can recon the possible integration timing for the other countries. Therefore, from the results of Table 10, following strictly the real convergence criterion, the sequence of a possible integration into the EU for these new candidate countries is collected in Table 11.

FINDINGS The results shown in Table 11 indicate, from two different viewpoints, that before Turkey’s entrance in the EU, other four countries should enter: FYR-Macedonia, Albania, Armenia, and Georgia. But between the two first and the two last countries, Turkey is a bridge. Moreover, integration of Turkey into the EU is not an easy task. Asides from its precarious economy, when it comes to Europe, and despite the economic, social, and political reforms introduced with Europe in mind, there are still issues to be addressed. Among these, we find basically five categories needed to ensure a successful Turkish candidacy for integration into the Union: First, issues derived from present levels of macroeconomic data are still somewhat distant from average Union levels, although current efforts should be recognized. Above all, the fact of incorporating into the Union a country of 74 million inhabitants, mostly Muslim, will undoubtedly require a significant institutional adjustment on the part of the Union. On the other hand, and in connection with the statement above, stand issues resulting from incorporating into the Union for the very first time a formally secular state with a nevertheless Muslim majority, an issue that raises cultural and religious mistrust in the rest of Europe, as well as historical ambivalence in some eastern and central European countries; it is therefore not so much Turkey’s problem, but a EU that is mainly Christian, an entrance door to the Muslim world and to other cultures. It is also fear of the past. The third issue results from still unsolved border conflicts with Greece involving the Aegean islands and Cyprus. The fourth issue refers to yet another conflict to be solved, that is, the Kurdish minority, also present in Syria

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and Iraq. The fifth issue relates to Turkey’s geostrategic position bordering with one of the traditionally most conflictive regions in the world, the Middle East, which is one of the reasons behind Turkish NATO membership and having the largest army in the European scene (except for the Russian army). Furthermore, Turkey is targeted by non-European military powers. Nevertheless, not everything is negative because Turkey’s accession to the EU would reinforce the creation of the largest internal market in the world; contribute to reinforcing the idea of a strong European army; facilitate the establishment of new relationships between the West and the Muslim world; provide opportunities for further enlargement of the Union toward the East (maybe Georgia, Armenia, and Azerbaijan in the Caucasian area, and perhaps Lebanon in the proper Middle East); and finally solve some of the issues that are endemic in the Middle East and neighboring countries by improving Islamic perception of the EU.

NOTES 1. European Coal and Steel Community. 2. European Economic Community. 3. Gross domestic product. 4. Economic and Monetary Union. 5. Research and Development. 6. Organisation for Economic Co-operation and Development. 7. Former Yugoslavian Republic of Macedonia. 8. Still now, Bosnia and Kosovo do not initiate any procedure for the adhesion to European Union. 9. The Condorcet rule coincides with the Electra I method when all criteria have the same weight and there are not vetoes. 10. Estimated weights: IDH, 0.2044; YPPP, 0.164; POP, 0.1969; IMP, 0.2306; EXP, 0.2772; FEM, 0.2147; Press, 0.2058; DEM, 0.5948; HR, 0.2273; REL, 0.1807; NATO, 0.1595; and DP, 0.3467. 11. Apart from Turkey, the other new seven possible candidates considered are: Albania, FYR-Macedonia, Serbia, Armenia, Georgia, Azerbaijan and Lebanon. 12. Except for the endogenous growth model with technological dissemination, where technology is spread gradually at no cost. 13. The interaction parameter is defined as the regression constant in the convergence equation, which is the Eq. (3) inversely linking income per capita growth rate and initial income per capita (Y0). 14. The entrance of Croatia in the EU has been delayed still 2013, in part by Slovenian concerns over borders issues.

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REFERENCES Arrow, K. J., & Raynaud, H. (1986). Social choice and multicriterion decision making. Cambridge, MA: MIT Press. Barro, R. J. (1991). Economic growth in a cross section of countries. Quarterly Journal of Economic, 106(2), 407–443. Barro, R. J. (1997). Determinants of economic growth: A cross-country empirical study. Cambridge, MA: The MIT Press. Barro, R. J., & Sala-i-Martı´ n, X. (1992). Convergence. Journal of Political Economy, 100(2), 223–251. Barro, R. J., & Sala-i-Martı´ n, X. (1995). Economic growth. New York: McGraw-Hill. Baumol, W. (1986). Productivity growth, convergence, and welfare: What the long-run data show. American Economic Review, 76, 1072–1085. Borda, J.C. de. (1781). Memoire sur les e´lections au escrutin. In Histoire de l’Acade´mie Royale des Sciences, Paris. Condorcet, Marquis de. (1785). Essai sur l’aplication de l’analyse a` la probabilite´ des de´cisions rendues a` la probabilite´ des voix. De l’Imprimerie Royale, Paris. Copeland, A. H. (1951). A reasonable social welfare function. University of Michigan Ann Arbor, Department of Mathematics, Seminar on Application of Mathematics to the Social Sciences. Mimeographed notes. DeLong, J. (1988). Productivity growth, convergence, and welfare: Comment. American Economic Review, 78(5), 1138–1154. International Monetary Fund. (2010). International financial statistics yearbook. Issues 1999
2010, Washington, D.C., US: IMFS. Mankiw, N. G., Romer, D., & Weil, D. N. (1992). A contribution to the empirics of economic growth. Quarterly Journal of Economics, 107(May), 407–437. Matarazzo, B. (1988). Preference ranking global frequencies in multicriteria analysis (PRAGMA). European Journal of Operational Research, 36, 407–437. O’Rourke, K., & Williamson, G. (2000). When did globalization begin? NBER Working Paper No. 7632. National Bureau of Economic Research, Cambridge, MA. Quah, D. (1996). Empirics for economic growth and convergence. European Economic Review, 40, 1353–1375. Simpson, P. (1969). On defining areas of voter choice: Professor Tullock on stable voting. Quarterly Journal of Economics, 83, 478–490. Solow, R. M. (1956). A contribution to the theory of economic growth. The Quarterly Journal of Economics, 70(1), 65–94. Swan, T. W. (1956). Economic growth and capital accumulation. Economic Record, 32, 334–361. United Nations. (2000
2010). United Nations Development Program 2000
2010, Communications Development Incorporated, New York.

A FOUNDATIONAL MATHEMATICAL ACCOUNT OF A SPECIFIC COMPLEX SOCIAL REALITY: CONFLICT IN A MIDSUMMER NIGHT’S DREAM Gordon Burt ABSTRACT Mathematics is associated with abstraction, generality, and simplicity, whereas reality is associated with specificity and complexity. Because of this, it might be argued that the humanities disciplines are better than mathematics at providing accounts of the history of societies and the lives of individuals. The aim here is to counter this argument by presenting a mathematical account of a specific complex social reality. This is in accordance with recent appeals to peace scientists to engage with scholars in history and other humanities disciplines. Here, Shakespeare’s A Midsummer Night’s Dream is studied. The advantage of studying this piece is that the set of events is sufficiently complex to present a challenge to the modeler and yet sufficiently circumscribed to allow a reasonable coverage of the entire reality within the space of a paper.

Cooperation for a Peaceful and Sustainable World, Part 1 Contributions to Conflict Management, Peace Economics and Development, Volume 20, 69
91 Copyright r 2012 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1572-8323/doi:10.1108/S1572-8323(2012)0000020006

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The play is analyzed in terms of mathematical social science concepts. The analysis considers how people and groups participate in withingroup and between-group activities over space and time. The value and power relationships in the activities are analyzed and the following concepts are deployed: roles, rules, hierarchy, anarchy, social divisions, and inequality. Some of the activities involve movement through space-time, and the set of movements can give rise to encounters. These may or may not be planned, and so alternative histories are in play. The analysis then switches to a more detailed level, and dialogic expressions of power relationships are noted. Finally, the logical structure of beliefs and dialogue is analyzed using “dynamic social propositional calculus.”

INTRODUCTION One of the intellectual streams feeding into this conference can trace its origins back to the founding fathers of peace science, Walter Isard and David Singer. The last time I met David Singer was at the 2007 conference of the Peace Science Society in Columbia, South Carolina. He recalled the setting up of the society back in the early 1960s and how insistent Walter Isard had been that the society should be called the “Peace Science” society rather than simply the “Peace Research” society. Chatterji (2010, p. xiii) elaborates on this point when he observes in the foreword to his series on Conflict Management, Peace Economics, and Development that “the impetus of Peace Science has come mostly from mathematical economics.” Consistent with this approach, much of the recent book Conflict, Complexity and Mathematical Social Science (Burt, 2010) does indeed draw on mathematical economics. However, as the book’s title indicates, it also draws on mathematical approaches in the other social sciences. Needless to say the book covers only a small portion of this vast field. The emphasis is on a systematic development of the conceptual foundations. This type of foundational work is important but it can have the appearance of being very far removed from the complexity of social reality
a divide between theory and reality. The aim of this paper is to explore how this divide might be bridged by posing the question: Can there be a foundational mathematical account of a specific complex social reality? This aim is in the spirit of the views of some peace scientists who feel that some engagement across methodological boundaries might be fruitful. Levy (2008, p. 1) notes that “scholars

A Foundational Mathematical Account of a Specific Complex Social Reality

71

within different research communities have long worked in isolation from each other.” As an alternative to this isolation, he believes in “the utility of multi-method research.” Likewise, Stohl (2007, p. 263) advocates “drawing together the area specialists and historians with the quantitative and behavioural social scientists.” It was in this spirit that at various points in his book, Burt (2010) uses fragments of specific social realities in order to illustrate mathematical social science. Thus, Chapter 2, “Set Theory and Social Reality,” illustrates set theory using a nursery rhyme (p. 18), an account of an honor killing (p. 19), local history (p. 21), and England in the 14th century (history and literature, pp. 21
23). Chapter 3, “Mathematics, Logic, Artificial Intelligence, and Ordinary Language,” contains analysis of a letter to a newspaper (pp. 39
41) and a line from a poem (pp. 42
43). Chapter 9, “Models of Individual Choice,” opens with the soliloquy from Shakespeare’s Hamlet (p. 139). Finally, Chapter 10, “Mathematical Sociology,” contains accounts of his own life (pp. 163
164); the history of his family’s households (p. 165); and the religious conversions of William Wilberforce, the antislave campaigner (pp. 170
171). The aim here is to go beyond the use of a number of fragments of reality as illustrations of mathematical social science and now instead use mathematical social science to analyze an extended account of just one social reality. Here, a fictional social reality is studied, namely, that portrayed in Shakespeare’s A Midsummer Night’s Dream (1600; 1982). The advantage of studying this piece is that the set of events is sufficiently complex to present a challenge to the modeler and yet sufficiently circumscribed to allow a reasonable coverage of the entire reality within the space of a chapter. Because it is a fictional play, it is the sole account of the events and an exact record of what people said. The script for the play might be seen as providing a comprehensive “data set.” This particular play is well known and written by possibly the world’s greatest playwright, someone credited with great insight into the human condition. The play will be analyzed in terms of mathematical social science concepts. First, the general framework of any play will be represented in terms of set theory. The analysis then will consider how people and groups participate in within-group and between-group activities over space and time. The value and power relationships in the activities will be analyzed and the following concepts will be deployed: roles, rules, hierarchy, anarchy, social divisions, and inequality. Some of the activities involve movement through space-time, and the set of movements can give rise to encounters. These may or may not be planned, and so alternative histories are in play. The

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analysis will then switch to a more detailed level, and dialogic expressions of power relationships will be noted. Finally, the logical structure of beliefs and dialogue will be analyzed using “dynamic social propositional calculus.”

A MATHEMATICAL ACCOUNT OF A MIDSUMMER NIGHT’S DREAM We now consider Shakespeare’s comedy A Midsummer Night’s Dream (1600). Guiding the analysis is the following conceptual framework (Burt, 2010, pp. 178
179): Society consists of a set E of interacting entities. The set E consists of a set I of individuals and a set U of activity units . . . There is a set G of geographical locations and a relationship indicating the location of individuals and units. There is a set A of actions by entities which has as subsets: sole actions by an entity x, pairwise interactions between entities x and y, etc. There is a participation relationship indicating participation of individuals in units. The activity in a unit may follow an activity specification. The activity in a unit has space-time structure . . . a temporal structure either as a sequencing of events or as a timetabling of events. The activity in a unit may involve participants in a structure of role relationships. The activity within a unit may be governed by rules or by choice or some mix of these.

First of all, let us note that the general framework of any play can be regarded as an abstract mathematical object in the following way. There is a sequence of scenes s 5 fs1, s2, . . ., sng and a set Z of individual characters. For each scene j, there is a sequence of sets of characters participating on the stage, z j 5 fzj1, zj2, . . ., zjnjg. Note that zjk is a subset of Z. For each scene j and each on-stage set of individuals zjk, there is a sequence of actions by associated characters on the stage, a jk 5 fajk1, ajk2, . . ., ajknjkg and associated z jk 5 fzjk1, zjk2, . . ., zjknjkg. Also, there is a set X of places and a mapping f from scenes to places. In summary, a play is a quintuple of scenes, individuals, stage-participants, actions, and places with mappings between these objects: fs, Z, fz jg, fa jkg, fz jkg, Xg. These components are routinely presented in the script for the play: the dramatis personae, the sequence structure of acts and scenes, where the scenes take place, the indication of entrances and exits, and the sequence of actions by identified characters. In A Midsummer Night’s Dream, the actions are almost always speech actions by individual characters. All of this provides an initial illustration of Burt’s (2010, p. 13) point that “set

73

A Foundational Mathematical Account of a Specific Complex Social Reality

theory can provide a way of looking at the accounts of social reality in humanities disciplines such as history and literature.”

GROUP PARTICIPATION IN SCENES OVER SPACE AND TIME Applying the above framework to the play in more detail, our analysis starts by considering how people participate in activities over space and time. Rather than a discussion of individual characters, it is helpful at this stage to discuss groups of characters. The play has 11 scenes
each scene occurring at a certain time and in a certain place and involving the participation of certain groups of characters (see Table 1). Thus, scenes, places, times, and groups of characters have structures and relationships. The group structure of the characters is as follows. There are fairy characters (F) and human characters. There are three groups of human characters: the Duke of Athens, his associates, and Hermia’s father (A); the young lovers (Y); and a group of workmen (W). The frequency of group participation in the scenes is displayed in Table 2. Group F participates in 7 scenes, A in 3 scenes, Y in 6 scenes, and W in 5 scenes. Of the 11 scenes, 4 scenes involve the participation of just one group, 5 scenes involve the participation of two groups, 1 scene involves the participation of three groups, and just 1 scene involves the

Table 1.

Participation of Groups in Scenes, and Locations and Times.

1.1

1.2

2.1

2.2

2.3

3.1

3.2

4.1

4.2

5.1

5.2

A Y -




W

F




F
Y


F
Y


F

W

F
Y


F A Y W




W


A Y W

F




a d 1

w d 2

f n 3

f n 4

f n 5

f n 6

f n 7

f n, d 8

w d 9

a n 10

a n 11

Note: Scenes: 1.1, 1.2, etc. Groups: F, fairies; A, duke’s group; Y, young; W, workmen. Locations: f, a, and w associated with F, A, and W, respectively. Time of day: d and n refer to day and night, respectively. Time order: 1, 2, etc.

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GORDON BURT

Table 2. F A Y W

The Frequency of Group Participation in the Scenes. F

A

Y

W

[7]

1 [3]

4 3 [6]

2 2 2 [5]

Note: The number without bracket shows the number of scenes in which each pair of groups participates. The number within bracket shows the total number of scenes in which each group participates

participation of all four groups. Some pairs of groups participate together in the same scene more commonly than others, the frequency of occurrence being 4 for Y and F; 3 for Y and A; 2 for each of the pairing of W with the other three groups; and just 1 for A and F. In other words, Y commonly pairs with F and with A, but F almost never pairs with A
and W seldom pairs with any of the others. So, assuming that interaction reflects participation, most of the interaction occurs within the groups rather than between the groups. Also, some group interactions are more common than others. Finally, a closer analysis may reveal that interaction within those scenes that do have more than one group is still usually within groups rather than between groups. Now consider space and time. The scenes take place in three locations: a, a room in the palace; w, a room in the house of one of the workmen; and f, a wood, which the fairies frequent. Thus, locations are associated with groups: (a,A), (w,W ), and ( f,F ). Some scenes occur during the day, d, while others occur during the night, n. Times of day are also associated with groups. Humans operate more naturally during the day and in the town, whereas fairies operate during the night and more naturally in the wood: (d,A), (d,Y ), (d,W ), and (n,F ). Times of day are associated with locations (d,a), (d,w), and (n,f ). Combining these relationships, we have the triples (d,a,A), (d,w,W ), and (n,f,F ). The scenes occur in strict temporal order. The time of day alternates: d, n, d, n. And so the location alternates: a, f, a. (And two of the groups appear to alternate: A, F, A, F.) Each group has a trajectory through space-time as follows: The The The The

space-time trajectory space-time trajectory space-time trajectory space-time trajectory

of of of of

F is (3,f ), (4,f ), (5,f ), (6,f ), (7,f ),(8,f ), (11,a) A is (1,a), (8,f ), (10,a) Y is (1,a), (4,f), (5,f), (7,f), (8,f),(10,a) W is (2,w), (6,f), (8,f), (9,w), (10,a)

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A Foundational Mathematical Account of a Specific Complex Social Reality

When the space-time trajectories intersect, the joint participation affords the opportunity for interaction. The individuals in the four groups are as follows: Group F: Oberon (O) and Titania (T), king and queen of the fairies; Puck (P), Titania’s servants (T^); the child being quarreled over (C) Group A: Theseus (Th), Duke of Athens; Hippolyta (Hi), Queen of the Amazons; Philostrate (Ph), Egeus, father of Hermia (E) Group Y: Hermia (H), Lysander (L); Demetrius (D) and Helena (J) Group W: Quince (Q), Bottom (B), Flute (F), Snout (Sn), Snug (Sn), Starveling (St).

THE MAIN INTERNAL AND EXTERNAL ACTIVITIES OF EACH GROUP Having discussed the participation of each group in the scenes of the play, it is now time to identify the main activities of each group and the associated trajectory of (subactivity) states over the course of the play. Some of the activities are internal to the group while others are external, involving other groups (see Table 3). Note that Burt (2010, p. 163) uses the word “activity” in a very general way to refer to any set of events and actions, which has some sort of coherence: Thus, “life is a journey
a trajectory
through space and time participating in a complex structure of social activities.” For group F, the main activities are F1, the quarrel; F2, the interventions in group Y; F3, the interventions in group W; and F4, the final intervention in 5.2. Each of these activities can be thought of as nonstandard. In F1, Oberon and Titania, king and queen of the fairies, have had a quarrel. The trajectory of states is the quarrel (2.1), Oberon playing a trick on Titania (2.3), which involves Puck intervening in group W (2.3), Titania falling in Table 3. F A Y W

Involvement of the Groups in Internal and External Activities. F

A

Y

W

F1
Y3 W2

F4 A1 Y2, Y4 W3

F2, F4 A2, A3 Y1 W3

F2, F4 A3 Y4 W1

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GORDON BURT

love with Bottom (3.1, 4.1), the quarrel being resolved (4.1), Titania ceasing to love Bottom (4.1), and Titania and Oberon being reconciled, Oberon having obtained what he wanted (4.1). Note that activity F1 contains activity F3. The second activity F2, the intervention with group Y, is discussed later. In F4, the fairies confer a blessing on the three wedded couples. F1, F2 and F3 take place in the wood while F4 takes place in the palace. For group A, the main activities are A1 the wedding; A2 the judgment; and A3 the play. Activity A1 is the wedding of Theseus, Duke of Athens, and Hippolyta, Queen of the Amazons. A wedding is a standard cultural activity with a standard program of pre-wedding events, the wedding, and the post-wedding events. The events follow this plan: pre-wedding conversation in the palace (1.1); pre-wedding early morning excursion to the wood (4.1); and wedding night festivities (5.1). The second activity A2 involves intervention in group Y, in particular the judgment of who should marry Hermia (1.1, 4.1, 5.1), and is discussed later. Activity A3 involves intervention in group W and consists of inviting citizens to participate in the wedding festivities (1.1) and then watching and commenting on the resultant performance by group W (5.1). For group Y, the main activities are Y1 the development of their entangled relationships; Y2 the intervention from group A; Y3 the intervention from group F; and Y4 participation in the wedding festivities (5.1). This is discussed in more detail below. For group W, the main activities are W1&W3, the play (W1 preperformance and W3 performance), and W2, experiencing the intervention from group F. Activity W1&W3, putting on a play, is a standard cultural activity with a standard program of assembling the actors, handing out the script, assigning roles, learning the script, rehearsing, assembling, and performing. The events follow this plan (1.2 planning, 3.1 rehearsing, 4.2 assembling, and 5.1 performing). In activity W2, Bottom is given an ass’s head by the fairy Puck, which makes the rest of the group run away in fear (3.1), Bottom is doted on by Titania (3.1, 4.1), Bottom is returned to his normal self (4.1), and the group in the morning are relieved when Bottom appears (4.2).

THE VALUE RELATIONSHIPS IN THE ACTIVITIES Having discussed the main activities of each group and the associated trajectory of (subactivity) states, it is now time to identify the value

A Foundational Mathematical Account of a Specific Complex Social Reality

Table 4.

77

The Value Relationships in Each Group Activity Over Time.

Relation Elements

Reciprocated, Unreciprocated Love; Competition, Resentment

OC, TC TB OT, TO ThHi, HiTh HL, LH; JD, DH; HL, LJ; JD, DH; HL, LJ; JD, DJ; HL, LH; JD, DJ;

cOT(C) uTB [OT] [Th,Hi] [HL], uDH, uJD, cLD(H), rJH(D) uHL, uLJ, uDH, uJD, rHJ(L), rLD(J), rDL(H), rJH(D) uHL, uLJ, [JD] [HL], [JD]

relationships in the group activities and how these change over time. See Table 4. Consider first the general case of value relationships among a group of individuals. The basic relationship element involves an individual or group X placing a value v on an individual or group Y. The value v can be positive, negative, or zero. Here, we will use XY to denote that X places a positive value on Y, in particular, that X loves Y. In general, patterns of positive affect relationships among a group of individuals can give rise to both harmonies and conflicts. Consider the case where just two people are involved. If HL and LH, then there is the harmony of reciprocated love, which can be denoted by [LH]. If JD but not DJ, then there is the conflict of unreciprocated love, which can be denoted by uJD. Next, consider the case of three people. If LH and DH, then there is the conflict of competition for exclusive love, which can be denoted by cLD(H). If JD and DH, then there is the conflict of resentment rJH(D). Note that the situations that have been identified as conflicts are only conflicts if the participants place value on reciprocated love and exclusive love. In activity F1, the initial quarrel between Oberon (O) and Titania (T), king and queen of the fairies, a competitive relationship for the valued child C, cOT(C), is resolved, and the play ends with [OT]
prior to that Titania dotes on Bottom. In activity A1, there is the betrothal of Theseus (Th), Duke of Athens, and Hippolyta (Hi), queen of the Amazons, and [Th,Hi] continues throughout the play. In activity Y1, there are four successive states for their value relationships in the course of the play: In terms of pairs of reciprocated love, the play starts with one pair; then there are no pairs; then one pair again; and,

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GORDON BURT

finally, two pairs. Table 4 identifies the relation elements that define each of the four states and also notes the relation “compounds” of reciprocated and unreciprocated love; of competition and resentment. In activity Y1, a broadly cooperative spirit prevails. Overall, the play starts with harmony in groups A and W but conflict in groups F and Y. The play ends in harmony in all groups and in particular in four pairs of reciprocated love.

THE POWER RELATIONSHIPS IN THE ACTIVITIES Having discussed the value relationships in the group activities, it is now time to identify the power relationships in the group activities. Fig. 1 displays the hierarchy of power relationships between the groups. The exercise of power occurs in activities, and so Table 3 is relevant. In activities F2 and F3, group F influences the activities of groups Y and W without the awareness of these two groups and without the two groups having any influence over the activity of group F. Likewise in activity, F4 influences the activities of all three groups. In activity A2, group A influences the activities of group Y without group Y having any influence over the activity of group A. In activity A3, group A instigates activity W1 and judges activity W3. In activity Y4, group Y joins in the judgment of activity W. Power relationships can be dependent on space and time. To some extent, group F has power during the night, and human groups have power during the day. Some groups have their own space within which they have power but beyond which they do not, in other words, their own territory. Group F has power in the wood; group A has power in Athens but not beyond, and group W has power in their own homes. Groups tend to be F in f | A in a

Fig. 1.

| | | Y

| | | | | W in w

The Hierarchy of Territorial Power Relationships Between Groups.

A Foundational Mathematical Account of a Specific Complex Social Reality

79

found in their own territories: group F in 2.1 to 4.1; group A in 1.1 and 5.1; and group W in 1.2 and 4.2. A group X exposes itself to the power of another group Z when it is in the territory of Z: for example, group Y in the territory of group A in 1.1; group Y in the territory of group F in 2.2; group W in the territory of group F in 3.1; and group W in the territory of group A in 5.1. Power by X over Z may or may not be to the benefit of X and may or may not be to the benefit of Z. A group X may move out of the territory of group Z and into the territory of group Z* in order to escape the power of group Z, either being unaware of or valuing more the power of group Z* . Thus, each of groups Y and W separately moves out of Athens, the territory of A, in order to escape the power of A, to the wood at night, unaware of group F and its power. A group Z* can use its power to prevent a group X escaping: For example, B wants out of the wood, but T casts a spell that prevents B from doing so.

ROLES, RULES, VALUES, HIERARCHY, ANARCHY, SOCIAL DIVISIONS, AND INEQUALITY Full of vexation come I, with complaint Against my child, my daughter Hermia. (Egeus to Theseus, Duke of Athens, 1.1)

Some social activities are characterized by a culture in which there is an allocation of individuals to roles with rules. The rules specify a hierarchical allocation of power to the roles and have a consequently unequal distribution of benefits and an ideology that justifies the hierarchy and the inequality. Hierarchies and their specific actions may be accepted or challenged. It is worth noting that role allocation can reflect social divisions such as those of age, class, and gender. In some cultures, the father
daughter relationship grants superior power to the father. The father’s preference should override the daughter’s preference. Likewise, the state
family relationship grants superior power to the state. It may be that the state supports the father’s superior power
and furthermore does so with laws backed by a system of rewards and punishments. This is carried out by individuals occupying state roles. In the play, the culture in Athens is such that a daughter should respect her father’s wishes. One of the laws of Athens is that if a father consents to a suitor marrying his daughter, then the daughter must marry the

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suitor
if she refuses, then she is either put to death or sent to a nunnery. This law is enforced by the duke. However, in the wood outside Athens, people are concealed from Athenian rules. Farther removed from Athens is a place where Athenian law does not apply. The particular case in the play is that Lysander and Hermia want to marry. However, Hermia’s father wants her to marry Demetrius, as does Demetrius himself. Hermia’s father appeals to Theseus, Duke of Athens, who cites the law of Athens and says that Hermia must obey her father and marry Demetrius. The Duke makes a public announcement of the following plan: Hermia has four days to agree or else she will be put to death or sent to a nunnery. To avoid this plan from being implemented, Lysander and Hermia agree in private on the following plan: They will meet the following night in the wood, then run away to a place that is beyond the rule of Athens, and there they will marry. The game tree for Hermia is displayed in Fig. 1 and illustrates the point that “a game is a structure of actions chosen within the rules” (Burt, 2010, p. 181). See Fig. 2. Whereas Hermia’s action is a challenge to the hierarchy, other actions in the play by other characters reflect the acceptance of hierarchy and obedience with its commands. Attendants obey their rulers. There are several ruler
attendant relationships in the play: in group F, Oberon and his attendant Puck, and Titania and her attendants; in group A, Theseus and his attendants; and in group W, more informally Quince is the leader in group W, and the others obey his commands. Does the exercise of power produce social value? The previous paragraph identifies cases that might be referred to as a “contented hierarchy,” with value being produced for all participants, not only the ruler but also the attendants. The play also contains cases involving the detached use of asymmetric power to benefit all others. However, it also contains cases of the self-interested use of asymmetric power
and indeed the detached use of asymmetric power to harm all others.

| | | | | |

Hermia’s choice

Hermia’s choice

stay in Athens

marry Demetrius (-) | |

Duke’s action

not marry Demetrius

send H to nunnery (-) | |

run away

Fig. 2.

marry Lysander (+)

Game Tree for Hermia.

put H to death (-)

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In some situations, a ruler is detached in that their own interests are not involved in the situation
even though they have power to affect the situation. They may then decide to use it to provide benefit for all. (1) T uses power to benefit J against D’s current interest but creating new D interest. (2) T uses power to correct problems caused by earlier P intervention and to benefit group Y. (3) A uses power to benefit group Y. (4) Group F uses power to benefit groups A and Y. Alternatively they may decide to use their power to provide harm to all. (5) P uses power over Y to secure P’s interest in watching the ensuing conflict. (6) P uses power over B to enjoy watching the consternation among W. In other situations, rulers do have their own interests. They then have to decide whether or not to use their power to pursue their own self-interests. (7) Th, E, and D use power over H to promote DH despite not-HD and against LD. (8) O uses power over T to secure [OX] and to prevent [TX]. (9) T uses power over B to secure TB and to prevent B leaving. Some social activities are not characterized by a culture with clear roles and rules, and there is no clear power hierarchy. Such anarchy can sometimes be harmonious and sometimes conflictual. This is the case for group Y, harmonious by the end of 4.1 but conflictual up to that point. When conflict occurs between all members of the group in 3.2, there is no conflict resolution method other than brute force
with L and D ready to wield their swords and J running to escape the claws of H.

ACTIVITIES, MOVEMENTS, AND ENCOUNTERS
PLANNED AND UNPLANNED Tomorrow truly will I meet with thee. (Hermia to Lysander, 1.1) At the duke’s oak we meet. (Quince to group W, 1.2) Ill met by moonlight, proud Titania. (Oberon to Titania, 2.2)

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Value and power give rise to the game tree for Hermia’s activity and leads her to run away and meet Lysander in the wood (see Fig. 2). In general, some of the activities involve movement through space-time, and the set of movements can give rise to encounters. The movements may or may not be planned, and the encounters may or may not be planned. Indeed the participants in the encounter may be unaware of the encounter (they may be asleep, or they may not be able to see the other participants; for example, the humans are not able to see the fairies). The planners may be one or more of the participants or outside the group of participants. The aim of the plan is to satisfy some or all of the participants and planners, and the outcome may be of value to some or all of the participants and planners. Encounters may lead to new activities or the enhancement or the disruption or alteration of existing activities. Table 5 charts the encounters that occur in the play.

THE HISTORY OF GROUP Y AND ALTERNATIVE HISTORIES The trajectory of group Y is characterized by a succession of conflicting plans. It has been noted earlier that Hermia wants to marry Lysander, but her father wants her to marry Demetrius. Acting under Athenian law, Theseus says that Hermia must obey her father and marry Demetrius, or else she will be put to death or sent to a nunnery. (Note that this plan is not implemented.) To avoid this plan being implemented, Lysander and Hermia agree to run away and marry outside Athens. (Note that this plan is not implemented in full.) Lysander and Hermia tell Helena of their plan. Helena wants to marry Demetrius. Helena privately formulates her own plan: She will tell Demetrius who will formulate a plan to pursue Hermia into the wood but at the same time may be grateful to her, and so come to love her. (Note that the final part of this plan is not implemented.) All this happens in scene 1.1. In the initial implementation of Helena’s plan and Demetrius’ plan, the two arrive in the wood, Demetrius planning to slay Lysander. However, Demetrius is not at all grateful to Helena and rejects her. Oberon observes this and makes a plan to make Demetrius fall in love with Helena, telling

A Foundational Mathematical Account of a Specific Complex Social Reality

Table 5.

Planned and Unplanned Encounters.

Encounter Who

Plan When

Between-group encounters AY 1.1 YF 2.2 WF 2.2 AY 4.1 AY 5.1 AW 5.1 Within-group encounters W 1.2 F 2.1 W 3.1 A 5.1 Individual encounters LH,J 1.1 JD,LH later JD 2.2 OT 2.2 DJ,O 2.2 OT 2.3 LH 2.3 LP 2.3 LJ 2.3 BP 3.1 TB 3.1 DH,OP 3.2 D,LJ,OP 3.2 H,DLJ 3.2 LH,DJ 3.2

83

Who

Plan

Unforeseen by When

Who Being Unaware

E YF WF AY AY A,W

A1,Y1 A1,W1

4.1 1.1,1.2

W A

W1 A1

1.2 1.1

JD JD

JD1 JD1

1.1 1.1

O LH OP

LH1

2.2 1.1 2.2

OP

3.2

OP

3.2

LH,J LH D? OT DJ,O T L LJ BP TB DH,OP D,LJ H,DLJ LH,DJ

Puck to put the juice from a magic flower on the eyelids of Demetrius when he is asleep, who on awakening will fall in love with the first person he sees, namely, Helena. (Note that this plan is not implemented in full.) All this happens in scene 2.2. In the initial implementation of their plan, Lysander and Hermia arrive in the wood. Both fall asleep. In the initial implementation of Oberon’s plan, Puck has obtained the magic flower. He then sees Lysander asleep and, mistakenly believing him to the person Oberon referred to, puts the juice on Lysander’s eyelids. Meanwhile, Helena appears and wakes up Lysander who first seeing Helena falls in love with her, tells her so, and

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immediately states a plan (not implemented) to kill Demetrius, his plans for Hermia abandoned. Helena does not believe Lysander’s statements of love, interpreting his remarks as mocking her for her inability to win Demetrius’ love. All this happens in scene 2.3. Demetrius and Hermia appear together and this leads Oberon and Puck to realize their mistake. Demetrius falls asleep. Oberon develops a new plan. He will put the juice on Demetrius’ eyelids while Puck will bring Helena so that Demetrius will awaken, see Helena first and so fall in love with her. (Note that this plan is not implemented in full.) Oberon puts the juice on Demetrius’ eyelids. Lysander and Helena arrive. Demetrius wakes and sees Helena first, falls in love with her, and tells her so, his plans for Hermia abandoned. Helena does not believe Demetrius’ statements of love, interpreting his remarks as mocking her, the two men having colluded in order to mock her for her inability to win Demetrius’ love. Hermia appears and her exchanges with Lysander are presented in Table 10 below. At the end of scene 3.2, Puck arranges that Lysander and Hermia fall asleep next to one another, and that Demetrius and Helena fall asleep next to one another. He puts the juice on Lysander’s eyelids so that he will love Hermia on waking. In scene 4.1, the young lovers wake just as Theseus is appearing. They explain that they are in harmony, and so Theseus withdraws the threat and instead plans that all three couples are wedded together. This plan is fulfilled in scene 5.1. The “history” that occurred in the play led in the end to the approved harmonious pairings HL and JD in Athens. However, at various points, alternative histories were envisaged by the individuals. In 1.1, Athenian law offered Hermia either marry to Demetrius or being sent to a nunnery or put to death. Lysander envisaged unapproved pairing HL outside Athens. In 2.3, Demetrius envisaged killing Lysander and being with Hermia. In 3.2, Lysander envisaged killing Demetrius and being with Helena. In 3.2, Hermia sought to claw Helena’s eyes out. Lysander and Demetrius sought to kill each other (Table 6).

DIALOGIC MANIFESTATIONS OF POWER RELATIONSHIPS The analysis so far has been at an aggregate level, but the aggregate statements can be derived from a more detailed analysis. To demonstrate this,

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A Foundational Mathematical Account of a Specific Complex Social Reality

Table 6.

Alternative Histories and Their Outcome Social Values.

[LH] mDH H nunnery H dead L, D: one or both killed [LH] [DJ]

Table 7.

J

L

D

H

E

1 2 2

1 2 2 2 2 1

2 1 2 2 2 1

2 2 2 2 2 1

2 1 2 2 2 1

2 1

LH1 DA1 DA1 DA1 LH1, F2

Number of Speeches by Each Character in Each Scene.

Scene

Q

B

F

Sn

St

Sg

[all]

“Py”

“Th”

1.2 3.1 4.2

20 13 5

14 13 3

3 0 4

1 6 1

1 2 1

1 0 0

1 0 0

0 3 0

0 3 0

1.2 QBQBQBQBQBQB;QFQFQFQBQB;QSt;QSn;QSg;QBQ[all]BQBQBQBQB 5 QB6QF3QB2QSt1QSn1QSg1QB1Q[all]1B1QB4. 3.1 BQBQBSnStBQBSnStBSnBQSnBQBQSnBQ[QPQPTQTQTP]QBSnBQB 4.2 QStFQFQFSnFBQBQB 5.1 [the play] Note: The listing indicates the sequence of speakers.

the pattern of speeches is analyzed to provide evidence for the earlier statement that Quince is the leader of group W. A possible indicator of Quince’s leadership role is that both 1.2 and 4.2 are held in Quince’s house. Turning now to the dialogue, Table 7 presents the frequency of speeches by each individual in each scene. Between them, Q and B have more speeches than all the others put together
and Q has more speeches than B. The table also presents the sequence of speakers. All interactions are between Q and some other person in the group. It is Q that makes the shift from the interaction with one person to another. The nature of the interaction is that Q is assigning the roles in the play and in general providing instructions. Q also arranges the next meeting (for 3.1). Bottom (B) takes a secondary leading role for the group and the leading role in the play, which the group plans to perform.

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DYNAMIC SOCIAL PROPOSITIONAL CALCULUS
TIME, REALITY, BELIEF, SPEECH, AND SPEAKER Perhaps the most important elementary type of statement about the reality in the play is XY, “X loves Y.” The above discussion has repeatedly returned to it (see Table 4). It is this element that has driven much of the action by the main characters, and one of the main trajectories of the play has been the evolution of value relationships from conflict to harmony. The aim of this section is to show how propositional calculus can be extended to provide an analysis of the trajectory in the play of the set of propositions of the form XY. Burt (2010, pp. 42
44, 52
53) discusses mathematical logic. In the propositional calculus, a set of elementary propositions can take different possible truth values, giving rise to alternative possible worlds. For example, consider two propositions A and B. There are four possible combinations of truth values corresponding to four possible worlds. In any one world, there are two true propositions and two false propositions. A dynamic aspect can be introduced by supposing that the truth value of the propositions can change. A social aspect can be introduced by supposing that, in addition to reality, there are a set of individuals with beliefs about reality. For example, suppose that at one point in time propositions A and B are true and that there are four people, J, L, D, and H, who all believe that A and B are true. Now suppose that the reality changes and that both A and B are false
yet J continues to believe that both A and B are true; L believes that A is now false but B continues to be true; D believes that A continues to be true but B is now false; and H believes that both A and B are false. Thus, each of the four possible worlds has one person of the four who believes in that world. See Table 8. Table 8 can provide an account of the situation in 1.1 and the later situation in 2.3/3.2. Propositions A and B correspond to DH and LH, and propositions not-A and not-B correspond to DJ and LJ, respectively. Thus, in 1.1, all believe DH and LH, and indeed that is the case. In 3.2, J still believes DH and LH; L believes LJ and DH; and D believes LH and DJ. H initially believes DH and LH but in the end accepts LJ. The situation portrayed in Table 8 indicates total agreement in the initial situation and total disagreement in the later situation. The agreement matrices for the two situations are given in Table 9, each cell entry giving the number of propositions that each pair agrees the truth about (there are two propositions in total). Note that each person agrees with themselves!.

A Foundational Mathematical Account of a Specific Complex Social Reality

Table 8. Person

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Dynamic Social Propositional Calculus.

Initial Situation

Later Situation

Reality

A 5 1, B 5 1;

notA 5 0, notB 5 0

A 5 0, B 5 0;

notA 5 1, notB 5 1

Belief J L D H

A 5 1, B 5 1; A 5 1, B 5 1; A 5 1, B 5 1; A 5 1, B 5 1;

notA 5 0, notB 5 0 notA 5 0, notB 5 0 notA 5 0, notB 5 0 notA 5 0, notB 5 0

A 5 1, A 5 1, A 5 0, A 5 0,

notA 5 0, notA 5 0, notA 5 1, notA 5 1,

Table 9.

notB 5 0 notB 5 1 notB 5 0 notB 5 1

The Agreement Matrices, Initially and Later.

Initial Situation

J L D H

B 5 1; B 5 0; B 5 1; B 5 0;

Later Situation

J

L

D

H

J

L

D

H

2

2 2

2 2 2

2 2 2 2

2

1 2

1 0 2

0 1 1 2

Note: The number of propositions that each pair is in agreement about.

As well as having a belief, a person can speak a statement. There is reality R, believed propositions about reality B, and spoken propositions about reality S. A spoken statement by a person may or may not correspond to the person’s belief. The speaker knows which one is the case, whereas the listener does not know. If the spoken statement S contradicts the listener’s own belief B (so B 5 not-S), then a number of questions are prompted: Does S 5 B? If not, is S true or not? If S is true, how has the listener wrongly arrived at the belief not-S? If not-S is true, why has the speaker said S? Does the spoken statement S correspond to the speaker’s belief S? Is the spoken statement S contrary to the speaker’s belief S? Has the speaker misrepresented their belief by mistake or deliberately? Is the purpose of the spoken deliberate misrepresentation to gain value for the speaker at the expense of the listener? For example in 2.3, as a result of Puck’s machinations, the reality is LJ, L believes LJ, and L states LJ. This contradicts J’s belief that LH is true

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(and hence not-LJ). J has a strong belief that not-LJ is true. J might reason as follows. Why has L said LJ? L must know whether or not LJ is true. But LJ is not true. So L must have spoken LJ as a deliberate misrepresentation
with value for L at the expense of J. It may be that L is mocking J. Hence: J: Wherefore was I to this keen mockery born? When at your hands did I deserve this scorn? (2.3) J concludes in turn that L then D then H all mock her. L concludes that D mocks J. D concludes that L mocks J. H concludes that L and D mock J: L (to D): You are unkind, Demetrius; be not so;’ J (of H): Lo. She is one of this confederacy.’ H (to L): Sweet, do not scorn her so.’ D (to L): If she cannot entreat, I can compel.’ (3.2) While J continues to perceive mockery, H (reflecting a process possibly akin to the Bayesian updating of beliefs) changes her interpretation in response to L repeating LJ and not-LH. H finally concludes LJ and not-LH. She supposes that J enticed L away from her and so resents this. It takes 10 utterances by L before H finally concludes LJ and not-LH. The sequence of H’s responses to this suggests a steady decline in the probability of her belief LH. See Table 10. Fortunately, by the end of 4.1, Puck had applied his magic more benevolently, and Lysander marries Hermia in 5.1. Table 10.

Dynamic Social Propositional Calculus: Updating of Belief.

Lysander (L) “[love [for J]]” “the hate I bear thee (H)” “fair J”; “J, I love thee” “[stronger love for J]” “Ethiop [to H]”; “vile thing [to H]” “hated potion [to H]” “I hate her (H)” “I do hate thee and love J.”

Hermia (H) “Why unkindly did thou leave me so?” “What love could press Lysander from my side?” “You speak not as you think. It cannot be.” “Sweet, do not scorn her so.” “Lysander, whereto tends all this?” “Why are you grown so rude, . . . sweet love?” “Do you not jest?” “Hate me! Wherefore?” “You thief of love (to J).”

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DISCUSSION The aim of this paper has been to explore how the apparent divide between the simplicity of mathematical theory and the complexity of reality might be bridged by seeking to provide a foundational mathematical account of a specific complex social reality. For this purpose, a fictional social reality has been selected for study, namely, that portrayed in Shakespeare’s A Midsummer Night’s Dream. Previous sections have demonstrated that foundational mathematics can be used to model the reality and provide fair coverage of it
although it must be acknowledged that what has been covered has been the overarching patterns of the reality rather than the details. In part, this may reflect the comparative sizes of the texts, a rough estimate of the play being 30,000 words and this paper being 8,000 words. Very roughly, one might say that there is a factor of about four between the size of the “data set” and the size of the model. By comparison, the data set in a quantitative study might have 100 cases and 10 variables and thus have a total of 1,000 numbers while a descriptive model might have 10 means and standard deviations and 45 correlations, a total of 65 numbers
and so there is a factor of about 16 between the size of the “data set” and the size of the model. What the previous sections have provided has, indeed, been a mathematical account of the events in the play. This can be demonstrated by relating the preceding discussion to each of the chapters in Burt (2010). Burt (2010, chap. 1, p. 1) notes that “values are often in conflict and conflict often destroys value.” Table 4 charts how the value relationships in the play are characterized by unreciprocated love, competition, and resentment, and Table 6 indicates how these conflicts might have destroyed value. Burt (2010, chap. 2, pp. 3, 13) notes that “set theory provides a foundational approach to mathematics and mathematics provides an abstract way of looking at social reality.” Set theory has been used here first to describe the general framework of any play and subsequently in every section, at least implicitly, the tables and figures representing sets, functions, and relations. Burt (2010, chap. 3, pp. 3, 29) notes that “language is an important aspect of social reality and mathematics provides an abstract way of looking at all aspects of language.” This is done by applying mathematical logic, a component of which is the propositional calculus that forms the basis for the analysis in the previous section. Burt (2010, chap. 4, pp. 5, 51) discusses how social choice theory selects an outcome from the set of all possibilities and refers to the Condorcet majority principle. If in the initial situation Hermia, Lysander, Helena, and

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Demetrius had voted on their preferred set of pairings, then “HL and JD” would have had a majority of 3 to 1. Burt (2010, chap. 5, pp. 5, 67) notes that “in the absence of equal democratic power the outcome may be modelled as the weighted mean ideal.” Athens in the play was not a democracy but a dukedom with greater weight being attached to the preferences of Hermia’s father and the duke. Burt (2010, chap. 6, pp. 6, 87) focuses on “a specific ethical criterion, the utilitarian social welfare function.” Table 6 presents the alternative histories and their associated outcome social values. The actual history had an outcome with high social value, whereas the implementation of Athenian law to the initial situation would have produced a low social value. Burt (2010, chap. 7, pp. 7, 108
109, 114
122) discusses the trajectory of multiple interacting entities. There is an analogy between the “unplanned encounters” of gas molecules and the unplanned encounters between individuals presented in Table 5. Burt (2010, chap. 8, pp. 7, 135) asks “how does individual personality combine with situation characteristics to affect behaviour?” One of the sections above considered how a ruler might react in a situation in which they had power but no strong interest, one type of response being that of Puck who with his mischievous personality acted to create consternation in group W and also group Y. Burt (2010, chap. 9, pp. 8, 156
158) discusses dynamic models of individual choice and refers to a threshold model of procrastination in which choice is delayed as beliefs are updated as fresh evidence comes in. Table 10 portrays the process of delay in the face of growing evidence before Hermia finally accepts that Lysander no longer loves her. Burt (2010, chap. 10, pp. 8, 161) notes that “the life of an individual is a trajectory of participation and value in a structure of social activity units.” Tables 1, 3, and 4 present the trajectory of group participation, the group involvement in internal and external activities, and the trajectory of value relationships, respectively. Burt (2010, chap. 11, pp. 9, 181) notes that “a game is a structure of actions chosen within the rules . . . politics is the game of choosing the rules.” Fig. 2 presents the game tree of choices within the rules chosen by the state of Athens. Burt (2010, chap. 12, pp. 10, 193) suggests that “economics is about the production and consumption of social activity participation.” The choice of Lysander and Hermia to leave Athens and go elsewhere can be seen as a decision to stop “consuming” participation in one social activity and to start “consuming” participation in another social activity of higher value
in other words, one particular case of “economic” migration.

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Burt (2010, chap. 13, pp. 10, 211) notes that “the history of society and the lives of people are characterized by the speculative pursuit of value.” Table 5 presents the planned and unplanned encounters that result from just such a pursuit by the individuals in the play. Burt (2010, chap. 14, pp. 11, 221) suggests that the distribution of power, truth, and value reflects a system of interacting territorial units
states. The flight of Lysander and Hermia from Athens reflects the differential distribution of power and value between Athens and other regions. Burt (2010, chap. 15, pp. 12, 243) notes that “the mathematical science approach to the study of social affairs has been much debated” and in particular notes the debate between realism and constructivism, citing Steve Smith’s (2004) critique in his article “singing our world into existence.” Tables 8 and 9 show that this is precisely what the four young lovers do
so dynamic social propositional calculus can be thought of as a model of “singing our world into existence.” Where the analysis in the paper falls short is that it does not provide an integrated model that can generate the action in the play. It does not provide a dynamics in the sense envisaged in the Penrose quotation below. That perhaps can be a goal for future work. What sorts of laws shape the universe with all its contents? The answer provided by practically all successful physical theories, from the time of Galileo onwards, would be given in the form of a dynamics
that is, a specification of how a physical system will develop with time, given the physical state of the system at one particular time . . . how its state might develop from moment to moment, in accordance with some dynamical law. (Penrose, 2004, p. 686)

REFERENCES Burt, G. (2010). Conflict, complexity and mathematical social science. Bingley: Emerald Books. Chatterji, M. (2010). Foreword. In G. Burt (Ed.), Conflict, complexity and mathematical social science. Bingley: Emerald Group Publishing. Levy, J. S. (2008). Case studies: Types, designs, and logics of inference. Conflict Management and Peace Science, 25(1), 1–18. Penrose, R. (2004). The road to reality. A complete guide to the laws of the universe. London: Jonathan Cape. Shakespeare, W. (1600) A Midsummer Night’s Dream. In W. Shakespeare (1982), The Illustrated Stratford Shakespeare. London: Chancellor Press. Smith, S. (2004). Singing our world into existence: International relations theory and September 11. International Studies Quarterly, 48, 499–515. Stohl, M. (2007). Swamps, hot spots, Dick Cheney and the internationalization of terrorist campaigns. Conflict Management and Peace Science, 24(4), 257–264.

LANGUAGE AS A TOOL OF RECONCILIATION AND ETHNIC HARMONY: A CASE STUDY OF SRI LANKA Padma D. Jayaweera ABSTRACT This article focuses on an analysis of common understandings of the terms “conflict” and “conflict resolution,” giving examples of differing types of conflict. The article then brings to light specific examples from Sri Lanka of ethnic conflict, as a case study. It discusses how language itself should be seen as a human right, as language plays a huge part in empowering members of society and in their ability to contribute to issues of public concern by raising public awareness. Language, conflict resolution, and ethnic harmony are therefore inextricably linked.

Conflict resolution, reconciliation, and peace with ethnic harmony must be rooted in and respond to the subjective realities, shaping people’s perspectives and needs. In general, conflict consists of three main components: incompatibility, action, and actors, which demonstrates a social situation in which a minimum of two actors strive to acquire at the same moment in

Cooperation for a Peaceful and Sustainable World, Part 1 Contributions to Conflict Management, Peace Economics and Development, Volume 20, 93
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time an available set of scarce resources. This calls for an approach that addresses the relational aspects of conflict resolution and reconciliation as the central component of peace building with ethnic harmony. In this context, justice, dignity, equity, and cultural recognition, which are humanistic connectors, need to be embraced in sustaining peace and ethnic harmony (Storie, 2001, p. 12; Wallesteeen, 2007, p. 15). Since the end of the Cold War, the number of armed conflicts that have been occurring regionally and globally has increased massively, and intrastate as well as interstate conflicts constantly associated with ethnic factors have been a main element in many multiethnic states. Some of the reasons for these conflicts are inequitable distribution of resources, lack of mechanism for nonviolent conflict resolution, breakdown of communication, ignorance about the others leading to distortion and mistrust, etc. As a result, a worldwide trend of global insecurity has been developed, challenging the already existing intellectual concepts and perspectives pertaining to conflict resolution and peace with ethnic harmony. The diverse nature of these issues has been demonstrated in controlling the outcome complexities. Therefore, rights-based as well as integrated approaches with a wellbalanced system of decision-making have become significant to today’s societies (Keerawella, 2001, pp. 12
31, 61
62). These conflicts have many devastating effects: loss of life; constant fear and uncertainty; destruction of economic capacity and public infrastructure; undermining of public, private, and civil society organizations; and subsequent difficulties in attracting foreign and domestic investments, which substantially set back the national development trajectories of the countries affected. Sri Lanka has experienced these devastating effects during the past three decades (Weerathunga, 2010, p. 6) Ethnicity is not only a common or social identity for people; it explains a range of actions and conflicts. In this context, understanding conflict resolution in a new way has become increasingly significant in order to transform conflicts into more constructive relations between states, peoples, and groups, without repeating bitter war experiences (Rex, 1993; Wallesteen, 2007, pp. 185
186).

