DRI-177 for week of 1-11-15: ‘Je Suis Charlie?’ Not If We Use Our Brains

An Access Advertising EconBrief: 

‘Je Suis Charlie?’ Not If We Use Our Brains

The terrorist assault on the Paris satirical magazine “Charlie Hebdo” was nothing if not predictable. For over a decade, European depictions of the prophet Mohammed have met with murderous response. Earlier, in 1989, the novelist Salmon Rushdie’s Satanic Verses earned one of history’s worst reviews – a fatwa calling on every Muslim to kill its author. The book’s translator was killed in the wake of that decree. In 2004, a television film by Dutch director Theo van Gogh criticized the Islamic religion – van Gogh was killed because of it. Prior to this assault, Charlie Hebdo cartoonists had been attacked in 2011 for daring to satirize Islam.

By recent standards, the human toll of this terrorist attack was relatively modest – the 12 magazine employees and police who were killed by the raid, the four additional hostages and one policewoman who died in the aftermath and, of course, the terrorists who died in the attack or were later hunted down and killed. Compare that to the butcher’s bill of 2,000 villagers, mostly children and elderly, who died at the hands of the Boko Haram terrorists in Nigeria at about the same time. Apparently, the public visibility of a satirical literary magazine and the sacred cause of free speech invoked in its name – as if mass murder alone were not enough to provoke outrage – give Charlie Hebdo pride of place.

It seems we are fated to react emotively rather than cerebrally to these events. Hence the professions of shock and disbelief in official circles and the public resort to the finger-waving slogan “Je Suis Charlie” (I am Charlie). Displays of false bravado, after the fact, ignore the issues raised by the attack and – even more to the point – those raised by the actions that led to it. The ballyhooed rally attended by officials of numerous governments, from which a U.S. representative was conspicuously absent, will prove equally ineffectual as a counterweight to terrorism.

Is Free Speech a Free Good?

By all accounts, the issue of “Charlie Hebdo” objected to by terrorists and Muslims fundamentalists in general treated the prophet Mohammed irreverently. The attitude taken by the publishers was, and is, that religion deserves to be treated with healthy disrespect. As it happens, this has proved controversial, even after the terrorist attack.

In some quarters, not merely theological, it has been suggested that the magazine’s producers brought their fate on themselves by the coarseness and insensitivity of their actions. In turn, these suggestions have provoked indignant rebuttals that bad taste by cartoonists did not merit a death sentence. The one thread running through mainstream reaction to the attack has been that our embrace of free speech demands a defense of the magazine and its actions.

But is that true? Or, more precisely, in what sense or to what extent is it true?

The word “free” means different things in political philosophy and economics. A person is free to act in the philosophic sense if he is not subject to external constraint. A free good differs from an economic good in being costless; that is, in lacking a foregone alternative in its production or creation. “Free speech” is a political concept, not an economic one. All too often, alas, the lack of constraint on speech has been conflated with the ability to escape all adverse consequences of speech. In other words, the freedom to speak as one chooses has been confused with the power to control reactions to one’s speech.

A movie star is free to publicly disparage the foreign-policy views of her fan base, but if her free-speech exercise causes fans to shun her movies, she lacks the power to compel them. An employee is free to publicly ascribe his company’s falling net income to the CEO’s incompetence, but his right to free speech won’t secure his job thereafter.

Strictly speaking, the Charlie Hebdo attack does not raise any questions of free speech. There is no doubt of the magazine’s right – or rather, its employees’ right – to formulate and publish opinions that are uncongenial and even hateful to others. The question is: What follows from the probable reactions to the exercise of that free speech right?

In this case, it was a foregone conclusion that the offending issue would bring physical violence down upon the magazine. Indeed, employees had already been attacked after publication of previous issues. Does this mean that the magazine should not have published the offending issue?

