A Post-Conflict Primer

J. Sullivan, A. Shkolnikov &

A. Nadgrodkiewicz

n November 2007, Iraqis took a major step toward bringing their country closer together and laying the foundation of a democratic market economy. The event was not a new election or an infrastructure project expected to generate thousands of jobs. It was not a headline-capturing new security strategy or a trade deal that would allow commerce to flourish. Nonetheless, it was a significant accomplishment by the Iraqi business community, civil society, and local government officials.

That month, a coalition of 26 Kurdish business associations, chambers of commerce, and economic think tanks presented the Kurdistan Business Agenda (KBA) to the Kurdistan Regional Government. KBA was the culmination of a year’s worth of intense work by hundreds of Iraqi business people, in partnership with the Center for International Private Enterprise (CIPE), who focused on developing a plan for the economic rebuilding of the region.1 The uniqueness of this economic plan for the country’s reconstruction was that it was developed from the ground up by Iraqis for Iraqis, not copied from elsewhere.

In the difficult environment of Iraq, the act of the business community’s coming together to formulate a plan for the reconstruction—and then working with the government to implement the major points—was groundbreaking. It showed that the private sector has a stake in building a more secure and predictable investment climate. The manner in which the KBA was developed and then advocated before the government—open, inclusive, and transparent—was as much indicative of progress in Iraq’s democratic development as the early elections following the toppling of Saddam Hussein’s regime. It was a real, substantive, and robust answer to the often-heard calls for giving Iraqis input into rebuilding the country. Even more crucially, it demonstrated how the private sector can play a key role in post-conflict reconstruction.

The imperative of institutional reform

The term “reconstruction,” as applied to post-conflict countries, can be somewhat misleading. It tends to be narrowly understood to mean the restoration of physical infrastructure: rebuilding houses, roads, bridges, factories, and so forth. Such projects are often showcased in public coverage of reconstruction efforts, because they are easy to grasp and visualize.

But, while this is important, experience shows that physical reconstruction alone is not sufficient for the sustained, long-term political and socio-economic development of societies emerging from conflict. The fact that 40 percent of post-conflict countries return to violence within a decade2 suggests that a traditional approach focusing mostly on physical rebuilding fails nearly half the time to accomplish what is needed for sustained peaceful growth and development. Instead, equal attention must be paid to the reconstruction—and in many cases building from scratch—of the institutions that underlie functioning economic and political systems. By institutions, we mean social, economic, and political structures that guide human behavior. In many countries, as experience indicates, one of the greatest challenges lies in formalizing informal institutions.

Local ownership

Institutional development cannot begin without a viable state structure, which provides a framework for security, rule of law, economic development, and political stability. State-building in countries emerging from conflicts is a daunting task. And recent experience, particularly in Bosnia and Kosovo but also in Iraq and Afghanistan, suggests that although international participation is required, outsiders cannot simply impose governance structures—local groups must be involved in the process to ensure legitimacy and sustainability. Where incentives become distorted, particularly when local governance institutions become accountable to foreign donors rather than local people, the potential for effective state-building is undermined even further. Therefore, the participation of local stakeholders in enacting institutional reforms is crucial.

The international community’s experiences in Bosnia over the last decade illustrate that assistance delivered as part of post-conflict reconstruction must develop the capacity of local civil society groups to design and implement reforms. If these groups do not already exist, they must be created from scratch and led to sustainability—however difficult the process may seem. As Hoover Institution expert Larry Diamond has noted, reconstruction efforts must “proceed with some humility and a decent respect for the opinions of the people” who are ultimately on the receiving end of that reconstruction.3 This is what helps to build legitimate institutions that are grounded in local realities, needs, and concerns. Political theorist Francis Fukuyama brings up a similar point. When talking about reconstruction in Iraq and Afghanistan, he notes that “the secret is to give [countries] enough governance to get things going again, but to figure out a way to have it be Iraqis or Afghans that are doing this.”4 Although ensuring local ownership may prolong the reform process, taking these steps early is essential if countries are to achieve consensus on reform and become sustainable democracies.

What to rebuild?

Beyond meeting the basic nutrition, sanitation, and health needs of the local population, long-term social well-being depends greatly on laying the economic foundation and creating opportunities for employment and upward social mobility. In one form or another, economic issues are regularly identified as major concerns of citizens in post-conflict countries. When surveyed by the Asia Foundation in 2006, for example, more than a fifth of respondents in Afghanistan cited a poor economy, lack of reconstruction progress, weak governance, and unemployment as the main reasons why they thought their country was moving in the wrong direction.5 This number is in all probability higher today.

In addition to being one of the top concerns in the reconstruction process, unemployment and poor economic conditions often perpetuate conflict. Studies that link conflicts and poor economic prospects often conclude that countries with higher per capita income have a lower risk of civil war.6 Even more striking is the fact that negative economic growth of just 5 percent can on average increase the risk of a civil war by as much as 50 percent.7

In this sense, the goals of post-conflict reconstruction may not seem very different from those of general development strategies. They encompass generating economic opportunities; creating jobs; eradicating corruption; and establishing grassroots-oriented, transparent institutions of democratic governance that provide citizens with a sense of ownership and participation. The difference is that they are pursued in a much more challenging political, social, and security environment, where even minor shortcomings in meeting the expectations of weary local populations can push countries and societies back onto the path of conflict.

Rule of law and an independent judiciary

Restoring the rule of law and an independent, fair judiciary system in post-conflict societies is among the most pressing tasks, because it ensures the physical safety of the population and promotes a secure and predictable environment in public life. A sound law enforcement system is also a necessary part of the market economy. Without secure property rights, enforceable contracts, and an effective way to adjudicate disputes, assets such as land or housing cannot serve as loan collateral or investment capital; trade is difficult and transactions inefficient; and much-needed economic growth is difficult to achieve.

