CASADE

Economic Growth Requires Love; Certainly Not In Its Common Apprehension

 

Paul Cleveland.

Though I speak with the tongues of men and of angels, but have not love, I have become sounding brass or a clanging cymbal. And though I have the gift of prophecy, and understand all mysteries and all knowledge, and though I have all faith, so that I could remove mountains, but have not love, I am nothing. And though I bestow all my goods to feed the poor, and though I give my body to be burned, but have not love, it profits me nothing. Love suffers long and is kind; love does not envy; love does not parade itself, is not puffed up; does not behave rudely, does not seek its own, is not provoked, thinks no evil; does not rejoice in iniquity, but rejoices in the truth, believes all things, hopes all things, endures all things.
—I Corinthians 13: 1-7

1. The Inherent Connection of Virtue and Liberty

Which came first, the chicken or the egg? It seems that some things we observe are so immediately connected with one another that separating them is nearly impossible. In addition, it is the case that some things are so connected to one another that while we can distinguish between them, it is impossible to separate them. The opening quote of the Apostle Paul’s first letter to the Corinthians gives us an example of such items. In this text, Paul argued that love is the substance behind true virtue. So much so, that while it is at least hypothetically possible to have moral behavior apart from love, it is impossible for love to exist apart from moral behavior. To love something, is to possess an affection for it or to maintain a positive disposition to it that places the object loved above other things. In the context of Paul’s letter, the object to be loved to provide meaning to, and profit from, virtuous behavior is God. As a result, Paul argued that true morality rests finally in one’s love of God and of the things of God.

Jonathan Edwards developed this position further in his essay, “The Nature of True Virtue.”^[1] In this essay, Edwards developed the concept from the standpoint of moral philosophy and argued that true or genuine virtue is nothing short of the benevolent love of being in general. For Edwards, benevolent love is defined as the desire to seek the happiness of and to rejoice in the object of its affection. Following along this kind of reasoning, he argued that a virtuous heart is one that loves being in proportion to the degree of existence that is inherent in the object loved. On the basis of this perspective, it follows that since God is the infinite being who exists in and of himself, and the one who possesses the power of being, he must be the object of greatest affection for the truly virtuous heart. On the basis of this conclusion it ought to be recognized that while it is impossible to add happiness to a being who is infinite and complete in himself, it is nonetheless possible for benevolent love for God to be manifested in a disposition that rejoices in the character of God and that is obedient to God. Therefore, extending Edwards’ conclusion, a virtuous act always proceeds from the love of God, otherwise one’s affections have not reached the highest possible end for they fall upon the promotion of some smaller subset of being. For this reason, it would hardly be an immoral act for a thief to betray his partners in crime by testifying against them in a court of law and thereby violating a loyalty to the gang. In this case, the fact that a gang of thieves might maintain some sense of loyalty and comradery to one another as they engage in the activity of violating others provides no proof whatsoever that there is any virtue in their loyalty. Since their loyalty to one another is restricted to a small part of being in general, it undercuts the possibility that there is any virtue in it. In fact, actually testifying against the group may well be more virtuous. But even this, if it is not done out of love for God, would fall short of what Edwards would call true virtue.

Jonathan Edwards went on to define a secondary kind of beauty that is often taken for virtuous behavior. Namely, behavior that is in accord with justice. In this case, justice is defined by the common notion of receiving one’s due. As Edwards states the matter:

By this it appears, that just affections and acts have a beauty in them, distinct from and superior to the uniformity and equality there is in them: for which he that has a truly virtuous temper, relishes and delights in them. And that is the expression and manifestation there is in them of benevolence to being in general. And besides this, there is the agreement of justice to the will and command of God; and also something in the tendency and consequences of justice, agreeable to general benevolence, as the glory of God, and the general good... But though it be true, that the uniformity and proportion there is in justice is grateful to a benevolent heart, as this uniformity and proportion tends to the general good; yet that is no argument that there is no other beauty in it but its agreeing with benevolence.^[2]

Within this context, it is clear that a person might see beauty in justice without being disposed to a benevolent love of God. Put another way, people might well see the value of justice in promoting the general well-being of humanity apart from an overriding affection for God. But this kind of affection for justice could not be called truly virtuous on the basis of Edwards’ definition nor on the basis of Paul’s discussion of the importance of love. Nevertheless, this kind of practical morality is often praised by men generally as virtuous behavior.

But what does this discussion have to do with the study of economics? As it turns out, it has a great deal to do with our study because there is a fundamental relationship between moral behavior and economic freedom. That is, morality and economic freedom are so closely linked that it is impossible to conceive of the one without the other. So much is this the case, that a careful examination of the question as to which gives rise to the other will lead us to see just how closely the two things are connected. While we might conclude that morality is the prerequisite that gives rise to economic freedom, it is nonetheless also true that neither exists very long in the absence of the other. The purpose of this paper is to examine this fact and to observe the fundamental importance of morality in fostering economic growth.^[3]

At the very outset of the study of economics, students of the subject are informed that economics is a positive science. That is, the aim of the study is to examine the facts so as to discern the most efficient satisfaction of human desires which might be had by allocating the scarce resources at hand. As Ludwig von Mises stated the matter:

It is true that economics is a theoretical science and as such abstains from any judgment of value. It is not its task to tell people what ends they should aim at. It is a science of the means to be applied for the attainment of ends chosen, not, to be sure, a science of the choosing of ends. Ultimate decisions, the valuations and the choosing of ends, are beyond the scope of any science. Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends.^[4]

Accordingly, the aim of the science is to provide a sound description of the way things are and it is assumed that this goal is best accomplished in the context of value neutrality.

However, human beings do not live in a morally neutral world and if we try to hold too strongly to the positivist position we are led to believe that a person’s selection of ends does not matter at all. In fact, if we cut ourselves off totally from moral considerations in our study of economics, the underlying implication is that morality does not matter at all when policy issues arise. Instead, morality is reduced to the level of personal preference. This follows because the implicit assumption being made is that there is no such thing as a moral standard in the objective world which exists apart from human preferences. In effect, positivism reduces the issues of morality to the level of personal preference. But is this true? Can it possibly be true?

Edmund Opitz addressed these questions in his book, Religion and Capitalism: Allies, Not Enemies. One of the important points he makes is that any ethical system that would acknowledge the categories of right and wrong must be rooted úin a realm which is beyond society and beyond nature. Sound ethical theory must, in other words, lead to or proceed from theistic premises.”^[5] Opitz is right. If morality is important, it is because there really is a standard of behavior which exists beyond human preferences and this standard must be rooted in God. While we might well be able to discern something about that order apart from acknowledging God, nevertheless it can only exist because God exists. Therefore, the case for the importance of morality in economic considerations can only be made after a case is made for the theistic position.

The case for theism has been made in various ways throughout history.^[6] It would be beyond the scope of this work to recount all these efforts and examine their strength. However, whether one realizes it or not, such efforts have continued down to our own age. Indeed, one of the more excellent arguments in favor of theism was presented by C. S. Lewis. In his book, Miracles, Lewis demonstrates in a compelling fashion that the naturalistic position, which has become so popular in our day and which is so often simply taken for granted, is fundamentally flawed. Lewis begins his argument by defining naturalism as the belief that everything in nature can be explained “in terms of the Total System.”^[7] In these terms, the universe is thought of as a large machine that operates on its own terms. Furthermore, every event and each particular thing or instance of change is thought to occur in conjunction to every other event. Bluntly, the fundamental notion behind naturalism is that every event and all things and all changes can be understood as the sum total of all there is. Therefore, everything can be explained in terms of the larger process which Lewis calls “the Total System” or “Nature.”

As Lewis points out, however, this idea suffers from a fatal flaw in reasoning. The problem with naturalism as defined in these terms is that it fails to take account of the mind and of reason. If there is any validity to our mental reasoning, then the knowledge we gain from it transcends the natural order. And, if there is no validity to human thought, then no knowledge is possible. But if this is true, then what validity can be attributed to the theory of naturalism? Is it knowledge of the actual human condition? It is clear that if naturalism as a theory cannot account for itself, it cannot add anything to human understanding. In fact, naturalism fails to account for the existence of the mind. Thus, the fatal flaw that is inherent in the theory is that it uses the mind to develop and promote a theory that is anti-mind. If it were true, it would have to reject itself on its own ground. Can there be any doubt that people do possess minds capable of meaningful thought? The reality is that people do have minds and that we use our minds to perceive the world about us and to reflect and meditate upon the events and changes we observe. From this effort, much about the world has been discovered. In fact, by way of the human capacity to think we have been able to identify many of the underlying patterns of change around us and to derive numerous principles by which change occurs. Of course the process of discovery is not a finished product and it will continue on indefinitely as much remains unknown. Nonetheless, in all of our reasoning we implicitly assume that reasoning is a valid exercise and that it leads to knowledge.

Naturalism leaves no room for the validity of human thought. If every event must be described in terms of a mechanical process, then human thought too must be mechanical. If that is true, then no meaning could be attached to human thought and science itself becomes impossible. In Lewis’ own words:

Unless human reasoning is valid no science can be true. It follows that no account of the universe can be true unless that account leaves it possible for our thinking to be real insight. A theory which explained everything else in the whole universe but which made it impossible to believe that our thinking was valid, would be utterly out of court. For that theory would itself have been reached by thinking, and if thinking is not valid that theory would, of course, be itself demolished. It would have destroyed its own credentials...Naturalism, as commonly held, is precisely a theory of this sort.^[8]

Edmund Opitz argued in virtually the same fashion in making his case for theism. Like Lewis, Opitz begins his argument by considering the nature of human thought and by observing the recent tendency of thinkers to reduce everything down to the nature of things. In this process Opitz identifies two orders which tend to be affirmed; the natural order, or the physical laws observed in the so-called “hard” sciences, and the social order, or the observed laws of the social sciences. Once again, this view reduces all things down to the point of being component parts in an overall system. But as Opitz observed:

The man who says that there are only two orders, the natural and the social, must assume a mind that knows this, a mind capable of knowing this, a mind capable of discovering true relations in two realms outside itself. What a marvelous instrument this mind is! How shall we account for it? Most people, of course, take the mind for granted—as they take almost everything else for granted. Paradoxically, while there are many highly trained minds seeking to explain just about everything in the natural and social orders, it never occurs to them that the mind itself needs explaining.^[9]

