Some Nuanced Responses on Economic Sanctions

Both scholars and policymakers tend to boil questions about sanctions down into a simple “they work!” or “they don’t work!”  As someone who relied on Gary Clyde Huffbauer’s pathbreaking work with Jeffrey Schott and Kimberly Ann Elliott in developing a database on sanctions, the “it depends” theme of Hufbauer’s essay carries a great ring of truth. I certainly will not dispute his observations that sanctions are far more likely to work with allies than adversaries, as that was one of my key findings in my own book on the subject.

While Hufbauer’s take on sanctions is nuanced, I’d like to inject even more nuance into some of his observations. In particular, he underestimates the value of slowly escalating the pace of economic sanctions, and he overestimates the ability of autocrats to resist powerful sanctions. Stepping back, however, the biggest problem with Hufbauer’s analysis is a failure to consider the negative externalities of leaning on sanctions as the first response to international crises.

In terms of crafting the optimal set of sanctions, I would dissent from Hufbauer in two ways. First, he lobbies in favor of harder and faster sanctions, because “there is a better chance to avoid military escalation if sanctions are deployed with maximum impact.” This might be true, but it underestimates the ways in which the threat of sanctions can be more powerful than their implementation. As with any bargaining situation, it is more efficient for the target and sender to agree to a deal before any punishments are inflicted, as it reduces the deadweight loss of no agreement. Compromising before sanctions are actually implemented also has the advantage of being more under the radar, which cuts down on the political costs for both sides. My own research suggests that sanctions are far more likely to work before they are implemented rather than after. Given the increasing sophistication of today’s sanctioning machinery, it is not surprising that senders are cautious in escalating sanctions too quickly.

Second, Hufbauer argues that “a large coalition of sender countries does not make a sanctions episode more likely to succeed.”  His claim is correct, but as it turns out there is an easy way to divide the multilateral cases that succeed from the cases that fail. Sanctions coalitions that have an institutional imprimatur are far more likely to succeed, while ad hoc coalitions of the willing are not. The reasons are similar to those Hufbauer lays out. Target governments will expect coalitions to fall apart over time. If the UN Security Council or the Financial Action Task Force endorse sanctions, however, targets recognize that the likelihood of the coalition cracking goes down.

A bigger problem with Hufbauer’s argument is his claim that autocratic regimes make for tougher targets. It is true that democracies are usually quicker to concede, but not all autocratic governments are created equal. Jessica Weeks’ typology of non-democratic states is useful here: authoritarians with powerful civilian audiences (think China or Iran) and personalist strongmen without powerful domestic audiences (think Putin in Russia).

Weeks’s cogent argument is that civilian authoritarian regimes are about as risk-averse in their foreign policies as democracies. Even if their civilian audience is narrower than in democratic countries, it is equally risk-averse. Strongmen, by contrast, are far more likely to pursue risky and adventurous foreign policies, even if the odds of victory don’t look all that great. These kind of strongmen do not rise to power without valuing coercion and risk-taking as tools of the trade. They are more likely to surround themselves with yes-men, and more likely to stay in power even after suffering reversals. Their very stupidity and insensitivity to costs makes them dangerous on the global stage.

Applying this typology to current events, we would expect sanctions against Iran to be more successful than sanctions against Russia. Iran’s Islamist regime is far more institutionalized than Putin’s more charismatic form of leadership. And indeed, by the fall of 2013, Iran’s president Hassan Rouhani had publicly acknowledged that the effect of sanctions on the Iranian economy was severe and required quick negotiations to settle the nuclear question. Despite a rapidly faltering Russian economy and punishing sanctions, however, Putin seems prepared to tough it out.

My final cavil with Hufbauer’s arguments is a failure to factor in the long-run costs of extended sanctions imposition. Consider, for example, the obvious link between sanctions and corruption. Economic sanctions and black market activity go together. By punishing ordinary market activity, sanctions give entrepreneurs a strong incentive to take the criminal route – and they usually earn higher-than-usual profits in the bargain. As Peter Andreas has demonstrated, trade sanctions encourage the creation of organized crime syndicates and transnational smuggling networks. Sanctions therefore don’t just weaken the rule of law in the target country – they weaken the rule of law in bordering countries and monitoring organizations as well. The corruption has a path dependent quality, persisting long after sanctions have been lifted. For example, according to Transparency International’s 2013 Corruption Perceptions Index, eight of the ten most corrupt countries in the world were either subject to trade sanctions in the 1990’s, or bordered those countries.

The ancillary costs of sanctions should be stressed, because after decades of disdain, it now appears that policymakers are overestimating their utility. Honed during the global war on terror, sanctions now enjoy plenty of bipartisan support. Juan C. Zarate, a deputy national security adviser in the George W. Bush administration, argued in his book Treasury’s War that the United States can use sanctions “to confront its most critical national security threats.”  Earlier this year sanctions made the cover of Newsweek, with Assistant Treasury Secretary Danny Glaser bragging that because of sanctions, the Treasury department is “at the center of our national security.” Many members of Congress are upset at the prospect of an Iranian nuclear deal because they believe that sanctions might topple the Iranian regime. But while sanctions have their uses, they are not a magic bullet by any means. On that point, I suspect all of us writing here will agree.

Also from this issue

Lead Essay

  • Gary Clyde Hufbauer reviews some of the factors that can lead to a successful sanctions policy - or that can prevent sanctions from succeeding. Sanctions seldom achieve major objectives without the threat of force, but they often achieve minor ones. They work better against friends and worse against autocracies. Sanctions strategy is important too - it’s better to impose a severe regime immediately, rather than slowly ramping up. Coalitions are not terribly helpful. Even despite their weaknesses, sanctions aren’t going to disappear anytime soon: They’re just too useful, as they fill a void between talk and armed conflict.

Response Essays

  • Eric B. Lorber faults Gary Clyde Hufbauer for overlooking a key moment in sanctions history - the year 2005, when the United States began using its financial and technological prowess to isolate Iran and Russia. The new sanctions it deployed rely on third countries’ reluctance to abandon their economic and technological ties to the United States. No coalition building is necessary; faced with a choice between, say, Iran and the United States, others fall into line, because trade ties them more closely to the United States. That said, Lorber remains skeptical that sanctions, even of this new variety, can be effective at moving their targets toward the goals desired by the U.S. foreign policy establishment. Indeed, they may simply hurt ordinary Iranians and Russians, while hardening resistance to American foreign policy objectives.

  • Daniel W. Drezner reviews the pros and cons of economic sanctions, with a focus on their hidden effects, including corruption. Although Drezner agrees that the simple alternative - “they work!” versus “they don’t work!” - is inadequate, he suggests that the present debate could benefit from still more nuance than is offered in Hufbauer’s lead essay. Drezner subdivides autocratic regimes into those that face a significant civilian constituency, and those that do not; he subdivides coalition-based sanctions into those that are under the aegis of an international organization, and those that are not; and he stresses the deadweight loss that comes with failing to reach a bargain in any case. He ends on a fairly damning note, observing that trade sanctions encourage black markets and organized crime. This suggests that perhaps the reputation of sanctions as a foreign policy tool has been too high in recent years.

  • Bryan Early discusses sanctions busters: Countries that profit from flouting international trade sanctions. His research shows that these countries commonly manage to frustrate American sanctions. States including Cuba and Iran have been the beneficiaries of sanctions busters. Sanctions busters make it significantly less likely that a sanctions policy will succeed and significantly more likely that it will be called off entirely.