Economic sanctions: a menace to national competitiveness

Citation

Ali, A.J. (2012), "Economic sanctions: a menace to national competitiveness", Competitiveness Review, Vol. 22 No. 3. https://doi.org/10.1108/cr.2012.34722caa.001

Economic sanctions: a menace to national competitiveness

Article Type: Economic sanctions: a menace to national competitiveness From: Competitiveness Review: An International Business Journal, Volume 22, Issue 3

Debates about the merits of free trade have intensified as economic globalization has steadily engulfed the globe since the collapse of the Soviet Union. There were those who claimed that free trade was destined to bridge global misunderstanding and initiate an era where the common denominator to unite people across the globe was shared trade benefits. This was reinforced with the establishment of the World Trade Organization (WTO). Indeed, this induced many quarters in the world to think that the days where trade would be used as an instrument of politics was part of history. This very enthusiasm manifested an acknowledgment that civilization under the Cold War and the immediate era before it experienced major setbacks and went through devastating events.

In Vol. 20 No. 5, we made an argument that economic sanctions contradict global logic. This is not only because economic sanctions impede free trade and the quest for economic freedom but because they lead to trampling personal liberties and eroding competitiveness. In our defense of free trade we have been driven by two principles: in regards to current global conditions, free trade represents the best possible economic system capable of reinvigorating human ingenuity, and a free trade regime offers optimal conditions to safeguarding personal freedom. This personal liberty is more likely to find expression in business and intellectual endeavors.

Scholars in business and organization studies have constantly overlooked the detrimental effects of economic sanctions in the global marketplace and accordingly seldom tackled the subject adequately. This is because these scholars are either averse to risks associated with a subject that is intimately intertwined with national politics or because business scholars are trained in a narrow field and fear to venture into an interdisciplinary subject. Though economic sanctions take different forms, all have unspeakable consequences, especially on ordinary citizens. Viewed strictly in this context, economic sanctions are a threat to the way of life to those who are subjected to them. From far away, economic sanctions can seem to be an exercise of power used to reverse a bad action or behavior. But this is far from true. No one understands the depth and scope of destruction that is generated by economic sanctions except the people who experience them.

As human beings, we are accustomed to welcoming good news and shying away from hearing bad news. However, in the face of powerful propaganda, intense media campaigns, and nationalistically charged environments, we tend to forget who we are and to demonize the people with whom we do not agree, even though these people are hopeless, do not harbor any prejudice or have any ill feelings toward us. A case in point of such a ruthless attitude is Madeleine Albright’s response to Lesley Stahl of CBS’s “60 Minutes.” Albright, then US Ambassador to the UN, was asked by Lesley Stahl on May 12, 1996:

We have heard that a half a million children have died [resulting from economic sanctions against Iraq]. I mean that’s more children than died in Hiroshima. And – you know, is the price worth it?

Albright was straightforward in her answer and never hesitated to be combative and aggressive stating, “I think this is a very hard choice, but the price – we think the price is worth it.”

Of course Albright represented the most powerful nation on the globe and was the one who, in her capacity as the spokesperson of US foreign policy, proudly stated, “If we have to use force, it is because we are America. We are the indispensable nation. We stand tall. We see further into the future.” Albright spoke frankly about American exceptionalism and viewed intervention in other nations’ affairs as part of being a “global leader.” However, both quotations reveal a disturbing tendency when power is used without a sense of humility, history, and responsibility. This precludes policy makers from pondering the social and economic implications of their actions, especially for developing countries (Albright, 1998).

It is impossible to accurately know what was on Albright’s mind when she justified the human costs of the economic sanctions. However, when economic sanctions are utilized as instruments of national politics, the outcome is absolutely catastrophic. The case of Iraq is illustrative of the scope and depth of the economic destruction that has been inflicted on the country due to US led economic sanctions.

