International economics and state-sponsored terrorism.

ABSTRACT

States known to sponsor terrorism such as Iran, North Korea and the former Taliban regime in Afghanistan as well as terrorist organizations such as al Qaeda are strongly opposed to globalization and free trade with the West. Our thesis is that they behave this way because they believe free trade reduces their utility. An explicit utility-maximizing model for fundamentalist Muslims and an implicit utility-maximizing model for suicide attackers are developed to illustrate this. The models are developed within the context of a standard international trade model framework. A familiar result of the standard trade model is that the benefits of free trade in goods and services greatly outweigh the related costs of the transition to an open economy. This result follows from the assumption that individuals have similar enough preferences that their utility functions can be aggregated and represented by community indifference curves. In this model, however, we posit the existence of special interest groups with altruistic preferences, which radically diverge from that norm. Fundamentalist Muslims may be an example of that, and their utility model can be used to illustrate their impact on globalization trends.

According to public statements by al Qaeda leaders, their utility would be enhanced by the eradication of all U.S. economic, cultural, and military influence from the Islamic world. Al Qaeda is attempting to achieve that by implementing a direct challenge to America via the channel of terrorism. Within this context, suicide attacks can also be seen as rational acts by utility-maximizing individuals. Leaders of al Qaeda apparently believe that the superior Islamic way of life is threatened by materialistic Western culture that is spread by globalization and free trade. State sponsors of Al Qaeda act as the supply chain that allows the Al Qaeda type of terrorist organization to function.

1. INTRODUCTION

Standard models of international trade generally show that free trade is welfare-improving. A nation as a whole is better off by integrating with the global economy and following a policy of free trade in all goods and services. However, another well-known conclusion of standard trade models is that not all individuals and/or groups within a country benefit from free trade, even though the country as a whole unambiguously benefits. The usual explanation for this result is based on the Stolper-Samuelson Theorem. The transition from no trade to free trade redistributes income within a country away from the scarce factor to the abundant factor. Logically, owners of the scarce factor would be opposed to free trade, because for them free trade is welfare reducing.

The contribution of this paper is to suggest an alternate reason why some people within a country would be logically opposed to free trade. Standard trade models usually assume all persons within a country have similar or identical preferences. This assumption allows for the functional separability of aggregate utility functions and the construction of community indifference curves. See, for example (Leontief, 1933) and (Samuelson, 1956). However, we assume in this paper that two groups of persons in a country have dissimilar preferences. If one group has altruistic utility functions, along the lines of (Barro, 1974) or (Becker, 1981), then it can be shown that they would logically be opposed to free trade. They are opposed not because free trade reduces their income, but because it reduces their utility directly. The following section provides an introduction to terrorism followed by a review of some basic aspects of the trade framework. Next are international trends and performance of various groupings of countries. Utility-maximizing models are then developed for fundamentalist Muslims and state-sponsored terrorist suicide attackers.

2. TERRORISM

Terrorism is the application of violence or threatened violence that is intended to create panic and fear in society and eventually bring about political change in the country attacked (Laqueur, 1996). Guerrilla activity is not terrorism. Guerrilla activity is aimed at specific targets with the intent to destroy those targets for their value, while terrorism focuses on targets not for the inherent value of the target but because the attack on that target may help create fear and panic in society at large.

There are different classifications of terrorists and the above definition tends to fit the state and state-sponsored terrorism overlaid on the religious aspect. However, the growing availability of weapons of mass destruction suggests that the following classifications may develop the potential of creating major violence. Classifications of terrorists include: terrorist groups on the far right and on the far left, religious terrorism, exotic terrorism, state and state-sponsored terrorism and organized crime terrorism (Laqueur, 1999). Cyberterrorism cuts across all classifications but it does not cause the immediate and large scale death and destruction that is implied in this paper.

Terrorism on the far right and far left in the U.S. and in Western Europe has been violent and created death and destruction that has had a large impact locally but has not been very important at the national level in the political or economic dimensions. However as weapons become more sophisticated and more destructive, that may change. Exotic terrorism involves fringe groups typically associated in some way with the ecosystem. This doesn't refer to special interest groups but instead is associated with extreme fringe groups that employ violence. Again, this classification, while potentially important at a local level, has not been politically important at national levels. Increased availability of weapons of mass destruction could change that.

Organized crime and terrorism are linked in South America, the former Soviet Union, and other parts of the world, as drug dealers become wealthy enough and powerful enough to use terrorism to achieve political aims. In both Columbia and Russia, wealthy drug barons have judges, prosecutors, and leading politicians murdered to forestall prosecution. The government of North Korea sells drugs to the west to finance its terrorist operations. Criminal organizations can evolve into terrorist groups where massive death and destruction could be created with the intent of creating public panic. This panic can alter the political process at the national level.

