June 2000 Fraser Forum: Positive Inducements in International Statecraft

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David Cortright

As many scholars have observed, economic sanctions are often ineffective as instruments of international statecraft. In his recent study of five major cases of U.S. sanctions, Ernest Preeg concluded that sanctions “have been almost entirely ineffective in achieving their intended foreign policy objectives while having a substantial adverse impact on other U.S. foreign policy and commercial interests.” The eminent sanctions scholar Margaret Doxey has argued that sanctions can achieve modest gains of the “slap on the wrist” variety but that “a major change in policy is . . . harder to come by.” The definitive empirical work in the field, conducted by Gary Hufbauer and his colleagues at the Institute for International Economics in Washington, concluded, “Sanctions are seldom effective in imparing the military potential of an important power, or in bringing about major changes in the policy of the targeted country.”

There are many reasons for the limited impact of sanctions. One of the most important is that sanctions are often employed in a punitive manner, rather than as tools of political bargaining. As George Lopez and I have argued, sanctions work best as instruments of persuasion, when they are combined with incentives as part of a carrots and sticks bargaining process designed to achieve the negotiated resolution of conflict. The role of positive inducements is often overlooked in assessment of the effectiveness of economic statecraft. In this essay I examine the role of incentives strategies in international relations and as either a complement to or substitute for coercive sanctions. Drawing on case studies and empirical analyses, I show that incentives are more effective than sanctions alone, and that the combined use of incentives and sanctions is more effective than either the use of sanctions or incentives alone. I argue that inducement strategies have many advantages over coercive approaches, and that a diplomacy emphasizing positive measures over negative ones offers the best hope for building the long term foundations of international cooperation and peace.

Evaluating Cases

There are many recent examples of the use of incentives strategies to resolve conflict, prevent proliferation, or uphold principles of democracy and human rights. A study group which I coordinated for the Carnegie Commission on the Prevention of deadly Conflict looked at 15 cases in which incentives figured prominently in attempts to resolve major international crises. One of the successful uses of incentives examined by the study group was the effort by the Council of Europe and the Organization for Security and Cooperation in Europe (OSCE) in the early 1990s to reduce tensions between the newly independent Baltic states and Russia. The Council of Europe used the process of admitting the Baltic states to encourage compromise on the question of civil rights for Russian minorities. Another successful example was the effort of the United States, Russia and other countries to convince Ukraine and Kazakhstan to give up the nuclear arsenals they inherited at independence, in exchange for economic assistance, improved diplomatic relations with the West, and security assurances from Russia and the West. Another successful case was the use of incentives and sanctions by the United States to encourage the Salvadorian government and the guerilla forces of the Farabundo Marti National Liberation Front to negotiate and comply with a settlement of the bitter civil war in El Salvador. Less successful was the effort by the European Union and international financial institutions to encourage the Croatian, Serbian, and Bosnian Muslim communities of Bosnia Herzegovina to fulfill the mandates of the Dayton peace agreement.

Incentives strategies have played a significant role in U.S. interactions with North Korea. In 1994 the United States, Japan, and South Korea mounted a successful diplomatic effort, supported by significant economic and diplomatic inducements, to contain Pyongyang's nuclear weapons program. In 1999 incentives were again offered to North Korea, this time in an attempt to prevent long-range ballistic missile development. Although the bargaining process is still underway in the missile episode, the preliminary indication suggest that inducement strategies may again prove effective as a means of reinforcing nonproliferation norms.

The 1993-94 nuclear proliferation crisis in North Korea began with Pyongyang's announcement of its intention to withdraw from the nuclear Nonproliferation Treaty. Policymakers in Washington, Japan, South Korea and elsewhere expressed alarm and began to consider their options. Initial negotiations with the reclusive regime in Pyongyang proved fruitless, as demands from Washington only hardened North Korean intransigence. Some commentators in Washington called for possible military action. The UN Security Council debated whether to impose economic sanctions, but North Korea's largest trading partners, China and Japan, were reluctant to support such measures. The United States already had comprehensive sanctions in place, and skeptics asked what good it would do to attempt further sanctions against a regime that was already one of the most isolated on earth.

Instead, the United States and its partners turned to the use of incentives. A set of economic and diplomatic measures was crafted to persuade North Korea to abandon its apparent nuclear ambitions. In the Agreed Framework of October 1994, the United States and its partners offered to prove North Korea with fuel oil, new less-proliferation-prone nuclear reactors, and the beginnings of diplomatic recognition. In exchange Pyongyang agreed to accept international inspections of its nuclear reactors and halted reprocessing of spent nuclear fuel. The Agreement contained a step-by-step reciprocal process that conditioned the delivery of rewards on specific steps toward compliance. Under the terms of the 1994 plan, each incentive from the United States and its partners was tied to clearly delineated, observable steps toward denuclearization by North Korea. The process was stretched over several years, allowing the Untied States and its partners ample opportunity to assess North Korean compliance before delivering the next element in the incentives package.