No. But it does mean that the terrorist attack should have been treated like any other cost of doing business – factored into the decision-making of the firm. That implies that the firm should have been responsible for financing its own security against terrorist attack rather than relying on government protection. Press reports say that “light police protection” was afforded the magazine in response to previous attacks on employees and threats of future attacks. Clearly, this level of official protection was inadequate. What was needed was sufficient force to cope with terrorists trained in military methods and armed accordingly. And the security setup should have been designed to kill terrorists before they could reach the employees of the magazine.

Requiring Charlie Hebdo to pay its own security bill would have changed the terms of the decision faced by the magazine. What commentators glorify as “free speech” is really a literary product – let us call it “satirical humor” – created to serve the economic purposes of pleasing readers and attracting advertisers. Only if the potential marginal revenue from this product exceeds the marginal cost of production – which should properly include the cost of security – will the issue actually be created and published.

Does this seem improbable? It shouldn’t. The post-attack issue of Charlie Hebdo has already sold out two huge press runs totaling some five million copies, so the possibility that this kind of satire could actually be self-financing is not so unlikely after all. But whether improbable or not, these are the conditions under which it is appropriate to wave a red flag in front of bullheaded terrorists. They are economic, not moral or philosophical or political, criteria.

The Deterrent Effect

Actually, the economic arguments are not the only ones in support of this stance, even though they are decisive on their own merits. Terrorists have one thing in common with solitary mass shooters: they are undeterred by the threat of death. Both kinds of murderers are prepared to die. They are afraid only of failure. Thus, thwarting terrorists by killing them before they can strike not only spares immediate victims but also is the only potential deterrent to future terrorism.

The actual raid on Charlie Hebdo was a success from a terrorist perspective, since it achieved its tactical goals and the killers escaped the scene to claim credit for their crime. The perpetrators were eventually caught, to be sure, but that is something that terrorists accept and plan for. Each tactical success and the shocked, anguished reaction it generates wins new converts to the cause – that is what gives terrorism its name.

When the political right of free speech is exercised in the form of satiric magazine content, it becomes an economic good – and at that point it is subject to judgment on those terms. If it creates enough value to offset the costs of its production, it is a good thing. If not, it is better foregone.

Je Suis Charlie? Non

Readers of this space know that businesses are entities used by people as intermediaries; they do things for us that we cannot do for ourselves by ourselves. But they do not exist as living entities; all actions affecting and effected by businesses impact individual human beings. “Je Suis Charlie” has it backwards; the reverse is true, at least to the extent that the speaker is a consumer, employee or owner of Charlie Hebdo.

By making Charlie Hebdo’s costs of security part of its cost of doing business, we ensure that the people who pay the costs are the same ones as those who reap the benefits from its operations – specifically, from its exercise of free speech. If the money is raised from magazine sales, then consumers are paying the freight – which means in turn that the benefits they get from the satire exceed the costs of paying to protect the authors. Alternatively, maybe a financial angel considers the artistic principle worth defending with his cash – in which case, he benefits on net balance from subsidizing the firm’s security bill.

But there is no case for forcing uninvolved parties, who may be unaware of Charlie Hebdo’s existence or who may even disapprove of its activities, to pony up tax money on the firm’s behalf.

The mere fact that it is possible to poke fun at the prophet Mohammed does not make it a sacred obligation to do so, nor is every exercise of that right defensible in economic terms. If the authors have to rely on people who do not benefit from the value created by their exercise of free-speech rights to protect them from the predictable consequences of their own actions, then they are like children who make mischief, then seek the protection of their parents.

Of course, security tight enough to withstand a terrorist onslaught is expensive. But clever, incisive satire can attract a large audience and finance the fixed costs of a secure facility. Moreover, a single wealthy donor can substitute for a large subscriber base or red-hot newsstand sales. Throughout history, patrons have subsidized the cause of art straightforwardly – now we may have reached the point where the martial arts are called upon to sustain the pacific ones.

