If young men in the Arab world had meaningful prospects of economic advancement, they would not be drawn into jihadi groups. Hence the key to successfully opposing ISIS and other extremist groups is to set up the institutions necessary for free-market capitalism: private ownership and freedom of exchange.
So argues the great Peruvian Hernando de Soto, author of The Mystery of Capital, in an intriguing article in this weekend’s Wall Street Journal Saturday Essay, “The Capitalist Cure for Terrorism.” Here are some slices, with comments:
Between 1980 and 1993, Peru won the only victory against a terrorist movement since the fall of communism without the intervention of foreign troops or significant outside financial support for its military. Over the next two decades, Peru’s gross national product per capita grew twice as fast as the average in the rest of Latin America, with its middle class growing four times faster.
Today we hear the same economic and cultural pessimism about the Arab world that we did about Peru in the 1980s. But we know better. Just as Shining Path [Peru’s now-defunct communist, terrorist organization] was beaten in Peru, so can terrorists be defeated by reforms that create an unstoppable constituency for rising living standards in the Middle East and North Africa.
To make this agenda a reality, the only requirements are a little imagination, a hefty dose of capital (injected from the bottom up) and government leadership to build, streamline and fortify the laws and structures that let capitalism flourish. As anyone who’s walked the streets of Lima, Tunis and Cairo knows, capital isn’t the problem—it is the solution.
Note that parenthetical “injected from the bottom.” De Soto insists that the capital with which the poor can advance in Third World countries is already there, in possession of millions of small entrepreneurs and farmers in the “informal economy.” What’s necessary is to make it legal. Governments must formally recognize, and document and protect, the property rights of poor people, so that they can borrow against their assets and invest in them without fear of expropriation by their own governments.
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.
The essential changes needed to set the poor on a path out of poverty to comfortable self-support amount to little more than having the government get out of their way:
This new way of seeing economic reality led to major constitutional and legal reforms. Peru reduced by 75% the red tape blocking access to economic activity, provided ombudsmen and mechanisms for filing complaints against government agencies and recognized the property rights of the majority. One legislative package alone gave official recognition to 380,000 informal businesses, thus bringing above board, from 1990 to 1994, some 500,000 jobs and $8 billion in tax revenue.
What de Soto says about the economic origins of the Arab Spring, and in particular about the young Tunisian who ignited it, is illuminating. The young man’s frustration was economic. He wanted freedom not to vote or to have a “voice in the political process”; he wanted freedom of enterprise and protection for his property:
It is widely known that the Arab Spring was sparked by the self-immolation in 2011 of Mohamed Bouazizi, a 26-year-old Tunisian street merchant. But few have asked why Bouazizi felt driven to kill himself—or why, within 60 days, at least 63 more men and women in Tunisia, Algeria, Morocco, Yemen, Saudi Arabia and Egypt also set themselves on fire, sending millions into the streets, toppling four regimes and leading us to today’s turmoil in the Arab world.
To understand why, my institute joined with Utica, Tunisia’s largest business organization, to put together a research team of some 30 Arabs and Peruvians, who fanned out across the region. Over the course of two years, we interviewed the victims’ families and associates, as well as a dozen other self-immolators who had survived their burns.
These suicides, we found, weren’t pleas for political or religious rights or for higher wage subsidies, as some have argued. Bouazizi and the others who burned themselves were extralegal entrepreneurs: builders, contractors, caterers, small vendors and the like. In their dying statements, none referred to religion or politics. Most of those who survived their burns and agreed to be interviewed spoke to us of “economic exclusion.” 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.
… [G]overnment inspectors made Bouazizi’s life miserable, shaking him down for bribes when he couldn’t produce 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.
…As countries from China to Peru to Botswana have proved in recent years, poor people can adapt quickly when given a framework of modern rules for property and capital. The trick is to start. We must remember that, throughout history, capitalism has been created by those who were once poor.
I can tell you firsthand that terrorist leaders are very different from their recruits. The radical leaders whom I encountered in Peru were generally murderous, coldblooded, tactical planners with unwavering ambitions to seize control of the government. Most of their sympathizers and would-be recruits, by contrast, would rather have been legal economic agents, creating better lives for themselves and their families.
The best way to end terrorist violence is to make sure that the twisted calls of terrorist leaders fall on deaf ears.