To date, the 1994 Agreed Framework has been an important success. A major security threat was diffused, and the nuclear weapons program of an important threshold country was shut down and remains under international inspection. Whether the more recent diplomatic maneuvering in response to North Korea's ballistic missile threat will be as successful remains to be seen. Initial discussions between the United States and North Korea produced a September 1999 pledge by Pyongyang to suspend missile testing, and a commitment by the United States to lift some of the sanctions it had in place and to pursue further negotiations. In this case the lifting of existing sanctions proved to be a potent inducement. The promise of a further easing of trade and diplomatic restrictions may yield additional and more permanent restrictions on North Korea's missile program.

Defining Incentives

Much has been written about the use of economic sanctions in international relations, but surprisingly little attention has been devoted to the role of incentives. The uses of incentives are so commonplace in the conduct of international affairs that they scarcely seem to deserve separate analysis. Incentives seem inseparable from the art of diplomacy. Analysts refer frequently to carrots and sticks as tools of international policy, but most of their attentions is devoted to the latter. The use of military, economic, and diplomatic coercion is widely studied. The role of carrots–political and economic inducements for cooperation–is often a neglected stepchild.

Alexander George and others have pointed out that conventional theory places too much emphasis on the threatened or actual use of military force, while largely ignoring approaches that reduce tensions. Attempts at international influence have tended to rely excessively on threats rather than on the more flexible use of carrots and sticks. The dominant view seems to be that of Machiavelli: “It is much safer to be feared than loved.” Roger Fisher has observed that during the cold war the United States created elaborate means for delivering threats but developed “no comparable sophistication regarding the making of offers.” Offering rewards is an important way of exerting influence, according to Fisher, for which there has been “far too little organized consideration.” Alexander George and Richard Smoke echo these sentiments in calling for the development of an “inducement theory” to supplement traditional deterrence theory. This paper is a partial attempt to answer that call.

The definition of what constitutes an incentive is subject to varying interpretations. Most analysts agree that the inducement process involves the offer of a reward by a sender in exchange for a particular action or response by a recipient. An incentive is defined as the granting of a political or economic benefit in exchange for a specified policy adjustment by the recipient nation. Often the incentive offered is directly related to the desired policy outcome, as when the World Bank assisted demilitarization in Uganda and Mozambique by providing financial support for demobilized combatants. It is also possible and sometimes necessary to conceive of incentives in a more unconditional manner, without the requirement for strict reciprocity. This is what Alexander George has called the “pure” form of incentives where there is little or no explicit conditionality. A sender may offer benefits in the hope of developing or strengthening long-term cooperation, without insisting upon an immediate policy response. In some circumstances, such as the Council of Europe's negotiations with Estonia, the principal incentive may be the simple fact of membership itself, and the accompanying hope that a seat at the table may lead to other more concrete benefits in the future. At a minimum, incentives policies seek to make cooperation and conciliation more attractive than aggression and hostility. The goal is to achieve a degree of policy coordination in which, according to Robert Keohane, nations “adjust their behavior to the actual or anticipated preferences of others.”

In his classic study, Economic Statecraft, David Baldwin offered the following examples of what he termed “positive sanctions”:

• granting most-favored-nation-status
• tariff reductions
• direct purchases
• subsidies to exports or imports
• providing export or import licences
• foreign aid
• guaranteeing investments
• encouraging capital imports or exports
• favorable taxation
• promises of the above.
• Other examples that can be added to Baldwin's list include:
• granting access to advanced technology
• offering diplomatic and political support
• military cooperation
• environmental and social cooperation
• cultural exchanges
• support for citizen diplomacy
• debt relief
• security assurances
• granting membership in international organizations or security alliances
• lifting negative sanctions.

Many studies, such as William Long's Economic Incentives and Bilateral Cooperation, focus on economic instruments such as trade policy or financial assistance. These economic tools are indeed frequently employed in international statecraft. But policy makers also utilize a range of other incentive options--political, military, and diplomatic. All of the potentially available means of inducing cooperation must be considered when evaluating the impact of incentives strategies.

Avoiding Appeasement

One of the frequent concerns expressed about incentives is that they may be perceived as a reward for wrongdoing. Cooperative gestures may be seen as a sign of weakness or appeasement that can lead to additional acts of aggression. Why should rewards be provided for a transgressor to follow norms that others accept willingly without payment? In the North Korea case, critics charged that the Agreed Framework was a reward for wrongdoing that would encourage Pyongyang or other states to engage in similar transgressions in the hope of obtaining like rewards. Opponents also expressed concern that the agreement contained no assurances against future violations. Some analysts have leveled similar criticisms at U.S. trade preferences for China. A policy praised as creative engagement in the 1970s has faced increasing skepticism, as U.S.-Chinese policy differences over human rights and other issues have widened, even as the volume of commercial interaction between the two steadily increased.

