The economics of terror

For most of my adult life the citizens of the UK faced a constant and often bloody threat of terrorism from the Irish Republican Army. And yet its impact on the British economy was minimal, apart from in Northern Ireland where property prices stagnated and unemployment rose.

Indeed, those that suffered most from the IRA were probably its own supporters, the Catholics in Northern Ireland who lost job opportunities and endured a low standard of living for a generation. Will this be the same story for Saudi Arabia which has given the world Al Qaeda?

It certainly does not have to be the case. Saudi Arabia has the financial means and policy options at its disposal to make sure that terrorists do not inflict lasting damage on its economy.

The first, and most obvious, move to make is to let the $20 billion Saudi Gas Initiative go ahead. This concedes foreign ownership in part of the energy sector, a small and completely irrelevant price to pay for the creation of a new money-making machine for Saudi Arabia and its people.

Foreign ownership of assets is actually a good thing. How much poorer would London be without its 1,000 foreign banks, numerous wealthy foreign residents and Chinese restaurants?

Is this a cultural invasion? Yes, perhaps it is. But any substantial culture can absorb, and profit from immigrants, and all of us are originally immigrants from somewhere. England will always be England whoever moves there, and Saudi Arabia will always be Saudi Arabia.

For economic growth is all about having an open and positive mindset. Closing a country off just does not work. All societies in all places at all times that have tried this economic policy have ended in failure. Do we learn nothing from experience?

Globalization, free market economics and capitalism, these are the way to achieve maximum economic growth, and to diversify an economy. Even Marx might agree today, given the weight of evidence available.

The terrorism of Al Qaeda is a throw back to the Dark Ages, and perhaps its biggest failing is that it lacks a clear objective. At least with the IRA it was clear that the union of Ireland was its stated objective. Al Qaeda does not have a stated objective, merely a hate-list which starts with the modern world.

This is probably this terror group's greatest failing. Indeed, the chances are very good that Al Qaeda will actually achieve the reverse of what it intends and speeds up the integration of the Arab world into the global community, if only because Al Qaeda makes it too dangerous to leave the Arab world on the outside any longer.

Time will tell, but the economics of terror usually work against the interests of the terrorists and the community they purport to represent.