Committee for Conflict Transformation Support

CCTS
Newsletter 19

Economy, conflict and the private sector: seminar report

Report of a CCTS seminar held on 15th January 2003 at St. Ethelberga's Centre for Reconciliation and Peace, Bishopsgate, London EC2

This seminar, organised by the Committee for Conflict Transformation Support (CCTS), was attended by 35 people and chaired by Michael Randle and Diana Francis. The seminar began with presentations from the two speakers: Dr. David Keen, Reader in Complex Emergencies at the LSE and Phil Champain, head of International Alert's Business & Conflict Programme.

Conflict, trade and economic agendas

It is commonly held that there is a mutual antipathy between war and trade, because war disrupts the ability to trade and the prosperity created by trade makes war less likely. David Keen challenged this 'truth', and focused in his talk on the ways in which trade and war can co-exist, or even be mutually supportive.

The type of trade that flourishes on or beyond the edge of the law, such as dealing in arms, narcotics, or stolen goods, or exploiting the unprotected (whether people or goods), is often more lucrative in wartime, because government controls tend to break down. However, it is not only borderline or illegal trade that can co-exist with war.

Low-technology, high-value industries are also able to operate successfully in warring countries. Typical of such industry, and common in many areas of conflict, is the extraction of natural resources such as alluvial diamonds, oil and coltan (the ore of tantallum, which is widely used in mobile phones and laptop computers).

David outlined two significant ways in which trade can fuel war:

• Trade that exploits the majority of the population while enriching only a small elite creates grievances that may lead to civil war;
• War makes certain types of trade very lucrative; the greed for this income may foment or prolong violence, or even become its primary aim.

Wars motivated by greed can demonstrate some unexpected characteristics. For example, a warring government may be winning international praise for keeping spending and inflation low while funding its wars through the illegal exploitation of its opponent's (or even its own) national assets - either directly or by turning a blind eye to the predatory behaviour of its soldiers. Paradoxically, the citizens of such a country might be more secure if the government spent more on war, since properly trained and paid soldiers would not be so tempted to escalate the violence for their own financial ends. In some cases where the illegal trade is sufficiently profitable, the desire to perpetuate the fighting can even lead one side to sell arms to its opponents. Official collusion in illegal activities such as smuggling or drug running is common in wartime, and militates against any peace agreement. This collusion may even spill over to neighbouring states that are not ostensibly involved in the war. David suggested that a lasting peace may be impossible unless it institutionalises, at least to some extent, these economic interests.

At the same time, David cautioned against an overemphasis on the economic agendas for war. In his view, the analysis made by the economist Paul Collier during his secondment to the World Bank, which essentially discounts 'grievance' and characterises all conflict as the result of 'greed', is untenable. He pointed out that greed and grievance are usually hard to separate, since one generates the conditions for the other; and he stressed the overriding importance of understanding the particular circumstances that led to a conflict if one is to work effectively towards ending it.

Engaging the private sector in conflict transformation

Phil Champain agreed that trade can, and often does, play a negative role in conflict areas. When it exploits the local workforce or plunders natural resources it impoverishes the local population; when it uses the proceeds of illegal trade to fund the continuation of war, and in doing so inhibits the (re)establishment of legitimate businesses, it fuels instability. For these reasons there will always be a role for regulation and properly targeted and managed sanctions in controlling rogue business activity. Nevertheless, Phil also saw a positive role for the private sector, alongside government and civil society, in promoting peace and stability, instancing the growing business involvement in peace processes in Sri Lanka, Mindanao and Nepal. He and his colleagues in International Alert are working with private industry, particularly with multinational oil companies investing in Azerbaijan, to establish processes that can support this positive role.

In his presentation Phil outlined the model that International Alert is developing for promoting private sector involvement - bearing in mind always that the private sector (like conflict areas themselves) is not homogeneous, and that the primary consideration for a business will inevitably be its profitability.

He identified three different types of activity in which businesses can fruitfully contribute to peacebuilding: core business, social investment and policy dialogue.

