International Economic Sanctions.

Feldman, David H.

Economists often view economic sanctions as a weak policy instrument. Sanctions are thought to work poorly because they frequently fail to impose significant economic costs and because whatever costs are imposed may have little impact on political decision-making in the target nation |2; 1~. Yet sanctions are increasingly a part of the international (and especially American) foreign policy tool kit.

This is the conundrum that motivates Kaempfer's and Lowenberg's public choice analysis of the sanctions process. The book brings together and extends their work on sanctions that has appeared recently in the professional journals. In their view sanctions are another aspect of the general proliferation of special interest politics in majoritarian democracy. Sanctions emerge endogenously from the same clash of interests that motivates public choice modelling of other redistributive government policies.

Kaempfer and Lowenberg effectively describe the politics of sanctions using methodology familiar to economists: individual (group) welfare maximization and comparative statics of competitive political equilibria. In their work the nation-state becomes an artifact of the collective choice process. I am willing to grant them this simplification (though I suspect many political scientists are not) in order to discover the causal pathways their models chart. The modelling is carefully done and suggests a number of testable hypotheses, though they do not follow up many of the leads (next book?). They do, however, provide ample descriptive analysis to motivate the models' causal channels. They claim two broad contributions from their public choice approach to sanctions. First, our understanding of the process improves if we separate sanctions from their stated goals. In the models presented here, the political usefulness of sanctions is not functionally related to their supposed objectives. The second contribution involves explicitly modelling political processes in a representative target nation. They argue that the economic or market mechanisms through which sanctions are usually presumed to work may be less important than the selective signals sanctions send to key interest groups within the target country.

Sanctions optimists see them as surgical scalpels while economist-pessimists view them as bludgeons that usually miss their mark. Kaempfer and Lowenberg offer public choice pessimism (realism?) as an alternative. They conclude that sanctions can play a significant role in effecting political change in the target but that policies emanating from the sender nations often are far from the optimal instruments. Maximizing influence (or harm) in the target is unlikely to form a domestic political equilibrium since sanctions are primarily tools of domestic redistribution.

The book is most useful to students of political economy (in economics and political science), though it is also quite accessible to advanced undergraduates who are moderately fluent in calculus. The authors suggest that others can read around the hard parts, which is true, though not without losing some of the flavor.

Following the authors' introduction, chapters two and three outline for the non-expert the distinctions between traditional political (international relations) and economic analyses of sanctions and the public choice approach. The authors spare us an encyclopedic literature review, choosing instead to place in context the substantive modelling that comes later.

Chapter four is an equilibrium model of the sanctions process that draws heavily on the authors' 1988 American Economic Review article. They assume Becker-style (i.e., efficient) interest group competition within the sanction-imposing nation. In their framework sanctions are income increasing to some groups and income reducing to others. The struggle between interests is conditioned by i) organizational difficulties (free rider issues) and ii) the magnitude of potential income shifts, which depends in part on the sanctions' social (deadweight) costs. They also explore the interesting possibility that sanctions may directly enhance (or reduce) the welfare of group members in addition to any indirect effects on income.

Chapter five reviews the general equilibrium impact of sanctions on both target country and sender. This is the standard approach in which offer curve elasticities determine the aggregate incidence of sanctions on each party and in which damage to the target nation is inversely related to the number of countries in the model. In an interesting curiosum, they show how sanctions may increase income in the target if increasing returns are present. In general, the social costs to the sender may exceed the burden on the target. This reinforces their claim that aggregate analysis usually fails to explain sanctions unless the distributional struggle also is modeled.

Chapters six and seven concentrate on financial and investment sanctions. They draw heavily on the authors' work on apartheid in South Africa. Chapter six reviews the types of capital sanctions available and explores the aggregate effects (or non-effects) of disinvestment. Chapter seven offers a formal model of the South African economy to assess the political and economic consequences of investment sanctions. Their model divides South Africa into three interests--white workers, white capitalists, and black workers--and a government whose utility depends on the shareweighted utilities of the white electorate. Not surprisingly, unambiguous conclusions are not possible even in a simple general equilibrium model of South African politics. Although investment sanctions raise the exogenous costs of apartheid, perverse results are possible if they strengthen a class which benefits from the existing system (white workers in their model). If, however, sanctions lower the costs of black political organizing, this raises the internal costs of defending apartheid and offers a clear channel linking sanctions with positive political change. The final two chapters address more generally the political economy of a representative target nation. Chapter 8 models the political response to sanctions using the same structure of interest group competition as in chapter 4, while chapter 9 develops a threshold model of political change. These chapters stress the signal/threat role sanctions can play in changing the relative political effectiveness of groups within the target polity.

In threshold models, individuals join in collective action when a minimum number of their peers are also involved. The authors effectively use the threshold technique to formalize the role of ideology in motivating collective action. Ideology here refers to utility individuals derive from associating their interests with that of the group. Sanctions can signal to individuals that group action is now more likely to succeed (or to confer greater individual benefit). This reduces the individual's personal threshold and helps groups obtain the critical mass necessary to initiate collective action. The authors again use South Africa as an example to show how threshold effects may cut both ways. Foreign pressure may enlarge and strengthen opposition groups while also creating "rally-round-the-flag" effects that benefit the ruling group.

David H. Feldman College of William and Mary

References

1. Frey, B. S. "Are Trade Wars Successful?" Chapter 6 of International Political Economics. Oxford: Basil Blackwell, 1984.

2. Hufbauer, G. C., and Schott, J. J. Economic Sanctions in Support of Foreign Policy Goals. Washington, D.C.: Institute for International Economics, 1983.