Religious-based terrorism tends to be identified with Islam in western popular opinion. However, we should point out that most Muslims are not fundamentalists, and most fundamentalist Muslims are not terrorists. Religious-based terrorism has occurred between Catholics and Protestants in Northern Ireland, and between Catholics and Orthodox Christians in the Balkans. In this paper, the utility-maximizing individual with altruistic preferences is described as a fundamentalist Muslim, but in principle, the individual could subscribe to any creed or religion. The connection between state-sponsored terrorism and the fundamentalist Muslim model is the focus of this paper. State-sponsored terrorism enables a small minority of fundamentalist Muslims to block the gains which otherwise would go to the majority of the population in Muslim countries. This happens when the state sponsor provides resources such as financing, education, propaganda, recruits, and weapons to terrorist organizations. Essentially, the state sponsor provides the supply chain enabling the fundamentalist Muslim model to function.

The U.S. Department of State (2003) has identified Libya, Syria, Iran, North Korea, Sudan, the former Taliban government of Afghanistan, and the former Saddam Hussein regime in Iraq, among others, as states that have sponsored terrorism. Saudi Arabia is one government that has not been identified as a sponsor of terrorism. However, we believe it is plausible to argue that Saudi Arabia does sponsor terrorism, and the organization it sponsors is al Qaeda. Fifteen of the nineteen terrorists who hijacked aircraft on September 11, 2001 were Saudi citizens. Much of al Qaeda's funding is suspected of coming from private sources in Saudi Arabia. The government of Saudi Arabia is a feudal monarchy; in effect, the country is run as if it is the private estate of the al Saud family and its numerous princes. There is little distinction between the private wealth of these princes, where much al Qaeda funding apparently comes from, and the official wealth of the government. And many of these princes share the same anti-western beliefs held by al Qaeda leaders like Osama bin Laden.

3. FRAMEWORK FOR INTERNATIONAL TRADE

Most economists favor open economies and free trade, as the benefits of exchange of goods and services among countries are perceived to greatly offset associated costs of movement to more open economies. The crux of the argument is that individuals, companies and countries should specialize in and exchange activities in which they are relatively more efficient. The principle of trade evolved from Adam Smith's absolute advantage in 1776 to David Ricardo's comparative advantage in 1817.

Comparative advantage is the catalyst in the push toward open economies and free trade. Countries benefit when they specialize in production of goods and services in which they have a comparative advantage and exchange for goods and services from other countries that specialize and have a comparative advantage in those other goods and services. This process leads to an improvement in global income as sets of goods and services can be produced less expensively. However, the mix of goods and services produced in various countries will likely change as trade occurs, resulting in some winners and losers. The degree of losers and winners varies from country to country but income redistribution can occur from the winners to the losers if losers can be compensated monetarily. However, there appear to be cases where losers have characteristics that the standard trade model fails to capture, and where monetary compensation doesn't seem to be an issue. Altruistic segments within a society may experience disutility and create extreme divergences from the standard trade model assumption of similar preferences.

A later alternative explanation of comparative advantage is the Heckscher-Ohlin model of international trade. Their argument was that comparative advantage is due to differences in factor endowments among countries. Countries differ from each other in terms of not only productive resources but how goods are produced using different proportions of those factors of production. A country is able to produce a product at a lower cost if its production uses a relatively larger proportion of a more abundant factor in that country. This model suggests therefore that a country will tend to export those products that make intensive use of factors that are locally abundant while importing those products that make intensive use of factors that are locally scarce. This model implies that the observed pattern of trade is determined by differences in factor endowments, as opposed to differences in productivity that underlie Ricardo's comparative advantage version. The Heckscher-Ohlin model is intuitively appealing but Wassily Leontief raised questions about the model's validity. This model, like the previous one, does not necessarily capture the dimensions of the losers from increased trade.

However both versions of comparative advantage provide strong theoretical support to open economies and free trade. A limitation of comparative advantage is that it suggests countries tend to export and import unique types of goods, and one should not expect countries to be importing and exporting the same or similar goods. However 57 percent of U.S. trade in 1996 occurred within the same four-digit industrial classification as opposed to between industrial classifications. Intra-industry numbers for Japan and Europe were 20 percent and 60 percent respectively. Japan has less intra-industry trade since its factor endowments are very different from those of the U.S. and Europe (Ruffin, 1999.)