The point, then, is that free political speech is not free in the economic sense. Free political speech is an economic product that has costs and benefits, as do all other economic goods, and is judged by their comparison.

Is Protecting Charlie Hebdo a National-Defense Obligation? 

Every introductory economics textbook informs its readers that provision of national defense if properly a function of the national government. This job cannot be profitably undertaken by private business because it is a public good. Public goods fail the test of exclusion; private businesses cannot produce them because they cannot collect the money to pay the costs of production. By producing national defense for one citizen, a private firm or firms must necessarily provide it for all, thus enabling people to refuse to pay for it once it is produced and deployed. (This type of refusal is called free riding behavior.) At any rate, that is the standard argument used to justify monopolization of national defense by government.

But that argument does not apply in this case. We are not proposing to defend an entire nation against sudden, unprovoked attack. Instead, one business has placed itself in danger through its own deliberate actions and now provision must be made for its safety. There is no prospect of free riding behavior to discourage, only the matter of how best to provide the necessary security.

Private provision is efficient in the economic sense because it encourages the business, which is in the best position to gauge the benefits and costs, to indulge in the risky behavior only if the likely benefits exceed the costs of security. It is also efficient in the practical sense, since a federal government has a bad track record in combatting terrorism and is willing to provide security to individuals only in the form of witness-security type programs. (It appears that Salman Rushdie has survived for years under this type of regime.) Local police are typically willing to provide security only to witnesses in court proceedings. Thus, private security is the obvious choice not only be default but by preference.

As a useful comparison, compare this to a situation in which (say) a newspaper prints an editorial critical of (say) North Korea, who launches a missile attack on the U.S. Now the nation is under attack without provocation by a foreign government. This is a true act of war – a legitimate exercise of the national-defense function of the federal government.

Time to Re-Start the War on Terror?

A popular response to the Charlie Hebdo assault has been to call for resumption of hostilities in the War on Terror. The U.S.’s protracted military withdrawal from Iraq and Afghanistan had essentially wound that war to a close. As with every war, we are left holding the bag of accreted accumulations of federal-government power inflicted on the citizenry on the pretext of wartime necessity – visualize yourself standing shoeless in an airport check-in line. Now the clarion calls to arms are sounding once more.

It is axiomatic that every failure of government leads to a call for … more and bigger government. In no other sphere of human conduct is failure rewarded to reflexively and lavishly. Here, the Paris police failed miserably to protect the staff of Charlie Hebdo even though it was obvious to the world that an attack was on the cards. We have also learned that the French federal government dropped its surveillance of the presumed perpetrators. (The standard excuse of budget cuts is advanced.) So what do commentators demand? An escalation of the size and scope of government intervention, of course – as if government intervention itself were a given and we were arguing only about its nature and magnitude.

In the largest terrorist incident in recent human history, the 9/11 airline-crash-suicide assault on the World Trade Center towers in New York City, we have a case study in the relative effectiveness of government and the private sector. At the highest level of government, different agencies within the federal government had advance knowledge of the attacks (or their likelihood) but could not or would not coordinate their knowledge to prevent them. Once the attacks were underway, a military establishment massive enough to patrol the world, devastate the world with nuclear bombs and man a defensive cordon around the United States could nevertheless not stop three commercial airliners piloted by amateur foreigners from flying halfway across the U.S. and (1) twice crashing into two of the world’s tallest buildings in our most populous city, then (2) crashing into and damaging the military’s own Pentagon headquarters. By contrast, a few civilian passengers on the fourth hijacked airliner, who were completely unarmed, unwarned and untrained, nevertheless managed to overcome the armed hijackers and nearly gain control of the plane before their captors deliberately crashed it short of its target. This unorganized handful of private citizens succeeded where their multibillion-dollar military and security establishment failed – they prevented the tactical attainment of the hijackers’ goal, which was the destruction of the White House.

