The economics of genocide

You may have thought about reparation payments after seeing my title. Those made by Germany have reached $100 billion. But that’s not what I have in mind. After all, I just cannot value human life.

The effect of genocide on the economy is another area that could be considered. No economic crisis would even come close to losing a significant portion of a country’s workforce in a couple of years, if not months. The impact of such an unprecedented negative labor supply shock would be greater if the victims were concentrated in certain sectors of the economy.

But all these approaches treat genocide as exogenous. Members of the dismal science, who are noted for their forays into such diverse areas as prostitution in the animal kingdom and New Year’s resolutions, have been surprisingly quiet on the causes of genocide, leaving the matter to other social scientists.

That may as well be the smart thing to do. After all, economists do not have much to say about fear and nationalism, even though they have written on racism. However, the tools of economics could still shed light on genocide. Unfortunately, there are only few economics papers on the subject.

A couple simply go through the defining characteristics of genocides. One documents that they are common during periods of political upheaval and transition. Another argues that “the state may be weakened by external shocks (military defeats, wide liberalization) and has to be restored by nationalism.” There is even an economic element: “The economic precondition is a weak economic tissue and a shock of economic policy.”

But not all multi-ethnic countries that go through such events end up with genocide. Another paper offers a solution by treating all these as sufficient conditions. The necessary condition is disruption in “social capital,” which is a term used by economists to denote trust. The authors note, by using several country cases, that genocides appear in societies where social capital is a critical asset.

The problem with social capital is that it is fragile and can easily be disrupted by economic and political shocks, especially if it is relatively important with respect to other forms of capital such as physical and human capital: “When social capital is intense and other resources are rare, any economic or social shock may transform benevolence into malevolence.”

This framework fits well with more recent genocides in poor countries such as Bosnia and Rwanda. However, it would have trouble explaining the Holocaust. After all, to the best of my knowledge, social capital was not prevalent in intra-war Germany. Moreover, the country was lacking in neither physical nor human capital.

A different approach, as taken by another study, is to make use of constrained optimization by analyzing the objectives, costs and resources of the perpetrators, victims and third parties. This methodology is not going to explain the reasons behind genocides, but once you assume that ethnic cleansing is in the perpetrators’ preferences, it will help you understand under what conditions “desires” would result in “actions.”

I will be remembering the centenary of “Meds Yeghern” today. And hoping that Armenians and Turks will soon escape the “vicious circle of assertion and denial,” as Carnegie Endowment scholar Thomas de Waal, whose book on the Armenian Genocide recently came out, told Daily News’ William Armstrong. Quoting the late Turkish-Armenian journalist Hrant Dink, it is time we moved past the trauma and the paranoia.