Jeff McLaren
Working for You

The Social Market Roots of Democratic Peace
Précis by Jeff McLaren

         Since the beginning of the 1990s, the US has believed that democracy is the cause of peace between nations. They believe this due to a high statistical correlation between peace and democracy. There is evidence that this conviction may not be precise enough. A greater causal link may be better explained by economic conditions.

         The author believes that contract-intensive economic development explains the democratic peace better than democracy alone. In a contract rich economy people have more freedom to choose economically. Trust between strangers is high due to the ability to appeal to an impartial government for the enforcement of laws and citizens of such states expect their governments to behave this way in the international arena too.

         The author's conclusion is “... that from 1961 to 2001 not a single fatal conflict occurred among nations with contract-intensive economies. In contrast, democracies without contract-intensive economies engaged each other in several fatal conflicts during this period, about the number to be expected if democracy[,] in states without a contracting economy[,] has no impact on foreign policy.”

         There are three connections that follow: first: there is a third variable, a contract-intensive economy, upon which democracy and peace depend. Second: the zone of peace among democracies is caused by economic rather than political institutions. And third: there may be good reasons for pursuing democracy but peace is not one.

         Although there is strong and robust evidence that democracies do not fight each other, there are two points against the democratic peace thesis. Firstly, The author claims that there is not any predictive or testable power behind the theory. Secondly, the constant companionship of democracy with contract-intensive economies but the fact that not all democracies are contract-intensive suggests that perhaps democracy is not the independent variable in peace.

         How is it, then, that economic development or, more precisely, contract-intensive economies foster peace?

         Several theories have been presented. One theory by Azar Gat claims that peace in democracies is the result of two factors: (1) the growing irrelevance of location in the creation of wealth and (2) a less warlike “feminization” of men in cities and in the ever growing service sector. Another theory by Erik Gartzke suggest that countries with less or unrestricted capital markets are more influenced or even controlled by international investors; these foreign investors reward the most peaceful societies with ever increasing investment and wealth.

         The author's own explanation rests on two social science notions: (1) Bounded rationality – the tendency to create rules of thumb and (2) clientelism – the observation that economic actors in low income countries depend more on affiliations with friends and/or family for economic enterprises; therefore we can expect that people under clientelism will have a different pattern of behavior than in a contract-intensive country.

         During times of crisis or change in a clientelist society, the leadership often take on the role of patrons and adopt a rhetoric that is unfavorable for foreigners or strangers. By contrast and under the same conditions, contract-intensive societies likely support leaders who push for transparency in government and fairness in law enforcement.

         The author's Economic Norms Theory claims that political power is a necessary condition for a contract-intensive economy due to the need for government to enforce contracts fairly. But political power is not enough. Other factors can obstruct a market such as poor infrastructure or hostile neighbors. Furthermore a young contract-intensive economy can fall into ruin because of war or crisis.

         The author's research into emigration suggests that emigration is inversely related to economic opportunity. Various studies have shown that there is a correlation of high wealth with contract intensity and of low wealth with clientelism. Many surveys and case studies have made a connection between tribalism's dominance within poorer societies and individualism's dominance with economic development and trust in strangers. The author's own data claim that a contract-intensive economy, not higher earnings alone, is more connected with higher ranks of trust between countries.

         Two theories that give prominence to the market are Classical Liberalism and Economic Norms Theory. However they have subtly different assumptions that lead to different ramifications. Classical Liberalism assumes it is a propensity of human nature to engage in market activity. However, Economic Norms Theory claims that it is not anything like a propensity rather engaging in market activity is a learned behavior.

         The fact that not all societies are contract-intensive suggests, to the author, that Economic Norms Theory is a closer description of reality. Further, if setting up norms is critical, then Economic Norms Theory explains beautifully why the current list of developed countries is the way it is.

         Economic Norms Theory suggests that people in contract-intensive countries will project their own preferences outside their country, support international law and maintain the Westphalian order. It does not follow that contract-intensive nations will not go to war, rather they will go to war against an actor that threatens the Westphalian order; and not against other contract intensive nations that do not threaten the order. In fact contract-intensive economies will be more than at peace – they will be naturally in league.

         Voters in contract-intensive democracies have huge problems attacking any country but they especially would have serious qualms if their government proposed attacking another democracy. This has led some to posit that liberal ideology is a check on foreign adventures; however the author claims that liberal ideology comes out of contract-intensive polities. Therefore democracies that are not contract-intensive will not be liberal and will therefore be more likely to threaten the world order and care less about human rights.

         To collect data so as to determine levels of contract intensity across nations, the author looked at two types of data: (1) investment in stocks and bonds and (2) life insurance contracts. Life insurance contracts were the better set because they mark much better the transition from clientelism to a contract-rich society.

         Economic Norms Theory claims that greater contract-intensiveness will create and/or stabilize democracy. But could the order of causality be reversed? The general opinion seems to be: no. If peace does exist between non-democracies it may be due to their inability to beat their neighbor. It seems that non-contract-intensive democracies get into deadly conflicts just as much as non-democracies.

         In the case of bordering democracies when one moves to a contract-intensive economy, the chances of a lethal feud drop 97%.

         The author then considers six possible objections: (1) perhaps it is wealth, not contract-intensiveness, that causes the peace. (2) Perhaps it is trade interdependence that causes the peace. (3) Perhaps it is developed, useful, traditional and unified institutions. (4) Perhaps it is an alliance or an alliance network. (5) Perhaps it is urbanization and the size of the service sector. (6) Perhaps it is free capital markets. However, the author's data suggest that these reasons are either not quite right or not as influential as contract-intensiveness.

         The case of the Greek and Turkish conflict serves as an example that elucidates the points the author wishes to make.

         Many have mistakenly joined democracy and peace because most contract-intensive countries are democracies. But nearly half of all democracies are not contract-intensive and those that are not are, more often than not, not peaceful.

         The causal links claimed by Economic Norms Theory go like this: contract-intensive society leads to higher trust levels among the people; high trust leads to a preference for security (strong government) and rule of law (impartial government) in the domestic sphere; this is then projected internationally; which leads to the promotion of liberalism and democracy.

         Four policy implications are: (1) to increase security we should encourage countries to improve their contract-intensity ranking; peaceful progress will then follow naturally with time. (2) China is moving in the right direction and should be encouraged. (3) Russia seems to be becoming more clientelist and therefore should be encouraged to move the other way. (4) Policy makers should advance and help the cause of economic development more than the cause of democracy.

Added on: 2009-06-12 18:55:03
Précis by: Jeff McLaren
© 2008 - 1, Jeff McLaren