• Least contentious and easiest to achieve, because they are most directly under a company's control, are the actions that it can take within its core business operation. To what extent does it employ local people? How well does it pay? What working conditions does it offer? What training and promotion possibilities does it offer to local workers? Does it use local suppliers? These are activities within a company's day-to-day control; which could be considered the bottom line in corporate social responsibility; but which can have a marked influence on the stability (or otherwise) of the local economy and therefore on its chances of lasting peace.
• Social investment projects, in areas such as schools, health programmes and voter education can make a significant contribution to the welfare and peace of the community. These projects are more philanthropic, affecting profitability more obliquely, through enhancing the company's reputation in the host country and 'at home'. They are best undertaken in collaboration with local or regional government or other civil actors, to ensure that they really do fulfil local needs (as well as to avoid duplication with other projects).
• Projects involving policy dialogue engage in the more structural causes of conflict, such as combating corruption, supporting improvements in the local judiciary or police force, or promoting political reform. These are furthest from the company's core activity (though still able to affect its operation) as well as being the most controversial and difficult to achieve - and are consequently the area in which least company activity is found. Neverthless, business involvement in these activities, although inevitably in a secondary and supportive role, in partnership with government and civil society, can improve the chance of success.

Clearly, local businesses will have a different perspective from that of international companies - more in touch with local politics but with less financial leverage. Both have a role to play, individually and in partnership with one another.

Companies are used to analysing and taking account of the risks of any business venture, including those inherent in operating in a conflict zone. What is often missing, but is necessary in all three areas of activity detailed above, is for companies to include in their analysis the causes of the conflict, and the impact of their investment on it (as well as vice-versa). This in turn will involve a more collaborative and less controlling role than is normal for businesses (especially large transnational ones), particularly in the area of policy dialogue, if they are to help rather than hinder the process of conflict transformation.

International Alert is treading a difficult path in attempting to engage companies in the complex problems of conflict transformation. Phil concluded by reminding the meeting: "Protest is relatively easy, engagement is difficult".

The presentations were followed by a plenary discussion, which was continued in two groups during the afternoon (each led by one of the speakers) and concluded with a report-back plenary session. The discussion was wide-ranging - from the responsibility of the individual, through the role of theory in informing practical action, to issues of global economic planning - as participants grappled with the complexity of the subject matter. Nevertheless some common threads emerged and these are summarised below:

Greed or grievance: do theories matter?

Opinions were mixed as to the usefulness of the 'greed or grievance' debate raised by David's paper. Some participants, including those closest to business, felt that there was limited practical value in theorising, and were more interested in concrete advice as to what action they could take to promote peace and stability. Another participant pointed out that it was impossible to give practical advice that was not based on some theory about the cause or causes of a given conflict. Thus, if a company, influenced by the particular economic model proposed by Paul Collier, were to dismiss all alleged grievances as instances of greed, this could cause it to adopt entirely the wrong policies. Other participants felt that theories and economic models can illuminate the causes of conflict, and that their application can have a practical outcome.

Greed is a particularly difficult phenomenon to grapple with, since we see it as natural (anyone faced with gross inequality and discrimination will be 'greedy' for a bigger 'slice of the cake') but at the same time condemn it. In truth, greed is likely to exist on both sides of any conflict, and is likely to perpetuate the conflict if it is unconstrained.

As with any complex problem, we cannot expect to find a simple model or set of ideals that can be universally applied. We need to understand as much as possible about the background and motivation for a specific conflict if we are to be able to assist in resolving it.

The role of the private sector

Phil indicated in his presentation that action within a company's 'core business' activity were the least contentious of the three activities he outlined. However, some participants felt that the core business itself is often part of the problem, for example, in extracting wealth and resources from a country, or robbing it of local opportunities. Certainly, the way a company acts within its core business can make a difference to what happens in a failed or failing state. If, for example, they employ their own security forces in order to protect their installations, this is likely to impede the local government from developing robust security forces of its own (both because of likely pay differentials and because it will tend to emasculate the power of the state forces). Norwegian Police trainers in East Timor, for example, praised the quality of local police recruits but doubted their long-term commitment to the job, given the very low wage that they would earn.

