The capitalist peace, or capitalist peace theory, posits that developed market-oriented economies have not engaged in war with each other, and rarely enter into low-level disputes. In this regard, "economic development" is tacitly equalled with capitalism. These ideas have been proposed as an explanation for the democratic peace theory by accounting for both democracy and the peace among democratic nations. The exact nature of the causality depends upon both the proposed variable and the measure of the indicator for the concept used.
The philosophical roots of capitalist peace can be traced back to Immanuel Kant, Joseph Schumpeter, Norman Angell, and classical economic theory. In his 1795 essay Perpetual Peace, Immanuel Kant argued, among other things, that "the spirit of commerce . . . sooner or later takes hold of every nation, and is incompatible with war." In the early twentieth century Norman Angell reasoned that trade interdependence in modern economies makes war unprofitable. Later, Joseph Schumpeter offered the observation that with the advancement of capitalism people form "an unwarlike disposition."
The modern capitalist peace emerged with the democratic peace. In one of the earliest systematic confirmations of the democratic peace, Stuart Bremer also examined the relationship between capitalism and war. He found capitalism to be a more powerful force for peace than democracy, yet the democratic peace accrued much more attention in the academic and policy literature. Today at least four theories of capitalist peace can be identified, with some of these theories claiming that a capitalist peace may subsume the democratic one, given that capitalism may be the cause of both democracy and peace.
A key to explaining the capitalist peace rests on the indicative measures for capitalism. There are at least four different definitions of capitalism currently being employed.
A number of models of the capitalist peace equate free markets with capitalism. In this usage, free markets and trade cause economic development, which in turn accounts for the peace among nations with advanced economies.
A second understanding of capitalism is one that is conceptualized based on the intensity of market contracting in a society, where a capitalist economy is defined as one where most actors in the economy are integrated by contracting in the market. By definition contracts must be voluntary and undertaken without coercion.
In the third measure for capitalism inter-state trade is seen as an indicator for a developed, hence a capitalist economy. The level of trade interdependence, therefore, is the operationalized measure of this third type of capitalism.
The final way that capitalism has been measured is with the size of government. States that have limited governments, hence large private sectors, are supposed to be capitalist economies. The size of government is used as an indicator for the level of capitalism a state has achieved.
There are five primary theories that have attempted to explain the capitalist peace, each of which has used one of the above definitions of capitalism. Each theory has achieved varying levels of success and empirical corroboration, although they all rely on capitalism as the main explanatory variable for peace.
The interdependent trade explanation for the capitalist peace is built on the foundations of classical economic theory. This idea, which can be traced back to Kant, became the original theoretical explanation for the capitalist peace. In 1996, Erich Weede tied trade and free markets to development and peace, proposing that trade interdependence caused peace between nations. Weede followed this up with what he called the "capitalist peace". However, the empirical findings of the link between trade and development have been drawn into question, as one study found that the proportion of GDP to foreign trade is only 0.08, measured by logged GDP per capita.
Economic norms theory
Economic norms theory links the economic conditions of clientelism, which prevail in many lower income societies, and a contract-intensive economy, which prevails in many higher income societies, with divergent political interests and habits.
Economic norms theory arose as an alternative explanation to the democratic peace, because it identified the causal relationship between democracy and peace as spurious. Michael Mousseau identified contract-intensive economies as a possible cause of both democracy and peace. The explanation is based on two aspects widely accepted in social science: (1) bounded rationality; and (2) divergent hierarchies between clientelism and contract-intensive economies. In contract-intensive societies, individuals have a loyalty towards the state that enforces the contracts between strangers. As a consequence, individuals in these societies expect that their states enforce contracts reliably and impartially, protect individual rights, and make efforts to enhance the general welfare. Moreover, with the assumption of bounded rationality, individuals routinely dependent on trusting strangers in contracts will develop the habits of trusting strangers and preferring universal rights, impartial law, and liberal democratic government. In contrast, individuals in contract-poor societies will develop the habits of abiding by the commands of group leaders, and distrusting those from out-groups.
According to economic norms theory, the people in contract-rich nations enjoy a permanent and positive peace. As long as their states accede to popular demands and remain reliably impartial, individuals in nations with contract intensive economies have an interest in everyone’s rights and material welfare, within and outside the nation. Consequently, contract-intensive nations not only avoid war with each other but engage in intense levels of mutual cooperation specifically aimed at promoting each other's material welfare. Leaders of nations with contract-poor economies, in contrast, pursue the interests of their dominant groups and have no interest in the security or welfare of members of out-groups, whether they are internal or external to the nation.
One concern with Mousseau's theoretical explanation is that he suggests that contracting in life insurance "indicates a highly institutionalized norm of contracting in a society because… to contract in life insurance requires a great deal of trust…"; "In contract-intensive societies ... making contracts with strangers promotes loyalty ... to a state that enforces these contracts with... equal application of the rule of law,"; And "What distinguishes marketplace societies from others is that property confiscations are carried out with impartiality and in accordance with the rule of law." However, the source that Mousseau references for the life insurance data (Beck and Webb) report that "... the rule of law or corruption cannot explain variation of Life Insurance Density across countries." In contrast, they report that "income per capita, inflation, and banking sector development are the most robust predictors of life insurance consumption across countries and over time." Thus, it is questionable as to whether life insurance truly "indicates a highly institutionalized norm of contracting in a society..."
