The Pandemic Depression
The Global Economy Will Never Be the Same
It was 20 years ago this month that Europe saw the worst crime on its soil since World War II. From July 11–13, 1995, the Bosnian Serb Army methodically executed approximately 8,000 Bosnian Muslims after conquering the UN-designated “safe area” of Srebrenica. The genocide in Bosnia was particularly shocking because it occurred less than one year after the 1994 genocide in Rwanda, during which members of the Hutu majority killed approximately 800,000 people in a gruesome ethnic cleansing campaign against the Tutsi minority. Their civil wars and genocidal violence left both countries severely damaged and traumatized. The United States and its allies dispatched their best diplomats, military commanders, and development experts to Bosnia to devise and implement the Dayton Accords, whereas Rwanda was largely left alone to determine its political future. Twenty years later, Rwanda is frequently cited as a success story and Bosnia is widely viewed as teetering on the brink of renewed violence.
A comparison of the socio-economic recoveries in Bosnia and Rwanda reveals important lessons for the aftermath of civil conflicts from Syria to Iraq and Sudan, which have been rife with atrocities against ethnic and religious groups. Ultimately, these countries will have to find a path toward recovery and reconciliation, and the international community must decide how it can help in that process.
At first glance this might seem like a comparison of apples to oranges: Bosnia is a European country; today, it directly borders the European Union, whose 28 members’ combined GDP represents the largest economy in the world. Rwanda, in contrast, is located in sub-Saharan Africa, the most economically underdeveloped region of the world. Western policymakers and scholars have long rejected any comparisons between the two countries, a reflex so prevalent that it was mocked in Danis Tanović’s Oscar-winning film on the Bosnian War, “No Man’s Land.” In the movie, a Bosnian soldier reads the newspaper in the middle of a bloody, utterly senseless skirmish with the Bosnian Serb army and exclaims, “What a mess in Rwanda!”
Compared to other former Yugoslav nations, Bosnia’s economy has grown sluggishly and its unemployment rate is estimated to be nearly 45 percent.Even so, World Bank data shows three similarities between Bosnia and Rwanda that are relevant when evaluating recovery after a genocide: size, economy, and aid. Both countries are small and essentially landlocked. Their population sizes of approximately 3.5 million (Bosnia) and 5.5 million (Rwanda) were similar in the mid-1990s. They had roughly comparable GDPs when their genocides occurred: In 1995, Bosnia had a GDP of $1.9 billion, and Rwanda’s was $1.3 billion, both had GDPs per capita that placed them among the poorest 25 percent of all countries. The total amount of foreign aid received by the two countries from 1995–2014 was remarkably similar (Bosnia: $12.3 billion; Rwanda: $10.9 billion), suggesting that their recovery speeds do not merely reflect inequity in international aid.
Despite these similarities, the countries’ socio-economic recoveries have produced starkly different, and rather counterintuitive outcomes.
Compared to other former Yugoslav nations, Bosnia’s economy has grown sluggishly and its unemployment rate is estimated to be nearly 45 percent. According to the international watchdog Transparency International, the country has one of the highest levels of corruption in the Balkans. Its ethnic groups remain deeply divided: the country’s national anthem still has no lyrics because the different groups cannot agree on them.
By contrast, post-genocide Rwanda has been described as a “beacon of progress” on the African continent. Investments in infrastructure, education, and healthcare have driven remarkable growth. While starting from a low baseline, Rwanda’s average annual growth rate was 14 percent from 2003–13, making it one of the fastest growing economies in the world. Its government cites full employment; however, because many Rwandans still work in subsistence farming it is hard to compare this figure to data from more developed countries. Its corruption levels are among the lowest in the region and in Transparency International’s 2014 Global Corruption Perception Index; Rwanda was rated 55out of 175 countries, far ahead of Bosnia, ranked 80. Ethnically-charged violence is now extremely rare.
