Public Disclosure Authorized Justice-Seeking and Loot-Seeking in Civil War Paul Collier Public Disclosure Authorized The World Bank Anke Hoeffler CSAE, Oxford This Draft: February 17th, 1999 Public Disclosure Authorized Public Disclosure Authorized The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the World Bank, its Executive Directors, or the countries they represent. Justice-Seeking and Loot-Seeking in Civil War 1. Introduction Civil war is both a human tragedy and a major impediment to development. Most of the world’s poorest countries are experiencing or have recently experienced such conflict. We use a comprehensive data set to identify its causes. We group potential causes into two categories: the quest for `justice’ and the quest for `loot’. Clearly, one motivation in rebellion is the alleviation of grievances, real or perceived. Most rebellions are ostensibly in pursuit of a `cause’. However, many rebellions also appear to be linked to the capture of resources: diamonds in Angola and Sierra Leone, drugs in Colombia, and timber in Cambodia. In some cases these two motivations become blurred: for example, in Colombia groups which initially claimed ideological motivation have transmuted into drug baronies. In Section 2 we develop a simple rational choice model of loot-motivated rebellion in which private costs are equated with private benefits, and propose empirically measurable proxies for its key variables. In Section 3 we turn to the more complex phenomenon of justice-motivated rebellions, distinguishing between the demand for justice, motivated by a variety of grievances, and the supply of justice determined by both private costs and the difficulties of collective action. We again propose empirically measurable proxies for the variables. In Section 4 we test a synthesis of the two models on a comprehensive data set of 152 countries for each of the six five-year periods between 1965 and 1995, giving a total of 1064 potential observations. For 53 of these observations the society was at peace at the start of the period but experienced civil war during it. We use probit regressions to explain these collapses into civil war in terms of characteristics at the start of the period. 2. The Looting Model of Rebellion We first consider the case in which the objective of rebellion is the capture of loot. We assume that loot is acquired during the process of rebellion rather than being dependent upon prior victory. For example, the rebellions in Angola and Colombia have remained economically profitable for very long periods despite having little prospect of military victory. If, instead, the capture of loot were to be contingent upon rebel victory, then both the expected duration of the conflict and the probability of victory would affect the probability of rebellion. In the present model we abstract from these considerations. In the looting model, rebellion is distinguished from violent crime only by the scale of the enterprises involved. At the `industry’ level, the presence of lootable resources of a particular value, N, supports looting, L, which in turn induces government resources to be devoted to protection. Protection reduces the returns to looting. The looting sector uses rebel labor, l, and the government uses defense labor, g, both looting and defense being subject to diminishing returns. L = L(l, g, N); Ll >0, Lg<0, Ln>0, Lll <0; Lgg >0 (1) In equilibrium, the marginal product of rebel labor for given g and N is equated with its opportunity cost. The marginal product of government defense labor, which is some fraction or multiple of the reduction in looting which it achieves, may be assumed to be equated with the marginal benefits of other government expenditure.1 Civil war as conventionally measured occurs if certain threshold rates of mortality are exceeded. A key analytic step is therefore to determine the military laborforce deployed in the conflict. In Figure 1 the space is the laborforce on each side in the conflict. We depict the Nash equilibrium laborforces for two levels of lootable resources, N0 and N1, N1>N0. The loci l(g, N0) and g(l, N0) depict the reaction functions of the rebels and the government for the lower level of lootable resources. An increase in lootable resources raises the productivity of looting labor for a given level of government deterrence and so shifts the rebel reaction function to the right. The increase in looting raises the productivity of deterrence and so similarly shifts the government reaction function upwards. An increase in lootable resources will unambiguously increase the equilibrium quantity of government defense labor. For a given size of rebel laborforce the productivity of looting has increased, so that the value of a given amount of deterrence increases. Further, since lootable resources are also taxable, the government’s tax revenue will increase, so that the opportunity cost of defense expenditure is reduced. An increase in lootable resources will normally, but not necessarily, increase the quantity of rebel labor. The direct effect is always positive through the increase in the productivity of looting at a given size of deterrence. However, a sufficiently large induced increase in deterrence expenditures may reduce the equilibrium size of the rebel laborforce. The death rate from combat, D, which is the observed variable in civil war, we will assume to be proportional to the product of the manpower on each side: D = a(g.l). (2) The definition of civil war used in quantitative measures includes the requirement that total deaths must exceed one thousand within a period of twelve months. In Figure 1 this condition is represented by the rectangular hyperbole, D1000. A second condition is that at least 5% of the deaths must be from each side, so as to distinguish conflict from one- sided massacres. If deaths are assumed to be proportional to the laborforce, then this condition defines a cone, depicted in Figure 1 by the rays D5% and D95% which show the two critical shares of rebel deaths in total deaths. As illustrated, the increase in the endowment of lootable resources shifts the country over the definitional thresholds and hence into civil war. This is not inevitable. Although, the death rate may normally be an increasing function of the endowment of lootable resources, it is quite possible that if 1 At one extreme the government could regard looting simply as a neutral transfer, so that the social costs would arise only from private expenditures upon protection. At the other extreme, the social costs of looting could greatly exceed the value of the property looted because of the undermining of trust in property rights. Since all that concerns us is the sign of the change in the size of government defense forces changes in response to the size of rebel forces and the endowment of lootable resources, it is not necessary to further specify the social costs of looting. 2 they increase sufficiently, the rebel laborforce contracts. As a result, either the product of the two laborforces, and hence the death rate could decline below D1000, or the composition of deaths could fall below D5%. A third component of the definition of civil war is that the rebel side should be composed of one or a few identifiable organizations. Hence, if looting is conducted only by small scale enterprises it will not be classified as a civil war even if the mortality rate conditions are met. Subject to meeting the mortality rate conditions, whether looting is classified as a civil war thus depends upon the market structure of the sector and this, in turn, depends upon its technology. We will assume that at the level of the individual enterprise looting is characterized by economies of scale. These arise because looting is dependent upon violence, and there are scale economies in the production of violence. A large group of rebels can outgun a smaller group. Given economies of scale, the equilibrium market structure will be monopolistic: the sector will consolidate to a single looter. The size of the monopoly enterprise will be limited by diminishing returns at the industry level, arising from the endowment of lootable resources, which functions as equivalent to a demand constraint. There will thus be a single looting enterprise pitched in violent conflict against government defense forces. Of course, in practice much looting is conducted by small scale organizations. Our assumption of scale economies is meant to demonstrate not that all violent theft must be large scale, but that with reasonable assumptions, the motivation of looting can generate behavior which will be classified as a civil war. Figure 1: Nash Equilibrium in the Looting Model for Two Levels of Lootable Resources D5% g(l, N¹) g l(g, N¹) l(g, Nº) g(l, Nº) D95% D1000 l 3 Empirically, we will proxy loot by the share of natural resource exports in GDP. Natural resource exports are the mainstay of tax revenue in low-income countries, because they are readily taxable. Production is inelastic with respect to taxation, either because the capital stock is fixed so that marginal costs are low, as with coffee and rubber, or because there are huge profits from the control of marketing channels, as with surface diamonds and drugs. In other cases the asset stock can be directly taxed and depleted over a period, as with timber. The characteristics which make natural resources readily taxable by a government, also make them readily lootable by rebels. In equilibrium, the returns to participation in rebellion will be equated with its opportunity cost, C. The opportunity cost of participation in rebellion thus acts as a constraint upon the rebel leadership, raising the cost of labor to the rebel enterprise.