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Economic Incentives as Weapons of War

Summary and Keywords

International relations scholars tend to differentiate between a state’s use of military and economic instruments of power and also between rewards and punishments. In conflict scenarios, leaders are typically depicted as facing a choice between using military versus economic forms of punishment to achieve desired political outcomes. The role of economic rewards is seldom analyzed within the context of adversarial relations or within combat operations. The U.S. military has used money in combat and noncombat operations to influence actors and shape the operational environment in a manner favorable to the troops. There has been some attention devoted to the military’s noncombatant role and to efforts to win hearts and minds. Little attention has been devoted to the use of money in kinetic operations. The military’s use of money in its operations, including counterinsurgency and stability operations, provides insight for international relations scholars interested in when economic inducements may be effective within adversarial relations or conflict situations. It represents a form of targeted sanctions, in the sense of applying positive inducements selectively at the micro level, to achieve macro-level objectives. The U.S. military has relied on a growing body of empirical research in persuasion science to inform its operations. The case and findings from persuasion science could contribute to understanding the problems and possibilities of harnessing the power of money to achieve political outcomes.

Keywords: economic incentives, persuasion, counterinsurgency, money as a weapon, Commander’s Emergency Response Program (CERP), COIN, MICE, RASCLS, empirical international relations theory

The Power of Money

“Money is my most important ammunition in this war”: this powerful testament to America’s faith in money came from General Petraeus, as the conflicts dragged on in Afghanistan and Iraq. Winning hearts and minds meant using positive incentives to influence individuals and groups often in the same arena as kinetic operations. Make no mistake, the U.S. military was not suggesting it would throw away its guns. Petraeus and others were simply advising commanders that money could accomplish goals at the operational and tactical levels that force could not always achieve. In April of 2009 the U.S. Center for Army Lessons Learned released the Commander’s Guide to Money as a Weapons System (Center for Army Lessons Learned, 2009). It was designed to instruct commanders about the many financial resources at their disposal in theater and how to make optimal use of them. The use of money in military operations was not new, but the amount of money spent, the way it was used, and the efforts to codify its use were unprecedented in U.S. history.

Economic incentives and disincentives influence behavior and shape outcomes. International relations scholars tend to differentiate the use of economic and military instruments of power as means of achieving political outcomes. The United States allows its military some discretion in choosing the appropriate weapons to use during its operations. In the 21st century the U.S. military has highlighted the use of money as a weapon in counterinsurgency and stability operations in Afghanistan and Iraq. Counterinsurgency warfare has received some attention among international relations scholars, but few have considered the military’s use of money in COIN and other operations. The U.S. military’s use of money to achieve a range of short- and long-term goals is not new. The U.S. military has relied on a growing body of empirical research in persuasion science to inform its operations. The same literature, considered in conjunction with insight from behavioral economics, could help guide the way to understanding the problems and possibilities of harnessing the power of money to achieve political outcomes.

The U.S. military’s use of money in operations raises several interesting questions for international relations scholars. International relations scholars normally depict political leaders as deciding between two different forms of punishment when engaged in conflict scenarios, whether economic or military. For example, a leader might choose to use economic sanctions against an enemy rather than military force. Even when introduced sequentially, these two kinds of punishment may overlap. What is less obvious is the use of economic rewards or incentives once punishment is undertaken. The military’s efforts to carry out a broad range of noncombatant functions (while also conducting kinetic operations) produces some predictable and unpredictable dilemmas. As a result, persuasion science is being incorporated into the military arena. The U.S. government’s decision to allocate resources to the Department of Defense, rather than to the Department of State, has meant that in most circumstances the soldier with guns and money epitomizes the most visible face of the United States overseas, affecting the entire spectrum of U.S. international relations.

Early research on economic instruments of power (and power more generally) in the 1960s and 1970s, drew heavily on the field of social psychology (Baldwin, 1971a, 1971b, 1971c). Scholars turned to individual behavior to explain influence attempts in international relations. Despite the state-centric focus of much international relations scholarship, many theories and the related empirical findings are based on people, their motivations, perceptions, preferences, and choices. When a state makes a decision to allow the military to use the money during war and operations short of war, individual soldiers and small groups may use their discretion in decisions about the allocation of resources. They may opt to use coercion or persuasion, depending on the target and the context. Next, the target of the influence attempt must decide whether to accept the offer and comply with the terms. The single military actor (or unit) engages locals individually and in groups and is faced with regular choices about when and with whom he or she should use persuasion versus coercion. The military’s choices are not only used to shape individual behaviour but to shape the operational environment in a way that makes the use of incentives and disincentives optimal for achieving desired goals.

When one actor makes a threat (or influence attempt) against or toward another actor, both actors’ perceptions are relevant. Social psychologists view the threat from the perspective of the recipient, while others might look at the side making, rather than accepting, the offer. The actors, as well as the context or environment, must be considered in any influence attempt. The military literature written for those engaged in military operations, including stability operations, tends to provide guidelines for actions to take in certain scenarios. The recommendations are based on some underlying theory about why one or another tactic, instrument, or choice might work or fail with another person or group. When considering the military’s use of money, a complete picture is needed.