Free capital markets/capital openness
This theory, originally introduced by Erik Gartzke, Quan Li, and Charles Boehmer, argues that nations with a high level of capital openness are able to avoid conflict with each other and maintain a lasting peace. In particular, nations with freer capital markets are more dependent on international investors, because the investors are likely to withdraw if the country is engaged in a war or inter-state conflict. As a result, leaders of states give greater credibility to threats made by countries with higher levels of capital openness, causing the aforementioned countries to be more peaceful than others by avoiding the possibility of misrepresentation of information. One particular advantage of this theory is that it has been formalized, which helps ensure its internal consistency. The 2007 study performed by Gartzke claimed to make the democratic peace variable insignificant when capital openness was controlled for, but a later re-examination found this study to have several design errors. Using measured logged GDP per capita, development correlates with openness to foreign capital at 0.14, slightly higher than trade. Furthermore, the most recent study failed to control for the variables of economic norms theory and the size of government explanation.
Size of government
The size of government explanation for the capitalist peace relies on the fourth definition of capitalism. Introduced by Patrick J. McDonald, the idea is that smaller governments are more dependent than larger or socialist governments on raising taxes for fighting wars. This makes the commitments of nations with smaller governments more credible than those with larger ones, allowing for nations with smaller governments, and thus "capitalist" economies, to be better positioned for avoiding conflicts.
Ruling others by force
This theory, adduces that if men want to oppose war, it is statism that they must oppose. So long as they hold the tribal notion that the individual is sacrificial fodder for the collective, that some men have the right to rule others by force, and that some (any) alleged "good" can justify it—there can be no peace within a nation and no peace among nations.
Golden arches theory
In Thomas L. Friedman's 1999 book The Lexus and the Olive Tree, the following observation was presented: "No two countries that both had McDonald's had fought a war against each other since each got its McDonald's". He supported that observation, as a theory, by stating that when a country has reached an economic development where it has a middle class strong enough to support a McDonald's network, it would become a "McDonald's country", and will not be interested in fighting wars anymore.
Shortly after the book was published, NATO bombed Yugoslavia. On the first day of the bombing, McDonald's restaurants in Belgrade were demolished by angry protesters and were rebuilt only after the bombing ended. In the 2000 edition of the book, Friedman argued that this exception proved the rule: the war ended quickly, he argued, partly because the Serbian population did not want to lose their place in a global system "symbolised by McDonald's" (Friedman 2000: 252–253).
Critics have pointed to two other conflicts fought before 2000 as counterexamples, depending on what one considers "a war":
- The 1989 United States invasion of Panama
- In 1999, India and Pakistan fought a war over Kashmir, known as the Kargil War. Both countries had (and continue to have) McDonald's restaurants. Although the war was not fought in all possible theatres (such as Rajasthan and Punjab borders), both countries mobilised their military all along their common borders and both countries made threats involving their nuclear capabilities.
In 2005, Friedman said that he framed this theory in terms of McDonald's Golden Arches "with tongue slightly in cheek". In his 2005 book The World is Flat he offered an updated theory he labelled the Dell Theory of Conflict Prevention.
Since 2005, there have been three more conflicts cited as counterexamples:
- The 2006 Lebanon War between Israel and Lebanon, following hostilities ongoing since 1973, with South Lebanon occupied until May 2000. (McDonald's franchises were established in Israel and Lebanon in 1993 and 1998, respectively.) However, the Lebanese Armed Forces were not a party to the fighting, the Israel Defense Forces action being taken instead against the paramilitary group Hezbollah.
- The 2008 South Ossetia war between Russia and Georgia. Both countries had McDonald's at the time (restaurants began in the two countries in 1990 and 1999, respectively).
- The 2014 Crimean crisis between Russia and Ukraine. Both countries had McDonald's at the time.
Friedman's point is that due to globalization, countries that have made strong economic ties with one another have too much to lose to ever go to war with one another. Regardless of whether the statement is true, the conclusions to be drawn are unclear. The global expansion of McDonald's restaurants is a relatively recent phenomenon when put into the context of the history of warfare, and, with a few notable exceptions, has proceeded into relatively stable markets.
The Dell Theory of Conflict Prevention, also known as simply the Dell Theory, has been presented by Thomas Friedman in his book The World Is Flat. This theory is an updated version of his previous "Golden Arches Theory of Conflict Prevention".
- "The Dell Theory stipulates: No two countries that are both part of a major global supply chain, like Dell’s, will ever fight a war against each other as long as they are both part of the same global supply chain."
That is, as long as corporations have major supply chain operations in countries other than that corporation's home country, those countries will never engage in armed conflicts. This is due to the economic interdependence between nations that arises from a large corporation (such as Dell) having supply chain operations in multiple global locations and the reluctance of developing nations (in which supply chain operations commonly take place) to give up their newfound wealth.
In his previous book The Lexus and the Olive Tree, Friedman argued that no two nations with a McDonald's franchise had ever gone to war with one another: this was known as the Golden Arches theory. Later, Friedman upgraded that theory into the "Dell Theory of Conflict Prevention" by saying that people or nations don't just want to have a better standard of living as symbolized by McDonald's franchise in their downtown, but want to have the lump of the labour sector that is created by globalization. That is, developing nations do not want to risk the trust of the multi-national companies who venture into their markets and include them in the global supply chain.
Thomas Friedman also warns in his book The World Is Flat that the Dell Theory should not be interpreted as a guarantee that nations who are deeply involved in global supply chains will not go to war with each other. It rather means that the governments of these nations and their citizens will have very heavy economic costs to consider as they contemplate the possibility of war. These costs include the long-term loss of the country's profitable participation in the global supply chain.
This theory relates with how conflict prevention occurred between India and Pakistan in their 2001 - 2002 nuclear standoff, where India was at risk of losing its global partners. The relationship between the People's Republic of China and Taiwan was also cited as an example of this theory - they both have strong supply relations with each other and a war between the two seems very unlikely today.
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- Russia, Georgia, and IR Theory: Part 1, Lawyers, Guns, and Money (featuring photos of McDonald's in both countries)
- The World is Flat (ISBN 1-59397-668-2), Thomas L. Friedman, pg 421