How terrorism effects the economy and vice versa

As we discussed in class, there are many different groups which have varying strengths, weaknesses, and responses when it comes to dealing with terrorism and transnational crime. These groups included the citizens, the media, the government, IGO’s and, businesses. We only briefly discussed each of these categories in class and did not really touch on the effects of transnational crime on these groups. Focusing on the latter of the groups, business, we did come up with the notion that businesses do not have much power because even the weakest of governments have control over business through regulation. I wanted to look at how transnational crime affects the business world and economics and how those effects are passed on to the citizens and the rest of those groups. Also, it is worth mentioning plausible ways of stopping or at least controlling terrorism through economic policies.
The economic facets of terrorism range from the economic factors that contribute to terrorism, the impact and cost of terrorism itself, both explicit and implicit, and the economic effects of counter terrorism policies. First, it is often thought that waves of violence and terrorism can be attributed to things such as poverty, poor living conditions, and wealth inequality. However, these explanations of terrorism are unfinished at best, and certainly do not hold true for every terrorist. Not all terrorists are poor or come from poor societies and certainly not all poor people or people from poor societies become terrorists. In terms of the link between poverty, inequality, and other elements of under development in relationship to terrorism, “the links are subtle and difficult to bring to light” (Gold). In fact, it is common for the participants in these terrorist groups to possess a higher education and income status than the populations in which they live. This also holds true in the case of the terrorists who carried out the 9/11 attacks. Muhammed Atta, one thought to be the leader of the 9/11 attackers was the son of a lawyer and attended graduate school in Germany (Rohan). Some conclude that it is indeed the absence of civil liberties and the quality and content of one’s education rather than economic deficiency and quantity of education that serve as more determining factor in terrorist activity (Pezzini). However, oftentimes those selected for operational tasks are pooled from the poorest sectors of their societies. Yet, those selected tend to have higher educational and technical skills so they are better prepared for any difficulties that may occur during the operation. So as this evidence points out, there is no real economic indicator as to whether or not one is destined to be involved in a terrorist organization.
Next, the effects of a terrorist attack have effects that stretch further than the initial impact and emotional toll suffered by all those affected. Acts of violence by these non-state actors can have huge financial implications. First there are the immediate direct costs such as buildings and infrastructure damaged. Then there are the related costs such as losses in financial markets and losses in the economy through changes in culture in the affected area. To use the September 11th attacks as an example again, the terrorist’s attacks put a significant dent in the stock market, which took 40 days to rebound to pre- attack levels (Chen). This however shows improvement from attacks of the past such as the Pearl Harbor attack, in which the stock market took 232 days to rebound, or the Nazi invasion of France, which sent the US stock market into turmoil for 795 days (Chen). Terrorism can also have effects on foreign direct investment into the country because investors see higher risk involved. Additionally, in the presence of terrorism or the threat of, normal business dealings require more time, extra security, and because of higher risk, they entail higher compensation. This economic response can have a multiplier effect on the greater economy. It can lead to sensations such as reduced demand, less productivity, less demand for labor, less investment, and general economic slowdown of activity. Additionally, terrorism can have effects on industries related to the attack itself. Using 9/11 as an example once again, there was a profound effect not only in the finance and airline industry, but also in businesses related to tourism, including hotels, restaurants, and the theater (Chen). This illustrates that terrorism can have influences on a wider range of economic activities than expected. The relatively quick recovery in economic activity in the United States after 9/11 may point out a widespread belief that the event was not part of a repeated pattern.
In relation to terrorism, there are also significant economic implications relating to the policies developed to combat terrorism. For example, in the wake of 9/11, the US has substantially increased resources devoted to improving airline safety. However, the US has devoted far less resources to security in the shipping industry. This is almost certainly because of the human cost involved in an attack on either form of transportation. Certainly an attack on a plane would have a much higher death toll than that on a cargo ship. As early as 2003, only 4 percent of shipping containers were subject to inspection (Machalaba). However, it is not proven that there is a perfect correlation between spending and security. Possible measures to economically thwart terrorism include economic sanctions against specific activity. However, since these organizations are often less visible, it is difficult to directly target their actions. Additionally, these sanctions end up affecting people who have no ties to terrorism. Successful solutions include adequate pay and training to reduce corruption in security forces, as well as enhanced transportation and communication tools to in effect ‘multiply’ security forces (Sedra).
Terrorism poses significant economic costs, but also there are huge costs to combatting it. There are economic roots to the causes of terrorism beyond the common thought that poverty and lack of wealth causes terrorist activity. Terrorists cannot be grouped into a certain income bracket or education level, rather the individual situation is much more vital. Because of this, policies toward fighting terrorism have to be flexible. Security measures must be able to limit activity, not just push it forward in time as it has done in the past. This can be done by increasing security forces ability to stop terrorism at the beginning through limited corruption, better quality education, and to provide the necessary civil liberties. However, terrorism can never be reduced to zero due to the psychological reasons for violence. One can theorize about the root causes of terrorism, but will never find a concrete principle that covers all terrorist activity. Even economics, a field that often offers concrete evidence, cannot seem to place a specific model on terrorism’s causes or effects. That is seemingly the overwhelming theme in this entire spectrum, that terrorism is unknown. Whether it’s the terrorists themselves, the attack, or its effect, it is clear that terrorism is so effective because of its ability to catch you when you and the rest of society least expects it.
Works:
Rohan Gunaratna, Inside Al Qaeda: Global Network of Terror (New York, Columbia University Press, 2002), p. 105.
Pezzini,Silvia. "The Role of Freedom, Growth and Religion in the Taste for Revolution," The Suntory Centre, London School of Economics and Political Science, September 2002, at http://sticerd.lse.ac.uk/dps/di/dedps36.pdf.
Machalaba, Daniel. "Lack of Funding Hampers Efforts to Secure U.S. Ports," Wall Street Journal, April 21, 2003.
Sedra, Mark. ed., Confronting Afghanistan's Security Dilemma: Reforming the Security Sector, Brief 28, Bonn International Center for Conversion, September 2003, at www.bicc.de/publications/briefs/briefs.html.
Gold, David. “Economics of Terrorism,” Ciao case studies, 2003, at http://www.ciaonet.org/casestudy/god01/