International Economics Update
September 2001
Copyright (C) 2001 The International Economics Network
http://www.internationaleconomics.net

Marginal Notes.

Terrorism and the Wealth of Nations

In the wake of the devastating attacks on the World Trade Centre and the Pentagon on September 11th, and the subsequent backlash of accusations and speculation concerning the motivations and nature of the (possible) perpetrators, it is perhaps unsurprising that one would be swept in the wave of currently fashionable explanations concerning the cause of the crisis: misguided American foreign policy, the increased militancy of Islamic fundamentalist groups coupled with the belligerent aspects of Islam, retribution for the misdeeds of the United States, and even the prophetic utterances of a 16th century astrologer.[1]

Whereas there are grains of truth in all these explanations, the enormous weight of counterfactuals lays the burden of proof on these theories to prove their value as the central factor for the terrorist acts. Indeed, the primarily Saudi origin of the belligerents leaves the foreign policy misstep explanation wanting, since Saudi Arabia is an ally of the United States, and has not endured aggressive American military action. Similarly, the existence of cordial relationships between the U.S. and nations such as Indonesia and Malaysia – majority-Muslim nations – demonstrate that Islamic nations need not possess sour relationships with the west. Retribution and hatred for America need not manifest itself in the form of suicidal terrorist displays. The question that begs to be asked is: what drives young men into acts of unadulterated violence?

The answer, interestingly, lies not in the machinations of one man, or even in a diabolical network of twisted minds. It lies in the entire circumstances that surround the nations of the Middle East – nations that, despite their enormous oil wealth, remain in abject poverty, and where economic growth for the past thirty years has trended not upwards but down. When the mind and body remain idle due to double-digit unemployment figures and globalisation has largely passed one by, it becomes easy to recruit young, idealistic minds that see little difference between death and the present hell that they have to content themselves with as daily life.

But why has this been so? The answer lies in the absence of a free-market system in the countries of the Middle East. Business power is often wielded by a small cosy of wealthy elite, often associated with the ruling government. Where multinational enterprises have established a presence, the system in place – which gives scant thought to proper incentives for education and the respect of private property – has meant that there is little motivation for these companies to invest in the local economy. Other than in petroleum, free trade is more often than not a rhetorical vibe rather than an experienced reality. Income distributions remain fractured, leading to widespread discontent – a discontent that is often directed towards external sources rather than the ruling elite.

The solution, then? Allow the invisible hand to operate. In the absence of barriers to free trade and laissez-faire capitalism, private actors will find incentives to seek profit opportunities, lowering economic inefficiencies and raising the level of employment. Reassert the importance of a respect for individual property rights, and remove regulatory restrictions that allow small businesses to grow and thrive. Only through the operation of the free market will the economic conditions that breed terrorist sympathy and sentiment be curbed and mitigated. Then, perhaps, the countries of the region will rejoin the rest of the world in enjoying the fruits of economic prosperity. And perhaps then the lessons of September 11th will not just be a singular episode, but a lasting legacy.

Endnotes

1. The wildly-circulated quatrain that supposedly predicted the destruction of the twin towers and the beginning of the next world war - allegedly attributed to Nostradamus - is a case of both a clever hoax coupled with an excellent, though unregulated, propagation mechanism - e-mail.

Website Additions.

No new additions this month, unfortunately.

Interesting Readings.

1. New Thinking on the New Economy: Even as the possibility of a productivity slowdown becomes more real, the majority of academic economists remain optimistic about the sustainability of productivity rises due to ICT ('Greenspan Keeps Faith in the New Economy', http://www.iht.com/articles/31297.html; 'Permanent technology revolution', http://tm0.com/sbct.cgi?s=185070289&i=393550&d=1808243).

2. Boom or Bust?: As the U.S. economy (and, by extension, the world economy) slows down, observers differ in their views on the prospects of recovery ('The Slump Is Here, but a Rebound Is in the Cards', http://www.iht.com/articles/31944.html; 'Where There Was a Boom There Is Now Going to Be a Bust', http://www.iht.com/articles/31943.html).

3. Rising from the Grave: It is said that every couple of years, when financial markets get turbulent enough, someone will raise the spectre of the Tobin tax. More recently, the antiglobalisation movement has drawn on this tax as a rallying cry. James Tobin clarifies the aims and use of the tax ('An idea that gained currency but lost clarity', http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid=FT3AE60MGRC&live=true&tagid=ZZZU2IUKJ0C) that has even caught the eye of the IMF ('Köhler says IMF may look again at 'Tobin tax', http://tm0.com/sbct.cgi?s=185070289&i=388903&d=1760875).

4. Under Scrutiny, Again: The World Bank and IMF are, once again, the subject of serious critical study. Stephen Fidler and Jessica Einhorn comment on the Bank ('Who’s Minding the Bank?', http://www.foreignpolicy.com/issue_SeptOct_2001/fidler.html; 'The World Bank's Mission Creep', http://www.foreignaffairs.org/articles/Einhorn0901.html). David DeRosa comments on how U.S. Treasury Secretary O'Niell has rejected calls for a supranational lender of last resort not dissimilar to the IMF ('Treasury's O'Neill Rebukes Calls for Intervention', http://quote.bloomberg.com/fgcgi.cgi?ptitle=David%20DeRosa&touch=1&s1=derosa&tp=ad_topright_bbco&T=markets_fgcgi_content99.ht&s2=ad_right1_bbco&bt=blk&s=AO57iQxavVHJlYXN1). The latest issue of Bretton Woods Update (http://www.brettonwoodsproject.org/update/24/index.html) explores many of these issues.

5. To Kill a Mockingbird: The tragedy that struck American shores on the 11th September 2001 will not be easily forgotten. As the people pick up the pieces, here are some analyses on the impact on the global economy ('Markets to Get Back to the Business of Business', http://quote.bloomberg.com/fgcgi.cgi?ptitle=Caroline%20Baum&touch=1&s1=baum&tp=ad_topright_bbco&T=markets_fgcgi_content99.ht&s2=ad_right1_bbco&bt=blk&s=AO5.CKBYITWFya2V0; 'Insurers face most costly disaster in history', http://tm0.com/sbct.cgi?s=185070289&i=389262&d=1764459; 'Experts debate economic effects', http://www.dailypennsylvanian.com/vnews/display.v/ART/2001/09/12/3b9ef903a1a77; 'Economic Terrorism and the View From Abroad', http://quote.bloomberg.com/fgcgi.cgi?ptitle=William%20Pesek%20Jr.&touch=1&s1=pesek&tp=ad_topright_bbco&T=markets_fgcgi_content99.ht&s2=ad_right1_bbco&bt=blk&s=AO58SpRXrRWNvbm9t; 'The market fallout', http://www.economist.com/agenda/displayStory.cfm?Story_ID=779308; 'A Tribute to Trade', http://www.mises.org/fullstory.asp?control=776).

Endnotes.

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