One individual’s perceptions of an offer may differ from the other. That is why it is important to understand the context and the framing of the choices. “In the psychologists’ definition, the threat is the outcome of A’s (intended future) activities as perceived (or imagined) by B” (Baldwin, 1971b). When the U.S. military uses persuasion in the form of money to influence outcomes, they do so through soldiers in military uniforms, often with weapons on hand. Even during stability operations, locals may see an outside force as an adversary, irrespective of the circumstances that led to the troops’ deployment, and no matter what locals are being offered. The U.S.’s stability and COIN operations were fraught with uncertainty for all actors involved. The situation was fluid and actors adapted to changes on the ground. The local population, or some segment of it, might view outside forces as a source of security, funding, development assistance or more. In an insecure environment, anxiety is heightened on all sides. Positive inducements may be harder to trust, by the one making the offer and the one receiving it. Other actors may be operating in the shadows, creating competing incentives and disincentives that may influence calculations.

Positive Inducements in Theory and Practice

The “sanctions literature” in international relations has largely looked at negative economic sanctions, rather than positive sanctions, including money.1 Academics have kept pace with changing international practices by examining the use of targeted negative sanctions or smart sanctions (Cortright & Lopez, 2002, 2005).2 States and international organizations “target” sanctions at elites, rather than the masses, hoping elites will exert influence in a manner preferred by the sanctioning state or organization and to avoid the suffering of the masses. Within the last twenty years, the United States has adapted more regulations to target economic restrictions against individuals and firms, rather than “states” as a whole.3 The United States also directs positive sanctions at individuals and groups within a given society, but there has been no parallel effort to examine the use and effectiveness of targeted positive sanctions at the subnational level.4 Certainly, scholars recognize that foreign aid given to another country often means money goes to an individual leader, whether intended or not. Such transactions are depicted as state-to-state transactions, as are most positive incentives or inducements examined in international relations. Focusing on subnational actors, on both sides of the equation, donor and recipient, and the use of use of economic rewards as a complement to military operations is difficult. In the case of using money in military operations, the targeting may be done spontaneously or planned in the short term. Information and other constraints prevent scholars from exploring fully the types of questions that may be most interesting when it comes to understanding the power of money in conflict zones, within adversarial relations, and its effectiveness. The decisions of those attempting to exert influence and the target of influence attempts, take place in an unstable, insecure environment, where assumptions about the power of money and markets may be strong but where understanding about the power of force is equally strong.

Within international relations, money and other positive inducements are typically analyzed as a means for donor states to win policy concessions from a target or to use persuasion or attraction to foster, build, and maintain friendships. Scholarship on the use of positive sanctions, while limited, provides evidence that inducements can also work in adversarial relationships. A small number of international relations scholars have, for decades, pointed to the importance of analyzing positive incentives in international relations and the bias among academics and policymakers to focus on negative sanctions in research and practice. Scholars who write about positive incentives are perplexed about why states continue to use (and academics continue to study) negative sanctions when most people believe they do not work.5 There has been limited effort to assess the effectiveness of money and positive incentives as part of military operations. There are obvious drawbacks to offering financial payments to an adversary or potential adversary. Cooperative behavior may be temporary and funds given may strengthen an opponent. Payments might lead to additional requests for payments. Blackmail is considered a greater risk in contentious relationships than the friendly ones, and blackmail might lead to or be used in conjunction with aggressive or coercive behavior.6 Several scholars have argued that positive incentives work better at the strategic level, in the context of arms control or nuclear proliferations.7

Baldwin (1985) in Economic Statecraft, provides the most comprehensive overview of the types of financial instruments leaders use to exercise influence over other states. Like others looking at positive sanctions, he relies on case studies to provide evidence of the effectiveness of economic instruments of power. Baldwin builds upon his previous work on positive and negative sanctions (1971a, 1971b, 1971c). Positive sanctions rely upon economic inducements, or rewards, to influence a target state to adopt certain policy positions or to alter behaviour. Among the long list of positive instruments would be foreign aid, trade concessions, and reduced barriers to trade. Negative sanctions, on the other hand, employ economic techniques designed to punish the target state to convince or compel it to alter its behavior in a manner consistent with the sender’s interests. Nincic (2010, 2011, 2012) also uses case studies to show the effectiveness of positive incentives and argued that opportunities are missed by not exploring positive incentives to see if they will work when negative inducements do not.

Nincic (2010) differentiated the “exchange model” or the quid pro quo from the “catalytic model.” In the later model, the state exerting influence hopes to transform the target country, so that regular rewards and punishments are no longer necessary (2010, p. 139). In some respects, both models help describe U.S. operations in Iraq and Afghanistan. Initially, the Bush administration hoped to transform these societies in a manner consistent with the “catalytic model,” but the growing instability produced a need for regular “exchanges” or bargains among members of the respective societies and U.S. forces. Nincic recognizes the difficulties in identifying the costs and benefits of different forms of sanctions. For example, he mentions loss aversion; individuals suffer greater pain from losses than they enjoy pleasure from gains (Kahneman & Tversky, 1984), and other important concepts in behavioral economics.

Positive economic inducements may also be used as a means to bring belligerents to the bargaining table, even if the one offering the inducement is a third party. Several scholars also provide evidence that mediators have had success in using economic inducements to bring belligerent states to the bargaining table (Ben-Porat, 2006; Press Barnathan, 2009). Lawson (1983, 1985) provides evidence that positive economic incentives have, in some cases, helped end wars. He looks at the use of economic incentives by third parties with interest in resolving a war in their region, with attention placed mainly on promises and payments made by Arab states to neighbors. Lawson recognises that such payments do not always work, but he, like others working on positive sanctions, identifies some conditions under which payments might end wars. These studies are useful and help us understand that belligerents in conflicts can be swayed, at times, by money coming from third parties. Far more research is needed to evaluate the use of money and positive inducements at all levels of analysis in international relations, particularly when it comes to conflict, war, and adversarial relationship.

