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Are Economic Sanctions Good Foreign Policy?

Discussants: Jake Colvin, Director, USA Engage, National Foreign Trade Council, and Simon Cox, Economics Correspondent, The Economist
Updated: July 27, 2007


With the United Nations discussing a possible third round of economic sanctions against Iran and the United States lobbying hard for tougher measures, the effectiveness of sanctions more generally remains a point of contention among policymakers. Some experts say trade bans serve as an important policy lever, allowing nations to unilaterally or multilaterally block funds from flowing to rogue regimes. Others argue that sanctions fail to squeeze foreign leaders while wreaking havoc on local communities that are not their intended target.

Jake Colvin, the director of USA Engage, a coalition established under the National Foreign Trade Council that promotes alternatives to unilateral U.S. economic sanctions, and Simon Cox, Economics Correspondent at the Economist, discuss the merits and drawbacks of different types of economic sanctions.

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Simon CoxJuly 27, 2007

Simon Cox

Iran allows only for different shades of pessimism. As you say, Iranians have only their government to blame for their current economic woes. Perhaps America should stand back and watch its opponent buckle, rather than propping it up with punches of its own. But I think the Economist hasn’t yet given up on China and Russia doing more to dissuade Iran. Their surprising vote for Resolution 1737, passed by the UN Security Council last December, was more significant than any of the mild sanctions the resolution contained.

One lesson of the scholarly literature is that by the time sanctions are imposed, they have probably already failed. If a country is ever going to fold, it will do so when sanctions are threatened, rather than waiting for the punishment actually to fall on its head. This, incidentally, means sanctions may be more successful than the Peterson Institute’s 19 percent figure suggests. That tally presumably misses a lot of cases when the mere threat of sanctions did the trick, without the sanctions themselves ever being needed.

Daniel Drezner of Tufts University had a paper a few years back arguing this point. As he points out, economic threats are often made behind closed doors and their success passes largely unrecorded. That makes it difficult for students of sanctions to spot them when they are working. One can only hope that some hard words are being spoken far from our ears between the leaders of China, Russia, and Iran.

That wish aside, I share much of your bracing skepticism about sanctions. If I were to express this skepticism crudely, I would say the problem with economic diplomacy is that it is carried out by diplomats not economists. They think of states as “unitary actors,” hence it makes perfect sense to them to disable a sewage plant in order to punish a dictator, because both are “Iraq” in their eyes. Because they do not understand how economies work, they fail to understand that sanctions can be both more damaging than one might expect—disrupting the delicate mechanisms by which a society provisions itself—and less effective—because, as you say, economies adapt.

To a diplomat, trade belongs to the “low politics” of profit not prestige. Economists, on the other hand, prize trade and are used to thinking about who gains and who loses from it. They understand that to let trade continue unimpeded is not to do nothing. International commerce can be subversive in its own way, nibbling at the cozy monopolies that sustain many powerful figures, imposing the discipline of the market on leaders accustomed to getting their own way.

Montesquieu put it best: “Peace is the natural effect of trade. Two nations who traffic with each other become reciprocally dependent; for if one has an interest in buying, the other has an interest in selling: and thus their union is founded on their mutual necessities.”

Jake ColvinJuly 26, 2007

Jake Colvin

It wouldn’t be a proper sanctions debate without a reference to sports sanctions. Well done.

The rub with the multilateral approach, which my organization favors as well, is that it is hard work to get countries like Russia and China on board with a meaty sanctions program.  Regrettably, successful multilateral diplomacy has not been a defining feature of the early twenty-first century.

Here’s where U.S. policymakers step in and point out that it’s too difficult to get multilateral agreement. Instead, they suggest extending U.S. sanctions to cover foreign companies, often forgetting that even our friends occasionally object to being told what to do. Much like over-prescribing antibiotics, the results of some of the morally- or politically-satisfying sanctions policies are that they actually may cause some harm in the end.

Let’s imagine for a moment though that we did succeed in having the world sanction Iran. 

To play devil’s advocate, adaptation and unintended consequences are hallmarks of even the most multilateral of sanctions programs. For example, South Africa developed coal gasification in response to sanctions.

Iran might learn to adapt as well.  Suggesting an oil embargo on a country awash in the stuff already has generated calls from within Iran to improve its domestic refining capacity.  At the same time, sanctions could allow the regime to shift the blame for gas shortages and rationing to outside forces, whereas now the Iranian people have only their government to blame.

What then? While sanctions may be a satisfying way for some to fill that pesky gap between denunciation and action, let’s remember that the policy crowd who brought you the war with Iraq is advocating for sanctions against Tehran as well.  If they fail, as they often do, it’s a lot easier to call for that air offensive.

Like I said, that’s just me playing devil’s advocate.

The truth is that the approach you and the Economist suggest is one worth pursuing as long as you can line up sufficiently broad support for sanctions.  Throw in those juicy carrots you suggest, and you have a couple of key ingredients that may change the calculus for some elements of the regime in Tehran.  As a result, you might actually change behavior.