The importance of the point being made by both of these writers is that any attempt to explain the mind in naturalistic terms reduces thought to non-thought and is hence self-referentially absurd. Instead of honestly wrestling with the generalized theistic implications of this however, many academicians have retreated to their private empirical specialities in order to ignore the issue. Richard Weaver noted this tendency in his book, Ideas Have Consequences, when he stated that there is an “astonishing vogue of factual information. It is naturally impossible for anyone to get along without knowledge that he feels can be relied on. Having been told by the relativists that he cannot have truth, he now has ‘facts.’ One notes that even in everyday speech the word fact has taken the place of truth; ‘it is a fact’ is now the formula for a categorical assertion... The pedantic empiricist, buried in his little province of phenomena, imagines that fidelity to it exempts him from concern with larger aspects of reality—in the case of science, from consideration of whether there is reality other than matter.”^[10] But this will not do, for “where fact is made the criterion, knowledge has been rendered unattainable.”^[11]

Basil Willey aptly assessed the situation in his reflections upon the seventeenth century. He noted that it is not that science is wrong in its pursuit of identifying mechanical principles in nature. However, it must be realized that science is nothing more than a method of investigation. It is not itself a philosophy and since it is not a philosophy it cannot give an intelligent account of Being. To treat science as if it were a philosophy of life is to engage in the utterly absurd notion that oneís own theories are the essence of reality itself. This position is not only absurd, but more than a little arrogant and conceited.^[12]

The reasonable conclusion is that human thought transcends nature. Furthermore, since we transcend nature in our ability to think, to will, and to act in purposeful ways, we are also responsible for those actions. This follows because our own transcendence points inevitably to a Being who must ultimately transcend nature. We typically refer to the being which possesses the power of being in and of himself as God. That is, the fact that we are finite creatures that transcend the natural order necessarily implies that there must be some ultimate Mind who transcends the natural order and is responsible for it. In short, if thought and reflection are genuine, then God must be. Not only this, but the case is made for a moral order beyond human preference and the natural law concept is established. In particular, it is recognized that God Himself establishes the standard of moral behavior in much the same way as he establishes the laws of the physical order of nature. In turn, this reality secures axiology as an important philosophical study related to economics because the study of the nature of the moral order is inevitably linked to any discussion of what we ought to do politically. Thus, the goal of political economy becomes clear. It involves the incorporation of learning from economics as a technical science and from our best understanding of the objective moral order so as to promote political policies which are just and efficient. In short, any legitimate political argumentation would have to recognize the rights and the dignity of individual human beings.

Interestingly, apart from this position, there is no secure argument in favor of the free-market. While economists might point out that the general public might reach its greatest material welfare in an atmosphere of relative freedom, it is nevertheless also true that some individuals could gain more by plundering the property of others. If there is no moral order, then there is nothing to deter people from pursuing their ends except the countervailing force of government. But, if everyone thought this way, what would prevent the use of government power as the instrument by which one group plundered another? All the discussions of efficiency in the world would not suffice to dissuade people in the possession of such power from pursuing the fulfillment of their own ends at the expense of others. In the final analysis, if there is no objective ethical code of conduct according to which human beings ought to order their actions, then might does indeed make right. In such a world, those with power are at liberty to use their power against others by the fact that they actually do have the ability to do so. As a result, the free market can only be secured if the existence of a moral order is recognized and if people are understood to be creatures endowed with rights by their Creator. “If we want a free market and a free society we need a genuine ethic. This genuine ethic extols justice, forbids murder, theft, and covetousness, and culminates in love for God and neighbor. This is old stuff, you say; true, but itís good stuff...[because] there is a realm of life outside the realm of economic calculation, on which the market depends.”^[13]

At this juncture many pragmatists might be inclined to accept certain moral rules such as the protection of property and the prohibition of theft on the grounds that these rules work. However, a casual reflection on such a position begs the question. Edmund Opitz dispelled any such attempt in an excellent example. Opitz gives an illustration of a man who purchases a road map and uses it to make an automobile trip from New York to Boston. Upon his return, the man extols the goodness of the map because it was so useful. In his pragmatic terms, since the map served its purpose it was a “good” map. But why was the map useful? Was it not because it provided an accurate description of the road network that actually exists between New York and Boston? If a map were drawn that was in no way consistent with the reality that it purported to show, it would not be useful. In the same way, the reason that certain moral prescriptions are useful is that they are an accurate description of the established moral order and man is not ultimately at liberty to disobey that order without incurring certain consequences.

1. Morality and the Free-Market

Within the context of the theistic world view, the incorporation of the traditional moral order with the scientific principles of economics can proceed. In this examination we can begin to see the inherent connection between morality and the marketplace. In the first place, the existence of the market depends fundamentally upon the existence of private property and voluntary trade. This condition presupposes participants who in some way acknowledge the rights of others and who are committed in some sense to upholding those rights. That is, any discussion of the market affirms the moral prohibitions against stealing, lying, murdering, and forcing others into servitude. In addition, it also assumes that there is some degree of adherence to certain positive commands such as the admonition to work hard and to employ one’s talents and resources to the greatest advantage. When any of these rules of behavior is too greatly ignored, the market does not function as well as it could. Indeed, as immorality spreads, markets tend to collapse.

To be sure, in the real world, the degree to which people embrace these moral principles of behavior varies and this variation does have ramifications upon the extent and the effectiveness of the marketplace. For example, suppose that a society existed in which the acceptance of the traditional Western moral principles was nearly universal. In other words, a place where the general populace held so strongly to the importance of the customary virtues that they were unwilling to even entertain the thought of violating them to further their own ends. In that community there would be little need for government action to secure the peace. The need for police protection of life and property would be diminished because there would be few murderers and thieves. Additionally, while contractual disputes might arise, most would be resolved voluntarily by men of good will. Even in cases of profound disagreement between people, the civil order would tend to prevail as each individual restrained his own actions for the common good of the community. Once again, the costs of government would not need to be born by the citizens of that community. Finally, mutual gains from trade could advance without elaborately written contracts, since most people would attempt to go beyond the expectations of their trading partners. As a result, the transaction costs incurred in the negotiation of trade would be low. In this atmosphere, trade among people would thrive. Given what we know from economics about market efficiency, can there be any doubt that such a general pervasiveness of morality would lead to a rapid expansion of general economic well-being? The main point to be made is the recognition that moral behavior is fundamentally linked to economic freedom which in turn leads to generalized economic growth.

It is true, of course, that this result can be had regardless of the various motives people might have for their moral behavior. Some people might behave morally only out of a fear of being punished. That is, only the threat of punishment serves as a restraint upon their behavior. As a practical matter, other people might recognize that moral behavior on their part is in their long-term best interest. This kind of person is a rational pragmatist who sees that his own interests are best promoted by acting in morally responsible ways. Finally, others may behave morally out of a genuine affection for God and his moral order. In this latter case, the person is religiously motivated to treat others in a manner that he would desire to be treated because of his religious affection for God. Whatever the motive, the general acceptance of the standard of morality would have a profound impact upon the economic fortunes of the society.

While it is not necessary for everyone to possess a genuine, heartfelt desire for virtuous living to obtain the economic benefits of moral behavior, some affinity for the moral order must prevail to secure the blessings of freedom. In essence, it must be recognized that if fear becomes the primary motive for morality, the costs of securing the marketplace will rise as society spends more for police protection, judicial mediation, and government punishment of rights violators. In fact, the more that moral behavior depends upon the fear of punishment, the more likely it is that the system will begin to break down as government force is subverted and used to promote immoral ends.

To be sure, any society will include people of all the kinds mentioned above. Some people will seek to do the right thing because of their religious affections, some will understand the practical long-term benefits of morality and choose to behave accordingly to promote their own temporal interests, and some will only do the right thing as long as they feel that they must do so or risk the costs of punishment. But, suppose a society existed where no one cared about the welfare of others beyond their immediate concern. Suppose, no one regarded the property of others except as it might serve their immediate advantage. In this case, people would not respect either the lives or the property of other people in a moral sense. If everyone thought this way, then some would inevitably see that it was to their immediate advantage to use the collective force of government to plunder their neighbors in order to promote their own ends. In this environment, might would certainly be considered right and the stronger would undoubtedly rule over weaker. If there was no objective standard of morality, then government would merely be the means by which the politically powerful ruled over the politically weak. In such a situation, despotism and tyranny would be prominent and the few would benefit at the expense of many others.

Some minimal level of genuine and practical virtue on the part of the participants of society is indispensable for the existence and continuation of the free-market. Apart from such moral behavior, a free society cannot exist for government will inevitably be used to promote the immoral ends of the politically powerful. This point was not lost on the founders of the American government. In a letter to Thomas Jefferson, John Adams wrote:

Have you ever found in history, one single example of a Nation thoroughly corrupted that was afterwards restored to virtue?...And without virtue, there can be no political liberty...^[14]

Also, in the writings of Samuel Adams we find:

A general dissolution of principles and manners will more surely overthrow the liberties of America than the whole force of the common enemy. While the people are virtuous they cannot be subdued; but when they lose their virtue they will be ready to surrender their liberties to the first external or internal invader...If virtue and knowledge are diffused among the people, they will never be enslaved. This will be their great security.^[15]

People never behave quite as badly in practice as they possibly could, although there are more than a few episodes in history that provide ample evidence of the atrocities human beings are capable of committing. It is the potential for the horrendous consequences of despotism and tyranny that make the issue of the magnitude of genuine and practical virtue in society important to the consideration of economic freedom. If economic freedom is to be achieved, then morality cannot be neglected. This follows because the easiest way to violate the rights of others is by the perverted use of the law. Since government by definition involves the use of collective force to accomplish its ends, it can readily be used as the means by which immoral people accomplish their immoral ends. If unprincipled men and women gain political power, they can use that power to prey on others while they promote their own interests and the interests of those they favor. Frederic Bastiat well understood the potential of this situation as is illustrated in his many essays. It was the fundamental point of his classic essay titled, “The Law.” In that essay he wrote:

When, then, does plunder stop? When it becomes more onerous and more dangerous than labor. It is clearly evident that the object of the law should be to oppose this harmful tendency with the powerful obstacle of collective force, that it should side with property against plunder. But the law is made, most often, by one man or by one class of men. And, since the law does not exist without sanction, without the support of a preponderant of force, it inevitably puts this force into the hands of those who legislate. This unavoidable phenomenon, combined with the lamentable inclination that...exists in the heart of man, explains the almost universal perversion of the law. It is understandable how, instead of restraining injustice, the law becomes its instrument.^[16]

Bastiat’s point was not unknown beforehand. Indeed, the framers of the American form of government readily understood the issue and intentionally constructed a government aimed at separating power between the various branches. But even with this pattern of construction, they well knew that some degree of virtue was still necessary if freedom was to be sustained. What is the minimum amount of genuine and practical virtue in society that is necessary to secure the general peace and the functioning of the free-market? No precise answer can be given to this question. The most that can be said is the greater the prevalence of these kinds of moral agents in society, the greater the freedom and the more effective the free market.