One approach to minimizing moral hazards is to package incentives in a step-by-step reciprocal process that conditions the delivery of rewards on specific concessions by the recipient. The incentives package can be broken down into pieces, with each item delivered in response to specific commitments and actions from the other side. The process begins with small steps and builds steadily toward larger and more significant gestures as the process of reciprocity becomes more established. This is the model that was followed in the Agreed Framework accord with North Korea, with each incentive award linked to concrete steps toward compliance by North Korea.

Researchers have also found that incentives work best when they are offered from a position of strength rather than weakness. There may be a tendency for states to employ incentives when coercive options are lacking, but this may prompt the recipient to take advantage of the situation. If compromises are offered pusillanimously as a substitute for decisive action, the recipient may indeed attempt to exploit the sender's vulnerabilities and engage in further wrongdoing. According to Martin Patchen, conciliatory gestures work best when they flow from strength and are accompanied by a latent threat capacity. Russell Leng has observed similarly that offers “are more likely to be effective when the influencer has the requisites for the effective use of negative inducements as well.” In other words, when carrots are mixed with sticks, or at least the threat of sticks, the dangers of appeasement and encouraging wrongdoing can be diminished.

There are some situations where the use of incentives is simply not appropriate, either morally or politically. Incentives may be counterproductive if employed in the face of armed conflict and overt military aggression. Conciliatory gestures to tyrants can send a message of acceptance or consent that encourages wrongdoing. Incentives strategies may also be inappropriate in the most extreme cases of violations of human rights. An important distinction can be drawn between sanctions and incentives. Coercive measures are more appropriate and effective for addressing crises of overt aggression and deadly conflict. Inducement strategies are preferable for creating the long-term foundations for peace and cooperation and thus ameliorating conflicts before they reach the crisis stage. One approach addresses the immediate crises of violent conflict, the other creates the long-term conditions for reducing the likelihood of such conflict.

Even in the most difficult cases, however, it is important to hold out at least the promise of benefits as an inducement for effective negotiation. A totally coercive policy implies the willingness to destroy or subdue the other party completely, to impose unconditional surrender. This is a costly and dangerous approach that is rarely if ever appropriate or morally justified. Successful diplomacy requires a give and take interaction that depends on the presence of both sanctions and incentives. Even if the incentive is the limited one of a promise to lift sanctions, the offer of a potential benefit can usually contribute to the prevention of conflict.

Mixing Carrots and Sticks

Sanctions and incentives can be analyzed separately, but in practice they are often closely linked. The effective use of economic statecraft requires the use of positive inducements along with negative pressures to bring about a negotiated resolution of conflict. The very definitions of sanctions and incentives are intimately linked. Ending a negative sanction can be considered a positive incentive, while removing an incentive can be seen as a sanction. The art of diplomacy consists of the judicious blend of positive and negative influences. Sanctions are imposed or threatened to persuade the target to change objectionable behavior; incentives are offered to increase the advantage of the requested change. As Alexander George has emphasized, diplomacy requires offers as well as threats to achieve success. What the stick cannot accomplish by itself may be achieved by combining it with the carrot. David Baldwin has also emphasized the link between positive and negative measures. The use of negative sanctions can lay the groundwork for the subsequent offer of positive inducements, and the provision of incentives can increase the attractiveness of the changes being sought through sanctions.

Recent empirical analyses confirm the benefits of inducement policies and the special advantages of combining incentives with sanctions. Two studies, one from the Center for International Relations at the University of California at Los Angeles, the other from the Department of Sociology and Political Science at the Norwegian University of Science and Technology, provide evidence that the combined use of sanctions and incentives is superior to the application of either approach alone. In the California study, “A Larger Role for Positive Sanctions in Cases of Compellance?,” Gitty Amini examined 22 cases of compellance that feature the use of sanctions and incentives either alone or in combination. The study found that positive measures are more successful than negative sanctions, and that the combination of incentives and sanctions is more effective than the use of incentives alone. According to the study, “as one moves from the exclusive use of threats and punishments to the use of rewards and promises, the likelihood for success in a compellance situation increases by 34 percent. Additionally, if one opts to use both carrots and sticks, over the use of carrots alone, one is again 34 percent more likely to succeed . . . There is a definite correlation between success and inclusion of positive sanctions, either alone or in conjunction with negative ones.”

In the Norwegian study, “Sanctions and Incentives,” Han Dorussen and Jongryn Mo recalculated the data from 116 cases examined in the landmark Institute for International Economics study. By re-examining the cases in which positive inducements were applied, and cross correlating the use of incentives with the likelihood of success, Dorussen and Mo were able to document the benefits of incentives measures. According to the study, “Incentives increase the effectiveness of sanctions . . . and . . . the simultaneous use of incentives and sanctions is more effective than the use of sanctions or incentives separately.”

