Do economic boycotts work?

Boycotts are a funny business, and none funnier than the economic ones.

Iran is going to be threatened by United Nations sanctions over its nuclear policy. Iran was exposed to economic boycotts by the US.

Israel has been under economic boycott for a long period of time. Denmark got hit by a Muslim economic boycott over the offensive cartoons. Pakistan boycotts Indian products. USA boycotts Cuban products.

India boycotted British goods during its fight for Independence. The Arab countries embargoed oil to the west in1973. British academics want to boycott Israeli academics and the world boycotted South Africa during the apartheid times. The Americans boycotted French wine and renamed French fries to freedom fries. Burma is under economic boycott. And so on and so forth.

Unfortunately, the evidence is mixed about whether economic boycotts actually work. For them to work, they have to be hermetically sealed total boycotts. If they aren't, then all that they do is to provide a nice warm glow to your hearts with some minimal pain to the 'boycotee.'

On researching this concept of boycotts, I found out that the word boycott comes from a Captain Boycott, who back in 1880, refused to lower rents in an Irish farm. So the Irish Land League proposed that he be socially and economically ostracised. This sort of worked, as he couldn't get his crops harvested, and had to import labour, which ended up costing far more. Be that as it may, his name became synonymous with ostracism and entered into the English language lexicon.

Now we come to the current state of affairs. The boycott of Israel has been running for the past many decades and is certainly one of the most researched if not the most impassioned. Israel has been hit by economic boycotts from the strangest of places.

Of course, the Arab countries have imposed a boycott since 1948, although it started to dribble away after Egypt and Jordan signed peace treaties with Israel. The boycott by the countries was in three concentric circles. The primary boycott was government to government, no contact whatsoever between the Arab governments in any shape or form.

The secondary boycott is that of firms who do business with or in Israel. The tertiary boycott is of firms who may have 'Zionist Sympathisers' in senior management or board levels.

The last two boycott circles were estimated to contain 15,000 firms back in its prime in the 1970's such as Aetna Life, Xerox, Caterpillar and even people, like actresses Elizabeth Taylor and Barbara Streisand, for investing in Israeli securities.

After the Oslo Accord was signed, the Gulf Cooperation Council also decided to end the secondary and tertiary boycotts, but generally it keeps on going across the world in a low key manner. The Palestinian Authority itself stopped with the boycott in 1995. The other Israeli boycotts are losing steam as and when the Arab countries slowly start joining the globalised world, joining the World Trade Organisation and supply chains start getting interconnected in even more complex fashions.

The central boycott office maintained by the Arab League has effectively lost its function, with only Lebanon and Syria still beholden to the boycott.

So how effective has the boycott been? It is difficult to say because it is fiendishly difficult to figure it out, but many estimates have ranged from 3% to 10% of Israel's GDP since 1948.

But some farcical incidents come up. For example, the new international airport in Tehran which was constructed by a Turkish company was closed for a year after it was completed because it transpired that this company had some links with Israel.

In my young and callow youth, when I was travelling the world, I was warned not to get an Israeli visa stamp on my passport, as that would mean major issues with my travels to other Arab countries.

But we are drifting from the point. Did it work? No.

Did it hurt Israel? Yes.

Could they manage it? Oh! Yes!

And by the way, the GDP per capita for Israel is $22,200, compared to Egypt's $4,400; Saudi Arabia's $12,900; Jordan $4,800.

Mind you, the Israelis are no less silly about this economic boycott business. They go about blockading and boycotting the Palestinians after any attack by, say, the Kassam rockets. Does it help? Nope. The benefit which I can see now is that this boycott mainly provided ammunition for bombastic speeches.

Some major bombastic speeches were recently made in the United Kingdom, when a group of academics decided to launch an academic boycott of Israeli academics and universities. Being in the academic arena myself, I thought that this sort of behaviour was above politics, but I was disappointed to read that it was not so. Needless to say, saner minds prevailed and this attempt was dislodged.

After all, just what will this boycott provide besides some nice warm feelings? The Israeli academics will keep on publishing and teaching nonetheless. And if a political statement does need to be made, then this singling out of Israel seems to be a bit lop-sided to me.

I have yet to see a logically argued, directly related argument which explains how a boycott will help achieve political goals, the closest that I have seen came from this site: http://www.normanfinkelstein.com/article.php?pg=11&ar=130. Israel has much to answer for, but is this indeed the most efficient way to go about it?

Take another example of boycotts which belong to the surreal regions. The world and its dog is suggesting and implementing an economic boycott on Myanmar with laudable objectives and righteous anger all around.