WHAT IS CONFLICT AND CONFLICT RESOLUTION? The term “conflict” can be applied to different kinds of situations that involve the divergence of interests, attitudes, and motives leading to a struggle to claim resources, power, and status. Conflicts can have different

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causes and also be at various stages of escalation and de-escalation. According to Kruglanki et al., the term “conflict” indicates an incompatibility of goals between parties (1993, p. 46). The dynamics of conflict consist of a sequence of action and reaction, which could be settled either by force or by coercive bargaining (Reychler & Patteuholz, 2001). Although conflict has led to destruction, it is also a driving force in human history that motivates for finding solutions to latent human problems, grievances, and peace building as well. When conflicts signal the problems, those should be addressed properly; otherwise, they may cause destructive sufferings to humankind. The sufferings caused by the different types of conflicts have been experienced by two-thirds of the countries today. Ethnicity has arisen since human existence and is constantly evolving in social interactions. On the other hand, ethnic identification indicates another’s identity as a threat to their security (Jeong, 1999, pp. 12
13). According to Gurr, there are four patterns of grievances involved in ethnic conflicts, viz., the demand for political autonomy, political rights, economic rights, social and cultural rights, and ethnic conflicts are very common in the modern world. Azar is of the opinion that in intransigent ethnic conflicts, the state is at the core of the disagreements among related parties, and state structures with other political norms form the root causes of the conflict similar to South Africa’s, Canada’s, and Sri Lanka’s (Ross & Rothem , 1999, p. 4). There are symmetric and asymmetric conflicts based on the nature of the parties involved in the conflict. When the conflict of interest is among similar parties, it is considered a symmetric conflict, and when conflict arises between dissimilar parties such as a majority and a minority, it is considered an asymmetric conflict, for example, ethnic conflict between majority Sinhalese and minority Tamils in Sri Lanka (Hugh Miall et al., 2003, p. 12). Conflict analysts such as Azar, Wallensteen, and Sollenberg have observed that the vast majority of the destructive conflicts have a long history in relation to racial, religious, ethnic, and cultural terms between different identity groups (Fisher, 1993, p. 81). In this context, adequately addressing the basic human needs including security, identity, recognition, participation, and equity, which are involved at the roots of the conflict, is imperative to obtain positive results in conflict resolution and the building up of peace, justice, and equality. In this scenario, increasing understanding and trust among the members of the conflicting groups is a decisive factor (Fisher, 1997, p. 8). The third-party intervention to identify issues to get rid of misunderstandings of each

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other’s goals, manage and analyze each party’s interests, and propose solutions and alternatives has been identified as a suitable strategy in conflict management (Burton, 1987). Professionals of the conflict resolution field have developed new ways of interactive conflict resolution, involving influential small groups engaged in destructive conflicts, in problem-solving discussions with a facilitation of impartial third-party social scientist practitioners. This endeavor should address basic human needs that promote peace, justice, and equality. Galtung has viewed conflict as a triangle, encompassing symmetric and asymmetric conflicts having contradiction, attitude, and behavior as vertices. Here, the contradiction involves incompatibility of goals between the @conflict parties (Hugh Miall et al., 2003, pp. 14
15). These viewpoints indicate that in a successful conflict resolution, dynamic changes to deescalate the conflict behavior, favorable changes in attitudes, and transforming the clashing interests positively are key elements that are at the core of the conflict structure. In the conflict resolution process, reconciliation and peace building are main components. Reconciliation requires active participation of individuals and parties involved in the conflict. Forgiving the past and moving toward a shared future are important elements in the reconciliation process, which involves not only the political and military leaders at the macro level but also the society as a whole. John Paul Lederach, a widely experienced researcher in this subject, is of the opinion that the reconciliation process takes place when and where truth, mercy, justice, and peace meet together. Acknowledgment, acceptance, apology, redress, and forgiveness are considered as dimensions. In the long journey toward reconciliation, a new culture of respect for human rights and human differences and a culture of peace need to be inculcated in the minds and hearts of the involved communities (Rigby, 2001, pp. 12
14). Most current theories of ethnic conflict are derivatives of other concerns. Although many conflict resolution theories are being focused on symmetric conflicts, asymmetric conflicts emerged from unbalanced power, and unsatisfied needs have become dominant (Hugh Miall et al., 2003; Storie, 2001, pp.12
30). In spite of having a universal model, a cluster of problem-solving approaches have emerged from a range of disciplines such as politics, anthropology, sociology, psychology, international relations, labor relations, and public planning. In conflict resolution exercise, some theorists consider the conflict transformation that involves long-term and deeper structural, cultural, and relational dimensions as the ultimate goal. Although male dominance can be observed in many conflict resolution and

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Fig. 1.

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Multi-Track Conflict Resolution. Source: Hugh Maill et al. (2003, p. 20).

peace-making exercises, mostly women are the silent victims of violent conflicts throughout the world. Therefore, involvement of women in conflict resolution and peace processes could be utilized to remove constraints and gain insights into the problem and find alternative ways of ending ethnic conflict (Hugh Miall et al., 2003; Lederach, 1995, 1996). Researcher John Paul Lederach is of the opinion that a certain degree of truth, mercy or forgiveness, justice, and peace need to be woven into the multidimensional reconciliation process that may take generations to reach the desired goals. He stresses the “Bottom-up Multi-Track Approach” in conflict resolution while recognizing the pyramid level of leadership in societies as demonstrated in Fig. 1. In this context, a new culture of respect for human rights and human differences and a culture of peace need to be inculcated in the minds and hearts of the involved communities in which language plays a pivotal role as the mode of communication (Lederach, 1996, 1997; Rigby, 2001, p. 13).

ROLE OF THE LANGUAGE IN CONFLICT RESOLUTION Language has been identified as a significant factor and a crucial feature of the ethnic identity of a community. Cumarathunga Munidasa, a great Sri Lankan scholar and a linguist, has said that “Language is the life blood

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of a nation. The power of a nation, its strength, stability and efficiency depend on the vitality and vigor of its language” (Department of Official Languages, 1992). According to the viewpoint of Professor Marc Cousineau from Canada, “Language is about culture. Language is about identity. So deny language is to deny who really you are” (Jayaweera, 2003). Common culture, language, and religion are key characteristics of an ethnicity. In creating personal and group identity as well as power relationships, language functions as a primary means. Moreover, UNESCO has declared May 21 as the World Day for Cultural Diversity for Dialogue and Development to commemorate the link between cultural diversity and development. It indicates its commitment to the fruitful diversity of cultures in a spirit of dialogue and openness in which language plays a pivotal role (Sameen, 2001). UN Resolution 56/262 recognizes that “Genuine Multilingualism promotes unity in diversity and international understanding as well as a means of promoting, projecting on preserving diversity of languages and cultures globally” (United Nations (UN), 2002). This policy statement indicates the importance of preserving the diversity of languages and cultures in order to promote unity and harmony at the global level. When the issue of participatory democratic governance surfaced, the concept of “language rights” occupied the forefront. Language rights are a part of human rights that contribute positively to improve the quality of life (Thamilmaran, 2001), According to the Human Rights Commission (2002), language rights can raise public awareness on an issue more effectively than other types of discourse, and empowering language rights can mobilize people more easily. The nexus between development and language is communication. Therefore, language plays a crucial role in development, being the common thread that links planning at the center of power with the people in any society. Herbert Kelmen of Harvard University is of the view that “Language is a uniquely powerful instrument in unifying a diverse population and in involving individuals and subgroups in the national system” (Benedetti & Beaudin, 2005, pp. 1
2). It is evident that the intimate link between the language and the human dignity plays a significant role in the survival of the state. In this scenario, language is the strongest weapon in developing mutual trust building as well as conflict resolution, leading to reconciliation and ethnic harmony (De Silva, 1993; Dharmadasa, 1996). In a multiethnic and multilingual setting, language plays a significant role in safeguarding and representing group interests. Therefore, attention, recognition, and allocation of resources by the government pertaining to language

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policy in fairness to ethnic minority groups in administration, judiciary, and education has much influence on the sociopolitical life of the people as language has a sentimental dimension with a high influence in the social life (De Silva, 1993; Dharmadasa, 1992; Jernudd & Das Guptha, 1971). Although experience has shown language as a powerful instrument in unifying a diverse population, under certain circumstances it was a main course of disintegration and internal conflict within a national system. Language conflicts take place not only in the developing countries, but also in the developed countries in the West, for example, Canada and Belgium, where language and ethnicity are intertwined (ibid.). In conflict resolution exercise, promotion of good communication and positive community relations through active civil society programs to win the hearts and minds of people are highly significant. Therefore, language plays a key role not only in the conflict resolution process but also in peace-building exercise (Hugh Miall et al., 2003, pp. 142
143). Furthermore, language plays a pivotal role in good governance as well, which has multiple dimensions with transparency, responsibility, accountability, participation, and responsiveness to the needs of people as key attributes (Warren, 1999, What is good governance? p. 3, 09/09/2005 http:// www.unescap.org/nuset/gg/governance.htm). In summary, language could be considered as an effective tool in the clearing of mistrust and building confidence with self-respect and recognition, which create a healthy environment for conflict resolution as well as bringing ethnic harmony and coexistence while strengthening good governance.

WHY IS SRI LANKA SELECTED AS A CASE STUDY? Sri Lanka is a developing country with a multiethnic, multireligious, and multilingual society, which was confronted with a three-decade-long ethnicbased conflict engulfed with cruel terrorism. A case study on Sri Lanka may shed some light on appropriate approaches in achieving peace, reconciliation, and ethnic harmony. Among the root causes of the ethnic-based conflict in the multilinguistic and multiethnic society of Sri Lanka, language plays a crucial role not only as a symbol of ethnic identity but also in building trust, respect, and cooperation among diverse communities. Therefore, an analytical study on the role of language as well as official language policy as a tool in promoting reconciliation, ethnic harmony, and

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building peace may not only bring about suitable guidelines to strengthen Sri Lanka’s nation-building efforts on a sustainable basis but also provide guiding principles to other countries affected by ethnic conflict while enriching the existing literature pertaining to the subject of conflict resolution. About Sri Lanka

Where Sri Lanka is Located

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Topography Sri Lanka is situated at the southern tip of India and is separated by the Polk Strait, 32 km. wide at its narrowest. It has a maximum length of 432 km. The land area of the island is 65, 610 square km, including the coastal Islands. Because of its location in the path of major sea routes, Sri Lanka is uniquely situated in the backdrop of the Indian subcontinent and within closest proximity to the international ocean routes that links Asia to Europe, having a strategic naval link between West Asia and Southeast Asia.

Climate Sri Lanka has a tropical climate with distinct dry and wet seasons. Mean annual temperature is 27 C. In the Central Highlands, the climate is significantly cooler. The island has two distinct climatic zones, Dry Zone and Wet Zone. History The country has an interesting and varied history. In the 5th century BC, the Sinhalese of Indo-Aryan settled from North India. Over the following

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centuries, invasions from Southern India were common, and the capital of the country was moved frequently. In 1505, the Portuguese came to trade and ruled the coastal regions until 1658 when they were ousted by the Dutch, who were also motivated by trade. In 1796, the Dutch were displaced by the British and ruled the country, except for the kingdom of Kandy. In 1815, the whole island came under British rule until 4 February 1948 when Sri Lanka (then called Ceylon) received independence.

Political Structure In 1972, Ceylon became a Republic, and its name was changed to Sri Lanka. In 1978, the Constitution was revised to provide government by an Executive President with a Cabinet of Ministers headed by a Prime Minister and a single house of Parliament. In 1987, nine Provincial Councils were established by the 13th Amendment to the Constitution with Powers and Functions with respect to subjects specified in the Provincial and Concurrent Lists. Sri Lanka has the oldest democracy in Asia that has maintained an unbroken tradition of democratic practices to date within a constitutional framework of a unitary state and with a universal franchise practiced without interruption since its introduction as far back as 1931 (Gunawardana, Geethanjana, 2010, June 24, p. 08).

Economy Primarily, Sri Lanka had been an agricultural country with a dual economy: on the one hand, a plantation economy based on tea, rubber, and coconut, and on the other hand, a subsistence economy, depending mainly on paddy cultivation. Since 1977, however, with the introduction of the new economic policy of greater market orientation reducing state involvement, the relative importance of agriculture has declined, and manufacturing and services have been performing relatively well. A recent feature has been the significant growth in textile and garment exports. Tourism and remittances from nationals working overseas together with net capital inflows have been contributing remarkably in a positive balance of payments. Economic reforms have been introduced to accelerate investment and economic growth with special attention to

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promote the rural economy aiming at employment generation. Sri Lanka, emerging from the three-decade-long conflict, is accelerating her growth rate from 6% to 8% as an outcome of the peace dividends (Amunugama, 12/08/2010, Daily News, p. 3). Language Background of Sri Lanka Although Sri Lanka is a small island, at least seven main languages are used by its people. Of these seven, three are living languages, viz., Sinhala, Tamil, and English, which are used in the activities performed in day-today life. There are four classical languages that are used particularly in connection with events of religious significance. Buddhists use the Pali Language, followers of the Islamic faith use the Arabic language, and Christians use the Latin language on a smaller scale. Since the British rule (1796
1948) and until 1956, English was the administrative language. When the socialist policy-oriented government came to power in 1956, the Sinhalese language, which is the mother tongue for the majority of the population, became the official language, resulting in ethnic unrest in the country. As a result, successive governments were compelled to take remedial measures to satisfy the ethnic minority. Consequently, in 1987, both Sinhalese and Tamil were declared official languages Official Languages Policy Until 1956, the official language of the country was English. In 1956, with the change of government, Sinhala became the sole official language. However, this policy created ethnic unrest in the country and minorities protested this policy. In 1987, with the 13 th Amendment to the Constitution, Sinhala and Tamil became official languages, and English became the link language. Demography Sri Lanka’s population was estimated at approximately 20 million in 2007. The population comprises 74% Sinhalese, 18% Tamils, 7% Moor, and 1% other minorities as depicted in the following pie chart.

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Literacy Rate As a result of the free education that commenced in 1945, the population has been highly educated. The literacy rate has increased to almost 90%, and there is a strong commitment to formal education.

Economic and Social Indicators (Macro)

Basic Indicators

Unit

Area Population Population (Growth) rate Life Expectancy at birth Infant mortality rate (2004) Gross school enrolment ratio (2003) Adult literacy rate (2004) Human development index (2004) Human poverty index (2004)

Sq. km % Years Per 1,000 live births % % Value Value

Source: Institute of Policy Studies, 2007, Appendix A

65,610 20 million 1.1 74.3 12.0 63.0 90.7 0.75 17.7

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EVOLUTION OF THE ETHNIC CONFLICT AND LANGUAGE ISSUE IN SRI LANKA Historical Background Most of the newly independent states, including Sri Lanka, which came into existence subsequent to World War II, have pluralistic societies consisting of multiethnic and multireligious populations. The three main ethnic groups of Sinhalese, Tamil, and Muslim communities along with others have been living harmoniously in Sri Lanka for a longer period. These communities are distinguished by ethnicity, language, and religion. Although the Tamils and Muslims use a similar language, they have different cultures and religions (De Votta, 2002). Some observers argue that the emergence of ethnonationalism was rooted during the British Colonial rule as result of ethnic representation into the system based on a divide-and-rule principle. People’s attitude toward the ethnic issue was also influenced by British constitutional principles; for example, the Colebrook
Cameron Commission appointed to do the first constitutional reform in 1833 consisted of three members from Sinhala, Tamil, and Muslim communities and another three members from Europeans. The divisions among the ethnic communities enabled the British to rule the country with minimum resistance. Since the 1920s, ethnic tensions had been occurring along with developing fear among Tamil politicians regarding the outnumbering of Tamils by the Sinhalese majority in a unitary state with no minority guarantees (De Votta, 2002, p. 85; Gunasekara, 2004, pp. 73
84). It can be observed that before independence, political activities were grown along ethnic lines instead of unifying ethnic groups. The successive governments that came into power after gaining independence in 1948 have failed to reconcile diverging ethnic interests, resulting in displeasure and disharmony among the minority groups. Although several attempts were taken by Sinhalese and Tamil political leaders to accommodate ethnic interests by way of a political agreement, the nonimplementation further aggravated ethnic discontent (Gunasekara, 2004, pp. 74
85). Ethnic Composition of Population and Its Geographical Dispersion In the 6th century BC, Sinhalese arrived in Sri Lanka from Northern India and settled mainly in what is presently called the North-Central,

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North-Western, and Southern provinces. Buddhism was introduced during the mid-3rd century BC, and a magnificent civilization was inspired by the ideals of Buddhism. The Sinhalese are the largest ethnic group in the country comprising 74% of the population in 1981 with 93% of them being Buddhists (Vittachi, 1958, pp. 11
15, Facts about Sri Lanka, http:// worldfacts.us/Sri-Lanka.htm, 22.09.2005, p. 1, Sri Lanka population, http://countrystudies.us/sri-lanka/37.htm, 22/09/2005). The North and the Eastern parts of the country have been occupied by the Tamils who use the Tamil language as their mother tongue. The Tamils are a people of the Dravidian segment from South India. The Tamil speakers in Sri Lanka consist of two groups, Sri Lankan Tamils and Indian Tamils, as they have different origins and relationships. The Sri Lankan Tamils have a distant past and are considered a native minority. More than 95% of the population in Jaffna Peninsula, 70% of the Batticaloa District, and a substantial component of the population in other Northern and Eastern districts comprise Sri Lankan Tamils. On the other hand, the Indian Tamils who came to Sri Lanka under British sponsorship to provide unskilled labor to the plantation sector comprise 5.5% of the population in 1981. They are living separately from other Tamil groups. However, their common religious beliefs, Tamil language, and culture have united each other. Caste groupings of the Tamils and a certain degree of religious differences have fragmented Tamils. As a consequence, the Tamil minority of Sri Lanka is distinctly separated from the Sinhalese majority through language, religion, and culture. Muslims consist of approximately 7% of the population in 1981 and practice the religion of Islam. The ancient inhabitants of Sri Lanka are called the Veddah community and live in small rural settlements in the Eastern highlands but are not considered as a separate ethnic group (Sri Lanka ethnic groups, http://countrystudies. us/sri-lanka/38.htm, 22/09/2005). Although, the Tamil population is dominant in the Northern and Eastern provinces, according to 1981 census, 47% of the Tamil-speaking population is dispersed in the areas of Sinhala dominance. The latest census of the Census and Statistics Department of Sri Lanka has revealed that almost 56.5% of the Tamil-speaking population lives in other areas other than the North and East. This trend is an outcome of the cumulative effects of economic and social factors pertaining to trade, employment, education, urbanization, earning livelihood, and better prospects (Official Languages Commission, 2002; Tambiah, 1991, p. 11). It can be observed that as a consequence of government-sponsored colonization schemes, mainly of the Sinhalese people in this region, a trend was developed for

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more Sinhalese members of parliament to be selected to represent the Tamil-dominated areas. This development caused unhappiness and anxiety among the Tamil leaders. Their agitation was from Sinhalese encroachment into Tamil territories through state-aided colonization schemes (Freks & Klem, 2004, pp. 228
230).

Impact of the Language Issue and Evolution of the Ethnic Conflict During the first two decades after gaining independence in 1948, Sri Lanka did not experience civil war as some parts of South and Southeast Asia did. Along with the Western parliamentary democracy, Sri Lanka inherited a uniform constitution, majoritarian democracy, centralized administration, and welfare-oriented policies. The political power captured by the majority Sinhalese elites after independence had been unsuccessful, especially in accommodating the diverse interests of different ethnic communities and the grievances of the Tamils, which led to further fragmentation of the polity (Keerawella, 2001, pp. 61
63). The 1956 election resulted in an adverse impact on the Tamil community due to Sinhala- only language policy advocated by the Mahajana Eksath Peramuna Party under the Sinhalese leaders who won the election. On the other hand, the Federal Party led by the Tamil politicians who promoted equal status for Tamil as an official language won 10 seats out of 14 candidates contested for predominantly Tamil areas (Vittachi, 1958). It can be observed that the language issue was one of the driving forces at the election as demonstrated by extremist results in the South as well as in the North of the country. Subsequently, the then Prime Minister introduced the Sinhala Only Act in 1956, making Sinhala as the only official language, which led to antiTamil riots. Since 1956, Sinhala became the administrative language of the central government while limiting employment opportunities for Tamils in the state sector, which disappointed their economic expectations. But the Sinhalese political leaders were little concerned over the negative impact of the Sinhala-only language policy on the Tamil-speaking community. This language policy that had overlooked the recognition of the Tamil language was one of the primary reasons for the Tamil’s allegiance to the state. As a consequence, Tamils strengthened their demand for regional autonomy for the Tamil-dominant Northern and Eastern provinces with a feeling that they have been socioeconomically marginalized by the Sinhalese-led government. This situation formed the basis to reach an agreement with

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the Tamil Federal Party leader for a pact that guaranteed official status for the Tamil language to be used for administrative purposes in the Northern and Eastern provinces. Due to the opposed activities of certain Tamil extremists, Buddhist monks, and Sinhalese leaders, the then Prime Minister was compelled to abrogate the pact in 1958. As a consequence, the outbreak of communal violence took place with terrifying disorder, which resulted in the killing, looting, and assaulting of the Tamil people, converting 12,000 Tamils to homeless refugees. A widespread fear of political, social, and economic insecurity was at the root of disorders in the country. As an outcome of these protests, the Tamil Special Provisions Act was passed in 1958, giving authority for the reasonable use of the Tamil language. It encompassed education in Tamil, corresponding with the government and local authorities in Tamil and competing for government service examinations for Tamils while maintaining Sinhala competence essential for promotions and permanency (Tambiah, 1991, p. 145; Vittachi, 1958, pp. 22
25). Although the successive governments took various steps to remedy the situation, as a result of strong objections from the Sinhalese nationals and Buddhist priests, attempts were not successful in maintaining ethnic harmony. During the periods of 1960
1965 and 1970
1977, the then Prime Minister Mrs. Bandaranayake adopted several policies: strict enforcement of the Sinhala Only Act, banning of Tamil language films and periodicals from India, and the introduction of higher education policies to accommodate the increasing number of Sinhalese students to universities, cumulatively marginalized and frustrated the Tamil-speaking minority (Forsythe, 1993, pp. 91
92; Neil De Votta, 2002, p. 89; Uyangoda, 2005, pp. 137
138). After its adoption in 1972, the Republican Constitution with its reaffirmation of centralization instead of federalism contributed to a further expansion of the Tamil homeland concept. Although Tamil was recognized as a national language by this constitution, Sinhala continued to be the sole official language. This situation made young Tamils radicalized, and they lost confidence in their political leaders for meaningful reforms and salvation (ibid.). In 1977, a new government led by the United National Party with an overwhelming majority and the enthusiastic backing of Tamils came into power. In 1978, a new constitution was introduced accommodating the same language policy but overlooked the strong Tamil demand for devolution. Subsequently, Tamil insurgency escalated, and in retaliation anti-Tamil riots by Sinhalese radicals were staged in 1977 and 1978. Militant Tamil youth groups launched a national liberation war with

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a target of secession. The situation of unrest among the Tamil community engulfed with strong protests compelled the then government in power to take remedial measures to pacify them. As a consequence, the Indo-Sri Lanka Accord of July 1987was signed with the Indian government in order to establish peace with the assistance of Indian Peace Keeping Forces. Subsequently, the 13th Amendment to the Constitution was introduced with provisions to establish a Provincial Council System devolving power and making Sinhala and Tamil both official languages. As a result, some Tamil political leaders moved away from the separate state demand except the mainly LTTE-led youth groups. Despite these policy measures, since the 1980s, the ethnic conflict on varying scales has been going amid peace negotiations and the cessation of hostilities, resulting in devastating damages to human and physical resources of the country (Department of Government Printing, 1978; Uyangoda, 2005, pp. 140
147).

Socioeconomic Impact of Official Language Policy and Protracted Ethnic Conflict of Sri Lanka The evolution of the ethnic conflict and the history of the official languages policy envisage a close link with a deeply rooted interdependence. The following statement highlights the impact of the official languages policy, which unleashed ethnic unrest and the development of an internal dimension of communalism. [W]hen Sinhala was made the official language, thus devaluing the Tamils to the status of official illiterates . . . It embodied measures ranging from “very open” to “subtle” means of accomplishing certain objectives, “standardization” used in determining university admissions had been the most open way in which the principle was applied. Thus reserved university places to Sinhala student at the expense of Tamil counterparts. In the process, it had guaranteed benefits to the majority community right down the lines . . . (Nithiyanandan, 1999, p. 58)

Furthermore, research has identified the language policy as the main source of ethnic unrest in Sri Lanka, which is confirmed by the United Nations Human Development Report-2004 as stated below: [I]t can become a divisive political issue as in Sri Lanka where, in place of English, Sinhala(spoken by the majority) made the only official language in 1956 despite the opposition of the Tamil majority, who wanted both Sinhala and Tamil recognized . . . . (United Nations, 2004, p. 60).

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The editorial published in the Daily News highlights the gravity of the language policy issue in relation to the present ethnic conflict. [I]t is important that programmes such as these are carried out because the step motherly treatment accorded to the Tamil language in the state sector proved an important factor in the sense of alienation from the State, Tamil citizens came to experience over the decades. Need we say that this too was a contributory factor towards the worsening of the conflict? (Daily News, 29/11/2005, p. 10)

It can be observed that the minority communities of Sri Lanka, especially the Tamils, have been subjected to a series of discriminatory measures originated from the Sinhala-only language policy, which cumulatively contributed to unleash communal riots at sporadic intervals. The Tamil language rights became the focal point of Tamil nationalism. In later years, several legislative enactments were introduced with provisions for the use of the Tamil language but failed to repair the damaged relationship between the two ethnic groups (Fernando, 2002, pp. 157
158; Wilson, 1988, p. 41). Another outcome of this situation of unrest had been the large-scale migration of Sri Lankan Tamils to other countries. The brain drain of Tamil elites contributed to tarnish the international image of Sri Lanka (Wickramasingha, 2001). The security of the people became an issue since the 1980s with the increasing violence of the ethnic conflict led by the LTTE. As a result, the government was compelled to incur a large sum of money for security purposes. The defense budget had been the highest, exceeding education and health, which are essential components of peoples’ lives, resulting in multiple effects on the entire socioeconomic fabric of the country. The social influence of this issue is hard to measure (Edirisuriya, 1999, pp. 236
237). This violent ethnic conflict has caused multidimensional effects on people’s lives while shattering the country’s future. Thousands of people lost their homes, property, and loved ones exceeding almost 50,000. Women and children have become vulnerable victims of the ethnic conflict, causing a severe psychological impact on them. In addition, the high level of government military expenditure, destruction caused to the economic and social infrastructure, damages to the public and private properties, the hindering of production of different sectors especially agriculture and fisheries, and the curtailing of tourism and foreign investment have been multiple effects of the ethnic conflict (Bandara, 1999, pp. 244
245). In summary, it can be observed that the adverse outcomes of the ethnic conflict encompass not only the slow and steady erosion of the national

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framework of governance and the rule of law but also the deep emotional and psychological pain and tension that affect the whole population of the country. Language as a Tool of Reconciliation, Ethnic Harmony, and Conflict Resolution in Sri Lanka The above analysis clearly illustrates how the language issue contributed to the evolution of the present protracted ethnic conflict. The history of the Sri Lankan ethnic conflict highlights the explosive character of the language issue, which is one of the violent components in the cultural identity of an ethnic group as well as an extremely sensitive issue. Therefore, it is unquestionable that in order to achieve a stable and a lasting solution to the ethnic conflict, the language issue needs to be addressed with high priority in the national agenda, based on a common national consciousness. Therefore, implementing the present official bilingual language policy effectively and maintaining linguistic equality in day-to-day administration, dispersing justice, and education is the key responsibility of the national government while directing the sub-national- and local-level system of governance. The field survey conducted through a questionnaire on the theme of “Language as a Tool of Reconciliation and Ethnic Harmony” among a randomly selected sample of senior public officers of the North and Eastern Provinces has revealed the following outcomes (see Table 1). Table 1.

Language as a Tool of Reconciliation and Ethnic Harmony. Topic

1 Language policy of the government has a relationship with the protracted ethnic conflict of Sri Lanka. 2 Negligence of the language right of the ethnic minority has been a root cause of the ethnic unrest in Sri Lanka. 3 Effective implementation of the present official language policy will positively contribute for the ethnic harmony, peace, and reconciliation in Sri Lanka.

Answer

Percentage (%)

Yes

100

Yes

90

Yes

1

Source: A sample survey done on “Language as a Tool of Reconciliation and Ethnic Harmony” among randomly selected senior Tamil public servants of the North and East Provinces, August/September, 2005.

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The findings of the sample survey and informal discussions with related parties on the said topic are summarized below:  The language of a citizen is one of the basic fundamental and underlying factors that decide her/his ethnicity.  The introduction of the Sinhala Only Act in 1956 is a root cause for the prolonged.  ethnic conflict.  The nonimplementation of the bilingual language policy has denied equal rights for the minority, which contributed finally to the ethnic conflict.  Inadequate provision of necessary human and physical resources for the effective implementation of the language policy.  Nonprovision of adequate facilities in the school curriculum for bilingual study to promote ethnic harmony.  Language rights of different ethnic groups should be protected for trust building.  Language-based standardization for university admission was the root cause for the conflict among youths during 1970
1977.  The language policy of the government has never been implemented to fulfill the needs of the minority.  As language is one of the many factors behind the ethnic unrest in Sri Lanka, the effective implementation of the present official (bilingual) language policy will contribute positively to resolving the problem into a certain extent.  No remedial mechanism is available in the constitution for the lapses made by public institutions toward implementation of the official language policy.  Equal opportunities should be given to the language of ethnic groups in keeping with fundamental rights.  Public officers and public institutions do not adhere to the official language policy implementation; there is no effective monitoring mechanism, adequate incentives, or promotional opportunities for acquiring language skills. In summary, the survey results confirm the positive effectiveness of the proper implementation of the present official bilingual language policy and the sensitiveness of each language in sustaining reconciliation, ethnic harmony, and peace.

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CONCLUSIONS The protracted ethnic conflict in Sri Lanka, engulfed with brutal terrorism, had caused destructive suffering during the last three decades, not only to the entire socioeconomic and cultural fabric of the country but also to the whole multiethnic populace. The grievances of this ethnic crisis involved demands for political autonomy, economic rights, and social and cultural rights in which the language issue has been a root cause. Similar to South Africa, Canada, and India, in Sri Lanka too the state is at the core of the disagreement among related parties of the conflict, which demonstrates asymmetric characteristics. In keeping with conflict resolution, professionals such as Azar, Wallensteen, and Sollenberg addressing basic human needs, especially the security, identity, recognition, participation, and equity, are imperative in conflict management and building up peace, justice, and equality. In this context, safeguarding the language rights of the minority comes to the forefront. Because language is part of the ethnic being and a vital element in the genetic continuity of an ethnic group, it is the medium of transmission of their culture and heritage to successive generations. The outcome of the sample survey done on “Official Languages Policy Implementation”, informal and formal discussions, workshops and seminars pertaining to the language policy implementation had with the national, sub-national and local-level senior public officers, while serving as the Commissioner of Official Languages have highlighted that linguistic duality is an inescapable fact in sustaining ethnic harmony in multi-ethnic and multi-lingual Sri Lankan society. Therefore, implementing the present official bilingual language policy effectively will have multiple effects in bringing about justice and harmony among the Tamil-speaking ethnic minority groups. A new culture of respect for human rights, especially language rights, needs to be inculcated in the minds and hearts of the entire community because language plays a key role in disseminating information among involved parties and sustaining the spirits of good governance. In analyzing the evolution of ethnic conflict of Sri Lanka, it can be clearly observed that the language issue had been the deep-rooted core cause that developed multiple unfavorable effects of a high-sensitive nature, leading to a protracted ethnic conflict. The political leadership of successive governments overlooked safeguarding the minority rights and allowed the problem to reach a vulnerable level, despite the attempts of several political leaders to do justice for the minority groups, realizing the gravity of the

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problem. However, to satisfy the frustrated Tamil community, the successive governments introduced precautionary legal measures at various stages, leading to an official bilingual language policy in 1987 along with the institutional development. In contrast, the poor implementation process disappointed the minority ethnic groups, which promoted steady growth of militancy among Tamil youth. There had been hardly any instance of a public officer being taken to task for the violation of minority language rights. The most sensitive language issue needs to be addressed in the proper manner with high political commitment. The successful experiences of Canada, India, and Switzerland in relation to the language issue in a multilingual and multiethnic society are good examples for Sri Lanka. Moreover, Sri Lanka can learn a lot from the Constitutional Assembly Process of South Africa, which was open, participatory, transparent, and inclusive. Although the strict implementation of the official language policy is stated in the Policy Statement of the present government, comprehensive administrative machinery supported by an attractive language incentive scheme with a continuous monitoring system under a strong political leadership is sine qua non. Simultaneously, the education policy needs to be adjusted to prepare younger generations for the linguistic duality and “cross-cultural integration.” To achieve these broad objectives, administrative infrastructure facilities with adequate human and physical resources should be provided under a strong political leadership to implement the official bilingual languages policy effectively in fairness to ethnic minority groups. Although, under the guidance of the present President of Sri Lanka, several policy measures have been introduced in view of establishing a bilingual public service, their implementation is in slow motion. As a result, the real impact of them, to benefit the Tamil-speaking minorities, has not taken place properly. As you are aware, we in Sri Lanka, have now begun to reap the dividends of peace with the ending of a three-decade-old terrorist conflict more than a year ago. Within the past year, among many other achievements, the government has resettled more than 90% of the internally displaced people, continued to rebuild basic infrastructure in the conflict-affected areas with priority, rehabilitated the former child combatants and reunited them with their families, established a Commission on Lessons Learnt and Reconciliation on the principles of accountability to search for the truth as to what caused the prolonged conflict and identify ways to prevent such

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conflicts in the future, and accelerated the country’s economic growth, thereby vastly improving the economic, social , civil, and political conditions of all Sri Lankans. There cannot be development without peace and sustainable peace without development. Peace is the most important issue today when political, economic, and social factors are concerned not only for one country but also for the whole world. Moreover, mutual understanding and respect for language, religion, and cultural belongings of each ethnic group should be promoted and inculcated in the minds and hearts of the different communities in a sustainable manner through “cross-cultural perspectives” from childhood for the noble objectives of peace, reconciliation, and ethnic harmony. The present President of Sri Lanka, who is the hero in defeating the most ruthless terrorism, has laid down a foundation for the country’s nationalistic bonds based on common identity and ideals under the motto “Unity in Diversity.” This common identity of “All are Sri Lankans” with no division on an ethnic basis has been promoted under the slogan “A thousand friends and zero enemies” in order to prevent potential conflicts and tensions due to various differences. In conclusion, I would like to mention a few gems of wisdom taken from the sermons of famous religious leaders: The Holy Prophet’s encouragement as mentioned in the Holy Quran to take into consideration views and suggestions of every one before arriving at a decision or effectuate a solution to any problem. Lord Buddha’s similar advice to the Lichchavi princes has highlighted the need to peacefully meet, discuss, decide, and disperse whenever a matter of conflict has to be solved. He has further emphasized “Hatred never ceases by hatred, only by compassion and kindness,” which is a universal doctrine to sustain peace everywhere.

THE ALCHEMY OF GLOBAL EMISSIONS TRADING SCHEME (GETS): SPECULATION AND REGULATION Partha Gangopadhyay ABSTRACT We develop an interactive framework to model speculation (over regulation) and regulation (of speculation) in a greenhouse gas (GHG) permits market. In our proposed model, big traders engage in speculation by strategically withholding and releasing permits to influence the temporal path of permit prices in order to maximize their profits. The national government/regulator has an incentive to stabilize permit prices by suitably manipulating stocks of permits. Thus, the GHG permits market can typically be characterized by circular interdependence in which big traders will be “gaming” the regulator to generate profits: the state of the market affects speculative behavior of traders that in turn impacts on government’s behavior, which in turn impacts on the state of the market. The interactive framework explores the gaming between speculators and a regulator, or government, to shed crucial insights on the nature of equilibrium in possible global emissions trading schemes (GETS). By so doing, we are able to unravel potential pitfalls of any global trading

Cooperation for a Peaceful and Sustainable World, Part 1 Contributions to Conflict Management, Peace Economics and Development, Volume 20, 117
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system in pollution permits for arresting global warming. Once policy makers are aware of these pitfalls, for example, a “culture of speculation” as opposed to a culture of safety, they can devise a suitable mechanism to bypass these potential pitfalls.

INTRODUCTION Despite the stalemate in the climate talks in Copenhagen in 2009, challenges pertaining to climate change and global warming still represent serious and collective threats to modern civilization.1 Once the initial heat over the debate on the short-run and anthropogenic impacts of global greenhouse gas (hereafter GHG) on the global climate is over, new studies now increasingly highlight the possibility that global warming can pose serious long-term threats to humans as one half of our earth will possibly be unfit for humans due to unabated global warming by the year 2300 (see Sherwood & Huber, 2010). It is desired and expected that stakeholders and policy makers across the globe will reconsider the drafting of global and collective strategies in order to combat serious and adverse consequences of climate change. In this context, the pricing of carbon, and other GHG, will play an important role in arresting the rising global temperature. The goal of the chapter is to establish serious drawbacks of the traditional emissions trading scheme in the global context, which is usually sought as a means to pricing carbon and other GHGs. Once policy makers are aware of these potential pitfalls, it is likely that an appropriate mechanism can be developed to bypass the pitfalls that can significantly lessen the efficacy of an emissions trading system (ETS). The global GHG emissions trading system (GETS) represents a possible market-based instrument in pricing GHG and has been widely mooted as an effective and efficient means of reducing global warming. The only supranational precursor to the GHG ETS is the European Union’s (EU) ETS in carbon dioxide initiated in 2005 as a trial, which concluded in 2007. The second trial currently under progress will expire in 2012. It is the first multinational cap-and-trade system for carbon dioxide emissions, and our modelling will hence be rooted in the problems and prospects of carbon trading in a multi-country framework. The EU trading system can be extended to any GHG emissions, yet there can be serious problems with volatility in the price of permits that can adversely impinge on national and regional economies.2

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It is now well understood that the initial assessment of the cap-andtrade model of global carbon pricing, being led by Hartley (1997), had some drawbacks. As examples, the initial research did not fully take into account the precise consequences of international adjustment, cross-border transfers of wealth, capital flight, and exchange rate volatility, which are associated with the cap-and-trade model of any GETS (see McKibbin & Wilcoxen, 1997a). It is also a serious concern how to incentivize national governments to undertake adequate monitoring of carbon emissions since the cost of monitoring is local while the benefits are global in nature (see Barrett, 1994). More importantly, an allocation of initial pollution permits has asymmetrical economic effects on member nations, and different permit allocation schemes have differential distributional effects in terms of (net) economic benefits and abatement outcomes
see the early work of Rose, Stevens, Edmonds, and Wise (1998) and Cramton and Kerr (2002). As a consequence, economists have vigorously debated the precise role of efficiency and fairness in devising a global trading scheme that can induce nations to enter a stable global warming treaty (Eyckmans & Tulkens, 2003; Finus, Altamirano-Cabrera, & van Ierland, 2004; Hoel, 1992). The existence and stability of a global treaty still pose a serious challenge (see Altamirano-Cabrera & Finus, 2006). In this chapter we sidestep all the above economic issues and, instead, focus upon two elements that went missing in the existing economic literature on climate change.3 First and foremost, from the EU experience with trading in carbon permits and also from the price crashes of the carbon permits since the Copenhagen summit in December 2009, we know that the quantity cap can create significant price volatility in the market for tradable carbon permits. Second, we posit that “rational” agents would have an incentive to respond to the price volatility to further their self-interests. In this chapter we consider two types of agents and model their interactions to explain the equilibrium outcome in a trading system of GHG permits. First, we consider traders who participate in speculation to make profits from price volatility and also from government’s responses to smooth price volatility. Second, we consider governments, or regulators, who attempt to stabilize price volatility. We develop an interactive model to explore the gaming between speculators and governments, or regulators, to shed crucial insights on the nature of equilibrium in the market for tradable permits. The upshot of the above is that governments/regulators will have an “incentive” to influence the prices of carbon permits to stabilize business uncertainty driven by price fluctuations in the tradable permits

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market. The price fluctuations in tradable permits will also incentivize traders to engage in speculative activities and thereby will be “gaming” regulators. The chapter develops an analytical model to examine the mutual feedback between purchases and sales of permits by speculators and regulators. By so doing, the chapter advances a new type of potential problem with the market for tradable permits. The plan of the chapter is as follows: we take stock of the EU experience in carbon pricing to develop a generic and comprehensive model in section “A Generic Model of Speculation in Carbon Permits” of speculation over regulation of permit prices. Section “A Simplified Model of Pollution Permits” introduces a series of simplifications to make qualitative assessments of a permit market under regulation and speculation. Details of the gaming are provided in the second to fourth sections. The third section characterizes the solution to the speculation game over regulation, and we provide qualitative explanations of the main lessons in the fourth section. The fifth section seeks to provide a link between our findings in the general context of climate change initiatives and also explains the precise contribution of our results in the overall context of “rational speculation.” The sixth section concludes.

THE BASIC MODEL An Outline The European Commission issued a green paper in March 2000 to highlight the importance of understanding the basic mechanics of a multinational cap-and-trade approach to price GHG and, especially, carbon. A specific implementing Directive came into being in October 2001 to initiate a carbon emission trading scheme as a learning exercise of great significance.4 The Directive was heatedly debated in the parliaments of the 27-member nations (25 initially), which was formally approved by the EU Council of Ministers in July 2003 and became a framework in October 2003. Important legislative and regulatory measures were undertaken by member nations to make the framework a binding legal entity through what is called a transposition process. The linchpin of the trial EU ETS system, which has a great significance for the global system, is its decentralized framework of operation with a federal structure embedded in it.5 Even in the context of the EU, the

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decentralized system has problems as highlighted by Kruger, Oates, and Pizer (2007): “all of the decentralized aspects of the EU ETS are problematic.” Therefore, it is virtually impossible to implement a centralized mechanism for the global system due to the political jurisdictions of national governments and the multinational character of the global system. Our focus therefore is the decentralized mechanism of the trial period of the EU ETS system. An important dimension of the EU ETS system is its temporal structure: there is effectively full banking or borrowing of carbon dioxides allowances within a multi year planning horizon. From the EU ETS we know that carbon permits, or allowances, are issued annually, but can be utilized in any year during the predetermined trading period. For simplicity and tractability of the model, we construct the planning horizon consisting of three Dates (0, t, and t 1 1): in Date 0, a typical national government acquires the overall carbon cap and determines its sectoral allocation through a two-tier negotiation, or bargaining, process that is not examined in this chapter. Thus in Date 0, national governments acquire carbon allowances and allocate them among potential users. In Date t, new allowances are issued and a national government can acquire further allocations. Finally in Date t 1 1, allowances must be surrendered for the preceding Date. The time structure allows a period ahead borrowing of allowances by potential users. We only consider the economic decision-making of one national government, or regulator, and ignore the interdependence in the choices of multiple regulators in this chapter. In Date 0, a national government/regulator distributes allowances among actual traders. Thu in Date 0, the available stock of permits is Y. The supply in Date 1 equals the old Date 0 stock (Y) minus permits (S) withheld by traders for future use. The national government/regulator buys stocks of permits in Date t from traders to build its stock for Date t 1 1. The regulator sells the stock in Date t 1 1 and also engages in imports of permits from overseas both in Date t and Date t 1 1 if the need arises. Thus, we have two types of agents in a national market
namely, local traders of carbon permits and the regulator. Before making any further progress in our analysis, we must answer two related questions: first and foremost, should national governments have an incentive to influence the permit prices? Second, can they influence the permit prices? In order to answer the first question, we will need to examine the consequence of a decentralized mechanism for allocating allowances and also to consider the volatility of permit prices. It is important to note that the initial allocation of allowances will have a strong influence on a

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national economy and any national government seldom will be happy with any allocation. Even in the trial run of the EU ETS, serious disagreements prevailed among member states over the initial allocation of the caps
despite the fact that the allocation was only meant for a trial period of 2005
2007 and covered only a handful of sectors along with a host of fallback options known as the Linking Directive that accorded carbon credits for certified emissions reductions (CERs).6 During the allocation process for the trial period, United Kingdom and Germany brought technical lawsuits concerning whether United Kingdom could revise its total after approval by the Commission and whether Germany could make ex post adjustments to its allocation to facilities in covered sectors. For the current allocation process of the EU (2008
2012), nine member states, all of the initial East European accession countries except Slovenia, have seriously challenged the Commission’s significant reduction in the emission caps. In their early and pioneering work, McKibbin and Wilcoxen (1997a, 1997b) and Cramton and Kerr (2002) fully anticipated the importance of the initial allocation of caps that can impinge on the incentives of national governments in implementing abatement projects and undertaking appropriate monitoring activities.7 The other important lesson from the trial period and also from various emission trading schemes at national levels is that the price of the carbon permits shows a remarkable volatility.8 As argued in the introduction, we know that the volatility in carbon prices can seriously influence the relevance of the emission trading mechanism: lower prices of carbon can seriously harm incentives of polluters to adopt adequate abatement measures. It is also widely recognized that there are adverse economic consequences of soaring prices of carbon permits, and economists are fully aware of the precise economic consequences of price cap uncertainty and quantity cap uncertainty (see Kopp, Morgenstern, & Pizer, 1997; McKibbin & Wilcoxen, 1997a, 1997b). Thus, national governments in a decentralized mechanism will have an incentive to influence the carbon price to their desired targets since the experience of the EU shows that the decentralized mechanism of cap-andtrade has worked as a set of virtually independent 27 trading systems based on national boundaries. Now the crucial question is whether a national regulator can influence the local price of carbon. The answer is affirmative if the global system tends to get segmented and traders have divergent price expectations. The possibility of market segmentation and divergent price expectations are critically hinged upon the inertia in the flow of information and differential access of traders to different registries at different national locations. In other words, a spatial distribution of prices

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is expected to gain momentum if a single price fails to emerge in all markets simultaneously. The emergence of a spatial price distribution of carbon prices is a double-edged sword. First, a spatial price distribution will prompt speculative activities by traders. Second, a spatial price distribution will incentivize and empower national governments to influence local prices of carbon. The source of a spatial price distribution is not the cap, which is known right from the beginning, but expected aggregate emissions and their spatial distribution, which will determine the spatial distribution of demand for allowances. It is often argued that the spatial price distribution should quickly converge on a single price, and this is true if information flows are good and all agents have quick access to information and also to registries in order to undertake trades in carbon allowances. Even in the context of the EU ETS, one can notice how the price formation was initially hindered due to the east European nations in the expanded EU. The initial price spike in the allowance was triggered by an institutionally driven imbalance in the presence of buyers and sellers in the EUA market. Companies with installations that were short allowances and needed to cover their emissions were disproportionately present in Western Europe, and the companies that held long positions were located in Eastern Europe. More importantly, companies with long positions displayed a tremendous inertia to engage in market transactions of their allowances, and exactly the opposite was observed among companies with short positions. An important source of the problem was that many companies with long positions were small firms who were disinclined to trade in the market. Many of them were located in Eastern Europe with little access to registries to participate in the delivery of allowances. What is important is that the European system could overcome the cleavage between East and West Europe over time, and a single price also emerged within a reasonable time frame. However, in a global system, fraught with a huge dose of heterogeneity in institutions and levels of efficacy of the market mechanism, it is unlikely that the spatial distribution of prices will quickly converge on a single price. In the absence of the law of one price, the multinational mechanism will be split up into independent segments that will trigger speculation by traders and price tampering by regulators in their own segments.

A Generic Model of Speculation in Carbon Permits Ignoring Date 0, there are two Dates t and t 1 1, and speculators have an initial stock of carbon permits Y, and St is the stock of speculators at Date

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t, and Gt is the government stock at Date t. The demand function for permits at Date t 1 1 is given by: Qtþ1 ¼ DðPtþ1 Þ

ð1aÞ

Assuming the availability of permits at Date t 1 1 as Vt11, the equilibrium is given by the balance between demand and supply since the game ends at Date t 1 1: Qtþ1 ¼ DðPtþ1 Þ ¼ Vtþ1

ð1bÞ

The equilibrium price (Pt11)E at Date t 1 1 is given by: ðPtþ1 ÞE ¼ D
1 ðVtþ1 Þ

ð1cÞ

where D21 is the inverse image of the demand function and Vt11 is given by: Vtþ1 ¼ St þ Gt þ Htþ1

ð1dÞ

where St, Gt are the old stocks while Ht11 is the new stock, Htþ1 ¼ HðPtþ1 Þ such that H 0 . 0

ð1eÞ

We define the equilibrium schedule as the following: ðPtþ1 ÞE ¼ ΨððPtþ1 ÞE Þ

ð1fÞ

The profit function of the speculator is given by: LS ¼ ðPtþ1 ÞE St þ ðPt ÞE ðY
St Þ

ð1gÞ

The market price of permits at Date t is assumed to be the Nash
Cournot price (Pt)E that is determined by the interaction between speculators and the regulator. The first order condition to maximize profits gives us:
E @PE @ΠS @Pt ¼ PEt
PEtþ1 þ ð1hÞ St þ tþ1 ðY
St Þ ¼ 0 @St @St @St Which is reduced to the following:  E 1 0 @P ΔPEtþ1
Y @Stþ1 t A ¼ ΓðSt ; Gt Þ St ¼ @ @PEtþ1 @PEt
@St @St

ð2aÞ

Note ΔPEtþ1 is the inter-temporal price hike, or price spike, for carbon permits and (2a) gives the implicit reaction function of the speculator. If

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St . 0, then the speculator is taking a long position, otherwise a short position is taken at Date t. For the regulator, we introduce a target in terms of the prices such that the loss function, utility, of the regulator is expressed as UG: UG ¼
α1 ðPEtþ1
P Þ2
α2 ðPEtþ1
P Þ2

ð2bÞ

Note that the regulator has target prices of carbon permits P* and P** for Date t and Date t 1 1 respectively, which may derive from political considerations, like election timing, or from the prediction of economic activities at Date t and Date t 1 1 and predicted abatement costs. The ratio of (α2/α1) measures the intensity of preference of the regulator to trade current price hikes for future price hikes in carbon permits. The goal of the regulator is to minimize the loss function that yields the following first-order-condition: 2α1 ðPEtþ1
P Þ þ 2α2 ðPEtþ1
P Þ

@PEtþ1 ¼0 @PEt

ð2cÞ

The assumption of the following equality simplifies the proof of the main theorem: @PEtþ1 ¼ ðα2 =α1 Þ @PEt

ð2dÞ

Under (2c) and (2d), the regulator minimizes the loss if the following is true: ΔPEtþ1 ¼ ðP
P Þ ¼ ΔPT

ð2eÞ

Note that ΔPT is the targeted price spike of the regulator. Once we substitute (2e) into (2a), we get the schedule (2f) that defines the equilibrium for the proposed game as the following:  E 1 0 @P ΔPT
Y @Stþ1 t @ A ¼ ΓðSt ; Gt Þ St ¼ ð2fÞ @PEtþ1 @PEt @St
@St Theorem 1: If the schedule (2f) satisfies the following condition, the schedule (2f) has a set of Pareto-ranked fixed-points: ΓðSt þ ΔS; Gt þ ΔGÞ
ΓðSt ; Gt þ ΔGÞΓ ðSt þ ΔS; Gt Þ
ΓðSt ; Gt Þ

ð2gÞ

Proof: The above inequality (2g) implies that Γ(S, G) has increasing differences in (S, G), ignoring the time subscript t. In other words, the incremental gain to choosing a higher S is greater when G is greater.