Positive Reciprocity

Cooperation theorists have emphasized what might be termed the power of positive reciprocity. Robert Axelrod and others have found that the simple tit for tat process, in which one party responds in kind to the gestures of the other, is a highly stable form of cooperation. The history of the cold war confirms the ability of cooperative gestures to induce reciprocal behavior. In relations between the United States and the Soviet Union, conciliatory gestures often led to reduced tensions, while hard-line policies usually produced a mirror response of heightened animosity. Lloyd Jensen found in his review of American-Soviet arms talks that concessions by one side tend to be reciprocated by the other. William Gamson and André Modigliani examined eight episodes in which Western nations made conciliatory gesture to the Soviet Union from 1946 to 1963. In seven out of the eight cases, the Soviet Union reciprocated with cooperative behavior. By contrast, there was a tendency toward “refractory” actions and increased belligerence when one side was confronted by hostile actions from the other. Martin Patchen's review of the literature on this subject found that “the usual tendency is for one side in a dispute to reciprocate the [conciliatory] moves of the other, to match incentives if offered with return incentives.” Patchen and Jenson found that, on balance, promises are more effective than threats in producing desired changes in another nation's behavior.

Perhaps the most dramatic case of positive reciprocity occurred in September 1991 when President George Bush announced the unilateral demobilization of U.S. tactical nuclear weapons from ships and submarines and the removal and dismantlement of nuclear artillery and short-range missiles in Europe. This bold initiative was promptly reciprocated by Soviet president Mikhail Gorbachev, who announced a similar and even more sweeping withdrawal and dismantlement of tactical nuclear weapons from Soviet land forces and naval vessels. These reciprocal reductions resulted in the largest single act of denuclearization in history, removing some 13,000 nuclear weapons from deployment. Contrary to the conventional concept of arms control, unilateral initiatives proved to be highly effective in reducing nuclear dangers.

Charles Osgood argued for risk reduction initiatives of this kind in his concept of GRIT, graduated and reciprocated initiatives in tension-reduction. The GRIT strategy was designed to beyond simple tit-for-tat reciprocity and called for employing a series of conciliatory measures to reduce tensions and distrust. The initiating side announces a series of accommodating steps and continues even in the absence of a reciprocal response. If the other side exploits the situation or acts in a hostile manner, the initiating side responds in kind, although only to the limited extent necessary to restore the status quo. If the other side reciprocates positively, the pace of conciliatory action is accelerated. The Bush-Gorbachev nuclear reductions and other mutual concessions at the end of the cold war partially followed the GRIT strategy, and helped to dispel the decades-long clouds of fear and distrust that obstructed East-West understanding. These examples corroborate the wisdom of offering concessions as a strategy for enhancing cooperation. As Alexander Wendt observed, positive reciprocation can foster a sense of common identification and help to create mutual interests between former adversaries. Deborah Welch Larson similarly emphasized the importance of conciliatory action as a way of reducing distrust and establishing the foundations for cooperative behavior.

Making Incentives Work

The Carnegie Commission working group examined the variables the success or failure of incentives-based policies. One of the most important of these variables is the nature of the objectives being sought. Just as sanctions are more successful in achieving modest or limited policy changes, incentives are also more likely to succeed in pursuit of small-scale changes rather than sweeping political transformation. Arnold Wolfers has argued that incentives are most likely to be effective in the area of “low politics,” in which national sovereignty and territorial integrity are not at stake. It is extremely difficult to persuade a state to trade territory or national security for economic benefits. On the other hand, if security assurances and the rewards of political association are included in the inducements package, even far-reaching political change may be achievable. Denuclearization successes in Ukraine and Kazakhstan were facilitated not only by economic inducements but also by broader security and political assurances. The pursuit of major political objectives may be possible, but in such cases larger and more comprehensive inducements will be necessary. There will be some cases, however, when even the largest incentive offers will be unable to change recipient policies. This has been the case in Bosnia Herzegovina, where huge commitments of financial assistance from European and international institutions have been unable to overcome ethnic animosities.

The most successful incentives strategies are those that are focused on a single objective and consistently sustained over time. When there are multiple or conflicting objectives, the inducement process is likely to be confused and ineffective. Competing interests and agendas are a particular problem in the application of aid conditionality by international financial institutions. The World Bank has emphasized “structural adjustment” policies, which often require reductions in public sector spending, but the Bank has also made commitments to alleviating poverty, which may necessitate major public investments in infrastructure, job creation, and social welfare. Structural adjustment policies may also conflict with military demobilization programs, such as those in Mozambique and Uganda. The joblessness and economic hardship caused by adjustment policies can make employment more difficult to find for demobilized combatants.