While the bulk of this paper has been aimed at the importance of virtue for sustaining economic freedom, it might be well to note that this link goes both ways. That is, while virtue is needed to secure freedom, freedom is the necessary context for the development of individual moral character. Consider the following example. Suppose someone is lazy and disregards the use of his resources by failing to employ them to their greatest economic advantage. Most certainly, this individual is likely to live in a relatively impoverished fashion by comparison to others in his community. As others prosper, it will become more and more apparent to him that his own failure to advance is due to flaws in his own character. If this realization takes place, such a person may well seek to change the pattern of his life for the good of not only himself, but also of the community as a whole. Perhaps we can all identify situations from our own backgrounds in which we discovered a better way to live by recognizing and altering the character flaws in our own lives. The success of others often proves helpful to us in identifying our own flaws so that we can deal with them in a mature way. Toward this end, economic freedom will certainly serve as a valuable tool in promoting virtue. In this latter connection, we can also see how fundamentally tied together virtue and freedom are and we can realize how important morality is to the free-market and ultimately to economic growth and development.

Endnotes

^[1] Jonathan Edwards, The Nature of True Virtue, (Ann Arbor, MI: The University of Michigan Press, 1960).

^[2] Ibid, pg. 39.

^[3] James Gwartney, Randal Holcomb and Robert Lawson presented evidence demonstrating the fundamental importance of economic freedom as the key variable determining the likely level of economic growth a country might obtain at the APEE 1998 meeting. Their results are to be published in an article titled, “Economic Freedom and the Environment for Economic Growth”, in the Journal of Institutional and Theoretical Economics. Following upon that work, if morality and freedom are linked as I suggest, then moral behavior is also an important factor in understanding the necessary climate which gives rise to economic growth.

^[4] Ludwig von Mises, Human Action: A Treatise on Economics, (Chicago: Contemporary Books, Inc., 3rd revised edition, 1966), pg. 10.

^[5] Edmund A. Opitz, Religion and Capitalism: Allies, Not Enemies, (Irvington, New York: Foundation for Economic Education, 1992), pg. 282.

^[6] In recent years the attack against Immanuel Kantís Critique of Reason has intensified. Today there are many scholars at work reformulating the traditional theistic arguments and undercutting the arguments of the Enlightenment skeptics. For example, J. P. Moreland, “Science, Miracles, Agency Theory & the God-of-the-Gaps,” In the Defense of Miracles, ed. by Douglas Geivett and Gary Habermas, (Downers Grove, IL: InterVarsity Press, 1997), W. David Beck, “God’s Existence,” In Defense of Miracles, and Alvin Plantinga, “Belief in God,” Perspectives in Philosophy, ed. by Michael Baylan, (Ft. Worth, TX: Harcourt Brace Jovanovich, 1993). These are just a view of the many modern efforts in this direction.

^[7] C.S. Lewis, Miracles, New York: Macmillan Company, 1947), pg. 23.

^[8] Ibid, pp. 11-28.

^[9] Opitz, op. cit., pg 286.

^[10] Richard M. Weaver, Ideas Have Consequences, (Chicago: University of Chicago Press, 1948), pp. 58 and 60.

^[11] Ibid, pg. 58.

^[12] Basil Willey, The Seventeenth Century Background, (New York: Columbia University Press, 1934), pp. 1-23.

^[13] Opitz, op. cit., pg 106.

^[14] Richard K. Arnold, ed., Adams to Jefferson/Jefferson to Adams-A Dialogue from their Correspondence, (San Francisco: Jerico Press, 1975), pp. 330-331.

^[15] Rosalie J. Slater, Teaching and Learning America’s Christian Heritage, (San Francisco: Foundation for American Christian Education, 1975), pg. 251.

^[16] Frederic Bastiat, “The Law”, Selected Essays on Political Economy, (Irvington, NY: Foundation for Economic Education, 1995), pp. 54-55.

 

 

 

 

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by CASADE

Would Direct Dividend Transfers To The Poor In Resource-Rich Countries Act As Antidote To The Natural Resource Curse?

 

The Oil-to-Cash policy initiative by the Center for Global Development to help the lot of Africa’s poor presumes so. This speculative but highly plausible initiative may actually prove useful as a fiscal policy instrument that African governments may deploy to bridge the ever-growing income inequality in the continent; and better yet, help create the ever-useful middle class. The research paper by Marcelo Guigale and Nga Thi Viet Nguyen entitled “Money to the People: Estimates of the Potential Scale of Direct Dividend Payments in Africa,” is both informative and timely. A summary version of this work is presented here.

Marcelo Giugale and Nga Thi Viet Nguyen:

Historical data shows that large natural resource endowments have not translated into better quality of life in Sub-Saharan Africa (“Africa” for short). The problem is becoming more urgent, as new exploration technologies are rapidly expanding the number of countries whose fiscal revenues will grow, in many cases massively, with new oil, gas, and mineral discoveries. A search is on for innovative approaches in managing this commodity bonanza. This paper focuses on the distribution of resource rents as cash transfers to citizens, so-called “Direct Dividend Payments” (DDPs). It expands on recent related literature by calculating such transfers, whether universal or targeted, for every African country for which data is available, and compares them to measures of poverty depth under both national and global definitions. Furthermore, it extends the analysis to a different kind of resource flow enjoyed by most African countries— foreign aid. We found that DDPs can account for a large proportion of the income Africa’s poor need to step over the poverty line.

Preface

The discovery of oil in a developing country is potentially beneficial and, simultaneously, potentially calamitous. While countries could put oil revenues toward building much-needed schools and roads, fixing and staffing health systems, and policing the streets, many resource-rich states fare little better —and often much worse—than their resource-poor counterparts. Too often public money is misallocated and funds meant to be saved are raided, and those living in poor resource-rich countries pay the price. While this so-called resource curse is well established in the literature, solutions to counteract its corrosive effects remain highly elusive. CGD’s Oil-to-Cash initiative is exploring one policy option that may address the root mechanism of the resource curse: using cash transfers to hand the money directly to citizens and thereby protect the social contract between the government and its people. Under this proposal, a government would transfer some or all of the revenue from natural resource extraction to citizens in universal, transparent, and regular payments. The state would treat these payments as normal income and tax it accordingly—thus forcing the state to collect taxes, and adding additional pressure for public accountability and more responsible resource management.

This paper by Marcelo Giugale and Nga Thi Viet Nguyen, commissioned by CGD as part of Oil-to-Cash, calculates the potential scale of resource-linked transfers for every African country (for which data is available) and compares these levels to poverty depth estimates. They make a similar calculation for inward aid flows. Thus the authors make a contribution to the literature by providing a sense of how important such transfers might be, at least theoretically, to increasing incomes of Africa’s poor over the poverty line.

1. Introduction

The past 20 years have witnessed fast and sustained economic growth in Africa, especially in resource-rich countries, thanks to improved macroeconomic policies, buoyant commodity prices, and new mineral resource discoveries [World Bank (2013); Hostland and Giugale (2013)]. Despite such progress, poverty levels remain stubbornly high, and recent studies have shown that the current pace of economic growth and poverty reduction will not be enough to bring extreme poverty below 3 percent by 2030, neither globally nor in Africa [see Dabalen and Nguyen (2013); Chandy et al. (2013)]. More fundamentally, basic human development outcomes have been particularly dismal among African countries with large natural wealth. Even when their per-capita GDP grew more slowly, resource-poor countries in Africa outperformed their resource-rich peers in extreme poverty reduction and, controlling for income level, did better in measures like life expectancy and child mortality. For example, given their similar per capita income levels, life expectancy in oil-exporter Cameroon is on average 7.7 years shorter than in Senegal. And primary school completion rate in Chad is less than half of Rwanda’s despite the countries’ similar per capita income [World Bank (2013)].

This seeming inability to turn resource rent into poverty-reducing development has intensified the search for new approaches to manage commodity revenues. One of those approaches is Direct Dividend Payments (DDPs), that is, the distribution of part of the resource rent that would otherwise accrue to governments, directly to citizens. The idea is not new, and the literature contains arguments for and against DDPs. They are ably reviewed in Moss and Majerowicz (2013). The debate is mainly about technical and political feasibility, individual identification, conditionality, public goods production, macroeconomic implications, effect on governance, progressivity, taxation, fiscal sustainability, social impact, and behavior of the beneficiaries.

This paper contributes to that debate by providing a piece of information that has so far been missing: a simple but comprehensive calculation that illustrates how DDPs would actually look in Africa. It extends previous work by Devarajan and Giugale (2013) in three ways. First, it covers all resource-rich countries in the region for which data is available. Second, it compares DDPs to both national and global poverty lines—the latter being 1.25 PPP dollars per person per day in 2005 prices. And third, it calculates DDPs from both natural-resource fiscal revenues and foreign aid flows. The objective is not to prescribe DDPs for any one country or of any one size. Rather, we explore how relatively-modest, universal DPPs (say, ten percent of fiscal resource revenue) compare with poverty levels, and how costly, in terms of foregone fiscal revenue, DDPs would be if they were perfectly targeted to raise the income of the poor up to the poverty line. We then replicate the calculation using official development assistance (ODA), rather than resource revenues, as the means of funding the DDPs.

1. The Literature on DDPs

Sala-i-Martin and Subramanian (2003) were among the first to call for DDPs in the context of a resource-rich developing country, in their case as a means to compensate for the poor governance of oil revenues in Nigeria. Their underlying reason is that resource revenues go directly from extracting companies to governments, without citizen involvement—people do not have full information about the rent that is being extracted. This weakens their incentive to scrutinize government expenditures and, thus, fosters corruption. The process is reinforced by the fact that the larger the resource revenues, the less need for taxation and, thus, lesser accountability to taxpayers for the use of public funds [Bornhorst et al. (2009); McGuirk (2010)]. This lies behind the proposal by Devarajan et al. (2012) that resource-rich governments transfer some or even all of their resource revenues directly to their citizens and then tax them back to finance public spending. The case is further made by Arezki et al. (2012). They find that, as the size of the resource windfalls increases in countries with weak administrative capacity, the optimal spending policy should put more emphasis on redistribution and less on public investment. This is based on the assumption that adjustment costs, reflecting the limited administrative capacity, increase with the size of the resource windfalls.