Businesses may contribute more to peace and stability by engaging in the 'policy dialogue' arena by offering financial and other support to state security forces. Similarly transnationals who engage in 'social investment' projects to build local schools or hospitals may at first sight appear to be making a significant contribution to the local populace, but their action may take authority away from the local government. A more 'hands off' collaborative approach might be more beneficial in the long run. The BP representative at the seminar agreed: his company don't want to simply be cheque-writers, but would prefer to identify changes to their behaviour that would reduce the chance of conflict.

The degree to which a transnational company employs local workers and uses local suppliers can also have a marked effect. This is particularly important during or after conflict, when the financial leverage of a large international company might be the best opportunity for coaxing local people who have become part of a 'black economy' back into legitimate business. On the other hand, incoming transnationals often 'poach' local NGO staff with unbeatable salaries (because they speak English) with a deleterious effect on local peacebuilding efforts.

There is a particular problem, too, for non-market economies 'in transition' that makes them especially vulnerable to conflict. Businesses need to be more aware of the role they play here.

In one participant's experience only the multinationals have a role to play in conflict transformation; she argued that local businesses don't have the resources to look beyond their own survival. On the other hand, their closer links with the local community give them a leverage that is not available to the multinationals. By ensuring that they trade with local businesses, multinationals may have a doubly beneficial effect: assisting economic stability and providing local businesses with the resources to engage in peace-building processes.

Governments often use militias to do their dirty work. One participant wondered if the same can be said of international companies, who might look clean themselves but have subsidiaries who 'bend the rules'. This should not happen, of course, if a multinational has a clearly stated ethical position that it communicates to its subsidiaries and subcontractors.

A number of examples were given of businesses making a positive contribution to peace initiatives. In Sri Lanka, for example, businesses are co-operating to invest in peace and stability. In both South Africa and Northern Ireland, business interests have been key in straddling ideologies in a way that government could not. In Azerbaijan, where local politics continue to be unstable and there is a danger of over-reliance on oil production, the international oil concerns have recently entered into a development alliance with local industry, NGOs and other international agencies to analyse the local economic problems and look for ways of broadening the base of the local economy. Nevertheless, it was agreed that the private sector could only play a small part in what is a fragile and complex process.

BP and other international oil companies have established a set of 'voluntary principles' for international Human Rights compliance, and insist that local contractors sign up to these principles too. A side effect of this self-regulation is that companies who are considered too exploitative are kept out of 'the club'. While at least one participant doubted whether voluntary codes could go far enough, and felt that global regulation would always be needed, others valued the commitment behind voluntary codes. 'Having to comply' and 'wanting to make a difference' are miles apart, and the latter can be more productive (as well as being more constructive).

There are conflicting interests in companies too. In Guatemala, for example, the private sector wanted peace but disliked aspects of the peace agreement, especially those dealing with the reform of labour practices. Once again there is no 'one size fits all' advice.

The degree of trust in the private sector varied among participants, with some seeing their very presence in a conflict area as, potentially, part of the problem. Positive or negative, however, it seems clear that if we leave the private sector out of our discussions in the quest for peace and stability in areas of conflict, we are missing some of the ways in which the conflict can be ended.

The role of government

Some participants were keen to separate the roles of government and business, arguing, for example, that it should always be the role of government to build and run schools and hospitals, funded by the taxes paid by businesses (and individuals). Education was seen as an important factor in confronting exploitation, because it enables individuals to learn about and judge for themselves the relative merits of a range of different ideas and ideals rather than accepting propaganda.

The need for regulation was quite widely accepted, and many participants felt that Western governments, in particular, could do more to recognise and legislate against the power of market forces, where they come into conflict with human rights violations. They must have been aware, for example, of the source of the coltan sold to the West by Rwanda but looted from the Congo, and could have imposed targeted sanctions to prevent the continued plunder. Similarly, it is immoral for affluent countries to collude with the governments of famine-ridden countries by buying their grain reserves for animal fodder in a grotesque demonstration of the power of market forces. Phil commented that authoritarian leaders are very sensitive to how much abuse they can get away with. If this is the case, democratic governments could clearly do more to keep them in check.

