Political Economy of the international Intervention in Bosnia and Hecegovina

Manuel Mahler-Hutter
Introduction
Peace, democracy, prosperity, stability and growth are the foundations of modern, western-styled democracies. These basic principles are the result of a long, intrinsic process of state-building, democratisation and liberalisation in the so-called western countries. When it comes to exporting these ideals, when it comes to westernisation of transforming countries, there is a contradiction between the path and the goal, namely: liberal means with as little of non-market inuences in economic life as possible; democratic means the political order and its actors are to be chosen by the people of the country. By forcing countries into westernisation,the bureaus and governing bodies and ocials as well as the noise that surrounds them produce exactly the opposite: a country that is de-facto externally ruled and its economy largely disturbed by the external intervention. The idea of a state failure has been discussed in economic literature for a long time[20], the idea of the state intervening in the economy and therefore disturbing the invisible hands equilibrium that would seem to be the optimal outcome. The state failure might become a UN/NATO/internationalfailure, when it is not the state, but external actors trying to set up the prosper, liberal democratic country, as economic development typically in-

volves working within given political and economic structures to bring about growth. Reconstruction typically involves a drastic change.... in the political structure[8] The nature of the intervention might therefore inevitably constraint its own goal. The current constitution of Bosnia and Hercegovina dates back to the year 1995, when the Dayton Peace Agreement was signed by the presidents of BiH, Serbia and Croatia. This peace agreement, aimed to set an end to a long and bloody war is still the foundation of the bureaucratic order of Bosnia and Hercegovina; the de-facto protectorate became the permanent structure of BiH. The High Representative of the United Nations, also acting as the European Unions Special Representative has the last authority in every lawmaking in Bosnia and Hercegovina. Additionally the so-called international community maintains a strong presence in the country and became also - directly via aid and indirectly via demand an important player in the Bosnian economy. This paper tries to examine some political and economic consequences of the international intervention in BiH and highlights some aspects when trying to establish a liberal democratic country, based on market economy and doing so by putting a non-democratic position on the top of political hierarchy and disorting the economy by very strong international bureaucracy and aid.

The political Economy of post-Dayton BiH The state and political reforms
State plays the major role in any reform process. Because of that, a much wider concept has to be used than that of a provider of public goods, although that remains to be one of its crucial functions.[16] On the other hand the state intervenes in economic life by levying taxes, subsidizing, acting as supplier and demander and it does all this while be-

ing unable to engage in economic calculations and therefore suerimg from severe ineciencies.[9] Namely the state is one of the main sources of rents existing in an economy and these rents do not only change the economy directly but also indirectly by changing the behaviour of the economic actors. It might become, given the relative attractiveness, the most attractive form of economic action to become a rent-seeker and not to engage in productive areas of economic life[11]. The economy might become a renteer economy, where every senseful economic activity includes the competition for the rent that exists not due to a market outcome but due to the transfer of funds[19]. BiH is a very special case when it comes to rents. The rents in the country have two main sources: The international aid and presence and the black market (that produces rents f.e. simply by not paying taxes). The war had without discussing that point in detail - at least an ethnic component. By the cementation of the ethnic separation via the Dayton peace agreement, this ethnic separation became a very valuable thing for the political elite (which might be similar to the economic one): The aid depends on the conict, i.e. the rents depend on the conict. Since rent seeking is the most protable form of economic action, the source of the rent might be kept alive only for the purpose of further extracting a part of the rent[22, 13]. Another possibility to create rents is the complex governmental system. The idea is straightforward: If all laws were 100% clearly formulated and the responsibilities among the bureaucrats were perfectly assigned, there would never be a possibility for bureaucrats to extract bribes, as it would simply lack the discretionary power to do so. Another eect of unclear rules and responsibilities is the informal regulation of entry[11]: By putting high hurdles and unclear regulations for wanna-be entrepreneurs or foreign investors who are about to invest in BiH, the local market and therefore the proers stay relatively protected. The state in the Weberian sense means the monopoly of the legitimate

use of force[16]. Additionally, ecient economic and scal policy requires the majority of people having regular and legal relation with the government as tax payers, consumer of public goods etc.[13] The public goods of BiH are to a large part either directly provided by the international community (as security) or, at least when they aect the daily life of a citizen, are provided by the - ethnically divided - entities of Federation and Republika Srpska or cantons. Therefore the political actors are very much interested in maintaining the current order and not moving forward towards less frictions within the countrys entities.

Institutions
The layout of institutions in a country are crucial to both, political and economic progress of a country. The institutions are normally founded and assigned by the people or their representative. In Bosnia on the contrary, they were designed by international experts during the Dayton Peace talks. The strength of externally determinated institutions is generally lower than of those formulated by the people[19]. Besides the fact that those experts were international and not Bosnian, experts tend not to represent the average population, as the average population is not an expert in institution-building. A, practically maybe irrelavant, but symbolically very important restriction of the sovereignty of BiH, though not formally touching it, is Bonn Powers, t.i. that the high representative has the last say when it comes to any law, by-law, dismissal or appointment of politicans or bureaucrtats. It is clear that this weakens all layers of government in BiH, and are incompatible with international eorts to build democracy and the rule of law, and that this is independent of the best intentions of your oce to help Bosnia on its path to Europe.[15] The argument for the heavy intervention of EU in Bosnia is the immaturity of both, politicians and voters; The electoral immaturity or the manipulation of the elections by the political elites would lead to outcomes