Incentives versus Disincentives

Economists provide a clear picture of how economic incentives and disincentives shape behavior. People are motivated to do things that provide rewards and avoid conduct that results in punishment. This logic of individual rational choice has been applied to state-to-state interactions when determining when and what to offer other states to achieve the desired outcome. Since the assumption is derived from the individual-level theory that has been examined in social psychology research, it is useful to consider how research on decision making may provide insight into the success of economic incentives.8 This could help us understand some of the limitations of using money as an incentive in war. Scholars have long questioned the assumption of rationality in decision making, but it is still a useful simplifying device. Behavioral economics allows us to understand systematic departures from rational choice and how these could affect the decision process and outcomes. Research in this area might explain the use, success, and failure of positive inducements.

The United States’ cultural attitude about the power of money to influence behavior and help achieve desired outcomes is well represented by the popularity of such books as Levitt and Dubner’s (2005) Freakonomics, which included sequels, a movie, and website. Levitt and Dubner hammer home the point that economic incentives and disincentives shape behavior in all realms of life. They operate within the tradition of Becker (1968), which was at the forefront of explaining rational decision making in everyday life, including the choice to engage in criminal behavior. The belief in the power of money seemed to seep into U.S. military culture based on the ideas articulated in the Money as a Weapons System (MAAWS) manuals and counterinsurgency doctrine. MAAWS programs included efforts to buy loyalty, information, and forgiveness; to advance foreign trade and investment; and to aid small business. Although rationality is a useful simplifying device, scholars recognize that considerations about monetary incentives relative to other incentives make outcomes difficult to predict.

For the U.S. military, MAAWS was a sensitive tool that could easily backfire. Offering money in compensation for “collateral damage” could engender anger. For example, the U.S. military provided condolence payments to families affected by collateral damage. Some U.S. military members felt there was appreciation for the payments. The recipient may feel appreciative to be compensated. On the other hand, individuals with loved ones killed or maimed may take offense to the offer of money, and the act might play into negative stereotypes of Americans thinking money can buy anything. The U.S. military adapted its practices on using money in its military operations. Social scientists show that it is not always easy to predict when money will have the expected influence on individual decision makers or when individuals will act within their economic interests.

Behavioral economics provides ways to integrate empirical findings derived from experimental research to understand the means to influence other people’s choices and to reveal instances in which individuals do not make rational choices, or choose what is in their best interests.9 Thaler and Sunstein’s (2008) “nudge” theory has contributed to the popularity of behavioral economics. They argue that it is appropriate for those responsible for shaping decisions, what they call “choice architects,” to push slightly or nudge people to make a decision in their best interest. Experimental studies reveal that people rely upon heuristic devices to make decisions; the way the choice is structured may affect choice. This may help explain the dynamics that occur within combat and post-combat operations, particularly what is intended to be stability operations. Foreign forces attempt to shape the environment and choice options to persuade individual actors and communities to opt for a given a choice. Foreign troops, said to work on behalf of the local population, within the context of stability or counterinsurgency operations, may impose a new regime that would make the new system the default option. Locals should be less likely to devote considerable effort to change the default if it is satisfactory to them. However, it is unclear how long the “status quo” must remain the status quo to overcome the bias in favor of what previously existed. In stability operations, those who lost, gained, or seek to affect the distribution of power, may consider sunk costs or other factors, such as framing and anchoring that produce suboptimal outcomes. The U.S. military may use the money, directly and indirectly, to influence decisions on the ground in the hopes of producing a desirable outcome, but the effectiveness remains unclear.

When is a Reward a Reward?

Being able to assess the costs and benefits of making and taking offers and the risks attached is always a complex exercise, even more complex when dealing with non-state actors entangled in an assortment of different and often competing loyalties. These loyalties are rooted in various national, ethnic, religious, and tribal identities. Threats to one’s survival, the survival of loved ones, of communities, of kin-groups, and of nations with which one identifies, come from multiple areas. To understand the use of positive and negative incentives, consider the problems of understanding how to differentiate the two and how decision makers frame decisions. Although these definitions appear to be simple enough, there are conceptual and empirical difficulties in distinguishing between positive and negative sanctions. Among the first to point to the pitfalls of trying to understand how individuals frame decisions, regarding threats or promises, Baldwin (1971b) established a decision maker’s “baseline” of expectations. Although the concept of the “baseline” is easy to understand, it is hard to identify empirically. The same applies to a host of other elements that are needed to understand the factors that influence the choice of decision makers. Baldwin touches on issues similar to those raised in psychology that has been imported into international relations, such as the issue of framing, reference point, anchoring, and other factors central to decision making. These concepts are also used by experts of persuasion, whether in marketing or other areas.

Decision-making theory is often cast at the individual level. When applied to international relations it is typically used to describe leaders of states or leaders of groups. An actor attempting to exert influence may imagine he or she is using a carrot, where the target of the influence attempt may view it as a stick. International relations scholars are familiar with the problem with perception and understanding how a decision maker perceives the options at a given point and over time. Today’s reward may lay the groundwork for tomorrow’s threat, and tomorrow’s threat may lay the foundations for a future promise. Rewards and punishments, for compliance or non-compliance, may be easier to identify than promises and threats, but these are often difficult to distinguish.10

The United States began two large stabilization operations after overthrowing regimes in Afghanistan and Iraq. Data are limited on the use of economic incentives and spending in the economic operations, particularly at the micro level. Congress set up regulatory bodies to monitor reconstruction and development spending in Iraq and Afghanistan. The Department of Defense also tried to improve its recording practices, but acquiring data was difficult. As the years passed, more regulations were implemented and reporting required, but new programs and ways to circumvent the regulations were introduced. For example, the spending limits for the Commander’s Emergency Response Program (CERP) were increased over time and new programs emerged that allowed higher spending limits.