The history of terrorism relates one tactical success after another owing to the incompetence of government. Either the terrorists succeed or they are thwarted by their own incapability, but they are never stopped in their tracks by government. Yet with each success, promoters of the War on Terror raise the interventionist stakes by proposing ever more and greater government as the antidote.

Having lost the element of secrecy associated with the NSA phone-surveillance collation of phone conversations, government now recognizes the need to “use it or lose it.” The U.S. government will either have to prove both the safety and efficacy of NSA surveillance or see it go away. The national-security establishment cannot afford to let the Charlie Hebdo crisis go to waste; it must use it as the pretext for NSA surveillance.

Public commentators play a role formerly labeled that of “useful idiot” in the days of Communist infiltration of American society. They insist that we can no longer afford to pretend that the NSA is a threat to liberty and must now acknowledge its effectiveness as a terror-fighting tool. In fact, it has no demonstrated effectiveness whatever; it is merely assumed to be effective because government intervention is the knee-jerk, default response to all problems in the wish-fulfillment world of public commentary.

The word “irony” is hardly adequate to this occasion. If there was ever a time not to rely on NSA-type macro surveillance tools, the Charlie Hebdo case is it.

The Needle and the Haystack 

Consider the rationale behind the NSA program of surveillance. It is designed to determine which terrorists will act and when and where they will strike. To learn this information, the U.S. government monitors the aggregate phone traffic of the United States – not listening to individual conversations but merely checking ISP addresses against each other. A useful metaphor for this technique would be the needle in the haystack. In order to locate the rare terrorist event (the “needle”), the government sifts through billions of unrelated (non-terrorist) conversations (the “haystack”).

The absurdity of reliance on this technique in the Charlie Hebdo case is clear. We already possess the needle or, rather, two-thirds of it. Even before publication of the offending issue, it was a foregone conclusion that terrorists would strike against Charlie Hebdo, just as they intended to do against Salmon Rushdie, just as they did against Theo van Gogh and just as they already did against Charlie Hebdo for less provocative behavior in the past. True, we didn’t know who would attack, but knowing the target and its fixed location was more than enough. In any case, even if the identities of the culprits had been known in advance, it might not have been sufficient to forestall the attack. What was called for was an ironclad defense – either an impenetrable security perimeter to discourage an attack or force deadly enough to kill the terrorists before they reached Charlie Hebdo itself.

Refusal to deploy this security and relying instead on some sort of NSA-type surveillance to detect the threat is a ridiculous strategy. It is tantamount to possessing the needle, but hiding it in a field the size of a large county and then ordering an army of government bureaucrats wielding magnets to walk around the field until they got it back via magnetic attraction.

“Defending” Free Speech But Losing Freedom

Inefficiency in fighting terrorism is bad enough. But that is just one side of the false coin minted by rejuvenated terror warriors who call for vesting anti-terrorism powers in comprehensive surveillance by central governments. The citizenry must take it on faith that the government will not use its surveillance powers to acquire unauthorized information about law-abiding citizens and will not misuse any such information that it does acquire.

Readers will indignantly interject that safeguards are in place to prevent abuse of surveillance powers. The problem is that the same government that does the surveillance also administers the safeguards. In practice, this guarantees that the safeguards are not safe and do not guard. The actual experience of the NSA to date, based on documented testimony, proves that abuses have already occurred. Government is the locus classicus of the old saw that insanity is defined by the practice of making the same mistakes over and over again but expecting the outcome to be different.

Free markets incorporate learning from mistakes because the profit motive creates a positive feedback loop. No such mechanism exists for government – elections provide no definite corrective link between specific errors and electoral penalty and, in any case, the correction comes too late to be of any consistent value. An election is one single discrete event and there are hundreds or thousands of political decisions that require feedback from the public. Markets provide feedback on virtually every relevant decision and action; governments seldom do. Markets work; governments fail. At most, governments and the public communicate through the filter of the news media, which distorts the flow of information and the resulting decision process.

Thus, we are on the verge of losing freedom on the pretext of defending free speech.

