Business has always operated in an environment of risk – commercial risk from the market, legislative and regulatory risk from government, legal risk from the courts, and social risk from ever more active civil society. But risk from conflict or politically motivated violence, at least for developed country businesses, had for decades been largely confined to certain sectors – resources, transport and tourism, banking and insurance in particular – and to those choosing to make offshore investments in inherently fragile environments.

Post-11 September, as we now know to our cost, everyone can be massively affected by the impact of terrorist or other violence - on everything from employee security and recruitment to consumer purchasing, stock market prices, insurance costs, internal security costs and just-in-time inventory management. And as the ripple effects from 911 spread ever wider the unease is compounded: while the war with Iraq was less protracted and bloody (at least for the coalition) than feared, its messy aftermath has not done much to lighten the mood of uncertainty and pessimism that has been around now for more than eighteen months.

The current risk environment for business so far as war, terrorism and national and international security breakdown is concerned has five main dimensions: there is the risk of war between states; war within states; war on states (terrorism); the proliferation of weapons of mass destruction; and, what in some ways is most disconcerting of all, the risk of the breakdown of the rules as we have known them governing the use of force.

I will say a little about the nature and extent of each of these risks as they appear in the short term, over the next year or two, and conclude by suggesting some ways in which the business community can respond to the challenges posed by those risks. The Risk of War Between States

Any complacency that wars between states were a thing of the past (at least those not conducted in accordance with the UN Security Council rule book) has been swept away by the U.S.-led assault on Iraq. And a very real concern is building up that the U.S. may be inclined – and indeed more inclined than anyone previously seriously thought – to apply the same treatment to the other ‘axis of evil’ members, Iran and North Korea.

In each case, as with Iraq, the risk is said to be (in Henry Kissinger’s words) “possession of weapons of mass destruction by governments that have demonstrated their willingness to use them, have professed hostility towards America or its allies, and are not restrained by domestic institutions”.

Apart from the question of whether each one of these elements is strictly true, the problem with belligerent rhetoric is that it tends to be counterproductive. In Iran, the political landscape is divided three ways between the hard-line conservative ayatollahs, the well intentioned but so far ineffective reformers led by elected President Khatami, and an increasingly disgruntled populace. Regime change talk from Washington, combined with the sense of encirclement from Afghanistan and Iraq, encourages even worse behaviour from the ruling clerics, including possible acceleration rather than abandonment of their nuclear program and greater crackdowns domestically.

In the case of North Korea, the balance of evidence is that Pyongyang’s determination to acquire – or extend – nuclear weapons capability is driven more than anything else by its fear of military attack from the U.S. While its admission that it has had a program to make highly enriched uranium in breach of its obligations under the Agreed Framework (which resolved the last crisis in 1994) has enraged Washington hawks, less often referred to is the fact that the US has itself been in breach of its 1994 commitments – by not lifting all sanctions, by not normalising relations, and especially by not providing unequivocal assurances on non-use of nuclear weapons against the North.

Out of such vicious circles are new risks made. Washington says now that it does not want to ‘reward bad behaviour’ by now negotiating the support and assurances that North Korea says it wants in return for abandoning its nuclear weapons activities – but the alternative options (preemptive strikes on nuclear facilities, naval blockades to try to stop exports of dangerous material, full scale invasion) are all alarming, not least with the whole of Seoul within easy North Korean artillery range. Elsewhere, the fragile relationship between India and Pakistan, with the continued high risk of nuclear miscalculation by one side or the other, is continuing to concentrate minds, notwithstanding the very welcome initiative recently taken by Indian PM Vajpayee to get a serious dialogue started. Relations between China and Taiwan, though not cause for alarm at the moment, are going to require a little more constructive attention than they currently getting if tensions built up by Taipei’s rejection of the ‘one China’ formula over the last decade are to be contained. And tensions between a number of states in Africa – not that most of the world cares very much - continue to be explosively close to the surface. The Risk of War Within States

Conflicts within states remain very much the most likely cause of continuing death, destruction, economic dislocation and local business risk - and general human misery. In the last decade, 53 of the 56 major armed conflicts were of this kind – whether driven by grievance or greed, the availability of natural resources to feed either, or state failure or all of the above. From Colombia to West Africa to Zimbabwe to Somalia to the Caucasus to Central and South Asia to Indonesia and parts of the South Pacific - and many places in between - there continues to be a very real risk of major conflict breaking out, escalating, recurring or continuing.