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This property is symmetric for G. So we want to establish that there exists a set of Pareto-ranked eqilibria, as fixed-points, to the above game as long as speculators and regulators posit that their rivals’ actions contain important information about future demands and consequent spikes in permit prices. The proof follows in three steps. Step 1: The best response dynamics of the speculator given by (2f), in conjunction with the definition of ΔPEtþ1 , will endow us with a partial ordering of the action space (S, G). Suppose the action space (S, G) belongs to the set K, then for any two pairs of K0AK, K1AK, from the price-spike function we know that either ΔPE ðK0 Þ ΔPE ðK1 Þ; or; ΔPE ðK0 Þ ΔPE ðK1 Þ. It is also instructive to note that the price-spike function ΔPEtþ1 is reflexive, antisymmetric, and transitive. It is also important to note that for any pair of elements K0AK and K1AK, a supremum and an infimum exist in K by definition since every two elements are “linked” by the price-spike function ΔPEtþ1 . In Step 2, we will establish the existence of a supremum and an infimum for the specific problem of ours. As a result, due to the price-spike function ΔPEtþ1 , the set K is a lattice. Step 2: For every element k from K, that is kAX, note that fkAR2 such that 0 , |Sk| , θ and 0 , |Gk| , θg. Intuitively, θ gives the maximal change (increase or decrease) in permits that is permitted by the budget constraints of the regulator and the speculator. So, if both these agents have finite budget constraints, then the set of change in stocks of permits by these agents will be contained in a box (θ, θ). The box is a lattice (θ, θ) induced by the partial ordering on the basis of the price-spike function ΔPEtþ1 . Step 3: Since (K, ΔPEtþ1 ) defines a complete lattice and since Γ: K-K is increasing, then from Tarski’s theorem, the set of fixed points of Γ, denoted by E, is non-empty, and (E, ΔPEtþ1 ) is a complete lattice. ’

A Simplified Model of Pollution Permits Thus in Date t, (Y
S) is released in the market by decentralized traders, while the stock S is to be released in Date t 1 1. In Date t 1 1, the demand for permits is met from three sources: from the stocks of traders, stocks of the regulator, and also imports by the regulator. We assume a simple storage technology of pollution permits for traders: s ¼ λðSÞ ¼ S

ð3aÞ

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where s is the stock released in Date t while S is the stock accumulated in Date t by traders. In Date 0, traders have already received their stock (Y), and in Date t they decide how much to store (S). For the rest of the chapter, for the sake of exposition, we use the terms “hoarding” and “dis-hoarding” to respectively represent building and releasing stocks of pollution permits without any pejorative nuance. The trader expected profits are given by:9 L ¼ PðY
SÞ þ EðpÞs

ð3bÞ

where E(p) is the expected price of permits in Date t 1 1, p is the price of permits in Date t 1 1, P is the price of permits in Date t, while E represents the typical expectation operator. The demand for allowance in a segment is predicated upon the (unpredictable) level of economic activities, regional weather condition, volatility in energy prices, and the amount of abatement that will take place in response to the price on emissions. In our model, we freeze all other factors in order to focus upon the last one. As the price on emission rises, we expect companies to increase their abatement measures that will in turn reduce the demand for allowance. Thus, we posit that the demand function in a market segment is assumed to be linear and invariant through time: Q ¼ A
BP

ð3cÞ

q ¼ A
Bp

ð3dÞ

Eq. (3c) represents the demand for carbon permits at Date t: Q, as an inverse function of the price of carbon permits P, while Eq. (3d) posits that the demand for permits in Date t 1 1, and q is an inverse function of the carbon price at Date t 1 1. The regulator has a simple goal in our model. The regulator has a weighted average of permit prices in Date t and Date t 1 1 that is a target variable for the regulator (xT): the regulator attempts to minimize the deviation of the average price of pollution permits over the two Dates (x) from their target price in order to lend stability to levels of economic activities and also to achieve a desirable mix of emissions and abatements. We simplify the loss function of the regulator: LG ¼
½x
xT 2

ð3eÞ

x ¼ wp þ ð1
wÞP

ð3e0 Þ

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PARTHA GANGOPADHYAY

where (1 2 w) and w are the weights that the regulator attaches to current (Date t) and future prices (Date t 1 1) of permits in setting up the average price (x). We posit that the regulator faces the following budget constraints: PG þ pw M ¼ Z

ð3fÞ

pw m ¼ z þ pg

ð3gÞ

where Eqs. (3f) and (3g) respectively represent the budget constraints of the regulator in Date t Date t 1 1. Z and z respectively are revenues of the regulator in Date t and Date t 1 1. G and g respectively are the hoarding (i.e., storage) and dis-hoarding of permits by the regulator in Date t and Date t 1 1. M and m are the imports of permits by the regulator in Date t and Date t 1 1 respectively, and pw is the world price of pollution permits. The Proposed Game The heart of price determination in the proposed model is a circular interdependence between the activities of the traders and the activities of the regulator: the amount of current hoarding, S, by traders will depend on the price ratio p/E(P). Given the permit output Y in Date 0, it is obvious that E(P) will depend on g and m given S, which will, in turn, depend on P, G, and M given the regulator’s revenues Z and z. But P, G, and M will, in turn, depend on S. Thus, the permit stock/hoarding (S) of traders will depend on the regulator hoarding (G) and dis-hoarding (g) decisions while G and g will depend on S through the price mechanism. We develop an interactive model to capture this circular interdependence. The proposed game is a two-stage game as outlined before. The game is played out over two Dates: in Date t the traders build their permit stock S and the regulator also commits to a stock of permits G. The goal of a trader is to maximize profits from the sales and storage of permits while the goal of the regulator is to stabilize the price of permits close to the exogenously given targets. The demand function and hoarding decisions of traders and regulator jointly determine the permit prices in Date t. The resultant permit price in Date t will drive the profits of traders in Date t. In Date t 1 1 the dishoarding by traders (s), and the dis-hoarding by the regulator (g), and the regulator’s imports, m, will determine the permit price in Date t 1 1 given the exogenously set demand function for permit.

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Thus, profits of traders and the price of permit in Date t 1 1 will critically hinge on S and G at Date t. We assume that the relevant information is a common knowledge. We attempt to solve the game recursively by applying the logic of backward induction: we first determine the market outcome and accompanying payoffs to the traders and the regulator in Date t 1 1. Being rational and completely informed all agents, at Date t, correctly predict the market outcome of Date t 1 1. This is the rational expectations equilibrium. Since the market outcome in Date t 1 1 depends on their actions in Date t, in a perfect Nash equilibrium of the sequential game both the traders and the regulator choose their Date t actions to maximize their two-period payoffs subject to the underlying economic relations captured by the rational expectations equilibrium in Date t 1 1. In the following section we solve the proposed game by applying the logic of backward induction: we start with Date t 1 1 and characterize the rational expectations equilibrium of Date t 1 1. Rationality and complete information dictate that all agents would form their expectations about the permit price and associated payoffs at Date t 1 1 by looking ahead and foreseeing the rational expectations equilibrium. In Date t agents will adopt the optimal actions based on the rational expectations about Date t 1 1. The resultant outcome is the perfect Nash equilibrium that is a solution to the sequential game. Rational Expectations Equilibrium in Date t The market clearing in Date t calls forth: s þ g þ m ¼ A
Bp

ð3a0 Þ

From the postulated demand and supply functions Eq. (3a0 ) follows. We know from the budget constraint of the regulator that m is given by: m ¼ ðz þ pgÞ=pw

ð3b0 Þ

From (3a0 ) we know p¼

A
ðs þ g þ mÞ B

ð3c0 Þ

Substituting (3b0 ) into (3c0 ) yields the market clearing price, pE, of Date t: pE ¼

pw ðA
s
gÞ z
pw B þ g pw B þ g

ð3d0 Þ

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Statement 1: The market clearing price, pE, of Date t 1 1 is the rational expectations of the agents at Date t about the permit price in Date t 1 1. The rational expectations price pE depends on the demand parameters that are exogenously determined. The pE also depends on the endogenous variables of Date t which determine s, g, and z at Date t 1 1. Thus, Eq. (3d0 ) is the equilibrium price schedule in Date t 1 1 that is driven by the endogenous variables of Date t. In order to determine the actual price in Date t 1 1 we need to determine these endogenous variables of Date t. Market Clearing in Date t Temporary equilibrium in Date t calls forth: Y
SþM ¼QþG

ð4aÞ

To recap, (Y 2 S) is the supply of permit by framer-traders, M is the import of permit, Q is the private demand for permit for consumption and G is the regulator’s demand for permit for building stocks in Date t. From the budget constraint of the regulator we know: M ¼ ðZ
PGÞ=pw

ð4bÞ

We know that the demand for permit in Date t is: Q ¼ A
BP

ð4cÞ

Substituting Eqs. (3c) and (4b) into Eq. (4a) yields the equilibrium price of permit in Date t, PE: PE ¼

pw ðA þ S þ G
M
YÞ Z
B pw
G B pw
G

ð4dÞ

Statement 2: The equilibrium price of permit at Date t is given by Eq. (4d) and the rational expectations (future) price is given by Eq. (3d0 ). Thus, the economic fundamentals of the proposed model are reduced to these two equations. Rational agents
both traders and the regulator
have prior knowledge about these equations and adopt hoarding and dis-hoarding strategies to maximize their respective payoffs. The equilibrium of the game will unfold from their optimal hoarding and dis-hoarding strategies given the price Eqs. (3d0 ) and (4d).

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THE SPECULATION GAME The regulator knows Eqs. (3d0 ) and (4d) and chooses G and g given S to affect P and p in order to minimize its loss function ΠG: LG ¼
½x
xT 2

ð4eÞ

Traders know Eqs. (3d0 ) and (4d) and choose S to maximize their profits Π: L ¼ PðY
SÞ þ EðpÞs

ð3bÞ

For simplification and tractability, we assume pw 5 1, Z 5 z, S 5 s, G 5 g, and zero discounting of the future. The simplification does not affect the analytical bite of the following results. Optimal Hoarding by the Speculator (Date t): Traders have the following optimization problem: Maximise Π ¼ PðY
SÞ þ EðpÞs fSg

ð5aÞ

Subject to the price equations where we assume pw 5 1: PE ¼

AþSþG
Y Z
B
G B
G

ð5dÞ

pE ¼

A
S
G Z
BþG BþG

ð3d0 Þ

They have the Cournot expectations as they treat G and g as given. The other first order condition with respect to S is the following: δΠ ¼0 δS

ð5bÞ

From Eq. (5b) we derive the other reaction function of the traders: S¼

YðB þ GÞ G GðZ
AÞ
þ 2b 2 2B

ð5cÞ

The Eq. (5c) gives the reaction functions of the traders which represents their optimal stock-holding (S) as a function of the hoarding, G, given their output Y at Date 0 and the rational expectations equilibrium at Date t 1 1 and the market clearing equilibrium in Date t. This element reflects

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PARTHA GANGOPADHYAY

the Cournot
Nash characterization of the behavior of the traders. Now we turn to the regulator. The Optimal Hoarding of Permits by the Regulator (Date t): The regulator seeks to minimize its loss subject to the price equations. Hence we write the optimization problem of the regulator as: Minimise ΠG ¼
ðxT
xÞ2 fGg Subject to: x ¼ wpE þ ð1
wÞPE

ð3e0 Þ

PE ¼

AþSþG
Y Z
B
G B
G

ð2dÞ

pE ¼

A
S
G Z
BþG BþG

ð3d0 Þ

Note that the choice variable of the regulator is G and the regulator has the Cournot-type expectation as it treats S as well as Y given. Hence, it is assumed that there is no conjectural variation. Based on the Cournot
Nash characterization we derive the optimal hoarding of the regulator as: wðA
S
G
TÞ=ðB þ GÞ þ ð1
wÞðA þ S þ G
Y
TÞ=ðB
GÞ ¼ xT

ð5eÞ

Optimal Procurement of Permits (Y) by Traders in Date 0: Now we turn to the determination of optimal output Y at Date 0 that depends on the rational expectations prices P and p that are in turn driven by the hoarding decisions of traders and the regulator. To derive the optimal output Y in Date 0 we differentiate Π with respect to get the following: δΠ ¼0 δY

ð6aÞ

From (4a, b), we derive the optimal output as a function of S and G: Y ¼ ðA
ZÞ=2 þ S þ G=2

ð6bÞ

The Perfect Nash Equilibrium of the Spectacular Game The traders procure the optimal permit Y at Date 0 and the optimal stock S at Date t in anticipation of the current and future prices of the

The Alchemy of GETS: Speculation and Regulation

133

permit that in turn depend on the stock-holding G of the regulator in Date t. Given the current and future equilibrium price Eqs. (3e0 ) and (4d), Eq. (5c) represent the reaction functions of the traders: their optimal hoarding decision in response to the regulator’s decision to hoard and dis-hoard. Similarly, Eq. (5d) represents the reaction function of the regulator which provides the optimal hoarding and dis-hoarding decisions of the regulator in response to S given the price Eqs. (3e0 ) and (4d). Both Eqs. (5c) and (5d) are influenced by the production of permit (Y) by traders. We derive the optimal output Y as a function of S and G and this function is given by Eq. (6b). We assume that traders and the regulator know this function Eq. (6b) and an overall equilibrium requires that traders produce output Y on their expectations of S and G and these expectations are selfconfirming. In order to have their expectations fulfilled, we substitute Eq. (6b) function into Eqs. (5c) and (5d) and look for the solution to the game. By substituting Eq. (6b) into Eq. (5c) we derive the (implicit) best response/reaction function of traders as a function of S and G: G2 =ð4BÞ þ GS=ð2BÞ
S=2 þ ½ðA
Z þ BÞ=ð2BÞ
1=4
ðA
ZÞ=ð4BÞa þ ðA
ZÞ=4 ¼ 0

ð7aÞ

By substituting Eq. (6b) into Eq. (5e) we derive the best response/ reaction function of the regulator as a function of S and G: 2wðA
ZÞðB
GÞ
2wðS þ GÞðB
GÞ þ ð1
wÞðB þ GÞðA
ZÞ
ð1
wÞðB þ GÞG
2X T ðB2
G2 Þ ¼ 0

ð7bÞ

The solution to the game is given by the values of S and G which simultaneously satisfy reaction functions (7a), (7b). These values of S and G, in turn, engender the equilibrium current and future prices and production decision that ex post confirm all expectations. Since these values of S and G are the mutual best responses, the solution to the simultaneous equation system constitutes the perfect Nash equilibrium of the proposed sequential game. It is difficult to derive the equilibrium values explicitly; hence in what follows we characterize the perfect Nash equilibrium qualitatively.

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CHARACTERIZATION OF THE PERFECT NASH EQUILIBRIUM: A QUALITATIVE APPROACH From the reaction function of traders, Eq. (7a), we derive the inverse of the slope of the reaction function as: .

rF ¼

ðB
GÞ .0 ðG þ BL þ SÞ

ð7cÞ

Since L 5 ((A 2 Z)/(4b) 1 1/4) . 0 and B , G from the second order condition of maximizing profits with respect to S. We draw the reaction function in the diagram with intercept in the S axis as (A 2 Z)/2. The slope of the reaction function of the regulator is given as: rG ¼ ½ð4xT þ 2w þ 2Þ
2wS þ ð1
wÞðA
Z
BÞ
2wðA
ZÞ=ð2wðB þ GÞÞ ð7dÞ Whether the reaction function slopes upward, or downward, depends on the value of S. For a critical value of S, S* , rG . 0 for S , S* and rG , 0 for S . S* . S* is given by: S ¼ ½ð4xT þ 2w þ 2Þ þ ð1
wÞðA
T
BÞ
2wðA
TÞ=ð2wÞ

ð7eÞ

Thus, the reaction function of the regulator is backward bending at S* . We depict the following equilibrium outcomes in the following diagrams. In Fig. 1, we show the possibility of multiple equilibria along with their stability properties. Fig. 2 entertains the possibility of a unique equilibrium with its stability properties. Fig. 3 shows the possibility of an absence of pure-strategy equilibrium. Fig. 4 shows the possibility of three equilibrium outcomes
two stable equilibria being separated by an unstable equilibrium. Consider the multiple equilibrium case as described in Fig. 4: which equilibrium gets established? From Krugman (1992) we know that there are two critical determinants of equilibrium in such a scenario. History determines whether is established. If the initial values of S and G are contained within the catchment area of E1, then the system steadily converges to E1, that is. Otherwise, the system converges to E3. Thus, the initial values of S and G are critical in determining whether E1 or E3 is

135

The Alchemy of GETS: Speculation and Regulation S

RF

RG E2

S*

E1

O

(A-Z)/2

G

Fig. 1. Perfect Nash Equilibria in Pollution Permit Market. RF represents the reaction function of the traders while the reaction function of the regulator is depicted as RG. The perfect Nash equilibria are E1 and E2. The stability of these equilibria depends on the absolute values of the slopes of RF and RG at E1 and E2. E1 is patently unstable while E2 is stable if the absolute value of rG . rF.

established. Thus, either there is a high-speculation equilibrium or a lowspeculation equilibrium depending on the initial values of S and G. If the initial values are high and exceed the values given by E2, then the regulator may fail to contain the equilibrium speculation at a low level. Expectations play a crucial role in determining the equilibrium outcome. If all agents expect E1 to be established, then E1 is established. On the other hand, if all the agents expect E3, then E3 materializes. Hence the regulator plays an instrumental role in stabilizing speculation by influencing the expectations of the speculators. Thus, in achieving a low-level of speculation, the regulator has a central role in such markets. Suppose there is a sudden change in permit availability, say, due purely to psychic factor. Also suppose that this decline prompts the speculators to build stocks beyond the value of E2, which will gradually take the system to E3, which characterizes a high level of speculation. Alternatively, if there is a huge initial stock of permits the system may converge to E1, which embodies low level of speculative activity.

136

PARTHA GANGOPADHYAY S

RF

RG E

S*

(A-Z)/2 G O

Fig. 2. Unique Perfect Nash Equilibrium in Permit Markets. RF represents the reaction function of the traders while the reaction function of the regulator is depicted as RG. The perfect Nash equilibrium is unique at E. The stability of the equilibrium depends on the absolute values of the slopes of RF and RG at E.

S

RF RG

S*

O

G

Fig. 3. No Pure-Strategy Equilibrium in Permit Markets. RF represents the reaction function of the traders while the reaction function of the regulator is depicted as RG. There does not exist any pure-strategy equilibrium in the permit market.

137

The Alchemy of GETS: Speculation and Regulation S

RF

RG E2

S*

E1

(A-Z)/2=E3

G

O

Fig. 4. Multiple Equilibria in Permit Markets. RF represents the reaction function of the traders while the reaction function of the regulator is depicted as RG. The perfect Nash equilibria are E1, E2, and E3. Two stable equilibria E2 and E3 are separated by an unstable equilibrium E1.

SPECULATION IN PERMITS MARKET AND CLIMATE CHANGE It is imperative that we offer an overview of the mainstream views on the issues concerning the climate change and speculation mainly to assess the importance of our findings.

Climate Change Concerns At the core of the economics of climate change, the following points have already received serious attention:  People are concerned about challenges from climate change because people widely recognize that potential damages from global warming are already discernible.  In other words, global warming is equated with some sort of an anthropogenic experiment with the planet whose outcome is unknown and the process is irreversible. Economic theory therefore highlights the

138



  

PARTHA GANGOPADHYAY

desirability of taking measures to reduce the risks and avoid the known damages. There is a convergence of views among economists that climate change could result in the emergence or exacerbation of a large number of potential public health problems, including heat induced mortality and increased geographical ranges of deadly diseases such as malaria and dengue fever. Climate change can also cause serious loss of species biodiversity, changes in weather patterns (with increased damage from storms), sea level rise, and infrastructure costs, which are among the economic and ecological harms that have been identified. Climate change could lead to potentially catastrophic changes in certain earth systems. Even if the probability of such disasters is small, taking action now to avert them is warranted. Uncertainty about the magnitude of the risks posed by climate change provides a strong rationale for action rather than passivity.

However in economics, estimates of the cost (excluding environmental benefits) of policies to avert climate change vary both in methodology and magnitude. However, the most reliable sets of estimates show that the standard of living of the present population would not be harmed (and might be improved) by sensible policies. Estimates based on economy-wide economic models tend to show only slight reductions in gross domestic product (GDP) from greenhouse-gas emissions reductions; alternative estimates based on technical and engineering studies of the potential for cost-effective energy saving investments tend to show modest GDP increases. The assumptions underlying the estimates are important predictors of the size and sign of GDP effects, but in all cases the most important determinants of material standards of living in the long run are the rates of economic growth and technological progress. “No regrets” policies (such as reducing subsidies that encourage fossil fuel consumption) would improve economic performance even without factoring in the economic benefits of reduced climate change; when the economic benefits of climate protection are included in the calculations, the range of economically warranted policies expands. The design and implementation of measures to reduce greenhouse-gas emissions make a difference in terms of cost and efficiency. Market-based policies including provisions for international cooperation are likely to do the best job of (a) effectively reducing greenhouse-gas emissions globally and (b) doing so with minimum disruption of other economic activity.

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139

Well-designed greenhouse-gas control policies would not cause large-scale job losses or capital flight, although it would be both feasible and appropriate to assist workers in a few sectors (such as coal mining) in making the transition to a less fossil fuel-intensive economy. The transformation of the economy to one less dependent on burning carbon for energy would provide opportunities for expansion of employment in technologically sophisticated sectors. Similarly, reaching an international agreement to coordinate national policies to reduce greenhouse-gas emissions offers an opportunity to promote global economic progress and environmental protection simultaneously. The Montreal Protocol on Substances that Deplete the Ozone Layer shows that this kind of cooperation is possible, effective, and beneficial to all countries. It is a worthy goal for the 21st century to achieve the same sort of international consensus on measures to protect the global climate. However, the profession is still divided over the mechanics of policies that can reduce the potential hazards of climate change. It is a moot point whether a global pricing scheme of carbon can fix the problem. In this chapter, we examined the nitty-gritty of such a scheme. In the following section, we explain our contribution in the overall context of rational speculation.

On Rational Speculation and Our Contribution The traditional view on speculation is that rational speculation, based on optimal timings of purchases and sales, lends price stability to the concerned market by dampening price fluctuations (Friedman, 1953). If speculators fail to undertake the optimal strategy of purchases, or sales, speculation can exacerbate price volatility. However, the destabilizing speculators will soon be driven out by the evolutionary pressure of the market mechanism (see important work of Campbell & Kyle 1985; DeLong, Shleifer, Summers, & Waldmann, 1988; Kyle, 1988, among others). Moreover, speculators, who make profits from speculative activities, do so by trading with less informed, or less rational, traders and thereby push equilibrium prices toward the fundamentals. Thus, the primary intuition in economic theory is that rational speculation reduces price volatility. This simple intuition breaks down when the market is peopled with positive feedback traders who are net buyers when prices rise and become net sellers when prices fall in a market (DeLong Shleifer, Summers, & Waldmann, 1990).10 In the presence of positive feedback traders, rational speculation can be destabilizing as it will augment price fluctuations. In an

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PARTHA GANGOPADHYAY

important work, Kindleberger (1978) dichotomizes agents into two mutually exclusive groups
informed insiders and uninformed outsiders
in order to explain how rational speculation can be destabilizing: informed insiders destabilize the price by “driving the price up and up and selling out at the top to the outsiders who buy at the top and sell out at the bottom.” The empirical confirmation of the model has been noted in Fama and French (1988) and Poterba and Summers (1988). From the early work of Baumol (1957) and Kemp (1963), we also know that the argument of Friedman on the stabilizing role of speculation is not tenable if some agents use rule of thumb in their investment decisions. In the presence of rule of thumb investors in a market, rational speculators have incentives to destabilize prices. In contrast to the traditional analysis, our model highlights two types of agents whose interests are mutually opposed to each other: in our model we have the traditional speculator who seeks to make profits from the price fluctuations by purchasing, stocking, and selling carbon permits. We also have a regulator or government that tries to dampen price fluctuations by purchasing, stocking, and selling carbon permits. The interaction between these two types of agents is modelled as a noncooperative game, and we find the equilibrium outcome can be beset with the multiplicity of equilibrium even with extremely simple functional forms. The possibility of multiple equilibria and an absence of pure strategy equilibrium, or stable equilibrium, can trigger endogenous uncertainty in the market as agents may fail to coordinate on their equilibrium strategies, which can create significant volatility in permit prices and consequent economic instability.11 In economics, there are many settings in which the multiplicity of equilibrium can be a source of serious problems: as examples, in implementation theory (see Palfrey, 1992), principal-agent theory (Mookherjee, 1984), differential-information economies (Postlewaite & Schmeidler, 1986), and mechanism design (Demski & Sappington, 1984). There also exists an extensive literature on mechanism design exploring mechanisms that can uniquely implement an outcome (Ma, 1988; Ma, Moore, & Turnbull, 1988). Ours is an important addendum to the possibility that speculation and regulation in the global market for permits can potentially create endogenous uncertainty due to the indeterminacy problem.  It is well-known that dominant models of economics tend to bypass the knotty issue of multiple equilibria, caused by multiple predictions of human behavior, as Nobel laureate John Nash (1953) actively promoted

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141

the research agenda to get around the problem of multiple equilibria by offering a set of sufficient conditions that are more often unreasonable than not.  This prompted Eric Maskin, another Nobel laureate, to write, “Nevertheless, Nash equilibrium has several important shortcomings. First, many games have multiple equilibria, and players may not be clear about which one to focus on . . . But negotiation does not always suffice to resolve multiplicity” (see Maskin, 2008).  The only exceptions among accomplished economists today are two other Nobel laureates, Thomas Schelling and Roger Myerson, while Myerson argued “Such multiplicity of equilibria was not a technical problem to be avoided, but was a fact of life to be appreciated” (see Myerson, 2004).

CONCLUDING COMMENTS The precise goal of our chapter is to develop an analytical model of strategic “shortages” created by speculators in the market for pollution permits. Traders and speculators can influence the current and future permit prices by withholding their current stocks. By doing so, speculators can increase current profits by reducing current supply and, thereby, increase the current price. Against this gain, ceteris paribus, the speculators can make a loss by risking the lowering of the future price by increasing the future supply. Thus, there exists an optimal stock that achieves the optimal relative price (ratio of future price and current prices) that maximizes the inter-temporal profits of the speculators given their anticipation of the future demand for permits. Thus, if the market is unhindered, the speculators can significantly warp market prices to augment their profits by extracting larger surplus from purchasers of pollution permits. On the other hand, the time-profile of carbon prices is an important concern for governments since such prices will influence national and regional economic outcomes, drive regional disparities, fuel both the spatial and the inter-temporal distributions of abatement costs, and propel the dynamics of actual abatements, which will collectively shape the future of alternative sources of energy that will in turn play a critical role in fighting the climate change. Alternatively, one may like to argue that governments
driven by electoral motives and subject to rent-seeking activities and

142

PARTHA GANGOPADHYAY

lobbying pressures by powerful interest groups
will seek to influence the time-profile of carbon prices. In other words, regulators have incentives to engender a “just/correct price” by manipulating market supplies by hoarding, dis-hoarding, and importing stocks of permits. Speculators can also make money by gaming on government regulations. Such a market can thus be characterized by circular interdependence between the speculators and the regulator. The precise contribution of this work is to develop a game to endogenously determine the optimum level of speculative stock holdings as the equilibrium outcome of strategic interactions between speculators and a regulator. We model the equilibrium outcome of the permit market in which the traders strategically hold stocks of permits to distort market prices in their favor while the regulator manipulates its own stocks and imports to keep the permit price close to the “desired level.” The major contribution of the chapter is to develop a generic framework in order to establish that a set of Pareto-ranked equilibria exists in the proposed carbon market under a sufficient condition that speculators and regulators assume that their rivals’ actions contain important information about future demands. The sufficient condition turns the game into a supermodular game. As opposed to our special condition, to set the comparative perspective, the existing literature on rational speculation has assumed one of the two following conditions to establish the meaningful role of speculation in financial markets: First, a financial market is peopled with positive feedback traders who are net buyers when prices rise and become net sellers when prices fall in a market (see DeLong et al., 1990). Second, a financial market is assumed to be completely polarized into two groups
one segment representing uninformed outsiders, the other representing informed insiders (see Fama & French, 1988; Poterba & Summers, 1988). In our model, rational speculation has a meaningful role in driving current and future prices, provided speculators (and regulators) anticipate revelation of relevant information about future demand functions from their rivals’ current supply responses. Because the game is supermodular, the market is shown to be characterized by a set of Pareto-ranked multiple equilibria. The choice of equilibrium is thus predicated on cultural factors (see Myerson, 2004). The “culture” of speculation will play an important role in deciding whether the proposed system will have a good, or bad, equilibrium. We then simplified our generic model into a tractable example with linear demand and cost functions. On this example we superimposed the extreme assumption that the future demand function is a common

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143

knowledge and immune from current supply responses. We noted that the perfect Nash equilibrium in such a simplified case is characterized by one of the four possibilities. In Case 1, there exist two equilibria
lowspeculation and high-speculation equilibria. The low-speculation is always unstable while the high-speculation equilibrium can be stable. Thus, the regulator can only goad the market to the high-speculation equilibrium if it is stable. Our model shows that rational speculation can be extremely destabilizing if the high-speculation equilibrium is also unstable. We also noted that there is nothing sacrosanct about the stability of the highspeculation equilibrium since it depends on the relative steepness of the slopes of the reaction functions. This case is described in Fig. 1. In Case 2, we showed the possibility of a unique and stable equilibrium. This is the ideal case for any interactive model, which shows rational speculation is stabilizing as the system converges to the unique Nash equilibrium. In this case, regulation has no role. Case 3 highlights the possibility and consequent instability of the non-existence of pure-strategy equilibrium. Case 4 highlights the possibility of three equilibria
two stable equilibria separated by an unstable one. In the final case, any momentary deviation of speculation beyond the critical level will have a lasting impact on the permit prices, levels of speculation, and on the economy. Regulators’ mismanagement will also have similar deleterious long run impact on the market and the economy.

NOTES 1. The science and the art of climate change are multidimensional issues with important ramifications for science and technology, economics, decision-making under uncertainty, and the intergenerational equity, or the balancing of the interests of generations now alive and those not yet born. In other words, the issue at stake is extremely complex. Yet despite these complexities, a great deal of common ground has been found to develop appropriate abatement policies. 2. The failure of the climate talk in Copenhagen to reach a consensus on globally tradable carbon permits has led to a sharp decline in the demand for carbon permits in the EU. As a consequence, prices of carbon permits have slipped from $25 to $12 in recent days. The price crash has three important lessons for us: first, falling permit prices are a bad news for the nations trying to auction them off due to their adverse revenue effects on the national budgets. Second, they could adversely impact on industries relying on these prices remaining high
including carbon tracking and accounting companies, and firms working on clean energy sources, ranging from solar to wind to biomass to geothermal. Finally, lower prices

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of carbon can seriously harm incentives of polluters to adopt adequate abatement measures. It is also widely recognized that there are adverse economic consequences of soaring prices of carbon permits and economists are fully aware of the precise economic consequences of price cap uncertainty and quantity cap uncertainty (see Kopp et al., 1997; McKibbin & Wilcoxen, 1997a, 1997b). During the first 10 months of the EU trial Date, the price of permits soared and soared with deleterious effects on the net purchasers of carbon permits. The volatility of the price can thus pose a serious economic challenge to many national and regional economies, which will induce them to choose an appropriate policy to smooth the price volatility. 3. The famous Economists’ Statement on Climate Change, signed by over 2,500 members of the American Economic Association, is a testimony to the quick convergence of views among economists that accorded an unforeseen primacy to the economics of climate change. Admittedly, economists are not yet overtly concerned about the emergence of a probable “culture” of speculation that can drown a global carbon market. Ours will be an initial attempt to understand the consequences of such speculation. 4. Though the cap-and-trade program is a well-tried mechanism in United States in SO2 and some similar experiments were conducted in United Kingdom and Denmark, there is no precedent of a multinational scheme to price emissions. 5. It is important to note that the plan is to phase out the decentralized framework of the EU ETS and to replace it with a centralized EU mechanism. First and foremost, the centralized mechanism will determine the cap (allowance). Second, the allocation of the allowance will be harmonized by the choice of a common rule. Third, national allocation plans (NAPs) will be eliminated. Fourth, national registries will be eliminated by a central EU registry. 6. In the EU ETS the coordinated process starts off with the acceptance of a NAP by each member state for each trading Date. In the NAP, each member state proposes and justifies the total number of allowances created for the trading Date, provides a list of covered installations, and explains how those allowances are to be allocated. In its review and approval of NAPs for the first and second trading Dates, the Commission has been concerned mostly with the level of the proposed member state “caps.” 7. In the EU ETS trial run, member states are also required to develop their own monitoring, reporting, and verification procedures subject to the EU Monitoring and Reporting Guidelines. 8. Initially prices were expected to be between the interval of h8 and h12. In 2005 at the outset, prices remained in the above range. However prices started soaring at a remarkable pace over the next five months to h20, and they stayed at or above this benchmark until the release of the 2005 emissions data in April 2006. In the space of less than a week in April 2006, prices fell from over h30 to about h20 for second Date EUAs and to h15 for trial Date EUAs. With the advent of 2007, additional supplies of emissions allowances were released to the market at the same time that the demand for first Date allowances by electric generating companies declined, which led to a further decline in prices. Similar price volatility was observed in the U.S.SO2 trading system (Ellerman, Joskow, Schmalensee, Montero, & Bailey, 2000).

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9. This idea is not new as Hart and Kreps (1986) constructed an important model of competitive rational speculators who influence the market supply by storing their stocks, which engenders volatility in the equilibrium price of a product. In our model, the price volatility is generated by the multiplicity of equilibrium. In contrast to the Hart and Kreps (1986) classic model, in our model speculators confront a regulator who attempts to stabilize the price by suitably altering stocks. 10. Many types of speculative behavior can lead to positive feedback trading in financial markets: it can derive from trend chasing or what is known as extrapolative expectations about prices. Alternatively, it can arise from stop-loss orders. Such trading is also common among buyers of portfolio insurance whose risktaking incentive increases with increasing wealth. The destabilizing speculation is in consonance with the perception of successful players like George Soros who amassed huge gains by betting not on fundamentals but on the anticipated future crowd behaviour of uninformed agents. In other words, speculation triggers selffeeding bubbles that can in turn cause significant price instability driven mainly by a mix of informed and uninformed traders in a market (Soros, 1987). 11. In the presence of multiple equilibria (symmetric and nonsymmetric), the proposed speculation model fails to offer a single prediction and, instead, offers many possible and potentially conflicting predictions. Nash (1953) was aware of the problem as he had recognized the existence of multiple equilibria in a simple bargaining game and tried to resolve the problem of multiplicity by offering sufficient conditions to characterize a unique equilibrium outcome out of several equilibria.

REFERENCES Altamirano-Cabrera, J.-C., & Finus, M. (2006). Permit trading and stability of international climate agreements. Journal of Applied Economics, 9, 19–47. Barrett, S. (1994). Self-enforcing international environmental agreements. Oxford Economic Papers, 46, 804–878. Baumol, W. (1957). Speculation, profitability and stability. Review of Economics and Statistics, 35, 263–271. Campbell, J., & Kyle, A. S. (1985). Smart money noise trading and stock price behaviour. NBER Technical Working Paper No. 72. Cambrdige, MA. Cramton, P., & Kerr, S. (2002). Tradable carbon permit auctions: How and why to auction not grandfather? Energy Policy, 30(4), 333–345. DeLong, J., Shleifer, A., Summers, L. A., & Waldmann, R. J. (1988). Noise trader risk in financial markets. NBER Working Paper No. 2385. Cambrdige, MA. DeLong, J., Shleifer, A., Summers, L. A., & Waldmann, R. J. (1990). Positive feedback investment and destabilising rational speculation. The Journal of Finance, XLV(2), 379–395. Demski, J., & Sappington, D. (1984). Optimal incentive contracts with multiple agents. Journal of Economic Theory, 33, 152–171. Ellerman, A. D., Joskow, P. L., Schmalensee, R., Montero, J.-P., & Bailey, E. M. (2000). Markets for clean air: The U.S. acid rain program. Cambridge: Cambridge University Press.

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DECENTRALIZATION AND MILITARY COUPS Ruixue Jia and Pinghan Liang ABSTRACT We develop a multiperiod contest theory model to formulate the role of decentralization in coups decision and outcome. In our model the coup plotter chooses between carrying out a coup and subordination, the central government responds by fighting against the plotter, and the local government chooses whether to confront the military government after a successful coup. The model shows that more decentralized countries will experience longer military regime after a successful coup, but the relationship between decentralization and the risk of coups is nonmonotonic. We suggest that there may exist negative consequences of decentralization: Depending on the initial conditions, decentralization may increase the coup risks and jeopardize political stability.

INTRODUCTION Though the term coup d’etat has been used for more than 300 years, it is not only a historical phenomenon. There are 95 countries across the world that have experienced at least one coup attempt during 1950
2009.1 Among these countries, this phenomenon seems to be extremely acute in Cooperation for a Peaceful and Sustainable World, Part 1 Contributions to Conflict Management, Peace Economics and Development, Volume 20, 149
170 Copyright r 2012 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1572-8323/doi:10.1108/S1572-8323(2012)0000020009

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developing countries, especially in Africa. Most recently, military power assumed office in Niger in February, 2010. Therefore, coups d’etat consist an important threat to the political stability in the developing countries. On the other hand, though a coup is a sudden and short-term action, it nevertheless has long-term influences. After a coup d’etat, the usurpers sometimes establishes their legitimacy, institutionalizes and maintains power for very long time (Gandhi & Przeworski, 2007), e.g., the 41 years regime of Muammar al-Gaddafi in Libya. It’s noteworthy that some countries experienced significantly more coups than the other countries in a long period, e.g., Bolivia experienced 10 coups during 1975
2009 while none occurred in another Latin American country Columbia within the same period. This may suggest that the fundamental political and economy structures play a role in determining the risk of coup. It’s an important tradition in political science, sociology, and peace science to look for the structural factors underlying coups, for instance, Fossum (1967) and Hoadley (1973) on coups in Latin America, Wells (1974), Jackman (1978), Johnson, Slater, and McGowan (1984), Jenkins and Kposowa (1990), and Lunde (1991) on African coups. However, these works are usually subject to many controversies on the validity and interpretation (Jackman, O’Kane, Johnson, McGowan, & Slater, 1986) due to the lack of formal strategic foundation on the behavior of relevant players. By definition, a coup “consists of the infiltration of a small, but critical, segment of the state apparatus” (Luttwak, 1968); thus it is more likely to be power struggles among political elites. Therefore, the political power structure among elites tends to be an important factor underlying coups d’etat. This paper attempts to analyze a military coup as a political struggle between the military force and the existing governments. In particular, we investigate how the government structure, i.e., the vertical extent of decentralization, affects the risk of coup and the duration of military government. Figs. 1 and 2 illustrate some patterns about decentralization and coups in the data. Figure 1 suggests the nonmonotonic relationship in contemporary data2 between the extent of decentralization (fiscal decentralization index,3 horizontal axis) and the risk of coup (the number of coup attempts in 1975
2009, vertical axis). Fig. 2 indicates a negative relationship between the extent of decentralization and the duration of power (the years of keeping power after a successful coup, vertical axis). While there is a large amount of variations around the regression line (we certainly don’t think that decentralization explains everything), the t-statistic for the slope is 2.63, demonstrating the significant correlations. The 2 0.29 coefficient means that every additional 2.7% subnational government expenditure share is associated with a 1.34 year shorter military regime.

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10

BOL

8

number of coups

MAU

6

THA

BAN HON

4

PHI

GUA

ECU

ARG

GAM VEN FIJ

ZAM

MAL

PER

PAN

2

DOM

ETH SWA

PAR BEN

MAD TUN EL CAM

PAK

UGA KEN

AZE

PAP

RUS

URU

TUR

0

0

1

MAU = Mauritania BOL = Bolivia PER = Peru GAM = Gambia ETH = Ethiopia EL = El Salvador UGA = Uganda

Fig. 1.

THA = Thailand GUA = Guatemala PAK = Pakistan VEN = Venezuela SWA = Swaziland TUN = Tunisia PAR = Paraguay

2 3 log(subnationalexpenditure_share) BAN = Bangladesh ECU = Ecuador AZE = Azerbaijan FIJ = Fiji DOM = Dominican Republic KEN = Kenya MAD = Madagascar

HON = Honduras ARG = Argentina RUS = Russia ZAM = Zambia BEN = Benin PAP = Papua New Guinea

4 PHI = Philippines MAL = Mali TUR = Turkey PAN = Panama CAM = Cameroon URU = Uruguay

Total Number of Coups after Successful Coups versus Decentralization.

The idea that decentralization may affect political stability could be traced back to Niccolo Machiavelli (2005). In Chapter IV in The Prince he investigates “Why The Kingdom Of Darius, Conquered by Alexander, Did Not Rebel Against the Successors of Alexander at His Death.” He compares the Turk and the King of France at his time. In terms of government structure, the Turk is more centralized, and “once it is conquered, great ease in holding it”; France is more decentralized, and “one can easily enter there by gaining over some baron of the kingdom . . . but if you wish to hold it afterwards, you meet with infinite difficulties.” In this paper, we will separate the decision to carry out a coup and the interaction for keeping power, and formulize the ideas of Machiavelli by establishing a multiperiod contest theory model to study the relationship between decentralization and coups. In particular, the behavior of civilian government (central and local government) and the military force is explicitly modeled.

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average length of power after success

30 TUN

20

GAM ETH

10

PAK

MAU BAN PAR FIJ

SWA

URU

GUA

0 0

1

PER

UGA

EL HON

ECU THA

MAL

2

ARG TUR

BOL

3

4

log(subnationalexpenditure_share) TUN = Tunisia PAR = Paraguay URU = Uruguay ARG = Argentina

Fig. 2.

GAM = Gambia FIJ = Fiji THA = Thailand TUR = Turkey

ETH = Ethiopia GUA = Guatemala MAL = Mali PAK = Pakistan

SWA = Swaziland EL = El Salvador ECU = Ecuador

MAU = Mauritania HON = Honduras BOL = Bolivia

BAN = Bangladesh UGA = Uganda PER = Peru

Average Length of Power after Successful Coups versus Decentralization.

An emerging body of economics literature formulizes the civilianmilitary relationship in various ways. Leon (2009a) highlights the relationship between the likelihood of war and coups. Collier and Hoeffler (1998) and Leon (2009b) establish the nonmonotonic relationship between military spending and the coups risk. Acemoglu, Ticchi, and Vindigni (2010) and Besley and Robinson (2010) analyze the government’s trade-off underlying the size of army, in which the risk of coup is explicitly taken into account. We differ from this line of research in that we focus on the structural factors that may facilitate military coups, e.g., the institutions, instead of the factors that may cause coups d’etat. In other words, we follow the tradition of political scientists in looking at the long-term structural characteristics that determine the political stability of a regime. In our model, a potential coup plotter (army) decides whether to carry out a coup against the central government, and the central government optimally invests to defend itself against the coup. If the coup plotter succeeds, he will take over the resources in the hand of the central government and form a junta, and bargain with the local government over peaceful

Decentralization and Military Coups

153

settlement. After this negotiation stage either side can confront into a civil war against the other. Conditional on the extent of decentralization, both the consolidation of junta and the re-establishment of civilian government are possible in this stage. Furthermore, decentralization will affect the incentives of the coup plotter in carrying out a coup. The intuition is as follows. A potential coup plotter might consider two aspects: whether he can win the coup and how long he can keep power after winning. In a more centralized country, the opportunity cost for the plotter is high in that the central government owns more resources to defend itself. However, the available rents to him are also high since he can keep power longer after deposing the existing government. Our model predicts a negative relationship between decentralization and length of power after a successful coup. It also identifies the region of the extent of decentralization that the rentseeking concern dominates the opportunity-cost concern, and thus predicts an inverse-U relationship between decentralization and risk of coups. Moreover, the model sheds lights on the different effects of transitory and permanent shocks, i.e., the fluctuation of export commodities price and the natural disasters, or the discoveries of oil fields and mines, on the stability of regime. Generally, the model argues that conditional on the initial power structure, decentralization may increase the incentives of those potential coup plotters and entail political instability. In other words, in contrast with the most studies on decentralization that focus on its effects on the accountability of local governments such as the provision of public goods,4 we suggest that decentralization may jeopardize political stability. This negative consequence should be taken into account when implementing any reform on the government structure.

THE MODEL Environment The political system consists of three players: Central government (C), Local government (L), and Army (A). The political rents (fiscal revenue) are controlled by a two-layer government consisting of C and L.5 Let s and 1-s denote the share of fiscal revenues controlled by C and L, respectively. The revenues come in two periods: the current revenue y and the future revenues y0 , realized in the second period, e.g., the discoveries of an oil

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field. Each player is risk neutral and attempts to maximize his own payoff. We assume that the A’s military power (xA) is exogenously determined by the need of national defense or suppressing rebellion. In the first period, given xA, A can choose whether to stage a coup d’etat in attempt to take over the central government. We will use xA to represent the type of A below. To fight against the military coup, C can invest in the internal security, e.g., policemen, civil guard, mobilizing the core supporters by target unproductive social spending, etc.6 In the second period, if A succeeds in controlling the central government, he will bargain with L over the peaceful settlement, and a civil war will occur if either A or L doesn’t accept the bargaining outcomes. To be more concrete, we state the time structure as follows: Timing There are two periods in our model, and each period is divided into two stages. Period I. In stage 1, A chooses between coup and subordination. Under subordination, A retains xA. If A stages a coup, he wins with probability xA =ðxA þ xC Þ7, in which xC is the investment determined later by C. In stage 2, if A carries out the coup, C allocates xC , sy to internal security to fight against A. C retains power and enjoys the sum of payoff πC 5 s[y 1 E(y0 )] whenever A chooses subordination or the coup fails. If C fails, A grasps the power and gets πC.8 The loser gets nothing. The cost of coup is αxA (αxC, respectively) for A (C, respectively) (1 . α . 0)9. The game ends if the coup is defeated by C. Otherwise the successful A establishes the junta, and period II (stage 3) starts. Period II. In stage 3, the future rent y0 is realized, L and A (the junta) bargain over the terms of peaceful settlement, i.e., they simultaneously propose an offer to the counterpart. The junta returns the power to a civilian government (compromise) if the terms are in accordance with L’s offer. The junta consolidates his position if the terms are in accordance with A’s offer, in other words, L surrenders to the junta. If no one accepts the other’s offer, the status quo resource distribution maintains. After the bargaining procedure L and A can decide whether to stage a violent conflict. If at least one side decides to engage into conflict, we turn to stage 4, the onset of civil war. In stage 4, both sides simultaneously invest resources xL and x0A in the civil war, respectively. The payoff to the winner of the civil war is the total resources minus the investment in the war. L wins the civil war and

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restores a civilian government with probability xL =ðx0A þ xL Þ, while A unifies the country with the complementary probability. The cost coefficient to each side is still α. All the information about the power and revenues is public. We will derive the Sub-game Perfect Nash Equilibrium. We can get the results for the duration of power by solving stage 4 and stage 3, and the results for the risk of coups by solving stage 2 and stage 1.

Length of Power Stage 4. Civil war If the civil war occurs in stage 4, the prize to the winner is the total fiscal revenues y 1 y0 minus the unproductive war investment x0A 1 xL. Besides, operating military power also incurs costs. A would choose x0A to maximize: x0A ½y þ y0
x0A
xL 
αx0A þ xL

ð1Þ

Similarly, L selects xL to maximize: xL ½y þ y0
x0A
xL 
αxL x0A þ xL

ð2Þ

x0A

The first-order conditions for both sides are as follows: rffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi x
i ðy þ y0 Þ
x
i ; i ¼ L; A xi ¼ 1þα

ð3Þ

First we look at the interior solutions, i.e., both players have sufficient resources to invest in the war. In equilibrium both players will invest the same amount in the confrontation. Hence, we get the investment in the civil war for either player as follows. x0A ¼ xL ¼

y þ y0 4ð1 þ αÞ

Thus both players have the equal probability to win the war, and the expected payoff to each player is Eπi ¼

ðy þ y0 Þ 4

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RUIXUE JIA AND PINGHAN LIANG

To make this solution feasible, the optimal investment to the war cannot exceed the resources in hands of each party at that stage. Thus we need:   y þ y0

min ð1
sÞðy þ y0 Þ; sðy þ y0 Þ 4ð1 þ αÞ which is equivalent to

1 1 ;1
sA 4ð1 þ αÞ 4ð1 þ αÞ



If s 1=4ð1 þ αÞ, which indicates that the country is very decentralized, then the junta will be resource constrained. On the other hand, if s . 1
ð1=4ð1 þ αÞÞ, i.e., a highly centralized country, the local government will be resource constrained. The resource-constrained player cannot counterbalance the challenge from the other side, thus he invests all resource in the war, and the resource-abundant player is more likely to win. Stage 3. Bargaining Now we turn to stage 3 in which A and L negotiate over the allocation of the available resources. The outcomes of civil war actually consist an outside option for each party in the case that the peace negotiation fails. A usual problem in bargaining over peaceful settlement is that the player cannot commit not to resort to violent confrontation after receiving transfer from the other side. However, in our environment there always exist some transfer schemes to make both parties better off than engaging into the civil war, regardless of the value of s, as stated in the following lemma. Lemma 1. There always exists a T 0 such that after one party transferring T to the other, no player has any incentive to carry out a civil war. In particular, after the transfer the relatively weak player should be guaranteed with at least 1/4 of the total resources. Proof: see the Appendix Because the total resources are given, any gain for one player implies the loss from the other. On the one hand, a transfer will increase the recipient’s opportunity cost of conflict, on the other hand, it reduces the available rents for the recipient if he engages into a civil war after the transfer. In total, even if the initial power structure is severely skewed to one player, the

157

Decentralization and Military Coups

recipient will not stage a violent conflict if his after-transfer payoff exceeds the expected value of winning. An insight from this lemma is that a sufficient condition for the persistent peace is that the resources imbalance between these two players after the enforcement of the peace agreement is not too severe. In particular, the weak player can use the threat of civil war to grab some resources from the strong party and secure a minimal payoff level. The further implication that civil war would never be a part of equilibrium outcome to a large extent is consistent with the real-world observation: in most developing countries after WWII, coups rarely end up with or cause the onset of civil war (Nigeria in 1966 is perhaps the most famous exception). Then we can study the specific bargaining process. The structure of bargaining is simple: Both players propose an offer to the counterpart. If the offer tL (resp, tA) from L (resp, A) is accepted by the other side, then A (resp, L) compromises (resp, surrenders) in exchange of the offer promised. If no offer is accepted, then both sides keep their own resources and decide whether to stage a civil war. As Lemma 1 establishes, peaceful settlement is payoff-dominant for both parties. In other words, if no offer is accepted, it implies that both players prefer the status quo (s(y 1 y0 ) for A and (1 2 s)(y 1 y0 ) for L) over the new distribution of resources or conflict, thus the junta automatically consolidates his position. L will propose the offer tL if the payoff from compromise is better than that from civil war: y þ y0

ð1
sÞðy þ y0 Þ
tL 4

ð4Þ

And the junta will accept if tL

y þ y0 4

ð5Þ

Thus peace is feasible if A can be guaranteed that the transfer exceeds the expected payoff from the war. It’s also straightforward to see that the compromise is possible if s 1/2. Similarly, surrender is feasible as long as s 1/2 is satisfied. Moreover, if we take into account the status quo payoff to each player, then it’s straightforward to see that whenever 1/4 s 3/4, both L and A prefer status quo to accepting the offer from the other side. In this range, L has neither the incentive to challenge A nor the willingness to offer A enough to get compromise. Thus the status quo maintains, the junta consolidates his position and gets V 5 s(y 1 y0 ).

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If s , 1/4, i.e., buying surrender is not feasible and A has the incentive to stir a war if no transfer is offered, then L can offer A tL as prescribed by (5) and A will accept it. The outcome is compromise, i.e., the army returns the battalion with V ¼ ðy þ y0 Þ=4. On the other hand, if s . 3/4, due to the sharp imbalance of power, L has the incentive to stage a war. The junta can consolidate his position by promising tA ¼ ðy þ y0 Þ=4. The payoff to A is thus V ¼ 3ðy þ y0 Þ=4. We summarize the results in the proposition below and Fig. 3. Proposition 1. If s , 1/4, then the only outcome of peace agreement is compromise in which the junta hands over the power to a civilian government. If sA[1/4, 3/4], then the status quo persists and the junta retains power. If s . 3/4, the only negotiation outcome is the Local government surrenders and the junta consolidates. Moreover, the value to the junta, i.e., payoff to A, is 8 1 1 0 > > > 4 ðy þ y Þ; if s , 4 > > > > > < 1 3 0 ð6Þ V ¼ sðy þ y Þ; if 4 s 4 > > > > > 3 3 > 0 > > : 4 ðy þ y Þ; if s . 4 This proposition shows that the payoff to the junta is weakly increasing as the share of Central government in fiscal revenues raises. This is straightforward since once the army succeeds in coups attempt, he takes over the resources of Central government, thus s measures the junta’s own power provided that the coup succeeds. If s is very low (s 1/4), the army

The Local government receives

Peace without any

transfer and

transfer, the junta

surrenders to the

consolidates

The junta receives transfer and hands back to civilian government

junta

1-s 0

1/4

3/4 Fig. 3.

Bargaining Solutions.

Decentralization and Military Coups

159

will get transfer from the local government in exchange of the state power. If s is very high (s . 3/4), the army will buy the subordination of the local government. In the range between, however, no transfer will ever occur and the junta consolidates his power. We can think of the expected payoff from the civil war as the “reservation value.” Because of the threats of a wasteful civil war, the payoff to the junta (local government) in an even very centralized (decentralized) country is still bounded from above. Since 1-s measures the degree of decentralization of a state, we can establish the relationship between the government structure and the length of the junta, conditional on a successful coup. Result 1: The length of power after a successful coup is longer (shorter) in more centralized (decentralized) countries. This result sheds light on the survival of postcoup military governments once the army wins the coup. It predicts that in more centralized countries, once the violent nondemocratic governmental transformation occurs, this transformation has more persistent effects. This is consistent with the observations in Fig. 2 in which on average those more decentralized countries have shorter military regime.

