The economics of terrorism

8 04 2009

Source: The Hindu

THE UNPRECEDENTED terrorist attacks by air in New York and Washington have opened a new phase in the history of mankind and President Bush has already declared it as the “first war of the 21st century.” For many in India, it is a grim reminder of the 1993 serial blasts in Mumbai though not comparable on any tragic scale to what happened in New York and Washington. The real significance of Black Tuesday (September 11) is that it is almost sure to shock the U.S. into treating terrorism as its overriding security concern.

The U.S. might take a vow to wipe off terrorism from this planet but even a casual look at the economics of such criminal activities makes it an impossible task. Though most countries might make a mistake of believing it as a plain or politically/ideologically motivated criminal activity the actual truth comes to the surface only when we take a closer look at the economics. It is certainly not a war between nations, religions or classes or even civilisations, as Prof. Samuel Huntington would like us to believe.

It is fundamentally a broad conflict that puts the moderate against the extremist. The job of fighting terrorism cannot be separated from the task of preventing, containing and ending conflicts. All too often the places that generate terrorism as well as drug-trafficking, health epidemics, refugees, outflows and environmental disasters are shattered societies where hunger, greed, repression and poverty have fed violence, despair and extremism.

A close nexus

“Organised crime” will be a defining issue of the 21st century as the cold war was that of the 20th century and colonialism that of the 19th century. Transnational crime will proliferate because crime groups are the major beneficiaries of globalisation. The global drug industry alone now accounts for 2 per cent of the world economy and it is constantly rising.

According to a 1999 World Bank report, the smuggling trade between Taliban-controlled Afghanistan and Pakistan was worth more than $2.5 billions in 1997. If smuggling from other neighbouring nations is included in this network, the turnover could easily cross $5 billions most of it is in narcotics and its related ingredients like various chemicals which go for refining heroin.

There is a close nexus between Taliban and Pakistan in drug- trafficking. According to the U.N. Drug Control Programme, Afghanistan produced 4,600 metric tons of opium in 1999 — three times more opium than what is produced elsewhere in the world. This opium is processed in refining factories in Pakistan before being sent to Lagos en route to Europe and America. It is this drug money, running into several millions of dollars, that fuels terrorism, funds networks across the world and makes possible missions like the WTC air attack.

But drugs may not be the largest part of the global mafia’s business. Mafia related stock-frauds use offshore corporations through various hideouts in the international system to manipulate the stock market.

There are around 50 “states” in the world, e.g. Bahamas, the Pacific island of Nauru, Yugoslavia and the Republic of Montenegro, that exist largely by selling their national sovereignty to those who wish to buy it in order to make their business deals inconspicuous. The “state” of Dominia advertises itself on the World Wide Web — its passport can be bought in a package with a name change, under the slogan “Perfect for someone who would like to leave his past behind”. There is no secret as to what these states do; but since they have the formal attributes of independent states, they cannot simply be closed down.

Estimates of profits

Internationalisation of criminal activities induces organised crime in different countries to establish strategic alliances to cooperate, rather than fight, on each other’s turf, through subcontracting arrangements and joint ventures, whose business practice closely follows the organisational logic of what Manuel Castells, of the fame of The Rise of Network Society, has characterised as “the network enterprise”, the characteristic of the Information Age. Furthermore, the bulk of the proceedings of these activities are by definition globalised through their laundering via global financial markets.

Estimates of profits and financial flows originate in the criminal economy very wildly and are not fully reliable. Yet they are indicative of the phenomenon. The 1994 United Nations Conference on Global Organised Crime estimated that global trade in drugs amounted to about $500 billions a year; that is, it was larger than the global trade in oil. Overall profits from all kinds of illegal activities were put as high as US$1 trillion a year in 1993, which was about the same size as the U.S. federal budget at that time. Sterling considers plausible the figure of $500 billions as the likely global turnover of “narco-dollars.” In 1999, the IMF ventured a very broad estimate of global money laundering in a range between 500 billion and 1.5 trillion dollars a year (or 5 per cent of global GDP).

