Friday, June 6, 2008

Response to our article on sanctions and the cyclone

The following is an email in response to the piece on Our response is posted as a comment. Further input welcomed!


Though I agree wholeheartedly with much of what you say in your recent article in "Open Democracy" about the responsibility of the military regime in Burma for the appalling state of the Burmese economy, the problem I have with sanctions, as a political scientist is that in the case of Burma, as so often elsewhere, they have totally failed to achieve their objective. The regime is not responsive in ways which we might naively expect. They are eccentric, ruthless and uncompromising. The more sanctions are "tightened", the more counterproductive they become. Sanctions have indeed been an unmitigated disaster in inducing the regime to mend its ways and institute political reform. They have made them more entrenched, more recalcitrant and more removed from Western influences. Why continue with policies which have so manifestly failed? At least, put them quietly on the back-burner until we can think of something better.

The only sensible, indeed the only known study of the effect of sanctions on Burma in recent years has been by the House of Lords Economic Affairs Committee which concluded that they were frankly a waste of time. The reason why the US and EU have not published any assessment is that any independent report would be a sustained criticism, and this is not what the US and EU want. The European Parliament repeatedly calls on the European Council for an analysis of why sanctions are failing, never secures any response, but goes on to demand more. The medicine isn't working, indeed, it is making the patient worse, but nonetheless increase the dose.

The ability of the dictatorial regime to pass down to the long suffering population any "measures" supposedly directed at them, in a situation where they are totally cocooned from serious trouble by the dynamic, economies of China and India and are now earning some US$ 2.7 billion annually (Calendar Year ended 31 December 2007), likely to double when the gas pipeline to China is completed, frankly means that they are immune to significant deleterious effects. They are intensely irritated by them, but that is the extent of their problems. The effects all get passed down the ladder to the people, whose economy has stagnated as a result. You will be aware of Morten Pederson's views on how the population at large is affected by sanctions supposedly directed at the regime and their cronies. I agree with him.

I would like to wave a magic wand and see the SPDC gone. But the reality is that the military are bound to have a major influence on the body politic in Burma for the foreseeable future. So let us use the succession to Than Shwe to seek a more rewarding relationship, rather than expecting his successors to buckle and bend under Western pressures, which they will never do.

I thought the wedding of Than Shwe's daughter compared rather poorly with society weddings I have attended in Bangkok and Phnom Penh. Only some 150 guests, the champagne flowing less freely than I have seen even at my son's wedding in Tokyo a few years ago, and apart from those appalling baubles and contrived photographs, frankly nothing out of the ordinary in SE Asian terms, however inappropriate for long-suffering Burma. All in the eye of the beholder!

1 comment:

BEW Team said...

Obviously we are in disagreement. I note that you begin by saying that you accept the argument that the regime is responsible for economic conditions in Burma. Really? If so, most of your subsequent argument is, frankly, untenable. Leaving aside for one moment the question of whether or not sanctions can be the 'magic wand' that produces regime change, it is clear that much of your argument rests on the claim that, given the asserted
ineffectiveness of sanctions, the negative economic effects cannot be justified. Yet an acceptance of the
obvious fact that it is decade upon decade of economic lunacy in the policy sphere, up to and including the present day, that has produced Burma's abysmally low standard of living *precludes* you from claiming that "[the] economy has stagnated as a result" of sanctions, or that the 'medicine' is making the patient worse.
The fact is that Burma's per capita GDP was 1/8 - 1/6 of Thailand's in purchasing power parity terms *before* the imposition of any sanctions. Furthermore, the degree of policy ineptitude is comparable in both the pre and post sanction periods. Hence Burma's parlous position today. Your argument only makes sense in economic terms if
either a) Burma's economic performance pre-sanctions was significantly superior to its current performance so that
there was scope for the alleged negative effects of sanctions to substantially impact on economic conditions (a demonstrably false proposition) or b) that the long-standing and autonomously-driven policy vandalism will, if sanctions
are lifted, somehow disappear so that the (alleged) benefits arising from a sanction-free environment will bring about a significant improvement in the living standards of ordinary Burmese (not demonstrably false, but barely credible in that it requires a deus ex machina in the form of a Pauline conversion to policy rationality on the part of the regime). After all, if you accept that it is the actions of the regime that have produced the economic outcome, then you must also accept that a continuation of such actions will perpetuate the outcome. If you have an argument as to why removing
sanctions will lead to or coincide with a switch to appropriate economic policies in Burma, then by all means spell it out. If you don't have one (and you accept that their policies caused the problems) then you must really jettison the economic arguments against sanctions.

