Terrorism is extremely expensive, and economist and journalist Loretta Napoleoni found unexpected ways that it drives the world economy
Loretta Napoleoni at TEDGlobal 2009 Credit: TED / James Duncan Davidson
Like the fall of the Roman Empire, the fall of the Berlin Wall and the end of Communism brought about surge in the shadow economy, what economist and journalist Loretta Napoleoni calls the rogue economics of terror and criminal networks.
Napoleoni’s interest this shadowy world of terror networks began about 15 years ago. She got a call from a friend responsible for monitoring the political rights of prisoners in Italian jails, including the Red Brigades, the violent Marxist group who robbed banks and kidnapped and killed politicians in an attempt force Italy to leave Nato.
Red Brigades members never spoke to anyone, even the lawyers defending them. They sat silently in court, only occasionally waving at friends or relatives.
In 1993, they declared an end to armed struggle, and they drew up a list of people who they would talk to. Napoleoni’s name was on the list at the request of a woman who had been her childhood friend.
Just having a child, she was hesitant to enter a high security prison, but with her best friend in the group, she was curious as to why she was never recruited. She found out that she had failed the psychological profile. She was too single minded, whereas her friend was good at following orders and embraced violence.
This began Napoleoni’s fascination for how terrorist networks work. Her friend was reluctant to open up and talk about politics or ideology because the political vision was decided by the leadership. Napolieoni discovered that all the other members of the group spent the majority of their time looking for money.
One of the Red Brigades members she spoke to was a psychologist. He owned a beautiful boat and spent many of what he described as his happiest summers running Soviet arms between Lebanon and Sardinia, where armed groups from across Europe paid the Red Brigades a fee. They needed the money.
“Contrary to belief, terrorism is a very expensive business,” she said. In the 1970s, the Red Brigades had an annual turnover of $7m. “It is hard to produce that kind of money living underground.”
It was only when she was introduced to one of the leaders of the Red Brigades that she realised that terrorism was actually a business. Having lunch with this terrorist leader, she realised he was just like the bankers she had lunched with in London’s financial district. She wanted to investigate the economics of terrorism, but no one would fund the research so she sold her company and funded the research herself.
She discovered an economy running in parallel to the global economy since the end of World War II. “It followed step-by-step the evolution of western capitalism through periods of state sponsorship, privatisation and then globalisation,” she said.
With state support, armed groups fought the proxy battles of the Cold War on the edges of the superpowers’ spheres of influence, but in the late 1970s and 1980s, armed groups went through a period of privatisation. They gained independence from their sponsors and funded themselves with a mix of legal and illegal activities. For instance, the Palestinian Liberation Organisation raised money by taking a cut of the hashish trade from the Bekaa Valley.
The fall of the Berlin Wall and the end of Communism was a period of historical transition, like the fall of the Roman Empire and the Industrial Revolution, when “politics lose control of the economy,” she said. Rogue economics constantly lurk in the background, but during these periods of transition, they have space to expand. Even before the 11 September 2001 attacks, crime terror and illegal and activity had grown to a $1.5 trillion business. Soon it will eclipse the size of the UK economy, she predicted.
She explained how this shadow economy helped support the US dollar but in the past eight years has supported the growth of the Euro.Looking at the figures since 1960s, the bulk of the money printed by the Federal Reserve to satisfy the demand for dollars left the country in suitcases and containers never to return again. Instead it funded terror groups and feed the criminal economy.
It helped give the US a privilege that no other country shares. With the dollar as a global reserve currency, the US can borrow against the total amount of currency in the world, where other countries such as the UK can only borrow against money inside its own borders.
That changed after 9/11. The United States passed the PATRIOT Act. Not only does it limit the civil liberties of Americans, she said, but the act also had a financial section with money laundering provisions that charged US monetary authorities to monitor dollar transactions anywhere in the world.
The European Union had no such money laundering laws, and the terror organisations and criminal elements simply shifted their activities from the dollar to the newly born Euro. “In six months, Europe became epi-centre of money laundering centre of the world,” she said.
As she found after discovering her childhood friend was a member of the Red Brigades, terrorism affects us in almost unseen ways even if we are not the victims of an attack.
There is a world that goes well beyond the headlines of newspapers including relationships of friends and family. We must question everything. It is the only way to step into dark side and take a look at it.
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