Falkinger and Grossmann (2005) take a different tack. They submit that a more equal distribution of resource rents promotes economic growth and structural change by facilitating investments by credit-constrained entrepreneurs. This shifts the distribution of political power from public officials toward a new business class, resulting in an economic and political environment more favorable to productivity gains. The idea is given indirect backing by Segal (2011) who uses a global dataset on resource rents and distribution of income to claim that, under certain conditions, DDPs could cut the number of people living under US$1 a day by up to 66 percent. A number of more recent studies also argue that resource-rich countries, including Iraq, Nigeria, Uganda, and Ghana, should adopt DDPs as a way to accelerate political and economic transformation and a new social contract [see, for example, Sala-i-Martin and Subramanian (2013); Gelb and Majerowicz (2011); Moss and Young (2009); Sandbu (2006); Birdsall and Subramanian (2004); Palley (2003)]. These papers all carry an implicit sense of urgency with regards to Africa: with the help of new technologies in exploration and extraction, over the next ten years the region is likely to experience a massive wave of new oil and gas discoveries from the East African Rift Valley to West Africa’s Gulf of Guinea [Diamond and Mosbacher (2013)].

II. Calculating DDPs in Africa: Methodology

The calculations presented in this paper are only meant to provide an order of magnitude to possible DDPs in Africa. As such, they ignore any improvement in governance that DDPs may trigger, assume a zero opportunity cost for the funds used to pay for DDPs, and do not incorporate the economy-wide impacts of putting money in the hands of the poor. In other words, they ignore the net impact on baseline poverty of possible improvements in the quality of public expenditures, contractions in the quantity of public investment, distributional effects on aggregate consumption, and the related changes in relative prices.

Still, because of data paucity, even order-of-magnitude calculations are challenging in Africa. We present our data in Annex 1. We used the World Development Indicators (WDI) 2013 as the primary source on country population, GDP in current US dollars, net ODA per capita in current US dollars, poverty headcount ratios, and poverty gaps under either national or the international poverty lines. National poverty lines are as provided by the countries’ national statistical offices.

Fiscal revenue from natural resources is an indicator that needs to be taken with special caution since its definition varies widely across sources. We use the IMF Article IV Consultation Reports and Country Reports as our primary source. The IMF defines revenues from non-renewable resources as (i) royalties, (ii) income from profit sharing agreements, (iii) dividends or other payments from national resource companies, and (iv) taxes on resource profits or production. When information from the IMF is unavailable, we use the Extractive Industries Transparency Initiative (EITI), which provides resource revenues broken down by categories such as corporate tax, dividend, royalty, property rent, and licenses. When IMF and EITI figures are unavailable, we use government reports.

We picked 2011 as the reference year for all indicators except the poverty rate. Household surveys are carried out non-concurrently across countries and, on the whole, infrequently (for example, data was collected in Guinea in 2012 and Zimbabwe in 2011, but it dates back to 2003 in Botswana and Lesotho). We thus use the most up to date surveys available and assume that poverty rates, either using the national or international definitions, remained unchanged until 2011. This is, in practice, a conservative assumption, as all countries in Africa have experienced positive economic growth in the period since their last household survey.

For each country, the WDI provides data on the poverty gap as defined by Foster, Greer, and Thorbecke (1984). That gap is calculated as the sum of the distances between each poor person’s income or consumption and the poverty line, divided by the total size of the population, whether poor or not. In that sense, it represents a hypothetical average contribution that every member of society would have to make to end poverty. We use that information to compute the average poverty “depth” as defined by Devarajan and Giugale (2013). The average poverty depth is also calculated as the sum of the distances between each poor person’s income and the poverty line, but divided by the size of the poor population only. It thus reflects the transfer that the average poor person needs to receive to reach the poverty line. This makes it the right measure to compare against DDPs.

1. DDPs in Africa: Results

As expected, wide heterogeneity in resource endowments, foreign aid flows, population sizes, and poverty depth across Africa translates into equally wide heterogeneity in how large DDPs are in relation to poverty, and how expensive in relation to fiscal revenues.

a) Natural Resources, National Poverty Line

Say that governments decide to distribute ten percent of their natural-resource fiscal revenues equally among all citizens, rich or poor. How big would these uniform and universal transfers be compared to the average poverty depth, that is, to the money needed to bring the average poor person up to the national poverty line? Only in three countries (Angola, Equatorial Guinea, and Gabon) would that transfer document a positive growth elasticity of poverty, and amount to half or more of the average poverty depth. Two more countries (Republic of Congo and Nigeria) join that group when the 10 percent DDP is distributed only among the poor.

What if the comparison is not against half or more of the average poverty depth but, say, a tenth of it? Using that standard, DDPs of ten percent of resource-related fiscal revenue would make the cut in eight African countries (Angola, Botswana, Chad, Republic of Congo, Equatorial Guinea, Gabon, Nigeria, and South Sudan) when universally distributed, and in twelve when given only to the poor (Cote d’Ivoire, South Africa, South Sudan, and Sudan would join the group). These are not negligible numbers as, depending on definitions, the total number of resource-rich countries in the region currently stands at about 30.

A related question is how expensive it would be to “eradicate” poverty. That is, what proportion of natural-resource fiscal revenues would need to be transferred in a perfectly- targeted way to raise the income of every poor person up to the poverty line? In a few cases (Angola, Equatorial Guinea, Gabon), it would be extremely cheap—six percent of revenues. In some (Botswana, Chad, Republic of Congo, Nigeria, South Sudan), it would be more expensive—between a tenth and a third of revenue. But in most, it would be unaffordable— more than 100 percent.

A point of note. Because of their country’s relatively large resource revenues and very small population size of less than one million, a universal DDP of ten percent of those revenues would give citizens of Equatorial Guinea the highest absolute payment in the region in US dollars—approximately US$ 765 per person per year. This amount would be more than 20 percent larger than the size of the average poverty depth. Similarly, only six percent of the resource revenues would be needed to bring every poor Equatorial Guinean up to the national poverty line. That would be no small achievement given that more than three quarters of Equatorial Guineans are currently living in poverty. Nigeria, on the other hand, while benefitting from resource revenues that are ten times the size of those of Equatorial Guinea, has a population that is more than two hundred times larger. Consequently, a universal DDP at ten percent of revenue would be significantly lower—around US$35 per capita per year. And yet, it would cover half of the amount needed to get the average poor person out of poverty. But it would take a fifth of the resource revenue to eliminate poverty in Nigeria all together. The point is clear: the impact of DDPs depends as much on the volume of natural resource riches as it does on demographics and the initial position of the national poverty line. The following section alters that, by using the international definition of extreme poverty, rather than the national ones.

b) Natural Resources, International Poverty Line of $1.25 per day at 2005 international prices How does using the international extreme poverty line of 1.25 PPP dollars per day per

person (in 2005 prices), instead of each country’s own poverty line, change the size of DDPs relative to poverty depth and fiscal revenue? It does not change the results much.

c) Official Development Assistance (ODA), National Poverty Line

The funding of DDPs need not come from natural wealth. Conceivably, it can come from another of Africa’s resources—its donors. They contributed some US$ 43 billion, or just over 3 percent of the Region’s GDP, in 2011. This is, on average, equivalent to about a third of the fiscal revenues received from natural resource exploitation (10.4 percent of GDP in 2011). Africa’s ODA has proven fairly stable in nominal terms although, as a proportion of regional GDP, is has been in gradual decline since 2000. A universal, uniform distribution of 10 percent of ODA would represent half or more of the average poverty depth in only one country (Sao Tome & Principe). Focusing that 10 percent of ODA only on the poor would add just two countries (Cape Verde and Rwanda).

If the coverage sought is not half but a tenth of the average poverty depth, those kinds of ODA-funded transfers would make the cut in six countries (Cape Verde, Cote d’Ivoire, Rwanda, Sao Tome & Principe, Sierra Leone, and Tanzania) if they are distributed to all citizens, and in 19 countries if they are distributed only among the poor (the previously- mentioned ones plus Benin, Burkina Faso, Ethiopia, Ghana, Liberia, Malawi, Mali, Mauritania, Mauritius, Mozambique, Namibia, South Sudan, and Uganda).

Remarkably, there are 18 countries in which the flow of ODA would be more than enough to bring everyone up to the national poverty line. In fact, in 11 of those countries half or less of the ODA flow would suffice (Benin, Cape Verde, Cote d’Ivoire, Ethiopia, Mauritius, Namibia, Rwanda, Sao Tome & Principe, Sierra Leone, Tanzania, and Uganda).

Official Development Assistance (ODA), International Poverty Line of $1.25 per day at 2005 international prices.

Finally, in no country will a distribution of a tenth of the ODA uniformly across all citizens suffice to cover half or more of the average poverty depth, when poverty is defined as $1.25 PPP dollars per day per person. If, instead, that tenth of the ODA is distributed only among the poor, the transfer would cover half or more of the average poverty depth in six countries (Cameroon, Cape Verde, Gabon, Mauritania, Sao Tome & Principe, and Seychelles). A ten-percent DDP distributed universally and uniformly continues to cover half or more of the average poverty depth only in three countries (Angola, Republic of Congo, and Gabon). And focusing the DDP only on the poor, again adds only two more countries to that list (the two additional countries are Cameroon and South Africa). Notably, Nigeria now drops out of the list, as the 1.25 PPP dollar line is, in fact, higher than the national poverty line. The change from national to international poverty line does not alter the lists of countries when the DDP is compared with a tenth of the average poverty depth. In that case, DDPs of ten percent of revenue would “work” in seven countries (Angola, Cameroon, Chad, Republic of Congo, Gabon, Nigeria, and Sudan) when given out universally, and in twelve (add Cote d’Ivoire, Ghana, Mauritania, Namibia, and South Africa) when distributed only among the poor.