One potential explanation for Rwanda’s comparative success is the effectiveness of foreign aid in each country. Although foreign aid has generally declined in importance across the developing world in recent decades, it is still crucial for war-torn countries. In the early phases of recovery, these countries depend on international development financing because their domestic revenues are minimal and they attract few foreign direct investors. Many donors assume that the more foreign aid they provide to a post-conflict country, the quicker it recovers. Analyzing data from the World Bank, we indeed found a strong positive correlation between the amount of aid and economic growth in Rwanda. However, for Bosnia we found the opposite: a negative correlation between foreign aid and growth.
Thus, in Bosnia, receiving more international money was accompanied by slower rather than faster growth. Although many factors might be at play, it is very plausible that corruption lowers the effectiveness of aid. When we used the available annual Transparency International scores to control for the different corruption levels of the two countries, there was no statistically significant impact of aid on economic growth.
More broadly, the difference in the Bosnian and Rwandan recoveries is arguably rooted in the countries’ political systems, which have promoted different levels of government effectiveness. In Bosnia, the 1995 Dayton Peace Accords created an ethno-federalist political system. This divided the country into ethnically segregated entities, with three presidents who represent each ethnic group and rotate the head-of-state duties every eight months. Each has de facto veto power over any legislation, which has led to frequent political gridlock. Although intended to keep the peace and provide space for reconciliation, this unwieldy system has resulted in bureaucratic inefficiency and enduring ethno-politics, providing few incentives for reform and slowing Bosnia’s recovery. The International Tribunal for Yugoslavia has been widely criticized for being politicized and ineffective, and local efforts at reconciliation have remained largely unsuccessful.
Twenty years after Bosnia and Rwanda, it is clear that political choices matter. Bosnia’s experience suggests that ethno-federalism freezes existing ethnic divisions and promotes corruption, which stymies economic growth.In Rwanda, the Rwandan Patriotic Front (RPF) and its leader President Paul Kagame, whose military victory ended the 1994 genocide, dominate politics. Ethnic groups are constitutionally prohibited from organizing as political parties, which has prevented ethnic polarization. 64 percent of its parliamentarians are female, which is widely linked to the promotion of gender equality. Although the International Criminal Tribunal for Rwanda has faced criticism for its failure to address crimes committed by the RPF, community courts have tried hundreds of thousands of genocide suspects in the past decade in a historically unprecedented grassroots effort at reconciliation. Its political stability and effective provision of public goods have created one of Africa’s best business environments, and in a region marred by poverty and armed conflict it stands out as a socio-economic success story.
Twenty years after Bosnia and Rwanda, it is clear that political choices matter. Bosnia’s experience suggests that ethno-federalism freezes existing ethnic divisions and promotes corruption, which stymies economic growth. Even if there existed no feasible alternative to Dayton in 1995, the system should have been designed to incentivize reform by including lower thresholds for decision-making and by linking aid to reform. Today the Dayton system has become engrained and Bosnia has become a cautionary tale demonstrating the pitfalls of overambitious, externally driven nation-building. In contrast, Rwanda’s efforts to move beyond ethno-politics and its commitment to investing in infrastructure and human capital show that forward-looking choices can make a huge positive difference regarding a war-torn country’s recovery. However, Rwanda’s government still needs to show that it is able to build not only effective but also increasingly inclusive political institutions. Otherwise, the country’s social contract—prosperity in return for largely unrestrained political power for the RPF—will remain fragile.
Finally, there are important lessons for the international community’s efforts to assist countries during post-conflict recoveries. In the absence of effective political systems and the presence of moderate levels of corruption, international aid tends to be a curse rather than a remedy. International agencies should pay more attention to the creation of sustainable and accountable institutions in post-conflict societies, which enable severely war-torn countries to chart their own path to recovery.
The future holds significant challenges for both Bosnia and Rwanda: In Bosnia, polarized ethnic groups must find the political will to reform their nation’s dysfunctional constitution. In Rwanda, Kagame’s last constitutionally mandated term ends in 2017, and the architect of the country’s miraculous recovery will have to demonstrate that he is willing to allow a transition to a system that guarantees political freedom and human rights. The international community could help in both cases by linking future aid to meaningful political reform. If both countries fail on these crucial tasks, the third decade of their post-genocide recovery is likely to see the reemergence of ethnically-driven violence. Should they succeed, however, each could usher in a new decade of peace and prosperity.