Risk of Coups In the analysis above we show that the length of power of a junta is longer in more centralized countries since the army will have advantages in peace negotiation with the local government. Hence centralization provides ambitious coup plotters with bigger prizes and encourages the coups attempts. However, it’s also intuitively that in more centralized countries a powerful central government has more resources to defeat coup plotters. Thus centralization also entails the army with higher opportunity cost of coups. In this section, we will investigate these opposite effects. Stage 2. The central government’s decision In stage 2, if the army has already decided to carry out a coup, the central government needs to determine how much to invest in the internal security to fight against the coup plotter in order to maximize his expected payoff:  xC  max s½y þ Eðy0 Þ
xC
αxC ð7Þ xC þ xA s:t: xC sy

ð8Þ

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(6) means that the benefits to C will be deducted by the investment in the internal security; moreover, the use of the internal security also entails costs to the central government. Besides, C can only use his current resources to check coups. In other words, the central government cannot use future income as collateral to borrow from the international financial market to invest in the unproductive internal security. It’s straightforward to derive the best response function of C from the first-order condition as follows: 8 sffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi 0 2 > < xA s½y þ Eðy Þ þ xA
xA ; if Eðy0 Þ Eðy0 Þ xC ¼ ð9Þ αþs > : sy; otherwise where Eðy0 Þ is the threshold level defined by Eðy0 Þ ¼

ðα þ s
1ÞxA sðα þ sÞ 2 þ y þ ½2ðα þ sÞ
1y xA s

ð10Þ

The investment decision of C not only depends on the expected future revenues, but also is constrained by the currently available resources. When the current resources is high relative to the future ones ðEðyÞ Eðy0 ÞÞ, i.e., both the benefits of the future control and the current resources are high (low), the budget constraint (8) is slack and we have Part 1 in (9). In this situation C optimally invests in the internal security as the best response to the risk of coups, so xC is a function with respect to xA. Otherwise, when the current revenues is low, i.e., the benefits for the future control are high, but the current resources is low, the budget constraint (8) is binding and albeit C would like to invest more to ensure his control, his hands are tied by the currently available resources, thus we have Part 2 in (9). This threshold level (10) is determined by the current revenues y. The larger the y, the more resources the central government has to defend itself, the higher the benefits for the future control required to constrain the central government. Moreover, this threshold level is increasing with respect to s, i.e., the larger the share of the central government in fiscal revenues, the more it can use to fight against the coup. Stage 1. The army’s decision Now we turn to stage 1 to characterize the army’s coups decision. A will carry out a coup if and only if the expected payoff from coups exceeds his current resources, i.e.,

Decentralization and Military Coups

xA E½V
αxA xA xC þ xA

161

ð11Þ

where E[V] is the expected value to the junta, the continuation value defined in (6) in expectation term. Since the RHS of (11) is given, the LHS of (11) represents the return to a coup, which determines the incentives of the army to carry out a coup, consequently measures the risk of coups. Thus we name (11) as the coups condition. Risk of Coups We substitute (6) into (11) and get the following conditions of the incidence of coups. (1) In the centralized regime (s . 3/4), E½V ¼ 34 ½y þ Eðy0 Þ, the coups condition (11) becomes

xA 3 ðy þ E½y0 Þ
αxA xA ð12Þ xC þ xA 4 (2) In the intermediately centralized regime (3/4 > s . 1/4), E[V] 5 s[y 1 E(y0 )]. The coups condition is xA ½sðy þ E½y0 Þ
αxA xA ð13Þ xC þ xA (3) In the decentralized regime (s 1/4), E½V ¼ 14 ½y þ Eðy0 Þ. The coups condition becomes

xA 1 ðy þ E½y0 Þ
αxA xA ð14Þ xC þ xA 4 In which xC is defined by (9), the optimal response of C. It is straightforward to see that the probability of successful coups (xA =ðxA þ xC Þ) is decreasing with respect to s because the investment in the internal security xC is strictly increasing in s. This implies that other things being equal, the probability of a successful coup is higher in more decentralized countries. For case (1) and (3), the prize for a successful coup, i.e., V, is invariant with respect to s. For the army decentralization only raises the probability of winning a coup, thus the return to a coup increases and coups become more likely. However, when the extent of decentralization is in the intermediate range (3/4 s . 1/4), on the one hand C can invest more to defeat coups, thus the opportunity cost of coup plotter increases, on the other hand the

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available rents to a successful coup also raise. The following proposition shows that in this range the latter effect dominates, regardless of the specification of xC in (9). Proposition 2. In an intermediately centralized country (3/4 > s . 1/4), the return to a coup increases with respect to s. Proof: see the Appendix Therefore, when a country is intermediately centralized, the temptation from high rents outweighs the counterincentive effect from a strong government. The army would be less likely to carry out a coup as the state becomes even more decentralized. We are thus led to the following result: Result 2: In either highly centralized or highly decentralized countries coups are more likely to occur and succeed as the countries become more decentralized. For intermediate centralized countries, however, the risk of coups increases (decreases) as the country becomes further centralized (decentralized). This nonlinear relationship is illustrated in Fig. 4, which describes the return to a coup in different regimes. The nonmonotonic relationship between the extent of decentralization and the risk of coups suggests that the effects of decentralization on political stability, which depends on the initial condition of a country. If a country is already highly centralized, the implementation of decentralization

Payoff 1.2 1.1 1.0 0.9

Return to a coup

0.8 0.7 0.6 0.2

Fig. 4.

0.4

0.6

0.8

Expected Returns From a Coup.

1.0

~ 1s

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reform may make the regime vulnerable and increase the risk of coups. This also works if a decentralized country moves further. However, decentralization may improve the stability of a regime when the allocation of power lies in the intermediate range. In other words, the positive effects of decentralization are limited by the initial conditions. Taking into account that most developing countries are not highly decentralized, we suggest that this result is consistent with the inverse-U relationship in Fig. 1, in which the medium decentralized countries experienced more coups than the other countries. Extension: The Role of Economic Shocks There is a large body of literature suggesting that exogenous economic shocks, e.g., the fluctuation in the price of export commodity goods, provides the “window of opportunity” and may trigger coups (Hettne, 1980). Here we use our model to examine the impact of economic shocks on the risk of coups. In terms of our model, the changes in y measures transitory shocks whereas the changes in E(y0 ) measures permanent shocks. For the army, the economic shock will affect both the rents available (E[V]) and the probability of successful coups (ðxA xA Þ= þ xC ). We first study the negative transitory shock which refers to the drop in y, e.g., the drop of export commodity prices in international market. Interestingly, we find that the government structure also plays a role in the impact of shocks. Corollary 1. The return to a coup decreases when the negative transitory shock is small, and increases if the shock is large and the future return is high, i.e., xA , sE(y0 ). Proof: see the Appendix The intuition underlying this corollary is that a big drop in the current revenues may make the resource constraint to the central government binding. When the drop is small, i.e., Part 1 in (9) still holds, negative shock entails the reduction in both the available prize and the strength of the central government, but the former decreases even more. Then in sum the reduction of rents dominates the increase in the probability to win a coup, and the military coup becomes less likely to occur. Conversely, if the central government is unconstrained in deciding the internal security level, he will only use a fraction of his resources to check the coups. His

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investment increases as either the current or the future revenues raises. However, the available rents to the army also increases and dominates the increasing opportunity cost. Increasing resources in hands of the existing government thus raises the risk of coups d’etat. However, a big drop in current revenues constrains the government’s ability to defend itself, thus the increasing winning probability always dominates decreasing prize, and the army becomes more likely to stage a coup. In other words, big negative economic shock makes a regime vulnerable to coup d’etat. It’s noteworthy that this reversal of incentives is more likely to occur if s is large in that xA , sE(y0 ) is more likely to hold. Literally speaking, the current central government becomes too weak to deter the coup in terms of his attractive share in the future revenues. Thus less decentralized countries will become more vulnerable under big drops in current revenues. By permanent shocks we refer to the discoveries of natural resources, e.g., oil fields or diamond mines, in the sense that it significantly raises the expected future revenue E(y0 ). We find out it will raise the risk of coups regardless of the extent of decentralization. Corollary 2. Coups are more likely to take place with positive permanent shocks, regardless of s. Proof: see the Appendix On the one hand, raising future revenues increases the temptation for the coup plotter. On the other hand, though it may increase the government’s determination in defeat a coup, it will not affect the government’s budget constraint. Thus in total the army has more incentives to attempt a coup to grasp the future revenues. In a word, positive permanent shocks increase expected revenues and raises the expected payoff to staging a coup, thus raise the risk of coups and threaten the stability of a regime.

CONCLUSION To understand why some countries experienced systemically more coups or longer military rules than others, this paper builds up a stylized model studying decentralization and coups, an important threat to political stability. We formulize the insights of Niccolo Machiavelli on the role of government structure in the stability against threats, and provide a model

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to understand the strategic interaction between the military and the civilian government. We also use our model to study the impact of economic shocks on the risk of coups, and suggest the different impacts of transitory and permanent economic shocks. An important implication of our paper is that in contrast with the most literature on the role of decentralization in delivering growth and equality, our theory suggests that decentralization may affect power structure, consequently political stability. Thus the dark side of decentralization should be taken into account when implementing the reform on government structure.

NOTES 1. See Powell and Thyne (2011). 2. Non-OECD countries from 1975 to 2009. 3. This data is from Enikolopov and Zhuravskaya (2007). 4. Qian and Weingast (1997) and Bardham (2002) provide excellent surveys on research in this field. 5. This assumption of two layers is for simplicity and our main results hold for more layers. Besides, we ignore the coordination problem among different governments within the same layer. We also don’t allow the central government to attack the local government, in other words, we don’t consider the formation of alliances between the central and the local government. 6. It also could be interpreted as buying loyalty from a fraction of army. 7. This is the lottery success function, the standard contest success function with the decisiveness parameter as one. Further modification of this parameter will not alter the basic insights from our model. 8. This implies that the junta will take over the internal security power of the Central government. 9. We assume the equal cost function for all players, hence abstract from the asymmetry in fighting efficiency of military coups. For our purpose, asymmetric success function can change the relationship between decentralization and coup risk quantitatively, but the basic qualitative results still obtain.

ACKNOWLEDGMENT We would like to thank Joan Esteban, Nicola Gennaioli, Gabriel Leon, Torsten Persson, James Robinson, Petros Sekeris, Jan-Egbert Sturm’ and the attendants of Jan Tinbergen Peace Science Conference (2010), European Political Economy Workshop at Silvaplana (2010), ICCMPP in Beijing (2010), and Internal Seminar in RIEM for their helpful comments.

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REFERENCES Acemoglu, D., Ticchi, D., & Vindigni, A. (2010). Persistence of civil wars. Journal of the European Economic Association, 8, 664–676. Bardham, P. (2002). Decentralization of governance and development. Journal of Economic Perspectives, 16, 185–205. Besley, T., & Robinson, J. A. (2010). Quis custodiet ipsos custodes? Civilian control over the military. Journal of the European Economic Association, 8, 655–663. Collier, P., & Hoeffler, A. (1998). Military spending and the risks of coups d’Etat. Working Paper, Oxford University. Enikolopov, R., & Zhuravskaya, E. (2007). Decentralization and political institutions. Journal of Public Economics, 91, 2261–2290. Fossum, E. (1967). Factors influencing the occurrence of military coups d’Etat in Latin America. Journal of Peace Research, 4, 228–251. Gandhi, J., & Przeworski, A. (2007). Authoritarian institutions and the survival of autocrats. Comparative Political Studies, 40, 1279–1301. Hettne, B. (1980). Soldiers and politics: The case of Ghana. Journal of Peace Research, 17, 173–193. Hoadley, J. S. (1973). Social complexity, economic development, and military coups d’Etat in Latin America and Asia. Journal of Peace Research, 10, 119–120. Jackman, R. W. (1978). The predictability of coups d’etat: A model with African Data. American Political Science Review, 72, 1262–1275. Jackman, R. W., O’Kane, R. H. T., Johnson, T. H., McGowan, P., & Slater, R. O. (1986). Explaining African Coups d’Etat. American Political Science Review, 80, 225–249. Jenkins, J. C., & Kposowa, A. J. (1990). Explaining military coups D’Etat: Black Africa, 1957
1984. American Sociological Review, 55, 861–875. Johnson, T. H., Slater, R. O., & McGowan, P. (1984). Explaining African military coups d’Etat, 1960
1982. American Political Science Review, 78, 622–640. Leon, G. J. (2009a). Soldiers or Bureaucrats? Conflict and the Military’s Role in PolicyMaking. Working Paper, LSE. Leon, G. J. (2009b). The economic causes of coups: Loyalty for Sale? Working Paper, LSE. Lunde, T. K. (1991). Modernization and political instability: Coups d’Etat in Africa, 1955
85. Acta Sociologica, 34, 13–32. Luttwak, E. (1968). Coup D’Etat: A practical handbook. London: Penguin Press. Machiavelli, N. (2005). The prince. New York: Oxford University Press. Powell, J. M., & Thyne, C. L. (2011). Global instances of coups from 1950-Present: A New Dataset. Journal of Peace Research, 48, forthcoming. Qian, Y., & Weingast, B. R. (1997). Federalism as a commitment to preserving market incentives. Journal of Economic Perspectives, 11, 83–92. Wells, A. (1974). The Coup d’Etat in theory and practice: Independent black Africa in the 1960s. American Journal of Sociology, 79, 871–887.

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APPENDIX: PROOF OF LEMMA 1 We need to show that conflict is either worse than the status quo payoff to each player, or worse than the payoff after the transfer. Let Y Ry 1 y0 , we will show that Eπi minf(1 2 s)Y 2 T, sY 1 TgEπ_fig minf(1 2 s)Y 2 T, sY 1 Tg. 1 1 First, if both A and L are unconstrained, i.e., sA½4ð1þαÞ ; 1
4ð1þαÞ , they will invest equally in the conflict and the expected payoff is Y/4. Thus if 1/4 minf1 2 s,sg, then the conflict is worse than the status quo, and peace is possible even with T 5 0. WLOG, we now look at the case that 3/4 , s 1 2 1/(4(1 1 α)), thus the weak L finds it’s in his interest to take the risk of civil war. However, the strong A can make a transfer T to L to ensure peace. Formally, peace is possible if (1 2 s)Y 1 T Y/4 and sY 2 T Y/4. This leads to s
3/4 T/ Y s 2 1/4, thus there exists a T . 0 such that both parties will find the peace is better than the civil war after transfer. Moreover, this says that to ensure that the weak L has no incentive to challenge the junta, the former should be guaranteed with at least 1/4 of the total resources. Then we look at the case of constrained player, which means the resources in the hand of at least one player are smaller than the unconstrained interior solution Y=4ð1 þ αÞ. We should divide it into two cases Case 1: Both players are constrained. We start from the constrained L, i.e., (1 2 s)Y , Y/(4(1 1 α)). Therefore by the best response function (3) we need sY , x0 A, this will lead to 1 2 s . 1 1 α, which is impossible. Thus we cannot have two constrained players. Case 2: One player is constrained and the other is unconstrained. WLOG, we look at the case that L is constrained but A is unconstrained.
We first explore whether it’s possible that both prefer the peace over the conflict even without transfer. The resources in the hand of L are smaller than the unconstrained interior solution, and the best response of A to (1 2 s)Y is smaller than sY. Equilibrium occurs at xL 5 (1 2 s)Y and

rffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi   0 ð1
sÞ=ð1 þ αÞ
ð1
sÞ Y. Payoffs amount to xA ¼ EπA ¼ Y½1
and EπL ¼ Y

pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi 2 ð1
sÞð1 þ αÞ

pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi ð1
sÞð1 þ αÞð1
ð1
sÞð1 þ αÞÞ

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Peace will be in the interest of both parties if EπA sy and EπL (1 2 s)y, which turns out to be 1
s

1þα ð2 þ αÞ2

But (1 1 α)/(2 1 α)2 . 1/(4(1 1 α)), so there doesn’t exist the possibility that the peace is attained without transfer under a constrained L.
Thus if (1 2 s) , 1/(4(1 1 α)), the constrained L has the incentive to stage a civil war when there is no transfer. We need to look at whether there exists a positive transfer T from A to L to make both better off than the onset of the civil war. Since the constrained player always has the incentive to challenge the other party and the conflict is in the interest of the weak unconstrained L if 1 2 s , 1/4, we are led to the conclusion that to ensure peace, the resources in the hand of L after the transfer should exceed Y/4. Therefore A can transfer a minimum amount T 5 [1/4 2 (1 2 s)]Y to L to ensure that the latter is indifference between peace and conflict. In other words, after the transfer the equilibrium of war occurs at xL ¼ x0A ¼

Y 4ð1 þ αÞ

Payoffs of war amount to EπL ¼ EπA ¼

Y 4

Peace with transfer thus is possible if EπL (1 2 s)y 1 T and EπA sy 2 T, which always hold. Hence there always exists a T to make both prefer the peace outcomes over the war when there is a constrained player. We reach our conclusion that the peace agreement is always possible.

PROOF OF PROPOSITION 2 The risk of coups can be measured by the return to a coup, i.e., the LHS of (13). Take differentiate of this formula we have 

d xA y þ Eðy0 Þ dxC ½sðy þ Eðy0 ÞÞ
αxA ¼ x x þ x
s A A C ds xA þ xC ds ðxA þ xC Þ2

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If the current revenue is low,   i.e., xC 5 sy, then the differentiate 2 0 becomes ðy þ Eðy ÞÞ=ðxA þ xC Þ x2A . 0. Otherwise we substitute
rffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi    xC ¼ xA s½y þ Eðy0 Þ þ x2A =ðα þ sÞ
xA from (9) into the above differentiation and get sffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi

ðα þ sÞxA s 1 xA
αðy þ Eðy0 ÞÞ 0 1þ ðy þ Eðy ÞÞ .0 2 sðy þ Eðy0 ÞÞ þ xA αþs sðy þ Eðy0 ÞÞ þ xA We see that in both specifications the differentiation results are positive, thus the return to a coup is monotonically increasing in s.

PROOF OF COROLLARY 1 From (10) we know that the threshold level Eðy0 Þ is increasing with respect to y. When there is a drop in y, if E(y0 ) Eðy0 Þ is still satisfied, i.e., the shock is not too large, then the central government is still unconstrained
rffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi    2 0 and we have xC ¼ xA s½y þ Eðy Þ þ xA =ðα þ sÞ
xA . Substitute it into (12)
(14), the coups condition for the army is as follows. sffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi ðα þ sÞxA
αxA xA ; t½y þ Eðy Þ s½y þ Eðy0 Þ þ 1 0

3 1 t ¼ ; s; 4 4

ð15Þ

It’s straightforward that in any case the LHS is increasing in both y and E(y0 ), thus the drop in y reduces the incentive of staging a coup. Otherwise, if the drop in the current revenues is sufficiently large, by (10) the hands of the central government will be tied and he has to set xC 5 sy. Hence the coups condition will become xA V
αxA xA xA þ xC

ð16Þ

in which the LHS, the payoff to the coups, is decreasing with respect to y if xA , sE(y0 ).

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PROOF OF COROLLARY 2 For sufficiently low expected revenues, the increase in E(y0 ) would not raise above the threshold level Eðy0 Þ, thus the central government still has enough resources to deter the coup plotter, and will increase investments to reduce the losing probability as shown in (15). However, for the army the expected rent increases even more than the decrease in the winning probability, hence coups become more likely to take place. For sufficiently large expected revenues, i.e., E(y0 ) . Eðy0 Þ, the central government is resource-constrained in the sense that he has to invest all current resources to retain position. The coups condition is as (16). Then the further increasing in expected rents only makes the value of junta more appealing to the army, thus make the coups more likely to take place.

CONFLICT OF CIVIL-MILITARY APPROACH IN PAKISTAN: ITS REGIONAL IMPLICATIONS Riaz Ahmed Shaikh ABSTRACT The question of civilian supremacy over managing state affairs has been revisiting Pakistan time and again; the case is the same these days. Assuming its strategic location at the crossroads of Middle East-Central South Asia, the country has a lot of potential not only to prosper and progress, but it can play a pivotal role in restoring peace and stability in the region. Pakistan’s civilian leadership has mostly supported the concept of peaceful coexistence with all neighboring countries, but the theory of animosity propagated by Pakistan’s army with its neighbor, especially India, has kept the world’s sixth most populous nation in a state of war ever since its inception. This chapter discuses the perpetual conflict between the civil-military approaches and how it is effecting regional peace.

Cooperation for a Peaceful and Sustainable World, Part 1 Contributions to Conflict Management, Peace Economics and Development, Volume 20, 171
183 Copyright r 2012 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1572-8323/doi:10.1108/S1572-8323(2012)0000020010

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INTRODUCTION The stop-start behavior of the democratic process in Pakistan has been a point of academic interest for many scholars (Shaikh, 2009b). The current conflict between the Zardari government and the army on the “Memogate” scandal should be seen in the same context. Now the judiciary and media have also emerged as new players in the civil-military conflict. Pakistan’s army has imposed four martial laws in the country. Pakistan has been ruled by military dictators for more than three decade. The army is still not willing to hand over power to a civilian democracy. Hence, all the decision-making powers, especially on foreign affairs and national security, are in the hands of Pakistan’s army. According to Asma Jahangir, renowned human rights activist and former President Supreme Court Bar Association, that despite the resignation and departure of General Pervez Musharaf in 2008, the army has not relented; it still wants to control the political decision-making process in the country, impose martial law, and revive fundamentalism. In 1989, start of militancy in Indian Kashmir was duly supported by the army and ISI (Jamal, 2009). Today Pakistan’s case is presented as that of a safe haven for their veritable arms or regional nationalist struggle, aiming for regional autonomy, which has their grievances under military rules. And their external overreach can be attributed to a sense of insecurity and the desire for a more assertive role in the world theater. Keeping in view the diversity of Pakistan’s social fabric as well its fragmented and polarized nature coupled with historical wrongs done to certain regions, it is said that Pakistan can’t be governed but could be managed. This was never more apparent than today when the country is divided on every possible pretext. But the issue is not just the polarization or division but free use of arms to settle any issue be it political, social, religious, or state affairs (Shaikh, 2011a).

HISTORICAL ROOTS This imbalance between civil government and the establishment became a glaring fact immediately after the creation of Pakistan in 1947, when founding father Muhammad Ali Jinnah instead of supporting democratic norms gave preference to civil bureaucracy (Sayeed, 1991). Although while talking to military officers, he advised them not to indulge in politics and not to try to become policy makers. This is a job for civilians; officers have

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to just implement the direction given by civilians. But despite these loud words, Jinnah’s actions reflected certain contradictions as well. Two provincial governments (Sindh and Khyber Pashtunkhwa) were dismissed by him in the initial few months due to political and policy differences (Cohen, 2005). Senior civil servant, Chaudhry Muhammad Ali, was selected by Jinnah to act as cabinet secretary. The Secretary General became even more powerful than Prime Minister Liaquat Ali Khan. The Prime Minister registered his protest about Chaudhry Muhammad Ali bypassing the Prime Minister’s Office and directly approaching Jinnah, while keeping Ali in the dark on several important issues. This was in fact an open violation of parliamentary democracy. The nature of the relation between civil bureaucracy and Governor General Jinnah set precedence for the power structure in the country for the future (Waseem, 2007). The Muslim civil bureaucracy of United India, to which renowned sociologist Hamza Alavi gave the name “salariat class,” was in fact responsible for the partition of the subcontinent and the creation of Pakistan in 1947 (Alavi, 1983). Immigrant civil servants further tightened their grip on the political system of the newly created country as a result of the partition of United India (Burkee, 1980). The country’s bureaucracy kept dismissing political governments in their dreamland in its initial decade, 1947
1958. To further strengthen their hold, they kept postponing general elections in the country, which were actually due in 1951. The election results of March 1954 for the East Bengal Provincial Assembly were sufficient to open the eyes of the Pakistani civil bureaucracy. The ruling Muslim League, despite being the founding party and enjoying the support of the establishment, was totally wiped from the assembly. It secured just 10 seats in a house of 239 members (Megrath, 1996). Again, the element of denial of a democratic principle worked. To counter the majority of East Bengal (56%), all four provinces of West Pakistan, (despite strong protest by these provinces) were disbanded, and “one unit” was created in 1955. Even after this merger, which was anti-people and antidemocratic, West Pakistan’s total population was just 44% (Umer, 2006). To handle this, a new concept of “parity” was introduced between East (now Bangladesh) and West Pakistan (present day Pakistan). According to this principle, both parts of the country were given equal weight despite an imbalance of population. This was again absolutely the denial of the universal principle of adult franchise (Islam, 1990). Soon civil bureaucracy invited Army General Ayub Khan to impose martial law in October 1958. Now the army joined as a junior part of civil bureaucracy in ruling the country. Ayub Khan’s ten years of military rule targeted the politicians and political system of the country. Economic disparities

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increased manifold. Despite his claims of industrial and agricultural development, the country was at civil war exactly 10 years after, when he decided in October 1968 to celebrate his “Decade of Development” (Sayeed, 1980). He suppressed independent presses in the country. Journalists were put behind the bars. Independent and progressive newspapers were taken into the government’s control due to their persistent opposition to military rule (Niazi, 1986). This created social and political suffocation in the country, and in October 1968 a volcano erupted in the shape of an anti-Ayub movement lead by students (Shaikh, 2009a). This situation of unbalance in the relations between civil and military government could have been rectified if the results of the country’s first general elections were accepted in 1971. However, the nonacceptance resulted in a separation of East Pakistan on December 16, 1971. The army’s surrender and the capture of 90,000 soldiers and officers as prisoners of war (POWs) by India was indeed humiliating for the army. They agreed to accept the supremacy of a civil government during Zulfikar Ali Bhutto’s regime (1972
1977) temporarily (Nawaz, 2009). After recovering from the previous humiliation, the army soon made come back in 1977. This time martial law was imposed when an agreement had been reached between government and opposition over holding the next election under a neutral interim government (Ahmed, 1988).

GENERAL ZIA’S MARTIAL LAW AND REVIVAL OF FUNDAMENTALISM General Zia’s military years (1977
1988) were some of the darkest days in the country’s history. The most significant aspect of those years was not only that they affected the internal social fragment and dynamics of Pakistan but also that the impact of his policies was deeply felt in regional as well global politics (Baxter, 1985). The process of Islamization initiated by Zia radicalized Pakistani society, which was divided on a sectarian basis. School syllabi were changed to bring it in line with the narrow concept of his myopic vision of Islamic ideology. New laws were introduced to enforce sharia in the country. Although the entire society felt the pinch of these changes, two groups, women and religious minorities, were the worst affected by these discriminating laws. The Pakistani press as an institution faced horrible victimization during Zia’s martial years (Niazi, 1986). Hundreds of journalists were imprisoned and declarations of many newspapers

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and periodicals that challenged his tyranny were canceled. This was the first and only precedence in the world’s history in which journalists were flogged in Pakistan (Niazi, 2006). Zia imposed press censorship in the country that continued for more than two years. It was no doubt a nightmare for the press and journalists. And it was no doubt a miracle that the press survived in Pakistan in those days. Another dangerous step was the patronization of extremist journalism in the country. This alternative journalism gave birth to hundreds of militant periodicals, which further radicalized Pakistani society (Rana, 2008). Zia’s decision to participate in the Afghan conflict after the USSR invasion of Afghanistan in December 1979 proved a blessing in disguise for him and provided him a golden opportunity to gain legitimacy for his military rule, which was condemned by the entire world. Zia was being pressed for the restoration of civil government in the country (Grare, 2003). The Afghan conflict opened the door to militancy, and the concept of PanIslamiziation originally given by Jamaluddin Afghani in 19th century was revived (Jalal, 2008). This conflict was soon declared as Jihad, and Islamic militants from different parts of the world made Pakistan their base for militant activities. Those militants included Abdullah Azzam, Osama bin Laden, Aiman-al-Zwaharwi, Khalid Muhammed Shaikh, and many more (Allen, 2006). The world is still facing the consequences of this jihadi mindset developed during the Afghan jihad with the financial and weaponry support of the United States, Saudi Arabia, and other Western societies. Today many states including China, Central Asian States, and Russia are very much worried by religious extremists active in Pak
Aghan border areas (Rashid, 2003). Zia’s active participation in this conflict provided him with numerous benefits. He got huge financial support of about 13 billion dollars from the United States and Saudi Arabia (Coll, 2004). The world community kept mum over his human right abuses. Pakistan successfully developed its nuclear program during this breathing space and under their very noses. But despite these gains by General Zia, Pakistani society on the whole lost its liberal and progressive outlook and became more retrogressive and religious (Shaikh, 2011b). During this cold-era conflict, the Pakistani army kept its interests very primary and never allowed the USA to have any direct interaction with the Afghan Mujahideen (war lord) fighting with Soviet forces. It was Pakistan’s ISI managing all Afghan resistance and war tactics against the USSR (Yousuf & Adkin, 2003). The physical isolation of the United States despite its being a major financer ultimately became its handicap as well.

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The Pakistani army and ISI took best advantage of this situation and emerged as the most important key actors in the Afghan conflict. To have permanent influence in Afghanistan, ISI facilitated the emergence of the Taliban (Rashid, 2000). Even the death of General Zia in an air crash in August 1988 could not bring any major relief for Pakistan. Although, reluctantly, Pakistan’s army agreed to hold general elections and restore democratic government in the country, this time they wanted a “controlled democracy” and ensured it as well. The reigns of the government were handed to Benazir Bhutto, but this handover was symbolic. All key cabinet portfolios were handed over to the army’s chosen candidates including defence, foreign affairs, and finance. Benazir was told in clear terms not to intervene in Afghan policies and India
Pakistan relations (Rizvi, 2000). When she cooperated with India, over insurgency in Punjab by providing them details of Sikh militants and their sanctuaries, she was instantly termed a security risk and branded as traitor in the print media, traditionally toeing the security establishment’s line. When she decided to receive Rajiv Gandhi during the SAARC conference in Islamabad in 1989, the army-backed religious parties displayed protesting banners in Islamabad while replacing the welcoming banners and posters. This was to demonstrate Benazir’s elected government’s worth and tell them where the real powers lay (Shaikh, 2011). Another important and legal check on Benazir’s government was the installation of ex-civil servant Ghulam Ishaq Khan as President. Benazir was asked by the army to get him elected as the president for a tenure of five years. She obliged the powerful army generals. Ghulam Ishaq Khan, a stool of the Pakistani establishment, never gave her a free hand to govern the country. Just after 18 months, her government was dismissed by President Khan with the consent and approval of the Pakistan army’s Chief General Aslam Baig. General Baig himself belonged to that creed of armed forces that believed in the concept of Pan-Islamization. In his outlook, he is anti-US and anti-India (Nawaz, 2009).

TEMPORARY RESTORATION OF DEMOCRACY During the next decade (1988
1999), the governments of Nawaz Sharif and Benazir Bhutto were replaced twice. During these times, the army controlled political and other state affairs from behind the scene. The undercurrent conflict between the army and Nawaz Sharif’s second regime

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became sharp when the Prime Minister demanded resignation from the then army Chief General Jahangir Karamat over his proposal about the establishment of a National Security Council (NSC) to create a constitutional role for the armed forces in running state affairs (Cloughley, 2006). Succeeding army chief General Pervez Musharaf also developed a conflict with the Prime Minister because of his friendly policy toward India. Unfortunately, the Pakistani establishment has always been Indiacentric and has always bulldozed every effort to harmonize India
Pakistan relations. General Musharaf also lost no time sabotaging the new friendly environment created between both traditional rivals with the visit of Indian Prime Minister Atal Bihari Vajpai in 1998. He traveled to Pakistan’s cultural capital of Lahore on a bus service through the Atari-Wagha border and also visited Minar-e-Pakistan, the place where the first resolution for the creation of a separate Muslim Homeland was adopted in March 1940. This was an attempt to undo the perception that “India still did not accept the partition of subcontinent at heart.” But within a few months, the Kargil adventure reversed the entire development. Vajpai in one telephone conversation with Prime Minister Sharif described it as “tabbing him in his back” and it was very much true (Hiro, 2002).

GENERAL MUSHARAF’S ATTACK ON DEMOCRACY General Pervaiz Musharaf usurped power on October 12, 1999, toppling the Sharif government-provided army the opportunity of ruling this country for another decade (1999
2008). This time General Musharaf, whom the world community was not willing to recognize, got another lease of martial rule because of the 9/11 tragedy (Baxter, 2005). The initial dislike by the United States of Muharaf’s military regime could be well understood by the few hours visit of US President Bill Clinton to Islamabad. This tour was originally planned for three days in consultation with Prime Minister Sharif’s government several months ago. Clinton had spent five days in India before coming to Pakistan for five hours. His visit was conditional upon not shaking hands with General Musharaf in public or for a photo session and that Clinton would directly address the Pakistani nation through state-controlled Pakistan television and Radio Pakistan. General Musharaf readily accepted these conditions just to create an impression among his countrymen that the United States was willing to work with his military government. President Clinton in his address advised Musharaf to

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restore civilian rule as soon as possible and suggested to the Pakistani nation that democracy is the best way to govern. This tour reflected the nature of the cold relations that had developed between Pakistan and the United States after General Musharaf’s takeover (Baxter & Kennedy, 2001). But 9/11 turned the whole world upside down. The United States desperately needed Pakistan’s support to take its revenge against Al-Qaeda and its leadership living in comfort in Afghanistan under Taliban rule. Musharaf this time again willingly agreed to all demands of the United States and showed his government’s inclination to participate in the US’s war against terror (Rashid, 2008). This time again the reason behind the prompt and swift willingness was the desire to legitimize his military regime by the world’s only superpower. The Musharaf regime again reaped all the benefits of participation in this war as Zia previously had (John, 2007). Although Musharaf portrayed himself a liberal, he pursued the Pakistani establishment’s traditional line of an asymmetric warfare by extending support to the militancy to achieve its goal in the region, especially against India (Jones, 2002). Pakistan’s senior journalist Hamid Mir expressed in one of his columns that Pervaiz Muharaf gave a cash reward to Ilyas Kashmiri when he killed an Indian army major in Kashmir and presented his head to the Pakistani army. Kashmiri initially participated in Kashmiri jihad, later joined the Pakistani Taliban, and lastly became a key member of Al-Qaeda’s network (Mir, 2011). Musharaf, in order to ensure continuation of his despotic rule, targeted all the institutions of the country. Leaders of both major political parties, the PPP and PML, had to remain in exile. The judiciary was also targeted (Schmidle, 2009). Musharaf himself encouraged the introduction of electronic media to Pakistan. But in 2007, the media became his worst target. He imposed many restrictions on freedom of expression. Due to his covert support to jihadis, fundamentalism increased in the country. Thousands of people were killed in several terrorist activities carried out by militants. In one such activity, twice-elected Prime Minister Bhutto also lost her life on December 27, 2007, in Rawalpindi’s Liaquat Bagh (Mir, 2010).

REVIVAL OF “CONTROLLED” DEMOCRACY Despite the departure of General Musharaf in August 2008 and the takeover of the PPP government, things have not changed much. Still, Pakistan’s

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army is controlling affairs. President Zardari’s first attempt to bring the country’s premier intelligence agency, the ISI, under civilian control was bounced back when the army command refused to accept the change in ISI’s reporting channels (Daily Dawn, July 27, 2008a). Next, a humiliating time came for the civilian government when the government announced D.G. ISI would visit India to assist Indian authorities in their inquiry into the terrorist activity of 26/11 (Daily Dawn, November 28, 2008). The military again refused to honor the civil government’s commitment (Daily Dawn, November 29, 2008c). The army kept on challenging the civilian government on several crucial policy matters including the Kerry Lugar Bill, under which Pakistan was to be given $1.5 billion annually for next five years subject to its cooperation in the war against terror. The army objected to certain clauses of this aid package, for according to their point of view these clauses were to bring the army under more civilian control. Another issue in which the army questioned civilians was the issuance of visas to U.S. citizens visiting Pakistan. The army’s view was that the United States wanted to post under disguise a CIA agent to develop its spy network in the country to get access to the country’s nuclear arsenal. Now the recent “Memogate” scandal has again brought the military command and civil government to an eyeball-to-eyeball position. This time the military, instead of making a direct attempt to send the civilian government home (as it did previously), now solicited the support of the judiciary and media as well as some “establishment”
supported politicians, the off-springs of Zia, and Zia’s right hand, Akhtar Rehman, to counter civil society’s possible reaction to any actions against the civilian government (Jahangir, 2011). Besides the judiciary, whose role cannot be discussed here, Pakistan’s army and especially the country’s premier agency, the ISI, has been maneuvering media for their own image making and tarnishing the image of the civil government. This one-sided attack on the civil government from the media and judiciary has weakened the Zardari government’s position. The media in certain cases, while ignoring its primary objectives, started playing the role of opinion maker. Instead of restricting its role to information provision and analysis, it forced viewers to follow its point of view (Shafi, 2012). The PPP government is under media trial since the day first. This trial is duly backed by the military establishment. The military establishment from General Zia’s days has radicalized Pakistani society. The military, Mulla alliance in Pakistan (Haqqani, 2005), has not just done harm with the sixth most populous country of the world; the continuous propagation of hate feelings through popular media

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on the desire and direction of Pakistan’s army is further de-establishing the democratic structure in the country (Mir, 2011). The Pakistani army’s constant support of religious groups and political parties starting from 1977 after the over throw of Zulfikar Ali Bhutto’s government till today has not only destabilized Pakistan herself but also perpetuated extremism and fundamentalism in the region. Although, the extremists and militants Pakistan’s army always tried and sheltered as their assets have already started haunting them. But still they are not willing to initiate any concentrated action against them across the board. Selectivity works here. Whereas the global community rightly demanded the immediate and complete elimination of such extremists (Shahzad, 2011). The conflict between the approach of the civil government and the military in Pakistan on various issues has made it clear that both have very wide differences of opinion, especially having to handle the new emerging situation in South Asia. The civilian government’s traditional approach was to have peaceful coexistence with all neighbors, particularly those on the eastern border (India), whereas the Pakistani army and Islamic radicals take India as a foe. For them, India is encircling Pakistan from Eastern and Western borders with its huge involvement and extensive presence in Afghanistan. The civilian government is of the opinion that a loose border and free trade with India is going to be beneficial for Pakistan, as the country is a natural corridor for trade and commerce from Central Asia to South Asia. The civilian government’s efforts to give India the status of Most Favoured Nation (MFN) have been blocked by the military leadership, although India granted MFN status to Pakistan in 1996. Pakistan’s reciprocal action may bring many benefits for this country, but the army’s constant opposition has slow downed the process of normalization of relations between both neighbors. While using every move, the army instead of directly coming into focus is now using religious and fundamentalist groups to propagate hatred among both countries. With the blessings and covert support of the army, religious and militant parties managed a big show in Lahore on December 18, 2011, in the name of Difa-e-Pakistan (Defence of Pakistan). This rally has set a very dangerous precedence in the shape of a revival of the extremists and militants’ role in the country’s politics again. An important component of that, Jamat ud Dawah (JuD), resorted to wall chalking in the port city of Karachi against the government’s decision with full posters highlighting the bloodshed of 1947 and the atrocities in Kashmir. They have further planned for an extensive protest campaign. One recent rally of religious parties was held in Multan on January 28, 2012.

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CONCLUSION Pakistan’s establishment, especially Pakistan’s army, has always kept the country in the status of “Security State.” Certainly, the army itself is the prime beneficiary of this animosity. Unnecessary indulgence in regional and global conflicts instead of bringing any benefit to Pakistan has resulted in huge losses in several terms. In the last decade, more than 35,000 casualties have occurred in Pakistan due to the worst kind of terrorist activities seen in this country. In financial terms, Pakistan’s economy is crumbling. The country has lost more than $80 billion. Because of serious law and order problems, no investor is willing to make any investment in the country. The country’s growth is stagnant at 2.4% for the last couple of years. Unemployment is getting high with every pasting day. The energy crisis has forced the industrialists to shift to their parts of the world. The flow of capital is further harming the country’s economy. Early symptom of social unrest and anarchical conflict is emerging as a storm. More than 30% of the country’s territory is already facing insurgency, or the state has barely any rights. Globally Pakistan is termed as a failed state. The way to get out of this crisis for Pakistan is to come out of its global isolation. Pakistan’s civilian and democratic forces should be allowed to perform their due role, and the country’s strategic policy makers (Pakistan’s army) should seriously revisit its policy of the strategic depth of the Western border (Afghanistan) and get out of a paranoid fear of India from the Eastern border. But the issue at hand also is a refusal of a major vocal section of the media, as well as the remnants of a veritable army of the military, to look at the country as a modern national state that has to act responsibly in terms of regional and global security to be bestowed with sovereignty of an independent state. And second, whatever the reasons, only an efficient and competent civil government is going to rein in the military establishment fully; the case of Turkey is relevant to note here.

REFERENCES Ahmed, G. (1988). Phir martial law aa gaya [And martial law imposed]. Lahore: Jang Publishers. Alavi, H. (1983). Class and State in Pakistan. In H. Gardezi & J. Rashid (Eds.), Pakistan the unstable state (pp. 40–93). Lahore: Vanguard. Allen, C. (2006). God’s terrorists
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Baxter, C. (1985). Zia’s Pakistan. West View Press. Baxter, C. (2005). Pakistan on the brink. Karachi: Oxford University Press. Baxter, C., & Kennedy, C. H. (2001). Pakistan 2000. Karachi: Oxford University Press. Burkee, S. J. (1980). State and society in Pakistan. 1971
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45. Rashid, A. (2000). Taliban. New York, NY: I. B. Tauris. Rashid, A. (2003). Jihad: The rise of militant Islam in central Asia. Delhi: Penguin Books. Rashid, A. (2008). Descent into chaos. London: Penguin Books. Rizvi, H. A. (2000). The military and politics in Pakistan. Lahore: Sang-e-Meel Publications. Sayeed, K. B. (1980). The politics in Pakistan. The nature of direction and direction of change. New York, NY: Prager. Sayeed, K. B. (1991). Pakistan: The formative phase 1857
1948. Karachi: Oxford University Press. Schmidle, N. (2009). To live or to perish forever. Two tumultous years in Pakistan. Noida: Random House. Shafi, K. (2012). Making absolute fools of ourselves. Daily Express Tribune, January 26. Shahzad, S. S. (2011). Inside Al-Qaeda and the Taliban. London: Palgrave Macmillan.

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KNOWLEDGE CREATION AND INNOVATION IN MEDIUM TECHNOLOGY CLUSTERS Riccardo Cappellin ABSTRACT This study deals with the processes of innovation in the medium technology industrial sectors. First, it illustrates the differences between the linear model of innovation and the systemic and cognitive model of knowledge creation. Then, it focuses on the concepts of connectivity, creativity, and speed of change, which characterize the processes of interactive learning in the industrial clusters. Finally, it illustrates a typology of regions, where problems and policy fields are different, and it indicates the guidelines of a governance of interregional knowledge and innovation networks.

INTRODUCTION Regional economies, such as both the industrial districts and the urban areas, have evolved from production systems based on material exchanges and agglomeration economies (Cappellin, 1998; Porter, 1990, 1998; Steiner, 1998) to production systems that promote creativity and the sharing of Cooperation for a Peaceful and Sustainable World, Part 1 Contributions to Conflict Management, Peace Economics and Development, Volume 20, 185
216 Copyright r 2012 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1572-8323/doi:10.1108/S1572-8323(2012)0000020011

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knowledge (Capello & Faggian, 2005; Cappellin & Orsenigo, 2000; Maillat & Kebir, 1999; To¨dtling & Trippl, 2005; Wink, 2007). However, the question still remains: why in particular some specific agglomerations are more successful than others in initiating continuous improvements of their knowledge base, that is, what actually is the contribution of geographical proximity to knowledge generation and diffusion and how research and innovation policy can influence this relationship. Innovation requires the combination of different competencies, and firms are forced to cooperate to increase and diversify their knowledge base. Thus, innovation is the result of a processes of collective learning and flexible forms of cooperation between many different private and public, regional, and international actors.

THE IMPORTANCE OF MEDIUM TECHNOLOGY SECTORS According to Eurostat, medium technology sectors include sectors such as the following: machinery and equipment, electrical machinery and apparatus, motor vehicles, other transport equipment, chemicals and chemical products excluding pharmaceuticals, medicinal chemicals and botanical products, coke, refined petroleum products and nuclear fuel, rubber and plastic products, non-metallic mineral products, basic metals, fabricated metal products except machinery and equipment, and building and repairing of ships and boats. Some key figures highlight the importance of medium technology sectors for the European economy. In fact, while innovation policies mainly focus on the development of high technologies and R&D investments, medium technology manufacturing sectors represent the largest component (64.6%) in the trade of OECD countries in 2008, and their share has continuously increased from 53.8% in 2000, while both the share of low technology and that of high technology products have respectively decreased from 17.9% to 15.8% and from 27.0% to 21.7% in the same period. The positive performance of the medium technology sector is especially determined by the large increase in the share of the medium-low technology sectors (Table 1). The machinery and transport equipment sector (with the exclusion of office and telecom equipment) is the most important component of the medium technology manufacturing sectors. Exports (outside the European

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Table 1.

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OECD Total
Composition of Manufacturing Exports of Goods. 2000 2001 2002 2003 2004 2005 2006 2007 2008

High-technology manufactures Medium-high technology manufactures Medium-low technology manufactures Low-technology manufactures

27.0 26.2 25.4 24.5 24.4 24.2 24.2 22.5 21.7 39.9 40.2 41.1 41.6 41.8 41.6 41.1 44.2 43.5 14.9 14.9 14.8 15.4 16.3 17.3 18.5 19.6 21.1 17.9 18.4 18.3 18.1 17.2 16.7 15.9 15.8 15.8

Source: OECD STAN Indicators 2009.

Union) of this sector from the European Union (625.079 million U.S. dollars in 2007) are 1.6 times the exports of the United States (401.475) and 2.7 times the exports of China (229.932). The trade balance of European Union in this sector is highly positive (297.533 in 2007), while that of the United States is negative (
89.902), and it is 6.8 times higher than that of China (43.751), and higher than that of Japan (80.920). High technology sectors represented only 1.08% of total employment in 2006 within the EU-27 and this share has been decreasing from 1.27% in 2000. On the contrary, manufacturing medium technology sectors have a much greater importance since they represented 9.88%, and low technology sectors represented 7.25% of EU-27 employment in 2006. Thus, promotion of the competitiveness and innovation of medium technology sectors, which represent the largest share and the most dynamic component in European industry, is becoming an issue, which relates more to industrial policy, and even more to the macroeconomic performance of the aggregate European economy, rather than an issue of R&D policy and scientific excellence.

FROM THE LINEAR TO THE COGNITIVE MODEL OF INNOVATION The linear model of innovation (Balconi, Brusoni, & Orsenigo, 2008; Fagerberg, 2005) adopts a Tayloristic approach and is based on a clear division between different phases: basic research, applied research, development, production, marketing, and diffusion (Fig. 1). These phases are

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basic research

applied research

development

production

marketing

diffusion

knowledge

knowledge

knowledge

knowledge

knowledge

knowledge

Fig. 1.

The Flows of Knowledge in the Linear/Tayloristic Model of Innovation.

respectively performed by different institutions or organizations, such as universities and research institutions, large firms, small firms, and various auxiliary service activities. Moreover, each of these phases and organizations is producing a different output such as, respectively, scientific articles, patents, incremental innovation, product differentiations, new product design, or complementary services. This hierarchical sequence of activities corresponds to the organization model of firms, prevailing in the early 1950s when the linear model was first proposed and the production cycle within a “Fordist” firm was vertically integrated and centered on the moving assembly line. It also corresponds to the rational comprehensive planning model according to which the stage of plan design and evaluation anticipate in a linear sequence of the stage of plan implementation. The critique to the linear model usually emphasizes the various feedbacks and cycles that occur in the various phases of the innovation process, and the fact that often the factors stimulating innovation are not science but rather the experience of users and the need to solve technical problems occurred in order to respond to the new needs of the market (Kline & Rosenberg, 1986; Lundvall & Johnson, 1994). A different critique to the linear model may be proposed on the basis of a cognitive approach. In fact, a process of knowledge creation is occurring within each of the functions and temporal phases of the linear model. Knowledge in each phase is in a continuous evolution and needs to be combined with different and complementary knowledge, which may characterize the other phases in the abstract logical sequence indicated by the linear model. Knowledge flows from one phase to the other upward or downward phases of the linear model through the interaction between the various actors who play a key role in the individual phases. Another important and well-known distinction is that between codified and tacit knowledge. Tacit knowledge is often only defined in a residual perspective with respect to the concept of codified knowledge. On the contrary, codified knowledge may be considered as the top of an iceberg, which has a larger submersed base made of tacit knowledge. In fact, codified and tacit knowledge are cyclically combined together (Howells, 2002; Nonaka & Konno, 1998) in the process of interactive learning and knowledge creation.

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In particular, the linear model does not consider the tacit knowledge but only the codified knowledge, while tacit knowledge plays a key role in the process of innovation by SMEs in medium technology sectors where innovation is based on the capability to informally search for a solution to local and specific problems together with other partners. Codified knowledge can be interpreted as a stock or a resource, which can be transferred between persons through language and between firms within markets. On the contrary, the key characteristic of tacit knowledge is its idiosyncratic dimension or the fact that it is embedded in the specific people considered, and it may be explained as a set of personal competencies linked to the process of learning. Thus, tacit knowledge cannot be interpreted as a resource but rather as a complex set of competencies or capabilities to use the available resources (Cohen & Levinthal, 1990; Howells, 2002; Lawson & Lorenz, 1999; Nonaka & Konno, 1998; Rizzello, 1999, 2003; Wink, 2003). That explains why tacit knowledge is linked to the process of action and is often indicated as “know-how.” In particular, tacit knowledge consists either in the capabilities of an individual actor to think and to act alone or in his relational capabilities in interacting with different actors, thus facilitating his tight integration with these actors. These latter capabilities have a collective nature. In particular, the capabilities of an individual or of an organization may refer to her capability to select and interpret information, her cognitive frame and system of value, her attitude to risk taking and entrepreneurship, and her creative and learning capabilities. On the contrary, the relational capabilities consist in the “automatic” coordination between some actors, who react to external stimulus following specific “routines,” in the capability to learn together through a process of interactive learning and in the leadership and governance capabilities necessary for the organization of joint actions. In fact, tacit knowledge is related to the fact that actors may be capable of coordinating their action with that of other actors when they react to external stimuli in an automatic way according to specific “routines” that have been interiorized, have not been explicitly codified often, and are only based on experience. Moreover, through interactive learning processes and building new connections, actors learn how to learn together with other actors and jointly modify the rules of the learning process and common schemes of the interpretation of external information. Tacit knowledge is also represented by the rather implicit esteem and thrust that individual firms or entrepreneurs enjoy in the local business community, as the organizational and managerial capability to govern or steer the action of other actors go far beyond codified knowledge.

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The limit of the linear model does not consist only in overlooking various important types of knowledge different from the scientific codified knowledge, such as engineering-based tacit knowledge, but especially in the fact that it focuses on the process of transfer of knowledge rather in that of the generation of knowledge. R&D activity should neither be considered as a black box transforming input into output nor the only process for creating new knowledge. On the contrary, the generation of knowledge is analyzed by cognitive theories (Egidi & Rizzello, 2003; Loasby, 2002, 2003; Lundvall & Johnson, 1994; Metcalfe & Ramlogan, 2005; Nonaka & Konno, 1998), which explain knowledge and innovation as the result of an interacting learning process occurring in a network made by various actors. On the basis of these principles, the model of “territorial knowledge management” (TKM) identifies a logical and temporal sequence of six phases and factors in the process of interactive learning and innovation (Cappellin 2003b, 2007; Cappellin & Wink 2009): external stimulus, accessibility, receptivity, identity, creativity, and governance, as indicated in Fig. 2. While these concepts have individually been extensively described in the economic literature, they have not previously been linked together in a coherent model based on the cognitive science literature. In fact, the external “stimulus” induced by the opportunities of demand or the pressure of competition, or change in technologies (Fagerberg, 2005; Kline & Rosenberg, 1986), determines a tension that leads to the search for a solution to the problems of the firm. This search process is facilitated by a lower geographical and/or organizational distance or by a higher “accessibility” to potential complementary partners (Boschma, 2005; Cappellin,

interaction

accessibility

creativity

identity

external stimulus receptivity

combination

innovation governance capabilities

Fig. 2.

The Systemic/Cognitive Model of Knowledge Generation. Source: Cappellin and Wink (2009).

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2004; Howells, 2002; Karlsson, 1997; Simmie, 2005; Torre & Rallet, 2005). It also requires that these latter have a low cognitive distance or an appropriate “receptivity” or absorption capacity (Antonelli, 2005; Cohen & Levinthal, 1990). Then, the creation and strengthening of a common “identity” made up of common values, a sense of common belonging, trust relatioships, social or relational capital, and high institutional proximity (Capello, 1999; Capello & Faggian, 2005; Crevoisier & Camagni, 2000; Nooteboom, 2000) are the prerequisite for cooperation among firms and their search for joint solutions. These new solutions are the result of “creativity” (Cappellin, 2003a; Florida, 1995; Wink, 2007) or of the capability of the various local actors to combine different and complementary pieces of knowledge in an original manner, and to interact between them in the framework of a collective learning process (Geenhuizen & Nijkamp, 2006; Kaiser & Prange 2004; Maillat & Kebir, 1999; Morgan, 1997). Finally, these new ideas can be translated into economic innovations only when appropriate organizations and institutions or “governance” (Cooke & Morgan, 1998; Powell, 1990) promote the commitment of appropriate real resources and financial funds and enhance the integration of the new ideas with complementary production capabilities. Moreover, innovation is leading to a process of learning and the development of the capabilities of the individual actors, thus improving the various factors indicated above. Finally, innovation of a firm is going to change the external selection environment for other firms, and it may represent the stimulus to innovation for them. That indicates that innovation and learning are a dynamic and cumulative process occurring in a regional or national innovation system and also across regions and countries. This sequence of relationship appears most clearly in the case of medium technology sectors, such as automobile production or machine tool productions. In these sectors, the production process is organized in a complex supply chain, and the “stimulus” to innovation derives both from the clients and the specialized suppliers, which are located (“accessibility”) in the same geographical area or belong to the same sector or network. The process of co-makership leads to a form of interactive learning, as the cognitive distance (“receptivity”) between the firms is very low, and the creation of new solutions (“creativity”) emerges through various forms of cooperation, which are facilitated by industry associations and other intemediate institutions (“identity”) and are organized in the framework of projects steered by various institutions and ad hoc organizations through contractual arrangements (“governance”) linking the various firms.