How costly is it to bring everyone up to the international, instead of the national, poverty line? Only in four countries (Angola, Cameroon, Gabon, and Republic of Congo) would it cost ten percent or less of fiscal resource revenue. For all other countries in Table 2, except South Africa and Sudan, the DDP needed to “end poverty” would represent more than a third of resource revenue.

 

Note (1): SSA countries with no or insignificant fiscal revenues coming from natural resources in 2011 are excluded from this list. These countries are Benin, Burkina Faso, Burundi, Cape Verde, Comoros, Eritrea, Ethiopia, Gambia, Guinea-Bissau, Kenya, Lesotho, Madagascar, Malawi, Mauritius, Rwanda, Sao Tome and Principe, Senegal, Seychelles, Somalia, and Swaziland. Among those, many are expected to have large resource revenues flowing in the near future, for example, Ethiopia, Kenya, Malawi, Mauritius, Gambia, and Senegal (see Diamond and Mosbacher, 2013).

 

Note (2): Poverty rates and gaps at US$1.25-a-day (PPP 2005) are not available for some resource-rich countries (namely, Botswana, Equatorial Guinea, South Sudan, and Zimbabwe). Consumer Price Index is not available for Sierra Leone in 2005. Therefore, our calculations cannot be applied to this country. More to the point, in those same 27 countries the flow of ODA is more than sufficient to raise everyone up to the international poverty line. In fact, in 14 of them, just half or less of the ODA would be sufficient (Cameroon, Cape Verde, Cote d’Ivoire, Ethiopia, Gabon, Gambia, Ghana, Mauritania, Namibia, Sao Tome & Principe, Senegal, Seychelles, South Africa, and Togo).

Putting it all together

First, for a few countries, DDPs can be both extremely large (relative to poverty depth) and extremely cheap (relative to resource revenues). In places like Angola, Cameroon, Republic of Congo, Equatorial Guinea, and Gabon, even universal DDPs that take up a tenth or less of the natural resource revenue can make a major contribution to poverty alleviation efforts—and in some cases, suffice to raise the income of the poor up to the poverty line. And third, in about a third of all African countries, ODA is more than sufficient to lift everyone’s income above the poverty line, assuming perfectly-targeted DDPs are possible. In fact, for about a dozen countries, less than half of the ODA flow would be enough. This calls attention to the funding source of DDPs, for African countries that lack natural resource rents usually get relatively large aid flows. In sum, the quantitative analysis indicates that DDPs have obvious country candidates, can help with poverty alleviation, and need not be funded by natural wealth. Second, in a few countries, DDPs that are tailored to cover exactly the poverty depth of each poor person ("perfect targeting") can be a potentially powerful tool to cut poverty headcounts, while accounting for only a small share of revenue. That is true whether the DDPs are funded through natural resource rents or official donors.

Conclusions: Value and Limitations of the Analysis

The calculations presented in this paper suggest that DDPs, at least in terms of relative size and cost, could be a powerful new tool in poverty alleviation among African countries. But, while helpful as an indication of orders of magnitude, this analysis has both conceptual and methodological limitations.

First, transfers by themselves do not ensure poverty reduction, as they may, and probably will, have second-order effects on the income of the poor, both positive and negative. That is, of course, also true of the more traditional Conditional Cash Transfer programs (CCTs) currently deployed in some 70 developing countries, 35 of which are African. In fact, the only difference between DDPs and CCTs is that the latter require a specific behavior by the recipient—say, consuming basic health services—and are not explicitly linked to any specific source of funding. Money being fungible, CCTs may actually be funded with fiscal resource rents, especially in resource-rich countries. Second, DDPs do not “work” in all countries, in that they may be too small to make a difference to the recipients or too large for a government to afford them—especially those governments that are unable to pay for basic public goods. At the same time, for countries whose governments have enjoyed large resource rents for a long time and where poverty remains stubbornly high, DDPs could be an interesting game-changer.

Third, for the purpose of cross-country comparison, the figures shown in this paper correspond to a single point in time—the year 2011. But fiscal resource rents can, and do, fluctuate significantly. When computed for a single country, DDPs should optimally be calculated on the basis of structural, long-term flows. For most African countries, such data does not yet exist. Fourth, while ignored in this paper, the political economy of DDPs is complex. DDPs imply a reduction in the discretionary power of incumbent governments to allocate rents, say, through public employment or price subsidies. And the choice between universal transfers and transfers focused exclusively on the poor is a major societal decision. Whether in practice those issues can be arbitrated by political contestability, enhanced citizen information, or both, remains to be seen.

Finally, drastic resource price changes or major resource discoveries may quickly render this paper’s calculations obsolete. In that sense, they should be taken only as indications of potential magnitudes. While prices are not expected to rise in real terms in the medium-term, and may in fact begin to fall, quantities are bound to expand on the wake of faster, cheaper and cleaner exploration and exploitation technologies. The net effect on fiscal resource revenues as a source of DDPs is uncertain.

 

 

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by CASADE

An Islamic Caliphate Within A Sovereign Nation Is A Threat To Controlling International Norms

 

The idea of a Caliphate within the territorial competence of a sovereign nation is a disturbing one, not least because it signals the existence of another supreme governing body within the state. This outcome not only makes nonsensical the notion of State sovereignty as commonly apprehended, but would also create a precedent that would make inoperable the vast body of international laws that govern the conduct of nations and the standards on which their relationships are based. Boko Haram’s control of territory in Northern Nigeria, and the occupation of vast geographic space in Iraq and Syria by the Islamic State are abnormalities that pose immediate threat to nation-states with the potential to destabilize controlling international norms. In his excellent research and writing on the intentions of modern Islamist Jihadists, Prem Mahadevan provides a compelling case history.

Prem Mahadevan:

The jihadist takeover of Iraq’s second-larg­est city Mosul in June 2014 sharply focused international attention on the country. Coming at a time when Western policy concerns were oriented towards Ukraine, the South China Sea, Gaza, and Afghani­stan, the takeover’s abruptness came as a surprise. Shortly thereafter, the responsible jihadist group named itself the “Islamic State” (IS) and declared the formation of a new Caliphate, signaling that its ideologi­cal agenda was not confined to distinct po­litical or geographic boundaries. The IS has been since projecting itself as a rival to al- Qaida, by competing for credibility and le­gitimacy among the global jihadist com­munity.

The IS is unusual in that, until very recent­ly, it had a record of impressive operational success, combined with a slick propaganda machinery to showcase this success. In contrast, al-Qaida remains weakened as a result of counterterrorism efforts in the Af­ghanistan-Pakistan region. Leaders of the older group are being upstaged by a new generation of jihadists with a more sectar­ian agenda that fits well with the political climate of some Arab countries reeling from the revolts of 2011. Al-Qaida now has competition from the IS in Libya and Syria, with possibly another front opening up in Algeria. Meanwhile, jihadist factions in Nigeria and Egypt have claimed align­ment with the IS.

What now confronts Western policymak­ers is the possibility of a strategic rivalry between two jihadist movements with al­most identical aims, but divided by person­ality clashes and divergent priorities. Al- Qaida remains focused on attacking Western targets in order to isolate “apos­tate regimes” in the Arab world, while the IS is keen to overthrow these regimes by military force. By playing upon sectarian tensions, the latter seeks to undermine the cohesiveness of government forces and paralyze its opponents while it occupies fresh territory. However, after being target­ed by US-led airstrikes since August 2014, its rhetoric has started to emulate that of al-Qaida, in calling for attacks on Western homelands. Given the attractiveness of the IS to Western jihadists, this is a worrying development. The group potentially could develop a long-distance strike capability that would operate directly or indirectly, depending on whether its leadership orders specific attacks or sanctions them post hoc.

Origins of the “Islamic State”

The IS is descended from a group set up by Jordanian jihadist Abu Musab al-Zarqawi. Following the 2003 US invasion of Iraq, Zarqawi and his followers joined the Ba’athist-led insurgency against the occu­pation forces. In 2004, he formally aligned with Osama bin Laden, with whom he previously had had differences, and named his group “al-Qaida in Iraq”. After Zarqawi was killed by the US in 2006, the group adopted the name “Islamic State of Iraq”. This was changed once again in April 2013, as the group established a direct presence in Syria, to the “Islamic State of Iraq and the Levant” and finally in June 2014, to “The Islamic State."

From an early stage, the group embarked on a sectarian agenda, much to the discom­fort of al-Qaida’s core leadership in Paki­stan, which advocated Shi’ite-Sunni unity against the West. Between 2003 and 2007, the IS attacked Shi’ites despite advice from the core leadership to concentrate on for­eign soldiers. By 2007, resentment against the group had permeated even the Sunni community of Iraq, resulting in a popular tribal uprising against the group. Since the IS drew heavily on foreign jihadists for its operations, it lacked a strong local network and suffered very severe losses of personnel. The underlying alliance of Sunni tribal leaders and US forces constituted one of the pillars of the successful US “surge” in 2006 – 7, pulling Iraq back from the brink of sectarian civil war.

Between 2008 and 2010, however, the group developed an indigenous cadre of leaders who were intimately familiar with Iraqi demographics and were capable of long-term planning. This cadre was a com­bination of Ba’athists and Salafists, who had been incarcerated together in US-run prisons. The most famous of these was Camp Bucca, in which at least nine top members of the IS were detained. Ba’athists, many of whom had previously served in the Iraqi military, brought a professional un­derstanding of military tactics and/or ad­ministrative bureaucracy to the IS, while Salafists brought a degree of ideological fervor that few other insurgent groups pos­sessed.

The appointment of Abu Bakr al-Baghdadi as leader of the IS in 2010 was a turning point. Al-Baghdadi had the support of a former Iraqi colonel, who helped him for­mulate a long-term plan for territorial ex­pansion. The outbreak of civil war in neigh­boring Syria, although initially perceived as a distraction, was later appreciated for the strategic depth it provided the jihadist movement in Iraq. With the al-Assad re­gime being excoriated for its repression of Sunnis, Syria was a cause célèbre among jihadists worldwide. The IS established a presence in the country through a subsidi­ary organization known as Jabhat al-Nusra. Over time, the latter began to carve out an independent identity for itself and made direct overtures to the core al-Qaida lead­ership in Pakistan. Seeking to regain con­trol of its proxy, the Islamic State of Iraq included the “Levant” in its own name. This worsened ten­sion between Jabhat al-Nusra and al-Qaida on the one hand, and the IS on the other. A for­mal split was announced in February 2014, but the subse­quent battlefield successes of the IS through the remainder of the year substantially weakened its opponents.