The perception of value is one of the most important variables in the success of incentives. In economic theory, an incentive is calibrated to increase the value of the option preferred by the sender over what the recipient would otherwise choose. An incentive seeks to raise the opportunity cost of continuing on the previous course of action by changing the calculation of cost and benefit. The scale of the incentive depends on the magnitude of the desired change in behavior. The greater the change, the larger the required inducements. In the area of nonproliferation policy, Virginia Foran and Leonard Spector have developed the concept of a “reservation price,” which they define as the lowest price a potential proliferator will accept for giving up its nuclear program. The reservation price includes the sunk costs already invested in the nuclear program. For countries such as India and Pakistan, which have invested a vast quantity of scarce economic resource and a huge amount of political capital in their nuclear programs over decades, the reservation price is likely to be beyond the reach of even the most generous inducements. In the case of North Korea, on the other hand, in which the nuclear program was only partially completed when the crisis broke in 1993, the sunk costs were much lower and could be matched by the United States and its South Korean and Japanese partners. According to Spector and Foran, the magnitude of an incentives package must be commensurate with the proliferator's sunk costs.

Access to advanced technology is a highly valuable incentive. This is especially true in developing countries but applies in industrialized nations as well. William Long found that access to technology raises the perceived value and utility of an incentives offer and is highly effective in encouraging bilateral cooperation. Because technology is so crucial to both economic development and military capability, it has value to the most fundamental objectives of government. The lure of military technology is especially great. But an overemphasis on weapons transfers can have counterproductive economic and political consequences. The World Bank and other international financial institutions now recognize excessive expenditures on weapons as an impediment to sustainable development. Arms sales and other military inducements may also reinforce a bias toward the use of military force to solve complex political problems and devalue the search for more nonviolent, civilian-oriented approaches to conflict prevention. Offering access to civilian technology carries none of these risks and is the preferable means of offering technology inducements.

The effectiveness of incentives also depends on credibility, which requires that the sender have a reputation for fulfilling pledges and a demonstrated ability to deliver the promised rewards. Promptness in delivering rewards is especially important. The swift fulfillment of a pledge increases the influence of the offer and raises the likelihood of positive reciprocation. Delays in the implementation of an incentive may impede cooperation. In Gaza and the West Bank, the failure of international leaders to deliver on the financial pledges made at the time of the 1993 Israeli-Palestinian accords contributed to political problems and delays in the implementation of the peace process. Promises whose fulfillment rests far into the future are less effective in encouraging compliance. Cooperation theory emphasizes the importance of a quick response to conciliatory gestures as a way of assuring additional cooperation. According to Axelrod, the shorter the response time, the more stable the relationship and the more enduring the cooperation.

Incentives can be offered either by a single state such as the United States or a multilateral institution such as the World Bank or the Council of Europe. Each approach has advantages and disadvantages. A single nation usually can decide upon and implement an incentives strategy more effectively than a coalition. A single actor may also be better able to deliver on a promised reward and communicate a coherent objective. On the other hand, coalitions or multilateral institutions have more market power and a greater potential for offering security assurances. Transnational participation is crucial when the goal is strengthening international norms of democracy and human rights. Multilateral involvement is also important in peace implementation and post-conflict reconstruction. The enormous costs associated with rebuilding countries such as Bosnia or Angola make it impossible for any single country to shoulder the burden alone. A disadvantage of multilateral action is that sustaining a coherent policy commitment over time is more complex, especially if the inducement strategy involve security commitments and the provision of financial assistance. Differences among the senders may also send confused or contradictory messages to the recipient.

Domestic Dynamics

The effectiveness of inducement strategies depends on how they affect internal political dynamics within the recipient nation. External attempts to change policy must be able to influence the political preferences of important actors within the recipient country. In his analysis of trade policy, Long demonstrated how commercial preferences and technology transfers appeal to particular groups and constituencies within the recipient nation who are willing and able to mobilize on behalf of the reforms sought by senders. By targeting benefits to stakeholders and potential allies within the recipient country, senders are able to use incentives with maximum political effectiveness. Etel Solingen has observed a linkage within some developing countries between support for trade liberalization and acceptance of cooperative security and nuclear nonproliferation goals. The political constituencies committed to economic globalization, according to Solingen, are less inclined to favor overt nuclearization and assertive nationalism.

Attempting to achieve targeted influence in this way is a delicate matter. It is always better to frame incentives as assistance rather than compellence. Overt attempts to influence can backfire if they are perceived as interference or manipulation. Offering incentives that influence domestic politics requires finesse and aplomb and a keen sensitivity to the traditions and culture of the recipient nation. Just as sanctions can generate a rally-round-the-flag backlash, inducement efforts may spark nationalist resentment and denunciation of attempts to “bribe” the recipient nation. Seemingly irrational concerns about national pride can override utilitarian calculations of cost and benefit. As with sanctions, incentive policies must consider the possibilities of unpredictable responses within the recipient nation.