Recent theoretical developments better explain intra-industry trade and further strengthen the case for open economies and free trade. New trade theory argues that specialization may lead to increasing returns to scale instead of the constant returns assumption used in prior trade models. A country specializing in production of a good may encounter economies of scale as production is increased, with lower unit costs and increases in productivity. This leads to increasing returns to specialization, not diminishing returns.

In economic sectors in which significant output levels are required to reach meaningful scale economies, it may only require a few firms to produce the necessary output for the world economy. New trade theory suggests that in particular sectors, countries having first movers could have a sizeable advantage if large output levels are necessary to reach scale economies. Factor endowments assume less importance in this environment, as first mover advantages may be a deciding factor. An implication of first mover advantages is that government intervention may occur in attempting to assist companies to achieve first mover advantages in sectors expected to experience scale economies at high levels of output.

Government intervention can conflict with the ideals advanced of open economies and free trade. In certain circumstances new trade theory could lead to sizable changes in the mix of goods produced in various countries with major winners and losers. The modifications by this model likewise don't appear to adequately address the dimensions of losers.

Exchange of goods among countries can also create dynamic growth gains. Economic growth occurs due to increases in factor endowments and technological improvement. More open economies increase competitive pressures which may lead to positive impacts such as efficiency gains, increases in domestic saving, real income gains, access to capital goods and technology, technology diffusion, reduction of market power of domestic firms and access to larger markets in the global economy. Dynamic growth gains became more apparent the past twenty years as developing countries entered the globalization process.

It is generally accepted that policies limiting movement toward free trade are likely to result in actual per capita income failing to achieve potential per capita income (Irwin and Tervio, 2002). The reverse also holds that moves toward globalization generally reduce poverty. There is strong evidence that specialization, exchange and transfer of technology lead to improvement in global income. Trade policy outcomes in the aggregate are clearly positive and the textbook analysis using community indifference curves demonstrates that. But non-monetary aspects may be of critical importance to the general public and various demographic segments around the globe such as in the Middle East.

The U.S. general public is not as enamored of free trade benefits as the theoretical and empirical support for open trade suggests. Only a modest majority of Americans rated the concept of globalization positive (Kull, 2000). In that same survey, approximately 60% of Americans had a favorable view of "American popular culture." But the majority in that survey had no desire to spread the American culture to other countries. But at the same time people in that poll rejected the idea that U.S. popular culture was a threat to foreign cultures. Perhaps as expected, this survey found that Europeans had a more positive view toward open trade than the Americans. This survey was prior to 911.

But it is clear that benefits of trade are not as universally accepted as the theoretical and empirical support for free trade might suggest. This is understandable as many people perceive and evaluate issues such as trade in their own self-interest and perceived interest of others. There are many dimensions of trade such as employment and income concerns, environmental concerns, social issues and cultural concerns that may not be adequately incorporated in the aggregate outcomes. The Stolper-Samuelson theorem illustrates for instance that when a country imports labor-intensive goods, a segment of the country's labor force--the lower skill level workers--tend to be losers. More recent work such as that of (Scheve and Slaughter, 2001) also illustrates the role of individual preferences, as supporters of trade barriers include those with home ownership in countries with a manufacturing mix concentrated in industries facing a comparative disadvantage.

Both current factor income as well as asset values influence preferences in standard trade models. Cultural and social dimensions adversely impacted by movement to open economies, however, may be utility-reducing on particular segments of a society and that net loss in welfare may not be easily compensated for. Demographic segments that perceive this utility loss appear to be capable of creating sizeable adverse economic impacts on the global economy and trade.

4. INTERNATIONAL TRENDS

Cultural differences among countries in the current period of globalization are much more prevalent than in the preceding one. The first globalization period, in perspective, was from 1870 to 1914. The second globalization wave that occurred from 1945 to 1980 was primarily, according to the (World Bank, 2002), among developed rich countries. In the second wave, institutional frameworks such as the IMF and GATT evolved toward the end of WWII and the years immediately following and served primarily developed countries. Reduction of trade barriers among these rich countries was very successful, leading to the rapid expansion in exchange of manufactured goods and gains in scale economies and productivity. In comparison, developing countries had trade barriers that limited trade with each other and also limited trade with developed countries.

Developing countries as a result did not participate in the growth of global manufacturing and services trade. The 1945-1980 period of globalization was among rich countries of similar heritage. The cultures are very distinct but the dimensions of the heritage of Western cultures are similar. Japan's culture, in comparison, was substantially different from that of the U.S. and Western Europe, but Japan's location, and its ability to separate the economic dimension from the religious dimension allowed Japan to fully benefit from trade in that period. This time frame of globalization happened to coincide with the time frame of income redistribution and social safety nets in the three geographic areas. Potential adverse implications of trade on cultures and people's way of life didn't surface during this trade period, as major cultural groups didn't feel threatened by more open economies. There were winners and losers in the employment and income categories but the massive move toward income redistribution and the building of social safety nets helped alleviate concerns. Rodrik (1998) suggests there is evidence of a strong, positive relationship between openness and size of government. But there are differing opinions on that assessment.