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However, a very similar process of cognition and interaction between various actors can be identified even in high technology productions and in R&D programs, and the systemic-cognitive model of innovation can be applied also to these sectors. The systemic-cognitive model to innovation differs from the more traditional regional innovation system approach (Cooke, Heidenreich, & Bracyk, 2003; Cooke & Morgan, 1998) due to an explicit reference to the cognitive literature. That allows us to establish a logical relationship, as indicated in Fig. 2, between various factors, which are coalesced in an unpredictable manner in the regional system of innovation approach. Moreover, the systemic-cognitive model may not be applied to explain only geographical clusters but also sectoral clusters which overcome the regional boundaries. Therefore, a radical shift of perspective is needed from the concept of technologies, R&D expenditure, and rational process of optimization of individual firms to a new perspective focused on the processes of knowledge creation and learning within networks and on the development of the internal capabilities of firms and actors. In particular, the systemic/cognitive model underlines the importance of three concepts: (1) connectivity, (2) creativity, and (3) speed of change (Cappellin, 2003a; Cappellin & Wink, 2009).

CONNECTIVITY, ACCESSIBILITY, AND RECEPTIVITY The concept of connectivity implies that the creation of new knowledge cannot develop within a single isolated firm while it requires the external stimulus and the interaction with various actors, who may belong to different sectors. The creation of connections requires a high accessibility, which is affected by various types of distance: geographical, organizational, or institutional (Cappellin, 1988, 2004; Torre & Rallet, 2005). Also a high receptivity is important, and that depends on the individual competencies of the single actors who interact on the respective cognitive distance (Boschma, 2005; Nooteboom, 2000). In the perspective of spatial economics, it can be underlined that all processes of knowledge creation, and in particular production know-how, have a localized or territorial nature (Antonelli, 1998; Cappellin, forthcoming; Cappellin & Wink, 2009) and develop in a specific context, which requires the cognitive proximity of the various actors who participate in interactive learning processes.

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However, geographical proximity and even temporary geographical proximity alone is only a facilitating factor and is neither a sufficient nor necessary condition for promoting cooperative relationships in innovation. First, geographical distance may be compensated by organizational proximity (Torre & Rallet, 2005) when these individuals are linked by belonging to the same organization, such as the same firm, characterized by internal routines and procedures, which may facilitate their relationship. Moreover, it may be compensated by institutional proximity, when these firms are linked by the existence of a common institutional framework, made by procedures, contracts, norms, and intermediate institutions that perform the role of soft infrastructures facilitating their relationship. These forms of institutional integration can also be called “social capital” and are the base for the sense of belonging, common identity, and thrust. In fact, knowledge circulates within networks through formal and informal institutions. Explicit or codified knowledge may be exchanged on technology markets. Instead, tacit knowledge requires allocation mechanisms, which are different from the markets; since it has an asymmetric character, it implies high risks and requires reciprocal trust, identity, and shared values leading to collaborations. Only specific organizations and institutions and not traditional markets are capable of ensuring those connections that allow the exchange and the tight interaction of tacit knowledge and competencies. However, a key distinction is important. In fact, while the three concepts of geographical, organizational, and institutional distance or proximity refer to external obstacles hindering the relationship between individuals, firms, or actors, the concept of receptivity or of cognitive proximity is related to the internal characteristics of these individuals, firms, or actors. Thus, the existence of “objective opportunities” or obstacles for interaction should be complemented by the existence of “subjective capabilities” leading to the exploitation of these opportunities. Receptivity (Cohen & Levinthal, 1990) may also be defined as “cognitive proximity” (Boschma, 2005) since it refers to the similarity of the subjective mental frame of the individual actors considered and the tacit and codified knowledge owned by these actors, as these characteristics may facilitate the process of interactive learning between them. Moreover, cognitive proximity represents a key factor for the extension at the international level of the cooperative relations in the process of interactive learning between the various firms. In particular, in the systemic-cognitive model of Fig. 3, geographical and organizational proximity are indicated by the concept of “accessibility,”

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B

A

K

C

Fig. 3.

Creativity as Combination of Different Accessible Knowledge. Source: Cappellin and Wink (2009).

cognitive proximity by the concept of “receptivity,” and institutional proximity by the concept of “identity” in Fig. 2 above. This model of innovation establishes a logical link between the four concepts of distance
geographical, organizational, institutional, and cognitive distance
and has the advantage with respect to previous literature to determine in more detail in what way the different dimensions of proximity are related to each other. Moreover, it indicates how the different dimensions of proximity coevolve in different stages of development of a cluster. In fact, regional innovation systems and territorial networks ensure the advantages of closer accessibility or higher geographical, organizational, and institutional proximity between the firms belonging to the same regional innovation system. They also ensure the advantage of a higher receptivity or closer cognitive proximity, as the actors may become more similar due to the long-term effect of more frequent interactions. Both the accessibility and receptivity evolve in time and are the result of previous actions. The continuous investment in soft and hard infrastructures is increasing the accessibility between two actors, while their reciprocal receptivity is affected by the gradual development of competencies, which are a result of the processes of interactive learning between these actors. Thus, regional production systems should be analyzed against a historical background and are the result of an evolutionary development, as it will be indicated later with reference to three different types of clusters in Table 2. In this perspective, regional policy-makers need to orient policies aiming at the promotion of learning and innovation in a specific cluster or territorial network in order to enhance the factors associated with

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Table 2. Why the Process of Innovation in SMEs and in Medium-Technology Sectors Differs from That of Large Firms in High-Technology Sectors.

Key factor

Linear/Tayloristic Approach

Cognitive/Systemic Approach

Technology

Knowledge

External stimulus

Cost competition, supply changes, and new equipment

Market orientation, demand changes, and user needs

Internal process

In-house R&D and technology transfers Interactive learning

Role of human resources

Labor substitution and receptivity to new technologies

Competencies of the actors, creativity, and entrepreneurship

Competitiveness factor

Productivity increase and economies of scale

Continuous innovation, flexibility, and fast change

Governance model

Rational optimization by individual firms and government bodies and/or market competition

Connectivity, iterative adaptation, and selection within innovation networks

Policy instruments

Public finance to R&D and public market regulation

Multi-level governance, bridging institutions, and public-private partnership

Source: Cappellin and Wink (2009).

various types of proximity, which are different from traditional geographical proximity. In conclusion, a systemic approach to innovation indicates the need of innovation policies aimed at promoting the creation of knowledge networks, the cooperation between the local and the external actors, and the development of competencies and tacit knowledge of these actors.

THE CREATIVITY PROCESS, TACIT KNOWLEDGE, AND COGNITIVE DISTANCE While distance has always been the object of regional research, a greater research effort seems to be needed in order to study the regional dimension of the two other concepts indicated above: creativity and speed of innovation. The creative process is a key component of the cognitive process as it leads to the creation of a new set of knowledge (Asheim, Boschma, & Cooke, 2007; Florida, 2002; Wink, 2007).

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Tacit knowledge plays a key role in the process of knowledge creation. Various forms of interaction between SMEs occur in the process of innovation and lead to the sharing of information, that is, codified knowledge and “tacit” knowledge. Internal tacit knowledge has to be combined with others’ tacit knowledge and with codified knowledge. Through a socialization process with the other actors, tacit knowledge generates collective tacit knowledge and it may also be transformed into new codified knowledge, which is the objective of knowledge management methods. In particular, as indicated by Loasby (2003), the actual generation of new ideas is necessarily tacit, and what has not been thought cannot yet be codified. New ideas always develop at the frontier of different established knowledge fields, which are extended into new directions. Therefore, the growth of knowledge is always at the margin (Loasby, 2003). Moreover, innovation emerges by breaking established links in order to create new links. This process is similar to Schumpeter’s process of “creative destruction,” and it allows us to establish connections between previously separated concepts or actors, breaking or extending established borders. Both exploration and exploitation are a component of the creativity process. Exploration is the search for diversity, while exploitation is the search for homogeneity and compatibility. Creativity requires “combinative” knowledge or the original combination of different “specialized knowledge,” which may be represented by information, technology, and tacit and codified knowledge in the framework of an iterative process of experimentation of failure and success (Asheim et al., 2007; Florida, 1995, 2002; Wink, 2007). Creativity is based on imagination and pattern making, which allows us to establish new connections between pieces of information and knowledge. It is the result of a process of selection, association, and simplification (“pattern making”) that allows us to combine different and complementary information, technology, and knowledge borrowed from various sectors, disciplines, and regions in the solution of a specific problem, which stimulates action and usually requires the joint contribution of various actors interested in it. Creativity requires exploration, social interaction, and a wide set of connections, allowing for the sharing, transforming, retaining, and creating of knowledge. It is based on joint work and it implies reflexivity, contestation, negotiation, and problem-solving. It may be hindered by the lack of needed competencies in the local economy leading to a situation of lock-in. This process is cumulative, as creativity or knowledge creation leads to the development of new technical and organizational competencies, which

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increases receptivity. In fact, creativity is both a factor of a learning process, as it allows us to create new knowledge, and it is also the result of a learning process, as the new knowledge being created improves the creative capabilities and the capabilities to further develop the learning process. This complex connection of different parts of knowledge is characteristic for innovations in medium technology firms, as they need to connect new ideas and existing knowledge to solve new specific problems hitherto unknown and often exclusively emerging in relationship with a single customer. Science-driven knowledge in high technology sectors on the other hand advances through the marginal extension of the existing analytical or abstract knowledge base and through logic or mathematical thinking, and it is leading to discoveries characterized by a more general applicability to different problems in various productions. Thus, the concept of creativity may be illustrated as the combination of three basic colors
red, green, and blue
which creates all other colors. Similarly, three pre-existing pieces of knowledge (A, B, C), whether combined in an original way, give origin to a new knowledge: K (Cappellin & Wink, 2009), as indicated in Fig. 3. That capability to combine different specialized knowledge may be defined as combinative knowledge. Creativity not only requires the combination of various types of knowledge but also the interaction between various actors, which may have different competencies. Therefore, it is clear that creativity in a region is stimulated by diversity, as it is typical of the urban areas that have a highly diversified sectoral structure and is indicated by the concept of urbanization economies according to Jacobs (1969). Thus, three productions
A, B, and C
which are based on three specific fields of knowledge may create a new production K, which is based on new knowledge, by enlarging the reach of their respective specialized knowledge or by decreasing the cognitive distance, thus overcoming the barriers that have previously separated them. This model is analogous to the concept of Weber’s “critical isodapane,” which allows us to explain the spatial agglomeration as an effect of a decrease in transport costs. In fact, the enlargement of the critical isodapane, as indicated by the arrows in Fig. 3, allows us to combine different specialized knowledge, when the adjustment costs of the previous knowledge are lower from the potential benefit of the new knowledge. In fact, the geographical concentration by various productions in a cluster can be substituted by the cognitive interaction within a network of the same productions.

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The new knowledge is the result of the combination of previous knowledge. Thus, the diversity between the three productions and the original cognitive distance existing between them is the condition for the creation of a variety or for the creation of a new production K, which is different from the previous productions. This process of extension and combination of existing knowledge is facilitated in the case of tacit knowledge. In fact, tacit knowledge can be easier recombined than codified knowledge, as it is more implicit, ambiguous, and flexible. Thus, recombining knowledge from different agents, sectors, disciplines, and countries is easier when the tacit component is very strong. On the contrary, the codes inherent in different bodies of codified knowledge are excessively stringent and can impose univocal interpretations and rigidities in the use and modification of knowledge itself. Thus, these codes may be incompatible with each other. Tacit knowledge is more difficult to be transferred between distant agents, as it requires personal contacts and a deep reciprocal knowledge and trust. However, in some cases, the lack of geographical proximity may be compensated by an adequate organizational or institutional proximity, which may allow transferring tacit knowledge at large distance within organizations and institutions. Thus, networks may represent the appropriate organizational structure to organize diversity, facilitate the sharing and combination of tacit knowledge, and stimulate creativity. In fact, tacit knowledge is not “transferred,” as in the case of codified knowledge, but rather it represents a capability that can be learned or “thought” as the result of a process of interactive learning, through which the actors develop internally with the collaboration of external actor-specific new creative competencies that will allow them to adopt process and product innovation. Tacit knowledge cannot be “transferred” internationally as in the case of codified knowledge through better communication but only through the organization of networks of international collaboration. These networks allow to organize processes of interactive learning between the firms of different countries and to promote the development of new competencies in the economic lagging regions through the creative combination of internal traditional competencies and external specialized competencies. Thus, the so-called “interregional transfers” of tacit knowledge may be the result of a European regional and innovation policy, which develops and governs this process of collaboration and interactive learning between different regions.

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SPEED OF CHANGE AND FLEXIBILITY OF INNOVATION NETWORKS The time and speed of innovation represent a third dimension of the process of innovation, next to the concepts of interactive learning and of creativity. This concept is tightly related to those of flexibility and of network steering or governance. The adoption of a network perspective allows us to highlight some new aspects of the process of technological change. In fact, in a network perspective, technological change may be interpreted as the result of the continuous or gradual search by each node, of the most appropriate level and form of integration or cooperation with the other nodes or actors within the network (Cappellin, 2003a). Technological change is similar to a process of iterative adaptation of the direct and indirect links between any couple of nodes in order to maximize their respective interaction and integration. In fact, like a school of fish moves in a coordinated manner and may suddenly change direction and speed, many firms and actors participate within an innovation network to the process of innovation, performing specific tasks and introducing innovation in their respective field of activities. They procure innovative products/services from supplier firms and provide innovative products/services to client firms. Input sources are complementary between themselves, and on the other hand, clients of the products are fungible between themselves (Fig. 4). The selection of suppliers and that of possible clients is related to their respective waiting and searching times and is affected by the scanning costs or switching costs indicated above.

Complementarity of inputs

Fig. 4.

Fungibility of ouputs

Complementarity and Fungibility of an Innovation with Respect to Previous and Successive Innovations.

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The speed of innovation process is decided by the speed through which the firm is capable to orient itself and to select between the possible suppliers and between the possible clients. The speed in the selection of suppliers and clients and the time lags in the innovation processes between two cooperating firms depend on the adaptive and strategic behaviors of each firm and on various types of costs and factors, such as the transaction costs in the negotiation process, cognitive distance between the partners, the memory of previous experience, the reciprocal learning costs, the receptivity of each partners, the trust relationships, the risk of opportunistic behaviors and the asymmetry of information, the preference for the future, for novelty or the risk aversion, and the existence of specialized services and bridging institutions. In fact, the speed in decision-making and coordination in a network depend on “good” leadership or the capability to steer the action of other actors or on good governance, which is more an art than codified knowledge. In general, the speed of the innovation process depends on the adjustment costs (Cappellin, 1983) and on the transaction costs (Williamson, 1981) that affect the coordination of a firm with the other firms, which have previously innovated or which will use the results of its innovation. This process may also be compared to a relay race, where a runner should hand off the baton to the next runner. Usually, the latter starts running before the first runner has completed his run. That allows us to initiate a collaboration with other firms before they will complete their innovation and to collaborate with them in orienting the final results of their innovation effort, while a learning process is occuring in the firms, who later initiate their innovation process (Fig. 5). Each firm in turn may assume the lead of the innovation effort performing the role of the key innovator and uses the contributions previously elaborated by other firms and provides an original opportunity both for the other follower firms, who will continue the innovation effort, and for the competitors, who will imitate and improve his original solutions. Moreover, the process is cumulative as the last innovator may set some new

Sequential Interactive

Fig. 5.

The Speed of Innovation in a Sequential Model and in an Interactive Model Between the Firms of a Cluster.

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initial conditions for a new round of innovation among the firms that were uphill in the innovation cycle. The almost spontaneous coordination between the firms in an innovation network allows a high flexibility to rapidly change the direction of the innovation effort, reacting to new opportunities or challenges. In a dynamic environment the creation of value and of new knowledge depends on the integration of the knowledge acquired from many firms and the speed of innovation depends on the interaction between a plurality of actors. Due to their flexibility, networks represent the most effective form of organization to promote a fast speed of innovation. In fact, the major advantage of the network model of organization is to ensure to the firms a faster access to a wide scope of complementary competencies existing in other firms and to remove the barriers, which are hindering operatation into new products, processes, and markets and could lead to a lock-in situation. Through network integration, firms are capable of decreasing the resources and time for adopting an innovation, with respect to the situation where they would be required to develop internal capabilities. This high flexibility is a key competitive factor in a dynamic market, where innovation has to be adopted faster than competitors. Networks promote interactive learning and evolution. Networks are a form of learning organization, which ensure a greater overall dynamic efficiency. While competition and monopoly are static models, networks promote dynamic processes of adaptation, specialization, and selection both within individual firms and at the aggregate level between the different firms. Networks are characterized by lower adjustment costs or switching costs (Cappellin, 1983) in the choice of new possible partners. Networks also imply less transaction costs (Cappellin, 1988; Williamson, 1981) in inter-firm relationships than a competitive market made by isolated producers and users. Weak ties or indirect links can easily be transformed into strong ties or direct links, when the need to respond to external opportunities and threats make that necessary. For example, networks allow even SMEs to have access to global markets, as through indirect links or the cooperation with large local or foreign firms it is possible to export and also to produce in remote areas without a direct investment of the firm considered. Within networks, firms can easily change the level of cooperation with previous partners, as implicit contracts can be adapted more easily in formal contracts. Moreover, networks lead the various actors to invest in the creation or strengthening of soft and hard infrastructures and routines linking them. That makes the relationships between firms more intense or increases the speed of the flows between the firms.

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The capability of the individual firm to orient itself between the various suppliers and the possible users of its own products depends on the existence of institutions, which stimulate the reciprocal trust and limit the risk of unfair behaviors, and of specialized professional services (knowledgeintensive business services, KIBS), which perform the function of bridging institutions or of immaterial infrastructures between the various firms. In fact, the speed of decision and coordination in a network depends to a large extent on the actor who performs the function of leader and is capable to orient the other actors. That high flexibility of a network is a key competitive factor in a dynamic market, where innovation should be adopted before the competitors.

THE GOVERNANCE OF KNOWLEDGE AND INNOVATION NETWORKS Relationships in a network should be based on negotiations and agreements and neither on competition leading to conflicts or to the defeat and exclusion of some actor, nor on hierarchical power relationships leading to mergers or bureaucratic organizations. Governance enhances the combination of complementary capabilities on the base of public and transparent negotiations and agreements. From a theoretical perspective, it is possible to distinguish three separate forms or models of the relationships between economic actors. In fact, on the one hand, innovation breaks the order of the hierarchy, and on the other hand, it requires a tight and long-term dialogue and cooperation between different and complementary actors, which is not ensured by the individualism, the conflicts, and also the collusion characterizing relationships between economic actors. The governance/agreement model represents a new and different paradigm, which is basically different from the free market/competition model and from the government/hierarchy model. In particular, in a governance model, the coordination is the result of the negotiations and explicit agreements between a limited number of individual stakeholders. This tripartite distinction allows us to overcome the traditional divide between the “Market” and the “State” and to identify a third alternative, which is most important in the European countries (Powell, 1990; Rhodes, 2007). This distinction is related to the respective advantages of the so-called liberal market economies (LMEs; such as the United States, the United

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Kingdom, Australia, Canada, New Zealand, and Ireland) and the coordinated market economies (CMEs; such as Germany, Austria, and Switzerland; France, Italy, and also Japan) analyzed by Hall and Soskice (2001, 2003) in their edited volume on Varieties of Capitalism, as the management of interdependencies between individual, collective, and corporate actors in CMEs is different both from the government model and also from the market model. In the highly CMEs of continental Europe, intermediary organizations play an important role in processes of exchange between economic actors and strategic interaction, or non-market relationships among firms and other actors have a key role in the investment decisions and innovation. In some cases (i.e., technical standardization), communities of individual actors through their respective organizations may establish “private interest governments” (Streeck & Schmitter, 1985). Sorge and Streeck (1988), for example, identified this influence as the main reason why the German industry reached a comparative advantage in the field of “diversified quality production.” In fact, the sectoral specialization in medium technology sectors organized in the form of networks of SMEs is tightly related to the existence of a complex system of intermediate institutions made by local chambers of commerce, territorial and sectoral specific industry associations, trade unions, professional associations, public vocational schools, local universities and research organizations, local banks, etc. and to the adoption of the governance model of social and institutional relations. Due to their different form of regulation, Hall and Soskice hypothesize that LMEs specialize in radical innovation, while CMEs focus more on incremental innovation. Our argument is similar but also different, as we indicate that the existence of a thick system of intermediate institutions plays a key role in explaining the concentration of medium technology sectors in CMEs. On the contrary, the lack of this system of institutions explains the lack of significant clusters in medium technology sectors as also the large trade deficits in these sectors in the LMEs, such as the United States or the United Kingdom. Massive public industrial investment subsidies and also a large effort in R&D, such as in the United States after the 2008
2009 global crisis, may prove ineffective for the reindustrialization and the development of medium technology sectors in some countries, which have lost these sectors a long time ago. In fact, the aim to re-industrialize the economy would require a long-term effort in the construction of a system of institutions,

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which are lacking in these countries and represent the institutional environment without which it is impossible to promote the complex processes of innovation characterizing these sectors. On the other hand, in many modern capitalist economies in Europe, the various forms of collusion between firms, in the bank, insurance, industry, and media sectors, through direct and indirect financial links and the exchange of positions between the boards of these organizations, and the tight personal relations between the representatives within the various industry associations and with the world of politics, have determined pervasive conflicts of interest between the supplier and the user, and the controlled and the controller, which are damaging the final consumers and the citizens. Clearly, SMEs in medium technology sectors are excluded from these exclusive networks and are hindered in their diversification and growth. That contrasts with the fact that the network model is based on the principle of specialization, as each node should perform a different function or role within a network. In a network model, the relationships between actors are based on monetary or real exchange, negotiation, but also on specialization, division of labor, and separation of roles and of activity, in order to avoid conflicts of interest. As indicated by A. Smith’s specialization principle, the more developed a society is, the greater should be the division of labor between sectors and also the division of powers between the different firms and organizations. Regulation allows separation of functions and recognition of the respective legitimacy of each actor and avoids confusing their individual roles. Governance should ensure the separation of the fields of activity of the different firms and organizations in order to prevent conflict of interests and to ensure a system of checks and balances. Regulation or governance is required in a network in order to prevent vertical and horizontal collusion, which may damage other actors. The alternative to a free unregulated market is not represented by state capitalism or dirigism but rather by a modern system of governance based on;  the specialization and division of labor between the various actors in order to prevent conflict of interests and to ensure a system of checks and balances;  transparent public negotiations and agreements based on reciprocal recognition and trust and allowing the control by consumers and citizens; and  an active role of public institutions as facilitators and leaders in the design of medium-term projects.

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In conclusion, cluster policies require new forms of governance of the relationships between the various local actors and also the identification/ selection of new actors. The multiplication of players and layers of negotiation
international, national, and local
demands a different model of regulation, “multilevel governance” (Kaiser & Prange, 2004), based on organizational structures of interaction and partnership. In particular, while medium-sized firms alone have developed vertical flows of tacit knowledge within their respective supply chain, they need to be supported through appropriate innovation policies in order to develop horizontal linkages between different technologies.

THE COMPARISON BETWEEN THE TWO MODELS OF INNOVATION The process of innovation in the medium technology sectors and in the networks of SMEs has very different characteristics than those indicated by the linear model and also by the “chain linked” model (Balconi et al., 2008; Fagerberg, 2005; Kline & Rosenberg, 1986), as both these models underline the importance of formalized R&D activities. On the contrary, the systemic model of innovation is based on the indications of the cognitive theories and is useful in explaining learning processes, which are overlooked by the linear model. The crucial points that differentiate a systemic or cognitive approach from a linear or Tayloristic approach in promoting innovation in the SME networks of medium technology sectors are highlighted by Table 2. The stimulus for change and innovation within firms is not solely determined by the pressure of competition, the need to increase productivity and reduce costs, or the opportunity created by the supply of modern technologies and the use of modern equipments. On the contrary, the most important factor is represented by the identification of new markets, the aim to adapt to changes in demand, and the opportunity to satisfy the needs of new users. While in the linear model of innovation the formal process of R&D investment plays a key role, the systemic approach of innovation highlights that solutions are gradually discovered through a process of interactive learning involving many different actors not only within the R&D laboratories. The desired outcomes are not just the increase of productivity indicators, often interpreted as disjoint changes, but rather the speed of

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a continuous process of innovation where each change is the evolution of previous changes. Entrepreneurship and governance, through publicprivate partnerships, are required to organize the joint efforts of different actors and firms. The focus shifts from stimulating competition between the local actors to promoting connectivity and iterative processes of reciprocal adaptation and selection of the best productive combinations.

TERRITORIAL KNOWLEDGE MANAGEMENT IN THREE TYPES OF REGIONS Regional production systems are evolving from the model of industrial clusters and industrial districts based on many rather homogenous firms linked by flows of knowledge spillover to the model of territorial innovation networks made by complementary specialized firms, linked by formal forms of cooperation in production and commercial and technological fields, not only locally but also increasingly at the interregional and international level. Territorial networks may be classified into three types of networks: “ecological networks,” “identity networks,” and “strategic networks,” which have different characteristics as indicated in Table 3 (Cappellin, 1998, 2007; Cappellin & Wink, 2009). Regional production systems most often have evolved from the form of a simple agglomeration of similar SMEs, such as in so-called “ecological networks,” to the form of a community characterized by intense processes of interactive learning, such as in so-called “identity networks,” and may finally evolve to the form of “strategy networks,” characterized by an explicit governance of knowledge interactions between the various firms. This typology of regions differs in some respects from similar typologies (Asheim & Coenen, 2005; Cooke, Heidenreich, & Braczyk, 2003; To¨dtling & Trippl, 2005; Wink, 2010). In particular, “ecology networks,” such as “Third Italy” industrial districts in the late 1960s and early 1970s, are characterized by strong unintended interactions among various actors, and they facilitate various forms of traded and untraded technological interdependencies or technology spillovers such as those that occur in geographical agglomerations. Ecology networks may be assimilated to “agglomeration economies.” They are made by relationships of objectively observable stable interdependence. They are also based on behavioural adaptation, strong specialization, complementarities, and idiosyncratic relationships. Basically, ecology networks are the result of geographical agglomeration, and they characterize the

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Table 3. The Process of Knowledge Creation and Innovation in Three Different Regional Networks. Ecological Networks

Identity Networks

Type of Relationship Form of interaction

External Economies Interdependence

Exchange Cooperation

Self-consciousness

Objective homogeneity

Formalism

Informal relationships: imitation Geographical proximity

Subjective factors, intended relationships, sense of identity Informal relationships: trust relationships Common infrastructures, intermediate institutions, social capital Synthetic/symbolic knowledge Examination/ Exploitation Interactive learning

External support

Key knowledge base Key knowledge phase Knowledge interaction

Symbolic/synthetic knowledge Exploitation

Differentiation process

Knowledge spill-over Homogeneity

Innovation New firms

Process Imitative

Autonomous specialization Organizational More specialized

Strategy Networks Joint Investment Strategic coordination Subjective factors, intended relationships, joint aims Formal relationships: contracts Joint decisionmaking and policy-making

Analytical/synthetic knowledge Exploration/ examination TKM and R&D Division of tasks Product Innovative

Source: Cappellin and Wink (2009).

areas of concentration of the firms belonging to the same sector, such as an industrial cluster, or also widely diversified areas, such as urban areas (Cappellin, 1988, 2007). Information and communication technologies may favor the creation of these types of networks. Ecology networks are the result of external economies, which are also defined as “localization economies” or “urbanization economies” and spread in a rather automatic and casual way between the various firms and actors living in a specific local environment. “Identity networks,” for instance “Third Italy” industrial districts in the late 1990s, are based on the sense of identity and common belonging and on the existence of trust relationships and specialized intermediate

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institutions (“social capital”). They may be defined as places of collective learning, whereas the development of common production know-how occurs. Typical cases of such community networks are the industrial districts or the regional innovation systems. This subjective element distinguishes them from ecology networks. Thus, community networks require the sharing of a homogeneous culture, common values, and the development of common production know-how. However, they lack the capability of central coordination and strategy-making. “Strategy networks,” such as metropolitan areas and some industrial clusters in various European countries during the 2000s, are based on intended relationships and cooperative agreements between firms and other organizations. They are the result of negotiations, agreements on specific strategies, and the creation of formal and explicit joint ventures by the participating actors. Strategy networks also imply the reciprocal commitment of specific resources, which are invested in order to achieve common goals and future but uncertain benefits. They imply forms of central coordination, the creation of procedures for the exchange of information, the codification of individual implicit knowledge, and the joint investment in the creation of collective codified knowledge. Strategy networks may be represented by widely geographically dispersed strategic alliances made by a pool of large and small firms in different regions or by local clusters and regional innovation systems that explicitly want to become a “learning region.” In a sectoral perspective, within the same region such as Lombardy, ecology networks seem to describe the networks between high fashion retail trade in a center city or tourist activities. Identity networks describe the relationships in machine tool clusters. High technology networks describe the relationships in the case of biotech networks. These three types of networks are characterized by different forms of knowledge interactions. In fact, knowledge spillover characterize the ecological networks, interactive learning processes characterize the identity networks, and explicit governance of knowledge relations between the various local and non-local actors characterize strategy networks. Moreover, it is useful to distinguish three types knowledge (Asheim et al., 2007; Asheim & Coenen, 2005), such as (1) science-based or “analytical” knowledge that is important in high technology sectors, (2) engineering-based or “synthetic” knowledge that is most important in medium technology sectors, and (3) creativity-based or “symbolic” knowledge that is most important in low technology sectors. In fact, each of these three types of knowledge is important in each of the three types of territorial innovation networks

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indicated above, as given in Table 3. In each type of region, the characteristics of the knowledge base seem to evolve and/or often be characterized by the prevailing combination of two types of knowledge. TKM is an operational framework, which aims to organize the cognitive relationships between the firms in the process of innovation within the local network of a cluster (Cappellin, 2003b, 2007; Wink, 2003). In a traditional production system, the required information and competencies often are circulating only in a too implicit, complex, and slow process. TKM shall serve to facilitate the flows of tacit and codified knowledge and aims to make the organization of knowledge interactions more explicit and formal. The approach of TKM is based on the concepts of cognitive economics, such as the concepts of networking and integration, interactive learning, and knowledge creation. As illustrated in Fig. 2, this approach highlights (Cappellin, 2007) that there are six factors or drivers, which represent key necessary conditions for the development of interactive learning processes within a network. Thus, the approach of TKM allows us to overcome the traditional dichotomy between tacit and codified knowledge and the often ambiguous process of transformation between these two types of knowledge, while it allows us to clarify the distinct factors or drivers that determine the process of cognition and learning both at the individual and at the collective level. Table 4 illustrates that the TKM approach can be flexible enough to consider the specific characteristics and differences of three types of regions and sectors of specialization and to identify the strategic problems and the policy areas on which to intervene, in order to promote innovation in these three different regional innovation systems. In particular, major factors of the weakness of clusters specialized in medium technology sectors are (1) a low international accessibility, (2) lack of creativity and low product innovation instead of the hitherto focus on process innovation, and (3) the need for formal instruments of governance of knowledge relations to enhance the emergence of more formal cooperation between the firms. Innovation policies in the modern industrial clusters specialized in medium technology sectors should take into account the nature of their knowledge base mainly consisting of synthetic and symbolic knowledge and the form of their knowledge interaction characterized by interactive learning processes. On the contrary, clusters specialized in high technology sectors indicate different key problems, such as (1) a low local embeddedness of large firms; (2) problems in combining R&D activities or analytical knowledge,

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The Policy Areas in the Territorial Knowledge Management in Three Different Regional Networks. Ecological Networks

Regions, sectors, and firms Innovation stimulus

Peripheral regions Low tech sectors Traditional SMEs Cost competition in the global market

Accessibility Low international accessibility, low local accessibility Receptivity Low qualification of human resources Identity Fragmentation and external dependence Creativity Technology adoption

Identity Networks

Strategy Networks

Industrial clusters Medium-technology sectors Innovative SMEs Customer needs and high supply chain integration

Urban areas High-technology sectors Large enterprises Product innovation in specialized markets and technology push High international accessibility, low local accessibility High internal sectoral diversity Low cognitive proximity and common identity

Low international accessibility, high local accessibility Specialized skilled workers High local embeddedness and local identity

Networking and interactive learning Governance Public infrastructures Multi-level governance at the regional level and and finance and deregulation bridging institutions

High investments in R&D National industrial strategies and firms alliances in specific fields

Source: Cappellin and Wink (2009).

which are science and technology driven, with symbolic knowledge based on creativity, which is driven by the users’ needs and the demand; (3) the need to avoid a too high concentration in large firms and to promote spin-offs and also the participation by SMEs and other social partners in strategic decision-making. These clusters can be found mostly in central and metropolitan urban areas. Knowledge networks in these areas are characterized by links between large firms and research institutions and by professional networks within KIBS. Innovation policies in central urban areas should take into account the nature of their knowledge base consisting of analytical and synthetic knowledge and promote forms of coordination of knowledge flows through TKM and joint R&D projects. Finally, clusters specialized in low technology sectors are characterized by various weaknesses, such as (1) too low international accessibility, (2) the lack of receptivity and qualified skills, and (3) the lack of identity and fragmentation in decision-making. These clusters are typically located in less developed and peripheral areas being dependent on public

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subsidization and so far exclusively on cost advantages. Innovation policies in the less developed peripheral areas specialized in low technology sectors should take into account the nature of their knowledge base, mainly consisting of symbolic or creativity-based knowledge and sometimes of synthetic or engineering-based knowledge, and the form of knowledge interaction in these regions, characterized by automatic knowledge spillover based on geographical proximity.

CONCLUSION The innovation process in medium technology sectors is different from the “linear” approach focusing on R&D expenditure and the rational process of optimization of individual firms, and it can be interpreted according to a “systemic” and cognitive approach. While a linear approach aims to promote transfers of information and modern technology or to provide customized expertise to individual firms, a systemic approach focuses on creating knowledge and innovation networks between the various local and external actors in a regional innovation system, on the development of their internal capabilities, and on the exploitation of their complementarity. The theoretical framework described in this study for innovation policies in the medium technology sectors allows us to underline the following conclusions: 1. Medium technology sectors are the largest positive component in the European trade balance. 2. Competitiveness in medium technology sectors is determined by the speed of innovation and creativity rather than by lower production costs. 3. R&D is not the main factor of innovation in medium technology sectors but rather tacit knowledge, human competencies, learning processes, and networks. 4. Human resources should not be considered as a factor of resistance to the adoption of innovation but rather as the source of core capabilities and the key actors in learning and knowledge creation. 5. Also, SMEs and not only large firms compete through innovation. 6. Clusters of SMEs promote innovation, and the most important innovations are not the results of a single entrepreneur but of the interaction between various economic actors.

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7. While codified knowledge may diffuse in international networks, the process of knowledge creation works in a localized framework. 8. Networks are institutions that favor knowledge creation and innovation. 9. Innovation policies in medium technology sectors should shift from a focus on technology transfers to a focus on knowledge creation. 10. Spontaneous clustering processes of innovative activities are not always sufficient for competitiveness and need to be complemented by the design of an explicit cluster strategy. Tacit knowledge cannot be “transferred” as in the case of codified knowledge through better communication, but only through the organization of networks of international collaboration. It rather represents a capability that can be learned, as the result of a process of interactive learning, through which the actors develop internally with the collaboration of external actorspecific new creative competencies, which will allow them to adopt process and product innovation. International knowledge and innovation networks allow to organize processes of interactive learning between the firms of different countries and to promote the development of new competencies in the economic lagging regions through the creative combination of internal traditional competencies and external specialized competencies. Creativity consists not only in the adoption of specific product and process innovation within an individual firm but also in the design of mediumterm projects having a collective nature with the participation of various SMEs and large firms organized in the framework of “competence centers” (Cappellin & Wink, 2009) as is done in various European countries. In fact, regional innovation policies should promote large innovative common projects in the existing clusters and also between the various regions rather than aiming at the creation of new clusters. The enhancement of creativity requires the facilitation of the vertical relationships along the supply chain between client and suppliers, but also the horizontal relationships between different sectors both locally and with partners in other regions, such as other clusters, international research institutions, and large international firms. Thus, the “intersectoral and interregional transfers” of tacit knowledge may be the result of a European regional and innovation policy, which aims not to transfer specific knowledge but to develop and govern this process of collaboration and interactive learning between different sectors and regions. The approach of learning networks indicates that time is the key dimension of innovation and that governance is a policy approach aiming at steering knowledge and innovation networks and it is different from the

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traditional free market or the planning approaches. The speed of information flows and decision-making processes and a faster adoption of innovation are tightly related to the stability of the organizational forms and depend on the existence of a well developed institutional system. A diversified typology of institutions plays a leading role in defining a long-term strategy of innovation needed for medium technology sectors in different regions. These institutions represent the “social capital” of these regions and play the role of immaterial infrastructures, which organize the knowledge flows between various firms. In conclusion, regional innovation policies should evolve as follows: 1. From the traditional free market approach or the hierarchical planning approach to a modern governance approach 2. From the focus on individual firms to the governance of the network of firms 3. From the distribution of R&D public funds to the connection of innovative capabilities 4. From a focus on exploitation of specific technologies to the exploration of diverse technologies 5. From sectoral specialization to intersectoral integration and sectoral diversification 6. From a focus on process innovation and cost competition to product innovation and time competition 7. From a focus on accessibility to technological sources to receptivity by the local actors 8. From the supply R&D infrastructures to the identification of the new demand by the final and intermediate users 9. From the distribution of public funds to the stimulation of private investments 10. From informal cooperation based on trust to formal commitment on large and strategic projects organized in the framework of competence centers

ACKNOWLEDGMENTS Support from the FP6 European project IKINET: “Interregional Knowledge and Innovation Networks” (http://www.ikinet.uniroma2.it/) and the FP6 European Integrated Project EURODITE: “Regional Trajectories to

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the Knowledge Economy: a Dynamic Model” are gratefully acknowledged. The author wishes to thank Ru¨diger Wink and Luigi Orsenigo for continuous, friendly, and fruitful discussions while elaborating this research.

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THE TERRAIN OF WAR: HOW USING THE WORD “MOUNTAIN” BIASES CONFLICT RESEARCH Steve Pickering ABSTRACT The broad aim of this paper is to look at the relationship between terrain and conflict. Using the opportunity and willingness framework, it argues that there are some long established physical factors, which have been related to the terrain of conflict, but that there are also some equally long established factors that are nonphysical. This latter group includes the notion of a “mountain people,” which is described as being fierce, uncivilized, and resistant to authority. Such arguments may have some foundation, but they are also based on a strong history of determinism and indeed scientific racism. The paper also looks at the “what is a mountain?” debate and argues that this question is entirely misleading for conflict analysis. It is hoped that conflict researchers will be careful whenever they encounter the word “mountain.”

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INTRODUCTION It was the mountaineers who began this lawlessness, as was likely to be the case; for, since they occupied sorry land and possessed but little property, they coveted what belonged to the others. —Strabo (3.3.5) . . .those who live in the mountains, proud and warlike...want popular states...and will not be ruled by pretentious boasters. . .. However, the inhabitants of the valleys are ordinarily effeminate and delicate. —Bodin (1583a: V.694-5) Like many other mountain dwellers, e.g. in Albania or Georgia, they [the Pashtuns] are fiercely proud of their independence. They hold in contempt the civilisation and governments of the settled world. They do not like to pay taxes, they do not have time for the conventional forms of law and law courts and they do not have any taste for laws imposed from distant capitals. —Omrani (2009, p. 180)

The link between terrain and conflict can be traced back for at least two millennia. Several of the factors in this relationship can be found throughout this history. It is the argument of this paper that it is a mistake for conflict researchers to use the word “mountain” because (a) mountain/not mountain is a misleading dichotomy and (b) much of the literature has a tendency to depend on environmental determinism and indeed oversimplified Darwinism. Conflict literature usually gives attention to two types of terrain: mountains and forests.1 The concern of this paper is the effect that mountainous regions have on conflict, although the paper will use the term “rugged” rather than “mountainous” terrain for reasons that will become apparent.

THE RELATIONSHIP BETWEEN RUGGED TERRAIN AND CONFLICT In trying to understand the relationship between rugged terrain and conflict, Starr’s opportunity and willingness framework is useful. On the opportunity side, the factors are chiefly physical; for willingness, however, the picture becomes more confused
revolving around what Sprout and Sprout (1957) identify as the man-mileu relationship. Opportunity The first category is the more straightforward to deal with.

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To modify Mallory’s famous response to a journalist, Why is a mountain relevant to conflict? Because it’s there. Much of the work in this category is military in nature. O’Loughlin has long argued that IR theorists often overlook the importance of terrain, seeing military spaces as being as flat and empty as a billiard table. There are some exceptions: Merritt sees such spaces as being full of “topographical discontinuities” such as mountains, deserts, and forests (Merritt, 1974, pp. 200
1). Indeed, Merritt’s conception of the different types of topography can be taken back as far as Sun Tzu, for whom there were nine varieties of ground of relevance to war. Of these nine, mountainous terrain falls into two categories: “difficult ground” and “death ground” (Sun Tzu: XI.8, 10). Having divided the types of ground into such categories, he gives clear advice to any general facing combat in such terrain: “In difficult ground, press on ... in death ground, fight” (Sun Tzu: XI.14). Here then is the first clear way in which mountainous terrain has a military relevance to conflict: it modifies the possibilities. Similarly, von Clausewitz (1968) recognizes the importance of mountains to warfare: “The influence of mountains on the conduct of War is very great; the subject, therefore, is very important for theory” (Clausewitz VI.xv). Indeed, Clausewitz devotes four books of On War to the subject of mountains (chiefly to the defense thereof). Concurring with Sun Tzu here, the argument is fairly straightforward: mountains, as terrain, are difficult or deadly. Difficult, in that marching up them is a slow process; deadly, in that comparatively small numbers of troops can launch successful counterattacks. Another point made by Clausewitz is that the nature of the mountainous terrain is of importance: mountain ranges with plateaux or plains in the center can be defended; those that are more rugged are harder to defend (Clauzewitz, Routledge Vol. III, p. 219). Hommaire de Hell (1847, p. 298) makes a point here, though he argues that it is difficult for an army to traverse valleys leading to plains, once they have reached them, they would be forced to occupy them, with the mountaineers waiting below.

Unequal Distribution of Territorial Sovereignty An issue on which Sun Tzu and von Clausewitz are in agreement is that of the occupation of mountainous terrain. Both take the line that if terrain will be difficult to defend, there is no point occupying it (Sun Tzu VIII.11; Clausewitz VI.xvi). Here, then, we see that there is something special about mountainous terrain: Clausewitz states that while it is ordinarily the case

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that all land on which a force advances should be occupied, this is not the case with mountain regions, as they require considerable expenditure of time and troops to put down the possibility of a “very stout resistance” by “much inferior forces.” Hommaire de Hell (1847, p. 299) cites the case of Chechnya here: At the time of his writing, he argues that the presence of a few forts within the mountainous region of Chechnya constituted little more than a means of keeping an eye on the mountaineers; he did not regard this as an occupation. While modern (Westphalian) maps with their solid colors might suggest otherwise, territorial sovereignty is not distributed evenly; not all governments are able to exercise control over all of their territory. Here, then, is a geographical factor that can be related to this uneven distribution: mountains. Clearly, the issue of Chechnya is one of contemporary relevance; however, the relevance extends beyond this case. Blake looks at instances of parts of states being lost to antigovernment factions and warlords: “If regions beyond the reach of central government could be plotted on a world map they would provide graphic evidence that the old state system is diseased” (Blake, 2000, p. 10).

Guerillas Need Mountains So far, then, mountains are relevant to conflict because they modify the military possibilities; they are difficult to traverse; they can be defended by smaller forces than those attacking; once won, mountains are difficult to hold; and some types of mountain are easier to defend than others. These may all be factors in the calculations of a rebel group: They may provide a rebel group with a greater degree of confidence in the success of their movement. Fearon and Laitin put it plainly: “Guerillas need mountains, jungles, or in a few cases, deserts for a base of operations” (Fearon & Laitin, 1999, p. 19). The corollary to this argument is that governments may not want territory of rough terrain. Again, Fearon and Laitin (1999) make the case that land may be of value to both governments and rebel groups if it contains “easily appropriable wealth” (Fearon & Laitin, 1999, p. 28). But what if rugged uplands do not have such easily appropriable wealth? Toft still argues that mountains can be of value. She defines a resourcerich variable, which includes factors such as minerals, dams, rivers, pasture and farmland, industry, plus “strategically important locales” such as mountain passes or heights (Toft, 2003, p. 42). Sambanis (2002) and Cunningham, Kristian, and Idean (2005) also make an observation of simple military significance: Rebels can hide in

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mountains; they would have more difficulty hiding in the plains, as there is less cover. Buhaug and Gates (2002) echo the arguments of Sun Tzu and von Clausewitz in making the case that rough terrain favors guerilla movements more than government forces, allowing rebels to expand their conflict zone, potentially giving them greater freedom of movement and ability to ship armaments. Dan Smith (no date) links in with this theory, suggesting that terrain may be a catalyst factor for both the intensity and duration of conflict.

Willingness The “willingness” factors are more complex. A clear theme emerges that the presence of mountainous terrain somehow alters human behavior. Different authors take this notion to different extremes. Consciously or otherwise, this idea of changed human behavior draws on five factors: (i) the geography of antiquity, (ii) enlightenment philosophy, (iii) nineteenthcentury determinism,2 (iv) (social) Darwinism, and (v) cultural stereotypes. The argument of this paper is that we need to be careful: When explaining conflicts by making reference to “mountains,” we are drawing on two millennia of theorization, much of which is heavily deterministic. Yet such ideas still permeate IR discourse today. An example can be found in Omrani (2009) who describes the Pashtuns: The Pashtuns of the hills are a very particular sort; the geography of the area has made them what they are. The hill country is highly convoluted, barren and isolated from the outside world. It is difficult for outsiders to get into the area; there is little settled agriculture and it is hard to make a living. In the absence of hedge funds or the financial services industry, what can the tribesmen do but turn to crime, raiding the more prosperous settled territories, preying on the merchants passing along the ancient trade routes towards Central Asia or Persia? (Omrani 2009, p. 180)

Omrani’s argument that a lack of access to modern financial instruments leads to lawlessness seems tenuous at best (A counter-argument that such instruments lead to increased social inequality and therefore a greater likelihood of lawlessness could easily be developed; see, for instance, Wilkinson and Pickett, 2010), but it is included here to demonstrate that this simplistic and deterministic idea of the behavior of people who live in mountains, first written about two millennia ago, continues to be regarded as legitimate in IR discourse. Russell (2007) adopts the language of Cooper (2003), referring to Chechens as living in a “pre-modern” society: “the Chechens remain

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closely committed to their distinctive way of life as indigenous ‘mountain’ people” (Russell, 2007, p. 23). Russell goes on to quote the words of the “shady Chechen ‘businessman’” Khoj-Ahmed Nukhaev, who “has argued that it is the mountain Chechens who ‘are the staunchest bearers of the pre-modern national traditions, refuting any form of statehood whatsoever’’’ (Russell, 2007, p. 134). Similarly, Johnston looks at the Chechen “self-myth” of being a “fierce and independent people” (Johnston, 2008, p. 326); Ziring (2009, p. 72) also made similar comments regarding the independent spirit of the Pashtun. An article by Speckhard, Tarabrina, Krasnov, and Mufel (2005) on the Stockholm syndrome makes the case that stereotypical Russian perceptions of Chechens are based on such notions. The authors argue that “[n]ormally Russians hold a dim outlook of Chechens, viewing them as uncivilized, uneducated and wild mountain people” (Speckhard et al., 2005, p. 134). However, a surviving hostage of the 2002 siege of the Moscow Dubrovka House of Culture reveals how her perceptions of her Chechen hostage-taker changed: I was looking at him and seeing oh my God his face is gorgeous. If I would meet a man like this on the street, my eyes would stop on him. In truth those Cavcazi (Caucasian) guys usually have uncivilized, wild faces. But he did not. Some of them when they started to take off their masks, I cannot say they looked not necessarily intelligent, but how to say it, they had a seal of civilization on their faces.” (Speckhard et al., 2005, p. 134)

This idea of a “naturally savage nature which cannot be easily tamed” (Bodin) still has currency in recent literature. Three themes emerge: that people in the mountains are “fierce” (a widely-used adjective), that people in the mountains are deliberately “uncivilized,” and that people in the mountains resist centralized authority. Lincoln (2002) goes a step further, arguing that the effect of the mountains is such that “eventually, the whole genetic structure changes” (Lincoln, 2002, p. 147). Lincoln’s Darwinism is more social, however, and her words echo some of the nineteenth century stereotypes: “Mountain people are clanny. They are closed to outsiders. They are warm and free with kith and kin but withdrawn and silent and wary with strangers. They keep their emotions to themselves” (Lincoln, 2002, p. 147). Fearon and Laitin (1999) look at rough terrain and ethnic violence. They make the case that minorities are more likely to experience war if they live in rough terrain: hills and mountains in particular. However, to make this case, they have to make a lot of assumptions. One is that they have not subjected this to a formal analysis: They have performed an “interocular” test of the data; they have “eyeballed it.” Nevertheless, in

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eyeballing this data, they were struck by how many of the minorities were reputed as being “mountain peoples” (citing the examples of the Kurds, tribes in the Chittagong Hills of Bangladesh, Vietnamese Montagnards, plus mountain groups in Burma and northeast India). Approaching this from a different direction, in researching for this paper, it is striking how much the literature on people living in mountains focuses on conflict. Again, however, this is a general impression from studying the literature. Fearon and Laitin also develop an expected utility model: As has been presented in the above section on the physical relationship of mountains to conflict, rebel groups may feel their chances of success are greater because of the presence of mountains. But the authors make an interesting point in a footnote, which is presented here in its entirety: There could be other factors involved here. Some would argue that what matters is the typical culture of hill people
warlike and resistant to state authority
rather than the better prospects for rebellion that rough terrain gives them. Given that examples of the relationship appear in cultures as diverse as Vietnamese Montagnards, Kurds, and Basques, the common “cultural” feature would have to be related somehow to the structural feature of terrain. For instance, perhaps hills tend to poverty, and thus little incentive for lowland states to extend their rule, and thus relative inexperience with state authority, thus resistance as states finally extend their grasp to the hills? (Fearon & Laitin 1999, footnote 53, pp. 27
8)

Three points then are (i) hill people are warlike; (ii) the land (and presumably its people) are poor; and (iii) extending the unequal territorial sovereignty argument, people in hills have little exposure to the mechanisms of the state and therefore resist the state (are independent). As is shown below, these three ideas have been at the foundation of writings on mountain peoples from the Greeks to the present day. For Strabo, mountains made for a wretched existence, which could be made better by good governance. The Greeks inhabiting mountainous areas were able to live happily because they had the sense to develop good government; the Romans, in occupying savage rocky regions, taught the natives how to live with government (Strabo, 2.5.26). Strabo goes further and paints a picture whereby mountains make for warriors, whereas flat land makes for peace. Extending this idea, Strabo makes an almost yin-yang argument: the two are of some form of benefit to each other. As such, Europe does well, as the continent has mountains throughout, meaning that both groups live side by side, yet the dwellers of the flat lands are more numerous and so are able to keep a check on the bellicose mountain people: But all of Europe that is level and has a temperate climate has nature to cooperate with her toward these results; for while in a country that is blessed by nature everything

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tends to peace, in a disagreeable country everything tends to make men warlike and courageous; and so both kinds of country receive benefits from each other, for the latter helps with arms, the former with products of the soil, with arts, and with characterbuilding (Strabo, 2.5.26).

The final point made by Strabo regarding the influence of mountains on human behavior describes one of the reasons why mountaineers may be more inclined to lawlessness. Strabo describes the region of Lusitania, home to 30 different tribes, a region “blest in fruits, in cattle, and in the abundance of its gold and silver and similar metals.” Yet the people of the region descended into “brigandage” and “continuous warfare.” Strabo places the blame squarely on the shoulders of the mountaineers; while the other tribes may have been content initially, the covetous mountaineers initiated the conflict that spread through the tribes: “It was the mountaineers who began this lawlessness, as was likely to be the case; for, since they occupied sorry land and possessed but little property, they coveted what belonged to the others” (Strabo, 3.3.5). Bodin (1583a) makes some extremely interesting observations. He sets up what might be considered today to be a control experiment in postulating two places of identical latitude, longitude and climate, but one being mountainous and the other being plain, there will be a difference in human behavior. Indeed, “[e]ven in the same city there is a difference in humour and in habits between those who live in the upper and those who live in the lower part of town. This is why cities built in hilly country are more subject to disorders and revolutions than those situated on level ground. Rome, built on seven hills, was hardly ever free from civil commotions” (Bodin, 1583b, p. 145). He also makes the case that the type of the political institution should be adapted to the environment; he, like many authors, cites the “proud and warlike” Swiss as an example here, but also, “the people of Fez, Morocco, and Arabia, who live in complete liberty without anyone lording it over them. This is not a consequence of confidence born of the natural impregnability of their country, but comes from their naturally savage nature which cannot be easily tamed” (Bodin 1583b, pp. 155
6). Here, then, we see a precursor to Fearon and Laitin’s (1999) argument: It is the culture of hill people that explains behavior, not a direct physical factor. Omrani’s focus is the Pashtuns, but in describing fierce, uncivilized independence, he expands his analysis: Like many other mountain dwellers, e.g. in Albania or Georgia, they are fiercely proud of their independence. They hold in contempt the civilization and governments of the

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settled world. They do not like to pay taxes, they do not have time for the conventional forms of law and law courts and they do not have any taste for laws imposed from distant capitals (Omrani, 2009, p. 180).