The fall of Mosul was a key event. In hind­sight, it appears as though the IS had oper­ated according to a long-term plan to iso­late the city and build up pockets of support among its Sunni community. Between No­vember 2012 and November 2013, 57 per cent of IS operations were concentrated in just two of Iraq’s 18 provinces – Nineweh and Salah ad-Din. Mosul as the capital of Nineweh was the focus of a targeted killing program in which several hundred govern­ment employees were assassinated, crip­pling the city’s administrative machinery. Salah ad-Din, meanwhile, served as a cor­ridor to Baghdad, which was rocked by ve­hicle bombs on a daily basis. This pincer movement – simultaneous attacks in the north and the south – became a staple tac­tic of the IS and an effective means of dis­persing Iraqi government forces over a wide area.

Leadership and Characteristics

Although all numbers cited in this context have to be treated with caution, the IS was reportedly able to seize Mosul with just 800 men, having undermined the cohesion of roughly 52,000 Iraqi security forces sta­tioned sta­tioned in the area. Sectarian rifts between Shi’ites and Sunnis were exploited to dis­integrate military units, whose command­ers were in any case fleeing upon hearing of the IS’ brutality towards government loyal­ists. IS columns, mostly composed of thin-skinned SUVs with heavy machine guns, used the extensive road network to outma­neuver scattered and ill-coordinated secu­rity detachments. For shock effect, the group employed suicide bombers as a form of cheap artillery, softening up military tar­gets before engulfing them in well-coordi­nated light infantry assaults. This was an operational-level innovation unseen previ­ously in other theaters of war, where sui­cide bombers have mainly been used either for tactical purposes and occasionally or for strategic effect.

Planning for the June offensive had been conducted by a former Iraqi army captain. Like many of the IS’ key operatives, he used professional knowledge of small-unit tac­tics to develop an intricate battle plan, which was then implemented with preci­sion. However, this also heralded a weak­ness in the group, which might come into effect during 2015: the IS is good on hu­man and physical terrain that it knows, but has shown itself to be relatively brittle at strategic adaptation. The battle for Kobane in Syria is an example of such brittleness – despite coming under withering attack from Western air power, the IS continued to dispatch fighters to the combat zone, thereby refusing to cap its losses. Across Syria and Iraq, its advances have been greatly aided by intelligence networks cre­ated over a period of time among the local Sunni population. When confronting or­ganized forces in areas where it has no local support, the IS has been unable to replicate its successes in the Sunni heartland.

The group has shown a relatively sophisti­cated command and control model, where­in the top leadership issues operational ob­jectives to be met by local commanders who rely on their own discretion as to the means employed. This does have the nega­tive effect of dissipating some of the group’s offensive power in subsidiary operations, but overall it still serves to confuse adver­sary forces as to the chosen axis of an IS advance. Combined with night-fighting skills and the determination to follow through with an attack once launched, the IS has often been able to overwhelm its op­ponents. Its large cash reservoir helps in buying the support of ancillary tribes in Sunni-dominated areas, thus making for a fluid battlespace. A principal reason for the failure of Iraqi security forces to withstand the IS onslaught in summer 2014 was lack of maneuver room – a result of Sunni mili­tias’ refusal to cooperate with the govern­ment, even if they were themselves hostile to the IS.

The IS is thought to recruit at least 50 per cent of its core combat strength from abroad, with 25 per cent coming from Tu­nisia, Morocco, Jordan, Saudi Arabia, and Turkey. Over 3,000 EU nationals are be­lieved to be fighting with the group, ac­cording to the EU’s Counterterrorism Co­ordinator. While the large foreign presence in the IS gives the group international vis­ibility and potentially opens it to partner­ship with jihadists in other regions, it high­lights the limits of the IS’ ideological appeal within Iraq and Syria. Furthermore, this foreign presence has been mainly attracted by the IS’ military record; it could be de­moralized if the group starts suffering ma­jor setbacks. Several experts already believe that by claiming to represent a new Cali­phate, the IS has committed itself to a po­sitional war which it can only lose under the combined weight of US airpower and Iraqi ground offensives, even if the latter will take a long time to materialize. The group cannot afford to relinquish large amounts of territory in order to ensure its physical survival, as doing so would expose the fragility of its claim.

For its part, the IS shows no sign of wanting to give up its final aim of territorial domi­nance in all 18 Iraqi provinces. It has creat­ed a civilian infrastructure to continue the process of governance, even as its military formations capture new areas or fight to re­tain those under government counterattack. The entire network is run by Abu Bakr al- Baghdadi, who is thought to be based in the Syrian town of Raqqa. Assisting him is a six-member Sharia Council, which makes the key decisions of the IS. There exist a number of subsidiary councils dealing with oversight and strategic advice, counterintel­ligence and security, military operations, and civil administration. A major strength of the IS has been its ability to synergize its military and psychological operations by showcasing exceptional brutality through propaganda videos and electronic maga­zines maga­zines. Hitherto, jihadist brutality was com­monplace in some conflict zones, but rarely publicized for fear of attracting internation­al criticism. The IS is unconcerned about such criticism, since it is focused on creating a state structure outside the established in­ternational order and indeed, in contraven­tion of international norms.

The World’s Wealthiest Terror Group

Owing to bureaucratization, the IS is be­lieved to have become the wealthiest ter­rorist group in the world, with assets esti­mated anywhere between USD 1.3 and 2 billion. At least USD 1 million is earned daily through illicit sales of Ira­qi oil. Other income sources in­clude kidnapping for ransom, protection racketeering, and the smuggling of antiques. Over a period of time, the group has diversified from an initial de­pendence on wealthy private donors, who today are thought to provide just 5 per cent of its finances. The IS offers monthly salaries of between USD 200 and USD 600 to its frontline fighters, and also pays the salaries of Iraqi civil servants working in areas under its control. Its apparent munificence is appre­ciated in a country where agricultural out­put has shrunk by 90 per cent in the last decade, forcing many Sunni farmers into destitution. All the same, the IS’ overhead costs are quite high as it seeks to consoli­date its administrative presence in newly captured territories. Partly to conceal the limits of its financial capacity, the group has engaged in widespread looting of dis­placed persons’ property, expropriating apartments, vehicles, and household goods to pay off its combatant ranks. The expul­sions of religious minority populations may be derived from an imperative to sustain this war economy. In a similar vein, the IS has arbitrarily halved the price of wheat, thereby perpetuating some degree of popu­larity at the street level. The financial losses caused by the price cut are being forced onto small businesses, which have no choice but to acquiesce in them. According to one estimate, the IS controls 40 per cent of Iraqi wheat production. It allows gov­ernment employees working at flour mills and grain silos to continue working rela­tively unimpeded, even to the extent of permitting them to travel for meetings with federal authorities in Baghdad. The group itself operates several mills and di­rectly skims off a percentage of the revenue from wheat sales.

However, the displacement or expulsion of large farming communities from IS-domi­nated areas might threaten the group’s fi­nancial longevity, as would its largesse in artificially lowering wheat prices. Already, oil production from IS-controlled refiner­ies has dropped from an estimated 70,000 barrels per day to 20,000 as a result of air­strikes by the US-led coalition. Further damage to oil infrastructure, as well as in­terdiction of vehicular movement on high­ways, would substantially reduce the IS’ ability to raise funds through illicit oil sales and “road tolls”. That said, there many stakeholders in Iraqi organized criminal activity, a number of whom sit across inter­national borders. Antiques pilfered from Iraq have been discovered in the EU and the US, having traversed a convoluted smuggling route that disguised their origin. Likewise, local businesses in border regions of Turkey profit from the sale of illicit Iraqi oil, and can be expected to keep the IS funded for a while.

The group controls approximately 4,500 archaeological sites in Iraq and Syria, al­lowing local smugglers to excavate in re­turn for between 20 and 50 per cent of the profits. By permitting the theft of artifacts, the IS accomplishes two objectives simul­taneously – raising revenue and “purifying” Iraqi society from relics of pagan idol wor­ship that the group’s extreme view of Islam cannot tolerate. It thus strengthens its own identity as a new type of politico-religious regime, by subsuming local populations within a literalist interpretation of Islamic law. However, in the long run, it is possible that a fratricidal conflict might emerge be­tween some of these populations and the IS if the latter were wholly disrespectful of local sentiments. The advantage hitherto enjoyed by the group of being able to tap into popular anger against the Shi’ite-dominated government in Baghdad would then wither away.

Global mission and foreign fighters

The IS shares some similarities with the Afghan Taliban, in that it is a regional ji­hadist group with pretensions of pioneer­ing a new form of “Islamic” governance During the late 1990s, much of the Tali­ban’s attractiveness for the global jihadist community came from its puritanical, ab­solutist style of administration and its mili­tary success during 1994 – 6. Today, the IS enjoys the same adulation, being able to use social media to bypass restrictions on its propaganda effort. Like the Taliban, which drew the bulk of its combat troops from Pakistan, the IS re­lies on foreign fighters for much of its ef­fectiveness. This creates the risk of a mili­tant spillover that could destabilize other countries in the Middle East and North Africa. Already, it is believed that the IS as­sisted a jihadist takeover of Benghazi in August 2014, which saw that city being de­clared as part of a new “Islamic Emirate”. The IS is thought to have orchestrated this develop­ment by ordering its entire Lib­yan contingent to return home, a month before the takeover was implemented. Meanwhile, in Algeria, reports suggest that factional ri­valries within al-Qaida in the Islamic Maghreb could solidify along pro- and an­ti-IS lines, with one group having already pledged loyalty to the IS.