There has been little effort to examine the effectiveness of economic incentives in military operations. Only a handful of studies has looked at the impact of the military’s development spending on violence in Afghanistan and Iraq. Most scholarly or systematic empirical analyzes have focused on only one of the MAAWS programs, the CERP (Berman, Shapiro, & Felter, 2011; Chou, 2012; Egel, Ries, Connable, Helmus, Robinson, & Baruffi, et al., 2016).11 Berman, Shapiro, and Felter (2011) provided statistical evidence that the government’s provision of services is associated with a reduction in violence. Chou (2012) found no statistically significant relationship between the spending for these projects and reduced violence. However, her analysis focuses on only a few months. Barbieri (2015) examines the impact of MAAWS spending on violence in Afghanistan and Iraq and finds Department of Defense spending in Afghanistan and Iraq is associated with reductions in the U.S. and coalition deaths but is correlated with increases in local security forces’ deaths, controlling for other agency spending and relevant control variables. The U.S. forces deployed in these theaters came to view locals as the enemy, and locals began to see outsiders as occupiers. There were certainly exceptions, and many locals were willing to collaborate with the Americans. However, there was a climate of distrust. The issues of framing and perception are relevant in such a climate because they explain the differences in how locals respond to economic incentives, not only by U.S. troops but by other groups.

Many scholars and practitioners believe that the provision of services and the injection of funds at the local level help provide incentives for peace and stability. One of the United States’ key objectives was to provide jobs, so the unemployed masses, which swelled in Iraq, would have options beyond the insurgency. Collier and Hoeffler (2004) provided evidence that rebels are motivated by greed, rather than grievance, in challenging the state for control. Their work has inspired a lively debate about the motivations for rebels to fight.12 If true, it would presumably be possible to lure rebels away with economic incentives. The United States and other coalition members set up integration programs that would provide funds for detainees and insurgents wishing to lay down arms. U.S. and coalition forces also employed people willing to join the security forces of Iraq and Afghanistan. The U.S. military’s use of money at both the operational and tactical level is consistent with support for bottom-up development. Many in the military accepted the premise that small amounts of capital can change people’s lives—an idea supported by many development experts (Yunus & Jolis, 1999; Yunus & Weber, 2007). U.S. troops provided seed money similar to popular micro-lending programs. In general, the empirical evidence on the success of micro lending is mixed (Banerjee & Duflo, 2012), and there has not been sufficient research on the combined interests and objectives pursued through money in stability operations.

The U.S. military was also engaged in development initiatives that were intended to create free market systems, locally and nationally. Construction and development were part of the macro-level economic incentives used in stability operations. The military’s strategy was consistent with the Washington Consensus style of development that emphasized the importance of free markets, privatization, and deregulation. In many respects, it also shifted to the current “post-Washington Consensus” in development, which allows for a larger role for the State in the development process.13 There are similarities in the military’s use of money and markets. Both were intended to serve the organic purpose of transforming society, but they did not occur naturally: changes and markets were imposed.

Evolution in the Use of Money by the U.S. Military

Collaborating with a foreign force, of any kind, has always been a risky business. In a time of war, informants and collaborators risk their life. Often, they risk the life of their loved ones. What can bring a rational human being to assume such significant risks? For the outsider, the easiest approach to this bystander dilemma is to deploy some economic incentives to convince the receiver that the advantages of collaborating are greater than the expected costs of not collaborating. Nevertheless, one of the many problems to be solved by the U.S. military in Afghanistan and Iraq was choosing the most effective array of carrots and sticks—that is, the most effective array of positive and negative incentives.

The historical record shows an interesting evolution regarding the use of positive incentives in general and money in particular. Other than the quantity used and the institutionalization of the practice, there was not much that was new in the use of money by the U.S. military to complement other tools of intervention. During the Second World War money was identified as a useful tool to win the collaboration of the local peoples. However, buying people’s collaboration was usually a last resort. At that time, the Office of Strategic Services (OSS), a subdivision of the Joint Chiefs of Staff, was responsible for collecting and analyzing strategic information required for military operations. The OSS also planned and executed programs involving physical sabotage and morale subversion. Money helped facilitate the war operations and saved troops’ lives. The OSS felt that it was necessary to establish an ad-hoc branch for financing its operations through undocumented funds made available by the president and the Congress. The Special Funds Division of the OSS (SF/OSS) was founded in January 1942 and operated under different branches before becoming independent in May 1944. SF/OSS also paid subagents to conduct missions and covered their equipment costs and operational expenses, handled the salaries of civilian employees working in neutral countries, and provided currency to French and Italian resistance groups to finance their operations.14

