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The economics of terrorism

By Andrew Leigh - posted Monday, 25 January 2010

In a Pew poll last year, Muslims in various countries were asked whether suicide bombing against civilian targets is sometimes justified in defence of Islam. Yes, said 68 per cent of Palestinians, 15 per cent of Egyptians, 13 per cent of Indonesians, and 5 per cent of Pakistanis.

These figures highlight an intriguing puzzle. Why were hardly any lives lost to suicide bombing in the 1970s, but over 10,000 in the 2000s? What makes suicide bombing so popular in the modern age?

Most people find it impossible to answer this question without using the word “crazy”. But a fascinating strand of research has begun to use the tools of economics to try and better understand what drives suicide attacks, and how we might stop them in the future.


In his new book, Radical, Religious and Violent: The New Economics of Terrorism, economist Eli Berman (University of California, San Diego) takes a cold-blooded look at one of the hottest policy questions today.

He begins by popping a few myths. Interviews with families and friends of suicide bombers, as well as with failed bombers, show that they are not particularly motivated by the afterlife, but by concerns closer to home. This is consistent with the fact that the worst barrage of suicide attacks in the 20th century were carried out by the nominally atheistic Tamil Tigers. It’s time to stop pinning all suicide attacks on those 72 virgins.

Careful studies of suicide bombers suggest that they are not generally depressed or mentally ill, and would not be the kinds of people who would otherwise kill themselves. Rather than regard suicide bombers as mad zealots, Berman argues, we should think of suicide bombers as misguided altruists, who truly believe that their acts will bring great benefits to their community.

To understand why suicide bombing has become more common, Berman contends, we need to stop focusing only on the motivations of bombers, and consider the “hardness” of their target. As it becomes more difficult for terrorists to do damage, they are more likely to switch to suicide bombing. Developed nations “have sent well-armed, well-equipped forces into battle against low-technology insurgents”. Faced with no other option, “rebels counter with suicide attacks”. Thus the rise in suicide bombings over the past quarter-century has a lot to do with the improvements in the military capability deployed against them. We send armoured personnel carriers; terrorists respond by driving car bombs into police stations.

What can we do to reduce the number of terrorist attacks in the future? One approach is to limit the amount of money reaching insurgent groups. Since some of this comes from the export of hard drugs and petroleum, it is straightforward to see how drug legalisation and a climate change deal would represent a pay cut for terrorist groups.

But Berman’s main focus is the relationship between terrorism and social service provision. It is no accident, he says, that the Taliban run law courts, Hezbollah collects garbage, and Hamas operates health clinics. Social services provide a way of harvesting new recruits, and testing their commitment to the leadership. And because they can be withdrawn at will, social service provision gives leverage over the local population, reducing the chance that an informant will leak the latest plan.


To really shut down terrorist groups, Berman argues, we need to undermine their social service provision. He gives the historical example of Egypt’s President Nasser, who undermined the Muslim Brotherhood by nationalising their network of schools and clinics in the 1950s. By directly providing electricity, healthcare and welfare services, governments improve the outside options for young people. Using soldiers to protect an NGO who is opening a new school is unglamorous work, but it may be the best way of crippling insurgents. (Insurgents know this, of course, which is why aid projects have been targeted so often in Iraq and Afghanistan.)

In the past, researchers such as Princeton University’s Alan Krueger have pointed out that the typical suicide bomber is better-educated than other members of their group. If suicide bombers are well-schooled, the argument goes, antipoverty programs won’t reduce terrorism.

Yet by looking at groups rather than just individuals, Berman’s book shows why the two are intertwined. Like Australian military expert David Kilcullen (who calls counterinsurgency “armed social work”), Berman argues that “social service provision creates the institutional base for most of the dangerous radical religious rebels”. Demolish that base, and you begin to unravel the organisation.

Unusually for a book about terrorism, Berman keeps it in perspective. Global terrorism is not the greatest threat to the world. Adam Smith’s combination of markets, religious pluralism and tolerance are a winning combination. The more we can help poor governments provide basic services to their citizens, the less space we allow for radical rebels to fill the void.

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First published in the Australian Financial Review on January 19, 2010.

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About the Author

Andrew Leigh is the member for Fraser (ACT). Prior to his election in 2010, he was a professor in the Research School of Economics at the Australian National University, and has previously worked as associate to Justice Michael Kirby of the High Court of Australia, a lawyer for Clifford Chance (London), and a researcher for the Progressive Policy Institute (Washington DC). He holds a PhD from Harvard University and has published three books and over 50 journal articles. His books include Disconnected (2010), Battlers and Billionaires (2013) and The Economics of Just About Everything (2014).

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