DRI-248 for week of 10-19-14: The Economic Inoculation Against Terrorism

An Access Advertising EconBrief:

The Economic Inoculation Against Terrorism

Last week’s EconBrief analyzed the military adventures undertaken by Great Britain and the United States over the last two centuries and found uncanny and unsettling similarities. In particular, we detected a growing tendency to intervene militarily to settle disputes coupled with a growing distaste for war per se. Given the lack of close substitutes for complete victory in military conflict, this is a disastrous combination.

Both Great Britain and the United States found increasing need to use military force but were increasingly reluctant to apply maximum force with promptness and dispatch. The British dithered when confronted by Islamic fanaticism in the Sudan and ended up suffering the loss of a national hero, vast prestige and the need to intervene finally anyway. The British then faced one revolt after another in southern Africa, Ireland, India and Palestine. In each case, they reacted in measured ways only to be excoriated when finally forced to take stronger action. Ultimately, they abandoned their empire rather than take the actions necessary to preserve it.

Compare the actions taken by Great Britain in India against the passive resistance led by Gandhi with those that would have been taken by, say, a totalitarian nation like Nazi Germany, Soviet Russia or Communist China. The British were repeatedly forced to back down from using force against Gandhi – not by superior force or numbers wielded by the Mahatma but by their own moral qualms about exerting the force necessary to prevail. By contrast, Gandhi would never have gained any public notice, let alone worldwide acclaim, had he lived and operated under the Third Reich. Hitler’s minions would have murdered him long before he rose to public prominence. In Soviet Russia, Gandhi would have earned a bullet in the back of his head and unmarked burial in a mass grave. In Red China, Gandhi would either have undergone re-education or joined the faceless millions on the funeral pyre in tribute to revolutionary communism.

Lawrence in Arabia: Visionary or Myopic Mystic?

Director David Lean’s magnificent film Lawrence of Arabia acquainted the world with the story of British Col. T.E. Lawrence, an obscure officer who seized the opportunity to unite disparate and warring Arab tribes in guerilla warfare against the Germans in the Ottoman Empire during World War I. Playwright Robert Bolt’s screenplay depicts the Arabs as simple, childlike victims of wily colonial exploiters. Lawrence is a martyr who seeks to restore Arabs to their former historical glory by casting out the foreign devils from Arabia – “Arabia for the Arabs.”

Lawrence is continually frustrated in his campaign to organize the Arabs into an effective and cohesive fighting force. Tribal and religious divisions separate Arabs from each other almost as much as from the Turks.  Why can’t they view themselves as Arabs, he wonders, rather than as members of particular tribes or sects?

When Lawrence succeeds in whipping his guerilla force into fighting shape, he turns them into a virtual column of the British army and becomes instrumental in winning the war in the Middle East. He assumes that, once united in war, the Arabs will remain so in peacetime. They will stand fast against the British and French colonialists and reclaim their heritage. When this hope proves illusory, he retreats home to England in disillusion.

The perspective of economics allows us the insight that Lawrence was doomed to disappointment from the start. In wartime, people of all races, creeds and nationalities are able and willing to put aside personal priorities in favor of the mutual overriding priority of winning the war. At war’s end, however, there is no longer any single overriding priority strong enough to claim universal allegiance. Now each pursues his or her own interest. Of course, this pursuit of individual interest can still produce broadly beneficial results. Indeed, it should do just that – provided the disciplining forces of free markets and competition are given free play. But in post-World War I Arabia, the ideas of Adam Smith and free markets were as alien as Dixieland jazz. Economically, Arabia was primitive and aboriginal. Its tribes were dedicated to warfare and plunder – just as the aboriginal peoples of Australia, New Guinea, North America, South America and Africa were before modern civilization caught up with them. There was a tradition of trade or exchange in aboriginal culture – but no tradition of freedom, free markets and property rights.

