A praise of Capitalism

An open economy and free markets prevent armed conflicts, says Professor Indra de Soysa, professor of political science at the Norwegian University of Science and Technology (NTNU) and research director for the university’s globalization programme. De Soysa says “Capitalism creates peace,” which sounds like a slogan from an embattled market liberal, but de Soysa has empirical evidence for his claim.

“When we look at all the factors that contribute to preventing conflicts, economic freedom is very important, even in relation to other factors such as good governance, democracy and human rights,” he says.

The Globalization Effect

Along with colleagues at NTNU and the International Peace Research Institute in Oslo (PRIO), de Soysa has made a thorough study of the effects of globalization on internal conflicts.

“Our starting point was this: Does globalization contribute to peace and prosperity, or does neo-liberalism result in a ‘race to the bottom’ that weakens states and sharpens social conflicts, as critics claim?” de Soysa explains.

Invisible hand or iron fist?

It’s an old debate. De Soysa can link this question all the way back to Adam Smith and his idea of the “invisible hand” from the 18th century, which fundamentally states that if people act in their own interest, it also serves the common good. But Karl Marx believed that “the market’s invisible hand” was a iron fist that resulted in exploitation and class differences, and therefore sharpened conflicts.

The current debate about globalization is divided largely along the same ideological lines, de Soysa says. But his research is empirically based, not ideologically based, he says, which means he has hard facts.

“I’m an empiricist, not an ideologue. We wanted to examine these relationships with empirical methods,” he said.

Economic freedom matters most

De Soysa and his colleagues have concentrated on PRIO’s comprehensive database of conflicts from 1970 onwards. The researchers compared this to data that describe economic freedom, and checked a number of other variables that are relevant in damping or sharpening the danger of armed conflict.

“Our results are clear and robust: the higher the degree of economic freedom, the smaller the risk of internal conflicts. The study shows in fact that economic freedom counts more than factors such as democracy and good governance when it comes to preventing armed conflict,” says de Soysa.

Economic freedom is defined as investment-friendly policies that support free markets, effective protection of private property, individual economic freedom of choice and limited government intervention.

When the rebellion is worthwhile

De Soysa use the term “alternative cost” ( “opportunity cost”) to explain the peace-building effect of open markets. Armed rebellion, or crime, can simply be considered as the most profitable investment, because the options are so limited.

“A closed economy, for example, with state monopolies, forces entrepreneurs into the shadows. That’s why you get trafficking, organized crime – or armed rebellion. When the state controls the financial resources, as in the oil-rich states, there are also economic benefits to be had by taking over state power, and the risk of conflict increases,” de Soysa says.

“Rebellion has a price tag, like all other investments. You have to obtain weapons and organize groups. The Tamil Tigers spent 350 million U.S. dollars a year to buy weapons, for example,” de Soysa says, citing an example from his homeland of Sri Lanka.

In an open economy there are likely to be considerably greater gains from investing money and effort in the marketplace. In these kinds of societies there is much less risk of accumulating “rebel capital”.

“Look at the civil wars in Africa: What might have happened if Charles Taylor (warlord and former president of Liberia) would have earned more by investing in productive activities than from rebellion?” de Soysa wonders.

How can we create peace?

Norway markets itself as a peaceful nation, and has been engaged in a long series of attempts to resolve conflicts around the world. De Soysa summarizes this effort as “100 percent failure.”

“Recognizing that an open, functioning market is a guarantee of peace should have consequences both for development assistance and peace efforts,” he says.

“Traditional aid has neither resulted in peace or development. On the contrary, aid can stimulate a dependent economy that inhibits profitable investments. If we want to contribute to peace and development, it would be better to help to build functional markets that make it profitable to invest in productive activities rather than in armed conflict,” de Soysa says.

The results of de Soysa’s study are being considered for publication in the renowned journal “Journal of Peace Research”.

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