Today’s U.S. government and the international environment are much different from those in which the SF/OSS operated. The National Security Act of 1947 changed the structure of the U.S. government dramatically; adding new specialized agencies tasked with duties that had until that moment been almost the exclusive domain of the military. The Cold War marked a sharp distinction in the overall approach of winning the cooperation of some target individuals. Money was the tool of choice, but it was far from being the only one. A theory came to life, summed up by the acronym MICE: M stands for money, I for ideology, C for compromise, and E for ego.15 Money can provide a higher quality of life and security, balancing the risks involved in collaborating with some foreign force. The individuals bought by money were obviously important throughout the Cold War. The biggest problem with money, even when it works, is that it does not produce a special bond.16 However, too often money has only been one factor in buying a recipient’s consent, sympathy, and collaboration. Exploiting someone’s ideology has proven to be far more efficient that exploiting someone’s desire for money, but often an ideological affinity between the handler and the target introduces a high level of bias in information acquired. Locals on the ground may claim an affinity to the U.S. values of democracy and capitalism and may be able to convince their handlers that a threat exists by misrepresenting the information provided when no such threat exists. Coercion may be more damaging in a traditional society with strict social norms. For example, in locations where homosexuality is punishable by death, threatening to expose a local could set the stage to coerce cooperation. When individuals are compromised and then coerced to cooperate, they may collaborate, but they do so with great reluctance and require control by handlers. The final letter in MICE stands for ego. Here, the handler tries to buy someone’s support by taking advantage of the individual’s unfulfilled ambitions and the desire for retaliation or revenge. Self-centred collaborators tend to exaggerate their importance and, consequently, the importance of their role. This can bias the information that ego-driver collaborators provide and can jeopardize their successful participation in operations. MICE have long provided strong explanations and useful guidelines in dealing with the choice of the most efficient and effective kinds of carrots and sticks, but the MICE formula is not always effective in capturing the peculiarities of human motivation in 21st-century theaters of stabilization operations.17

Winning hearts and minds for the U.S. military has meant switching from an enemy-centric approach to a people-centric approach. To this extent, the U.S. military has tried to be careful in adjusting its actions to the different cultural environment in which it was called to operate. Social sciences have lately identified instruments of influence able to take advantage of the behavioral shortcuts humans have developed over time to ease their lives in any given society. These fixed action patterns of behavior occur in the same sequence and order every time a given stimulation is introduced, allowing the individuals to respond quickly and predictably to the environment. The general human response to these principles helps human interaction, lower friction, and provides benefits. Almost everybody’s behavior conforms to these principles; some become rather accomplished in using these principles to influence others into acting against their interests.18 For the most part, the success or failure of today’s stabilization operations is dependent on the understanding of these principles of persuasion and influence so as to manipulate a given population without appearing to be manipulative.19

Under this point of view, the principle of reciprocation, by which every individual feels the obligation to repay in kind what another person has provided to him or her, is of utmost importance. Every human society abides by this rule. A small gesture, financial or otherwise, can produce a belief in indebtedness that makes the target susceptible to future requests. Personal prestige counts heavily. In every society, compliance with authority brings rewards while resistance brings punishment. Authority may include the ability to employ advisers and to reward them generously. The best control is implicit. Threatening the possibility to deny some money to exercise or regain control on a given target is equal to an influence failure. Scarcity is another valuable tool in manipulating a target against its economic interest. By a sense of urgency, scarcity overcomes the rational motivation of a given targeted individual or group. A central motivator of human behavior is the desire for consistency. Social life often seems to reject members who are untrustworthy. Often, consistency is more important than correctness. Humans increase their confidence in a decision once that decision has been made public. Too often, humans will also defend that decision, independent of the quality of the decision itself. Appealing to somebody’s desire to remain consistent can be more fruitful than blackmailing the same individual. In all cultures, ages, and populations, people like similar people, and flattery is always a powerful force in any human interaction. Humans’ correct behavior is determined by the activity of observing others, particularly in different environments. This is what is called “social proof.” The combined effects of social proof and the power of consistency can explain much behavior clearly oriented against any economic self-interest. In other words, people engaged in an activity are like magnets for others. The nuanced approach based on these six principles, and codified under the acronym RASCLS, has proven to be efficient in the demanding framework of 21st-century counterinsurgency operations (COIN).20

COIN operations call for engaging in a broad range of activities to meet the needs of the local population. COIN theory typically depicts a warfare involving a struggle between counterinsurgents and insurgents over the loyalty of the local population (Galula, 1964; Taber, 1965; Thompson, 1966; Kitson, 1977; Kilcullen, 2006, 2010, Nagl, 2002, Petraeus, 2006). Birtle (2007) provides a two-volume history of U.S. Army counterinsurgency operations from 1842 to 1976. He points to the difficulty of balancing coercion and persuasion. Some international relations scholars have looked at the competition between insurgents and counterinsurgents to win over the people (Bueno de Mesquita, 2006; Berman, Callen, Felter, & Shapiro, 2013; Berman, Felter, Shapiro, & Troland, 2011). Thus far, the empirical work in this area is limited, and the data constraints pose considerable problems for assessing the validity of findings. In general, conflict zones are dynamic environments, much like our notion of free markets. People adapt to the changing environment, evaluating the costs and benefits of their actions in rational ways. The targets of influence attempts have competing loyalties. There may be higher bidders and competing loyalties. When the target has alternatives, bidding wars could ensue, raising the price of buying influence and the benefits for the targets to increase the asking price to receive greater benefits.

The COIN and stability operations in Iraq and Afghanistan, two different societies at different levels of development were based on a core set of traditional liberal assumptions about the power of money and markets to transform societies. The long Iraqi and Afghan entanglements enabled the Department of Defense to expand progressively into what had been the responsibilities and core competencies of other government agencies. Analysing the inter-agency battles between the Department of Defense and State are beyond the scope of this paper, but it was evident that at the Department of Defense was granted more power over what had traditionally been the work of other federal departments and agencies. The U.S. military was, in some ways, able to take advantage of the theater realities in Afghanistan and Iraq to institutionalize the use of money on the battlefield. From 2001–2015, the Department of Defense spent approximately one and a half trillion U.S. dollars on war-related costs compared to one hundred billion spent by the Department of State (Belasco, 2014, p. 19). The United States spent less than 35 billion in early-21st-century U.S. dollars in Germany from 1946 through 1952. The Iraq expenditure is more than four times the sum committed to Iraq by America’s allies. In Afghanistan stabilization is expected to cost at least 9 billion U.S. dollars per year through 2014.21