The Flame that Ignited the Arab Spring

Of course, Arab society did not stall out completely at the aboriginal stage of primitive, nomadic desert life. Arabs were naturally blessed with copious quantities of petroleum, the vital economic resource of the 20th century. Though mostly unable to develop this resource themselves, they did play host to companies from Western industrialized nations that created infrastructure for that purpose. The resulting cultural interaction paved the way for modernization and a measure of secularization. Thus, from a distance the major cities of the Middle East might be hard to distinguish from those of the West. Up close, though, the differences are stark.

The noted South American economist and political advisor Hernando De Soto led a joint research study into the origins of the Arab Spring of 2011. He recounted his experiences in the recent Wall Street Journal op-ed, “The Capitalist Cure for Terrorism” (Saturday-Sunday, October 11-12, 2014). The seminal event of this movement was the self-immolation of a 26-year-old Tunisian man named Mohamed Bouazizi. Judging from Western coverage of the Middle East, one would expect him to have been unemployed, disaffected and despairing of his plight. As De Soto and his team discovered, the truth was far different.

Bouazizi was not unemployed. He was a street merchant, one of the most common occupational categories in the Arab world. He began trading at age 12, graduating to the responsible position of bookkeeper at the local market by the time he was 19. At the time of his death, he was “selling fruits and vegetables from different carts and sites;” i.e., he was a multi-product, multiple-location entrepreneur. It seems clear that he was not driven to extremity by idleness and despair. So what drove him to public suicide?

Like most of his trade, Bouazizi operated illegally. His dream was to obtain the capital to expand his business into the legal economy. He wanted to buy a pickup truck for delivering his vegetables to retail outlets. He longed to form a legal company as an umbrella under which to operate – stake clear title to assets, establish collateral, get a loan for the truck.

This dream seems modest to America ears. But for Bouazizi it was unattainable. “Government inspectors made Bouazizi’s life miserable, shaking him down for bribes when he couldn’t produce [business] licenses that were (by design) virtually unobtainable. He tired of the abuse. The day he killed himself, inspectors had come to seize his merchandise and his electronic scale for weighing goods. A tussle began. One municipal inspector, a woman, slapped Bouazizi across the face. That humiliation, along with the confiscation of just $225 worth of his wares, is said to have led the young man to take his own life.”

“Tunisia’s system of cronyism, which demanded payoffs for official protection at every turn, had withdrawn its support from Bouazizi and ruined him. He could no longer generate profits or repay the loans he had taken to buy the confiscated merchandise. He was bankrupt, and the truck that he dreamed of purchasing was now also out of reach. He couldn’t sell and relocate because he had no legal title to his business to pass on. So he died in flames – wearing Western-style sneakers, jeans, a T-shirt and a zippered jacket, demanding the right to work in a legal market economy.”

Asked if Bouazizi had left a legacy, his brother replied, “Of course. He believed the poor had a right to buy and sell.”

Mohamed Bouazizi was not alone. In the next two months, at least 63 people in Tunisia, Algeria, Morocco, Yemen, Saudi Arabia and Egypt set themselves afire in imitation of and sympathy with Bouazizi. Some of them survived to tell stories similar to his. Their battle cry was “we are all Mohamed Bouazizi.” It became the rallying cry of the Arab Spring, bringing down no fewer than four political regimes.

The Western news media have been heretofore silent about the true origins of the Arab Spring. It did not originate in “pleas for political or religious rights or for higher wage subsidies.” None of the “dying statements [of the 63] referred to religion or politics.” Instead, the survivors spoke of “economic exclusion,” a la Bouazizi. “Their great objective was ‘ras el mel‘ (Arabic for ‘capital’), and their despair and indignation sprang from the arbitrary expropriation of what little capital they had.”

Das Kapital or Capital?

Nobody speaks with greater force on this subject than Hernando De Soto. He is the Latin American Adam Smith, the South American champion of free markets and property rights. He is now the world’s leading property-rights theorist, having ascended upon the deaths of Ronald Coase and Armen Alchian. And he put his own ideas into successful practice in his home country of Peru by leading the world’s only successful counter-terrorist movement in the 1980s.