One element is still missing, however, and that is a robust dialogue that includes the United States.  Historically, American leaders have talked with despicable or decrepit regimes, from apartheid South Africa to the Soviet Union.  Ronald Reagan demonstrated that it is possible to stand on conviction and still sit down at the table with your adversary.

Policymakers should make certain that their toolboxes include appropriate forms of engagement as well as the types of imaginative economic levers we have discussed over the past few days, instead of over-relying on the kind of “blunt instruments” that “make for botched jobs and unbothered dictators,” to quote your fine publication.

Simon CoxJuly 25, 2007

Simon Cox

It’s a pity Iran’s leadership does not share Kim Jong-Il’s taste for cognac and digital music.

The truth is that sanctions do, in a sense, work. They may not achieve their stated aims (at least not more than 19 percent of the time!), but for many politicians they do a satisfying job of filling the awkward gap between denunciation and action.

I’m tempted to say that commercial sanctions are the antibiotics of world statecraft, over-prescribed by lazy doctors, regardless of whether they fit the case at hand. I’m sympathetic to the Kimberley process, by contrast, because it offers an economic prescription for what is, at bottom, an economic malady. Greed not grievance sustained the fighting in Angola and Sierra Leone. Therefore, stifling diamond profits also slowed the bloodletting.

In other cases—you mention Iran—policymakers resort to economic tools to solve a political dilemma. But it’s very hard to know how a regime will weigh its political objectives against any economic penalties. A boycott of carpets and caviar, it is clear, will not persuade Iran’s regime to relinquish its nuclear ambitions. But would the loss of $10 billion of foreign investment make it think twice? $20 billion? No one really knows: what is the exchange rate between prosperity and prestige?

The lead editorial in the Economist this week urges the outside world to find out. It calls for sharper sanctions against Iran if it perseveres with its nuclear ambitions, as well as juicier carrots if it quits. Peter David, a colleague, has written a special report on the country. The report offers little comfort to hawks or doves. It made me more worried about a nuclear-armed Iran, but also more doubtful of the wisdom, let alone the morality, of a pre-emptive attack. Given those alternatives, sanctions, for all their flaws, might be worth tightening.

But what kind of sanctions? It’s easy to assume that Iran is impervious to economic pressure from a world thirsty for oil. In fact, the country is surprisingly vulnerable. For one thing, it is better at pumping crude than refining it. The country is therefore oddly dependent on imports of gas for its cars, motorbikes and trucks. Ahmadinejad recently imposed rations on subsidized gas, which sells for as little as forty cents a gallon. This provoked an outcry—it was a damaging deviation from the holy texts of economic populism.

The Revolutionary Guards, from which Ahmadinejad springs, have lost some of their otherworldly purity and evolved into a commercial mafia. The guards have their sticky fingers in lots of big infrastructure projects, which might be hampered by more thorough sanctions. Iran also needs foreign investment and technology to exploit its gas reserves and shore up its oil production. Without this infusion of foreign cash and know-how, its existing oilfields will run dry; its rigs and derricks will decay. By one estimate, it could be a net oil importer by 2010.

Should the world ban exports of gas to Iran? Such an embargo would be hard to enforce, and if it were successful would wreak economic havoc with unpredictable consequences. But deterring foreign investment in Iran’s oil and gas industries would have a more subtle effect on the regime’s long-term calculations. Iran would have to choose between a future as a nuclear power and one as an energy power.

If that is not a stark enough choice, the world could get really tough. According to one source, U.S. administration officials are even contemplating throwing Iran out of the next soccer World Cup!

Jake ColvinJuly 24, 2007

Jake Colvin

There are limitations built into even the most well-intentioned regimes.  Efforts like the Kimberley Process are only as good as their enforcement.  As groups like Global Witness have documented, getting governments, companies, and organizations to deliver on the promises they made has been a challenge.

There is also the question of targeting the right people. President Bush’s recent “Plan B” sanctions on Sudan missed a number of top government officials responsible for the genocide in Darfur.  And the Kimberley Process has been slow to include diamond traders and other handlers along the supply chain under its umbrella.

None of this is to suggest that policymakers should not try to pursue the more intelligent of these projects where the will exists; however, success will always be limited by incomplete participation and enforcement and incentives for unscrupulous or unaware buyers and sellers to deal in sanctioned goods.

Back to your more general point, you’re right—the more imaginative is often the most effective.  The prospect of losing a steady supply of iPods and Hennessey to pass around likely factored into Kim Jong-Il’s decision to return to the negotiating table.  Steven Spielberg’s recent missive to China’s President Hu asking him to use his country’s influence in Darfur, coupled with chatter of a boycott of the Beijing Olympics, led quickly to the appointment of an envoy to Sudan. If only there were more of this creative thinking when it comes to economic pressure.

Unfortunately, the imaginative Sanctions 2.0 approach that you commend is often jettisoned in a chest-thumping rush to be toughest on the bad actor du jour.  Ask a typical member of the U.S. Congress about sanctions as a foreign policy tool and you’re more likely to get an earful about being tougher on Iran than you are to hear about halting illegal exports of mahogany from the Amazon.