As to predicting what will blow up when, there are so many factors to look out for that no single causal model, or early-warning-indicators model, has ever proved foolproof, or even very helpful. Here as elsewhere, you just have to keep your eyes open (and maybe, if I can be forgiven a little advertising, listen to outfits like mine: ICG currently has expert analysts reporting from the ground in 35 conflict or high-risk areas across four continents, producing over 80 reports and briefing papers a year, all freely available on our website).

There are grounds for some optimism about intrastate conflict. Through most of the 90s the number and intensity of these conflicts has in fact been declining. And over the last year a number of hitherto intractable conflicts have moved a long way toward resolution: Sri Lanka, Congo (though terrible violence persists in the Kivus and Ituri in the east of the country) and Sudan, to name just the most prominent. Progress has also been made – though peace remains very fragile - in Burundi, Somalia and the Ivory Coast. What is intriguing about these cases is that nearly all of them have been characterised by serious efforts to come to grips with the underlying causes of conflict in each case – most often a sense of political exclusion associated with ethnic identity - and not just to continue blasting away on the battlefield.

By contrast, those conflicts that have defied any real move toward resolution in the last year (such as those in Nepal, Kashmir, Liberia, Chechnya and Colombia), or which after giving hope of peace have lapsed back into war (such as Aceh in Indonesia) - have all been characterised by a continued overwhelming focus on resolution of the issue by force: dealing with the capability of the enemy rather than its motivation. The same has been overwhelmingly, and unhappily, true of the Arab-Israeli conflict: there are some encouraging signs in recent days that U.S. pressure on Israel to embrace the ‘Road Map’ is at last beginning to move the situation out of the terrible cul-de-sac of reciprocal killing of the last 2 ½ years, but there is still a desperately long way to go. The lesson for the international community, here as elsewhere, is that if we are serious about conflict resolution there is no substitute for intelligent policy (focusing on the right issues), effective negotiation (applying time honoured principles and strategies, above all listening carefully and understanding the issue as the other side sees it) and, where appropriate, intelligent external leverage by those governments and international institutions in a position to constructively exercise it. The threat or use of force can certainly be part of that leverage in appropriate cases, but always as a last rather than first resort.

There is equally no substitute, in post-conflict environments, for effective peacebuilding action, with the full support of the international community: if the recurrence of war is to be averted, much more needs to be done at all levels – bottom up as well as top down - to rebuild the political, economic and social infrastructure of countries and entities like Afghanistan, Bosnia, Kosovo and Rwanda. Peacebuilding cannot, as the U.S. is discovering in Iraq, be done on the cheap.

Nor can there any slackening in the new momentum behind conflict prevention efforts more generally which has been evident internationally in recent years: just as the causes of conflict are many and varied, so too are the strategies - political, legal, economic and military – available to address them in both the long and short term. The Risk of War On States

The security challenge on which the world has focused most since 11 September 2001 has been not war within states or even between states, but war on states. Terrorism is hardly a new phenomenon – used as it has been as a weapon by the weak against the strong since time immemorial – but the scale, audacity and location of the 911 attacks instantly moved the notion of “asymmetric” security threats from abstraction to alarming reality.

Subsequent ‘soft target’ assaults in Mombasa and Bali compounded global anxiety. And in the post-Iraq war environment many fear the worst is yet to come, with Arab-US relations in deep disrepair, characterised by “ a combination of mutual ignorance, fear, racism and militarism” (Rami Khouri, Daily Star, Beirut, 19 May 2003). President Bush said in Little Rock recently “Al Quaeda is on the run. That group of terrorists who attacked our country is slowly, but surely, being decimated” - but a week later in Riyadh it became horrifyingly clear that these forces were anything but extinct, with 34 people murdered and another 200 injured, and attacks in Morocco as well.