The Shining Path was a Marxist band of terrorist revolutionaries who tried to overthrow the Peruvian government in the 1980s. They were led by a onetime university professor named Abimael Guzman. Guzman posed as the champion of Peru’s poor farmers and farm workers. He organized Peru’s Communist Party around the idea of massive farming communes and used the Shining Path as the recruiting arm for these communes. Some 30,000 resistors were murdered. Officials were kidnapped and held for ransom. This strategy gave Shining Path control of the Peruvian countryside by 1990.

De Soto was the government advisor charged with combatting Shining Path. He didn’t forswear the use of military force, but his first move was toward the library and the computer rather than the armory. “What changed the debate, and ultimately the government’s response, was proof that the poor in Peru weren’t unemployed or underemployed laborers or farmers, as the conventional wisdom held at the time. Instead, most of them were small entrepreneurs, operating off the books in Peru’s ‘informal economy.’ They accounted for 62% of Peru’s population and generated 34% of its gross domestic product – and they had accumulated some $70 billion worth of real-estate assets [emphasis added].

This new learning completely confuted the stylized portrayal of poverty depicted by Guzman and his Shining Path ideologues. It enabled De Soto and his colleagues to do something that is apparently beyond the capabilities of Western governments – eliminate three-quarters of the regulations and red tape blocking the path of entrepreneurs and workers, allow ordinary citizens to file complaints and legal actions against government and provide formal recognition of the property rights of those citizens. An estimated 380,000 businesses and 500,000 jobs came out of the shadows of the informal economy and into the sunlight of the legal, taxed economy. One result of this was an extra $8 billion of government revenue, which rewarded government for its recognition of the private sector.

Having put the property rights of the poor on a firm footing, De Soto could now set about eradicating Shining Path, confident that once it won the guerilla war it would not lose the peace that followed. In true free-market fashion, Peru reworked its army into an all-volunteer force that was four times its previous size. They rapidly defeated the guerillas.

In this connection, it is instructive to compare the effect of military intervention in Peru with that undertaken elsewhere. The military interventions undertaken by the U.S. and earlier by Great Britain served to recruit volunteers for terrorist groups by creating the specter of a foreign invader imposing an alien ideology on the poor. In Peru, volunteers flocked to an anti-terrorist cause that was empowering them rather than threatening them, enriching them and their neighbors rather than bombing them.

Peru stands out because the economic medicine was actually given. Other links between poverty, terrorism and lack of property rights can be cited. In the 1950s and 60s, Indonesia was home to Communist and terrorist movements. It was also a land that consistently thwarted its entrepreneurs, many of whom were immigrant Chinese, in ways reminiscent of an Arab state. The southern half of Africa has long been known for stifling entrepreneurship through bureaucratic controls and monopoly, often combined with nepotism and corruption. This began as a colonial inheritance and has passed down to the line of despots that has ruled Africa since the advent of independence.

All We Are Saying Is Give Economics a Chance

The American public is repeatedly sold the proposition that the world is dangerous and becoming more so with each passing day. Alas, the kind of military interventions practiced by the U.S. have not lessened the danger in the past and have, in fact, increased it. The only tried-and-true, time-tested solution to the problems posed by terrorism is economic, not military. We refer retrospectively to World War II as “the good war” because our cause seems so unimpeachably just when juxtaposed alongside the evils of Fascism and the Holocaust. But it is not moral afflatus and good intentions that justify war. It is the postwar economic miracles worked in German and Japan that set an invisible seal on our rosy memories of World War II. By contrast, for example, the defeat of Germany in World War I now seems Pyrrhic because the war and subsequent draconian peace terms produced Germany’s interwar economic upheaval and resulting lurch into Fascism.