The IS is also a rival of the Taliban in that it demands a pledge of loyalty from new members that cannot be shared with other jihadist organizations. Thus, the Taliban and al-Qaida have lately been feeling the pressure from IS successes in Iraq, which have triggered a number of low-level op­portunistic defections from their own ranks. To regain their credibility, it is likely that the Taliban will attempt to carry out dra­matic operations in Afghanistan, while al- Qaida intensifies efforts to hit proximate targets in South Asia. For its part, the IS has begun to call for attacks upon Western targets, thus finally subscribing to a core el­ement of al-Qaida’s operational philosophy. A focus on hitting Western homelands would not necessarily elevate the intensity or sophistication of the IS threat, but would increase its scale. Jihadists from the West (both of immigrant origin and native con­verts to Islam) currently view the IS as their organization of choice. Although ex­ceptions exist, such volunteers tend to fit a certain profile: male, in their early 20s, with a low level of vocational skills, and often with a criminal record. Support for the IS is predicated not so much on ideological conviction as on a deep sense of marginali­zation and personal failure on the part of these individuals, who seek alternative cir­cles of association online and thus get drawn into jihadism. While security agen­cies are cooperating regularly in intercept­ing Western recruits to the IS, they face a strategic dilemma: preventing radical Is­lamists from leaving the West risks forcing bottling up a homeland terrorist threat, while allowing them to travel to Syria or Iraq would result in the acquisition of com­bat skills that could be applied with devas­tating effect when they eventually return home. For the foreseeable future, the IS will be a threat to the West at an ideologi­cal level, even if it were to suffer heavy set­backs in its home base.

 

 

 

 

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by CASADE

Fear Of The Unknown: Governments Use Fear To Rule, Misrule And Suppress

[S]ince love and fear can hardly exist together, if we must choose between them, it is far safer to be feared than loved.
—Niccolò Machiavelli, The Prince, 1513.

All animals experience fear—human beings, perhaps, most of all. Any animal incapable of fear would have been hard pressed to survive, regardless of its size, speed, or other attributes. Fear alerts us to dangers that threaten our well-being and sometimes our very lives. Sensing fear, we respond by running away, by hiding, or by preparing to ward off the danger.

To disregard fear is to place ourselves in possibly mortal jeopardy. Even the man who acts heroically on the battlefield, if he is honest, admits that he is scared. To tell people not to be afraid is to give them advice that they cannot take. Our evolved physiological makeup disposes us to fear all sorts of actual and potential threats, even those that exist only in our imagination.

The people who have the effrontery to rule us, who call themselves our government, understand this basic fact of human nature. They exploit it, and they cultivate it. Whether they compose a warfare state or a welfare state, they depend on it to secure popular submission, compliance with official dictates, and, on some occasions, affirmative cooperation with the state’s enterprises and adventures. Without popular fear, no government could endure more than twenty-four hours. David Hume taught that all government rests on public opinion, but that opinion, I maintain, is not the bedrock of government. Public opinion itself rests on something deeper: fear.[1]

The Natural History of Fear

Thousands of years ago, when the first governments were fastening themselves on people, they relied primarily on warfare and conquest. As Henry Hazlitt ([1976] 1994) observes,

There may have been somewhere, as a few eighteenth-century philosophers dreamed, a group of peaceful men who got together one evening after work and drew up a Social Contract to form the state. But nobody has been able to find an actual record of it. Practically all the governments whose origins are historically established were the result of conquest—of one tribe by another, one city by another, one people by another. Of course there have been constitutional conventions, but they merely changed the working rules of governments already in being.

Losers who were not slain in the conquest itself had to endure the consequent rape and pillage and in the longer term to acquiesce in the continuing payment of tribute to the insistent rulers—the stationary bandits, as Mancur Olson (2000, 6-9) aptly calls them. Subjugated people, for good reason, feared for their lives. Offered the choice of losing their wealth or losing their lives, they tended to choose the sacrifice of their wealth. Hence arose taxation, variously rendered in goods, services, or money (Nock [1935] 1973, 19-22; Nock relies on and credits the pioneering historical research of Ludwig Gumplowicz and Franz Oppenheimer).

Conquered people, however, naturally resent their imposed government and the taxation and other insults that it foists on them. Such resentful people easily become restive; should a promising opportunity to throw off the oppressor’s dominion present itself, they may seize it. Even if they mount no rebellion or overt resistance, however, they quietly strive to avoid their rulers’ exactions and to sabotage their rulers’ apparatus of government. As Machiavelli observes, the conqueror “who does not manage this matter well, will soon lose whatever he has gained, and while he retains it will find in it endless troubles and annoyances” ([1513] 1992, 5). For the stationary bandits, force alone proves a very costly resource for keeping people in the mood to generate a substantial, steady stream of tribute.

Sooner or later, therefore, every government augments the power of its sword with the power of its priesthood, forging an iron union of throne and altar. In olden times, not uncommonly, the rulers were themselves declared to be gods—the Pharaohs of ancient Egypt made this claim for many centuries. Now the subjects can be brought to fear not only the ruler’s superior force, but also his supernatural powers. Moreover, if people believe in an afterlife, where the pain and sorrows of this life may be sloughed off, the priests hold a privileged position in prescribing the sort of behavior in the here and now that best serves one’s interest in securing a blessed situation in the life to come. Referring to the Catholic Church of his own day, Machiavelli takes note of “the spiritual power which of itself confers so mighty an authority” ([1513] 1992, 7), and he heaps praise on Ferdinand of Aragon, who, “always covering himself with the cloak of religion, ... had recourse to what may be called pious cruelty” (59, emphasis in original).[2] Naturally, the warriors and the priests, if not one and the same, almost invariably come to be cooperating parties in the apparatus of rule. In medieval Europe, for example, a baron’s younger brother might look forward to becoming a bishop.

Thus, the warrior element of government puts the people in fear for their lives, and the priestly element puts them in fear for their eternal souls. These two fears compose a powerful compound—sufficient to prop up governments everywhere on earth for several millennia.

Over the ages, governments refined their appeals to popular fears, fostering an ideology that emphasizes the people’s vulnerability to a variety of internal and external dangers from which the governors—of all people!—are said to be their protectors. Government, it is claimed, protects the populace from external attackers and from internal disorder, both of which are portrayed as ever-present threats. Sometimes the government, as if seeking to fortify the mythology with grains of truth, does protect people in this fashion—even the shepherd protects his sheep, but he does so to serve his own interest, not theirs, and when the time comes, he will shear or slaughter them as his interest dictates.[3] When the government fails to protect the people as promised, it always has a good excuse, often blaming some element of the population—scapegoats such as traders, money lenders, and unpopular ethnic or religious minorities. “[N]o prince,” Machiavelli assures us, “was ever at a loss for plausible reasons to cloak a breach of faith” ([1513] 1992, 46).

The religious grounds for submission to the ruler-gods gradually transmogrified into notions of nationalism and popular duty, culminating eventually in the curious idea that under a democratic system of government, the people themselves are the government, and hence whatever it requires them to do, they are really doing for themselves—as Woodrow Wilson had the cheek to declare when he proclaimed military conscription backed by severe criminal sanctions in 1917, “it is in no sense a conscription of the unwilling: it is, rather, selection from a nation which has volunteered in mass” (qtd. in Palmer 1931, 216-17).

Not long after the democratic dogma had gained a firm foothold, organized coalitions emerged from the mass electorate and joined the elites in looting the public treasury, and, as a consequence, in the late nineteenth century the so-called welfare state began to take shape. From that time forward, people were told that the government can and should protect them from all sorts of workaday threats to their lives, livelihoods, and overall well-being—threats of destitution, hunger, disability, unemployment, illness, lack of income in old age, germs in the water, toxins in the food, and insults to their race, sex, ancestry, creed, and now protection from all sorts of terrorism. Nearly everything that the people feared, the government then stood poised to ward off. Thus did the welfare state anchor its rationale in the solid rock of fear. Governments, having exploited popular fears of violence so successfully from time immemorial (promising “national security”), had no difficulty in cementing these new stones (promising “social security”) into their foundations of rule.

The Political Economy of Fear

Fear, like every other “productive” resource, is subject to the laws of production. Thus, it cannot escape the law of diminishing marginal productivity: as successive doses of fear-mongering are added to the government’s “production” process, the incremental public clamor for governmental protection declines. The first time the government cries wolf, the public is frightened; the second time, less so; the third time, still less so. If the government plays the fear card too much, it overloads the public’s sensibilities, and eventually people discount almost entirely the government’s attempts to frighten them further.

Having been warned in the 1970s about catastrophic global cooling (see, for example, The Cooling World 1975), then, soon afterward, about catastrophic global warming, the populace may grow weary of heeding the government’s warnings about the dire consequences of alleged global climate changes—dire unless, of course, the government takes stringent measures to bludgeon the people into doing what “must” be done to avert the predicted disaster.

Fear is a depreciating asset. As Machiavelli observes, “the temper of the multitude is fickle, and ... while it is easy to persuade them of a thing, it is hard to fix them in that persuasion” ([1513 1992, 14). Unless the foretold threat eventuates, the people come to doubt its substance. The government must make up for the depreciation by investing in the maintenance, modernization, and replacement of its stock of fear capital. For example, during the Cold War, the general sense of fear of the Soviets tended to dissipate unless restored by periodic crises, many of which took the form of officially announced or leaked “gaps” between U.S. and Soviet military capabilities: troop-strength gap, bomber gap, missile gap, antimissile gap, first-strike-missile gap, defense-spending gap, thermonuclear-throw-weight gap, and so forth (Higgs 1994, 301-02).[4] Lately, a succession of official warnings about possible forms of terrorist attack on the homeland has served the same purpose: keeping the people “vigilant,” which is to say, willing to pour enormous amounts of their money into the government’s bottomless budgetary pits of “defense” and “homeland security” (Higgs 2003b).

This same factor helps to explain the drumbeat of fears pounded out by the mass media: besides serving their own interests in capturing an audience, they buy insurance against government punishment by playing along with whatever program of fear-mongering the government is conducting currently. Anyone who watches, say, CNN’s Headline News programs can attest that a day seldom passes without some new announcement of a previously unsuspected Terrible Threat—I call it the danger du jour.

By keeping the population in a state of artificially heightened apprehension, the government-cum-media prepares the ground for planting specific measures of taxation, regulation, surveillance, reporting, and other invasions of the people’s wealth, privacy, and freedoms. Left alone for a while, relieved of this ceaseless bombardment of warnings, people would soon come to understand that hardly any of the announced threats has any substance and that they can manage their own affairs quite well without the security-related regimentation and tax-extortion the government seeks to justify.

Large parts of the government and the “private” sector participate in the production and distribution of fear. (Beware: many of the people in the ostensibly private sector are in reality some sort of mercenary living ultimately at taxpayer expense. True government employment is much greater than officially reported [Light 1999; Higgs 2005a]). Consultants of every size and shape clamber onboard, facilitating the distribution of social resources to politically favored suppliers of nonsensical “studies” that give rise to thick reports, the bulk of which is nothing but worthless filler restating the problem and speculating about how one might conceivably go about discovering workable solutions. All such reports agree, however, that a crisis looms and that more such studies must be made in preparation for dealing with it. Hence a kind of Say’s Law of the political economy of crisis: supply (of government-funded studies) creates its own demand (for government-funded studies).

