The Political Economy of Peacebuilding in Post-Dayton Bosnia

Timothy Donais

• Publisher: Routledge
• Year: 2005
• ISBN:
  9781134247974
• Edition: 1
• Topic: History
• Subtopic: Military & Maritime History
• Index: History

A fresh examination of the political economy of the peacebuilding process in Bosnia-Herzegovina in the aftermath of the country's 1992-95 war. Little progress has been made in transforming the country's war-shattered economy into a functioning market economy, this new study explains the principal dynamics that have led to this, and places Bosnia's economic transition process within the context of the country's broader post-conflict peacebuilding process. The central argument this book persuasively advances is that much of Bosnia's ongoing economic crisis, and its current reform stalemate, can be explained by exploring the interactions of an inappropriate international model of economic reform with the country's particular post-conflict and post-socialist political economy. This book is essential for readers who wish to build an understanding of the region and assess its future prospects and hopes.

1
Introduction and Overview

After nearly four years, two hundred and fifty thousand people killed, two million refugees, and atrocities that have appalled people all over the world, the people of Bosnia finally have a chance to turn from the horror of war to the promise of peace.

US President Bill Clinton, 21 November 1995
(cited in Holbrooke 1999: 309)

In late 1995, with the signing of the Dayton Peace Accords, the international community embarked on one of the most ambitious state-building projects it has ever undertaken.¹ Rebuilding Bosnia in the aftermath of a long and bloody war over ethnicity and territory would involve not only reconstituting a deeply divided political community and building up state institutions almost from scratch, but also simultaneously putting the country on the path to free-market capitalism and liberal democracy, two conditions which Bosnia had not previously known. Not only was Humpty Dumpty to be put back together again, he was to be given a new identity and a completely different personality.

As the centrepiece of this project, the Dayton Peace Accords – also known more formally as the General Framework Agreement for Peace – accomplished two key tasks. First, they stopped the killing, and for all the criticism the peace deal has absorbed over the years, this remains Dayton’s most enduring achievement. Second, the accords laid down a rough blueprint for transforming Bosnia from a killing zone into a peaceful market democracy that could one day take its place within the broader European community.

Reaching an agreement acceptable to all sides of the conflict, however, required delicate balancing and considerable imprecision. More than most peace agreements, in fact, Dayton is a “masterpiece of ambiguity” (Rothstein 1999a: 5), in which each signatory, as well as the international community, holds different – and often completely incompatible – interpretations of what exactly the peace agreement means. The accords’ creative ambiguity may have been essential in reaching an agreement, but this same ambiguity has undermined progress towards the ultimate goals of peace, security, democracy, and prosperity laid out at Dayton. As Susan Woodward has argued, because the peace agreement failed to resolve the core issues around which the war was fought, each side in the conflict “is still fighting the war for statehood; only their means of securing territory and national survival have changed” (1997: 29).

The central dynamic of Bosnia’s short post-Dayton existence, therefore, has been the tension between the country’s ongoing ethnic struggle and the efforts of the international community to implement the main pillars of the Dayton agreement. These pillars include the return of refugees and displaced persons to their pre-war homes, the consolidation of democratic values, institutions, and practices, the recreation of a climate of relatively tolerant multi-ethnicity, and the creation of a viable market economy. While the first three of these goals have received substantial scholarly attention, considerably less attention has been devoted to the challenges of building a market economy in a war-shattered post-socialist state within the context of an unresolved ethnic conflict, or to the ways in which economic factors affect other elements of the peace process. This, therefore, is the central goal of this study: both to provide a critical overview and assessment of the political economy of the Dayton peace process, and to contribute to a greater understanding of the ways in which politics and economics interact within the context of peacebuilding operations.

Underlying this analysis is an unambiguous assertion of the importance of economic factors in peacebuilding. Writing in 1992, then UN Secretary General Boutros Boutros-Ghali defined post-conflict peacebuilding as “efforts to identify and support structures which will tend to consolidate peace and advance a sense of confidence and well-being among people” (1992: 32). Implicit within this definition is an understanding that peacebuilding activities, to be effective, must combine both political and economic components. This recognition stems from the common-sense insight of conflict-resolution studies that economic recovery, almost without exception, is a necessary if not sufficient condition for overcoming violent ethnic conflict. As Robert Rothstein has observed with regard to Northern Ireland, Bosnia, and the Middle East, “prosperity alone cannot resolve these conflicts, but continued poverty and a loss of faith that conditions will improve guarantee that the conflict will not be resolved” (1999a: 8).