Too many policymakers care not for a thoughtful approach.  Rather, they believe, or at least propose, that just a bit more pressure, indiscriminately applied, will do the trick.  To suggest that banning the export of Iranian pistachios and rugs to the United States might topple the regime in Tehran, as some in Congress would have it, borders on the absurd.  While these policymakers may suffer from a lack of economic imagination, they are awfully creative when it comes to influencing the policy process.

Agreed that policymakers could be more imaginative and intelligent in applying pressure.  But given the penchant of many for blunt instruments, what can be done to differentiate and capitalize on this new generation of economic weapons? How do you contend with the one-size-fits-all, often-counterproductive approach, favored by many in Washington, which is frequently at the heart of the “sanctions-as-a-policy-option” debate?

Simon CoxJuly 23, 2007

Simon Cox

It’s customary in these debates to invoke Woodrow Wilson, so let me be the first to do so. He described embargoes and boycotts as a “peaceful, silent, deadly remedy.” It’s partly the silence that makes them so deadly. When a country bombs or invades its enemies, everyone pays attention. The costs and rewards of the venture are agonized over. But a big economy, such as America’s, can lay siege to a small one for years without its citizens paying too much attention to the embargo’s grim but unspectacular effects.

This is partly because people suffer from a lack of economic imagination. They can readily picture the damage of a bomb blast, but struggle to think through the indirect and insidious ramifications of a boycott. The sanctions imposed on Iraq in the 1990s, for example, made it harder to repair power stations destroyed in the first Gulf war. That, in turn, hampered the country’s water-pumping and sewage systems. Untreated fecal matter contaminated the water supply, exposing people to the fatal dangers of diarrhea and other waterborne diseases.

But what if policymakers were to use a bit of economic imagination? What kind of arrows could they pull from their quiver, as you put it?

It strikes me that you first have to know your victim. Does the regime owe its power to popularity, fear, or greed? If, like Saddam’s, it relies on fear, sanctions may only tighten its grip, as you rightly point out. Saddam Hussein was a tyrant who brutalized his own people. So how did anyone expect to hurt him by hurting them?

If, on the other hand, you face a popular regime, which sustains itself with broad taxes on a diversified economy, you have a different problem. To hurt such a government you would need a comprehensive cordon, and blanket sanctions inflict too much hardship on ordinary people.

But if a regime depends on straightforward patronage, distributing spoils to its backers, then it may be vulnerable to economic weapons. Such regimes usually rely on revenues from a finite number of commodities, such as oil, diamonds, or timber. If you can block its access to these honeypots, you might be able to cow the government without harming too many of its subjects. That, of course, is the logic behind things like the Kimberley Process, which try to keep blood diamonds off international markets, and the Forest Stewardship Council’s attempts to do the same for illegal logging.

I share your skepticism about the motives behind most sanctions, but what do you think of this new generation of economic weapons?

Jake ColvinJuly 20, 2007

Jake Colvin

It is understandable that sanctions are popular when it comes to making foreign policy.  Sanctions satisfy a powerful instinct to “do something” against behavior that is offensive or contrary to our national interests.

The trouble is that sanctions have a poor track record, they often hinder our ability to achieve foreign policy objectives, and their supposed successes are overstated. 

Sanctions rarely achieve their objectives, particularly when they are unilateral. The Peterson Institute for International Economics found that unilateral U.S. sanctions imposed from 1970-2000 were successful only 19 percent of the time.  Dictators are especially good at making sure the burden of sanctions falls to their people while they continue to pursue their priorities.

Sanctions can be counterproductive when it comes to achieving foreign policy objectives by providing a convenient excuse for the target government.  Cuba and Iran are just two examples where sanctions have rallied support for nationalistic regimes, which survive in part by allowing them to blame problems—largely of their own making—on the United States.

Additional difficulties crop up when sub-national entities like U.S. states take up foreign policy sanctions.  As the U.S. Special Envoy for Sudan Andrew Natsios said in April, “to have each state or municipality conducting its own foreign policy could create chaotic conditions.”

Where proponents of sanctions cite success, the reality is often more complicated.  Consider South Africa, where multilateral sanctions were only one part of a process that included sustained internal pressure and activism, diplomatic efforts, worldwide condemnation, and isolation from sporting events and global forums, which resulted in the collapse of an unsustainable system.  When it comes to judging the success of sanctions, correlation is different than causation.

True success may result from the threat of sanctions rather than their imposition.  In 1993, Guatemalan President Jorge Serrano Elías dissolved the country’s Congress and Supreme Court and seized power in a coup.  Faced with international pressure and a threat that U.S. trade preferences would be revoked, civil society and the business community (backed by the military) helped turn back the coup.  Unfortunately, once sanctions are imposed and the target country adapts to them, it is difficult to regain leverage to influence behavior.*

Certain sanctions deserve to be arrows in the quiver of foreign policy, particularly when they are multilateral and targeted at specific behavior that realistically may be influenced.  But while sanctions may have contributed to a few positive outcomes, they have failed spectacularly in a number of other cases and often do more harm than good.  Policymakers ought to consider whether they are really doing good—or simply feeling good—by imposing them.

* See U.S. Cuba policy for the past half-century.