that would not express the voters will.[5]The reason is found, even by the current high representative, Valentin Inzko, in historical path dependencies, dating back to the Ottoman empire, that is the source of the missing democratic capacity and the disappointing political progress since Dayton peace agreement. [24] Path dependencies are a convenient argument as they can neither be proven nor can the EU intervention or the current high representative be responsible for the missing progress. As personally observed, even when perfectly speaking the language and theoretically knowing the political trends in a foreign country, one never understands what is really going on, how the people really feel, think or what do they need. The EU bureaucrats try to ll their information deciencies by strong ties with the civil society, additionally building up informal institutions that could supplement the weak formal ones. NGOs would, instead of elections, which would face the problems as described above, show the real will of the people of Bosnia[5]. Supporting NGOs would supply the international experts with information and build a strong and critical counterpart to politics within the state, take care of independent media and guide the societal transformation towards a liberal democracy. However, especially by actively funding the NGOs, which again should per denition be founded by the popular will of a larger amount of citizens, the international interventions actions may have adverse eects; namely the objectives of the NGOs would be adjusted to the presumed expectations of the foreign donors, as in who has the gold makes the rules. Global trends in NGO activities would be incorporated in the NGOs no matter whether they make sense or are in line with the original purpose of the movement[18]. The more professional NGO, and not the one better representing the need of the people would be funded. This NGO funding is another source of rents in BiH that might attract smart and educated people who will compete for it instead of engaging in

productive economic sectors, as there might be fewer competition from less educated people, due to their lack of professional, presentation and/or language skills. Rather than legitimize its policy making on the basis of representative legitimacy, the EUs framework of good governance undermines Bosnian autonomy and self-government by prioritizing administrative and regulative frameworks above democratic choices[5]The EU focuses on this formal and administrative layout, the good governance, rather than active policymaking, good government as a mean of state-building. As Chandler (2009) puts it, BiH in fact is the rst genuine EU state, as it transferred, more than any EU-member its sovereignty to EU institutions. Formally, when it comes to modern constitution, human rights and institutional layout, BiH is maybe the ideal EU-country (nowadays competing with Kosovo). However, laws do not form reality; and in Bosnia, one could add, laws have nothing to do with reality. BiH is not a member of the European Union; the EU as the strongest political player in BiH is in the position to move the country towards the EU acession; tting it to the standards, it setted up for becoming a new member states[5].

Cladenstine Economy
As Gordon Tullock puts it, political relations are based on a superior-subordinate relationship whereas economic relations include the free trade among equals [23]. Large proportions of the war nancing was possible only by criminal acts such as smuggling, theft and black market trading[1]. After the war, many war proteers succeeded to convert their criminal capital accumulated during the war into political capital after the war; they are now in leading political positions, or have at least large inuence, as economic actors in free trade. As the sharp distinction according to Tullock can not be drawn in Bosnia and Hercegovina (like in many post-socialist countries) and as prop-

erty rights are weak, economic actions with a politically stronger partner always include the threat of bad treatment by ocials without legal cause but based on the inuence of the stronger counterpart. As the institutions in Bosnia are still, and since war have been, weak, the maa could survive and ll the gap by privately oering public goods such as the enforcement of contracts or security to economic actors. The weak institutions furthermore leave enough room for other rent-seeking activities by using the price gaps between ocial and inocial markets such as smuggling or simply by engaging in criminal activities like drug dealing[13]. Maa organisations are typically ethnic organisations (Italian, Serbian, Russian etc. Maa); the ethnic separation of post-Dayton Bosnia therefore prepares the ground for ourishing Maa structures that further establishes the ethnic identity the most important one.

Conclusion
The Dayton peace agreement made the ethnic separation in Bosnia and Hercegovina a constant one. This separation is reected in the political, economic and criminal layout of the country. As Robert Axelrod [2]showed in the rst part of his great book, there must be something like a law-by-nature, that cooperation leads to the for all parties most benecal outcome. However, cooperation needs coordination, and BiH is stuck in the ethnic separation and mistrust among the ethnic groups. The ethnic separation has become the economic rationale for the political and economic elite of the country, which makes interethic cooperation nearly impossible. The international community ended a bloody war by its intervention ; their subsequent eorts in state-building did however have bad impacts on both, the political and economic life in Bosnia and Hercegovina. The main political inuence is achieved through the almost allmgighty

High Representative, who, though not formally elected by the people, has the absolute power in the country and is not responsible to any elected body within BiH (or somewhere else, to be more precise). This heavily aects the sovereignty of the country and leads to a questionable sensefullness of public elections, as the input (elections) does not lead to the natural output (the highest level of government). The complexity of the constitution and governmental layers lead to a high amount of political positions that do solely exist due to the ethnic separation and the high international funding of BiH is coming from the international attention and would vanish without ethnic conicts. The incentive for the politicians to maintain this structure is therefore high, as it secures their positions more than political reforms. The largest part of public goods is provided either by the international community or the entities; a strong central state would reduce both sources. The economic elite, that is heavily connected with the political elite, has no incentive to change the current status since it is the source of the majority of the rents in BiH. The direct rents are from the funding of the European Union for Infrastructure, education or the civil society. The complex government leaves room for politicans and bureaucrats to extract bribes and regulate the entry for possible foreign investors. The clandestine economy can ourish due to the unclear responsibilities and high discretionary power of the lowest levels of government. When evaluating why the building of a strong and prosperous Bosnia and Hercegovina has been failing for such a long time, at least one possible part of the explanation could be that the intervention and its direct and indirect eects lead to problems in proper development.

References
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