Indeed, as the international community has taken on increasingly ambitious peacebuilding projects over the past decade, the critical nature of peacebuilding’s economic dimensions has come sharply into focus. Alongside the provision of post-conflict security, the establishment of the rule of law, and the institutionalization of effective and representative democratic institutions, effective economic reforms – i.e. those which generate employment and sustained, broad-based economic growth – are increasingly recognized as essential to the process of post-conflict stabilization. At the same time, however, engendering genuine economic transformation is also one of the most complex, time-consuming, and resource-intensive elements of the entire post-conflict peacebuilding enterprise. Despite the many billions of dollars of international reconstruction aid poured into post-conflict zones over the past decade, generating self-sustaining economic growth in countries emerging from war has been devilishly elusive. Beyond the obvious reality that war disrupts and destroys both human and physical infrastructure, which must be reconstituted as part of the task of economic reconstruction, in places such as Kosovo and Bosnia the challenge of recovery has been complicated by the simultaneous imperative of post-socialist transition. Further compounding these challenges is the fact that the rule of law is invariably one of the first casualties of war, making conflict zones a perfect environment for the corrupt and the criminal. As a result, the establishment (or re-establishment, as the case may be) of a functioning market economy is dependent on the parallel re-establishment of the rule of law, and on successful efforts to rein in organized crime and corruption. Ultimately, while security can be restored and elections organized in a matter of months, creating viable market economies from the ruins of war is almost inevitably a matter of years, if not decades.

Despite these challenges, and a growing recognition that failing to overcome them can fatally undermine even the most ambitious peacebuilding efforts, the international community’s toolkit for post-conflict economic transformation remains underdeveloped. While important lessons have certainly been learned over the past decade, too often the international community has maintained that building a viable market economy from the ruins of war can be achieved through a combination of physical reconstruction, deregulation, privatization, and macroeconomic stabilization. Depending on the particular local circumstances, each of these components may indeed play a crucial role in economic recovery and transformation, but together they represent an incomplete and inadequate response to the reform challenge, and individually may even exacerbate instability. None of these strategies, for example, addresses the vexing challenge posed in post-conflict societies by organized crime and corruption, which often penetrate the very highest levels of political leadership. Poorly conceived privatization and liberalization strategies, on the other hand, may in fact play into the hands of the connected and the corrupt. Nor does the conventional reform approach adequately address the social dimensions of economic reform, and the links between peacebuilding, employment, and social welfare not only among war-traumatized populations in general, but among demobilized soldiers or returning refugees in particular. Ultimately, while there remains a relatively unquestioned consensus that “liberal political and economic principles offer the most promising model for the reorganization of war-shattered states” (Paris 2001: 103), the international community has not yet mastered the art of transforming war-torn states into peaceful market democracies. The prevailing reliance on market solutions to post-conflict recovery may or may not be effective in the long run, but this means little if reform strategies contribute – either by omission or commission – to the collapse of the peace process in the short to medium term.

The complex interplay of politics and economics across various post-conflict situations suggests, unsurprisingly, that economic reform efforts cannot be undertaken in isolation from the broader political context, just as the economic impact of political decisions must always be carefully weighed up. In Afghanistan, the exercise of what Michael Ignatieff (2003) has labeled “empire lite” has not only perpetuated warlordism outside of Kabul, but has also led to the country’s re-emergence as the world’s top producer of illicit drugs, which represent a sizable proportion of Afghanistan’s GDP and a lucrative source of income and sustenance for many Afghans. In Iraq, chronic insecurity and the ongoing failure to restore the rule of law has indefinitely set back the process of economic recovery, while the decision to disband the Iraqi army has pushed hundreds of thousands of young Iraqi men into unemployment. At the same time, troubling questions persist about the US government’s economic strategy in Iraq, and the extent to which this strategy is designed to serve US economic interests rather than those of ordinary Iraqis. In the meantime, the gray and criminal economies expand as more and more Iraqis abandon hope of making their living through “legitimate” means. Similar, if less dramatic situations persist from Bosnia to Kosovo to East Timor, where the combined impacts of organized crime, corruption, poverty, and unemployment have strained the resources of both international and domestic administrations, sustained underground economies, and hampered the process of institution-building and peace consolidation.

