Building a “fragile consensus” : liberalisation and state fragility ; a thematic paper supporting the OECD DAC INCAF project "Global Factors Influencing the Risk of Conflict and Fragility"

This research paper seeks to answer three central questions: (i) how can different forms of liberalisation be classified; (ii) how have liberalisation policies and measures affected conflict-affected and fragile states; and (iii) what are the essential institutional governance pre-conditions to manage the liberalisation-fragility interface? This research suggests that no single country conforms entirely to classical liberalism. Fragile states – many of which have long communist, socialist and patrimonial histories – exhibit a cocktail of economic personalities. They may best be referred to as “liberal-hybrids”. Research shows that while such states are highly exposed to global transmission channels for liberal market policies, many of these liberal hybrids fared better through the global financial crisis because of their adaptive mechanisms. There is, therefore, a great need to deepen understanding of the drivers of fragility and resilience in fragile states, and redefine proscriptive ideological approaches that drive economic and development policies in different directions. This paper focuses on four key pillars of liberal order policies: financial liberalisation, trade liberalisation, foreign direction investment and exchange rate management. These aspects are fundamental to growth, but “test” fragile institutions and societies too severely in many cases – aggravating fragility and creating inequitable growth patterns. Policy responses to mitigate risks and maximise benefits from adoption of these liberal order policies in fragile contexts have been stronger in theory (as the Post-Washington consensus era draws to a close) than in practice; fragile states are still subject to blueprint prescriptions and competitive political pressures. Drawing on country examples, this paper proposes future avenues for international research and action: (i) grouping fragile states according to a new set of vulnerability criteria on which to base support; (ii) developing a set of leading or proxy indicators to close the action-research time gap for fragile states; (iii) modelling fragile state responses to global risks towards early warning; (iv) integrating economic and development policies at national level; (v) staggering liberalisation policies to keep pace with institutional capacities; and (vi) prioritising internal economic cohesion. To create the analytical base, three fragile state case studies could be produced exploring liberalisation adoption from ideology and prescription to uptake pattern over time. Results could be synthesised by a newly established Global & Fragile Systems Contact Group, empowered to create the new metrics required to turn the New Deal into the “real deal” for fragile and conflict-affected states.