On top of a tremendous disparity in resources favouring the Department of Defense inherited at the end of the Cold War, U.S. policymakers continued to fund the Department of Defense at high levels. The black and white simplicity of the Department of Defense versus the shades of gray at the State of Department made it easy for the U.S. government to continue its Cold War national security policymaking process. The Department of Defense has taken on abundant civilian roles in the post–Cold War period. The Department of Defense was assigned to take charge of reconstruction and development in Afghanistan and Iraq, including programs as a rule delegated to other federal agencies. Languishing in a strategic vacation for more than a decade, the United States entered the age of the terrorist threat with an old premise, interpreting power as military dominance. Throughout the 1990s, the military took part in several other non-traditional missions, from Haiti to Honduras to the Balkans. Part military action and part nation-building, the new Military Missions Other Than War did not fit exactly into the jurisdictions of either the foreign relations or the armed services committees and a mindset dominated by massive and expensive weapons platforms.22

The debates over whether the U.S. military should be involved in nation-building and development functions were contentious. Olson (2010) explains that the U.S. military has always been ambivalent in its attitude about reconstruction. While Olsen’s concerns may be legitimate, the role of the Department of Defense in Iraq and Afghanistan has been codified in some documents. There may be problems coordinating agencies charged with reconstruction, but the U.S. military ended up with its strategy: it was to clear, hold, and build. The idea of what to build may have been grandiose. For some, the objective was to build two new prosperous, democratic, capitalist societies.

In November 2005, the Department of Defense issued Directive 3000.05, which requires the establishment of “strategic policy guidance for distribution throughout the Department for the development of capabilities to conduct stability operations activities and for the integration of Department of Defense capabilities with those of other U.S. Government agencies.” It is hard to overstate the significance of this document, which made civil-society support as important as combat in military missions. For decades, the Department of State largely had the power to establish and implement foreign policy. It had traditionally played the lead role in deciding who should get U.S. security assistance and was able, in the past, to assert its authority to squelch military proposals it considered unwise. It took a back seat in reconstruction efforts in the United States’ recent operations. Supporters of the Department of Defense’s argue that the Department of State’s process for approving and implementing aid programs is too slow and cumbersome. The Department of Defense also says that the Department of State is out of sync with the urgent demand to strengthen the capacity of military partners and meet the needs of locals, especially in the Middle East.23

COIN called for economic operations in two stages, designed to meet both short- and long-term goals. First, the military would help meet the basic needs of the local population, with short-term solutions to economic problems. The second component was to help with the long-term development. COIN acknowledged that some degree of security was necessary before long-term development goals could be pursued. Still, the military often pursued long-term objectives in areas where security was lacking. Thus, the sequencing of events in U.S. operations was not clear cut. Stabilization operations have exposed the shortcomings of a military institution whose primary ambition has always been to destroy the enemy in one big battle. Always when operating overseas, but even more lately, the U.S. military has confronted itself with the need of recruiting local people to collect information regarding the operational environment and, eventually, to use them actively. Such a demand has not changed much since the Second World War. What has changed is the kind of people the U.S. military hopes to recruit to acquire information or to launch covert operations. During the Second World War, U.S. Army officers focused mainly on exploiting the patriotism of local people in occupied areas—those who opposed their occupiers. There was no general scheme for identifying the right individuals to recruit. Identifying potential collaborators was more an art than a science.24

The operations in Afghanistan and Iraq, blurring the line between peace and war, made such assessment even more complex. In such a complex environment, theater commanders were asked to spend more and more time documenting their assistance projects, their spending, and their effectiveness. Among the short-term objectives that the military hoped would turn into long-term gains was the creation of jobs. Many believed that the lack of economic opportunities in both Afghanistan and Iraq created financial incentives to join the insurgency. Thus, one of the key elements of MAAWS was to create jobs for young men in both these two countries so as to give them hope that they could be a productive part of a new society. The program provided a means for commanders to undertake some of the tasks normally carried out by civilian groups, as part of its stability operations. While the U.S. military is uniquely trained, manned, and equipped to operate in unstable regions, later studies show a higher level of expertise is needed (Egel, Ries, Connable, Helmus, Robinson, & Baruffi, et al., 2016). By law, the Department of State is the agency tasked with foreign assistance. When needed, Congress authorizes the Department of Defense to engage in foreign aid as part of its Humanitarian Assistance Authorizations and Appropriations (Center for Army Lessons Learned, 2008). Thus, the Department of Defense undertakes many tasks delegated to civilian groups, particularly USAID and the Department of State.

The CERP has received special treatment in Iraq and Afghanistan. MAAWS guidelines provided instructions on how to finance economic operations. The goal was the delivery of a smooth procurement process, granting commanders a high level of flexibility and giving them considerable discretion over the use of funds. Commanders were not required to go through the standard bidding process that is usually part of government procurements. They had discretion over which firms received contracts for reconstruction projects. For example, the United States started an Afghan First Program where preferential treatment in bidding was given to Afghan companies. The CERP followed the same guidelines and sought local contractors and suppliers. With the passing of time, the approval process changed, with legal reviews and boards being introduced for high-value projects. There were also higher requirements for the theater commanders to provide details at each stage of their projects. Later on, the emphasis shifted toward developing metrics that would enable evaluators to assess the effectiveness of CERP spending. As a result, CERP in both Afghanistan and Iraq were subjected to serious scrutiny, given the large amounts of funds being spent and the relative autonomy of commanders to determine the use of funds. Among the many serious problems typical of CERP was the practice of providing advance payments to contractors for goods or services. Some of these were not received, and there was inadequate oversight of CERP payments. Data were eventually entered into a database, but most of these data are not available to the public.25 This makes it difficult to analyze the data systematically. Osterhout (2011) saw some of the problems with CERP to be the result of not working with the Federal Acquisition Regulation. Here, contractors did not have to make competitive bids. This allowed commanders to offer contracts at above market prices. Although auditors pointed to waste in spending, the troops were buying something: they were paying higher fees for contracts to offer concessions to local leaders, their friends and family, and to provide funds to areas that kept violence low. There were reports that some U.S. funds were being transferred to insurgents, from contractors who negotiated to keep violence away from their projects.