However, the power of the state has shrunk. (David suggested that the strong state may only ever have been a transitory phenomenon.) Transnational companies are now wealthier and more powerful than the majority of states. This reduces the power of regulation, and makes dialogue and negotiation more important. Commercial lobbies are increasingly powerful in influencing political policy. One participant suggested that the financing of political parties and elections by business should be banned. He described how the City of London Authority, the oldest 'democratic' government in the UK, is dominated by City businesses, which continue to wield undemocratic powers.

Several participants could not forget that the British and American governments are preparing to declare war on Iraq, underlining the power of business interests in shaping foreign policy and reminding us that there is work to be done here, as well as further afield.

The role of international NGOs and civil society

David's group, in particular, spent a lot of time discussing the importance of information - both its gathering and its dissemination. When outside agencies (whether businesses, governments or NGOs) intervene in a conflict area, they must ensure that they work to understand local circumstances, so that they can judge the likely effects of their intervention and ensure that it matches local needs.

Outside actors may be able to draw parallels with other conflicts that help to illuminate the local situation. For example, groups from the Caucasus have visited Northern Ireland to see how the peace process is working there and how it might be relevant to them. This can be more effective than the more normal 'colonial' pattern of outsiders dispensing resources and ready-made solutions that may not match the real needs.

David suggested that we should balance needs and expectations. If we promise more than can be delivered we risk disenchantment and a return to violence. Perhaps we should promise less? Some participants were unhappy with the ethics of this argument, likening it to the realpolitik of Soviet Russia. Others agreed with David, arguing that if expectations are raised and not fulfilled the resulting demoralisation could lead people to withdraw from the task of rebuilding. It isn't 'all or nothing': one can (and must) proceed step by step, looking in each situation for what can be done to balance political reality with ethical dilemmas.

What can NGOs do to encourage the private sector to engage in reducing or eliminating conflict? Phil argued that international businesses are sensitive to the capability of local NGOs to expose bad practice, and pointed to the work done by Amnesty International's Business Group and the World Development Movement (among others) in monitoring international business behaviour. Local businesses may be harder to persuade, since they are likely to be more intimately involved in the conflict. It is worth looking for ways in which NGOs can encourage local business activity - since broadening prosperity and self-reliance will help to reduce the risk of conflict. One participant suggested that NGOs might be able to encourage the formation of community sector 'not-for-profit' companies. Another speculated about NGOs taking on the role of 'humanitarian consultants' to industry. (He had read of an international business in Africa providing housing for workers' families on the advice of an INGO, in order to reduce the risk (and cost) of HIV in the workforce.) There was a natural reluctance on the part of most participants to enter into any sort of contractual relationship with industry. NGOs have to retain their integrity and impartiality or their effectiveness is diluted. (For this reason International Alert, for example, takes no money from industry as a matter of policy.) On the other hand, local NGOs, maybe out of economic necessity, frequently seek private sector funding.

International NGOs themselves bear some responsibility for worsening local business opportunities. One participant spoke of the 'international circus' in Kosovo/a being the main employer (apart from the local Mafia). Another with experience in East Timor spoke of the fledgling state's dependence on multilateral agencies. In the short term they do, of course, bring much-needed money and employment into the country. But the INGOs tend to bleed the best people from local professions, making it harder for the local economy to rebuild and leaving a gaping void when they pull out of the region. The main opportunity for new local employment in East Timor is apparently casinos - an option that the new government does not welcome but which is likely to be chosen because the revenue is so badly needed.

At several points during the discussions the relationship between global structures and local events was emphasised. Although, clearly, the latter have to be addressed individually, as and when they occur, it is important not to ignore the need for wider political action. We should not forget our responsibility as individual consumers, employees, voters and citizens to create a conscience in businesses and governments. As the power of the state wanes, that of individuals and groups grows. Our role in influencing events gains importance, and should not be overlooked.

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