War-to-Peace Transitions: Balances of Power, Economics, and State-Building in Post-Conflict Settings

This episode of NewEconomicThinking delves into the critical role of economics in facilitating successful war-to-peace transitions, emphasizing that while often overlooked, economic strategies are vital for preventing renewed conflict. The discussion centers on three core issues: maintaining balances of power, addressing distributional challenges in post-conflict settings, and the economics of state-building. The host argues that negotiated settlements, which end violence sooner and mitigate spillover risks, are preferable to winner-take-all outcomes, but require careful management of power dynamics to prevent simmering grievances from reigniting. A key distinction is drawn between the balance of power *between* warring parties and *within* them, highlighting the challenge of hardliners or "spoilers" who resist peace. The episode provides concrete examples from El Salvador and Bosnia to illustrate how external assistance, if not carefully designed, can either foster reconciliation or exacerbate existing tensions. The default approach of channeling aid solely through existing governments, or prioritizing rapid money movement over political conditions, is critiqued for often leading to perverse outcomes like political patronage or the perpetuation of conflict. Instead, conditional aid tailored to local circumstances, such as supporting reconstruction in former opposition strongholds or incentivizing refugee return, is presented as a more effective approach. Practically, the podcast stresses the importance of fiscal policy in rebuilding a legitimate state. This involves not only restoring the state's capacity to mobilize revenue through taxation but also ensuring equitable expenditure on public goods and services. A critical insight is the need to address "horizontal inequalities" – disparities between urban and rural areas, ethnic groups, or regions – which are often root causes of conflict but frequently neglected in discussions of inequality. The concept of a "fiscal compact" or "virtuous circle" between government and citizens, where public services are provided in exchange for tax compliance, is presented as foundational for long-term stability. The broader implication is that external assistance, while crucial for "priming the pump" in post-conflict states, carries a significant risk of "crowding out" rather than "crowding in" state fiscal capacity if not implemented with deliberate, politically sensitive efforts. The episode underscores that the ultimate goal is not merely infrastructure rebuilding or money disbursement, but the arduous process of forging a durable peace through economic means. It serves as a cautionary tale against a "business as usual" approach to development aid in fragile contexts, advocating for a nuanced understanding of how economic interventions interact with complex political and social realities to either build or undermine peace.

Wars can end broadly in either of two ways either in a negotiated settlement or in a winner take all outcome

a negotiated settlement can reduce the risk that simmering grievances left behind in a win or take all Victory will keep burning like Embers under the society's surface and at some point reignite a new Civil War

maintaining the balance between those two sides was an important issue because at the 11th Hour of the peace negotiations... the default setting for the provision of a lot of external assistance... is to channel that money through the government

Aid that's delivered without careful attention to these balances of power can be more like pouring new fuel onto the fire and risking reigniting that conflict

they basically used the resettlement money as a carrot in order to induce local officials to come down on the proce side of the Divide within their own so-called ethnic group rather than carrying on the conflict by other means

in a postconflict situation it's important to realize that the goal is not merely to move the money or for that matter not merely to rebuild the infrastructure but also to support the process of building a durable peace

you ended up with this weird situation where you have what might be be described as apartheid in an electricity grid

for building an effective and legitimate State one of the key elements... is what sometimes is described as a fiscal compact or contract between the government and its citizens

the 10 poorest provinces of the country were receiving the smallest amounts of allocation well that's a shock in terms of what you would hope and perhaps expect but it's not a shock when we think about the politics of how government resources are often allocated which kind of follows the maxim to those who have shall be given and from those who have not shall be taken away

without deliberate and sometimes difficult efforts there's a substantial risk that the result of the external assistance will be a perverse one in which the state becomes less capable of Performing these basic fiscal responsibilities rather than more so