Waging Peace through Commerce

March 12, 2008

CREDIT: Eneas De Troya (CC).

In Business, Integrity, and Peace, Timothy Fort posits three business virtues that contribute to a more peaceful world: Hard trust comes from a company's respect for the law, the threat of lawsuits, and boycotts. Real trust is embodied by corporations that have internalized standards of integrity, transparency, and human decency into the corporate DNA, and "do the right thing" at every opportunity and every level. Good trust, meanwhile, goes beyond "doing the right thing" to aspiring to be a force for positive change in the world.

Fort, one of the world's leading scholars on business ethics, believes these three virtues are related. Adherence to the law is strengthened by a corporate culture committed to honesty and integrity, and this relationship is strengthened by corporate aspirations to do good more broadly. Both John Mackey's "Conscious Capitalism" and Mohammad Yunus's new book Creating a World Without Poverty: Social Business and the Future of Capitalism offer visions of the corporation striving for good trust.

Yet, even the best corporations will have a limited impact in countries at risk of conflict. In much of the developing world, civil wars are a real danger. Democracies are generally stable above $6,000 GDP per capita, but they are vulnerable to coups and civil wars between $3,000 and $6,000 GDP per capita, and are likely to fail below $3,000 GDP per capita. About as many people have died in African wars in the past fifty years as in all other wars around the world during the same period, and most of those have been civil wars or cross-border conflicts that were stimulated or exacerbated by civil wars. The evidence is also strong that increasing economic freedom is the most effective means of increasing GDP per capita.

Mexican business leaders feared civil war when Andres Manuel Lopez Obrador refused to concede the 2006 election to Felipe Calderon. At a GDP per capita of about $10,000, little violence took place. By contrast, with the recent Kenyan elections, violence broke out when Raila Odinga refused to concede defeat and rallied shantytown gangs to support him against the government. More than 1,000 people died during the unrest, and more than half a million were displaced. At $1,500 GDP per capita, Kenyan democracy is fragile. By contrast, in the 2000 U.S. presidential elections, there was no fear that Al Gore would fight the government.

In addition, economic growth and prosperity can reduce terrorist violence. The most famous example is Northern Ireland, where decades of terrorist violence gradually came to a halt as the economy improved. In 1990, the Irish Republic was among the poorest of nations in the European Union. It is now one of the richest and most globalized nations. As a consequence of the economic boom in Ireland, youth unemployment in Northern Ireland fell from more than 20 percent in the late 1980s to single digits today. While unemployment doesn't cause violence, ethnic hatred is more easily fueled among alienated young men who don't have opportunities. According to the Heritage Foundation, Ireland is now among the top ten most economically free nations in the world.

Political Scientist Erik Gartzke finds that economic freedom is 50 times more powerful than democracy in predicting decreased violence. His research includes the reduction in the number of civil wars as a consequence of increased economic freedom. In addition, bilateral trade is an excellent measure of decreased conflict—when two nations are big trading partners, they are unlikely to go to war with each other, even when they are going to war with other nations.

The great counterexample to this thesis is World War I, when France and Germany were trading partners and yet went to war. Gartzke points out that Germany was more a military dictatorship than a democracy and that the war began in the least developed, least commercial part of Europe and then spread. High levels of mutual foreign direct investment are a better predictor of peaceful bilateral commercial relations than is the level of trade. Although France and Germany had high levels of mutual trade, they had low levels of mutual investment. Today, of course, their economies are largely integrated by every measure.

Although international institutions have been the primary focus of peace activists and statesmen, they are weak. Yet, there have been instances in which conflicts have been avoided or resolved by means of international institutions. The United Nations as international peacekeeper, however, still seems unrealistic, and arguably undesirable. Some realists describe the positive effects of multilateral institutions primarily as stable mutual threat agreements—the détente between the United States and Soviet Union was one example.

Pessimists might agree that civil wars and terrorism can be reduced by increasing economic freedom and prosperity, but superpower struggles remain. The economic importance of the United States lessens relatively as China, India, and Russia become wealthy. If China and Russia become democracies, and wealthy democracies are deeply interdependent as a result of international trade and investment, they will be unlikely to war with one another. The combined costs of lives and business opportunities lost would be too large to sustain much interest in belligerence.

But wealthy democracies may still bully small nations. There is no guarantee that the powerful will respect the weak, even when the powerful are democratic. It is therefore important to support a universal ethos of nonaggression. Laws are founded in common moral principles that are respected and eventually ingrained in culture.

Despite the diversity of the world's cultures, one can imagine a world in which states insist on respect for the principle of nonaggression. Beyond a world of trusted business and ubiquitous economic freedom, peace through commerce must be based on this principle.

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