Ultimately the success of an inducement strategy depends on subjective factors. As Denis Goulet observed, “an incentive system can only sway a subject who is disposed to respond.” Moral and cultural considerations can be as important to the success of an incentives offer as purely material factors. Baldwin made the same point in noting that the value of an incentive depends on a recipient's perceptions of the situation and the baseline of previous expectations. The intended beneficiaries of an incentive offer will always be the final judge of its effectiveness, which makes the assessment of a recipient's subjective feelings crucial to the prospects of success. Incentive policies can have unanticipated negative consequences if senders are insensitive to internal political dynamics. Incentives delivered to military elites or to corrupt political leaders can weaken the standing of constituencies seeking democratic reform and undermine the long-term prospects for cooperative behavior. Understanding the likely internal consequences of inducements and targeting benefits to empower the supporters rather than the opponents of reform are key elements in the strategic design of incentives policy.

Goulet proposed an approach to incentives policy that encourages popular participation as the key to mobilizing political support within the recipient nation. This approach differs from strategies that target rewards to elites. The distinction lies in the nature of the recipient's internal political dynamics. If there is popular concern about selling out to foreign influence, or if there is a recalcitrant leadership that refuses to reform, a nonelite strategy may be preferable. Making an offer that is appealing to popular forces can help to minimize concerns about external interference. Crafting proposals that benefit popular movements rather than narrow elites may empower such constituencies to overcome obdurate leaders. By enhancing the involvement of nonelite groups and empowering them to acquire political and economic rights, this approach targets assistance to those who often need it most while providing concrete inducements for domestic constituencies to mobilize on behalf of reform and cooperation.

Comparing Incentives and Sanctions

There are many differences between sanctions and incentives that point to the advantages of an incentives-based strategy. One important difference between the two concerns relative costs. In narrow accounting terms, a sanction is not a cost. When countries impose an embargo on an offending state, this does not show up as a line item in the national budget. As a result, some policy makers naively consider economic sanctions a kind of foreign policy on the cheap. In reality sanctions impose significant costs on private companies and local communities. Because these losses do not appear as specific government expenditures, however, they are easily overlooked by political leaders. By contrast, foreign assistance, loan guarantees, and other forms of financial aid are listed as specific budgetary allocations, which can make them easy targets for budget cutters, especially in an era of fiscal austerity. On the other hand, trade preferences and technology incentives appear to be relatively cost free to governments and have become a favorite tool of economic statecraft. Trade incentives have the benefit of opening up new opportunities for commerce that can benefit domestic constituencies. Whereas sanctions impose costs on particular industries and communities, trade incentives can bring benefits to these groups. As a result, domestic constituencies in the sender state may gain a stake in maintaining trade preferences and provide political support for sustaining the incentives policy. As noted earlier, incentives can create similar dynamics within the recipient country. In contrast with sanctions, which cause hardships for both sender and recipient, trade incentives bring benefits to both. They are a classic win-win proposition.

An important advantage of incentives is that benefits can be designed and targeted to ameliorate the root causes of conflict. Whether the primary needs are economic, political, or security-related, inducement strategies can be packaged and delivered to meet those needs and lessen the likelihood of conflict. In the case of Ukraine, security assurances were added to the package of economic benefits offered to Kiev as a way of addressing concerns about Ukrainian vulnerability vis-à-vis Russia. This targeting of resources to meet specific political objectives is an important way in which incentives differ from sanctions. Whereas sanctions take away resources or deny benefits to contending parties, incentives add resources. When these rewards are targeted strategically to address the sources of conflict, their effectiveness is enhanced.

Incentives also differ from sanctions in their relation to market forces. When incentives are offered, there is no natural tendency, as with sanctions, for black marketeers or third-party actors to step in and circumvent trade restrictions. As Eileen Crumm observes, “Where market forces work against negative sanctions, they can reinforce positive ones.” Many scholars have noted that economic sanctions generate countervailing pressures that can undermine the effectiveness of such measures. A tightly enforced embargo will raise the price of imports in the target country and in the process create powerful motivations for cheating. By contrast, an offer of incentives such as foreign assistance or concessionary loans will not create market pressures for another party to do likewise. Competing offers of assistance may result from political motives, but they are not generated by market forces. During the cold war the United States and the Soviet Union vied to provide incentive offers, but such competition is less likely now. Positive incentives work in harmony with the natural forces of the market and thus have a significant economic advantage over negative sanctions.

Sanctions and incentives also have differing impacts on international trade and the prospects for economic cooperation. One of the most significant, some would say most hopeful, characteristics of the post-cold war world has been the widespread expansion of free markets and the substantial increase in international commerce. Richard Rosecrance has spoken of “the trading state” phenomenon as a powerful antidote to war and armed conflict. Expanding trade and economic interdependence can establish the foundations of peace and international cooperation. The use of economic sanctions runs counter to this trend. Peter van Bergeijk argued that the great use of negative sanctions threatens the expansion of trade, thereby weakening the incentive for political cooperation that comes with increasing economic interdependence. By contrast, positive measures encourage trade and international cooperation and thereby contribute to the long-term prospects for peace. Incentive policies provide a basis for long-term cooperation and understanding and create the foundations for international stability.