The current or third globalization wave according to the (World Bank, 2002) started around 1980 and had three major characteristics: 1) a group of developing countries that came into the global marketplace such as China, India, Mexico, Malaysia, Thailand, Hungary and the Philippines, 2) a major increase in capital flows including human capital and 3) a group of developing countries that fell further behind, which includes most of Africa, some Middle Eastern countries and various former Russian satellite countries. The major difference between the current and previous globalization waves is that the current wave incorporates developing countries plus large capital and migration flows are occurring.

5. PERFORMANCE OF COUNTRY GROUPINGS

A method of viewing differences in economic performance of countries is through three groupings: 1) rich Christian, 2) poor Christian and 3) Muslim countries. Does the standard of living in Muslim countries, taken as a whole, differ from Christian countries? Does their economic performance over time differ as well? The answer is yes to both questions and could provide a reason why many fundamentalist Muslims reject globalization and trade with the West.

A grouping of 24 predominantly Muslim countries, stretching from Morocco to Indonesia, is compared to two groups of Christian countries (see Appendix I listing.) The population total of the Muslim countries is approximately 900 million so it includes most Muslims. The rich Christian countries, 22 in all, consist of countries in Western Europe, plus the U.S., Canada, Australia, and New Zealand. The 29 poor Christian countries comprise of Latin America, Eastern Europe, plus the Philippines. Major areas excluded from this analysis are the former Soviet Union, India and sub-Saharan Africa. These three areas include substantial numbers of both Muslims and Christians, but cannot be easily classified as exclusively one or the other. Other major areas such as China and Japan are, of course, excluded. The result is that this three-grouping classification scheme excludes a major portion of the world's population.

Table I illustrates 2000 levels of Gross Domestic Product (GDP) and GDP per capita at purchasing power parity for the three groupings.

The grouping of 24 Muslim countries is not only poorer than the rich Christian countries but they are also poorer than the poor Christian countries. GDP/capita in the rich Christian countries is higher than the Muslim countries by a factor 7.7 while GDP/capita in the poor Christian countries is above the Muslim countries by a factor of approximately 1.9. The current wave of globalization starting in 1980 incorporates developing countries, and standard trade theory suggests that countries reducing trade barriers would have likely participated in the benefits of more open economies and free trade.

An idea of the degree of participation by Muslim countries in the current globalization wave can be approximated by the trend in GDP/capita over this 20-year time frame. The figures in Table II are measured at market exchange rates, not purchasing power parity and are in nominal dollars (no adjustment for inflation) with foreign currency figures converted into U.S. dollar market exchange rates in 1980 and in 2000, respectively. Price inflation in the U.S., as measured by the CPI, was approximately 70 percent. If that is an accurate measure of the welfare loss effect of inflation on nominal income, then people living in rich Christian countries had a large increase in real income, on average, over the past 20 years. In comparison, people living in poor Christian countries had a small increase, on average, in real income while people living in Muslim countries had, on average, a significant decrease in real income.

What do these numbers mean to persons living in Muslim countries? To some, they clearly imply that the "Islamic Model" of economic development does not function efficiently. Reformists in many Muslim countries have attempted to modify existing Islamic institutions, to make them more closely resemble those in the rich Christian countries. Perhaps the best historical example of such a reformist was Mustafa Kemal Ataturk, the founder of modern Turkey. In the 1920s and 1930s, Ataturk deliberately suppressed many Islamic institutions in Turkey, and imported political, legal, and economic institutions from Western Europe.

Fundamentalist Muslims, however, may draw a completely different conclusion from this data. If a fundamentalist believes, a priori, that the Islamic Model of economic development is correct, and the Western model is wrong, how would he interpret the data in Table I? Sayyid Qutb, a leading intellectual of the Muslim Brotherhood in Egypt, argued that modern Muslim countries are not, in fact, following the "true" Islamic model, but only a false, corrupted version. In "Social Justice in Islam" (1953) Qutb argues, "That Islamic society today is not Islamic in any sense of the word.... We permit the extravagance and the luxury that Islam prohibits;" ... (p. 262).

