The Folly of Economic Warfare

Doug Bandow, a nationally syndicated columnist, is a senior fellow at the Cato Institute and the author and editor of several books, including Tripwire: Korea and U.S. Foreign Policy in a Changed World.

Belgrade, Yugoslavia—“What we say goes,” was George Bush’s famous remark after the Gulf War. That remains American policy, and U.S. policymakers are increasingly using economic sanctions to enforce their will. Burma, Cuba, Iraq, and North Korea are ongoing targets. An odd coalition of religious conservatives and human-rights activists wants to hit China with huge trade barriers. And Washington is threatening to reimpose restrictions on Yugoslavia unless it abandons its crackdown in the province of Kosovo.

But Yugoslavia demonstrates the limits of sanctions. The United States and Western allies isolated the Serb-dominated state during the lengthy Bosnian civil war without effect. They imposed bans on air travel, investment, and trade. But nationalism proved to be more powerful than economics. Only exhaustion and threatened Western military intervention on behalf of the Muslims led to the Dayton Accord and the preservation of a united Bosnia hated by all three resident ethnic groups.

Yugoslavia was once the most advanced nation in Eastern Europe, the state with the freest economy and greatest autonomy from the Soviet Union. In the late 1980s it “was a model of economic development for Eastern Europe,” says Slobodan Brkic, a British-trained analyst with the Yugoslav Democratic Party.

But the economy has since collapsed; the country’s industrial production has fallen to 1952 levels. Yugoslavs are poorer even than the Bosnians, who only recently emerged from the horrors of civil war.

Sanctions were only one reason for Yugoslavia’s economic implosion—the disintegration of the multi-ethnic state, the effects of war, and the end of the Communist Comecon market were others—but they are an important one. In that sense, they weakened the Yugoslav state.

However, sanctions had no discernible impact on Belgrade’s policy.

But sanctions are not merely ineffective; they are usually counterproductive. President Slobodan Milosevic has so far escaped widespread blame for the economic chaos. He’s the “Teflon president,” explains one American observer. Indeed, sanctions actually strengthened the Milosevic regime. “The government loves sanctions,” explains Filip David, editor of the magazine The Right to Pictures and Words. Democratic leaders in Yugoslavia, despite often difficult dealings with each other, agree that Western economic controls benefit the oppressive regime and make their opposition more difficult.

Western economic restrictions without doubt enriched those in power. Average people suffered from mass unemployment and underemployment, hyperinflation, and financial chaos, but smuggling and black-market activities provided enormous profits for the well-connected. With sanctions “the gold is everywhere. They control the black market completely,” says David. “People become enormously rich.” He adds that the people in the regime “don’t need a good economy, they need the black market.”

The beneficiaries were Milosevic’s family and friends, who sent their money abroad, say opposition activists. This economic elite even used the sanctions to justify that conduct, observes David.

Sanctions also concentrated economic power in the hands of the government. Zoran Djindjic, a leading opposition figure, explains that “sanctions lead to centralization of the management of the economy.” That obviously strengthens the state. Central control reinforces the people’s dependence on the regime. And dependence cripples opposition activities. Djindjic notes that independent businesses and professionals have disappeared. “Our only support is from people who are independent in their businesses” since they are least subject to government pressure, Djindjic says.

Indeed, economic war from the West largely eliminated the indispensable constituency for liberalization: “The middle class is completely destroyed,” says David. “It doesn’t exist. Professors at universities, doctors can’t survive.” Brkic goes so far as to argue that “Milosevic’s path to power was paved with the destruction of the middle class.”

Thus impoverishing people for the actions of their rulers is not just bad moral policy. It is also bad politics. Notes Djindjic, sanctions “damage the democratic opposition.” As people are made poor they tend to concentrate on trying to survive rather than on promoting political reform. “All classes of civil society are ruined,” he says. Djindjic says that his party has even had to pay for the gasoline of party members so they can attend meetings, since they can’t afford to do so.

Finally, and perhaps most important, sanctions have given Milosevic a convenient scapegoat for the impact of his policies—his “continual campaign for a lesser Serbia,” as one wag in Kosovo, now under pressure from secessionists, puts it. “Whatever the problem—health, education, etc.—his response was that it resulted from the undeserved sanctions,” explains Vesna Pesic, president of the Civic Alliance of Serbia.

Throughout the Bosnian civil war, sanctions helped the Milosevic government rally support. “It seemed unpatriotic to attack Milosevic,” explains one American in Belgrade. And now there is “this feeling that he’s defending Yugoslavia against outside pressure.” Pesic says the sentiment is widespread that “someone is torturing us. They don’t want to be Western slaves.” Nationalism succeeds because, as Dragoljub Micunovic, president of the Democratic Center Party, observes, “unfortunately, we are not dealing with any kind of rational elements.”

Having recently been relieved of the burden of Western sanctions, Yugoslavia is no longer on the economic brink—ten-Dinar notes are back in circulation, replacing the ten-billion-Dinar notes issued during the hyperinflation of the early 1990s. Belgrade has cracked the door open for a bit of foreign investment, and goods are far more plentiful than they were four or five years ago.

At the same time, democratic currents are stirring: opposition leaders led massive protests that overturned electoral fraud in municipal elections in 1996, and a Milosevic antagonist has won the presidency of the Yugoslav Republic of Montenegro. Police are refusing to serve in Kosovo, and parents are protesting the stationing of their conscript sons in that province. A bloody debacle in Kosovo could spark dramatic change.

Reimposition of sanctions—Western states are currently planning to block new investment and revoke landing rights for JAT, Yugoslavia’s national airline—would do more harm to the opposition than to Milosevic. He will appeal to Serbian pride by “saying no to America, to the outside world,” says Pesic. “Now the situation is a bit better,” worries Djindjic, “but soon it could get worse.” Micunovic says new sanctions would “definitely retard the development of anything progressive.”

Solutions for Kosovo are hard to come by, but launching a new economic war on Yugoslavia is not one of them. Unfortunately, observes Filip David, “if we are not ready and capable of changing things here, then no one outside can.”