The futility of economic sanctions is well documented
PremiumMany research studies show that the price they extract is rarely worth whatever little they achieve
As the Ides of March approached, the world saw Russian tanks rolling into Ukraine and the outbreak of a deadly conflict that shows no sign of abating. Much of the developed world responded to Russia’s aggression with sharp economic sanctions, much like the military “shock and awe" that preceded the US invasion of Iraq in 2003. As the world’s largest democracy and potential ally of the US, India too has been under pressure to dilute its neutrality and isolate Russia. While sanctions are known to carry high human costs, the manner in which they have been wielded against Russia also has the potential to destabilize the global economy and roll back decades of economic progress by damaging globalization and faith in the integrity of global institutions and technologies which have now been weaponized.
In a memorable interview to CBS, Madeleine Albright, former US Secretary of State who recently passed away, responded to the interviewer’s question about the death of half a million Iraqi children due to US sanctions by saying, “The price was worth it." While sanctions are known to carry high human costs, the manner in which they have been wielded against Russia also has the potential to destabilize the global economy and roll back decades of economic progress by damaging globalization and faith in the integrity of global institutions and technologies that have suddenly been weaponized. However, despite Albright’s assertions, the “worth" of economic sanctions is still not clear. In his book on sanctions, The Economic Weapon, author Nicholas Mulder shows that while deployment of sanctions in support of foreign policy goals doubled in the 2000s compared to 1950-1985, and then doubled again in the 2010s, their effectiveness at achieving stated objectives remains questionable.
Anecdotally, much evidence shows that sanctions are ineffective. Muammar Gaddafi ruled Libya with an iron hand for decades despite sweeping sanctions. Comprehensive sanctions could neither dislodge Saddam Hussein from power nor convince him to abandon Iraq’s 1990 invasion of Kuwait. Fidel Castro’s Cuba bore the brunt of US sanctions successfully for decades and managed a transition of power after his death. Venezuela has resisted sanctions for decades even after the passing of Hugo Chavez. North Korea has defied sanctions and managed to enhance its nuclear and missile capabilities. Vietnam bore sanctions for several years without succumbing to regime change, as did Myanmar. Afghanistan faced sanctions and military action, but remains under the control of a much-sanctioned Taliban, who still cock a snook at the West, as they recently did by banning the education of girls. In Syria, Bashar al-Assad flourishes despite painful sanctions. US-sanctioned Iran made nuclear progress enough to push a bargain.
Sanctions have failed to meet stated objectives in several other cases, such as Rwanda, Serbia, Haiti, Sierra Leone, Sudan, etc. Anecdotally, the evidence supports Mack and Khan (2000), who argue: “The only real disagreement in the contemporary sanctions literature relates to the degree to which sanctions fail as an instrument for coercing changes in the behavior of targeted states." The only substantial example of sanctions being effective is the case of South Africa, which was sanctioned for apartheid and forced to abandon it by economic pressure. However, South Africa was enmeshed economically and culturally with the West that sanctioned it, unlike most other nations placed under sanctions.
Much empirical research exposes the hollowness of sanctions as a tool of foreign policy. While United Nations sanctions can reduce the gross domestic product (GDP) of a target country by 2.3% to 3.5% per annum for up to ten years (Neuenkirch and Neumeir), they tend to worsen human rights there (Peksen, 2009) and have a detrimental impact on its democracy level (Peksen and Drury, 2010). Unilateral sanctions by the US are less effective; they are found to reduce the GDP growth rates of targeted countries by 0.5% to 0.9% per annum for up to seven years. Another side effect of sanctions is that they increase the poverty gap in target countries and allow sanctioned regimes to tighten their grip on power by magnifying their negative effect on the economy, thereby deflecting blame away from their incompetence.
The strongest justification for sanctions comes from the work of Hufbauer, Schott, Elliott and Oegg, who argue that sanctions have a success rate of 31% for regime change, 21% for disrupting a military misadventure and 31% in impairing the armed forces of the targeted regime. In a seminal paper, though, Robert Pape clinically demolished these claims on a case-by-case basis and showed that sanctions have a success rate of under 5%. Richard Haas of Brookings argues that at best sanctions can achieve modest goals in negotiated settlements. They fail when aims are ambitious or time is short and unilateral sanctions can easily be circumvented. Target countries often adapt and evolve strategies to bypass them. A classic example of sanction-defiance is Iran, which set up a sophisticated network of shell companies in various geographies to trade its oil and import goods, bypassing sanctions and thereby proving they are only as good as their weakest link.
While wielding sanctions may yield short-term political dividends for the West, their economic case is weak and second-order effects are dangerous and poorly understood. In the years ahead, for all their proclamations, Western politicians will probably struggle with the burden of proving that the “price was worth it", just as Albright did.
Diva Jain is director at Arrjavv and a ‘probabilist’ who researches and writes on behavioural finance and economics.
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