Among the most popular of examples of using economic incentives to gain loyalty occurred during the Sunni Awakening. A diverse group of insurgents fighting the United States turned against the radical Islamic insurgents and decided to join the U.S. military in fighting a common enemy. The United States paid salaries to more than 100,000 men and understood many of these fighters would eventually be integrated into the Iraq Security Forces. While the United States paid local militia, it would be difficult to say it bought their loyalty. This was simply an alliance of convenience against a common foe. It later shifted, whereby some former allies returned to fighting the Iraq forces. The United States gave these fighters money, training, protection, and humanitarian assistance (Marten, 2012, p. 159). Local militia leaders received development assistance, which was used to build their community and power. The United States worked hard to flip the loyalty of local tribal militia. U.S. Commanders thought that getting different sectarian groups to fight a common foe would help build unity, which was a requirement for long-term stability (Bruno, 2009).

Conclusions

Scholars interested in assessing the use and effectiveness of money in conflict zones confront several serious problems. These include gaps in knowledge about outside disciplines. The same limitations arise when the United States attempts to utilize money in war, particularly to combine positive and negative incentives. Despite the talk of interagency cooperation, turf battles continue, with some departments and agencies attempting to take over practices that are outside their core competencies. This makes it difficult to understand whether economic and other power might be wielded more effectively if the appropriate agencies were involved in what should be complementary skills sets of the Department of Defense and other agencies. Finally, the lack of available information is deliberate and has a long history. The operational security constraints, combined with the secret culture typical of the involved departments and agencies, means scholars have a low level of access to data, practice, and policy on the use of money in war zones. This makes rigorous analysis and accountability difficult.

The U.S. military deployed in Afghanistan and Iraq may regard MAAWS as a success. It helped save lives, by allowing Commanders access to quick money to influence actors and environments. Public opinion may be aware of the general human and financial cost of the U.S.’s long wars, but the public is likely unaware of the extensive use of money made by the Department of Defense on the battlefield. Since the early day of these military engagements, Congress envisaged the theater commander’s use of money as a convenient and effective instrument to win the hearts and minds of the local populations. At the same time, auditors and the General Accounting Office saw it as tricky and watched the number of fraud cases rise. To some extent, money changed some hearts and minds of local populations. However, buying someone’s loyalty means that the very same individual may also be turned by insurgents if insurgents offer to pay more or the U.S. money is no longer available. As the MICE principle teaches, ideology is a much stronger factor than money in buying collaboration.

For the U.S military, using money was the logical consequence of the environment. It was an effort to find a solution for a difficult contingency. Soon, the use of money at the tactical level evolved into an instrument that was difficult to manage. The switch from counterterrorism to counterinsurgency was only one of the uncertainties that fuelled an unusually high level of confusion regarding the state of the conflict. In any case, MAAWS had some negative effects on the military operations in Afghanistan and Iraq. The programs became associated with waste and corruption and enriched individuals and groups that the United States may not have intended to enrich. All in all, the most relevant aspect of the use of such a large amount of money by the U.S. military was to shift from a deep-rooted interagency process to a new Department of Defense centric dynamic. In the aftermath, MAAWS increased the tensions between capacity building supporters and counterinsurgency promoters.

Against all hopes, MAAWS proved that money remains something different from a weapon. The U.S. military in Iraq and Afghanistan has controlled with the greatest attention the use of their weapons, due to their destructive capabilities and short- and long-term political consequences of their use. The same is not true about money. The U.S. commanders deployed in Afghanistan and Iraq distributed money with little regard for its short- and long-term consequences. From a procurement point of view, MAAWS was far from a fully fledged success. CERP was often devoid of competition, and projects were not documented as they should have been. Outcomes frequently fell short of contract terms, contracts were paid in advance, many projects were never used by the local population the way they were originally envisioned, and no maintenance was provided in many cases (even for completed projects). Despite its problems, CERP has been salvaged by the Department of Defense in the belief that it can be made more efficient with appropriate reforms. From this point of view, improved training has been identified as the most important intervention. Interagency exchange of information has been judged as imperative to avoid useless project replication and restrain corruption. Lastly, the Department of Defense has made strong calls for nstitutionalising MAAWS with the hope that its improved oversight will boost accountability, get better contract management, and provide consistency to what was largely an inconsistent program. Finally, the most significant suggestion shared by analysts of MAAW that coincides with persuasion research is that it is better to buy people with limited funds or small projects. MICE and RASCAL both teach this. Also, limiting the cost ceiling helps ensure that most funded projects avoid contributing to dangerous theater imbalances.