More importantly, Table II data might suggest to a fundamentalist Muslim that free trade and globalization are to blame for the fall in real income in Muslim countries. Corrupt and un-Islamic governments in Muslim countries have allowed the West to exploit and impoverish Muslim populations. The solution, in the mind of the fundamentalist, would be to limit or end trade with the West, and eliminate the corruptive Western influences. As Sayyid Qutb argued, "The Muslims concede defeat in the first round whenever they seek to renew their own life by borrowing Western ways of thought, life, and custom " (p. 283). And, "So, primarily, we must rid ourselves of the ways of Western thought and choose the ways of native Islamic thought in order to ensure pure results, rather than hybrid" (p. 286).

On the other hand, the view of many Western economists in explaining the relatively poor economic performance of the Muslim countries is the fact that non-Muslim countries, on average, are significantly freer than Muslim countries. Approximately 85 percent of the Muslim population lives in countries that are in the lower half of economic freedom out of the 156 countries ranked by the Index of Economic Freedom (O'Driscoll, 2003.) Non-Muslim countries are more open to positive economic impacts of trade and have more market oriented domestic economies. No doubt there are a number of economic and non-economic issues involved as to why Muslim countries have not fully participated in globalization. Muslim countries, like China during the Qing dynasty, may take the view that foreign ideas, concepts and products generated externally are not wanted or needed. Plus Islam makes no distinction between the spiritual life and political or economic life, in the view of fundamentalists. As Sayyid Qutb argues, "Islam, then, enunciates for men a complete theory of life" (p. 284). And, "The Islamic theory of life is the most perfect that the world has ever known ..." (p. 313). From a Western perspective, this attitude is likely to make economic reform difficult, to say the least.

Additionally, the lower level of income in Muslim countries may itself be part of the explanation for the rise of fundamentalism in Islam. The extensive poverty, the failure of corrupt and undemocratic governments to deal with it, and the discrediting of Western-oriented reforms in Muslim countries have undoubtedly led many devout Muslims to seek alternative answers, of which fundamentalism is one. Social problems in Western countries such as drug abuse, crime, sexual promiscuity and illegitimacy may lead many Muslims to reject Western liberalism as the wrong path for their countries to take. Result: the encroachment of the West into Muslim countries feeds into the following model.

6. FUNDAMENTALIST MUSLIM MODEL

Globalization has different meanings but a succinct definition is an emerging global marketplace for the production and distribution of most goods and services (Kreinin, 2002.) Fundamentalist Muslims appear to believe that globalization is a threat to the ethical values passed down to them by God through their prophet Mohammed. In America, people who oppose a policy or set of policies can organize politically and create special action groups or committees to lobby for or against a particular issue or position. In Muslim countries freedom is often limited and the form of government does not appear to allow for such political organizations. For that reason and perhaps many others, Osama bin Laden decided to create an organization outside of state entities with the intent of slowing or stopping the globalization process. In particular to slow, stop or reverse the American influence in Muslim countries.

The idea in this model is that individuals are motivated by factors other than selfishness or material gain. Becket (1993) makes the point that individuals maximize welfare as they conceive it, whether they are selfish, altruistic, loyal, spiteful, etc. Their behavior is forward-looking but their actions are constrained by limited resources such as income, time and calculating capacities.

Al Qaeda leaders have made public statements suggesting that their utility would be enhanced by removal of the U.S. influence from Islamic nations. Osama bin Laden said:

"We declared jihad against the US government, because the US government is unjust, criminal and tyrannical. It has committed acts that are extremely unjust, hideous and criminal whether directly or through its support of the Israeli occupation of the Prophet's Night Travel Land (Palestine).... So, the driving-away jihad against the US does not stop with its withdrawal from the Arabian Peninsula, but rather it must desist from aggressive intervention against Muslims in the whole world" (Arnett, 1997).

Al Qaeda leaders oppose the Western influence and decided to directly challenge America via the terrorist channel implemented by suicide attackers. It does appear that al Qaeda leaders appear to be maximizing a utility function by their actions. The utility model for al Qaeda leaders incorporates the idea that behavior of a proportion of the Muslim population influences the utility of al Qaeda leaders. Becker (1974) illustrates that economic theory can be used to analyze interactions between the behavior of some persons and utility of others. In particular, an individual's utility depends not only on his or her own consumption but on the consumption of others.

Conceptual demographic classifications are used in this paper in an attempt to explain the rationality of fundamentalist Muslims utilizing the Becker approach. In particular, the utility of the fundamentalist Muslim classification is negatively impacted by behavior of the modernizing Muslims.

Fundamentalist Muslims are taught not to be consumers of the Western influence and therefore oppose the idea of movement toward free trade and believe it is wrong for any Muslim to be a consumer of the Western influence. But consumption of the Western influence may not be opposed by modernizing Muslims.

