Economics of Conflict and Peace

1. Economics of Conflict and Peace Topic 2: Peace and Conflict Factors in Economic Science Part 2: Economic Activity of Rebel Groups

2. Economic Activity of Rebel Groups There is considerable variation across conflicts in the ways that rebel groups operate in the economy. Sometimes they act as economic producers, providing public goods; often however they act as extractors. Such variation in their behavior has implications for the economic well-being of populations as well as for the course of the conflict. HOW DO REBELS FINANCE THEMSELVES? • The ability of groups to control lucrative economic sectors determines whether they can launch and sustain a campaign (World Bank research); • Requirements needed to sustain a rebellion may be very low: examples of low-tech, low-cost but long-lasting rebel movements. Small arms can be very cheap. And so can labor. In cases where there is local support for the actions of rebel groups, as with Chechyan rebels, the Viet Cong, and the IRA, it may be possible for people with regular employment to serve as “part time guerillas”. • The primary means of financing is wealth derived from control over valuable natural resources such as drugs, oil, timber and “conflict diamonds.” However, rebel groups also rely heavily on agricultural products – such as cashew nuts, tangerines, hazelnuts or bananas – to finance their campaigns. • A second means for funding is money collected from nationals based overseas. • Another source of rebel financing is sponsorship from third party sources. • A final source of financing is voluntary transfers (notably “subscriptions”) and involuntary transfers (notably looting) from civilian populations. Such transfers may determine the viability of a rebel organization, and may condition its need for cash from other external sources.

3. Rebels as Economic Producers Rebel groups also engage in economic production, in some instances, by functioning as service providers and as organizers of economic activity, rebel groups may act as surrogate states, underscore the irrelevance of the government and develop support among civilian populations. There is, however, considerable variation in the extent to which and the form in which rebel groups provide services. While in some places groups imitate states as service providers, elsewhere, they imitate states as extractors, using forced labor to manage local economies. This variation in the extent to which rebel groups provide public goods is of substantive importance, it is also likely to have implications for the forms of violence, for whether a war is sustainable and for options for peace settlements.

4. The links between rebel groups and organized crime “Organized criminal group is a structured group of three or more persons, existing for a period of time and acting in concert with the aim of committing one or more serious crimes or offences in order to obtain directly or indirectly, a financial or other material benefit” The United Nation Convention against Transnational Organized Crime “Terrorism is a criminal act, but it is more than criminality; terrorism is essentially a political act. Terrorist groups can be understood as criminal organizations with a political or ideological objective and the readiness to use violence to achieve it” Policy Working Group on the United Nations and Terrorism Hybrid forms of organisation that clearly combine an explicit political or ideological goal with a desire to make profit through illegal activities and willingness to use significant level of violence – both discriminate and indiscriminate – in pursuit of that goal. In many cases rebel group is a hybrid organization: partly criminal group, partly terrorist group and partly mercenary

5. Transformation of a rebel group into an organized criminal group • A change in the ratio of profit-making activities to terrorist strikes; • The loss of intensity in political demands and a lower public profile, reflecting a downgrading and ultimately an abandonment of the political agenda; • A political settlement that leads to a cessation of terrorist strikes but is followed by an increase in organized criminal activities – resulting from a phenomenon that one observer has described as “fighters turned felons”; • A reduction in the number of attacks on innocent civilians and ultimately an abandonment of such attacks unless they are related to profit-making activities or the protection of such activities; • A growing concern with avoiding harm to victims of kidnapping and a concomitant emphasis on negotiations for ransom payments that will guarantee the safe release of those victims rather than killing them to coercive effect.

6. Transformation of an organized criminal group into rebel organization Just as a terrorist group can become enamored of wealth rather than a political or ideological cause, an organized criminal group could become highly politicized and radically alter the focus of its activity from the accrual of profit through illicit business to bringing about political change through indiscriminate violence. • Political rationalization for criminal activities such as drug trafficking, which are internally legitimized by focusing on their damaging impact on citizens of countries hostile to the cause; • Donations by the group or some of its members to radical political causes; • Regular and systematic associations between members of criminal organizations and known militants; • A readiness to barter drugs or other trafficked commodities for weapons or explosives, rather than simply selling those commodities for profit; • Adoption of political rhetoric as part of a more visible public profile.

7. An illustration of transition of organized criminal group into terrorist organization The Madrid train bombing of 11 March 2004 The Madrid train bombings consisted of a series of coordinated bombings against the Cercanias (commuter train) system of Madrid, Spain on the morning of 11 March 2004 (three days before Spain's general elections), killing 191 people and wounding 1,800. The official investigation by the Spanish Judiciary determined the attacks were directed by a Muslim al-Qaeda-inspired terrorist cell although no direct al-Qaeda participation (only "inspiration") has been established. Spanish Muslims who did not carry out the attacks but who sold the explosives to the terrorists were also arrested. There is an evident that the hashish trafficking group became involved in the Madrid bombing. That might have been primarily a result of the willingness of the head of the group to die with the other perpetrators terrorists who killed themselves rather surrender to the police surrounding the house. However, this is very uncharacteristic for a drug trafficker intent on profit it suggests that he had embraced a militant form of fundamentalism.

8. Organizational and operational similarities between organized criminal and terrorist groups • Both are generally rational actors; • Both use extreme violence and the threat of reprisals; • Both use kidnappings, assassinations and extortion; • Both operate secretly, through at times publicly in friendly territory; • Both defy the State and rule of law; • For a member to leave either group is rare and often fatal; • Both are highly adaptable, innovative and resilient; • Both have backup leaders and foot soldiers

9. Core reading Dishman, Chris. Terrorism, Crime and Transformation. In: Studies in Conflict and Terrorism (Volume: 24, Number 1), January 2001, pp.43-58 Hirshleifer, Jack. 1988. Conflict and Rent-Seeking. Working Paper, University of California Hirshleifer, Jack. 2001. The Dark Side of the Force: Economic Foundations of Conflict Theory. Cambridge, UK: Cambridge University Press. Makarenko, Tamara. Transnational Crime and its Evolving Links to Terrorism and Instability: in Jane’s Intelligence Review. 2001. pp.22-24 Skaperdas, Stergios. 2001. “An Economic Approach to Analyzing Civil Wars” Paper presented at World Bank Conference on Civil Wars and Post-Conflict Transitions. U.C. Irvine. May 2001. Skaperdas, Stergios. 1992. “Cooperation and Power in the Absence of Property Rights”, The American Economic Review