Furthermore, the idea (implicit in your case) that lifting sanctions would have significant positive economic effects is based
on economic misunderstanding. It is a common error to treat export earnings as if they were directly income for the residents of a country - hence the idea that allowing greater exports for Burma through the removal of sanctions will materially improve conditions there. The naive treatment of trade income as de facto national income is an old-fashioned idea, by which
I mean pre-1776, pre Wealth of Nations old-fashioned. It is also based on a failure to appreciate the meaning of balance of
payments statistics. We are used to casually referring to the value of exports as 'national' earnings, but countries do not earn, only organisational units and individuals do (i.e. the actual parties to transactions). Balance of trade figures record only
cross-border flows of funds from official transactions - if I were to suddenly take ownership of all exporting entitires in Australia,
then at the end of the year the trade statistics would, ceteris paribus, look no different (in terms of the value of export sales) but their economic implications would be utterly different. The benefits flowing to the rest of the population of Australia would be
determined by their economic relations to me - purely internal phenomena. Having no direct interface with the rest of the world the exposure of the economy to export earnings would be of marginal importance to their welfare. This is an extreme example,but illustrative of the fundamental point that the internal institutional structure of the economy (in terms of ownership and control of economic activities) is absolutely critical with regard to the welfare impacts of trade. Burma is much more like my extreme
example than the real Australia - as I noted in my article. The extent of direct and indirect military involvement in economic
activity in Burma (extending, as I noted, to access to foreign exchange arising from any independent activities) means that
restrictions on trade affect the SPDC and their cronies overwhelmingly, and that any benefits arising from the lifting of trade sanctions will overwhelmingly be appropriated by the same clique. Simply repeating assertions about the 'devastating'
impact of sanctions in wilful denial of this economic reality, as in the Lord's Economic Affairs Committee report,is jejune
(which is why I am both aware of and dismissive of the Pedersen position).

With regard to the 'magic wand' possibilities of sanctions, it is quite likely that sanctions will not produce regime change. Then
again, nothing has caused regime change for the past 46 years, so the failure to cause the downfall of SPDC is equally an argument against having no sanctions. Sanctions have an important punitive role to play in terms of limiting the benefits that the
regime can enjoy from their illegitimate monopoly of force. This is especially so in terms of the more recent targetted financial
sanctions that impact directly on individuals (which presumably, you would agree, would not have the 'trickle down' effects that you attribute to other sanctions). This may not cause the collapse of the regime but it prevents our countries from being directly
complicit in their criminal activity. You point to the need to plan for the succession to Than Shwe - can you explain why making
it easier to launder narcomoney and to distribute expropriated wealth to offshore bank accounts (for example) would enhance the
chances of a more liberal post Than Shwe regime? The military's monopoly of force underlies their rent extraction. Targetted
sanctions reduce the value of the mechanism by making it harder (not impossible, but harder) to fully enjoy the spoils. Removal of
such sanctions would make the control that exists more valuable and thus more attractive. As far as I can see, the more they stand to gain from being in control, the greater the incentive they have to maintain control. Your argument appears to be that giving them a greater scope for robbing the country will make them want to stop doing it, more golden eggs will mean that the next incumbent to the top spot will decide to kill the goose. As an economist I see no sense in that argument. Perhaps you can enlighten me. In any case, what is the moral justification for allowing the regime and its cronies to use our institutions to enjoy
their ill-gotten gains? Why should we make it easier for murderers to prosper, irrespective of whether refraining from doing so would
change their behaviour or not?