The military junta took over a democratic country way back in 1962. Then free elections were held in 1990, and the military didn't like it, so easily set it aside and kept on ruling with an iron hand. The winner of the election, Aung San Suu Kyi was pushed into house arrest. So far, so bad! This situation was appalling.

So, a whole host of economic boycotts have been applied or have been requested. Oil companies, shoe companies, plastic companies, soft drink companies etc. all have been in the cross hairs. Firms such as British American Tobacco, Premier Oil, WPP, Pricewaterhouse Coopers,and Carnival Corporation, Aon Corporation, etc. have pulled out of Myanmar (check out this clean list: http://www.burmacampaign.org.uk/dirty_list/clean_list.html ).

But there is a dirty list of companies who still do business in Myanmar: http://www.burmacampaign.org.uk/dirty_list/dirty_list_details.html. It is a fascinating list of companies and activists are after them to pull out of Myanmar.

But the question remains: What is the objective of these sanctions?

If the objective is to change or ask the military regime to step down, then that simply would not happen by boycotting, because irrespective of the western sanctions, large scale trading will keep on taking place. Myanmar is surrounded by India, China and Thailand, none of which are least bothered by Burma's human rights or military rule whatsoever.

China is giving them nice shiny military toys, drugs are being grown in abundance, India is more interested in Burma for geo-political reasons and counter terrorism and ASEAN (Association of South East Asian Nations), the local national association does not want to say boo to a goose.

For that matter, none of the other ASEAN members are pretty hot on human rights anyway and democracy is, well, an interesting concept. The military regime is well entrenched and is not going away anywhere.

What these economic sanctions actually do is to hurt the general populace. Remember the Iraqi sanctions? Did the dictator actually suffer? No, but hundreds and thousands of babies and small children died directly due to this. It actually took an invasion to get rid of him. Who will invade Burma? So, I am not sure what can be done with these economic boycotts.

If the idea is that these economic boycotts will cause the general populace to starve and then rise up, then I am very sorry to say that I find this to be very difficult to comprehend and understand.

Just how will starving Burmese be able to overthrow a military regime? And how do starving the Burmese sit with boycotts?

The right way to handle the military junta is to ask China to pressure them, and best of luck on that. I am sorry to sound so pessimistic about this, but until and unless reality strikes, the actual Burmese population will get hammered twice, once by the generals themselves and second by these boycotts.

Another interesting attempt of an economic boycott was during the recent Danish cartoons issue. As you know, the issue arose when a Danish newspaper published cartoons of the Prophet. Leaving aside the history and reasoning behind it, a huge outcry arose because of the publication of the cartoons.

A huge wave of mobile phone text messages, emails, speeches and newspaper coverage encouraged an economic boycott. A range of items associated with Denmark were boycotted. Arla Foods, a Danish firm estimated 10% hit on its revenues because of the boycott. Denmark's Danske Bank estimated that Danish goods worth $1.6 billion annually are threatened in 20 Muslim countries (to compare, Denmark's GDP in 2005 was estimated to be $254.1 billion).

On the other hand, there was an increase in sales in other countries, where consumers actually purchased Danish goods to show solidarity. So overall, there seems to be an actual increase in sales. But where is it hurting?

While Arla Foods is currently saying that the 800 employees in Saudi Arabia will remain in employment, but if the boycott continues, then these jobs are at risk. The firms mentioned in leaflets and emails are mainly owned and operated by local Middle Eastern firms as franchisees. Again, guess who gets hit?

So if the objective was to express displeasure, then that happened but if the objective was to pressurise the Danish newspaper to withdraw the cartoons, then that failed. If the objective was to hurt Denmark, it did to a miniscule degree. Relatively speaking, the local Middle Eastern economies got hurt even more because of (1) localised impact, and (2) increase in risk premium, which will cause future investments to reduce.

We just explored three big episodes of economic boycotts in recent years and generally the conclusion that we can draw is that economic boycotts are very blunt weapons and are frankly useless in terms of satisfying the actual objectives, but as I said, it offers some palliative to the chattering classes.

Another one is bearing down on us, and that is the looming Iranian sanctions. Applying sanctions on Iranian will be extremely silly and completely useless. The US has applied sanctions on Iran for years, just like Cuba, but has it really managed to change anything within Iran or Cuba? No.

So these boycotts are simply placebos and not medicine at all. It may be worthwhile to ruminate over what Walter Lippman said about sanctions, 'The dis-esteem into which moralists have fallen is due at bottom to their failure to see that in an age like this one the function of the moralist is not to exhort men to be good but to elucidate what the good is. The problem of sanctions is secondary.'

All this to be taken with a grain of salt!

Dr Bhaskar Dasgupta is a UK-based banker, academician and strategic analyst.