While the political economy of post-conflict transformation is a central element of this study, also underlying the analysis which follows is an understanding of Bosnia as a state “in transition.” In this sense, the study will draw on the considerable body of literature that focuses broadly on transitions from authoritarianism. As the regional focus of this literature has shifted over the years from Southern Europe to Latin America to Eastern Europe and the former Soviet Union, the complexity of the situations with which it has been confronted has also increased. While the early transition literature focused largely on political transitions from authoritarianism to democracy, the later literature dealing with the former socialist world has had to confront not only the transition to democracy, but also – and simultaneously – from socialism to capitalism.

Post-Dayton Bosnia is a particularly difficult case, since it is simultaneously undergoing at least three separate transitions. Not only is Bosnia, with considerable international assistance, making a halting and uncertain transition to democracy and to capitalism, it is also attempting to make the transition from contested to consolidated “stateness.” Stateness, as Linz and Stepan have defined it, refers to the degree to which a consensus exists – internally and externally – on both the territorial and social limits of a given state. A stateness problem exists, therefore, “when there are profound differences about the territorial boundaries of the political community’s state and profound differences as to who has the right of citizenship in that state” (Linz and Stepan 1996: 16). Clearly, the Bosnian conflict arose from competing visions of stateness among the country’s three main ethnic communities, and the Dayton Peace Accords can be viewed as having succeeded – at least to this point – in displacing this conflict from the military to the political realm. Whether this process will be successful, or whether it will produce a form of stateness significantly different from that outlined at Dayton, remains to be seen. It is this triple transition process that makes the Bosnian situation so complex and so troublesome. For rather than each of these dimensions of transition running parallel to each other, all are interconnected, with each impacting, and impacted by, the others in myriad and complex ways. It is within this nexus of transition dynamics, as well as within the interplay between international and domestic forces, that one must look for answers as to why, nearly a decade after the signing of the Dayton Accords, so little progress has been made towards re-making Bosnia in the image of a modern, peaceful, European market democracy.

The rough road from socialism

As Susan Woodward has written, one of the greatest ironies of the entire Yugoslav tragedy is the fact that Yugoslavia was in many ways better placed than most of its Eastern European neighbors to make the transition to a market economy (1995: 1). After Tito’s break with Stalin in 1948, Yugoslavia developed its own unique socialist model, focused internally on concepts such as worker self-management and externally on positioning itself both as a Cold War buffer between East and West and as a leading member of the Non-Aligned Movement. As a result of these policies, which produced a hybrid form of socialism combining both market and socialist elements, during much of the Cold War period Yugoslavia enjoyed a reasonable degree of economic prosperity. Its economy was relatively open, it possessed a skilled and educated workforce, and it enjoyed relative social peace. At the same time, the success of the rapid industrialization program instituted after World War II rapidly transformed what had been a poor agrarian country into a middle-ranking member of the “Second World” (Vejvoda 1996: 14). Despite the post-Yugoslav rhetoric about the country’s long-suppressed ethnic animosities bursting into the open after Tito’s death, in reality Yugoslavia was held together not by an iron dictatorial fist, but by “a complex balancing act in the international arena and a mixed economy and political system that provided governmental protections of social and economic equality and of shared sovereignty among its many nations” (Woodward 1995: 22).

The idea of worker self-management, based on the notion that individual workers and citizens should be given the tools and the authority to manage their own communities and workplaces, lay at the heart of the Yugoslav political economy (Woodward 1995: 41). As Gojko Vuckovic has suggested, underlying these ideas was a utopian philosophical position that the transfer of administrative and management functions to local workers’ associations would lead to Marx’s predicted withering away of the state, while at the same time the replacement of private property with social property would eventually eliminate not only class cleavages but national and ethnic cleavages as well (1998: 355). In practice, worker self-management did provide some degree of autonomous decision-making authority to workers’ councils, yet this would always be limited by the overarching authority of the Tito regime. Vuckovic, in fact, suggests that self-management was always more slogan than reality, and that the real effect of the system and its perennial experiments in constitutional tinkering was decentralization, and a gradual shift of power from the center to the ethno-nationalist periphery, a process which set the stage for Yugoslavia’s eventual collapse (1998: 355).²

