Daily Times

The former New York State University professor Warren Weinstein, 72, was abducted by al Qaeda kidnappers in Pakistan two years ago while advising the Pakistani government on economic development. The video of Weinstein was released to Pakistani reporters on Christmas Day but first appeared in the US media on Thursday. Weinstein was country director in Pakistan for J E Austin Associates, a US-based firm that advises Pakistani businesses and government departments. Loretta Napoleoni, author of Rogue Economics, reveals a surprising grey zone where crime and unregulated credit meet. Pakistan, whose economy is falling apart, is plagued with crime syndicates who are one of the major sponsors and financiers of terror. Neutralising them will considerably weaken militant organisations and their cohorts who are increasingly holding the civilised world to ransom.

Applying the standard time-series methodology, Sultan Mehmood, writing in the Journal of Defence and Peace Economics, evaluated the macroeconomic impact of terrorism in Pakistan by utilising terrorism data for around 40 years. The results of the econometric investigation suggest that terrorism has cost Pakistan around 33.02 percent of its real national income over the sample time period of 1973 to 2008, with the adverse impact mainly stemming from a fall in domestic investment and lost workers’ remittances from abroad. This averages a per annum loss of around one percent of GDP, hence confirming that, essentially in emerging economies, terrorism might present significant macroeconomic costs to the economy. Similarly, a study published in 2010 by the Pakistan Institute of Development Economics Islamabad on the impact of terrorist activities on the financial markets in Pakistan over the period of two years, i.e. 2006 to 2008, found that terrorist activities adversely affect the financial markets and recommended the policy stance on institutional development regarding investment in innovative security.

Why do terrorists seek such a wide canvas? Terrorists want to paralyse normal political procedures and shock political change through threats and violence. By harassing a defined population, terrorists intend that this population will exert pressure on political decision stakeholders to concede to their demands. From a rational calculus viewpoint, political decision makers must examine the expected costs of conceding, including possible counter-grievances from other groups, against the anticipated costs of future attacks. If the latter costs exceed those of conceding, then a besieged government should rationally give in to the demands of the terrorists. Terrorist attacks have gained prominence since 2001 because they cause unsettled situations and raise the target audience’s apprehension and, in so doing, greatly increase the government’s anticipated costs from future attacks. This follows because a suicide attack kills, on average, 10 people, while a typical terrorist incident causes far more panic and devastation. Markets, schools, private organisations, offices, courts, financial clockwork all ceases until the next day. Undoubtedly, governments have more pressure now to react and renew their counterterrorist policies, and are reluctant to give in to irrational demands from the terrorists following suicide bombings and terrorist campaigns.

Sanctions also encourage more terrorism as governments refuse to be held hostage to a political ransom, which would appear as if they are losing their reputation for toughness. These reputational costs must also be weighed against the gains of giving in, e.g. released hostages or an end to suicide bombings and terrorist attacks. Terrorist tactics are more effective in democratic countries where governments are expected to protect lives and property. Understandably, suicide attacks have been mostly associated with democratic states. Terrorists attempt to allocate resources between terrorist attacks and legitimate means for achieving political goals. Ironically, actions by the authorities to limit protest may close off legitimate avenues of dissent and push terrorists into engaging in more attacks.

Even among attack modes, terrorists calculate expected costs and expected benefits from different actions in order to pick the best combination for their campaigns. Over the last few decades, political analysts have identified the changing nature of terrorism, for example the rise of state sponsorship in the early 1980s and the more recent increase in radicalised terrorism. Political and economic analysts have also analysed the effectiveness of anti-terrorist policies but typically without applying statistical inference apart from Brophy-Baermann and Conybeare, which is an important early exception. Since 2001, political analysts have been more interested in empirical analyses of terrorism. Economists would argue that the ‘social cleavage theory’ is better equipped to explain terrorism than are theories that link terrorism to poor economic development yet, until recently, political analysts have rarely relied on Bueno de Mesquita’s rational-actor models of terrorist behaviour.

Given the hypothesis that poverty and inequality are related to increased terrorism rates, what we would expect is that most, if not all, of the countries on this top 10 list for terrorist incidents would have quite low per capita GDP figures, and would score poorly in terms of the Human Development Index. That is not the case. Only three of the 10 countries fit the profile of low levels of socioeconomic development: Yemen, Angola and Pakistan. Most of the countries are at medium levels of development and three, Greece, Israel-Palestine and France, are advanced industrialised countries.

Economists and others have tried to calculate the economic impact of terrorism for years in areas targeted by attacks, such as Spain’s Basque region and Israel. In the last several years, most analyses of terrorism’s economic costs begin with an interpretation of the costs of the September 11, 2001 attacks. The work examined is fairly consistent in concluding that the direct costs of the attack were less than feared. However, the current size of the Pakistan economy does not get an adequate response by the state bank reserves to domestic and global market needs, and there is very little reserve allocations in the private sector, which would help cushion the blow.

In view of the current unpredictable and hostile environment courtesy terrorism, expenditures on defence and security are essential for any nation but of course they also come with an opportunity cost. Such expenditures deplete funds and resources are not available for spending on health and education to reductions in taxes. A higher risk of terrorism, and the need to combat it, simply raises that opportunity cost. Global supply chains can become extremely costly in terms of time and money when extra layers of security at ports and land borders are added to the process. According to the Organisation for Economic Cooperation and Development (OECD), higher transportation costs could have an especially negative effect on emerging economies that have benefited from a decrease in costs in the last decade, and thus on countries’ ability to combat poverty.

The economic impact of terrorism can be calculated from a variety of perspectives. There are direct costs to property and immediate effects on productivity, as well as longer term indirect costs of responding to terrorism. These costs can be calculated quite minutely; for example, calculations can be made about how much money is lost in productivity if we all had to sit in cars, struck in traffic on the way or back from work, in line for many extra hours every time we are met with a terrorist incident in town.

It does not seem entirely farfetched to imagine that, in some instances, barriers meant to safeguard populations from terrorism will actually amplify the risk: poor countries that might have to slow exports because of the cost of security measures are at a greater risk because of the effects of poverty, of political destabilisation and radicalisation among their populations. However, much more needs to be done. Risks to the falling economy are alarming. There are still no effective counterterrorism policies shown by the present government, amid persistently threatening terrorist attacks. In a symbolic contrast with the realm of undemocratic leaders, the champions of democracy still appear able to be delaying themselves in making a decisive plan in the present crisis.

The writer is a member of the Diplomate American Board of Medical Psychotherapists Dip.Soc Studies, member Int’l Association of Forensic Criminologists, associate professor Psychiatry and consultant Forensic Psychiatrist at the Huntercombe Group United Kingdom. He can be reached at fawad_shifa@yahoo.com