Perhaps the greatest difference between sanctions and incentives lies in their impact on human behavior. Drawing on the insights of behavioral psychology, Baldwin identified key distinctions between the two approaches. Incentives foster cooperation and goodwill, whereas sanctions create hostility and separation. Threats tend to generate reactions of fear, anxiety, and resistance, whereas the normal responses to a promise or reward are hope, reassurance, and attraction. Threats send a message of “indifference or active hostility,” according to Baldwin, whereas promises “convey an impression of sympathy and concern.” Incentives tend to enhance the recipient's willingness to cooperate with the sender, whereas negative measures may impede such cooperation. Roger Fisher argued that “imposing pain may not be a good way to produce a desired decision” or to influence another's actions. Whereas threats and punishment generate resistance, promises and rewards tend to foster cooperation.

These differences have important implications for the conduct of political communications. One of the drawbacks of sanctions is that they close off channels of commerce and interaction, which can intensify misunderstanding and distrust. Inducement strategies do not carry this burden. Because incentives create less resentment and obstinacy in the recipient, communication is clearer and more precise, and negotiations are more likely to succeed. Punitive measures may be effective in sending a message of disapproval, but they are not conducive to constructive dialogue. Whereas sanctions may generate communications gridlock, incentives open the door to greater interaction and understanding.

There are ample grounds for concluding that incentives are preferable to sanctions as means of strengthening international cooperation and reinforcing global norms of human rights and democracy. This was the conclusion of the 1995 Commission on Global Governance which, although acknowledging the place of coercive sanctions, argued that noncoercive means are the preferred mode of ensuring compliance with international norms. Roger Fisher likewise concluded, “the process of exerting influence through offers is more conducive to international peace than the process of exerting influence through threats.” Although inducement strategies are not appropriate in every setting, and may be counterproductive if employed in the face of overt military aggression or gross human rights violations, they have many advantages over punitive approaches. A diplomacy that employs carrots more often than sticks offers hope for transforming the international system and creating a more cooperative and peaceful world order.

References

Ernest H. Preeg, Feeling Good or Doing Good with Sanctions (Washington, D.C.: CSIS Press, 1999), 3.

Margaret P. Doxey, International Sanctions in Contemporary Perspective, 2d ed. (New York: St. Martin's Press, 1996), 65.

Gary Hufbauer, Jeffrey Schott, and Kimberly Ann Elliott, Economic Sanctions Reconsidered : History and Current Policy, 2d ed. (Washington D.C.: Institute for International Economics, 1990).

David Cortright and George A. Lopez, The Sanctions Decade: Assessing UN Strategies in the 1990s (Boulder, Colo.: Lynne Rienner Publishers, 2000).

These studies and a theoretical analysis of the role of inducement strategies are contained in David Cortright, ed., The Price of Peace: Incentives and International Conflict Prevention (Lanham, Md.: Roman and Littlefield, 1997). Much of the material in this essay is drawn from this work.

Martin Patchen, Resolving Disputes between Nations: Coercion or Conciliation? (Durham, N.C.: Duke University Press, 1988), 261; Peter A. van Bergeijk, Economic Diplomacy, Trade, and Commercial Policy: Positive and Negative Sanctions in a New World Order (Aldershot, England: Edward Elgar, 1994), 20.

Alexander L. George and Richard Smoke, Deterrence in American Foreign Policy: Theory and Practice (New York: Columbia University Press, 1974), 2, 33. For a thorough discussion of inducement strategies in the context of differing theories of international relations, see Tuomas Forsberg, “The Efficacy of Rewarding Conflict Strategies: Positive Sanctions as Face Savers, Payments, and Signals,” (paper prepared for the annual meeting of the International Studies Association, San Diego, California, 16-20 April 1996).

George and Smoke, Deterrence, 2, 590; see also Alexander L. George, David K. Hall , and William R. Simons, The Limits of Coercive Diplomacy: Laos-Cuba-Vietnam (Boston: Little Brown and Company, 1971), 243.

Niccolo Machiavelli, The Prince (Cambridge: Cambridge University Press, 1988), 59.

Roger Fisher, International Conflict for Beginners (New York: Harper and Row, 1969), 106.

George and Smoke, Deterrence, 606-7.

Ibid., 608-9.

Robert Keohane, After Hegemony: Cooperation and Discord in the World Political Economy (Princeton, N.J.: Princeton University Press, 1984).

David A. Baldwin, Economic Statecraft (Princeton University Press, 1985), 42.

William J. Long, Economic Incentives and Bilateral Cooperation (Ann Arbor, Mich.: University of Michigan Press, 1996).

Karl Deutsch, “On the Concepts of Politics and Power,” Journal of International Affairs, 21, no. 2 (1967): 233.