Despite the institutional and constitutional peculiarities of its political economy, Yugoslavia still suffered “from exactly the same systemic weaknesses as all other command-type economies, including the semi-command economies: low economic efficiency, a lack of technological dynamism and an inability to adapt” (Bojicic 1996: 28). As Yugoslavia’s post-war dynamism began to dissipate in the 1970s, a result not only of internal dynamics but also of changes in the international economy, these weaknesses began to be felt more acutely. Yugoslavia’s privileged access to international capital markets temporarily shielded it from the social impacts of accelerating economic decline, but also allowed the process of fundamental economic restructuring to be put off until it was almost too late. By the early 1980s, the Yugoslav economy was in considerable trouble, its foreign debt had risen to nearly $20 billion, and the death of Tito further shifted the country’s political balance towards decentralization.

Between Tito’s death in 1980 and Yugoslavia’s death in 1991 (when Slovenia and Croatia formally declared independence), both economic and political crises combined to drive the country apart. As noted above, decentralization had always been an important element of the Yugoslav system, with successive constitutional revisions aiming, but ultimately failing, to conclusively resolve the tensions between regional autonomy and centralization. The country’s 1974 constitution, the last major constitutional revision, “[took] the devolution of power and empowerment of federal units to unparalleled heights,” and resulted in the de facto confederalization of the Yugoslav state (Vejvoda 1996: 15). While the rationality of the internal Yugoslav market had always been strained by efforts on the part of the country’s constituent republics to develop their own “internal” industrial bases, further decentralization in the midst of general economic decline exacerbated these tensions, heightened regional inequality, and gradually transferred the locus of political authority and accountability to the republic level.

These centrifugal tendencies were greatly exacerbated as Yugoslavia’s economic crisis came to a head during the early 1980s. Caught between the global economic crisis of the time and its own lagging economy, in 1982 Yugoslavia turned to the International Monetary Fund (IMF) for help. In return for a three-year standby loan, the IMF insisted on a radical austerity program that included an anti-inflationary macroeconomic stabilization policy, trade and price liberalization, and market-oriented institutional reforms aimed at imposing monetary discipline and real price incentives on both firms and governments. The impact of this austerity program hit Yugoslavs fast and hard, as food subsidies were immediately abandoned, prices for other basic goods and services, such as heating fuel, jumped by one-third, and the importation of all consumer goods was prohibited. Inflation and unemployment levels grew rapidly, while wage and income restrictions sent average household incomes plummeting (Woodward 1995: 49–51). Both socially and politically, these austerity measures generated enormous insecurity among the Yugoslav population. The gradual erosion of the welfare state led citizens to seek security in other social formations, and in the circumstances of the time the republican leaderships were only too eager to exploit such insecurities in their own struggles against Belgrade and against each other. In other words, “atomised individuals in a disabled society were confronted with loss of existential certainty and ejection from the socialist welfare cocoon in which they had been living. The new certainty being offered them was another safe haven of security: that of national homogeneity” (Vejvoda 1996: 20).

When the political and economic crisis reached its height in the late 1980s and early 1990s, and the imperative of both economic and democratic transition became unavoidable, Yugoslavia collapsed, largely because it no longer had the institutional or popular means to save itself. Austerity and decentralization had hollowed out its central institutions (save perhaps for the Yugoslav National Army), and the increasingly nationalist republican leaderships had become far more interested in carving up the Yugoslav state than in reforming it. The only question that remained at this point was what form the carve-up would take, and the path ultimately chosen could scarcely have been more wrenching. As events would soon reveal, Bosnia’s status as the most multi-ethnic of Yugoslavia’s constituent republics would reserve for it the greatest misery as the drama of dismemberment unfolded.

Seen from the other side of the confl...

Table of contents

• Cover
• Title
• Copyright
• CONTENTS
• List of tables
• List of acronyms
• Map of Bosnia and Herzegovina
• Preface
• 1 Introduction and overview
• 2 The Washington consensus meets the political economy of conflict
• 3 State-making the Dayton way
• 4 Resistance and entrenchment: ethnic division, domestic power structures, and economic reform
• 5 Business as usual: international prescriptions for Bosnia’s economic transition
• 6 The politics of privatization
• 7 The political economy of return
• 8 The social dimensions of peacebuilding and transition
• 9 Conclusion
• Notes
• Bibliography
• List of interviewees
• Index