Radvanyi and Muduyev (2007) look to the history of the Caucasus and observe that [s]ome ethnologists and other social scientists who probe the region occasionally theorize about a common social capital derived from traditions and close historical solidarity. They point to the mountain environment as a strong factor in forging a way of life resistant to pressures imposed by Tsarist and Soviet governance (Radvanyi & Muduyev, 2007, p. 165).

Clearly, a belief emerges in the literature that there is a link between mountains and resistance to authority. The shortcomings of such determinism will be analyzed below.

Mountains and the Barbarians of the North-West of England The notion that nature somehow has an impact on human behavior underpins the work of von Humboldt. He makes the case that geographical features such as mountains “[impress] some peculiar character on the social condition of the inhabitants” (von Humboldt, 1849, p. 304). While snowcovered peaks may impede interactions between people, lower mountain chains may lead to different types of vegetation which will “gives rise to wants that stimulate the activity of the inhabitants.” Indeed, the presence of mountains removes from the earth “dreary uniformity which exercises so impoverishing an influence on the physical and intellectual powers of mankind” (von Humboldt, 1849, p. 304). Von Humboldt’s argument that uniform land has a negative effect on intellect is mirrored in the work of von Treitschke (1897). von Treitschke belonged to the so-called “Prussian school” of geography: Hoping for a unified Germany, he presented deterministic arguments for expansion through colonization. It is here that signs of scientific racism become apparent. Taking von Humboldt’s argument regarding uniformity and intellect, he adds the notion of race. He compares the achievements of the “valiant Icelanders,” a “splendid little people” who managed to create a civilization in spite of adverse natural conditions, with the “races” of South America, whose achievements are comparatively small, in spite of favorable land and climate. “Upon the whole the white races have a great faculty for overcoming climatic conditions; this is the physical foundation for the call of European nations

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to dominate the whole world as one great aristocracy” (von Treitschke 1897/1963, p. 100). Indeed, von Treitschke goes on to extend this into what can only be described as a “proto-lebensraum” argument. Von Treitschke is, amongst other things, inconsistent. On the one hand, he agrees with Rousseau’s argument that a bountiful environment can have a negative effect (a modern comparison can be made with the “resource-curse” argument) and that a hostile environment can have more beneficial effects (he states that when nature has not provided abundance, the long winters lead to “manly earnestness” while those in warmer climes are made “soft and lazy”). Yet at the same time, he presents the case of England. The south-east of England is fertile and low. As such, he makes the case that it is the seat of English civilization and home to its great universities. Conversely, the north-west of England has moderate mountains with a fairly severe climate; there are no great universities to be found there, as its natives are left rude and simple half-barbarians. Indeed, these geographical factors meant that its inhabitants would react against civilization; this cleft defined the sides in the English Civil War (von Treitschke, 1897/1963, pp. 101
2). Curiously, von Treitschke is not the only author to ascribe such geographical factors as determining sides in a civil war: Semple makes a similar case: like Bodin, she introduces the issue of slavery. She argues that in the American Civil War, West Virginia did not align itself with the South due to the fact that it did not have the same history of slavery; this was because slavery did not offer the same economic return as in some other states, as modes of farming were different in West Virginia’s barren upright farms, on the Cumberland Plateau (Semple, 1901, p. 594; 1911, pp. 23
4). Both von Treitschke and Semple agree that mountains can be a factor in determining sides in civil conflict. Many authors feel the need to give descriptions of the character traits of mountaineers. Wilkinson (1848) finds the Montenegrins, apparently like most mountaineers, to be “hospitable, and courteous to strangers; and have a friendly feeling towards those, who sympathise with their high notions of independence, and devotion to their country. They are cheerful in manner; and, though uncivilised, by no means uncouth” (Wilkinson, 1848, p. 441). Here, we see one of the factors suggested by Fearon and Laitin (1999): independence. Indeed, the notion of mountaineers having a yearning for independence is common in the literature. The Swiss are the classic case: Lunn (1963) makes the case that Switzerland is an independent state not because of the mountains in their physical sense (as in, they are an obstacle to potential invaders) but because mountains themselves encourage a spirit of independence in the human spirit (Lunn, 1963, p. 13).

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More recently, Ziring (2009: 72) made similar comments regarding the independent spirit of the Pashtun, while Johnston looks at the Chechen “self-myth” of being a “fierce and independent people” (Johnston, 2008, p. 326). There are exceptions to this view
von Thielmann (1875) finds such notions naı¨ ve: All the accounts of wars in the Caucasus which have reached Europe, have been very obscure, and have almost resembled fairy tales. Stories were told of proud mountaineers who, inspired by the love of freedom and independence, disputed with the Russians, at the price of their blood, every inch of their native soil... These views, coupled with a very deficient knowledge of the condition of mountain populations, of their divisions into nationalities, and of their dwelling-places, induced half Europe, during the time of the Crimean war, to believe that it only required a little more active assistance on the part of the Allies to have incited every man in the Caucasus to openly revolt and drive the Russians back into the steppes between the Sea of Azow and the Caspian (von Thielmann, 1875, p. 257).

It is refreshing to find a nineteenth-century writer who is not as conditioned by determinism. For the Russians, a similarly romanticized, positive image of Chechens as proud mountain warriors emerges in the writing of Lermentov, Pushkin, and Tolstoy (see Radvanyi & Muduyev 2007; Russell 2007); this image was of the “wild, freedom-loving, hot-blooded mountain warrior that still appeals strongly to the romantic side of the Russian imagination, in much the same way as does the brave heart image of the Scottish Highlanders to the Anglo-Saxon mentality” (Russell, 2007, p. 59). Even Darwin (1874) has made observations on the impact that mountains have on humans. He presents information on mountain-inhabiting Quechua and Aymara Indians of South America, regarding their lung capacity and body measurements. He concludes that “[f]rom these observations, there can, I think, be no doubt that residence during many generations at a great elevation tends, both directly and indirectly, to induce inherited modifications in the proportions of the body” (Darwin, 1874, p. 52). It is perhaps Darwinism that inspired Lincoln’s (2002) argument presented earlier. However, another author who has written perhaps most extensively on the inhabitants of mountains is Semple. Semple is the most noted Englishspeaking student of Ratzel; indeed, she was intended to be the translator of his Anthropogeography. Semple conducted research in the Great Appalachian Valley in Kentucky. There, she found people speaking the English of Shakespeare’s time: their ancestors came from England and had not integrated, due to the “conserving power of the mountains” (Semple, 1901, p. 588). The people living here had not travelled more than a few miles from where they were born, resulting in “close intermarriage.” Her work is

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largely deterministic. In glancing at a topographical map of the region, she concludes that nature has devoted it to isolation and poverty. But where is human agency in this? “Man has done so little to render this district accessible because nature has done so little” (Semple, 1901, p. 589). The people she meets here are of “retarded civilization,” showing “the degenerate symptoms of an arrested development.” Nevertheless, she is reminded of “the inextinguishable excellence of the Anglo-Saxon race.” Indeed, in studying her subjects, she observes that “[t]heir faces are immobile, often inscrutable, but never stupid; for one is sure that under this calm exterior the mountaineer is doing a deal of thinking” (Semple, 1901, p. 594). It would be interesting to know what this mountaineer was thinking about Semple. This contemptuous tone reveals that Semple was surprised to find her subjects capable of intelligent thought. Semple’s 1911 publication was intended to be a translation of Ratzel but evolved into something quite different. Her research in Kentucky forms a case study, but by now, Semple has developed several new theories regarding mountains. Some are familiar: mountains can form barriers or borders (the Carpathians and the Alps); mountains are difficult to conquer; and mountaineers have a marauding tendency. Some arguments form extensions to existing arguments: mountains prevent or define the paths of migrations. Others are quite new, such as mountains being linked to the success of trade unions. Still others extend the man-mileu debate. There are no artists in the high mountains, but gentle mountains do produce artists. Similarly, French men of letters come from the valleys and plains, not from the mountains. Genius is not to be found in mountains “because they are areas of isolation, confinement, remote from the great currents of men and ideas that move along the river valleys. They are regions of much labor and little leisure, of poverty today and anxiety for the morrow, of toil-cramped hands and toil-dulled brains” (Semple, 1911, p. 20). Fearon and Laitin’s (1998) analysis of rough terrain and ethnic violence (presented above) indicates that much ethnic conflict involves “mountain peoples” and they go on to suggest that there may be something beyond the physical effect of mountains in leading to conflict. This may be a useful observation. Indeed, Toft’s (2003) excellent research in the Caucasus goes a long way towards dealing with these issues. However, if it is suggested that (a) there is such a thing as a “mountain people” and (b) that these people or peoples have particular traits, there is an extensive deterministic literature on the subject based on often subjective generalizations. Such generalizations continue to be made today, so it is important to make sure that new arguments are not built on such shaky foundations.

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Self-Identity as “Mountain People” Much of the discussion above has looked at perceptions of mountain people by nonmountain people. Recently, there has emerged an increased sense of mountain identity. Since 2003, the UN FAO has instituted an annual “International Mountain Day,” held every 11 December. Each year has a theme; for 2004, it was “Peace: key to sustainable mountain development.” Without defining mountains, conflict, or high altitude, the organization argues that “[c]onflicts in mountains have increased in the last 50 years, with serious violent conflicts now almost twice as likely to occur at high altitude” (UN FAO website, accessed January 31, 2010). To address the problems facing mountain people, the FAO supports organizations such as the World Mountain People Association (WMPA). It too argues that there is a disproportionate number of conflicts in mountain regions: “because mountain territories are often border zones between states, they are often the scene of many wars or guerrilla warfare. Thus, 80% of the world’s conflicts are played out in mountain regions” (WMPA website, which does not provide a source for this claim, accessed January 31, 2010). Such organizations reinforce the idea that there is a common bond between mountain people, and that mountain people are somehow different from those who do not live in mountains. Debarbieux and Rudaz (2008) look at Swiss attempts to foster a sense of commonality between mountain people. Representatives of mountain people from all over the world were invited to a cultural event at Evole`ne with the aim of strengthening bonds between mountain peoples (see Fig. 1). Debarbieux and Rudaz cite Brugger (2002), who argues that “[a] mountain farmer in the Valais canton has more in common with a mountain farmer in Nepal than with someone living on the Swiss Plateau. Even though they are several thousand kilometers apart, mountain peoples have been able to develop similar strategies to make the most out of their difficult milieu” (Brugger, 2002, in Debarbieux & Rudaz, 2008, p. 509). Likewise, the Swiss Foundation for International Assistance (Inter-Assist), which aims to “assist underprivileged mountain regions in their development” uses a more positive form of environmental determinism. Presenting a counter to earlier arguments that mountain people are uncivilized thieving barbarians, Inter-Assist argues that “[d]emocracy originally started in mountain valleys where independent inhabitants worked together on small projects: build[ing] houses and stables, roads, bridges and cattle trails, schools and churches. Mountain development today
on the community level
is actually not much different” (Inter-Assist, qtd. in Debarbieux &

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Fig. 1. From Debarbieux and Rudaz (2008) Figures 5 to 7 (p. 508): “‘Mountain people’ invited to Evole`ne in August 2007 for an international cultural event. (Photo by Bernard Debarbieux.)”

Rudaz, 2008, p. 510). Such arguments can even lead to proposals for more dramatic forms of political union. Radvanyi and Muduyev (2007) point out that the mountain people mythology, dating back to the nineteenth century, includes aspects such as honor, hospitality, and mutual aid: such ideas were part of the foundations upon which the creation of a “Republic of Mountain-Dwellers” was attempted (Radvanyi & Muduyev, 2007, p. 165). These positive ideas are still used to promote unity today: After an inaugural meeting in August 1989, representatives of 12 peoples (Abaz, Abkhaz, Avars, Adyges, Shapsugs, Dargins, Kabardins, Laks, Ossetians, Cherkessians, Chechens, and Chetchens-akkintsi) resolved on November 2, 1991, in Sokhumi (Abkhazia), to recreate the “Confederation of the Mountain People of the Caucasus” (Radvanyi & Muduyev, 2007, p. 165). Ideas about “mountain people,” whether positive or negative, can have powerful implications. It is the argument of this paper that as conflict researchers, we need to be extremely careful when ascribing war-like characteristics to such a “people.”

WHAT IS A MOUNTAIN? There are many definitions of “mountain” to be found in geomorphology literature. For the quantitative researcher looking at conflict and terrain, any such definition needs to meet two criteria. First, the definition must be

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readily quantifiable: it must be robust enough that the researcher can look at existing maps or datasets, apply the definition, and create a new set of numbers for how mountainous a region is. The second criterion is that the definition be inclusive enough to include all mountainous regions, which we think may be related to conflict. A mountain range that we think may be relevant must not be excluded (Gerrard, 2000, points to the very exclusive definition by Thorsell & Harrison, 1992, and Thorsell, 1997, which finds that the Pyrenees do not qualify as a mountain region). Goudie (1985) defines mountains as “[s]ubstantial elevations of the earth’s crust above sea level which result in localized disruption to climate, drainage, soils, plants and animals.” They then go on to look in more detail at the relationship between these elevations and climate. Two issues arise here. The first is that there are no numbers involved: There are no specific elevations or slope degrees with which someone seeking to quantify mountains would be able to create a dataset. The second issue is that the focus is on climatic effects. The definition here is tailored to the needs of physical geographers. It may, however, not be the most appropriate definition to researchers of conflict. As such, this definition does not meet the two criteria presented above. Goulty provides another definition
a mountain is [a] mass of land with steep slopes projecting well above its immediate surroundings. In Great Britain heights under 600 m are generally called hills, mountain being confined to the greater elevations of the Lake District, North Wales and the Scottish Highlands. Mountains may be used for lesser elevations even under 300 m especially when they rise abruptly from the surrounding country, for example Conway Mountain in North Wales (Goulty, 1991, p. 185).

This time, some numbers are presented. However, an inconsistency arises: 600 m “generally” but lower elevations in some instances. This leaves the quantifier with the problem of whether to draw the line at 600 m. Also, this definition includes another caveat: “well above its immediate surroundings.” This, then, would exclude plateaux; it would also exclude land that gently sloped from below to above 600 m. Such exclusions would be appropriate to conflict research: when conflict researchers consider mountains, they are considering rough terrain, rather than a crude measure of elevation. (The following all specifically refer to rough terrain as having a relationship with civil conflict: Buhaug 2007; Buhaug & Gates 2002; Buhaug & Gleditsch, 2005; Cederman, Rød & Weidmann 2006; Cunnigham, Gleditsch, & Salehyan, 2005; Fearon & Laitin 1999; Fearon & Laitin 2003; Gates 2002; Ormhaug 2007; Sambanis 2002.) Again,

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the quantifier would need to capture this information in a dataset: the researcher looking at conflict is more interested in terrain than elevation. The 600 m threshold would appear to be given some official support in the UK from the Department for the Environment, Food, and Rural Affairs (DEFRA). As part of the right to roam legislation, the Department found it necessary to come to a definition of mountain. As such, the Countryside and Rights of Way Act 2000 states: “mountain” includes, subject to the following definition, any land situated more than 600 meters above sea level; “mountain, moor, heath or down” does not include land which appears to the appropriate countryside body of improved or semi-improved grassland (UK Countryside and Rights of Way Act 2000).

Goudie’s definition (presented earlier) was tailored to physical geographers. DEFRA’s definition has been crafted with the aim of creating some grey area on which land ramblers have the right to roam, the authority of such decisions being delegated to some unnamed body or bodies. Again, this definition may not be most appropriate to researchers of conflict (although there has clearly been conflict over this issue). Conflict researchers need a definition that will be sensitive to how much impact the terrain will have on the facilitating conditions of conflict. The concerns of any “appropriate countryside body” should not be a factor in any such definition. The choice of 600 m as the threshold of a mountain is interesting: 600 is, of course, a nice round number, more pleasing than, say, 609.6 m. The figure of 600 m was originally settled on by the Ordnance Survey; this was the nearest round number metric equivalent to their original figure of 2000 feet (the actual metric equivalent being 609.6 m). Again, of course, 2000 is also a round number, a convenient human rounding with no other purpose than making the number easier to remember and more aesthetically pleasing. There is no “scientific” reason for 2000 feet being the threshold any more than there is for 1993 feet being the threshold. Choosing 600 m as the threshold of mountains means a double rounding has occurred: the first in Imperial measure; the second in metric. Curiously, this double rounding brought a new mountain into existence: Black Combe in the English Lake District. One of the last atlases to give heights in feet is the Philip’s Navigator Britain atlas. It lists Black Combe as 1,969 feet: 31 feet short of the old Ordnance Survey definition of a mountain. Yet 1,969 feet converts to 600.15 m: 15 centimeters over the metric mountain limit. Indeed, most modern atlases list Black Combe as having an elevation of 600 m. Black Combe, then, could be regarded as a “metric mountain.” Two factors to

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consider in creating a mountain dataset appropriate to conflict, then, are (i) rounding of numbers for aesthetic reasons and (ii) inclusion/exclusion of territory due to metricization. DEFRA’s definition may only apply in England and Wales; the Ordnance Survey, however, also provides information for Scotland. They point out that while a Welsh mountain over 2,000 feet is a Hewitt, its Scottish equivalent is a Donald; the Scottish definitions continue with a Graham covering elevations between 2,000 and 2,500 feet, a Corbett from 2,500
2,999 feet and a Munro from 3,000 feet onward. Similarly, German geographers distinguish between hochgebirge (high mountains), gebirge (mountains) and mittelgebirge (uplands and highlands: Troll 1972, 1973, in Owens & Slaymaker, 2004, p. 4). The nouns continue. Consider again Toft’s argument (presented above) that mountain passes may be more important strategically than other mountainous regions; Reclus points out that Kirghis shepherd tribes have four different words for mountain passes: “A daban is a difficult, rocky defile; an art is very high and dangerous; a bel is a low, easy pass; and a kutal is a broad opening between low hills” (Reclus, 1895, p. 171, cited in Semple, 1911, p. 41). A definition of mountains relevant to conflict researchers would need to include some way of determining how easy the land is to traverse: This would be consistent with the frameworks of the loss of strength gradient (Boulding, 1962), but also of interaction opportunities (Buhaug & Gleditsch, 2006; Gleditsch, 1967; Robst, Polachek, & Chang, 2007; Starr & Most, 1976; Tammen et al., 2000). Some of the mountain passes presented above may be easier to traverse than others, yet they are all “mountains.” Similarly, some Grahams may be easier to traverse than some Munroes (and vice versa), but once again they are both included in the category “mountain.” A board within the U.S. Geological Survey has been established with the aim of standardizing geographic naming conventions: the U.S. Board on Geographic Names. In looking at mountains, it looks to the history of the Ordnance Survey, plus its own historical definition (merely 1,000 feet, in relation to local relief, not sea level), but eventually decides that such a definition is not possible: “Broad agreement on such questions is essentially impossible, which is why there is no official feature classification standards.” This is a useful point. The decision by the U.S. Board of Geographic Names to back away from a formal definition of mountain is based on the idea that it is impossible to find a definition that would secure broad agreement. This is presumably because there are so many landforms named as “mountains” in the United States, which have elevations considerably lower than the (low) threshold of 1,000 feet (approximately 300

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meters). However, aside from not being able to please everybody with a definition of mountain, Febvre (as long ago as 1932) makes the case that the whole distinction may be somewhat artificial: The division of the surface of the globe into mountains, plains, and plateaux is an old and traditional one. Modern geographers have received it from their predecessors, and have not abandoned it
which is perhaps a mistake. They continue to use the old terms and simply try to improve by analysis the ideas involved. They commonly add also a new “species,” that of depressions, and thus raise to four the number of varieties allowed to terrestrial relief, but the general definitions given remain somewhat vague (Febvre, 1932, p. 189).

Indeed, modern geomorphology adds many new caveats to the study of what a mountain is, with many new words such as “hoodoo” (an irregular spire), “inselberg” (island mountain) and “riegel” (a “[C]yclopean stairway”) further complicating the study of “orogenesis” (mountain building: Bishop & Shroder, 2004, p. xxxiv). The presence of a hoodoo may make a region more difficult to traverse than another relatively flat but still “mountainous” region; however, a simple binary definition of mountain/ not mountain would not capture such differences. Owens and Slaymaker (2004, p. 4) look to Barsch and Caine (1984) and Troll (1972, 1973) and find that mountains have four important characteristics: “(1) elevation; (2) steep, even precipitous, gradients; (3) rocky terrain; and (4) the presence of snow and ice.” Furthermore, they find four additional characteristics: “(1) diagnostic vegetative-climatic zones; (2) high potential for sediment movement; (3) evidence of Quaternary glaciation; and (4) tectonic activity and instability.” However, they go on to argue that “[t]here are, no doubt, other attributes that are characteristic of mountains, the significance of which will depend on the scientific questions being asked.” Here is the crux, then: The definition of mountain depends on what the researcher is looking for. Gerrard (2000) goes one step further: Peattie (1936), even more subjectively, suggests that mountains should be impressive, possess individuality and should enter into the imagination of the people who live near them. In fact, in a recent paper, Debarbieux (1992) argues that most definitions, however scientific, arise from a posteriori reasoning and rely heavily on intuition in the first instance (Gerrard, 2000, p. 1).

Peattie’s definition here echoes some of the romanticism expressed in the views of the many authors presented earlier on the characteristics of “mountain peoples.” Debarbieux’s criticism, then, is important: We should not assume that any definition of mountain is free from bias.

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In spite of all of the complicating factors presented above, Gerrard’s task was to create a mountain dataset and in order to do so, he needed a mountain definition. He concludes that “[t]here seems to be no other solution than to define mountains on the basis of some combination of elevation, relative relief and horizontal scale” (Gerrard, 2000, pp. 4
5). Therefore, in order to calculate the percentage of a state that is mountainous, Gerrard applies four criteria: (i) minimum elevation of 1,000 m; (ii) deep river valleys can be included, if part of the mountain area; (iii) relative relief of 500 m; (iv) minimum area of 100 km2 (Gerrard, 2000, p. 5). From this, each state is given a mountainous percentage. On this basis, Gerrard finds France, for example, to be 10.5% mountainous. It is the argument of this paper that such quantifications are not the most appropriate measurements of terrain to conflict research because 1. conflict analysis needs further disaggregation beyond the state (Cunnigham et al., 2005; Gleditsch 2007; Hegre & Raleigh, 2007; O’Loughlin, 2002; Ormhaug, 2007); 2. definitions of mountains are inherently subjective (Owens & Slaymaker, 2004); 3. a binary definition of a region as mountain/not mountain may be methodologically (and linguistically) convenient, but this is an artificial dichotomy that has no relation to real-world conflict. On this last point, consider Che Guevara’s Guerilla Warfare (1961). Guevara looks at warfare on favorable and unfavorable ground. He describes the type of country (land) most favorable to the employment of guerrilla tactics as being “located in zones difficult to reach, either because of dense forests, steep mountains, impassable deserts or marshes” (Guevara, 1961, p. 29). Conversely, guerilla warfare does not work as well on the other type of ground, which is “not very hilly, lacks forests, and has many roads” (Guevara, 1961, p. 32). Is it then the case that in the example of France, presented above, Guevara would be able to operate successfully in 10.5 per cent of the state, but not in the other 89.5%? Clearly, a conflict zone is not going to end just because it falls beneath an artificial threshold definition of 1,000 m or only has an area of 99 km2. Yet by reducing terrain to a binary variable, this is inherently what is being assumed. Consider the following quotation from ABC News: The “Balkan Powderkeg” is a region “separated by high mountains that fragment the area’s ethnic groups, even though many have similar languages and origins” (ABC News, 1998, in O´ Tuathail, 2001, p. 797). Ignoring the issue of environmental determinism, it is quite plausible that a conflict researcher would

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want a definition of mountains to include the Balkans, as this is clearly relevant to studies of conflict. But this leaves the question of where to draw the line. Numerous conflicts have included regions that are undoubtedly mountainous: India’s conflict in the Kashmir, for example, in the foothills of the Himalayas. Similarly, the Indonesian conflict over Aceh and the separatist movement facing Turkey in Kurdistan: again, these are both in very mountainous regions. Additionally, the conflicts in Chechnya and South Ossetia can hardly be separated from the Caucasus. For a definition of mountain to be relevant to conflict research, it must include these above regions. But there are, of course, regions that may or may not be mountainous. Conflicts face India in Assam, Manipur, and Bodoland: these three are reasonably close to the Mikir Hills and the Barail Range. While this is not the Himalayas, the terrain does have a degree of ruggedness. The Basque region is on the edges of the Cordillera Cantabrica; again, not quite the Pyrenees, but a rugged region nonetheless. Each of these cases presents the problem of whether to include them as mountains or not. The perspective taken by this paper is that the mere act of trying to define what a mountain is points the research down the wrong path. Land can have a degree of ruggedness whether or not it is described as a mountain. Moreover, land at low elevations can be more rugged than land at higher elevations. Consider the analogy of hills. Hills can be of varying degrees of steepness; the steeper the hill, the more exertion required to get to the top. Yet there is never any debate over whether an inclination is a hill. Indeed, public roads often display gradient ratios indicating precisely how steep a hill is: 1:10; 1:8, etc. Such quantifications make calculations of the energy required to traverse the hill possible (or, alternatively, which gear to put your car or bicycle in); a sign reading “Hill” or “Not a Hill” would not.

CONCLUSION In a sense, an alarm bell should ring every time the word “mountain” is used in conflict literature. Does the author literally mean “mountain?” Is the author making a determinist argument? It is not the argument of this paper that mountains have no relationship with conflict; far from it. The presence of mountains or rugged terrain can prevent military progression (Sun Tzu, XI.8, 10, 14; von Clausewitz: VI.xv; Buhaug & Gates, 2002, p. 422; Hegre & Raleigh, 2007, p. 8; Hommaire de Hell, 1847, p. 298; Mackinder, 1904, p. 430; Ziring, 2009, p. 72); rebels find it easier to hide

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and expand their operations in rugged terrain (Buhaug & Gates, 2002; Guevara, 1961, pp. 29
32; Sambanis, 2002; Cunningham et al., 2005; Zu¨rcher, 2007, p. 56; Dan Smith, n.d.); in especially bad terrain, governments may essentially “give up” (Fearon & Laitin 1999, p. 27; Le Billon, 2001). Yet some authors take such arguments a step further and argue that there is such a thing as a “mountain people” and that the relationship between terrain and conflict is far more than a simple physical one. While there may be some basis for such arguments, we need to recognize that there is a considerable amount of determinism and indeed scientific racism forming their foundations. Finally, researchers often start by analyzing “terrain” but then go on to look at “mountains,” often because mountain datasets are available, but not terrain datasets. There is an extensive literature covering the “what is a mountain?” debate, but none of it is of any relevance to conflict researchers. As such, we need to find more appropriate ways of including terrain in our analyses.

NOTES 1. Dupuy (1985) is a notable exception, creating a terrain variable with 14 different values, such as heavily wooded, rolling dunes, swamp-jungled, and urban. 2. Thucydides makes the case that man does not belong to the land; the land belongs to man. Von Treitschke argues that Thucydides overstates his case: we humans are too weak to rise above nature’s circumstances, but we may have the ability to overcome some of them (von Treitschke, 1897/1963, p. 100). Ratzel takes the position that every state is in part mankind and in part land; the state, as such, is an organism (Ratzel, 1897, p. 2). Vidal de la Blache takes Ratzel’s argument and extends it by saying that it is man that creates the organism. He reminds us that we should not forget the importance of human agency, as man, as a biological agent, is beyond compare (Vidal de la Blache, 1898, pp. 107, 102). Ratzel’s student Semple takes the organism out of the argument and works from the definitive statement, “Man is a product of the earth’s surface” (Semple, 1911, p. 1).

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Bishop, M. P., & Shroder, J. F. (2004). Geographic information science and mountain geomorphology. Berlin: Springer. Blake, G. (2000). State limits in the early twenty-first century: Observations on form and function. Geopolitics, 5(1), 1–18. Bodin, J. (1583a). Les six Livres de la Re´publique, Darmstadt, Scientia Verlag Aalen, 1977 (Deuxie`me re´impression de l’e´dition de Paris 1583a). Bodin, J. (1583b). Six books of the Commonwealth (trans. and abridged by M. J. Tooley). Oxford: Basil Blackwell, 1964. Boulding, K. (1962). Conflict and defense: A general theory. New York: Harper Torchbooks. Brugger, F. (2002). L’eau cre´e des liens Valais-Ne´pal. Helvetas. Buhaug, H. (2007). Dude, Where’s My Conflict? LSG, Relative Strength, and the Location of Civil War. Paper prepared for presentation at the 48th annual ISA convention, Chicago, IL, 28 February-3 March, 2007. Buhaug, H., & Gates, S. (2002). The geography of civil war. Journal of Peace Research, 39(4), 417–433. Buhaug, H., & Gleditsch, K. S. (2005). The Origin of Conflict Clusters: Contagion or Bad Neighborhoods? Paper presented for the Third European Consortium for Political Research General Conference, Budapest 8
10 September, 2005. Buhaug, H., & Gleditsch, N. P. (2006). The death of distance? The globalization of armed conflict. In M. Kahler & B. F. Walter (Eds.), Territoriality and conflict in an era of globalization (pp. 187–216). Cambridge: Cambridge University Press. Cederman, L.-E., Rød, J. K., & Weidmann, N. (2006). Geo-Referencing of Ethnic Groups: Creating a New Dataset. Paper prepared for presentation at the GROW Workshop, Peace Research Institute Oslo (PRIO), Feb. 10
11, 2006. Cooper, R. (2003). The breaking of nations. London: Atlantic Books. Cunnigham, D., Gleditsch, K. S., Salehyan, I. (2005). Dyadic interactions and civil war duration. Paper prepared for the 46th Annual Convention of the International Studies Association, Honolulu, HI, March 1
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Robst, J., Polachek, S., & Chang, Y.-C. (2007). Geographic proximity, trade, and international conflict/cooperation. Conflict Management and Peace Science, 24, 1–27. Russell, J. (2007). Chechnya
Russia’s ‘War on Terror’. London: Routledge. Sambanis, N. (2002). A review of recent advances and future directions in the quantitative literature on civil war. Defence and Peace Economics, 13(3), 215–243. Semple, E. C. (1901). The Anglo-Saxons of the Kentucky mountains: A study in antrhopogeography. The Geographic Journal, 17(6), 588–623. Semple, E. C. (1923 [1911]) Influences of geographic environment on the basis of Ratzel’s system of Anthropo-Geography. New York: Henry Holt and Company. Smith, D. (n.d.). Trends and causes of armed conflict. Berghof Research Center for Constructive Conflict Management. Retrieved from http://www.berghoff-handbook.net Speckhard, A., Tarabrina, N., Krasnov, V., & Mufel, N. (2005). Stockholm effects and psychological responses to captivity in hostages held by suicide terrorists. Traumatology, 11(2). Sprout, H., & Sprout, M. (1957). Environmental factors in the study of international politics. The Journal of Conflict Resolution, 1(4), 309–328. Starr, H., & Most, B. A. (1976). The substance and study of borders in international relations research. International Studies Quarterly, 20(4), 581–620. Tammen, R. L., Kugler, J., Lemke, D., Stam, A. C., III., Alsharabati, C., Abdollahian, M. A., . . . Organski, A. F. K. (2000). Power transitions: Strategies for the 21st Century. New York: Chatham House Publishers. Thorsell, J. (1997). Protection of nature in mountain regions. In B. Messerli & J. D. Ives (Eds.), Mountains of the world: A global priority (pp. 237–248). New York, NY: Parthenon Publishing Group. Thorsell, J., & Harrison, J. (1992). National parks and nature reserves in mountain environments and development. Geo Journal, 27(1), 113–126. Toft, M. D. (2003). The geography of ethnic violence: Identity, interests and the indivisibility of territory. Princeton, NJ: Princeton University Press. Troll, C. (1972). Geoecology and the world-wide differentiation of high-mountain ecosystems. In Geoecology of high-mountains regions of Eurasia (pp. 1
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Ziring, L. (2009). Unravelling the Afghanistan-Pakistan Riddle. Asian Affairs: An American Review, 36(2), 59–78. Zu¨rcher, C. (2007). The post-soviet wars: rebellion, ethnic conflict and nationhood in the caucasus. New York: New York University Press.

PEACE-BUILDING AND GEOPOLITICAL FANTASIES Vladimir Rukavishnikov ABSTRACT Efficiency of peace-building relies on a vision of the future, partly at least. But nobody can provide a forecast free from prejudice and attitudes deeply rooted in the past. As a result, many so-called long-term “forecasts” are actually “geopolitical fantasies.” The chapter tackles forecasts of the possible fate of the United States, the European Union, Russia, and China in the twenty-first century, a general issue of war and peace in both the remote and foreseeable futures, and prospects of peace-building.

INTRODUCTION At the very beginning of this chapter, it is reasonable to say a few words about the title of work. The term “peace-building” came into widespread use after 1992 when Boutros Boutros-Ghali, the then United Nations Secretary-General, announced his address entitled “An Agenda for Peace” (Boutros-Ghali, 1992). Since then, the term “peace-building” has become widely used but remains an ill-defined notion, often mixed with other terms of peace science (Rukavishnikov, 2001). In short, it is about the capacity of international bodies, various NGOs, and so on for building Cooperation for a Peaceful and Sustainable World, Part 1 Contributions to Conflict Management, Peace Economics and Development, Volume 20, 243
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governance structures and institutions and for establishing sustainable reconciliation and peaceful relationships between rivals in the given state or region. It is about the growing importance of “winning the peace after the war,” and therefore it is an emphasis on “a greater demand for actors capable of effectively managing the transition from war to sustainable and lasting peace” (Stepanova, 2004). The transition from war to peace almost always has negative collateral effects. For instance, the U.S.-led military intervention and the following occupation of Iraq had been entwined with a non-stop rise of tension in the entire region and with a growing flood of narcotics to Russia through the Tajik-Iraqi border as well. Such a transition is a hard task and often takes a lot of time and resources (Collmer, 2009). In the case of Iraq, the period of transition from “war” started in 2003 to “peace” nowadays took over 7 years, and actually this transitional period has not ended at the time of this writing (October 2010), despite the announced withdrawal of the U.S. combat troops from this country in the summer-fall of 2010. The usage of the term “peace-building” throughout the first post-Cold War decade indicated the shift of attention of the international community from the second trend, which emphasizes the capacity of actors involved to “win the war” and manifested itself during the history of humankind, to the first trend named before as “winning the peace.” Needless to say that such a capacity may rely not only on the use of military force but also on other instruments of politics
diplomacy, economic blockade measures, etc.
and that major conflicts extinguished after the Cold War by peacekeeping operations had been caused by a clash of certain great powers’ interests covered behind the surface of debates inside the UN1 (Rukavishnikov, 2001). The second post
Cold War decade brings no real success in peacebuilding. Therefore, public interest to the term has been wasting away. In our view, modern peace science theory pays too little attention to peacebuilding as a complex and complicated process. Yet the UN and other international bodies reacted sharply to international crises and local conflicts that could spill out into local wars and damage the regional or global security; their efforts were evaluated by the public at large as less effective than expected. In our opinion, it confirms this simple idea: efficiency of two main contemporary trends relies heavily on threat perceptions, political assumptions, and finally on visions of the future, i.e., the variants of foreseeing of the future of the given area (territory, land), on various visions of the future of actors involved, etc. The question is as follows: will peace-building be an attribute of the world in the twenty-first century in

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which (unsurprisingly) war is “inherent” because this process today slowly dotes for numerous reasons? Now it is time to make a short remark about geopolitical fantasies (the second part of the chapter’s title). The so-called “common sense” cannot help us in understanding the future, especially in making a correct longterm geopolitical prognosis. As a result, many so called “geopolitical forecasts” are actually fantasies in spite of the announced goals and intentions of their authors
to identify political, social, demographic, economic, cultural, military tendencies, and geopolitical obstacles that constrain possible developments and to foresee the major events that might take place in the observed future. Fantasies is in the plural because there are many confronting points of view concerning the plausible future; alas, we have no room to discuss all of them in this chapter. Another important consideration: there are too many proponents of geopolitical forecasts (like admirers of conspiracy theories) to ignore them and their arguments. Some say, “Just imagine that we are at the very end of 19th century trying to foresee future developments. If we were in the beginning of the 20th century, to predict the course of history of the 20th century would be impossible because there was a new constellation of powers interacting with each other every twenty years.” Opponents argue, “This is a post-factum judgment, the opinion of those who already knows the real history of the 20th century”. Still others say, “If it were not a forecast, a great many would not talk about anything, or at least, the entire process of interpersonal communication would be very difficult.” All three are correct, generally speaking. The chapter starts with methodological issues and visions of the future of the United States and China in the twenty-first century. It then shifts to a discussion of prognoses published in the United States and Russia and a contradiction between words of politicians and actions of the military. A resume is presented in the conclusion.

HIGH IDEAS, HARSH REALITY (METHODOLOGICAL PROBLEMS) It is a challenging idea, of course, to describe political decisions and events of the future from the perspective of dominant experiences in our lifetime (the second half of the twentieth century
the first decade of the twentyfirst century) but, in our view, not a very realistic one. Each next century differs from the previous one in many dimensions, although it carries many

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traits of the earlier historical epochs. And the twenty-first century is no exception. For many centuries, people believed that great powers emerge, grow, and near collapse gradually, but the sudden collapse of the Soviet Union and its socialist empire challenged this belief. The old idea of historic cycles had also been questioned.2 What if the course of history is not cyclic and unhurried but is, on the contrary, arrhythmic? What can we learn from the past? What will be the fate of the current Great Powers
say, the United States, Russia, and China
in the twenty-first century? This is not a pure rhetorical question because answers for these questions determine the national politics, peace, and security of the world. Some scientists tried to find an explanation for the collapse of great empires of the past in the modern theory of complex systems. According to this theory, a big complex system is vulnerable to, on first glance, negligible factors that finally bring the system to annihilation. This is the main simplifying assumption of the theory. Probably, theoretical models of this sort are not bad, but alas, in practice they are not applicable to real geopolitical systems. The political reality includes too many non-measurable elements, and perhaps this is a main reason for the model’s failure. The changing environment might be a “prison” for the further development of great power, yet sometimes nations are wonderfully capable of escaping its confines and developing a new world order. But nobody knows the limits of adaptivity of a particular nation to changes. And even revolutionary transformations bear the imprint of history.3 References to economics do not help much. Take the United States as an example. For Niall Ferguson, Professor at Harvard University and Harvard Business School, the main danger for the future of the United States in the twenty-first century is not the huge budget deficit (in 2010 the U.S. expects a budget deficit of more than 1.5 trillion dollars
about 11% of GDP), but the domestic subjective perception of the economic standing of the United States: “the statistics listed above, by itself can not weaken U.S. power, but it may help to reduce the blind faith in the ability of the U.S. to withstand any crisis” (Ferguson, 2010). When people cast doubt on monetary and fiscal measures of the government, the fiscal crisis will get worse, Ferguson says, referring to the example of Greece. In short, Professor Ferguson is frightened by the global financial crisis nowadays and therefore foresees the sunset of the “fragile” American empire (Robert Fogel is optimistic about China, 2007). While for Ferguson the principal question is not the inevitable decline of the U.S. economy but the rhythm of the process of the declining American empire
will it come suddenly to a collapse as it happened in the case

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of the USSR or not, for political scientist Dr. George Friedman, the head of Stratfor4 (Strategical Forecasting, Strategic Forecasting Corporation), it is not a question at all. For him the entire twenty-first century is the American age, primarily because of the enormous American might, which will remain unchallenged (Friedman, 2009). This means that both the alarming vision of Professor Ferguson of America’s future and the optimistic forecast of Dr. Friedman glorifying the American age are based on different interpretations of contemporary economic reality and economic trends. As we said before, Ferguson is not thinking about whether the decline of America is coming or not but about whether this process will be sudden or slow. He also invented the term Chimerica and the concept of symbiosis between the two great powers
the United States and China. He hopes that in such a coalition the United States may survive, not playing a first role in the global economy. “By 2027 the domestic product of the People’s Republic will be greater than that of the United States, not because of American stagnation, but because of the inexorable rise of the Chinese economy”, writes Ferguson.5 And probably this purely economic argument is the central point of Ferguson’s support for enlarging the U.S.-China partnership.6 Some said that the very idea of a U.S.-China partnership is the main trend of global politics in the twenty-first century. They referred to the recent (November 2009) visit of Barack Obama, the U.S. President, to China. But they forgot that Chinese leaders had not supported Obama’s proposal to share the informal burden of responsibility for the future of the world. China is giant economically but still weak militarily,7 argues Dr. Freidman. Here we must note that America’s colossal military power is the second basic argument in favor of Friedman’s thesis of American dominance in the present age. He is sure that there is no nation to compete with the United States in terms of military might, neither now nor by the end of the twenty-first century. We also have to say that there are plenty of publications about the plausible disintegration of the United States in the twenty-first century.8 Some publications present very vague scenarios of the process of breakout, others specify the exact period of the “American death” (“the decade 2010
2020 will be the decade of decline and decay of the USA”9). However, none of the authors considers the world order after the collapse of the United States in detail or discusses probable consequences of the great event. They do not understand that the world of the twenty-first century is almost totally integrated because of intensive globalization and that

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patterns of international relations in the twentieth century are not applicable anymore. In our opinion, all these publications can be classified as “anti-American wishful dreams.”10

WILL THE RUNNING CENTURY BE NAMED AS THE AMERICAN AGE? The Third World War will begin at 17:00 on the November 24, 2050. The next big war will be launched when North Americans traditionally celebrate Thanksgiving Day, and therefore the United States will be caught unawares. This is an astonishing forecast, which was published by Dr. George Friedman in a book, entitled The Next Hundred Years (Friedman, 2009). The book became a bestseller in the United States soon after its release. According to Dr. Freidman’s forecast on the great event mentioned earlier, the American wars lost in Iraq and Afghanistan11 will be replaced by a new cold war of the West against Russia. An aggressive Russia, which will try to restore the Russian empire in the 2010
2020s, will follow the sad fate of the USSR and ultimately will disintegrate in the 2030s.12 China’s role in the world of the future will be diminished, too, because around the 2020s this nation finally will be fragmented.13 The EU as a whole in the second half of the twenty-first century will not be able to perform as a world actor.14 And the Third World War of 2050 will be between the United States and Poland as the new Eastern European center of power together with their allies, on one side, and Turkey and Japan, which will become great powers by the mid-twenty-first century, and their satellites, on the other. Of course, after heavy battles the United States will be the main victor in this big war. But by the end of the twenty-first century, Mexico as a rising giant will challenge the United States, its aging northern neighbor. To resume: The twenty-first century will be a victorious American age but not a peaceful one.15 A Third World War is inevitable. Concerning Friedman’s book as a whole, we set forth a question: Is the projection of Dr. Friedman some kind of Freudian slip, as some reviewers say (Tinsky, 2010), or what? Certainly, it is rather easy to classify Friedman’s book as cheap propaganda of American superiority, targeted mainly on a domestic audience, but in our opinion that is not a fair diagnosis. Dr. George

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Friedman’s projection, by no doubt, is not as accurate as macroeconomic calculations based upon extrapolations of trends; perhaps the genre of his book could properly be named a geopolitical fantasy. We have to say also that Dr. Freidman himself asks readers not to take his forecast too seriously but simultaneously calls for them not to perceive it as very fantastic, reminding them that human history knows many cases in which the subjects of science fiction books come true. Friedman’s projection lucidly discloses political assumptions, attitudes toward peace keeping missions, and a certain vision of the American future in the running century, which is spread in his country. We are able to say with confidence that he is a great patriot of the United States, and in our opinion, the entire book is a reflection of the fears and dreams of this great nation, or of a certain part of elites, at least. Dr. Friedman proceeded from the principal idea that the twenty-first century is a century of war not peace, and this is a point of departure for a construction of the entire projection. Strangely enough, in his projection, “War” seemed a more acceptable means of solving global problems than “Peace.” Dr. Friedman, perhaps, cannot be called a hawk, but of course, he is not a pigeon or a dove of peace. In the Friedman book, there is no discussion of peace-building as a phenomenon, and in his vision of the twenty-first century the trend of “wining peace (after war)” is subordinate to “winning war” (here we are referring to two main contemporary tendencies mentioned in the Introduction). The attention of the author of the reviewed book is mainly paid on how to maintain the global dominance of the United States using American military forces, not international peacekeeping missions. One may easily draw from his phantasmagoric projection of a Third World War that the United States has an extreme distrust of his main allies from NATO, except Britain and Poland, and that Turkey and Japan will lead the list of “traitors” earlier or later. The very appearance of this forecast means that the memory about Pearl Harbor’s tragedy is still alive and secretly poisons a popular vision of the U.S. relationship with Japan and Europe. We can say for sure Dr. Friedman exploits phobias spread among a part of ordinary Americans (or among a part of persons of his age perhaps) on who are real American rivals.16 But we don’t know whether this book is an attempt to attract the attention of U.S. authorities to a possible “treason” of the closest partners in a big war of the coming future.17 The reader of Freidman’s book may well feel the hidden hatred of the author toward the former and present rivals of the United States. The

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American futurologist believes neither in the “reset” of the U.S.-Russia partnership nor in an alliance between the United States and continental China. Let me put it simply: Post-Soviet Russia is perceived by Dr. George Friedman if not as an enemy like the former USSR but as a dangerous rival, and he has no trust for Communist China as well. Otherwise, one cannot explain why the author of the book The Next 100 Years would predict the new cold war,18 the failure of resurgent Russia, and the fragmentation of China. In the book The Next 100 Years, the author revitalizes the old idea of “star wars.” Analyzing Friedman’s scenario of a Third World War, we come to a conclusion that, preparing for “star wars,” Americans cannot protect themselves and their allies against the sudden attack of powerful war machines that can penetrate the most elaborated defense system. Perhaps, the only rational response to an alarming prognosis of Friedman may be an appeal to strengthen international control over the peaceful usage of cosmic space, including the moon, by all nations of the earth. There is an international treaty with a ban on militarizing space, including the moon, signed in the second half of the twentieth century. This treaty is still acting nowadays. Is the forecast of “star wars” just a signal that the space nations are ready to put lethal weapons in space again? Or is this book an appeal to U.S. authorities to militarize space in the present age despite the ban? Is it an appeal to break out of multinational cooperation in the space arena?19 Dr. Freidman uses the basic ideas of geopolitics, like many other Western forecasters did before him, but focuses basically on demographic, not economic, trends as crucial points for foreseeing the future of today’s existing nations. Freidman neither praises democracy nor free market economy but stresses attention on a slowdown in world population growth at irregularities in local demographic processes. Meanwhile, international peace, economic globalization, cultural development, demography, and democracy are mutually reinforcing. Peace is often defined as freedom from war, a necessary condition for progress of humankind. Contrary to many present authors, Dr. Freidman does not attack global warming and other environmental issues as global challenges of the twenty-first century, thinking that the humankind will manage these problems eventually, as it was able to deal with global-size threats in earlier epochs. In this regard, Dr. Freidman as political scientist and futurologist differs from other scholars who also tried to foresee the future but actually were afraid of the present, even abandoning old dogmas (Take a look, for instance, at Phillip Bobbitt’s huge book. See Bobbitt (2002). Happily,

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present-day tendencies are not confirming Friedman’s predictions, but Friedman is ignoring today’s reality because he probably is convinced that the world will change irrevocably as it goes further into the twenty-first century. He is openly looking at what lies ahead for the United States and the world and pictures the twenty-first century as an age full of tragic and bloody wars, not peaceful cooperation and integration. This is a really frightening image of the possible future. War and peace in the twenty-first century, evidently, understood in remarkably different ways by the military, politicians, civilian scholars, fiction’s writers, and the public at large. All agree, however, that war, by definition, is most frequently violent and bloody. Therefore, attempts to use all available means to avoid a transformation of any dispute into war become internationally adopted. And we hope this tendency will strengthen in the running century despite a gloomy prognosis of the inevitable Third World War, and the fact that growing pacifism in the world is of a growing concern in the United States. All we wanted to do in this section is to show ideas, phobias, and assumptions concerning U.S. superiority and the world future hidden in Dr. Freidman’s book. In our view, Freidman’s narration of global politics creates certain misperceptions and false opinions, which are contrary to common sense and what reader’s own eyes see. We took Freidman’s book not only because it is a really lucid and highly readable forecast of the changes one can expect around the world in the twenty-first century but also because the author of this book exposes explicitly, yet perhaps unconsciously, American dreams and fears, and extrapolates the unilateral construction of today’s world order for the full length of the running century. The running twenty-first century, in our opinion, is unlikely the American age, as Dr. Friedman foresees it. Yet nobody knows exactly what even the relatively remote (over 15
20 years ahead) future looks like. This idea does not diminish the strength of the author’s conviction that a long-term prediction cannot really be done, even though we need to attempt it.

DEEDS AND WORDS Continuing to explore the general theme of this chapter, let us take a brief look at the Russian forecasts and the Russian perception of peacebuilding. Most available projections in the Russian language were

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published from 1999
2000 on the edge of the next century. Hereby is a short overview.20 Generally speaking, the Russians share the opinion that the twenty-first century is an age of various small wars and numerous local conflicts caused mainly by inter-ethnic contradictions, while the big nuclear war, the Third World War, is practically impossible. None of the authors’ forecasts predicted wars between the Russian Federation and the European Union (EU), the United States, Japan, or the China in the foreseeable future. All experts agree that political events in the former Soviet Central Asia (Kirgizstan, Tajikistan, Turkmenistan, Uzbekistan) and alarming developments in the Middle East (basically Iraq, Afghanistan, Iran, and Turkey together with the long-playing Palestinian-Israeli conflict) will determine the nature and character of relations between the main global actors in the Middle East-Asian region, i.e., between the United States, Russia, China, Pakistan, and India. Perhaps the great powers can find a way for pragmatic cooperation, uniting efforts in countering common threats, and then the relationship among these countries will develop into a long-term partnership. If not, then global and regional security will be in danger. Some years ago, at the very beginning of the second term of Putin’s presidentship, the Russian media vividly discussed the issue of which wars Russia must be ready for in the so-called “foreseeable future” (Baranets, 2006). It was a short-term forecast (about 10 years ahead). Today, in 2010, we can say, happily, that the alarmist’s version of the aforementioned shortterm projections has not been realized so far: there are no military confrontations with NATO due to a growth of tension on the eastern and northeastern borders of Russia, the “frozen” conflicts remains “silent.” So far there is no need for the Russian Army to intervene under the humanitarian purpose of protecting the Russian-speaking population of the semi-declared republic of Transdniestria, and there is no need to use Russian troop in Nagorno Karabach (Nago´rnyj Karaba´x) either. In short, those forecasts were not “accurate.” Their authors foresaw neither gradual worsening of the Russia-Georgia relationship with a climax during the “peace-enforcing operation” in August 2008 nor the rapid smoothening of tough RussiaUkrainian relations because of the change of political leadership in Ukraine (the presidential election of 2009). We think it had happened because of the so-called “political myopia” (if they were not in a deep political blindness).21 The Russian analysts are focused on plausible infra-state armed clashes and the options of inter-state wars nearby. In fact, they are talking about the possible military interventions, the peace-enforcing and peacekeeping operations in the “near abroad,” considering nearby “frozen” conflicts as

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potential “hot spots.” Like the Freidman book, the Russian experts, alas, pay no attention to peace-building, peace initiatives, and efforts of the various NGOs and other non-military bodies engaged in international relations. It is a traditional (Soviet) attitude toward foreign affairs actors, one shared by adherents of so-called “realpolitik” or “power politics,” which is widely spread among career diplomats, the military brass, security experts, scholars, and policy-makers in the Russian Federation nowadays. The most Russian forecasters follow this simple idea: “While we do not want to encourage hostility, some risk of military over-preparation is prudent and much better than a gamble on under-preparation” (Gray, 2008). It is understandable because it is always better to make small mistakes in pre-war planning rather than big ones in real military actions. It is a reflection of how experts interpret national interests, understand geopolitics, and perceive national security threats, potential and immediate. If strategic analysts attempt to neglect the cited rule, the oversight can prove costly. This is often true, but it is also true that “bad” assumptions often back political guidelines in defense planning. It is not hard to guess why. In short, any geopolitical prognosis is inevitably biased, but at first encounter the short-term prognosis is not so bad that it doesn’t have such a forecast for military planning22 because military plans usually don’t need long-term forecasts (over 10 years ahead). Perhaps it is better to have an ill-fated vision of the future than no attempt to foresee the possible ways for development of the situation
an excuse to use the all-too-familiar phrase, “the foreseeable future.” The deeds of the military always say more than the words of politicians and the smiles of diplomats. Apparently, conducting recent (2010), very expensive, military exercises in the Far Eastern part of the Russian Federation, Moscow wanted to demonstrate to Beijing that Russian leadership is ready to put a limit on the growing Chinese expansion in the eastern regions of the country, has enough troops to confront the Chinese army offensive in the case of the military confrontation in the future, and considers numerous declarations about the “strategic partnership” between Russia and China as being less and less relevant to the geopolitical reality (Khramchikhin, 2010).23 This exercise was a clear political message to Beijing (and Tokyo): be aware of the Russian bear! Sweeping pronouncements about the new stage of Russian-Chinese high-tech cooperation have not yet found adequate replicas in commercial contracts. Russia needs foreign investments for the development of the Russian economy. This country welcomes Chinese investments as an essential part

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of a foreign investments package. But more than investments, Russia needs to maintain effective control over the Far East of Russia’s vast territory. The Russian military are carefully watching the permanent growth of Chinese military might. New military exercises are on the agenda. There are certain concerns about Russia’s peaceful relationship with Communist China; however, today in our opinion, there are no grounds for a “cold war” between these two great nations. Russia is the closest neighbor of China. There are no grounds to talk about a possible “hot” war in the Russian Far East in the foreseeable future either. Russia has a long tradition of being a superpower and will never agree to play a subservient role to China or to disintegrate, as Freidman dreams. The Russians, for sure, will remain an important actor on the world stage in the foreseeable future. Post-Soviet Russia does not wish to go along the Soviet path further into the twenty-first century. This country can only be great or be nothing. Therefore, Russia is no easy partner for the United States, and despite the recent attempt to “reset” U.S.-Russian relations, the reconciliation is still fragile, incomplete, and politically divisive, for sure. Yet, how challenging this partnership may be, for neither Moscow nor Washington can afford not to improve relations. Due to permanent instability in the U.S.-China political relationship (from friendly gestures to tensions), this point should be emphasized. The rumors about the new cold war between the United States and Communist China appeared in the international press in the spring of 2010. They were primarily linked with militarist rhetoric by Chinese officials concerning the U.S.-led exercises in the Sea of Japan. Then, claiming that the American exercises were threatening Beijing, China’s capital, the Chinese responded to the perceived threat with naval exercises in the South China Sea, far south from the Sea of Japan. These exercises have demonstrated that China is becoming a superpower and would like to control that sea through which passes half of the world merchant fleet tonnage and that has rich fishing and oil resources.24 The author of this chapter has read on an American conservative website about the aforementioned dispute: “China’s militarization surge threatens U.S. long-term interests in Asia especially given that Beijing, according to that country’s 2006 Defense White Paper, intentionally plans to use military force to advance its economic interests. [. . .] America needs a plan to win the Cold War which must include three elements. First, the U.S. must increase its military presence in Asia by establishing numerous bases that assure our allies and contain Beijing’s expanding military. [. . .] Second, the U.S. must form a robust Asian alliance. [. . .] Finally, the U.S.