Patchen, Resolving Disputes, 271.

Russell Leng, “Influence Techniques among Nations,” in Behavior, Society, and International Conflict, Volume 3, ed. Philip E. Tetlock et al. (Oxford: Oxford University Press, 1993), 115.

George and Smoke, Deterrence, 608-9.

Baldwin, Economic Statecraft.

Gitty M. Amini, “A Larger Role for Positive Sanctions in Cases of Compellance?,” Working Paper no. 12, Center for International Relations, University of California at Los Angeles, May 1997.

Ibid., 27-28.

Han Dorussen and Jongryn Mo, “Sanctions and Incentives,” (paper delivered at the 1999 annual meeting of the American Political Science Association, Atlanta, GA, September 2-5, 1999), 2.

Robert Axelrod, The Evolution of Cooperation (New York: Basic Books, 1984).

Lloyd Jensen, “Negotiating Strategic Arms Control, 1969-1979,” Journal of Conflict Resolution 28 (1984): 535-59.

William Gamson and André Modigliani, Untangling the Cold War (Boston: Little Brown and Company, 1971).

Patchen, Resolving Disputes, 262.

Ibid., 263.

“An Assault on Nuclear Arms, “ U.S. News and World Report, 7 October 1991, 24-28.

“Nuclear Weapons: Going, Going,” The Economist, 12 October 1991, 54.

Center for Defense Information, Interview with Kathryn Schultz, 6 August 1996.

See Charles E. Osgood, An Alternative to War or Surrender (Urbana, Ill.: University of Illinois Press, 1962).

See Alexander George's analysis in U.S.-Soviet Security Cooperation: Achievements, Failures, Lessons, ed. Alexander L. George, Philip J. Farley, and Alexander Dallin (New York: Oxford University Press, 1988), 705-7.

Alexander Wendt, “The Anarchy is What States Make of it: The Social Construction of Power Politics,” International Organization 46, no. 2 (Spring 1992): 420-22.

Deborah Welch Larson, “Crisis Prevention and the Austrian State Treaty,” International Organization 41, no. 1 (Winter 1987): 27-60.

Arnold Wolfers, “Power and Influence: The Means of Foreign Policy,” in Discord and Collaboration: Essays on International Politics, ed. Arnold Wolfers (Baltimore: Johns Hopkins University Press), 107-8.

See Joan M. Nelson and Stephanie J. Eglinton, Global Goals, Contentious Means: Issues of Multiple Aid Conditionality (Washington, D.C.: Overseas Development Council, 1993).

Virginia I. Foran and Leonard S. Spector, “The Application of Incentives to Nuclear Proliferation,” in The Price of Peace: Incentives and International Conflict Prevention, ed. David Cortright (Boulder: Rowman and Littlefield), 21-53.

Long, Economic Incentives.

Fisher, International Conflict for Beginners, 119-23.

Ibid., 124.

Axelrod, The Evolution of Cooperation, 185.

William J. Long, “Trade Technology Incentives and Bilateral Cooperation,” International Studies Quarterly 40, no.1 (1996): 77-106.

Etel Solingen, “The New Multilateralism and Nonproliferation : Bringing in Domestic Politics,” Global Governance 1, no.2 (1995): 214.

Denis Goulet, Incentives for Development: The Key to Equity (New York: Horizons Press, 1989), 11.

David A. Baldwin, “The Power of Positive Sanctions,” World Politics 24, no. 1 (1971): 23.

Hans Morgenthau, “A Political Theory of Foreign Aid,” American Political Science Review 56 (June 1962): 308.

Goulet, Incentives for Development, 145, 159-61.

Forsberg, “The Efficacy of Rewarding Conflict Strategies,” 10.

Long, Economic Incentives, 19-33.

Eileen Crumm, “The Value of Economic Incentives in International Politics,” Journal of Peace Research 32, no. 3 (1995): 326.

See William H. Kaempfer and Anton D. Lowenberg, “The Problems and the Promise of Sanctions,” in Economic Sanctions: Panacea or Peacebuilding in a Post-Cold War World? ed. David Cortright, George A. Lopez. (Boulder: Westview, 1995), 61-72.

Richard Rosecrance, The Rise of the Trading State (New York: Basic Books, 1987).

van Bergeijk, Economic Diplomacy, Trade, and Commercial Policy, 12.

Baldwin, “The Power of Positive Sanctions,” 32.

Fisher, International Conflict for Beginners, 28.

Ibid., 35.

Long, Economic Incentives.

Commission on Global Governance, Our Global Neighborhood: Report of the Commission on Global Governance (Oxford: Oxford University Press, 1995), 328.

Fisher, International Conflict for Beginners, 106.

David Cortright is president of the Indiana-based Fourth Freedom Forum, a private foundation specializing in international security issues, and is a research fellow at the Joan B. Kroc Institute for International Peace Studies at the University of Notre Dame.

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