This means the consumption of Western goods by modernizing Muslims enters the utility function of the fundamentalist Muslim and reduces utility of the fundamentalist Muslim. The assumption is that the fundamentalist Muslim is altruistic and cares not only about his consumption but also that of the modernizing Muslim. In comparison the modernizing Muslim is egoistic in nature.

The ethical rules are:

Fundamentalist Muslims cannot consume Western goods. This reflects teachings since childhood that are internalized into their utility function. Therefore in the utility function of fundamentalist Muslims:

dU/d[Q.sub.w] < 0

Where U=utility function of fundamentalist Muslim

[Q.sub.w]= quantity of Western goods or influence consumed

Western goods and culture have a negative marginal utility, i.e., they have become economic bads. Therefore consumption of Western goods and/or culture by another Muslim enters the altruistic utility function of the fundamentalist Muslim.

U = utility function of fundamentalist Muslims

[Q.sub.w2] = quantity of Western goods consumed by modernizing, reformist Muslims

dU/d[Q.sub.w2] < 0. Utility of fundamentalist Muslims is reduced when reformist Muslims consume Western goods

A segment of the fundamentalist Muslims organized into the al Qaeda group. From the al Qaeda point of view, increased consumption of American goods by modernizing Muslims reduces the utility of fundamentalist Muslims by more than free trade increases utility of modernizing Muslims. Therefore it appears that one group of Muslims opposes free trade and consumption of Western goods and culture.

In response to this perceived threat from Western influence, al Qaeda established an organization to challenge America. The purpose of the 911 attack appears to have been to create fear and terror in the U.S. and act as a catalyst to induce the U.S. government to respond in a manner that might move the terrorists closer to their objective. A method to create fear is to attack innocent civilians. That is what terrorism is.

Osama bin Laden said:

"The terrorism we practice is of the commendable kind for it is directed at the tyrants and the aggressors and the enemies of Allah.... America heads the list of aggressors against Muslims.... In today's wars, there are no morals, and it is clear that mankind has descended to the lowest degrees of decadence and oppression.... What they (Americans) ought to do is change their governments which attack our countries. The hostility that America continues to express against the Muslim people has given rise to feelings of animosity on the part of Muslims against America and against the West in general. Those feelings of animosity have produced a change in the behavior of crushed and subdued groups who, instead of fighting the Americans inside the Muslim countries, went on to fight them inside the United Sates of America itself.... The Western regimes and the government of the United States of America bear the blame for what might happen. If their people do not wish to be harmed inside their very own countries, they should seek to elect governments that are truly representative of them and that can protect their interests" (Miller, 1998).

7. TERRORIST SUICIDE MODEL

Al Qaeda implemented their brand of terrorism on 911 in the U.S. via the channel of suicide attackers. An economic approach to this issue involves fundamental assumptions of maximizing behavior and equilibrium. Becker (1962) suggested that economic theory was more compatible with seemingly irrational behavior than expected. And further that the resource constraint may lead entities to respond in a particular fashion. A change in opportunities available to an entity could result in more of a perceived rational behavior.

The suicide model may have been selected by al Qaeda because of al Qaeda's resource limitations. Al Qaeda is able to operate only with support from state sponsors as al Qaeda has no tax base, no GDP and no permanent location from which to stage attacks on Western interests. In comparison, the U.S. is a $10 trillion economy with the dominant military force in the world. The al Qaeda resource constraint may have led al Qaeda to adopt a decentralized transnational organizational concept to challenge America and the open economy concept (Cosgrove, 2003). The al Qaeda organization appears to follow a concept of multiple sleeper cells in multiple countries with each cell potentially consisting of a self-directed team. Recruits for the cells were apparently trained as terrorists in Afghanistan training camps during the 1990s.

Al Qaeda leadership followed this asymmetrical concept in its attack on the U.S. on 911. A total of 19 hijackers were able to create large economic costs on the U.S. and global economy. Out-of-pocket costs to the terrorist organization for the 911 operation were estimated to be at most a few million dollars and perhaps as little as under $1million. But the U.S. in response has and is spending billions of dollars domestically and globally in an attempt to find and destroy the al Qaeda organization. The horizontal nature of the al Qaeda organization is difficult for the pyramid structure of the U.S. military and intelligence organizations to demolish.

Had resource constraints of al Qaeda been more similar to the U.S., it is possible that al Qaeda may have chosen to follow more conventional or accepted methods of political negotiation and not resort to the use of suicide attackers. Some proportion of the people who went through al Qaeda training camps during the 1990s evolved into suicide attackers, Suicide attackers create extreme negative utility for Westerners because of internalization of moral principles and ethical rules. The 911 attack was repulsive to most Americans as it was an attack on innocent civilians by a group of people intent on committing suicide to further their cause.