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and its Asian allies must employ effective ‘soft power.’ [. . .] The business side is especially critical” (Maginnis, 2010). The very appearance of this “old-fashioned” recipe at the end of the first decade of the twenty-first century demonstrates the deep dissatisfaction of American conservatives with Obama’s foreign policy and strategy. Perhaps, the U.S. conservative forces should understand that the days of American global superiority are coming to an end. If they do not understand, then they will be unable to prepare for the dangers of the future. Of course, American military presence in Asia can be enlarged in the coming years, but we doubt that this step will help the United States to confront Communist China militarily. And in our opinion, there is no chance that the American “soft power” will help to create a new block of Asian nations against continental China. Today, the very idea of creation of an Asian analogue of NATO looks unrealistic. The world is in the twenty-first century, not in the midst of the previous age when NATO was born. According to the calculations of numerous experts, the U.S. economy (GDP) will be surpassed by the Chinese economy in the mid-2020s or a bit later. An economic projection of this sort is hard to ignore. China sustains high rates of economic growth even in these days of the present global financial and economic crisis launched in the United States. In fact, China has almost won the global economic race. This fact really matters. As for military exercises, the state often demonstrates its muscle as a prelude for war and, therefore, observers must carefully watch any “military games.” Happily, new full-scale cold wars, driven by geopolitics and backed by other motives, have not happened so far.25 Because each “cold war” can be elevated to the level of “hot war” and become a shooting war, which then may transform into a big war. Then, a gloomy nightmare, the next world war
the very frightening dream of Dr. Freidman and his associates
may become a reality.

CONCLUSION There is a widespread acknowledgment that the nature of inter-state war in the twenty-first century is determined by the conflicting nature of relations between nation-states more than by personal enmity between leaders, which often was a cause of wars in previous epochs. The defense planning system everywhere is based upon forecasts and, in turn, various forecasts

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are always based on certain political assumptions, ideological dogmas, national stereotypes, phobias, and myths. Military planners may not know what assumptions and ideas have been used by any leader if he or she cannot make them explicit. There is an opinion that forecasts can be fairly permissive and inclusive, and it is not easy to discover hidden ideas or make assumptions explicit. That is why debates about possible scenarios of conflicts in which national (Russian or American, Chinese, etc.) troops might be engaged always become a theme of sharp public discussion. There is also some old wisdom that “the last thing any nation may wish is conflict or war.” And if the particular conflict may be considered threatening to the very existence or resurgence of the given or neighboring state, then the situation is really alarming. “The challenge is to mitigate risks and to cope with uncertainty, not try to diminish it,” some experts say (Gray, 2008), but alas, they do not explain properly how to implement this “wise advice” in real politics. The survival of a nation or state is number one on the list of national priorities. There is a consensus that any conflict or war cannot be divorced from its political and social origins, its historic roots. To understand the coming wars of the twenty-first century, we need to understand why these wars can be launched, when and what they will be fought for, and even more than that. The task of a “winning peace” is not less important today than in the twentieth century, and in our opinion it will be as important in the foreseeable future as in years before. Alas, we cannot say that this theme is dominant in the media worldwide. Without going into details, we wish to point out the following idea: the non-stop line-up of armed conflicts that emerged during the first decade of the twenty-first century has clearly exposed the limits of the peacekeeping efforts of the UN, the African Union, the OSCE, other international security organizations, and also by the way, the inefficiency of the U.S. unilateralism, the failure of the American way of governing the world. Predictions based on extrapolation do not work well today. Even in economics we are only able to make a short-time or mid-range prognosis. Globalization, economic and cultural, is breaking national borders. The UN as the post
Second World War international political organization is losing its authority. Just imagine a map of today’s world painted in different colors according to their degree of hostility/friendship vis-a`-vis the USSR in the 1970s. It seems that in the area of global politics possible images of a future world order depend more upon change than stability in the geopolitical landscape. But the contemporary nation-states are

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not free actors. And their actions are responses to reality. The pursuit of short-term self-interests by nation-states or their rulers leads to predictable behavior of international actors in the so-called foreseeable future, at least the ability for a short-time forecast in the area of international relations. For sure, the short-term forecasts are possible, yet they are constrained by circumstances and other relevant matters.26 It is rare that the final outcome will be what leaders initially intended to achieve or experts foresee. That is the implication nearest the surface anyway. The hardiest part of an explanation of future developments is longterm foreseeing. Forecasts for the long-term periods attract popular attention not only because of their complexity and elegance but also because checking their realization or implementation in practice is very difficult for those who read them. Only the next generation will be able to check the accuracy of long-term forecasts. The generation gap exists, and nobody knows exactly what faces the nation in the coming era of uncertainty. Please do not forget that various domestic and foreign political decisions often create unsound expectations and, acting together, change the geopolitical context of the present. And this very dynamic ambience has not been “taken into calculation” by forecasters initially. Analyzing geopolitical fantasies, we can disclose political assumptions backed by different (say American, Russian, European, Chinese, Indian, etc.) national interests in the world, potential threat perceptions, and feasible responses. Nobody, of course, can provide a long-term forecast free from prejudice, biased opinions, or fixed political beliefs and attitudes deeply rooted in the national history and myths because they share a certain basic understanding of the world and international relations influenced by national histories and geographies. The challenge is to beware of national stereotypes and other relevant moments. To resume: There are controversial judgments about war and peace in the running 21st century, the possible future of the world in general, and fates of great powers in particular. The existing projections and assumptions prove, first of all, unresolved methodological problems, briefly described above, and second, demonstrate a subjection of authors of forecasts of politics, ideology, dreams, and sentiments. What is really alarming is that the world is not becoming safer. As for peace-building as a specific phenomenon, it is too early to bury this process, in our opinion. The future development of peace-building depends on the ambivalent future of the UN and other relevant international bodies to a large degree. Meanwhile, against the backdrop of a

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deteriorating situation in Central Asia and uncertainty in Afghanistan, the readiness of the international community to respond to challenges is vital.

DISCLAIMER The author understands that his analysis reflects Russia’s official position, partly at least, and that his judgments are very subjective. They are made on his own responsibility, although in this chapter he tried to take the stand on a position as a so-called an “objective observer” that might be described as follows: when one is faced with a specific question to interpret, he or she has to analyze, first, the whole framework surrounding the question for a deeper understanding of the functioning of the framework itself, and then move toward its composite parts.

NOTES 1. All peacekeeping and peace-enforcing actions have a goal “to restore and maintain peace and security” in the area of conflict. The international authorities provide the legal basis for the conduct of such operations. The UN has been deploying peacekeepers since 1948, but the Great Powers became active in the field of peacekeeping after the end of the Cold War. NATO was out of peacekeeping till the collapse of the USSR. In the 1990s, after the NATO intervention in Yugoslavia, experts started talking about the so-called “Americanization of peacekeeping.” During the last decade, NATO has been involved progressively in U.S.-led operations in Afghanistan, regarding it as a new political rationale for the Alliance. Sometimes, the UN did not authorize the peacekeeping operation because of a clash of opinions of members of the Security Council; in certain cases, the United States or Russia acts unilaterally or together with a small number of nations. PostSoviet Russia in the early 1990s acted as a peacekeeper only on the territory of the former USSR. Today the Russian (or CIS) peacekeeping personnel cooperate with the UN and OSCE military observers and peacekeeping missions in many of the so-called “hot spots” in the world. 2. Here are the words of Dr. Ferguson about historic cycles: “For centuries, historians, political theorists, anthropologists and the public have tended to think about the political process in seasonal, cyclical terms. From Polybius to Paul Kennedy, from ancient Rome to imperial Britain, we discern a rhythm to history. Great powers, like great men, are born, rise, reign and then gradually wane. No matter whether civilizations decline culturally, economically or ecologically, their downfalls are protracted” (Ferguson, 2010).

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3. Take the present Russian Federation’s “soft power” as an example (Rukavishnikov, 2010). Don’t forget about unfulfilled Western expectations about Russia’s fast transformation into a Western-type democracy after the collapse of the USSR. 4. Stratfor (Strategic Forecasting)
the U.S. private company founded in 1996 and known as the shadow CIA. The company carries out regular monitoring of the political situation in all regions of the world, using only open sources, and sends its subscribers a daily briefing with a selection of topics of interest to them. The company has traditionally supported the Republican Party. 5. Actually he fears not so much that China will soon overtake the United States in economic clout, and even that it will happen very soon, but the fact that it does not depend on America because it depends on China, which acts on the basis solely of her own national interest. 6. The time-range of Niall Ferguson is 2027, while his colleague Robert Fogel, the prominent economic historian and Nobel laureate in economics, takes a look a little further into the future
not to 2027 but to the 2040s
and has predicted that by this time China’s economy will not just surpass the United States but leave America far behind. Contributions of the American economy in gross world products, according to Fogel’s forecast, will fall by one third, while China’s share will grow threefold (Fogel, 2007). Remarks on this study may be found on the following website: http://www.marginalrevolution.com/marginalrevolution/2007/06/ robert_fogel_is.html). While the economies of the 15 countries that were in the European Union (EU15) in 2000 will continue to grow from now until 2040, they will not be able to match the surge in growth that will occur in South and East Asia. As a result, the current gap between the wealth of China as a nation and the prosperity of its citizens will vanish into oblivion. Now the Chinese gross product per capita is about five times less than in the European Union. But the majority of Europeans who are living today will see a time when the average Chinese person will be twice as rich as the average European, and probably healthier than the average Europeans (see also Fogel, 2004). 7. China has the world’s largest land army and a lot of tanks. But in comparison with the United States, it does not matter. The military balance between these two nations determines the power of their fleet and nuclear forces. According to the available information, China is far behind the United States in the number of nuclear warheads and intercontinental ballistic missiles. The United States has 11 aircraft carriers, and China has none. The gap in military spending between China and the United States is tremendous. Finally, China is not yet at the level of technology that allows this nation to compete with U.S. military building. And there are no signs that the People’s Republic of China will be competitive with the United States in the military field at least in the nearest future. 8. The list of publications is too long to be presented in this chapter. Most of these “works” are in Russian. 9. Citation from the essay “The Death of America” (2000). 10. The reader could find there a mix of causes, very different by nature
from macro-economic reasons (e.g., a fiscal crisis) to psychological motives (a crisis of individualism), the aging population, and inter-ethnic tensions. 11. The United States will lose anti-Jihadist wars in the Middle East, but according to Friedman, the point is that the United States has never planned to reach a

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military victory there; the real aim of these wars is that the United States plunged the Muslim world into a so-called “manageable chaos” while retaining the ability to cause continuous ongoing conflicts between different Islamic countries and religious currents. By the way, according to the American media, key players in the White House oversee national security and also doubt the success of the Obama strategy in Afghanistan and Middle East at large. This means that top Democrats are losing confidence in the incumbent U.S. president as a wise national leader much like Stratfor has, a supporter of the Republican party. 12. According to the forecast, Russia will fall apart at the beginning of the third decade of the XXI century, just as the Russian empire collapsed and the Soviet Union did, due to the unbearable militarization and constant tension on the borders of this nation, i.e., the same reasons. Friedman argues that Russia did not collapse in the 1990s, and therefore this nation must again wish to be reborn as a great power, and once again to raise the question about the country’s position on the international arena. According to Friedman, a resurgent Russia seeks to reassert its influence in the area of the former USSR. Since the conditions of complete isolation of Russia like isolation of the Soviet Union will be impossible, the United States will seek different ways to limit the influence of Russia. It sounds realistic. Take the South Caucasus region as an example. The RussianGeorgian military conflict in August 2008 increased U.S. attention to Georgia. In January 2009, the Charter of the Strategic Partnership between the United States and Georgia was signed, and the U.S.-Georgian Commission for strategic partnership was established in June of that year. Politics of incumbent U.S. President Barack Obama poses no less ambitious goals in the formation of “new relations” between Georgia, the South Caucasus region as a whole, and the USA. In July 2010, U.S. Secretary of State Hillary Clinton visited Georgia. This visit confirmed the immutability of the U.S. geopolitical line: the U.S. intends to create a zone of permanent instability near the Russian borders. In this context, Georgia is considered as a key state, the country through which both the American leadership and NATO get the ability to influence Russia. Only a year after the conflict, the Washington administration had spent on assistance to Tbilisi the amount of near $1 billion (sources: Russian media reports). The victory of a Russian outcome of a five-day war against Georgia definitely showed a resurgence of great power, but it also raised questions about repairing Russia’s political influence in the world (Rukavishnikov, 2010). 13. Currently, despite the fact we are conscious of it or not, China has become a true global leader. 14. Today Europe is firmly and resolutely focused on survival in a rapidly globalizing world among the newly emerged economic giants, further ensuring its primacy and priority in the international arena. 15. Almost all expected armed conflicts will be so-called “asymmetric wars” or “unconventional wars”, which are very different from traditional wars of the previous epochs by nature. Unfortunately, in this chapter we have no room to discuss this issue in detail. 16. The aforementioned scenario of the future is clear proof that part of U.S. citizens are looking for reference points in the past, not the present. 17. This is the question some reviewer asked (Tinsky, 2010).

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18. There were concerns that the “new quasi-Cold War against Russia” would start after the Russian military victory over Georgia. Frankly, during the years of 2008
2009 the author had a feeling of de´ja` vu, when he witnessed how a certain way of using pressure in international affairs was considered as “legitimate,” how political disputes pertaining to foreign policy and international relations were stirring up, how they were covered by the media, and how they were settled. Fortunately, the gloomiest expectations had not been realized. The short military clash in the Southern Caucasus between Georgia and Russia in August 2008 had frightened politicians and the public at large in Russia’s neighborhood, and in Europe and the United States as well. The “regime of cooperative coexistence” in relations between former Cold-war rivals came back. Today, alas, the spirit of rivalry and confrontation is manifested in unwillingness of the West to agree to certain reasonable wishes of Russia. This situation is a bit annoying for the Russians, who think that the United States and Russia need each other politically, primarily because the Iranian nuclear problem remains unsettled, not even speaking about other relevant issues. 19. History shows that space cooperation between the USSR/Russia and the United States, the two leading players in the field of extraterrestrial exploration of space, was and is extremely dependent upon the overall context of the (then) USSR/United States and (nowadays) Russian-American relations. Consequently, nobody can absolutely exclude a situation in the future in which this context will make the continuation of cooperation between the two countries in the space arena impossible. But this version of the future in U.S.-Russia cooperation in strategically important sphere looks very unlikely from today’s perspectives. This version contradicts general trends of increasing bilateral and multinational cooperation in exploring outer space either. 20. We are not talking in this chapter about numerous projections of the socalled “trade wars,” “cyber-wars,” and other kinds of “wars,” which differ from bloody military clashes by definition; this facet of the theme is outside this chapter. We could not find a forecast for the full-range of the twenty-first century in printed Russian-language open sources or Russian-language Internet sites either. 21. The reader should interpret this expression properly: the very term “political” means “relating to the way power is achieved and used in a country or society.” 22. Currently, Russia tries to “win peace” after the victory in the 5-day GeorgiaRussia war (2008) and to settle the situation in the Caucasus. But the next war in the South Caucasus region is not ruled out. And in the North Caucasus, fighting against terrorists is going on despite the official declaration of the end of the (second) Chechen-Russian war, i.e., the internal small intensity conflict in 2000. 23. The Russian military brass was alarmed with the recent (2009) military exercise near the Russian borders conducted by the Chinese Army (called “the Big Step”). The Russian military exercise “Vostok-2010 (East-2010)” was actually a response of the Russians to the Chinese military activity, yet formally the troops were targeted to react to “the attack of terrorist formations.” The military exercises “Vostok-2010” did not have analogues in military history, both Soviet and postSoviet, if one took into account the number of troops and military equipment transferred from the west of the Russian Federation to the east of this vast country.

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Yet the Russian independent military experts were dissatisfied with the Russian army combat readiness exposed in the mentioned exercise (Khramchikhin, 2010). 24. Some say the Chinese armed forces (the PLA) have embarked on a rapid modernization drive to enable China to project the country’s national interests by military power well away from its land borders and territorial waters. It is true. But in our view, at the time of this writing, the modernization of the Chinese PLA has not been completed, and this nation cannot say it has overcome its neighbors militarily. 25. We cannot absolutely write away a chance for the emergence of a new sharp international dispute with an exchange of angry words or other “cold war-like” actions in the observable future. It may happen, for instance, in the frame of a discussion of an issue of Arctic oil and gas field’s ownership, an excellent opportunity to renew the information war. 26. We are not saying that short-term prognoses are totally impossible or fake ones, created to deceive people. If the case were true, experts would not be able to calculate the probability of plausible events that would make meaningless the very existence of any forecasting.

REFERENCES Anonymous. (2000). The death of America. Retrieved from http://e2000.kyiv.org/2000/america. htm. Accessed in September 2010. Baranets, V. ( ) (2006). To which wars Russia should be ready ( ). Comsomol Truth ( ), 13.06. 2006 (in Russian). Retrieved from http://kp.ru/daily/23721.5/53925/. Accessed in August 2010. Bobbitt, P. (2002). The shield of Achilles: War, peace, and the course of history. New York: Alfred A. Knopf. Boutros-Ghali, B. (1992). An agenda for peace: Preventive diplomacy, peacemaking and peacekeeping. UN Document A/47/277-S/241111, June 17, 1992. Department of Public Information, United Nations, New York, NY. Collmer, S. (Ed.). (2009). From fragile state to functioning state. Berlin: Lit. Ferguson, N. (2010). America, the fragile empire. The Los Angeles Times, February 28. Fogel, R. (2004). The escape from hunger and premature death, 1700
2100: Europe, America, and the third world. Cambridge, MA: Cambridge University Press. Fogel, R. W. (2007, June). Capitalism and democracy in 2040: Forecasts and speculations. NBER Working Paper No. 13184. Friedman, G. (2009). The next 100 years: A forecast for the 21st century. New York, NY: Anchor Books. Gray, C. S. (2008). The 21st century security environment and the future of war. Parameters, Winter 2008
09, pp. 14
26. Retrieved from http://www.carlisle.army.mil/usawc/parameters/Articles/08winter/gray.pdf. Accessed in September 2010. Khramchikhin, A. A. ( A.A.) (2010). The inadequate response . Independent Military Review ,

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July 23, 2010 (in Russian). Retrieved from http://nvo.ng.ru/news/2010-07-23/1_vostok. html. Accessed in August 2010. Maginnis, R. (2010). Winning the new cold war. August 6. Retrieved from http://www. humanevents.com/article.php?id538425. Accessed in August 2010. Robert Fogel is optimistic about China. (2007). Marginal revolution. Retrieved from http://www.marginalrevolution.com/marginalrevolution/2007/06/robert_fogel_is.html. Accessed in September 2010. Rukavishnikov, V. (2001). Peacekeeping and national interests. COPRI Working Paper No. 20/2001. Copenhagen Pease Research Institute, Copenhagen. Rukavishnikov, V. (2010). Russia’s “soft power” in the Putin’s epoch. In R. Kanet (Ed.), Russian foreign policy in the 21st century (Ch. 4, pp. 76
97). UK: Palgrave. Stepanova, E. (2004). War and peace-building. The Washington Quarterly, 27(4), 127–136. Tinsky, G. ( ) (2010). The dreams of Friedman: The American century, the Asian crisis, the collapse of Russia ( ), January 21, 2010 (in Russian). Retrieved from http://www.warandpeace.ru. Accessed in August 2010.

SATYAGRAHA: GANDHI’S APPROACH TO CONFLICT RESOLUTION Jai Narain Sharma ABSTRACT Satyagraha, as practiced by Mahatma Gandhi, is a technique of action deigned to set in motion a process to achieve lasting peace. It emerged from the realization that violence breeded violence; war fought to end wars and bring peace brought greater and more devastating wars. Satyagraha replaced brute force by soul force, also known as love force through self-suffering with the sole objective of drowsing hatred in the opponent and arousing in him the inherent capacity, even if muted, to love the “enemy.” The doctrine of Satyagraha is an extension of the rule of family life into the political arena. Gandhi held that family disputes and differences were generally settled according to the “Law of Love.” The injured member had so much regard for the others that he suffered injury for the sake of his principles without retaliating and without anger against those who differed with him. As repressing of anger and self-suffering were difficult processes, he did not dignify trifles into principles, but in all nonessentials readily agreed with the rest of family and thus continued to gain the

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maximum of peace for himself without distributing that of others. Thus, his action whether he resisted or resigned was always calculated to promote the common welfare of all. In times such as ours when conflict is the order of the day and the potentials of globalization offers more to fear than to hope. There is an urgent demand for solutions of conflicts by ways which are constructive and not destructive, which Satyagraha fulfill to a great extent. A path-breaking method of conflict resolution was born almost a century ago, far away from India in South Africa. The father of the method was Mohandas Karamchand Gandhi, a lawyer by profession. Following Tolstoy, he called it passive resistance. But the action that followed was not passive; it was proactive. So he renamed it Satyagraha. Satyagraha, as practiced by Gandhi, was a technique of action deigned to set in motion a process to achieve lasting peace. It emerged from the realization that violence breed violence; war fought to end wars and bring peace brought greater and more devastating wars. Satyagraha replaced brute force by soul force, also known as love force through self-suffering with the sole objective of drowsing hatred in the opponent and arousing in him the inherent capacity, even if muted, to love the “enemy.” The doctrine of Satyagraha was an extension of the rule of family life into the political arena. Gandhi held that family disputes and differences were generally settled according to the “Law of Love.” The injured member had so much regard for others that he suffered injury for the sake of his principles without retaliating and without anger against those who differed with him. As repressing anger and self-suffering were difficult processes, he did not dignify trifles into principles, but in all nonessentials readily agreed with the rest of family and thus continued to gain the maximum of peace for himself without distributing that of others. Thus, his action whether he resisted or resigned was always calculated to promote the common welfare of his family. The doctrine of Satyagraha was meant to show how the man of conscience could engage in heroic action in the vindication of truth and freedom from all tyranny, in his appeal to justice against every social abuse and sectional interest. Gandhi challenged the conventional notions of authority, law, and obligation by appealing to his conception of natural law or dharma and self-suffering or tapas. Satya and ahimsa alone could secure an unending basis for social consensus and political loyalty.

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In times such as ours when conflict is the order of the day and the potentials of technology offer more to fear than to hope, social and political theories face their gravest challenge. Theoretical and political systems have grown increasingly suspect, and intellectual formulations tend less to challenge than to repel. But there is a rapidly developing demand hitherto neglected by social and political theory: this is the demand for solutions to the problem of conflict not for theoretical systems of end-structure aimed at ultimately eliminating conflict, but for ways of confronting conflict when it arises, ways that are constructive and not destructive. Such a demand must be met by a theory of process and of means and not of further concern for structure, for pattern, and for ends; basic to such a theory is a philosophy of action. In the arena of power politics, power experts meet power experts and the struggle continues to be cast in power-play maneuvers if not in terms of outright or subtle coercion. The framework of assumptions, which underlies the strategy of power conflicts, may make it impossible for rivals or antagonists to choose the mutually advantageous course because there is nothing in their experience that allows them to make the assumption of similarity in regard to their relative positions. If they could do this, they might solve the dilemma to the benefit of both. Indulgence in himsa is the result of short sightedness, lack of vision, arising out of the inability to put oneself in the position of the antagonist and to disarm or convert him so that he ceases to regard himself as an irreconcilable enemy. Far from denying the existence or reality of conflicts of interest in the human mind and society, Gandhi admitted their existence in every walk of life and sought to make ahimsa the basis of a method of action, which could cope with such conflicts by limiting, if not wholly removing, the himsa involved. It is part of a liberal and democratic doctrine that the method of persuasion is morally and even practically superior to that of pressure, that free discussion and rational argument are better than coercion or brute force. We commonly distinguish between force, which usually means physical constraint; power, which implies the use of reason or of other skills; and authority, which presupposes the recognition by those who accept it of the moral and political legitimacy of its exercise by its holder. T. H. Green’s dictum “will, not force, is the basis of the State”; the earlier attempt to invoke the notion of a social contract; Locke’s “tacit consent”; Hume’s “appeal to political prudence and the artificial virtues”; and Rousseau’s “general will” 2 all are traditional examples of the present-day sociologists’ concern with the social consensus, which provides the framework for peaceful conflict resolution under recognized

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rules of the game. The notion of noncoercion is essential to the respect that we accord to the human personality, and the concern with justifying minimum coercion as a necessary evil to secure a larger good is itself a recognition of the superiority of ahimsa over himsa. There was an anarchistic and utopian element in Gandhi’s doctrine of ahimsa in that he proclaimed the ultimate need for the State and for all institutions totally to abjure all himsa. This was because he recognized that, in the broader meaning of ahimsa, even a liberal who abstained from physical force or shrunk from slaughter could indulge in subtler forms of himsa or pressure. The main thing for Gandhi is that more and more people must be prepared to accept the absolute moral value of ahimsa, not as an elusive ideal or a pious hope but as a widely relevant principle of social and political action. Force thrives on fear, but if more and more individuals and groups become fearless, force increasingly fails to serve its intended purpose, and its exercise may be effectively opposed and even consistently frustrated. Today, we are prepared to question the retributive theory of punishment and to condemn forms of himsa-like capital punishment, dueling, slavery, torture, collective retaliation or revenge, acts of aggression by states, preventive wars, cruelty to animals, flogging, and corporal punishment, which were all quite respectable at one time or the other. We are now stricter about the notion of minimal coercion or the use of force as a last resort, and we also increasingly recognize that a progressive reduction of the content of minimal coercion is the mark of civilization, progress, and enlightenment. But we still base our degrees of repugnance or condemnation of force upon our valuation of the rightness of the cause in which it is employed and upon our assessment of the amount of suffering caused in relation to existing suffering or the future suffering avoided. Gandhi insisted that force did not change its immoral character according to the circumstances of its use and denied that the use of force to prevent a greater evil could ever acquire any inherent moral or political legitimacy. His attitude toward ahimsa was never literalist, but it was nonetheless absolutist rather than utilitarian. He declared that a votary of ahimsa could not subscribe to the utilitarian formula. He would strive for the greatest good of all and die in an attempt to realize the ideal. He was, therefore, willing to die so that others might live. The absolutist’s sphere of destruction will always be the narrowest possible. The utilitarians had no limit. Judged by the standard of nonviolence, every war was wholly wrong. Judged by the utilitarian standard, each party was justified according to its idea of utility. Precisely on the same ground, the

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anarchist justified his assassinations. But none of these acts could possibly be justified on the principle of greatest good of all. Although Gandhi’s conception of ahimsa was absolutist on the ethical plane, it was anything but an abstract moral attitude, for he was convinced beyond doubt that individuals and groups and even masses could be trained in “the white art of non-violence” just as they could be in “the black art of violence.”1 The individual votary of ahimsa must learn that one needed far greater physical and mental courage than the one needed for delivering physical blows. He had to pass many a sleepless nights and go through many a mental torture before he could even be within measurable distance of the goal of utter humility and goodwill even toward his most bitter opponent. In any conflict between two parties, he was bound, when the occasion arose, to say which side was just, but he could not grade different species of violence according to whether it was defensive or offensive. Strength did not come from physical capacity but from indomitable will. The votary of ahimsa must cultivate the habit of unremitting toil, sleepless vigilance, and ceaseless self-control. Such a man would not meekly submit to the will of an evildoer but put his whole soul against the will of a tyrant: “Working under this law of our being, it is possible for a single individual to defy the whole might of an unjust empire.” Gandhi recognized that it would be difficult to get large masses of men to be nonviolent in this exalted sense, but he was convinced that if even a band of intelligent and honest men with an abiding faith in ahimsa could be formed and trained, it could ensure the nonviolent atmosphere required for the working of civil disobedience in accord with ahimsa. It should be possible to train small communities in the difficult art of nonviolence and use their influence for peaceful mass action and to get large numbers of people to learn to do without the protection of both the military and the police during communal troubles. Gandhi thought it was gross self-deception to believe that man could risk death only if they had learned and practiced the art of killing but not otherwise. There was no prima facie reason why the masses, if trained in nonviolent action, would be incapable of showing the discipline displayed usually by a fighting force. The example of a few men and women, if they fully imbibed the spirit of non-violence, was bound to infect the whole mass in the end. From Ahimsa in politics flowed the individual freedom. Gandhi was against any kind of impositions even if it was imposed for the benefit of the person concerned. He upheld the dignity and authority of the individual throughout his life. In Champaran where he conducted his first Satyagraha in India, he was served with a notice to leave the district. But he

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refused to comply with the directive. A summons was served on Gandhi to appear before the court. He pleaded guilty and read a brief statement before the court wherein he said, “I have disregarded the order served upon me, not for want for respect for lawful authority, but in obedience to the higher law of our being, the voice of conscience.”2 Writing in 1939 in connection with the People’s movement, he observed, “Civil liberty consistent with the observance of non-violence is the first step toward Swaraj. It is breath of political and social life. It is foundation of freedom. There is no room there for dilution or compromise. It is the water of life. I have never heard of water being diluted.”3 With the outbreak of Second World War, India was made a party to the war. Rigorous curbs were put on the civil liberties of the people. He strongly pleaded for freedom of speech as an inviolable fundamental right of the citizens even during the war. Explaining his mind at a greater length, he observed, “But if they [the British] fight unto death for their freedom, and if they are at all reasonable, they must recognise our right . . . . It is our duty to fight for that right . . . This liberty is a concrete issue, which needs no defining. It is the foundation of freedom, especially when it has to be taken nonviolently. To surrender it, is to surrender the only means for attaining freedom.”4 He asked, “If the individual ceases to count, what is left of society? Individual freedom alone can make a man voluntarily surrender himself completely to the service of society. If it is wrested from him, he becomes an automation and the society is ruined.”5 He regarded the individual as the center of the power. He was categorical in his estimate of relation between individual and the state. He held that the state derived its existence and power from the individual. The concept of the ultimate authority of the individual logically paved the way for the enunciation of the theory of nonviolent noncooperation with the state and the exploitative system that stood in the way of the all round evolution of the individual. The emphasis on the moral power of the individual was the keynote of his philosophy. His anguish and indignation expressed in the pages of “Hind Swaraj” against modern civilization was based on this fundamental belief. Gandhi did, however, try to reconcile individual freedom with social obligation. He considered society like a family and the relation between the individual and the society as interdependent. He rejected unrestricted individualism that ignored social obligations as well as the individual freedom as a mere cog in the social machine. He wrote, “I value individual freedom, but you must not forget that man is essentially a social being. He has risen to this present status by learning to adjust his individualism to

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requirements of social progress. Unrestricted individualism is the law of the beasts of the jungle. We have learnt to strike the mean between individual freedom and social restraint. Willing submission to social restraint for the sake of the well-being of the whole society enriches both the individual and the society of which one is a member.”6 But between the individual and society, the individual came first, though society was, by no means, neglected. The individual was the unit and in any scheme of social progress the first step always began with him. Society must provide opportunities for the maximum growth of the individual and the individual in his turn must discharge his duties faithfully. In case, if either of the two went wrong, the other must resist nonviolently. Thus nonviolence reconciled individual freedom with social restraints. Nonviolence implied that the mechanics of control, which maintained social cohesion, consisted of internal and noncoercive external sanctions. The individual used his opportunities to advance the greatest good of all while society gave to the individual maximum opportunity to be good. Gandhi suggested a moral alternative to violence. The international community, so far, has adopted the method of violence, physical power, as the means for resolving conflicts, which accrue due to the clash of national interests as well as for other reasons. The achievements of science and technology have proved the futility of war, as in modem times it means total annihilation of the world. This inadequacy of violence has raised the question of resolving conflicts without inviting disaster and the use of physical power. We are in search of a functional alternative to violence. Gandhi’s contribution lies in the fact that he dispelled the common place notion that leads to a belief in the unavoidability of war. He applied his theory of unity and purity of means and ends in dealing with the problem of international relations. War as a method of struggle is the means, and the object for which it is waged is the end. Even if the end of war is to get justice, it cannot be realized through the impure means of war. To get justice through war is unjust, for if one cannot give life, how can one take it? Thus, he rejects even the concept of just war as a method of resolving conflict. In the modern age, the concept of “just war” is not tenable even if the peaceful methods prove ineffective. The destructive nature of war does not permit us to resort to war. The contention that war is in the interest of peace is fallacious. It overlooks the fact that the suppression of force can only prevent the expression of the evil in acts but cannot remove the source of the evil itself. Gandhi held: “There is a law of Nature that a thing can be retained by the same means by which it has been acquired. A thing acquired by violence can be retained by violence alone while one

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acquired by truth can be retained only by truth.”7 Further, “It is an inevitable law that the weapon which is responsible for victory is the only one which can preserve the fruits of victory and win more.” Even nuclear armament cannot prevent war. In his view, “The atomic weapons might have created a temporary revulsion against war, but the world would return to violence as soon as the feeling of revulsion was over.” Thus, Gandhi rejects war as a method of conflict resolution and suggests a novel technique of Satyagraha based on the principle of nonviolence, which may legitimately be regarded as a moral alternative to war for the resolution of conflicts. He holds: “I do justify entire nonviolence and consider it possible in relations between man and man and nation and nation, but it is not a resignation from all real fighting against wickedness. On the contrary the nonviolence of my conception is more active and real fighting against wickedness than retaliation whose very nature is to increase wickedness. I contemplate a mental and, therefore, a moral opposition to immoralities.”8 The Gandhian technique of international conflict resolution consists in the principle of struggle without arms and, positively speaking, a fight with the help of truth, self-suffering, love, character, and moral powers, which is known as the principle of nonviolent resistance. This technique of Satyagraha, however, requires greater courage and training than is required for military personnel: “To seek to win in a clash of arms would be pure bravado. Not so if in defying the might of one who would deprive me of my independence, I refuse to obey his will and perish unarmed in the attempt.” Further, “To kill and be killed in fighting an enemy is comparatively speaking an act of bravery but to stand the blows of your adversaries and not to retaliate is a greater form of bravery.” The technique of nonviolent resistance not only holds good for resolving the interpersonal conflicts but for international conflicts also. To Gandhi, “It is blasphemy to say that nonviolence can only be practiced by individuals and never by nations which are composed of individuals.” Aggression by any nation on others takes place due to a certain motive behind it. The motive may be certain natural greed or lebensraum. In the former case, Gandhi suggests the proper study of the motives of the possible aggressor and removing that motive by providing a suitable alternative. Speaking about the frequent tribal raids in the North West Frontier Provinces, Gandhi said in 1938 that the raider’s motive was chiefly economic, i.e., the satisfaction of primary needs. Therefore, he suggested teaching them industries and thereby removing the principal motive that forced them into the raiding habit.

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If the possibility of invasion is due to certain differences, Gandhi forbids taking it into law court. In his view, “We should use a variety of possible approaches dictated to us by our hearts and minds, including negotiation, conciliation, mediation, sharing of differences, coresponsibility and the co-creation of a valid and creative compromise, which is a recognition of the element of truth within ‘the other’ out there.”9 He realized that for two disagreeing parties to go to law court there could often be “another form of exhibition of brute force.” Gandhi states, “Having recourse to judiciary as a form of the Law of Aggression rules out the chance for one to practice the Law of Love.” And, “If we resolve the differences with the help of judiciary, it will amount to taking recourse to fear, constraint and force, which will never give us justice and the conflict finally will remain unsolved.” Therefore, “A theory of nonviolence must lay the greatest stress on negotiations as the chief peaceful means of international disputes.” Gandhi prescribed another approach for a nation when faced with an armed attack. Here, the technique consists in fighting nonviolently to the last consequences without any bitterness and hatred against the invader. In 1940, Gandhi wrote in the Harijan “if the Czechs, the Poles, the Norwegians, the French and the English had all said to Hitler, ‘You need not make your scientific preparation for destruction. We will meet your violence with nonviolence. You will, therefore, be able to destroy our nonviolent army without tanks, battleships and airships’. The history of Europe would have been written differently,” the same year in July, he appealed to every Briton “to accept the method of nonviolence instead of that of war for the adjustment of relation between nations and other matters.”10 In this context, his advice to Britain is also worth noting. He said, “I want you to fight Nazism without arms. I would like you to lay down the arms you have as being useless for saving you or humanity. You will invite Hitler and Signor Mussolini to take that they want of the countries, you call your possessions. Let them take possession of your beautiful island, with your many beautiful buildings; you will give all these, but neither your souls nor your minds. If these gentlemen choose to occupy your houses, you will vacate them, if they do not give free passage out, you will allow yourself, man, woman and child to be slaughtered, but you will refuse to owe allegiance to them.”11 The same type of advice is given to Abyssinia, Czechoslovakia, China, and India during Italian, German, and Japanese invasions. In 1935, he said: “If Abyssinia were nonviolent, she would have no arms, would want none, she would make no appeal to the League of Nations or any other power

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for armed intervention. She would never give any cause for complaint. And Italy would find nothing to conquer. If Abyssinians would not offer armed resistance, nor would they give co-operation willing or forced. Italian occupation in that case would mean that of the land without its people. That, however, is not Italy’s object. She seeks submission of the people of that beautiful land.”12 Against Japanese aggression to China, he advised, “The Chinese would say to Japan, “bring all your machinery, we present half of our population to you. But the remaining two hundred millions won’t bend their knee to you.” If the Chinese did that; Japan would become China’s slave. He argued: “If it is brave, as it is, to die to a man fighting against odds, it is braver still to refuse to fight and yet to refuse to yield to the usurper. If death is a certainty, in either case, is it not nobler to die with the breast bared to the enemy without malice against him within.”13 During the Second World War, at the time of Japanese aggression he advised the people of India to opt for nonviolent resistance: “The underlying belief in such nonviolent resistance is that, the aggressor will, in time, be mentally, even physically, tired of killing nonviolent resisters. He will begin to search what this new force is, which refuses co-operation without seeking to hurt, and will probably desist from further slaughter.” But one can doubt its efficacy during aerial warfare and blast of atom bomb. Gandhi’s reply was, “Behind the death dealing bomb there is the human hand that releases it, and behind that still is the human heart that gets the hand in motion.” The remorse that gripped those who talked of the atom bomb as well as of those who dropped it on Hiroshima and Nagasaki is sufficient proof of Gandhi’s thesis. Gandhi denounced not only the use of arms in war but also the help of armed forces from other nations to one side or the other. He wrote in the Harijan, “It is clear that small nations must either come or be ready to come under the protection of the dictators or be a constant menace to the peace of Europe. In spite of all the goodwill in the world, England and France cannot save them. Their intervention can only mean bloodshed and destruction such as has never been seen before.”14 And, “If I were Czech, therefore, I would free these two nations from the obligation to defend my country. And yet I must live, I would not be a vassal to any nation or body. I must, have absolute independence or perish.”15 He always advised the nations small and big to fight with their soul force, the force lying within, and not to take help from the outward circumstances. In spite of the best of the efforts, if a nation loses its territory and becomes the slave of the aggressor, Gandhi prescribes a third type of

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behavior called noncooperation. A voluntary noncooperation with the victor will make him realize his fault and arouse his moral consciousness. At least, it will not strengthen his evil designs and pride and will cause ultimate defeat for him. According to Gandhi, “Non-cooperation is not merely an ideal but also a safe and quick way to freedom for India. I do suggest that the doctrine holds good also as between states and states.” This is why he suggested Abyssinia to not cooperate with Italy. In 1942, during the anticipated Japanese attack on India Gandhi wrote to Meerabehn: “Remember that our attitude is that of complete non-cooperation with the Japanese army. Therefore, we may not help them in any way, nor may we profit by any dealings with them. Therefore, we cannot sell anything to them. The question of having any dealings with the Japanese does not and should not arise. They will handle nothing from Japanese hands.” To sum up, Gandhian technique of international conflict resolution consists in resolving differences with the help of violence and truth in the form of Satyagraha and noncooperation. In normal cases, it suggests the method of conciliation, negotiation, arbitration, and direct dialogue with the opponents for resolving conflicts. According to the doctrine of Satyagraha, social and political conflicts can best be resolved in an atmosphere in which the contestants respect each other’s moral worth, distinguish between measures and persons, conduct their battles in a spirit of self-criticism, and abstain from the cruder forms of coercion. When the coercive clement is strong in conducting a conflict, it demoralizes the winner and humiliates the loser and leaves behind it a trail of continuing bitterness or suppressed resentment. Fear is always a bad counselor, and solutions that rest on an appeal to fear are less lasting or satisfying than an agreement achieved in the context of a consensus of goodwill. Further, when a conflict takes place between unequal parties, it is tempting for the stronger to regard itself as invulnerable, to identify its interests with the general good, or to think it can ignore with impunity the just claims of others. In such situations, the appeal to force is useless for the weaker party and merely increases the complacency of the stronger. The weaker can compel the attention of the materially stronger by showing their reserves of moral and spiritual strength and by casting doubt on the self-assurance and moral conceit of their opponents. Even if those who resort to Satyagraha fail to secure their ends, they retain their self-respect and are morally enhanced, although they have sometimes to pay the price of political or physical martyrdom.

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NOTES 1. D. G. Tendulkar, Mahatma, New Delhi, The Publications Division, Ministry of Information and Broadcasting, Government of India, 1952, pp. 2009
2010. 2. The Collected Works of Mahatma Gandhi, New Delhi, The Publications Division, Ministry of Information and Broadcasting, Government of India, 1965, Vol. X111, p. 375. 3. Ibid., Vol. LXIX, p. 356. 4. Harijan, September 22 1940, p. 292. 5. Ibid., February 1 1942, p. 521. 6. Ibid., July 25 1939, p. 139. 7. M. K. Gandhi, Satyagraha in South Africa, Ahmedabad, Navajivan, Publishing House, 1975, pp. 338
339. 8. Harijan, November 12 1938, p. 328. 9. GuydeMallac, Seven Steps to Global Changes: Gandhi’s Message for Today, Santa Fe, New Mexico, Ocean Tree Book 1987, p. 33. 10. Harijan, July 6 1940, p. 185. 11. Ibid. 12. Ibid., October 12 1935, p. 276. 13. Ibid., October 8 1938, p. 282. 14. Ibid., October 15 1938, pp. 290
291. 15. Ibid.

INTERNATIONAL ECONOMIC AND FINANCIAL CRISIS: RELEVANCE OF A GANDHIAN APPROACH S. K. G. Sundaram ABSTRACT In business, globalization refers to the process of integrating the economies of the world, which results in the emergence of an interdependent business world. Nations are now living in a globalized business world. The globalization process began in the 1980s, developed rapidly in the context of the Washington Consensus of the 1990s, and entered the new millennium with great fanfare. Booming consumerism, rapid economic growth, rising incomes, and massive financial flows and transactions became the order of the day. Hardware-industrial China and softwareservice India rode the wave. With a high growth rate, prosperity seemed unending. Then the anticlimax of 2007
2008 and later occurred. Financial crisis emerged from sub-prime crisis, bank failures, sudden credit collapse, market uncertainties, stock market crash, and the disappearance of business confidence. The crises certainly ushered in a “Great Recession,” which through vigorous international efforts stopped falling short of a

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“Great Depression.” The focus has again turned on China and India who are expected to lead in the recovery. Where did the world go wrong? Here comes the Gandhian Thought and Philosophy. The paper seeks to explain how “greed” overtook “need,” “speculation” overtook “sensible thinking,” “self-aggrandizement” overtook “trusteeship,” and “consumerism” overtook “modest consumption.” Business everywhere should have been based on trust, transparency, and truth. But this foundation seems to have disappeared. These facts are analyzed, the relevance of Gandhi is brought out, and future perspectives are discussed.

Financial markets essentially involve the allocation of resources. They can be thought of as the “brain” of the entire economic system, the central locus of decision making: if they fail, not only the sector’s profits may be lower than they would otherwise have been, but the performance of the entire economic system may be impaired. (Joseph E. Stiglitz)

GLOBALIZATION OF FINANCE Globalization refers to the process of integration of the economies of the world through free movement of goods, services, and capital. Financial globalization is prominent since it is considered to be the lifeblood of trade and development. The process began to gather momentum after the Second World War, during the 1950s and 1960s. As trade began to expand rapidly, financial globalization also became more prominent with governments of the advanced countries deregulating the financial sector and promoting investment. Financial sector reforms gradually integrated the economies of the world by stimulating the flow of funds and encouraging foreign investment. As a result, world exports increased from $61 billion in 1950 to $3447 billion in 1990 and to $10,393 billion in 2005. The foreign direct investment (FDI) rose from $202.5 billion in 1990 to $1463.6 billion in 2000. Technological innovation and faster information flow, aided by a sharp increase in total savings being channeled into financial investments across borders, have fostered the dramatic globalization of capital flows, defined as the flow of capital across borders. These flows, including debt, portfolio, equity, and direct investment-based financing, increased from

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$1.5 trillion in 1995 to $6 trillion in 2005. (Finance & Development, 2007) In developing countries like China and India, such rise in financial globalization leads to larger exports and rising incomes that further lead to a rise in consumption of what in India has come to be known as “fast moving consumption goods.” This globalization boom continued till 2007 with all round global growth (Misra & Puri, 2008). The growth rate of advanced countries more than doubled from 1.2% in 2001 to 3.1% in 2006, and estimates for 2007 and 2008 were lower but still more than double the growth rate in 2001. The emerging market economies and developing countries were performing still better. (See Table 1 for more details.) However this rising tide of financial globalization and expanding level of incomes and consumption suddenly turned sour in 2008
2009 when the U.S. economy fell into an unwarranted recession precipitating a global recession and crisis. In contrast to the estimates of 4.9% (see Table 1) in the growth of world GDP in 2008, the World Bank slashed the estimates of growth to 2.5%, and still worse in 2009, it slashed the growth estimate to less than 1% at 0.9%. Subsequently, however, the performance of the U.S. economy improved. In the third quarter of 2009, the U.S. economy grew at 3.5%, which has raised the hope of an early end to the recession. But though the duration period of the global recession has remained short, its intensity has been quite high. (Hindustan Times, 2008). This will be discussed later. The

Table 1.

GDP Growth Rates during 2001
2008.

Region World United States Euro Area United Kingdom Japan Korea China India Adv. Ecos Other A.Ecs Emrg. Mkts & Dg. Countries

2001

2002

2003

2004

2005

2006

2007PE

2008PE

2.5 0.8 1.9 2.4 0.2 3.8 8.3 4.1 1.2 1.7 4.3

3.1 1.6 0.9 2.1 0.3 7.0 9.1 4.3 1.6 3.2 5.0

4.0 2.5 0.8 2.7 1.4 3.1 10.0 7.3 1.9 2.4 6.7

5.3 3.9 2.0 3.3 2.7 4.7 10.1 7.8 3.3 4.1 7.7

4.9 3.2 1.4 1.9 1.9 4.2 10.4 9.2 2.5 3.2 7.5

5.4 3.3 2.6 2.7 2.2 5.0 10.7 9.2 3.1 3.6 7.9

4.9 2.2 2.3 2.9 2.3 4.4 10.0 8.4 2.5 3.3 7.5

4.9 2.8 2.3 2.7 1.9 4.4 9.5 7.8 2.7 3.4 7.1

Source: World Economic Outlook, 2007, IMF (Qtd. in Economic Times, 2007). Note: PE 5 Provisional Estimates.

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focus in the next section will be on the factors that contributed to the emergence of the global recession. As discussed above, it can be seen from the table above the sterling performance of China followed by India.

FACTORS THAT LED TO THE RECESSION The financial crisis that led to recession appeared to be due to the emergence and prevalence of unsustainable and hazardous financial transactions in which high returns were offered to “entice new investors to lend and invest” that are not realized in the market by borrowers. Thus, “greed for quick and big money” replaced “need.” In the course of time, this led to an erosion of confidence. Further, since the financial market remained highly deregulated, various innovative derivatives were created, which contributed to an expansion of financial market transactions. The crisis emerged when loans were given to borrowers at sub-prime rates, and the borrowers did not honor their obligations. Earlier, when the financial crisis hit the hedge fund Long Term Capital Market (LTCM) in September 1998, it was rescued by the Fed by injecting $3.6 billion (Sen, 2008). Later, in March 2008 another large bank, Bear Sterns, also failed marking the beginning of the financial crisis and giving an indication of the shape of things to come. Rumors started spreading of an impending collapse of the financial system. The financial crisis reached a climax around September 2008, when two major investment banks, Fannie Mae and Freddie Mac, dealing with mortgage loans were taken over by the U.S. treasury. Another major investment bank, AIG, a large insurance bank whose assets were spread over 130 countries, was recapitalized by the treasury with an injection of $85 billion against the 80% equity stake with AIG. By September 11, 2008, funds injected by the Fed in the financial market were around $900 billion, and the amount kept rising. Around this period, another major investment bank, Lehman Brothers, went bankrupt on September 12, 2008. Further, around the same period more institutions, Merrill Lynch, Goldman Sachs, and Stanley Morgan Investment, also failed. Merrill Lynch was taken over by the Bank of America and the other two were converted into holding companies. Another major bank, Washington Mutual, the biggest bank accepting deposits from and lending to ordinary clients also failed and was nationalized (Dubhashi, 2008). All these institutions thus fell prey to wild

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speculation to make quick money instead of logical thinking and sensible business. The crisis had an international impact and continued till the second quarter of 2009 when the intensity of the recession began to show abatement, thanks to the stimulus measures announced and implemented all over the world. A positive indication was reported with the announcement of earnings of $1.8 billion by Goldman Sachs in the first quarter of 2009 (Economic Times, 2009).

GLOBAL IMPACT OF FINANCIAL CRISIS The impact of financial crisis, which led to the fall of so many financial institutions, created a panic situation all over the global financial and economic system. The banking system came under severe strain. There was a loss of confidence in the financial system, financial institutions, and the ability of the government to deal with the situation. Fear of recessions turned into reality. The Congressional Research Service Report (CRS Report) for Congress (July 10, 2009) titled “The Global Financial Crisis: An Analysis and Policy Implications” has the following to say in its summary: The world has entered a global recession that is causing widespread business contraction, increases in unemployment, and shrinking of government revenues. Some of the largest and most venerable banks, investment houses and insurance companies have either declared bankruptcy or have to be rescued financially. Nearly all industrialized countries and many emerging and developing nations have announced economic stimulus and/or financial sector rescue packages, such as the American Recovery and Reinvestment Act of 2009 (P.L.III-5). Several countries have resorted to borrowing from the international Monetary Fund as a last resort. The crisis has exposed fundamental weaknesses in financial systems worldwide, demonstrated how interconnected and interdependent economies are today, and has posed vexing policy dilemmas.

