Economics, Islam, and terrorism

I would like to share two studies, which may appear to be unrelated, but in my view they are very much related. The first study is by Professors Scheherazade S. Rehman and Hossein Askari in the Global Economy Journal, 2010. It examines if the self-declared Islamic countries behave according to the economic teachings in Quran. They also develop an Islamic index for 208 countries. The second study, in the journal Economic Inquiry by Professor Michael D. Intriligator argues that terrorism is an “economic phenomenon.” In other words one can use economic principles to understand terrorism.

Let me first discuss these studies before examining their interrelatedness. Rehman and Hussein start out by presenting twelve Islamic principles, each with many subcategories. The principles prescribe economic opportunities and freedom, access to employment and education, social infrastructure for social services through taxation, high moral standards in market place and close supervision of markets, emphasis on savings and investment, preservation of natural resources and environment, a financial system with no interest rates, speculation and exploitation, more trade and foreign aid and effectiveness of state in achieving economic prosperity. Most of these rules of conduct will be expected in any economic and social organization. The authors use the Islamic principles to collects data on 113 variables to represent these principles, where each variable gets the same weight. Using the variables they develop Economic Islamic Index to rank 208 countries, where 1 represents the highest rank.

The average index ranking of 56 Islamic countries is 133. Higher is the rank number, less Islamic the country. Hence, Rehaman and Hossein conclude that in the area of economics, Islamic countries are not very Islamic. Many European countries and the US rank in the top 20. Most Islamic countries except Malaysia rank 42 and above. For example, rankings of some of the Islamic countries are: United Arab Emirate 64, Turkey 71, Saudi Arabia 91, Indonesia 104, Egypt 128, Iran 139, Pakistan 145, Iraq 148, Afghanistan 149, Nigeria 163 and Somalia 199.

Michael Intimidator’s study on terrorism argues that terrorists including Islamic extremist group Al Qaeda , like economic men, are rational in the pursuit of their political goals, subject to financial, organizational and logistical constraints. Sources of terrorism are perceived injustice, humiliation and revenge and not poverty and ignorance, since most terrorists and their leaders are highly educated. Tactics of terrorists can be explained by the substitution principle in economics. It states that economic agents substitute cheaper and more valuable items for more expensive and less valuable items. Terrorists substitute more valuable and cheaper tactics of terrorism against less valuable and expensive tactics. For example, terrorists changed their target of hijacking airplanes and using them as weapons to bombings in the nightclub in Bali, trains in Madrid, buses and railways in UK. They are constantly trying to find innovative ways to create the most effect, for example, recent airplane bomber who hid explosives in his underpants and the New York car bomber.

The Islamic Index suggests that people in Islamic countries, who are constantly reminded of the teachings of Islam and its emphasis on economic opportunity and freedom, justice, social service and education, jobs and prosperity and income equality, are very disappointed and frustrated with their own governments. This unhappiness among the general population presents a good opportunity to some in the intelligentsia to advance their agenda for economic and political power. Their glue is Islam, which binds many diverse nationalities against their own regimes in power and other nations who support them. Terrorists and their leaders can point out the failures of their regimes in following Islamic principles and the support they get from other nations in keeping the status quo.

A cost effective strategy would require not only persuading Islamic nations to implement economic and political reforms and, as Michael Intriligator argues, to put more emphasis on prevention. Some examples are more intelligence, diplomacy, innovations in designing strategies by thinking like terrorists who use the substitution principle very effectively and depriving financial resources. Creating the department of Homeland Security and waging wars, as opposed to using Special Forces to destroy high valued terrorists camps, are not cost effective strategies to solve the terrorism problem.