After years of being away from Iraq, in 2010 I visited the country; the economic ruin is widespread. The landscape in Baghdad has drastically changed. Two main commercial areas, al-Rasheed Street and al-Sadoon Street, had once been thriving business areas surrounded by supporting suppliers and warehouse and transportation facilities. Al-Rasheed Street was built just around the turn of the twentieth century and was a bustling trade center where Iraqis and the rich and famous from around neighboring states shopped for luxury items. Al-Sadoon Street was built later and consisted mostly of commercial offices and stores that carried high-end commodities. Upon my visit, both areas were unrecognizable. Iraqis indicated that the crumbling of both commercial centers accelerated just after economic sanctions were imposed in late 1990. As upper and middle-class people left the country seeking better opportunities overseas, the high-end stores disappeared and most of the area has since become slums where dealers in second-hand goods dominate the place. The migration of the middle-class shattered the Iraqi economy and transformed it from a thriving country to a poverty and disease-ridden society.

While economic sanctions are obstacles to free trade, in the context of competitiveness they create an environment that severely limits economic growth, innovation, and the capacity to organize and deploy resources effectively. Indeed, subjecting Iraq to economic sanctions is a valuable lesson on how devastating those sanctions can be and how their impact is comprehensive resulting in unspeakable horror of human suffering and death. In terms of national competitiveness economic sanctions lead to:

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  Forcing middle and upper class people to leave their countries. Within just a few years the Iraqi middle class, for example, escaped en masse leaving behind their businesses which led to crippling the economy and an unprecedented high rate of the unemployed. The New York Times recently reported that the latest sanctions by the USA against Iran:

  […] has begun inflicting exceptional damage on Iran’s private sector, traders and analysts say, making it so hard to transfer money abroad that even affluent businessmen are sometimes forced to board planes carrying suitcases full of American dollars. Yet this economic burden is falling largely on the middle class, raising the prospect of more resentment against the West (Worth, 2012).

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  Accelerating a feeling of disenfranchisement and often psychological alienation of whoever is left of the middle class and intellectuals in the targeted country.

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  Disturbing maintenance and upgrading of infrastructure, thus making it impossible to perform economic activities in an orderly way.

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  Deteriorating financial and educational institutions. This is especially true as skilled personnel have taken refuge abroad. This not only destroys the entrepreneurial spirit but also impairs the drive for discovery and participation in productive activities.

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  Weakening legal institutions and other government agencies needed to provide support and protection for business.

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  Preventing MNCs from investing in the targeted country and thus impeding economic globalization.

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  Distorting competition and market function and making it difficult to build sound foundations for free market economy.

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  Preventing cultural and educational exchange with the outside world, thereby obstructing development.

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  Changing the way of life for the people, thereby raising uncertainty and mistrust.

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  Dramatically altering and changing the social structure and social fabric of the targeted society. The displacement of the middle class and the disappearance of traditional craft and modern industries have induced the emergence of a new class of people who trade in second hand or counterfeit goods. This new class has neither psychological maturity nor professional skills and experience.

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  Increasing and broadening poverty as people lose their jobs and face serious difficulties in securing a decent life for their families, thereby deepening a gloomy outlook and hopelessness.

While the above items are detrimental to the national competitiveness of the targeted nation, governments which impose or press economic sanctions also weaken the ability of their own firms to compete fairly in the global marketplace. Furthermore, the sanctions themselves fuel resentment and anger toward countries which impose them. The New York Times reported that the Western led economic sanctions against Iran have raised the “prospect of more resentment against the West.”

Though economic sanctions are a powerful expression of the desire of the country which champions them to demonstrate superiority, in fact the action manifests political anxiety and a lack of confidence in international institutions to govern responsibly. A quick survey of the consequences of sanctions in recent years documents that economic sanctions are instruments of death and destruction. Obstruction of economic growth, weakening of national competitiveness, and widespread human misery in the targeted country that often accompanies economic sanctions make it impossible to justify them under any condition. In fact, in case of Iraq, the Washington Post (Byman, 2012) reported that when Iraq was invaded in 2003, after years of devastating economic sanctions, its:

[…] economy was hollow: There was a black market but no free market, and basic services such as electricity lay in ruins. When the United States took over, it had to restart the economy from scratch. Almost a decade later, Iraq has not fully recovered.

Economic sanctions impair national development and are a threat to the targeted country’s national competitiveness. The targeted country may need several decades to regain its economic health and social vibrancy. More importantly, economic sanctions are not only a serious assault on free trade but also a defeat of reason and civility in the global marketplace. Indeed, the imposition of economic sanctions, especially comprehensive ones, dramatically weakens long-term global security and economic prosperity and the desire to improve trade liberalization and unlock the creative genius of the global workforce.

Abbas J. Ali