Lecture 7: Economic Dimensions

1. Lecture 7: Economic Dimensions • The relationship between economics and terrorism is far more complicated than many have suggested (e.g., “combat terrorism through poverty eradication”) • At least 3 dimensions to the relationship between economics and terrorism: • Economic conditions as motivation for terrorist violence • Economic conditions as facilitator of terrorist violence • Economic conditions as result of terrorist violence

2. 1. Economics as Motivation • Plato and Aristotle: “Economic factors are fundamental in the outbreak of violence.” • Marxism: “War is a mechanism for maintaining inequalities in a struggle for control of raw materials and markets.” • Violence is an inevitable outcome of capitalism • What role do economic grievances play in motivating terrorist groups? • Well, it depends . . .

3. Expectations Opportunities Economics as Motivation • Structural economic challenges: • Expectations and hopes vs. limited opportunities for a better life • Unemployment & poverty, particularly in oil-wealthy country • High inflation for necessities (food, shelter, fuel, etc.) • Ethnic favoritism (e.g., limited opportunities for Tamils in Sri Lanka)

4. Economics as Motivation • Structural economic challenge: Socio-demographic pressures (youth bulge) • Age composition of populations in developing countries affects: • Resource consumption • Prices • Government revenues and expenditures • Demand for jobs • Labor wages, etc. • “Current and projected demographic and socioeconomic conditions in many nations throughout the Middle East, South Central, and Southeast Asia could lead to the emergence of more terrorism and terrorists for many decades to come . . .” National Intelligence Council

5. Economics as Motivation • Political-Economic Grievances: • Authoritarian/repressive regimes providing limited or no power to enact change • Corruption/resource centralization among elites • Political instability leading to market chaos Demands/Grievances Power to enact change

6. Economics as Motivation • Political-Economic Grievances: • Government revenues in oil-producing countries are vulnerable to global price fluctuations • Lack of government investment in education, public infrastructure (esp. in oil-rich countries like Saudi Arabia, Nigeria, etc.) Demands/Grievances Power to enact change

7. Economics as Motivation • Al Qaida’s leaders have consistently highlighted economic grievances in their anti-Western ideology, including: • Stealing oil from the Muslim world (e.g., keeping the price of oil at artificially low prices) • Preventing economic advancement of the Muslim world by supporting corrupt, apostate regimes • Economically disadvantaging poorer, underdeveloped countries by subsidizing domestic producers of certain goods • Imposing harsh economic sanctions on important Muslim countries (Iran, Syria, Iraq pre-2003, etc.)

8. Economics as Motivation • AQ leaders have also encouraged attacks against economic targets in the U.S. and other Western nations • Primary strategic objective: to “bleed” (exhaust) the United States economically and militarily both by directly causing inordinate economic losses and forcing the U.S. to spend excessive amounts of money to protect its vast infrastructure. • United States derives its considerable military power and political influence from its superior economy • Thus, disrupting the American economy will in turn defeat the U.S. as an opponent and end its military hegemony and presence overseas • 9/11 attacks against WTC, global financial center, as prime example

9. 2. Economics as Facilitator Local Dimensions • Impoverished communities vulnerable to exploitation by criminal networks, militias, etc. – some of whom provide social and economic programs that fill needs unmet by official government • For example: • Hizballah in Lebanon • Hamas in the Palestinian Territories • Underpaid law enforcement, border security, etc. can facilitate corruption, criminal or extremist sympathies • significant concern in some African countries

10. 2. Economics as Facilitator Regional and Global Dimensions • Globalization (reduction in barriers to global transportation, shipping, asset transfers) • Arms trafficking (ease of access to AK47s) • Trafficking in drugs, humans, diamonds, etc. (revenue streams) • Global energy dependence facilitates funding streams for violent groups • Oil-rich Gulf states providing support to Mujahideen in Afghanistan during 1980s and beyond, as well as to Palestinian “freedom fighters”, etc.

11. 3. Economic Impacts • Disruptions in commerce, transportation, tourism, financial markets • Increases in insurance premiums • If govt. subsidizes, it discourages self-protection while the public bears the increased costs • Severe tightening of border controls can constrain trade and increases costs • Increase in public spending on security, military operations

12. Summary • Economic conditions, like poverty, by themselves do not produce terrorism, but can be a contributing environmental condition • Particularly blocked social mobility, political repression and relative socioeconomic deprivation • Economic conditions can help facilitate terrorist activities • Economic targets (oil pipelines, financial centers, Western hotels, etc.) can be a prominent type of target for terrorist attacks; such attacks can have significant economic impacts

13. Economic Impact of 9/11 Various estimates . . . • NY City Economic Impact • “Total Loss $83 billion” (NYC partnership & Chamber of Commerce: Nov 2001) • “Total Cost $54 billion” (NY Governor: Oct 2001) • “WTC Replacement Cost & Cleanup $25~29 billion” (FEB NY: April 2002) • “Total Cost $83 billion (quoting NYCP-COC) but $67 billion covered by Insurance(US GAO: May 2002) • NY City Jobs Lost • 108,500, 115,300, 105,200, 125,000, 84,000, 78,200, 129,000…. • NY State Jobs Lost • “99,000 in 2001, 78,000 in 2002, 77,000 in 2003” (NYS Senate Finance Committee: DRI-WEFA: January 2002) • “Resulted at peak loss of 78,200” (DRI-WEFA: March 2002) • “50,000 immediately, 70,000 in 4th Quarter” “Much of this loss is likely linked to WTC attack” (FEB NY: April 2002)

14. Economic Impact of 9/11 Immediate and Short-Term Economic Impacts • Financial Sector • 40% of WTC casualties • NYSE, NYME closed • Aviation Sector • planes grounded for a week or more • 20% drop in passengers • 100,000 jobs lost; several airlines went bankrupt • Insurance Sector • loss of life and property estimated at $40-$50 billion • Other industries: hotels (higher vacancy rates, layoffs), tourism, automobile rentals, travel agents, and civilian aircraft manufactures

15. Economic Impact of 9/11 Longer-Term Economic Impacts • Federal Reserve cut interest rates aggressively • Special financing incentives offered by the automobile companies led to record motor vehicle sales for October 2001 • Securities market was only closed for four days, opening again after the telecommunications network in lower Manhattan became operational. • Stock market re-opened on September 17th; within 19 trading days, the S&P 500 index had bounced back to its pre-September 11th level

16. Economic Impact of 9/11 Longer-Term Economic Impacts • Severe and immediate physical damage to all businesses, government offices, and other organizations located in and around the WTC complex. • Thousands of dead, injured, missing, physically displaced and traumatized employees; losses of data, information, and institutional knowledge • Nationwide, however, the economic impact of 9/11 over the long-term has been most significant in the $ billions spent on new homeland security initiatives, military deployments, etc. • Department of Homeland Security, TSA • Afghanistan, Iraq, (other countries, especially Special Forces)

17. Questions?