It was felt that the global recession has put the “U.S. model of free market capitalism out of favour.” The United States will now be focused inward and constrained by unemployment and fiscal pressures. The U.S. households lost 20% of their net worth in just 18 months from mid-2007 to the end of 2008. The United States is also strongly criticized all over the world for its inability to take effective action that led to the global recession. Americans in general are also criticized for spending beyond their means (Altman, 2009).

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Europe has exhibited a lack of unity on how to deal with the situation. Japan is expected to become weaker. It was also felt that the developing countries have also been hard hit. Some of them have resorted to emergency loans from the IMF. Africa has also been experiencing a decline in capital flows. The CRS Report referred to earlier explained that the global recession of 2008 2 2009, next only to the Great Depression of the 1930s, has been dealt with in four phases. The first has been intervention to contain the contagion and restore confidence in the system . . . . The second has been coping with the secondary effects of the crisis, particularly the global recession and flight of capital from countries and from emerging markets and elsewhere that have been affected by the crisis. The third phase of this process is to make changes in the financial system to reduce risk and prevent future crises . . . . The fourth phase of the process is dealing with political, social, and security effects of the financial turmoil.

One such effect is the strengthened role of China in financial markets. One IMF estimate of the total cost of global financial crisis puts it at $11.9 trillion (Free Press Journal, 2009). Also, the developing countries are facing a tightening of external financial conditions, declining commodity prices, contraction of export markets, sharp decline in Overseas Development Assistance (ODA), low private capital inflows, a big reduction in remittances from abroad, and the return of migrants to home countries (Dubey, 2009). The worst effect globally was reflected in the stock markets of different countries. A record $14 trillion was wiped off the world share values in 2008.The world market value over the years rose from $30.5 trillion in 2003 to $60.9 trillion in 2007, but fell steeply to $31.9 trillion in 2008, a fall of 47.6%, reflecting the magnitude of the crisis. Of the developing countries, 94 out of 116 experienced economic downturn in economic growth. Among these, 43 countries were the very poor.

CASES OF CHINA AND INDIA China and India were among the few countries that escaped much of the severity experienced by the United States and other countries. Both had a small deceleration in their growth rates, but that is all.

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China China is considered to be a clear winner, whose unique political-economic model has come through unscathed. China continues to grow at “enviable” rates. It is now the world’s wealthiest country measured by financial reserves and is making strategic investments that others cannot make (Altman, 2009). But the CRS Report, while conceding that China’s loss may be relatively small, has pointed out that China has not been immune to the effects of financial crisis because of its heavy reliance on trade and FDI. The Report points out that in its real estate markets in several cities there has been a slowdown in construction, a fall in prices, and growing levels of unoccupied buildings. Its exports and FDI have shown a declining trend, and there have been production and job losses. Besides, its GDP growth may be less in 2009. There are also numerous restrictions on capital flows and individuals and lack of transparency. As a result the impact may not be fully clear, but still it cannot be denied that China has not been affected that much by the global recession.

India India is perhaps next only to China in its economic performance during the recession period. While India’s foreign trade has been affected to some extent, and its growth has fallen marginally, its FDI has continued to rise, as Table 2 illustrates. Table 2. India’s Growth Rate in GDP and Its FDI. Year 2003
2004 2004
2005 2005
2006 2006
2007 2007
2008 2008
2009 2009
2010

GDP Growth Rate (%)

FDI in Billion U.S. Dollars

8.6 7.5 9.4 9.7 9.0 6.7 7.7(E)

2.2 3.2 5.5 15.7 24.6 27.3 19.8(1)

Source: Various estimates of GDP and Hindustan Times, April 25, 2009 for FDI. E, estimates; 1, April 2 November 2009 only.

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The table highlights the facts of rising FDI and impressive growth rates. The growth for 2009
2010 has been at a higher level of 8.0%, and some estimates have projected that India will reach the growth level of over 9% in the near future. From 2010
2011, the economy grew by 8.5%. (Of course a negative factor that has emerged recently is the inflation that may adversely affect the economy. But the effect is expected to be marginal.) The important reasons for India’s positive performance include its domestic demand-based economy and its resilient service sector. Further, the regulatory system was in place, and the scope for large capital convertibility was limited. Therefore, India was expected to face the recession without many adverse consequences (Economic Times, 2008b). The World Bank also has a similar view. However, this does not mean that India faced no adverse effects. There have been production and job losses and widening inequalities. Industries most affected by weakening demand were airlines, hotels, and real estate. The export sector also suffered setbacks. Information Technology and BPO sectors were also adversely affected (Datt, 2009). India came out with a fiscal stimulus three times from December 2008 to February 2009 estimated to amount to Rs.1,38,000 crores constituting approximately 3.5% of the GDP (Free Press Journal, 2009).

MEASURES TO COPE WITH THE CRISIS There has been no doubt that since the origin of the Great Recession has been in the United States the need to deal with the crisis should also emerge from there. And so it has been, but the United States sought and received support from other countries. The details are given below. As stated earlier, the United States made it clear that by itself it cannot be a “regulatory island” in an international marketplace where there are multinational corporations, independent and instant transfer of wealth, lightning fast communication, and a globalized trading system for equities and securities. Hence some coordination is needed. This was agreed. The vehicle for forming an international consensus on measures to be taken by different countries was the G-20 with the IMF and the newly formed Financial Stability Board, consisting of 25 member countries and major international institutions like the IMF, OECD, and the World Bank. The mandate of the Board included providing early warnings on macroeconomic and financial risks and measures to cover them as well as advice to act on issues that needed to be tackled.

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In the United States, the Department of the Treasury on June 17, 2009, released the Obama Administration’s proposal for financial regulatory reform. The proposal focused on five areas and included establishing the Federal Reserve as a systemic risk regulator, creating a Council of Regulators, regulating all financial derivatives, creating a Consumer Financial Protection Agency, improving coordination and oversight of international financial markets, and other provisions. Legislation in Congress also would address these issues. At the April 2009 G-20 London Summit, the G-20 leaders decided to add $1.1 trillion to the resources of international financial institutions ($750 billion to IMF, $250 billion to boost global trade, and $100 billion for multilateral development banks). During the period of November of 2008 to April 2009, all leading countries announced their own stimulus measures. These included all major developed and advanced countries including the following (figures in brackets indicate amounts in billion U.S. dollars): the United States (787); China (586); Japan (350); European Union (256); Mexico (54); South Korea (37.87); Australia (35); Canada (32); and Russia (20). General stimulus measures included lowering of interest, easing of credit, subsidies for export, and incentives for more output and higher growth and employment. (As stated in the earlier section, India contributed Rs. 1,38,000 crores.)

FINANCIAL CRISIS 2 GANDHIAN ANALYSIS The economic and financial crisis was addressed on the international level by many countries announcing stimulus measures. However, the root causes that brought about such a severe recession are still being analyzed. Here comes the Gandhian relevance. While many factors contributed to the recession, their significance can be subjected to Gandhian analysis. It is pointed out that “Americans spent beyond their means” aided by a credit card based economy. This consumerism could not be sustained. The crisis stared in their faces, and their consumption fell by record rates. In Gandhian perspective, this is irrational and unjustified because Gandhian philosophy is based on stable and equitable spending and simple living with contentment. In the crisis situation, an erratic and panic driven consumer behavior was witnessed that accentuated the crisis. Another reason for financial crisis has been the recklessness of the banking and financial institutions in giving loans and credit to sub-prime

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borrowers including those with “dodgy credit backgrounds.” The Gandhian system would never have accepted such recklessness on the part of business. On the contrary, the Gandhian system would demand that the bank managements act under Gandhiji’s trusteeship principles. The role of government also deserves to be examined more critically. Gandhiji was clear about the role of government. He believed in a decentralized set up but advocated a State role in important sectors like key industries. Banking and financial institutions constitute another important sector in the economy. It is obvious that the governmental agencies were not vigilant and did not effectively regulate the behavior of the institutions in the financial sector. But the U.S. government took over several bankrupt institutions in the financial sector in order to avoid further damage. In this context, the government for India’s role came into this for appreciation. Regulation to prevent recklessness helped the Indian government while lack of such a role in America resulted in the collapse of the financial sector. Excessively speculative transactions that are highly risky in relation to their returns, often termed “ponzi” deals, would never have been permitted under the Gandhian system, which is based on truth, trust, and transparency. Such “ponzi” deals can ruin the investor’s financial position and create instabilities in the financial markets as well as investors’ homes. Such deals were significant in the prevailing financial crisis. In this context, Gandhiji’s strong views on “means and ends” are also very important. While the ends or goals of businesses for expansion, growth, and high profits are legitimate, speculative and “ponzi” deals are not the right means. Businesses are expected to be ethical, observe the corporate social responsibility, and exhibit high standards of corporate governance. Apart from “spending beyond the means” in a credit card dominated economy, there was the psychology of the “American dream” for luxurious homes. This was also associated with an “addiction to high consumption,” again thanks to a cashless credit-prone economy. This resulted in a combination of greed supported by easy credit and lower interest rates. This ultimately led to “the country itself living beyond its means.” Hence budget deficits and external deficits due to vigorous export promotion by China led to spiraling national debt. All such behavior is unthinkable under the Gandhian system in which “need” is to be met and “greed” has to be discouraged. It should be noted that many of the crises involve “human” factors. Collapse of macro-level economic activity has happened several times in

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history, and the “human” causes such as greed have been repeated in such crises. One prominent view that exposes this “human” element in the present crisis is given below (Dubhashi, 2008). The CEOs of these financial institutions were the new “moghals” whose insatiable greed led to reckless financial operations in complete disregard of the productivity in the real economy. The goal was “maximization of profits” in the short run and not sound, long term development. Concepts like honesty, loyalty to an institution and sound business became old fashioned and discarded. The greed of the CEOs soon turned into personal acquisition in an unscrupulous fashion. They awarded to themselves hefty compensations in various forms including salaries, perks, bonuses and stock options. The CEOs deserted the investors they were serving at the first opportunity after making a fast buck. They did not hesitate to indulge in fraud in which they were joined by reputed accounting firms; as was brought out in the Enron case whose fabulous boss, Kenneth Lay, a favourite of President Bush, had to end his last days in jail undergoing a sentence after the scandal came into the open and the firm collapsed. The FBI disclosed that CEOs of some of the financial institutions which recently collapsed are under investigation for deliberately misleading the investors. While giving them assurances regarding the bright prospects of their companies in their private communications on the internet to each other, they were talking of impending financial collapse . . . . As a result of the greed of the CEOs of the American corporations, the gap between the top and bottom of the society in financial wealth and income has reached astronomical proportions.

The Gandhian system would have expected the CEOs to behave as trustees with a high sense of responsibility and a deep sense of commitment to the wellbeing of investors. But instead, self-aggrandizement overtook the “trusteeship” approach and brought ruin for all. Also, the financial behavior of the firms lacked transparency. The excessive credit creation in business and support for high consumption resulted in reckless monetary expansion leading to crisis. Thus, lack of Gandhian values of “trust” and “transparency” contributed to the expanding crisis from which the American economy has not yet recovered. What is shocking is that no significant attempt seems to have been made to investigate the role of those whose behavior has contributed to the building up of the financial crisis. J. K. Galbraith in his recent book (2004) has analyzed such behavior and crises and laments that there has been no check on big business; such things keep happening as if they were a matter of course. He says that “the world of finance is a well recognized area of innocent fraud.” In such a world “prediction of the unknown is a cherished and often a well rewarded occupation.” He points out that those employed or self-employed who predict future financial performance of an industry or firm, given the unpredictable but controlling influence of the

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large economy, do not know and normally do not know that they do not know. The result is “elegant escape from the reality.” In all these, “the false and favorable reputation” of the Fed has a strong foundation. Bankers/experts build it and advocate lower interest rates and more spending for increasing income, output, and employment. But this is not real life. In other words, every crisis is taken for granted, and we move from crisis to crisis, affecting poor and common investors.

THE RELEVANCE OF THE GANDHIAN APPROACH The above analysis brings out the importance of immediate as well as long term relevance of Gandhian philosophy and the approach to deal with national and international problems. Some such approaches are presented below. One of the important reasons for the current financial crisis reducing its intensity and moving toward stability and progress has been the sincere cooperation and dialogue. Gandhiji believed in dialogue, which he has expressed comprehensively while discussing industrial relations or labormanagement cooperation. Gandhism believes in class harmony and not class conflicts. This also has relevance to international relations in which Gandhism advocates solution of problems through dialogue. For this purpose, the suggestion of institutionalizing the global capital market dialogue through an appropriate form of organization like a group or forum is worth considering (Economic Times, 2008a). The role of Gandhism has been important in all crises and problems. While Gandhiji believed in minimum government, he was also aware of the strategic significance of the state or government. According to Gandhiji, if the people and the government act as trustees, there is no problem. But, said Gandhiji, “if people fail, I believe we shall have to deprive them of their possession through the State with minimum exercise of violence.” In case of the United States, the government entered only when the financial system was on the verge of collapse. But in India the state was wise enough to keep control over the financial system even under reforms. The government of India decided to retain the dominance of the public sector banks and also strengthened the banking system by offering $5 billion in capital, which has paid off in the present crisis in which India’s financial system is still fine and fettle. Internationally, every country must be encouraged to lay down an effective monitoring system.

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It should be noted that the present crisis has been largely due to the behavior of large and financially powerful global companies like Lehman Brothers and Goldman Sachs. Gandhiji always supported and advised small industries. While too small a size may deprive firms of economies of scale, it is relevant to consider modern small and medium industries as they are proving themselves to be effective and successful. The idea that “small is beautiful” is in conformity with the Gandhian system. In other words, there is a need to explore alternative “business organizations” that are operationally flexible, environmentally harmless, and promote equity from a development point of view. The government of India’s emphasis and support for micro, small, and medium industries is in keeping with the Gandhian values. At the international level during times of crises, ideological or political considerations must not come in the way of coordinated action. The problems of developing countries, where there are relatively many poor, should be attended to expeditiously and sympathetically. Gandhian philosophy demands that the basic needs of the poor are attended to. “I hate privilege and monopoly. Whatever cannot be shared with masses is taboo for me” said Gandhiji. It should also be kept in view that the crisis emerged out of the failure of regulatory bodies, auditors, rating agencies, and CEOs of financial institutions who were not vigilant in their jobs. Those in charge of regulation and management of business, including government, did not exhibit the required tenacity to deal with defaults and the mismanagement of businesses. Once the crisis became serious, the government arranged for large bailouts. Policymakers should be aware that such bailouts can, sometimes, encourage more risky behavior in the market. It is reported that earlier the market looked for a bailout of Lehman Brothers, but when this did not happen within the time they had anticipated, Lehman Brothers came under pressure and had to declare bankruptcy. Whenever such crises emerge in the future, the policymakers should intervene appropriately and swiftly. Monitoring, remedial, and reinforcing actions must be taken effectively and quickly. This approach would also be consistent with a Gandhian approach. Gandhiji was not against harsh measures, if there was no better alternative. Gandhiji was aware of the need for international cooperation in facing the various crises that can affect several countries simultaneously much as the present crisis has developed. In Gandhiji’s words, “Isolated independence is not the goal of the world States. It is voluntary independence. The better mind of the world desires today not absolutely independent states

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warring against another, but a federation of friendly independent states” (Prabhu & Rao, 1967). In the same spirit, the UN Commission of Experts on the Reform of the International Monetary and Financial System (Stiglitz, 1993) has made valuable recommendations including a balanced response to global recession, a new global reserve system with SDR as its anchor, a global reserve currency, regional monetary arrangements, a strengthening of the lending capacity of multilateral development banks, the creation of a global financial regulating authority and a global competition authority, and coordination of global macroeconomic policies. Such recommendations under the aegis of the UN are consistent with a Gandhian approach as he was a firm believer of absolute oneness of God and humanity. These recommendations, if implemented with international coordination and cooperation, are bound to promote a stable international order, economy, and society 2 in short, a Gandhian society.

REFERENCES Altman, R. C. (2009). Globalization in retreat: Further geopolitical consequences of the financial crisis. Foreign Affairs, July
August. CRS Report for Congress. (2009). The global financial crisis: Analysis and policy implications. Coordinator Dick K. Nanto, Congressional Research Service, Washington, DC. Retrieved from www.crs.gov Datt, R. (2009). Global meltdown and its impact on the Indian economy. Mainstream, March 27 2 April 2, pp. 9
13. Dubey, M. (2009). Towards a new international monetary & financial architecture. Mainstream, April 17
23, pp. 7
12. Dubhashi, P. R. (2008). Collapse of the financial institutions of American capitalism. Mainstream, October 24
30, pp. 7
10. Economic Times. (2007). Investor’s guide. Economic Times, April 16. Economic Times. (2008a). Global capital market dialogue vital, James Turley. Economic Times, June 20. Economic Times. (2008b). U.S. financial meltdown & India, Manoj Pant. Economic Times, October 10. Economic Times. (2009). Goldman numbers spread global cheer. Economic Times, April 15. Free Press Journal. (2009). Total cost of global financial crisis. Free Press Journal, August 10. Finance & Development Relevant Articles from March (2007), December 2008, Finance & Development, September 2009, IMF, Washington, DC. Galbraith, J. K. (2004). The economics of innocent fraud: Truth for our time. Houghton Mufflin & Co. Hindustan Times. (2008). Is it Great Depression 2? That shrinking feeling. Hindustan Times, December 11. Misra, S. K., & Puri, V. K. (2008). The Indian economy: Its development experience. Mumbai: Himalaya Publishing House.

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Prabhu, R. K., & Rao, U. R. (1967). The mind of Mahatma Gandhi (p. 438). Ahmedabad: Navjivan Publishing House. Sen, S. (2008). Global financial crisis: A classic ‘Ponzi’ affair? Mainstream, October 24
30. pp. 11
14. Stiglitz, E. J. (1993). The role of the State in financial markets. Proceedings of the World Bank Annual Conference on Development Economics, p. 23.

PERSPECTIVES ON DEMOCRACY AND CIVIL SOCIETY IN INDIA Rajaram Tolpadi ABSTRACT This chapter makes an attempt to provide an outline of the contributions of the Indian democratic socialist tradition to the expansion and radicalization of the canvas of democratic theory and practice in India. While doing so, it also briefly discusses and highlights the historical and cultural context of the emergence of democratic imagination in India.1 In addition, the chapter also tries to grapple with certain central issues of democracy and civil society in contemporary India and shows how socialist input into Indian democracy could help in overcoming some of its predicaments. This analysis is done in three sections. The first section discusses the historical and cultural context of the emergence of democracy in India in terms of the nationalist movement and the framing of the Indian Constitution. The second section identifies the central issues that Indian democracy confronts today. Finally, the third section highlights the significance of the Indian democratic socialist discourse both in identifying the problems of Indian democracy as well as in providing amicable solutions to them.

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INTRODUCTION Needless to say that democracy as a political idea owes its origin to the West. However, the western genesis of the idea of democracy does not necessarily make it Eurocentric, as different societies have different ways of articulating or rearticulating democracy in their distinctive cultural and historical pursuits. In India, too, the chronicle of democratic imagination and pursuit has been historically specific and culturally distinct. Although the democratic imagination in India might have had its lineage in the historical experience of western Europe, it cannot be either reduced back to that historical experience or be treated as an unproblematic transposition of an alien idea. In other words, the narrative of the Indian democratic pursuit is by no means a simple and mechanical re-enactment of the western history of democracy. In India, democracy as a family of ideas emerges and takes shape in the course of events and eventualities associated with her historical encounter with colonialism. The nuanced and fairly long historical relation of India with the West, mediated through the hegemonic rule of colonialism, produced a wide range of ideas, which in due course constituted part and parcel of the Indian idea of democracy. To map out this extremely complex picture of Indian pursuit of democratic imagination, one needs to traverse through the dense historical occurrences of nineteenth and twentieth century India. This helps us to understand under what circumstances and responding to which events ideas were articulated, institutions were envisaged, and processes were initiated. The complex history of India’s encounter with colonialism could be overviewed in terms of a range of responses of the Indian people from social reform to the nationalist movement; from demand for constitutional rule to the cry for swaraj; and from efforts of social change to endeavours for social, economic, and political transformation. The early response of Indian society vis-a`-vis colonialism can be identified in terms of varying kinds of demands for social reform. It varied from the demands of Bengali elites for the abolition of sati and the introduction of women’s education to the dalit demands for self respect and social justice. These different kinds of demands can be identified in a number of movements that emerged in different parts of India and in different contexts of her evolution as a modern society in the larger background of colonial rule. They included movements and struggles against varying kinds of social, political, and cultural conditions of oppression as well as injustice. These conditions of oppression and injustice could have been

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propelled either by native structures of exploitation or by colonial interventions, or by both. Different kinds of peasant struggles, working class agitations, dalit upsurges, tribal resistances, and womens’ struggles are some of the Indian responses to conditions of oppression or non-freedom caused by native or alien forces. The National Liberation Movement that emerged in India in the early part of the twentieth century is, in fact, a culmination and a combination of all these divergent developments. It should be stated here that the National Liberation Movement did not incorporate into its fold each one of these developments, but provided expressions to quite a few of them.2 The National Liberation Movement in India, although it drew ideological strength from the constitutional liberal tradition of the West, radically reconstructed the liberal tradition in accordance with the specific cultural and social needs of Indian society. This was possible precisely due to the fact that the nationalist movement was profoundly and unequivocally anticolonial in its sensibility. Strong roots of the National Liberation Movement in the Indian cultural traditions enabled the movement to redefine the central values that it sought to achieve and formulate strategies to realize them. For instance, some of the early leaders of Indian nationalism like Gopala Krishna Gokale or Surendranath Bannerjee appeared naı¨ ve and straightforward imbibers of the English liberal ideology. However, a closer examination of their ideas reveals their striving to domesticate and internalise western influences in the context of India. While, in a different way, other nationalist leaders like Balagangadar Tilak and M. K. Gandhi exhibited exceptional sensitivity toward the cultural roots of Indian society. Similarly, the nationalist leaders of the subsequent generation like Pandit Jawaharlal Nehru, Jayaprakash Narayan, Rammanohar Lohia, and B. R. Ambedkar were keenly aware of the historical and cultural perplexities of their time.3 Consequently, the ideas of democracy, secularism, social justice, federalism, and decentralisation that constituted an integral part of the Indian democratic imagination were subjected to critical scrutiny. This resulted in these ideas being creatively re-articulated keeping in view the cultural and historical context prevalent in India. The nationalist leadership, above other things, intensely recognised that India is a society of diversity, and disparity, and that the former needs to be strengthened, while the latter needs to be sorted out. Indian democratic imagination, therefore, departs from its western counterpart in as much as it reconstructed the ideological content of democracy in the context of, and as a response to the different kinds of differences that existed in India. Thus,

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Indian democracy theoretically reflects and politically articulates diversity as its normative foundation. Similarly, the idea of secularism that is integral to the idea of democracy in India has roots of its own. The secular imagination in India has very little to do with the history of secularism in the West. The history of secularism in the West is always caught up in the Church 2 State controversy resulting in differentiating the private domain from the public domain. This eventually led to a fairly reasonable distinction between religion and politics in the West. While in India, secularism is a historical product of a multi-cultural and multi-religious social reality. The nationalist leadership tended to conceive secularism not as a tightly woven theory, but as a broadly imagined perspective emerging out of practical necessities. It was envisaged and found necessary to resolve hostility and establish peace among conflicting communities. Secularism in India, therefore, implies on one hand, the formulation of a state policy that maintains a critical and principled distance from religious communities and on the other, the creation of a civil society consciousness that fosters principles of tolerance, recognition of difference, and mutual respect among religious communities. In this context, Rajeeva Bhargav aptly characterises the Indian secularism as a model arising out of religious-strife in India. This “religious-strife” model of secularism, he holds, is fundamentally different from the “Church 2 State” model.4 The idea of social justice is one of the central principles of the Indian pursuit of democracy. It is pretty evident that the idea of social justice is inscribed into the core of the Indian practice of democracy, as it was widely recognised that democracy in India had to be carried out in a thoroughly unequal and unjust society which is historically disadvantaged, partly due to colonial intervention. Social justice is envisaged and incorporated into the corpus of Indian democracy with a great deal of awareness and care toward the prevalence of divergent kinds of differences and disadvantages. What is significant to note here is that, the idea of social justice, institutionalised through the practice of positive discrimination or affirmative action in India was perceived only to wipe out those differences that breed inequality and disadvantage. This is to suggest that affirmative action instrumentalised through reservation policy in India is intended only to set right and re-organise unequal social and economic arrangements and to promote cultural diversity. Thus, social justice is an all-pervasive principle that runs right through the Indian text of democracy. The idea of difference and disadvantage takes us to another principle or philosophical aspect of Indian democracy 2 federalism. The Indian idea

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of federalism also departs from the classical idea of federalism in the West, as it does not rest upon the principle of devolution of power. Instead, it is a distinct idea of distribution of power based on the considerations of regional difference and political disadvantage. Finally, the idea of decentralisation, reflected through the Panchayathi Raj institutions, constitutes another important aspect of Indian democracy. Although this idea did not take-off in the initial years of Indian experimenting with democracy, it gained momentum as years passed.5 The contemporary cry for decentralisation predominantly present in the democratic politics in India is the result of the rise of a new kind of “Demand Politics” seeking greater popular participation in democratic decision making. Peter D’Souza characterizes this new demand as the second wave of Indian democracy.6 In other words, the increasing demand for decentralisation in Indian politics is the beginning of a massive process of democratisation of democracy in India. The democratic constitution of India is a culmination, institutionalisation, and textualisation of all the normative aspects enumerated above. The Constitution as a synoptic statement or as a vision document in any given society enshrines values, establishes institutions, and initiates processes. The Indian Constitution, too, performs this delicate historical function. In light of this, the parliamentary form of government, with a certain mechanism of checks and balances and a notion of the supremacy of the Parliament, upholds the sovereignty of the people. Similarly, the principles of democracy, secularism, and social justice strive to hold a diverse citizenry together in harmony. The reasonably independent judiciary enforces and safeguards the rights of all the citizens and controls the activities of the state. Federalism attempts to ensure regional and cultural identities, and the notion of decentralisation endeavours to diffuse power and guarantee representation. This is supposed to be the normative frame of the Indian Constitution. Such an identification of a normative frame of the Indian Constitution demands an extremely difficult hermeneutic effort. It meant a careful journey not only into the text of the Constitution but also into the complex context in which the text of the Constitution came to be produced. One can identify at least four contexts as inextricable for an appropriate understanding and interpretation of the Indian Constitution. They can be identified as follows. The first among them is the whole context of the British colonial administration during which a large number of constitutional reforms were introduced. The Constitutional Reforms of 1909 and 1919 and the Government

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of India Act of 1935 are the most important among them. The Constitution of India is partly an outgrowth of these various constitutional reforms, which the British introduced from time to time. The parliamentary model that we have evolved in India is entirely attributable to these reforms. However, this does not mean either that the Indian Constitution is a carbon copy of the constitutional reforms that the British introduced in India or that the Indian Parliament is a replica of the British Parliament. What is to be recognized here is the immense historical linkage that modern Indian constitutional democracy has had with the British colonial rule. It also needs to be emphasized here that the constitutional reforms that the British introduced in India stands as testimony to the liberal side of the British colonial rule. It is remarked by a significant section of scholarship on colonialism that among all the colonial regimes, the British colonial dispensation in India happens to be the most generous. In historical retrospect, it can be reasonably maintained that the English educated intelligentsia in India were successful in creatively occupying the liberal space that British colonialism offered to India. The National Liberation Movement with its divergent ideological ramifications constitutes another important context that determined the nature and meaning of the Indian Constitution. Axiomatically, the National Liberation Movement in India is one of the most powerful and popular upsurges that forged a formidable resistance to the ideology of colonialism churning out a wide range of ideas and values. However, among these ideas the liberal democratic ideological strand tended to overpower the course of the nationalist movement. It also determined the tone and tenor of the nationalist discourse and influenced the formation of the Indian Constitution. As a result, ideas of democracy, liberty, equality, and social justice have become the cornerstones of the Indian Constitution. Significantly, along with the force of ideas the National Liberation Movement produced a wide variety of institutions that played an important role in sustaining democracy as a social phenomenon. In this sense, social organisations like Brahmo Samaj and Servants of India Society are the institutions responsible for fostering democracy as a formidable social philosophy. Amazingly, the liberal and democratic values that were churned out during the nationalist struggle had a massive impact on the minds of the Indian people. In fact, there was a great deal of unanimity and consensus among them in the reiteration and incorporation of these values into the fabric of the constitutional and political life of modern India. Consequently, it was resolved without any hint of disagreement that India shall be a democracy founded on the principle of Universal Adult Franchise.

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What a developed democracy like England could achieve over centuries, India did with the single stroke of a pen, as it were. Further, the notion of equal rights, with due recognition of difference and disadvantage, was also a matter of unanimous acceptance. Although, there was a great deal of heated debate on the issue of reconciling the notion of rights with that of social justice, rights were by and large recognised as sacrosanct. The live debates in the Constituent Assembly and the kind of problems, perplexities, and the challenges that invoked various responses among the framers of the Constitution form another inextricable context to understand and interpret the Indian Constitution. Significantly, the Constituent Assembly held its deliberations under the dark shadow of partition. The havoc that the partition caused and the widespread hostility that prevailed among the two dominant religious communities in India compelled the Constituent Assembly to go seriously into certain core issues of social harmony and national integration. With widespread violence around and hatred looming large, the Constituent Assembly deliberated on issues of inter-religious harmony and national unity. As a result, questions like whether India shall be a federal state or not; if yes, what kind of federalism it should be; what is the nature and extent of the religious rights; whether religious rights are individual rights or community rights; how does the state intervene and resolve conflicts among religious communities; and should India adopt a uniform civil code, were the dominant issues deliberated upon.7 Eventually, India was envisioned as a union of states striking a balance between aspirations of national integration, regional autonomy, and a secular political order representing diverse cultural identities and religious tolerance. Finally, the Indian judiciary, represented by the Apex Court of India, in its historic judgment in the context of the democratic politics of independent India performed the crucial task of enumerating, substantiating, and interpreting the meaning of the Constitution and the normative values that it represented. The significant judgments that it delivered in cases like, Champakam Dorairajan versus State of Madras, Golaknath versus State of Punjab, Keshavananda Bharathi versus State of Kerala, Minerva Mills versus Union of India, and Manohar Joshi versus State of Maharastra, are some instances in this regard. What is significantly noticeable in these judgments of the Supreme Court is that it did not hang on to any dogmatic view of the Constitution. Its perspective of the Constitution varied in accordance with the changing demands and aspirations of the people for whose well being the Constitution exists. To illustrate this further, one could provide a brisk overview of some of these judgments. In the Champakam

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Dorairajan case, the Supreme Court upheld the considerations of social justice while recognizing the fundamental rights of the citizens. In the Golaknath case, it argued that fundamental rights are sacrosanct and that they should be seen as central to Indian democracy. However, in the Keshavananda Bharathi case, it admitted that the state could impose reasonable restrictions on fundamental rights under certain special conditions. It can do so, the court held, without undermining what it called “the basic structure” of the Constitution. Similarly, in Minerva Mills’s case, it highlighted the significance of the environment and declared it a right. While delivering its historic verdict on the Manohar Joshi case, the Supreme Court unequivocally stated that secularism is a very important aspect of the Indian constitutional democracy. It should be quickly added here that the role of the Supreme Court in enumerating the Constitution and enhancing the prospects of democracy has not always been positive. There are instances where the judgments of the court, instead of strengthening democracy, have proved to be major setbacks to the onward march of Indian democracy. Thus, the Indian Constitution in terms of a system of values, institutions, and mechanisms unfolds clearly laid down chapters on fundamental rights ensuring all its citizens equal rights; zealously enumerated chapters on directive principles, cautioning and directing the state of its social responsibilities; and a reasonably independent judiciary entrusted with the responsibilities of maintaining justice and interpreting the Constitution. It also has a nuanced procedure of constitutional amendment to ensure, on one hand, the sovereignty of the people, and on the other, the need for change according to the requirements of time. Thus, the Constitution of India promises a workable system of democratic politics representing the desires of continuity and change simultaneously. As a visionary document, it upholds the principles of democracy, secularism, social justice, and diversity as the basis of social and political practice in India.

PROBLEMS OF INDIAN DEMOCRACY IN PERSPECTIVE India’s reasonable success in evolving a fairly accommodative system of constitutional democracy with a nuanced set of normative principles underpinning it does not, however, overshadow the appalling problems that Indian society confronts today in terms of democratic governance. Her problems, as a democracy, arise partly out of the intrinsic theoretical

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limitations of the general character of democracy as a political system and partly due to the historical and cultural modes through which India was grafted into a modern system of democratic politics. The inadequacies and predicaments of Indian democracy in expanding and radicalising its contours to reach out to the needs and aspirations of the people are self-evident. Even though critics of Indian democracy have been emphasising the need to further democratise Indian democracy, nothing substantial has been achieved in this direction. Even after sixty odd years of Indian independence, India remains a mere political democracy vaguely and ambivalently anchored in the philosophy of social justice as it’s foundational principle. In fact, evidence is frighteningly odd against Indian political democracy evolving into a more vibrant and radical form of democracy. On the contrary, a fair deal has been constantly denied to larger sections of the society, who always found themselves on the wrong end of “Indian democracy.” Quite sordidly, the story of Indian democracy has been a “meta narrative” of development, under whose heavy shoes the dreams of the common people are mercilessly flattened.8 The gulf between the rich and the poor, the urban and the rural, and men and women has been ever on the increase. Poverty, suffering, humiliation, unemployment, malnutrition, disease, displacement, and marginalisation have become the everyday routine of Indian life. Ethnic and communal violence have increased enormously and have taken contemptible proportions over the years. Quite often people have been the voiceless victims of oppressive structures 2 modern or traditional, alien or native. In this context, we could turn to some of the worst problems that India as a democracy has always confronted. Critics of Indian democracy have repeatedly pointed out that part of the perplexities of Indian democracy have emanated out of the historical past in terms of the processes through which India was inducted into a modern, liberal, constitutional, and democratic political system. This has also been partly due to the specific social, economic, and cultural conditions prevalent in India. India’s colonial encounter, as is well known, restricted her to get exposed to a selective range of ideas and institutions. This was further compounded by India’s retarded and unequal socio-economic and cultural conditions that prevented India from becoming a radical democracy. Notwithstanding a few in-between voices of hope and resistance, the overall scenario of Indian democracy is far from being encouraging. The foremost predicament of Indian democracy has very little to do with its intrinsic inadequacies of democracy as an idea. Instead, it emerges out of its historical compulsions of having to accept and incorporate a paradigm of modernity and development that has its roots elsewhere. It is

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now well known that the nationalist leadership in India, since independence, carried overboard an agenda of modernisation and development, which had little understanding of the social and cultural realities in India. Such a close-handed borrowing of the western model of development has, quite often, led to displacement and suffering, particularly in the weaker and disabled sections of Indian society. Paradoxically, the democratic constitution in India envisioned an interventionist state to ensure social justice and sustainable development in an unjust and unequal society. However, what turned out is a strong and developmental state that in due course became authoritarian. This is not to suggest either that the Indian state has always been authoritarian or that authoritarianism has always been tolerated without resistance. Instead, whenever the Indian state became brazenly authoritarian, either at the national level or at the regional level, it always met with massive popular resistance. This is not to indicate that the Indian state has always been strong or insensitive to popular demands. There are instances when it succumbed to the pressures of public opinion mobilised by agitations and democratic politics. At the same time, particularly in the era of globalisation, the Indian state has revealed its inherent vulnerability to the ever-mounting global pressures of the market. As critics point out, like any developmental state, the Indian state too exposes its contradictory dimensions of being weak and strong, soft and hard at the same time. Yet, the Indian state has consistently been betraying its immense propensity for violence. The track record of the developmental state in India to propel violence and curb popular resistance either in the name of development or national integration is unparalleled. One can cite innumerable examples9 to show how ruthlessly the Indian state came down on popular agitations either for regional autonomy or against displacement arising out of the developmental agenda pursued by the Indian state. The preceding skepticism toward the dangers of a developmental state turning in to a leviathan state should not be taken as a complete negation of the role of the state in a complex and uneven society like India. It should be recognised that the state in India has a pivotal role to play in the process of achieving justice and equality. Besides, the state is the only authority to which people could turn in situations of utter hopelessness and despair. Since the state in India is an institution born out of democratic processes, a hard and fast demarcation line cannot be drawn between the state and civil society. Instead, critical enquiry should focus more on establishing a viable relationship between the state and civil society to achieve democratic aspirations. In this context, it is imperative to take a quick glance at the

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Indian tradition of political thinking with regard to the issue of the relationship between the state and civil society. One finds a significant strand of radical thinking both in terms of achieving substantive democracy and also in putting reasonable restrictions on state authority to enable and empower a vibrant civil society. This strand of democratic thought in India owes its origin to M. K. Gandhi and ramifies into divergent streams of socialist thought. This Radical Democratic strand exhibits a startling suspicion over the intrinsic possibility of state as an institution, becoming the source of violence in the dispensation of political authority. Socialists like Rammanohar Lohia and Jayaprakash Narayan were foremost among the radical political thinkers in India, who consistently brought to the fore the impending dangers of a centralised political authority endowed with the responsibility of social uplift through development. They recognized the necessity of evolving a vibrant civil society capable of restraining the state from impinging its authoritarian tendencies. In fact, issues such as the role of state as an agency of change in an unequal society, the appropriate relation between the state and civil society, and the ways to bring about those mechanisms and processes that would keep both the state and civil society acting as checks and balances on each other to achieve a genuine democracy, have been the central concerns of the debates on Indian democracy.10 The second category of problems that Indian democracy confronts is a range of constraints and hurdles concerning parliamentary politics and the party system. It is self-evident that India’s acceptance of parliamentary democracy was due to her acquaintance with parliamentary institutions during colonial rule. However, the framers of the Indian Constitution accepted the parliamentary system of politics not only because India was familiar with these institutions but also because they recognised that parliamentary democracy is the most accommodative and representative system that can provide space and expression to divergent interests. The debates in the Constituent Assembly, the arguments and counter arguments expressed in favour of and against different forms of democracy, and the consensus that finally emerged in favour of parliamentary democracy are indicative of the circumstances and considerations upon which India adopted this mode of democracy. Significantly, the Parliament in India is not a replica of the British Parliament. The point of departure has been that the Parliament in India has to represent not only the people, but also the states. The President of India, who represents the nation, is also formally woven into the institution of the Parliament. In spite of a nuanced envisioning of the issue of representation in Parliament, Indian democracy

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suffers from certain inbuilt limitations of the parliamentary system. A parliamentary system invokes an extremely rigid and hierarchical system of parties and expensive process of elections. The procedures of the Parliament and party discipline have quite often undermined democracy and reduced elections to a farcical game of vote bank politics. This is the reason why critics of Indian democracy have repeatedly pointed out that Indian democracy has succeeded procedurally, and not substantially. This is to suggest that India in the last six decades has run the successful course of regular (sometimes more frequent) elections resulting in shifts in power, both at the national and state levels, formed parliaments and state legislatures from time to time, saw frequent and proactive interventions of the judiciary, and witnessed effective intercession of the press without actually enhancing substantive arenas of Indian democracy. Over the last 20 years, the milieu of Indian politics in terms of the role and impact of political parties has undergone a metamorphosis. This metamorphosis is a shift from, as Rajni Kothari once described, a single party dominance system to coalition politics, both at the national as well as regional levels. The pre-eminence of newly emerged regional as well as national political parties has caused a decline of the Congress substantially. Simultaneously, it has brought to the fore new forces and social interests, which were hitherto either marginalized or represented in a devious way by the Congress and other major political parties. In a nutshell, the emerging scenario of party politics in India has completely wiped out older social equations and strategies to achieve success in electoral politics. This sea change in Indian politics in terms of the rearticulating of political interests, Rudolf and Rudolf aptly describe, is a shift from command politics to a new form of demand politics.11 All these developments in which the hitherto unheard voices are being heard, inarticulate interests are being articulated, unrepresented interests are being represented does not necessarily mean that Indian democracy is on its historical march forward in exhibiting tendencies of becoming a radical democracy. Still, there is a great deal of parliamentary procedure that comes in the way of the realisation of democratic aspirations. The drudged procedures of parliamentary democracy; extreme authoritarianism exhibited by political parties in the guise of party discipline; conspicuous restriction of freedom of political choice to the citizens; and the continued existence of an impersonal, corrupt, and inefficient bureaucracy have constrained India from becoming a more radical democracy. The third category of problems that Indian democracy confronts is the wide spectrum of issues pertaining to ethnic conflicts, communal politics,

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and regional differences. Historically viewed, these are the products of the contradictory ways in which Indian nationalism came to be articulated and the Indian nation state came to be established. Even though, the overarching ideology of Indian nationalism was broadly and vaguely anchored in a very accommodative liberal secular nationalism, quite often, it has shown tendencies to fall victim to aggressive and valorised forms of nationalist euphoria. The ambivalent and diffused character of Indian nationalism with recurring and blurred faces of ethno-cultural nationalist outbursts have often produced contradictory situations of ethnic and communal cleavages in a plural and diverse Indian society. Alongside ethnicity and communalism, Indian society has also witnessed various forms of regionalism, partly arising out of the uneven developmental agenda pursued by the Indian state and partly due to certain intrinsic regional/cultural/ethnic variations. Among these varied kinds of problems of ethnicity, communalism, and regionalism, one ideological strand stands out alarmingly, that is, the rise of a Hindu-ethno-cultural nationalism, popularly known as Hindutva. The emergence of Hindutva is easily the most striking ideological and political development in India in recent times. Although its origins can be traced back to the first half of the twentieth century or even earlier, it assumed a formidable political expression only during the 1980s. As an ideology of cultural nationalism, Hindutva is ostensibly political in its hermeneutics of Hindu texts, culture, and tradition. Hindutva is also based on a re-narration of India’s past as “history” 2 a civilisational history of the Indian (Hindu) nation as it were. However, the political prominence that Hindutva enjoys today does not necessarily emanate from its theoretical reconstruction of India as a nation and a civilisation. Instead, it is a product of the ideological persuasion at the level of civil society carried out by different organisations of Hindutva, popularly known as the Sangh Parivar. In a largely heterogeneous society like India, when a dominant religious identity asserts itself boldly, it provokes the other weaker and marginalized religious identities in to making similar kinds of assertions from reasons of fear and insecurity. Such assertions and counter-assertions over a period of time would result in cascading reactions leading to constant communal tensions and conflicts. In the final analysis, these and other concomitant developments lend themselves to a continuum of divergence. The ever increasing and never ending communal divide achieved through ideological persuasions at the level of civil society makes Hindutva an alarmingly divisive phenomenon unruffled by electoral political changes. Thus, communalism with all its different and nuanced faces has become an aspect of Indian politics rather than a heterogeneous facet haunting Indian politics.

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THE SOCIALIST TRADITION AND THE ISSUE OF RECONSTRUCTING DEMOCRACY IN INDIA In light of the above problems and related issues, it is imperative for us to return, recover, and reconstruct certain intellectual sources within the tradition of radical thinking in India, which can enable us to put these problems in a proper perspective and elicit possible solutions in the present chapter. Democratic socialist tradition in India, with its fairly long and chequered intellectual history, is one such site that we could turn to in light of certain predicaments of Indian democracy as highlighted above. If one of the predicaments of Indian democracy is the historically specific mode in which we imbibed modernity and adopted development, then a critical examination of that form of modernity and development is crucial in any attempt to reconstruct Indian democracy. The democratic socialist tradition, embedded in the cultural and social milieu of Indian society, has something to offer, at least, in the form of critical and reflective insights in this regard. From the very beginning, the democratic socialists, owing to their unequivocal opposition to colonialism and imperialism, have exhibited disbelief toward models of modernity and development that are alien to the cultural and historical context of Indian society. Lohia and JP as the most prolific representatives of this tradition have constantly engaged with the issue of what is the appropriate model of modernity and development that India should pursue. Lohia, in particular, tried to develop a systematic critique of the Nehruvian pursuit of modernity and development.12 He held that Nehru was duplicating a model of modernity and development that has its roots elsewhere. Such a strait-jacketed model of modernity and development characterised by industrialisation, mass production, and reckless application of science and technology, he believed, has very little understanding of the historical, cultural, and social realities prevalent in India. Lohia in his larger critique of modernity and development tried to argue that the pursuit of socialism in India should maintain equidistance from both, capitalism and communism. To him, although apparently two contrasting ideologies, they are, in reality, converging with one another to become two expressions of the same civilisational ethos. Capitalism and communism, Lohia held, share astonishing similarities in terms of economic production and political organisation. He pointed out that the big machine representing concentrated economic production and the leviathan state representing centralised political authority, are the hallmarks of capitalism

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as well as communism. Lohia, therefore, argued that the socialist pursuit in India should break away from notions of concentration and centralisation at all levels to achieve a more vibrant and participatory democracy.13 He tried to conceptualise the idea of economic decentralisation in the form of the “Small-Unit Machine” and political decentralisation through the notion of the “Four-Pillar State.”14 Lohia’s critique of parliamentary democracy and party system also helps a long way in reconstructing the agenda of democracy in India.15 Characterising the shortcomings of parliamentary democracy as parliamentarianism, Lohia constantly forewarned the possibilities of democracy being reduced into electoral mimic. He insisted that political parties in India, more particularly the party that he represented, should seek objectives beyond electoral politics. It is in this light that Lohia put forward a number of concrete suggestions and programs to reorganize political parties and party functioning in India. He believed that parties tend to lose their democratic fervour if they are removed from the people and their aspirations. To ensure continuous connection and dialogue between the party and the people, Lohia envisioned a good number of subsidiary organisations to transform political parties into active agencies of popular will. Further, he saw persistently intrinsic connection between movements and the party. Lohia was unwavering in his resolution that the parties should either be the outcomes of the movements or be the initiators of the movements. Only then, he held, the parties could become real vehicles of democratic transformation. The significance of Lohia in radicalising Indian democracy also emanates out of his efforts to bring the backward classes into the fore of Indian politics. This was possible for him through the astoundingly sharp critique of the caste system in India. He initiated a wide variety of struggles and agitations that empowered the backward classes and enabled them to take decisive roles in the processes of democratic politics in India. In fact, Lohia’s contributions are immense in envisioning agitations as effective forms of democratic politics.16 His insistence on 60 percent reservation in government employment and education for dalits, adivasis, minorities, and other backward classes; his concerted demand for drastic agrarian reforms in India, and finally his recognition of caste as a great force of political mobilisation have, in a nutshell, expanded the frontiers of democratic politics in India. Lohia should also be remembered for his keenness to anchor democracy in the cultural fabric of Indian society. The movement that he launched against the domination of English and his insistence

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on using the vernacular in the public sphere; his radical interpretation of texts, sites, and symbols of Indian cultural life; and the fervour with which he engaged in reconstructing India’s past on radical lines are some indicators of his zeal to provide a cultural basis for Indian democracy.17 JP too did not lag behind in proposing drastic modifications to help Indian democracy overcome its theoretical as well as political impasse.18 During his long, strenuous, and eventful journey into the realms of ideologies from Marxism to Sarvodaya and from Sarvodaya to “Total Revolution,” JP was singularly engaged with the question of democracy in which people mattered. He recognised in terms of his interrupted political career, above other things, that democracy survives only when people are activated and organised. Together with Lohia, he also believed that the centralised political authority has proven to be the greatest enemy of democracy. He shared with Lohia a deep-seated conviction that the state as a political institution is intrinsically strong and slides into authoritarianism and violence, while civil society with its diversity and contradictions is intrinsically weak. Lohia argued that political parties should be transformed into agencies of civil society with wide social networking. However, JP saw political parties as major hurdles in achieving genuine democracy. Consequently, JP conceived a party-less democracy based on organised popular will expressed through Janasangharsha Samithis. Thus, both Lohia and JP, in spite of their less significant differences of opinion, represent the part of radical democratic aspirations in India that is articulated through the ideas of economic and political decentralisation, agitational politics, and active and participatory civil society. The preceding discussion on the significance and contributions of democratic socialists in radicalising Indian democracy is not to suggest that solutions to the problems that Indian democracy confronts are readily available in Indian socialist discourse. Instead, what is emphasised in the chapter is the need to return, recover, and reconstruct those aspects of Indian democratic socialist tradition, which would facilitate the general task of rebuilding Indian democracy. It has already been pointed out in the chapter that certain aspects of democratic socialist concerns are already present in the contemporary sequence of events of Indian democracy. The contemporary cry for Panchayathi raj experiments, the demand of backward classes for greater representation, and the impact of dalit bahujan politics are a few instances of socialist presence in the practices and processes of Indian democracy. However, one strongly feels that the democratic socialist aspirations in India are either not adequately represented or sometimes even dubiously represented in the instances cited above. One

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main reason for this is that most of these representations are almost always caught up either in electoral arithmetic or in vote bank politics. The need, therefore, is to get down to the serious endeavour of retrieving some of those socialist aspirations and re-root them in vibrant civil society activism. Such an activity of anchoring radical aspirations and values in the terrain of civil society would probably result in the achievement of those radical values enshrined in the Constitution of India. This, in turn, facilitates Indian democracy to achieve its substantive objectives. To achieve this, we need to wrench democracy out of the predominant interpretation of it merely as a political arrangement. By this, we are able to visualize democracy as a set of foundational principles necessary for a meaningful collective life.

NOTES 1. The democratic socialist tradition in India owes its origin during the Nationalist Movement by way of the establishment of the Congress Socialist Party (CSP). The CSP was a left-wing group, within the Indian National Congress, established to intensify the nationalist movement by turning it unequivocally, anticolonial and anti-imperialist. It also intended to radicalise the agenda of the nationalist struggle by incorporating into it aspirations of a socio-economic transformation of Indian society. After independence, the CSP severed its relation with the Congress and ramified into a number of splintered groups and parties over a period. See, John Patrick Haithcox, Nationalism and Communalism in India (Princeton, NJ: Princeton University Press, 1968). 2. India witnessed a wide variety of struggles and agitations during the later half of the nineteenth century and early part of twentieth century. These developments have played a determining role in shaping India as a modern society and a nation. See, Sankar Ghose, Political Ideas and Movements in Modern India (Calcutta: Ailed Publishers, 1975). 3. See, A. Appadorai, Documents on Political Thought in Modern India, Volume I and II (New Delhi: Oxford University Press, 1976). 4. Rajeeva Bhargava (Ed.), Secularism and its Critics (New Delhi: Oxford University Press, Delhi, 2001). 5. The idea of decentralisation did not figure during the debates in the Constituent Assembly as well as during the first three decades of independence. One major reason for this is that the leaders who spearheaded the framing of the Indian Constitution and formation of the modern Indian state were not favourably disposed to the idea of decentralisation. See, Austin, Granville, The Indian Constitution 2 The Corner Stone of a Nation (New Delhi: Oxford University Press, 1972). 6. D’Souza, Peter, “Sociological Imagination and Institutional Vision,” paper presented in the international seminar on the Philosophy of the Indian Constitution held in Goa, September 2001.

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7. Shefali Jha discusses in detail the debate on religious rights in the Constituent Assembly in her paper, “Secularism in the Constituent Assembly Debates 1946 2 1950,” presented in the national seminar on secularism held in Simla, 1995. 8. There are many instances in which the disadvantaged sections of Indian society become voiceless victims of the developmental agenda pursued by the Indian state. Narmada River Valley project is one such instance where thousands of people are displaced without even a promise of fair compensation. For a more vivid description of distortions of development see, Sainath, P. Everybody Loves a Good Drought (Penguin Books India (P) Ltd., 1996). 9. Ethnic and communal violence have increased stupendously causing unimaginable proportions of death, suffering, and loss of property and livelihood. It has been pointed out by these studies that, on the one hand, there has been conspicuous civil society disengagement on the issues of ethnicity and communalism, and on the other hand, the active participation of the state and bureaucracy in instances of communal violence. See, G. Rajashekhar, Surathkal Komu Galabhegalu (Communal Violence in Surathkal) (Bangalore: Navakarnataka Publications, 2002). 10. Rajni Kothari discusses in detail how the state in India has become a major enemy of democracy in India in his book, State Against Democracy ( New Delhi: Ajantha Publications, 1988). 11. Rudolph, L. and Rudolph, S. In Pursuit of Laxmi, Chicago, IL: The University of Chicago Press, 1978. 12. See for a detailed study on modernization and socialist interventions in India, Tolpadi, R. “Ram Manohar Lohia 2 A study,” unpublished Ph.D. thesis, Mangalore University, India, 2000. 13. Rammanohar Lohia, Marx, Gandhi and Socialism (Hyderabad: Rammanohar Lohia Samata Vidyalaya Nyas, 1963), pp. 320
363. 14. Ibid., pp. 242
257. 15. Rammanohar Lohia, Notes and Comments, Vols. I and II (Hyderabad: Rammanohar Lohia Samata Vidyalaya Nyas, 1973). 16. Rammanohar Lohia, The Caste System (Hyderabad: Rammanohar Lohia Samata Vidyalaya Nyas, 1964). 17. Rammanohar Lohia, Language (Hyderabad: Rammanohar Lohia Samata Vidyalaya Nyas, 1956) and Interval During Politics (Hyderabad:Rammanohar Lohia Samata Vidyalaya Nyas, 1972). 18. Prasad, Birnal. (Ed.) Jayaprakash Narayan: Essential Writings (1929
1979) (New Delhi: Manohar, 2002).