Hamermesh and Soss (1974) applied economic theory to the problem of individual suicides and found a number of expected relationships such as higher unemployment rates leading to higher suicide rates and the negative effect of increased permanent incomes on suicide rates. That work illustrates applicability of economics to suicides. However, suicide attackers represent an entirely different economic situation as the underlying objective is to commit suicide while implementing a terrorist act.

Presumably, however, such people are not mentally ill. Rather, they appear to go through a rational decision-making process. In particular, a person committing suicide to implement a terrorist act must decide that the present value of the utility of remaining alive is more than offset by the utility loss of committing a repulsive act. That repulsive act is apparently one of being forced to live in a culture dominated by Western ideas of materialism, freedom, equal rights for women and Western attitudes toward marriage, etc. that appear to be encroaching on Muslim countries. Such a conclusion would seem to be a logical outcome of the trade model in the current globalization wave.

It appears that living in such a society would be so repulsive that they prefer death in a suicide attack on Westerners and Western symbols. These terrorist acts must have been perceived as helping the fundamentalist Muslim cause so it is probably seen as an altruistic act by the suicide hijackers. It is very likely that many other fundamentalist Muslims have made that same calculation.

Japanese kamikaze attacks on U.S. forces in WWII followed a similar concept. In an attempt to turn the tide, the Japanese revived the name Kamikaze and applied it to the suicide missions of their air force. Suicide pilots took a multi- point oath and its emphasis was total allegiance to Emperor and country. Suicide attacks were in vain, of course, but the kamikaze attacks illustrate the extent of devotion to a cause that rational people are willing to embark on.

8. SUMMARY

This paper developed an explicit utility model for the al Qaeda terrorist group and an implicit utility model for suicide hijackers within a general trade model framework. Members of the al Qaeda terrorist organization oppose globalization and free trade with the West because it reduces their utility. Having altruistic utility functions means their utility is decreased when fellow Muslims abandon Islamic principles and consume goods associated with Western culture. The standard trade model assumes similar preferences but in Muslim countries the consumption of Western goods by modernizing Muslims creates disutility for fundamentalist Muslims. The disutility of altruistic fundamentalist Muslims creates opposition to free trade and open economies in Muslim countries.

Reduction of trade barriers and increased mobility of factors of production in non-Muslim countries led to rapid economic gains, but the degree of participation in economic progress varied substantially among countries. Gains in economic globalization have been accompanied by the spread of Western culture, in particular an American influence. Fundamentalist Muslims decided that advances of the Western culture were a threat to what they perceived to be a way of life passed down to them by God through their prophet Mohammed.

Perhaps an inability to organize effective political opposition to encroachment by the West on Muslim countries and/or major constraints of resources could have been factors as to why Osama bin Laden created a terrorist entity to directly challenge the U.S. It was suggested that al Qaeda follows a rational utility-maximizing model in their terrorist actions and further that suicide attackers, if viewed in the proper context, are also following basic economic concepts. Suicide attackers must have perceived that the value of their life was more than offset by the corresponding benefit to the fundamentalist Muslim cause of their altruistic suicide act.

Attacks of 911 were repulsive to Westerners, but many fundamentalist Muslims probably feel that 911 and the events that followed were very effective. Costs of that attack on the U.S. and global economy are very large and appear to have reduced mobility of capital, labor and goods. The objectives of the bin Laden al Qaeda organization appear to be very clear. Additional successes on the part of al Qaeda and other terrorist entities may be to further slow movement to more open economies and the spread of Western influence. The dedication of the 911 attackers was probably not unique. An implication is that Western countries can expect additional terrorist attacks implemented by suicide attackers.

APPENDIX I--LISTING OF COUNTRIES

Muslim Countries

Afghanistan

Algeria

Bahrain

Bangladesh

Brunei

Egypt

Indonesia

Iran

Iraq

Jordan

Kuwait

Libya

Malaysia

Mauritania

Morocco

Oman

Pakistan

Qatar

Saudi Arabia

Syria

Tunisia

Turkey

U.A.E.

Yemen

Romania

Slovakia

Slovenia

Uruguay

Venezuela

Poor Christian

Argentina

Bolivia

Brazil

Bulgaria

Chile

Colombia

Costa Rica

Croatia

Czech Rep

Dominican R

Ecuador

El Salvador

Guatemala

Haiti

Honduras

Hungary

Jamaica

Mexico

Nicaragua

Panama

Paraguay

Peru

Philippines

Poland

Rich Christian

Australia

Austria

Belgium

Canada

Denmark

Finland

France

Germany

Greece

Ireland

Italy

Iceland

Luxembourg

Netherlands

New Zealand

Norway

Portugal

Spain

Sweden

Switzerland

U.K.