Democratic governance

A functioning democratic system involves more than the rise of new leadership, even when that goal is achieved through free and fair elections. At the core of a working democracy is how a government makes decisions on a day-to-day basis. Local input from diverse stakeholders is necessary in the decision-making process. Only broad-based participation can ensure the lasting legitimacy of the government, monitor its performance, and provide the population with a sense of ownership of the enacted reforms.

Independent media also play an indispensable role. They have a dual function of providing information about current political developments and the state of the economy, and serving as a watchdog of those in power. This function makes free media important in anti-corruption efforts, helping the public reach informed choices in a transparent business climate.

Legal and regulatory frameworks

Equally important is the creation of mechanisms that allow for the modification and improvement of existing laws in a democratic manner, including rules that create a legal framework for a functioning market economy. After all, laws on the books during the old regime may be outdated, unjust, unenforceable or otherwise unsuitable for new post-conflict realities. Reconstruction provides unique momentum for such flawed, entrenched laws to be replaced by a more effective framework.

From a long-term development perspective, it is crucial that a revised legal and regulatory environment be conducive to entrepreneurship and business, so that economic benefits accrue to all on an equal footing. In order to accomplish that, government must strive to become a transparent, arm’s-length regulator, rather than an active player in the economy. Its objective must be to monitor and correct, rather than choose winners and losers and arbitrarily dispense economic privileges.

Economic stabilization

Armed conflicts disrupt not only a country’s social and political fabric, but also the basic ability of an economy to function. Conflicts create incalculable losses, not only in a real physical sense but also in terms of lost economic growth and development. It is no coincidence that states emerging from violence are among the poorest in the world. In fact, 15 of the world’s 20 poorest countries have suffered periods of conflict since the 1980s.8 Consequently, the key objective of post-conflict reconstruction efforts should be to restore the domestic capacity for a productive and dynamic market economy, thereby establishing the basis for a prosperous society.

Here, the private sector can play a vital role. Business agendas, such as the Kurdistan Business Agenda (KBA) referred to at the beginning of this article, can provide reformers with a list of what needs to be addressed on the day-to-day policymaking level to spur economic growth and, as a result, to provide economic and job opportunities for regular citizens. The true significance of the Iraqi experience with the KBA was that it showed how the business community can cooperate and speak with a unified voice on the issues crucial to post-conflict rebuilding and development. Business people representing various segments of the Iraqi private sector spent a whole year working together to create an economic plan for the country: identifying constraints to doing business, prioritizing problems, determining the opportunities for reform, recommending specific solutions, and building trust.

This bottom-up effort clearly demonstrated that the private sector is more likely to commit to reforms if entrepreneurs themselves are the ones participating in drafting them than if they are just handed a list written up by someone else. Likewise, governments are more likely to listen to the voices of their own constituents rather than those of outsiders. The importance of the local buy-in achieved in this manner cannot be overestimated.

Significantly, a business agenda is not just a litany of problems; it is also a compilation of actionable solutions that are actively promoted and presented before the local government. By virtue of generating this public-private dialogue on key reconstruction and development issues, the agenda enhances democratic process, giving the business community a platform for providing input into policymaking in an open and transparent way.

The way forward

In order to make a difference, those involved in a country’s post-conflict recovery must identify an effective way to utilize the expertise and commitment of local groups to achieve lasting peace and prosperity. When integrating local groups into the reconstruction effort, those involved in the recovery work must also have enough tolerance for “learning by doing.” In many cases, local organizations may lack certain skills, and their inability to complete a certain project with due quality should not serve as a deterrent. Rather, their capacity to improve must be developed. This also means that local reformers should not be overwhelmed with an overambitious scope of activities or too many financial resources they cannot fully absorb.

Douglass North, who won a Nobel Prize for his pioneering work on institutions, captures best the importance of local focus on institutional reforms. He argues that institutions cannot be transferred wholesale; something that functions well in one country will not necessarily work well in another.9 He also warns that local culture should not be ignored, and most importantly, that incentives play a fundamental role in the reconstruction process. If no incentives exist for citizens and the government to improve governance, commit to fair play, engage in competitive market activities, and support the rule of law, then institutions are unlikely to take root.

Putting reconstruction in the hands of local groups is an ambitious task, but it is required if countries are to assume ownership of and responsibility for institutional reforms and humanitarian relief. Where local capacity to implement reforms and to lead humanitarian relief is weak, efforts should focus on building it up, rather than replacing it with external leadership. In each case, there has to be just the right amount of assistance to jump-start the reform process, yet not so much as to distort incentives, undermine legitimacy, and thwart long-term development at the expense of short-term needs.

The example of formulating and implementing business agendas in Kurdistan and other post-conflict areas shows that the private sector has an important role to play in this process. Only when the local economy is strong and local civil society groups are engaged in the policy dialogue can reconstruction successfully take place. Given the right tools to become a voice for needed reforms, the business community can become the engine that drives both reconstruction efforts and market-oriented democratic development in post-conflict countries.

John Sullivan is Executive Director of the Center for International Private Enterprise (CIPE), an affiliate of the U.S. Chamber of Commerce. As Associate Director of the Democracy Program, he helped to establish both CIPE and the National Endowment for Democracy in 1983. Sullivan is also an adjunct faculty member at George Mason University Graduate School of Public Affairs.

Aleksandr Shkolnikov is the Senior Program Officer for Global Programs at CIPE, where he manages a variety of programs on corporate governance, anti-corruption, democratic development, and business association advocacy.

Anna Nadgrodkiewicz is Program Officer for Global Programs at the Center for International Private Enterprise, where she works on CIPE’s education and outreach programs related to economic and democratic reform around the world.