Truth be known, governments commission studies when they are content with the status quo but desire to write hefty checks to political favorites, cronies, and old associates who now purport to be “consultants.” At the same time, in this way, the government demonstrates to the public that it is “doing something” to avert impending crisis. At every point, opportunists latch onto existing fears and strive to invent new ones to feather their own nests. Thus, public-school teachers and administrators agree  that the nation faces an “education crisis.” Police departments and temperance crusaders insist that the nation faces a generalized “drug crisis” or at times a specific drug crisis, such as “an epidemic drug abuse.” Public-health interests foster fears of “epidemics” that in reality consist not of the spread of contagious pathogens but of the lack of personal control and self-responsibility, such as the “epidemic of obesity” or the “epidemic of juvenile homicides.” By means of this tactic, a host of personal peccadilloes has been medicalized and consigned to the “therapeutic state” (Nolan 1998, Szasz 2001, Higgs 1999).

In this way, people’s fears that their children may become drug addicts or gun down a classmate become grist for the government’s mill—a mill that may grind slowly, but at least it does so at immense expense, with each dollar falling into some fortunate recipient’s pocket (a psychiatrist, a social worker, a public-health nurse, a drug-court judge; the list is almost endless). In this way and countless others, private parties become complicit in sustaining a vast government apparatus fueled by fear.

Fear Works Best in Wartime

Even absolute monarchs can get bored. The exercise of great power may become tedious and burdensome—underlings are always disturbing your serenity with questions about details; victims are always appealing for clemency, pardons, or exemptions from your rules. In wartime, however, rulers come alive. Nothing equals war as an opportunity for greatness and public acclaim, as all such leaders understand (Higgs 1997). Condemned to spend their time in high office during peacetime, they are necessarily condemned to go down in history as mediocrities at best.

Upon the outbreak of war, however, the exhilaration of the hour spreads through the entire governing apparatus. Army officers who had languished for years at the rank of captain may now anticipate becoming colonels. Bureau heads who had supervised a hundred subordinates with a low budget may look forward to overseeing a thousand with a higher budget. Powerful new control agencies must be created and staffed. New facilities must be built, furnished, and operated. Politicians who had found themselves frozen in partisan gridlock can now expect that the torrent of money gushing from the public treasury will grease the wheels for putting together humongous legislative deals undreamt of in the past. Everywhere the government turns its gaze, the scene is flush with energy, power, and money. For those whose hands direct the machinery of a government at war, life has never been better.

Although people may groan and complain about the specific actions the bureaucrats take in implementing the wartime mobilization, few dare to resist overtly or even to criticize publicly the overall mobilization or the government’s entry into the war—by doing so they would expose themselves not only to legal and extralegal government retribution but also to the rebuke and ostracism of their friends, neighbors, and business associates. As the conversation stopper went during World War II, “Don’t you know there’s a war on?” (Lingeman 1970).

Because during wartime the public fears for the nation’s welfare, perhaps even for its very survival, people surrender wealth, privacy, and liberties to the government far more readily than they otherwise would. Government and its private contractors therefore have a field day. Opportunists galore join the party, each claiming to be performing some “essential war service,” no matter how remote their affairs may be from contributing directly to the military program. Using popular fear to justify its predations, the government lays claim to great expanses of the economy and the society. Government taxation, borrowing, expenditure, and direct controls dilate, while individual rights shrivel into insignificance. Of what importance is one little person when the entire nation is in peril?

Finally, of course, every war ends, but each leaves legacies that persist, sometimes permanently. In the United States, the War between the States and both world wars left a multitude of such legacies (Hummel 1996, Higgs 1987, 2004). Likewise, as Corey Robin (2004, 25) writes, “one day, the war on terrorism will come to an end. All wars do. And when it does, we will find ourselves still living in fear: not of terrorism or radical Islam, but of the domestic rulers that fear has left behind.” Among other things, we will find that “various security agencies operating in the interest of national security have leveraged their coercive power in ways that target dissenters posing no conceivable threat of terrorism” (189).

Conclusion

Were we ever to stop being afraid of the government itself and to cast off the unrealistic fears it has fostered, the government would shrivel and die, and the host would disappear for the tens of millions of parasites in nations—who now feed directly and indirectly off the public’s wealth and energies. On that glorious day, everyone who had been living at public expense would have to get an honest job, and the rest of us, recognizing government as the false god it has always been, could set about assuaging our remaining fears in more productive and morally defensible ways. Then go out and vote; the fear of terroristic attacks notwithstanding.

References

Bates, Robert H. 2001. Prosperity and Violence: The Political Economy of Development. New York: Norton.

Flynn, John T. 1948. The Roosevelt Myth. Garden City, N.Y.: Garden City Books.

Hall, Mimi. 2005. Ridge Reveals Clashes on Alerts: Former Homeland Security Chief Debunks “Myth.” USAToday.com. May 11. Available at http://aolsvc.news.aol.com/news/article.adp?id=20050511071809990020.

Hazlitt, Henry. [1976] 1994. Is Politics Insoluble? The Freeman, September.

Higgs, Robert. 1987. Crisis and Leviathan: Critical Episodes in the Growth of American Government. New York: Oxford University Press.

------. 1994. The Cold War Economy: Opportunity Costs, Ideology, and the Politics of Crisis. Explorations in Economic History 31 (July): 283-312.

------. 1997. No More “Great Presidents.” The Free Market 15 (March): 1-3.

------. 1999. We’re All Sick, and Government Must Heal Us. The Independent Review 3 (spring): 623-27.

------. 2003a. Impending War in Iraq: George Bush’s Faith-based Foreign Policy. San Francisco Chronicle, February 13.

------. 2003b. All War All the Time: The Battle on Terrorism Is an Excuse to Make Fighting Permanent. San Francisco Chronicle, July 6.

------. 2004. Against Leviathan: Government Power and a Free Society. Oakland, Calif.: The Independent Institute.

------. 2005a. The Ongoing Growth of Government in the Economically Advanced Countries. Advances in Austrian Economics 8: in press.

------. 2005b. Resurgence of the Warfare State: The Crisis since 9/11. Oakland, Calif.: The Independent Institute.

Hume, David. [1777] 1987. Of the First Principles of Government. In David Hume, Essays Moral, Political, and Literary, rev. ed., edited and with a Foreword, Notes, and Glossary by Eugene F. Miller, 32-36. Indianapolis: Liberty Fund.

Hummel, Jeffrey Rogers. 1996. Emancipating Slaves, Enslaving Free Men: A History of the American Civil War. Chicago and La Salle, Ill.: Open Court.

Light, Paul Charles. 1999. The True Size of Government. Washington, D.C.: Brookings Institution Press.

Linfield, Michael. 1990. Freedom under Fire: U.S. Civil Liberties in Times of War. Boston: South End Press.

Lingeman, Richard R. 1970. Don’t You Know There’s a War on? New York: G. P. Putnam’s Sons.

Machiavelli, Niccolò. [1513] 1992. The Prince. New York: Dover.

Nock, Albert J. [1935] 1973. Our Enemy, the State. New York: Free Life Editions.

Nolan, James L. 1998. The Therapeutic State: Justifying Government at Century’s End. New York: New York University Press.

North, Douglass C. 1981. Structure and Change in Economic History. New York: Norton.

------. 1990. Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press.

------, and Robert Paul Thomas. 1973. The Rise of the Western World: A New Economic History. Cambridge: Cambridge University Press.

Olson, Mancur. 2000. Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships. New York: Basic.

Palmer, Frederick. 1931. Newton D. Baker: America at War. New York: Dodd, Mead & Company.

Robin, Corey. 2004. Fear: The History of a Political Idea. New York: Oxford University Press.

Szasz, Thomas S. 2001. The Therapeutic State: The Tyranny of Pharmacracy. The Independent Review 5 (spring): 485-521.

The Cooling World. 1975. Newsweek, April 28, available from the Global Climate Coalition.

Notes

[1] Hume recognizes that the opinions that support government receive their force from “other principles,” among which he includes fear, but he judges these other principles to be “the secondary, not the original principles of government” ([1777] 1987, 34). He writes: “No man would have any reason to fear the fury of a tyrant, if he had no authority over any but from fear” (ibid., emphasis in original). We may grant Hume’s statement yet maintain that the government’s authority over the great mass of its subjects rests fundamentally on fear. Every ideology that endows government with legitimacy requires and is infused by some kind(s) of fear. This fear need not be fear of the government itself and indeed may be fear of the danger from which the tyrant purports to protect the people.

[2] One naturally wonders whether President George W. Bush has taken a page from Ferdinand’s book (see, in particular, Higgs 2003a and, for additional aspects, Higgs 2005b).

[3] Olson (2000, 9-10) describes in simple terms why the stationary bandit may find it in his interest to invest in public goods (the best examples of which are defense of the realm and “law and order”) that enhance his subjects’ productivity. In brief, the ruler does so when the present value of the expected additional tax revenue he will be able to collect from a more productive population exceeds the current cost of the investment that renders the people more productive. See also the interpretation advanced by Bates (2001, 56-69, 102), who argues that in western Europe the kings entered into deals with the merchants and burghers, trading mercantilist privileges and “liberties” for tax revenue, in order to dominate the chronically warring rural dynasties and thereby to pacify the countryside. Unfortunately, as Bates recognizes, the kings sought this enlarged revenue for the purpose of conducting ever-more-costly wars against other kings and against domestic opponents. Thus, their “pacification” schemes, for the most part, served the purpose of funding their fighting, leaving the net effect on overall societal well-being very much in question. Both Olson and Bates argue along lines similar to those developed by Douglass C. North in a series of books published over the past four decades; see especially North and Thomas 1973, and North 1981 and 1990.

[4] One of the most memorable and telling lines in the classic Cold War film Dr. Strangelove occurs as the president and his military bigwigs, facing unavoidable nuclear devastation of the earth, devise a plan to shelter a remnant of Americans for thousands of years in deep mine shafts, and General “Buck” Turgidson, still obsessed with a possible Russian advantage, declares: “Mr. President, we must not allow a mine-shaft gap!”

 

 

 

 

 

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by CASADE