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Subsidizing Peace

- November 23, 2012

The following is a guest post from SUNY-Buffalo political scientist Phil Arena.


Observers of international politics can be forgiven for being skeptical about ceasefire between Israel and Hamas recently brokered by the United States and Egypt.  In substantive terms, it is nearly identical to the ceasefire reached at the end of Operation Cast Lead in 2008-2009.  Moreover, as Joshua Tucker discussed just the other day, recent work on conflict management paints a pretty grim picture.  Though mediators might be able to achieve genuine conflict resolution under some conditions (see  here), those conditions appear to be quite rare (see here and here).  The conditions under which conflict management can be achieved are more easily met, but simple management of conflict appears to merely delay the inevitable (see here, here, and here).

However, I think there is a case for optimism.  (Those who know me well will understand how unusual it is for me to write those words.)

I say this for two reasons.  First, though I largely agree with the conclusions of extant work on conflict management, I think there theoretical reasons to believe that these unhappy conclusions need not apply under certain conditions.  Second, I think those conditions may well apply in the current case.

Anna Pechenkina and I have a working paper in which we demonstrate formally that third parties can bring lasting peace by providing conditional subsidies, even if they fail to resolve the underlying information or commitment problems that can cause conflict.  They do so, quite simply, by raising the opportunity cost of war.  If you promise to throw a ton of money at people, but only if they don’t shoot each other, there’s a pretty good chance they won’t shoot each other.

That is, we think, exactly what the US did with Israel and Egypt.  In the second half of our paper, we argue that the reason why Israel and Egypt have seen nearly 40 years of peace, after fighting five interstate wars between 1948 and 1973, has less to do with Camp David and more to do with the dramatic increase in foreign aid outlays that began almost immediately after the Yom Kippur War.

Analyzing all contiguous dyads involving Israel from 1948 to 2001, we demonstrate that the number of Militarized Interstate Disputes (MIDs) involving the use of force that are initiated in any given dyad in any given year is positively associated with parity (which exacerbates information problems) and anticipated future shifts in power (which can induce commitment problems), but these relationships are conditioned by the total amount of economic aid provided by the United States.  In the presence of sufficiently high levels of foreign aid, the effects of parity and shifts in power disappear, and the predicted number of MIDs drops precipitously.

Of course, correlation is not causation.  To strengthen the case that the reason why Israel and Egypt have not fought another war since 1973 is because of the foreign aid the US has provided, and that the US has provided aid for precisely this reason (at least with respect to Egypt – there are of course other reasons for the US to provide aid to Israel), we also analyze the total amount of aid provided by the US to any given dyad in any given year.  We find that the amount of money provided by the US is significantly greater in years where observable factors would suggest that the risk of conflict would otherwise be great – but only after 1973, when we argue that the US experienced a large exogenous shock to its interest in stability (in the form of the OPEC oil embargo placed enacted to punish the US for its support of Israel in the Yom Kippur War.)

We also note that recent events support this interpretation.  Earlier this year, after Egypt’s ruling Supreme Council of the Armed Forces (SCAF) began cracking down on pro-democracy non-governmental organizations in Cairo, Representative Ron Paul and Senator Rand Paul attempted (unsuccessfully) to cut off all aid to Egypt (see here). The Muslim Brotherhood’s political arm immediately threatened to “revisit” the 1979 treaty with Israel if aid was to be cut off (see here), explicitly linking peace to the provision of foreign aid.  As the New York Times says, “Egyptians have long considered American aid as a kind of payment for preserving the peace despite the popular resentment of Israel.”

It is therefore quite interesting that though the recent ceasefire between Israel and Hamas is very similar to the one that followed Operation Cast Lead, this time around, as Haaretz reports, “Netanyahu received American compensation for his agreement to a cease-fire. President Obama…promised to increase U.S. military assistance to Israel, especially regarding the prevention of arms smuggling into Gaza…and to purchase more Iron Dome and other anti-missile systems.  According to the understandings, Israel has undertaken not to launch any attacks on Gaza – by land, sea or air – and to stop the assassinations of the heads of Palestinian militant groups and not invade any Palestinian-held land.”

To sum up, we see little reason to believe that the underlying issues have been resolved.  But conflict management can bring sustained peace even when it fails to achieve that lofty goal.  Simply by manipulating actors’ material incentives, specifically by raising the opportunity costs of war, third parties can bring peace in the long term.  We think the remarkable transformation of Israel-Egyptian relations serves as an example of this strategy.  That the US seems to now be mimicking the approach that brought peace between Israel and Egypt suggests that, this time, the ceasefire may bring more than a temporary reprieve.

Of course, that assumes not only that the United States will continue to offer even larger foreign aid disbursements to Israel than it has provided in the past, but also that it will make clear that (the increase in) foreign aid will go away if Israel renews hostilities in Gaza, and that Israel will consider such threats credible.  Threats to withdraw or reduce aid disbursements to Israel should Israel target Hamas again may or may not be as credible as threats to withdraw aid to Egypt should Egypt attack Israel.  If my (uncharacteristic) optimism proves unwarranted here, though, I would not interpret that as further evidence that mediation merely delays the inevitable.  The culprit will not be a fundamental shortcoming of conflict management so much as the inability of the US to credibly commit in this particular instance to subsidizing peace and punishing the breakdown thereof.