Need for new agency

The recent global experience of catastrophic terrorism at World Trade Center in New York necessitates the formation of a new institution in India to gather intelligence and deal with all terrorism-related issues. It may be called a National Terrorism Intelligence Bureau, which can collect and analyse information so that it may give a timely warning of suspected catastrophic terrorist activities much ahead of time. The Bureau could have access to data of all law-enforcement agencies and it should be the apex organisation. The Bureau may have following broad functions:

First, to monitor and timely warn the government bodies concerned, and law-enforcement agencies regarding terrorist threats; second, to receive and store all lawfully collected relevant information from any government agency including law- enforcement, phone tapping and judicial information; third, to protect established civil liberty of citizens; fourth, to produce integrated reports that could be disseminated to any agency needing them: finally to suggest ways for counter-terrorism intelligence, including bilateral efforts of individual agency. In short, the Bureau would combine the active intelligence gathering approach of the national security agencies, which are not legally constrained in their foreign investigations, with the domestic authority and investigative resources of law enforcement agencies.

Breeding ground

In devising strategies to fight the terrorists and terrorism, it would surely be useful to minutely observe and understand the forces that drive them. Poverty (illiteracy) amid plenty is one of the greatest challenges and the breeding grounds for terrorism. According to the World Development Report 2000-2001, “at the start of new century, poverty remains a global problem of huge proportions. Of the world’s 6 billion people, 2.8 billion live on less than $2 a day, and 1.2 billion on less than $1 a day. Six infants of every 100 do not see their first birthday, and 8 do not survive to their fifth. Of those who do reach school age, 9 boys in 100, and 14 girls, do not go to primary school.” Similarly, technical hegemony is creating a new map of the world. A small part of the globe, accounting for some 15 per cent of the earth’s population, provides nearly all of the world’s technology innovations. A second part, involving perhaps half of the world’s population, is able to adopt these technologies in production and consumption. The remaining part, covering around a third of the world’s population, is technologically disconnected, neither innovating at home nor adopting foreign technologies. Thus, a concerted attack on poverty and technology diffusion on a large scale will go a long way to contain terrorism and it will dry up the ideological base which sustain the terrorists and terrorism. Lecturing poor countries about weak governance, while providing precious little money for technological advance, public health and other needs, is mere rhetoric which will not work.

Quarrels over ideology have ended. The prosperity of the richest countries is at an all-time high, and so is their capacity to look beyond their own immediate needs. At the same time, the crisis of the poorest countries is acute, and the shortcomings of the current strategy of globalisation painfully evident. Much of the poorer world is in turmoil, caught in a vicious circle of disease, poverty and political instability. Large-scale financial and scientific help from the rich nations is an investment worth- making, not only for humanitarian reasons, but also because even remote countries in turmoil become outposts of disorder for the rest of the world, as has been happening in Afghanistan, Pakistan and Sudan.

During the cold war, the U.S. and its allies invested trillions of dollars to stop the spread of communism. Now, a similar amount should be spent for wiping out terrorism from the globe and the generous aid could facilitate the poor, backward countries in integrating into a global economic network.

Needless to say that at present America’s foreign aid is just 0.1 per cent of its GDP, a derisory shadow of what it used to be. In 1969 the Pearson Commission recommended that donor countries give 0.7 per cent of their gross national product in official development assistance (ODA). The total gap in international development cooperation is close to $100 billions a year, precisely the amount that would be available if the appropriate ODA, according to the 0.7 per cent target, were met. The challenge is to persuade the industrial countries that aid expenditure to build a more secure world is a vital investment and certainly more efficacious than military expenditures.

Following America’s lead, most of the large and developed economies have allowed their own foreign-assistance programmes to shrink since the end of the cold war. Even when the United States reaped a peace dividend of more than 2 per cent of GDP by reducing its defence spending after 1990, it cut, rather than increased, foreign-assistance spending as a share of its national income. The need of the hour is that American administration should pledge to raise foreign assistance to at least 0.3 per cent of the GDP. This would not only bring the world’s richest country back in line with the average aid proportion of other donor nations, but would make available an extra $20 billions a year to invest in economic development. Such a turnaround in America’s role could harness much larger contributions from the European Union, Japan, and other potential donors (both public and private). This increase in foreign assistance by donors would have a positive impact in a serious attempt to contain terrorism as well as break the nexus of illegal economic activities and terrorism at global scale and will foster social capital, civil society and development.