Although the overall number of terrorist incidents worldwide has in fact been significantly declining, the chances of major attack being mounted in major population centres are still very high. And we may have to come to terms in the future with casualties measured not just in the hundreds or thousands, but in the tens or hundreds of thousands or even millions. The possibility of a nuclear device in a delivery van – or even a suitcase – is no longer science fiction.

Terrorism is alarming enough even without weapons of mass destruction being employed. Conventional weapons – or proxy weapons of the 911 kind - can wreak horrifying carnage. And we are becomingly ever more aware, in this ever more technology-dependent, networked age, of what are now being called ‘Weapons of Mass Disruption’. Nightmare scenarios abound, including for example highly strategically focused simultaneous physical attacks on key electrical stations, causing cascading power failure throughout an entire country, even one like the U.S. of continental size. Cyber attacks are feared most of all: at the Davos World Economic Forum in January I heard one computer-company CEO estimating that there were now some 19 million people world-wide with the know-how to mount the kind of network attack that could bring any developed country to its knees through the dislocation of public utilities, business and government capacity.

To meet the challenge of terrorism will demand addressing both capability and motivation. There is no substitute for immediate military and law enforcement action, supported by intelligence and political cooperation, to directly counter those waging terrorist war; but nor is there any alternative but to simultaneously address what are usually described as the ‘root causes’ of terrorism - the political grievances (not least the Palestinian issue, which inflames sentiment throughout the Arab-Islamic world); the perceived humiliations; the economic anxieties; the social and cultural issues that breed discontent.

The motivations that matter here are not so much those of individual terrorists, which are often mixed, personal and hard to relate to the more obvious sources of unrest. The point is rather to improve the capacity and will to act of the governments of those countries where terrorists or would-be terrorists are most likely to be found. By presenting a positive vision of international engagement with the Muslim world, and addressing seriously the many sources of grievance in that world, the international community can give the governments of those states some feathers to fly - making active cooperation seem to be more clearly in the national interest and far easier to defend politically. The Risk of Proliferation of Weapons of Mass Destruction

One of the most alarming global security trends of recent times is the way in which the Nuclear Non-Proliferation Treaty has been gradually falling apart. Notwithstanding the impossibility of putting scientific knowledge back in a bottle, the NPT had effectively kept the number of nuclear weapons powers to a handful for over 30 years, diminishing in the process risk of either state use or terrorist use of such weapons. But now, in addition to the five originally declared weapons states, we have Israel, India and Pakistan, probably North Korea, possibly shortly Iran, and beyond that over thirty states with the capability to manufacture them and reducing incentive not to do so.

The nub of the problem is that so long as any state has nuclear weapons, others will want them – some for deterrent protection, others for reasons of national pride - and as long as anyone has them there is every chance that they will eventually be used, if not by design by accident, to catastrophic effect. It is no longer an effective argument, if it ever was, for any state to claim that it needs to retain some nuclear – or for that matter chemical or biological – weapons to deter rogue states producing or using them, or making them available to terrorist groups, when the current generation of conventional weapons give all the deterrent or retaliatory muscle that could ever possibly be required.

One reason for the erosion of the NPT regime is that the original nuclear weapons powers have utterly failed to take seriously their obligation under it to commit themselves to the ultimate complete elimination of their nuclear armouries. Another reason is that Israel’s now massive nuclear capability has never received a breath of criticism from the U.S.: of course this capability is argued to be purely defensive – but the trouble is that, for better or worse, others in the region do see it as a threat. Double standards, here as elsewhere, are the enemy of good policy.

Not only the nuclear non-proliferation and related regimes are under stress. So too are the chemical and biological weapons elimination treaties -with the collapse last year of efforts to introduce a biological weapons inspection regime, and the existing chemical weapons inspection regime under financial stress. The Risk of Breakdown of Rules Governing Force

I said at the outset that in many ways this was the most disconcerting risk of all. After the second global war of the twentieth century had added the deaths, almost unbelievably, of another 70 million human beings to the 10 million who lost their lives in the first, an attempt was made to construct through the founding Charter of the United Nations an international rule book that really would once and for all lay out once and for all what could and could not be done by states to each other by military force.