The evil of war lies in the rarity of its success, not the oft-cited barbarity of its practice. The U.S. went to war in Korea, Vietnam, Kuwait, Iran and Afghanistan to counter real evils. We enjoyed considerable military success and achieved some of our goals. But we did not achieve victory. Last week’s EconBrief reminds us how overwhelmingly difficult it was even for Great Britain and the U.S. – each far and away the foremost military power of its day – to achieve their ends through war. Only in South Korea was long-term success attained, and there it was due to economic victory rather than military victory.

Careful study of world poverty and terrorism will uncover an economic phenomenon, against which military measures are largely unavailing and police tactics are merely a stopgap.

“They” Can’t Adapt to Free Markets and Institutions

One entrenched obstacle to adopting Hernando De Soto’s game plan against terrorism is the conventional thinking that certain cultures are inherently unable to absorb the principles of economics and free markets. This argument is so vaguely made that it is never clear whether proponents are arguing the genetic or cultural inferiority of the affected peoples. Recently it has been applied to former Soviet Russia when attempts to acclimate the Russian people to free markets failed. The interesting thing about this episode is that it began with the proposition that Western economic consultants could design market institutions and then superimpose them on the Russian people. In other words, elite analysts began by assuming that Russians could easily adapt to whatever economic system was designed by others for their benefit, but then took the polar opposite position that Russians were incapable of adapting to free markets. No provision was made for the possibility that – having lived for centuries under rigid autocracy – Russians might need time to adapt to free institutions.

For centuries, Chinese were considered inferior and suitable only for low-skilled labor. That is the task to which most immigrant Chinese were consigned in 19th-century America. While Chinese in China failed to achieve economic development throughout most of the 20th century, immigrant Chinese were the world’s great ethnic economic development success story. Eventually Taiwan and mainland China joined the ranks of the developed world and another development myth bit the dust.

When the short-term results of the Arab Spring dislocations disappointed many in the West, Arabs became the latest people accorded the dishonor of being deemed unable to accommodate freedom and free markets. Perhaps the most concise response to this line of thought was given indirectly by Arab leaders responding to De Soto’s charge that their countries lacked the legal infrastructure to bring the poor into the formal economy. “You don’t need to tell us this,” one replied. “We’ve always been for entrepreneurs. Your prophet chased the merchants from the temple. Our prophet was a merchant!” In other words, the Arab tradition accommodates trade, even if their legal system is hostile to it.

Once again, this space stresses the distinction between the Rule of Law – which abhors privilege and worships freedom – and mere adherence to statutory law – which often cements tyranny into place.

Bringing Free Markets and Property Rights to the Middle East

As far as Western elites and the Western news media are concerned, the only kind of Middle East economic reform worth mentioning is foreign aid. But over a half-century of government-to-government foreign aid has proven to be an unqualified disaster. Economists like William Easterly and the late Lord Peter Bauer have written copiously on the pretentions of Western development economists and the corruption of Western development agencies. This is the deadest of dead ends.

De Soto’s approach is the only institutional approach worth considering. Apparently, it is actually receiving consideration by the beneficiaries of the Arab Spring. Egypt’s President, Abdel Fattah Al Sisi, commissioned De Soto and his team to study Egypt’s informal economy. That study found that Egypt’s poor get as much income from capital, in the informal economy, as they do from salaries in the formal economy. More precisely, some 24 million salaried citizens earn about $21 billion per year in salaries while owning some $360 billion in unrecognized assets that throw off roughly an equivalent amount of yearly income. As De Soto recognizes, this income is approximately 100 times the total of all Western financial, military and development aid to Egypt. It is also “eight times more than the value of all foreign direct investment in Egypt since Napoleon invaded more than 200 years ago.”

The problem is that much of this value is locked up in bureaucratic limbo. “It can take years to do something as simple as validating a title in real estate.”

 This is the real secret to achieving economic development in the Middle East. It is also the secret to fighting terrorism and preserving American security.