The U.S. military’s attempt to articulate a doctrine of using money on the battlefield suggests an increase in the usual complex mixture of rewards and punishments and a blurred distinction between rewards and punishments. The desire to shift people’s loyalty with economic incentives is rarely analysed in conjunction with kinetic operations. The use of positive inducements in stability operations provides an opportunity for scholars to debate and evaluate the use of positive incentives as a tool to shape an adversary’s behavior. Unfortunately, data are difficult to acquire, even when unclassified. In response to Freedom of Information Act requests, U.S. Central Command’s Major General Terry Ferrell explained that “the unclassified portions, within the document being denied, is compiled information which is individually unclassified but should be classified because the compiled information reveals an additional association or relationship that meets the standards for classification under E.O. 13526, section 1.7e, and is not otherwise revealed in the individual items of information. If disclosed, the information would reveal intelligence activities” (T. Ferrell, personal communication, June 24, 2017). Finally, conflict zones, or unstable areas, provide an interesting microcosm in which to study the effectiveness of economic incentives under conditions of limited or no regulations. In some respects, the lack of regulations within war zones represents an area comparable to the ideal conditions of a free market, because there are few regulations. Actors are attempting to influence targets through a combination of persuasion and coercion in flexible ways and adaptation takes place, as time unfolds and power and loyalties shift.

Acknowledgment

Special thanks to Lucio Martino for his assistance on this chapter.

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                                                                                                                                                                                                                                                          Notes:

                                                                                                                                                                                                                                                          (1.) See Bapat and Morgan (2009) and Morgan (2015) for excellent discussions on the literature on negative sanctions. Exploring the negative sanctions literature is beyond the scope of this paper. Some negative sanctions scholars refer to carrots when talking about economic “sticks,” but they usually do so in relation to lifting or easing negative sanctions or providing aid (e.g., Cortright & Lopez, 2002; O’Sullivan, 2003; Drezner, 1999).

                                                                                                                                                                                                                                                          (2.) See Drezner (2011) for a review of targeted sanctions research.

                                                                                                                                                                                                                                                          (3.) See Barbieri and Pathak (2007) for a discussion of different ways the United States targets individuals and firms. For example, individuals or firms may be restricted from engaging in trade with U.S. companies.

                                                                                                                                                                                                                                                          (4.) O’Sullivan (2003) looks at negative sanctions against non-state actors and provides a list of those enacted by the United States or the United Nations after 1990 (pp. 40–44).

                                                                                                                                                                                                                                                          (5.) There has been some evidence that economic punishments or threats of punishments are effective.

                                                                                                                                                                                                                                                          (6.) This point has been made by several scholars, including Baldwin (1971b). He points to the potential problem of blackmail or aggression that could come with payments to an adversary.

                                                                                                                                                                                                                                                          (7.) Also, on positive sanctions, see Bernauer and Ruloff (1999); Cortright and Lopez (2002); and Solingen (2012).

                                                                                                                                                                                                                                                          (8.) In the late 20th and early 21st centuries, international relations scholars, most notably Jervis (1976, 2017), Levy (1997), and McDermott (2004), have pointed to the relevance of psychological theories for international relations scholars.

                                                                                                                                                                                                                                                          (9.) In 2015, President Obama issued an Executive Order, “Using Behavioral Science Insights to Better Serve the American People.” In it, he argued that evidence from “fields such as behavioral economics and psychology” should be used “to better serve the American people.” Behavioral economics has received its fair share of criticism. The chief among these is that it lacks a unified theory.

                                                                                                                                                                                                                                                          (10.) Persuasion science is referenced in intelligence guides.

                                                                                                                                                                                                                                                          (11.) Berman, Felter, Shapiro, and Troland (2013) provide evidence that Provincial Reconstruction Teams (PRTs) reduce violence in Iraq. The PRTs were administered by the State Department; given the low level of engagement by the State Department in hostile areas and for unstable years, far more research is needed to research conclusions.

                                                                                                                                                                                                                                                          (12.) For a summary of debates on greed versus grievance, see Berdal and Malone (2000).

                                                                                                                                                                                                                                                          (13.) For a useful discussion of the differences (or lack of differences) between the Washington Consensus and the post-Washington Consensus, see Lesay (2012) and Williamson (2004–2005).

                                                                                                                                                                                                                                                          (14.) M1934—OSS Washington Secret Intelligence/Special Funds Records, 1942–1946. National Archives and Records Administration, Washington, DC, 2009, pp. 1–2. Retrieved from https://www.archives.gov/files/research/microfilm/m1934.pdf.

                                                                                                                                                                                                                                                          (15.) See Marbles (1995).

                                                                                                                                                                                                                                                          (16.) Within economics and psychology there are literatures on whether money or extrinsic incentives undermine intrinsic incentives (Bruno, 2013). The evidence suggests that introducing money might undermine U.S. goals of hoping locals will fight their own battles.

                                                                                                                                                                                                                                                          (17.) See Bellaby (2014, pp. 107–158).

                                                                                                                                                                                                                                                          (18.) See Cialdini (2007).

                                                                                                                                                                                                                                                          (19.) See Petkus (2010).

                                                                                                                                                                                                                                                          (20.) Steve Kleinman, a U.S. military interrogator in Iraq, was the first to codify these principles.

                                                                                                                                                                                                                                                          (21.) See Watson Institute (2017).

                                                                                                                                                                                                                                                          (22.) See Dobbins et al. (2005).

                                                                                                                                                                                                                                                          (23.) See Ucko (2009).

                                                                                                                                                                                                                                                          (24.) Strategic Services. Special Operations Field Manual No. 4. 1944, Washington, DC: Office for Strategic Services.

                                                                                                                                                                                                                                                          (25.) The author filed Freedom of Information Act requests with the Department of Defense, Army, U.S. Central Command and received limited data.