Although the immediate onset of the Cold War after 1945 put a lot of the intended UN machinery and Security Council process into storage, with the end of the Cold War and the highly united and effective global response, in the 1991 Gulf War, to Iraq’s head on challenge to international order, the rule book seemed to be in pretty good shape (even if cynics were heard to say that the response may not have been so impressive had Kuwait produced bananas rather than oil). However 911 and its aftermath have turned all that upside down: the US development of a doctrine of preemptive action which it is able and entirely willing to apply unilaterally, as we have seen now in Iraq, has left many wondering just what the rules so laboriously constructed over the last five decades are in fact worth.

Where the rule book had not been in especially good shape was in relation to the appropriate international response to human security catastrophes occurring within countries – the issue which arose repeatedly in the 1990s in Somalia, Bosnia, Rwanda, Kosovo and elsewhere : the UN Charter had simultaneously recognised the inviolability of state sovereignty and the necessity of protecting individual human rights, but had not mapped how contests between these values might be resolved. That said, the issue was the subject of enormous international debate, and agreed ground rules for action in extreme cases were, by the dawn of the new century, gradually evolving. But it has to be said that this development too has been rather turned on its head by the US invasion of Iraq. In the absence of an Al Qaeda link with Baghdad ever being seriously established, and with the WMD rationale struggling to find its feet with the war over nearly two months and still no such weapons discovered, it is now being widely claimed that the war was really a case of ‘humanitarian intervention’. The problem is that, monster though Saddam undoubtedly was, the detailed criteria that have been winning general acceptance as a basis for action in these cases were just not clearly satisfied here: the appearance as a result that there are really no rules after all relating to the use of force for human protection purposes is a serious setback to the prospects of consensus when the next Rwanda-type situation comes along.

In some ways the unhappiest development of all here is that some respected international lawyers are now beginning to write that there are no rules governing the use of force in international relations, and that we should effectively just accept the old real-politik notion that might is right. My own view is that when one is faced, as one often is in international policy issues, with a reality that doesn’t quite meet one’s hopes and expectations, one should make the choice not to lower one’s sights but to raise them. The proper response is not to accept failure, or even worse to intellectualise it, but rather to work harder to create a world which does better meet our hopes and expectations.

I heard Bill Clinton say recently that the choice that the United States itself faced at the moment was to either use all its power to try to stay top dog on the block in perpetuity – or rather to use its power to create a world in which the U.S. could live comfortably when it was no longer top dog on the block. He had no doubt which was the proper choice – and I don’t think there would be too many people in the rest of the world who would be in any doubt either. The Challenge for Business

Part of the frustration for business in all of this is that it tends to see itself as a passive bystander, a prisoner of events, unable in any way to determine their course. But there are many contributions the business community, and in particular the major multinationals, can in fact make to the prevention and resolution of conflict, both on the negative side of not contributing to the problems and on the positive side of doing something to directly aid their resolution. The imperative to “do no harm” has many dimensions.

and not giving encouragement, whatever the temptation, to corrupt practices that undermine the effectiveness of local governance.

All these strictures are, of course, easier to state than to observe in highly competitive commercial environments. One way of making them easier to observe is to support the passage of strong and enforceable regulatory codes, both domestically and internationally, on the principle that relying on the legal obligations of one’s competitors is a little more comforting than relying just on their better instincts. Support for this kind of regulation may be at odds with the traditional instinct of business to reduce government intervention to an absolute minimum, but it is growing, and needs to grow further.

What other positive roles can business play in conflict prevention and resolution?

Business can help by being prepared, if there is the capacity to do so, to put effort and resources into the rebuilding of shattered post-conflict societies, to help them get on their feet, functioning, consuming and trading again. Investment is often about choices at the margin – this country or that, this safer or that more volatile location within a country, this employment-intensive or that capital-intensive construction method - and it would help if businesses regarded the making of constructive choices on security issues as part of their larger corporate social responsibility.

And finally, business can also help by financially supporting organisations with a demonstrable track record of effective conflict prevention and resolution, like my own International Crisis Group. To say that, I know, involves a little bit more chutzpah than I might normally display - but if I can’t try on a little bit of marketing before an overwhelmingly business audience, when on earth can I?