U.S.A.

POPULATION AND GDP

Table I

                       Population      GDP       GDP/Capita
                       (millions)    (tril.$)      (US$)

22 Rich Christian        719.6         18.8        26,120
29 Poor Christian        682.0          4.3         6,333
24 Muslim Countries      913.6          3.1         3,385

Source: CIA

GDP/CAPITA (U.S.$)

Table II

                        1980      2000     Percent Incr.

22 Rich Christian      10,376    27,210         162
29 Poor Christian       1,774     3,538          99
24 Muslim Countries     1,087     1,555          43

Source: IMF

9. REFERENCES

Arnett, Peter, Interview with Osama bin Laden conducted in Afghanistan, 1997, www.anusha.com/osamaint.htm.

Barro, Robert J., "Are Government Bonds Net Wealth?", Journal of Political Economy, Vol. 82 (6), 1974, 1095-1117.

Becker, Gary S., A Treatise on the Family, See especially Chapter 8: "Altruism in the Family." Harvard University Press, 1981.

--, "Nobel Lecture: The Economic Way of Looking at Behavior", Journal of Political Economy, Vol.101 (3), 1993, 385-409.

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--, "Irrational Behavior and Economic Theory", Journal of Political Economy, Vol. 70 (1), 1962, 1-13.

Cosgrove, Michael, "Terrorist Strategy and Global Economic Implications", Journal of Business and Economics Research, Vol. 1 (6), 2003, 51-61.

Hamermesh, Daniel and Soss, Neal, "An Economic Theory of Suicide", Journal of Political Economy, Vol. 82 (1), 1974, 83-98.

International Monetary Fund, International Financial Statistics, Various issues from 1981, 1984 and 2002.

Irwin, Douglas and Tervio, Marko, "Does Trade Raise Income? Evidence from the Twentieth Century", Journal of International Economics, Vol. 58 (1), 2002, 1-28.

Kreinin, Mordechai E., International Economics: A Policy Approach, ninth edition, Thomson Learning, 2002.

Kull, Steven, Americans on Globalization: A Study of US Public Attitudes, Program on International Policy Attitudes, University of Maryland, 2000, 1-96.

Laqueur, Walter, "Postmodern Terrorism", Foreign Affairs, Vol.75 (5), 1996, 24-36.

--, The New Terrorism, Oxford University Press, 1999.

Leontief, Wasily W., "The Use of Indifference Curves in international Trade", Quarterly Journal of Economics, Vol. 47 (3), 1933, 493-503.

Miller, John, Interview with Osama bin Laden in May 1998 in which Osama bin Laden answers questions posed to him by some of his followers and John Miller, ABC reporter, www.pbs.or.q/wgbh/pa,qes/frontline/shows/binladen/who/interview.html.

O'Driscoll, Jr., Gerald, Feulner, Edwin J. and O'Grady, Mary, 2003 Index of Economic Freedom, The Heritage Foundation and Dow Jones & Company, Inc., 2003.

Organization for Economic Cooperation and Development, Economic Consequences of Terrorism, OECD Economic Outlook No. 71, Chapter 4, 2002.

Qutb, Sayyid, Social Justice in Islam, translated by John B. Hardie and Hamid Algar, Islamic Publications International, 1953.

Rodrik, D., "Why Do More Open Economies Have Bigger Governments?", Journal of Political Economy, Vol. 106, 1998, 997-1032.

Ruffin, Roy J., "The Nature and Significance of Intra-industry Trade", Economic and Financial Review, Federal Reserve Bank of Dallas, Fourth Quarter 1999, 2-9.

Samuelson, Paul A., "Social Indifference Curves", Quarterly Journal of Economics, Vol. 70 (1), 1956, 1-22.

Scheve, Kenneth and Slaughter, Matthew, "What Determines Individual Trade-Policy Preferences?" Journal of International Economics, Vol. 54, (2), 2001, 267-92.

United States Central Intelligence Agency, The World Fact Book 2000, U.S. Government Printing Office, 2001.

U.S. Department of State, Patterns of Global Terrorism 2002, Government Printing Office, 2003.

World Bank, Globalization, Growth, and Poverty: Building an Inclusive World Economy, Chapter 1, 2002.

Dr. Michael H. Cosgrove earned his Ph.D. at Ohio State University. Currently he is an associate professor in the College of Business, University of Dallas.

Daniel Marsh, ABD, Southern Methodist University. Currently he is adjunct professor in the College of Business, University of Dallas.