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  • James Zampetti

The economics of terrorism

On Sunday, August 15th, 2021, Taliban forces finally entered the capital of Afghanistan, Kabul, the final stronghold of the now-ousted Afghani government. The terrorist group led a swift military campaign following the withdrawal of U.S. troops under President Biden, shocking military intelligence agencies worldwide with the speed and ease at which they were able to take control of the country. With the President of Afghanistan fleeing the capital and Taliban forces roaming the halls of the presidential palace, it appears this is the end of the American-installed Afghani government. Yet, for those not familiar with the complexities of geopolitics - particularly in the Middle East - it may be hard to understand how terrorist groups like the Taliban operate, both as theocratic radicals and as firms. To put it simply, how do terrorist groups remain financially solvent? How do these groups form, and what is their typical dynamic once they achieve economic and political success?


In economics, there is often an impulse to identify common variables as explanations for what appears to be predictable outcomes. In the case of terrorist organizations, particularly post 9/11, many in the international community pointed to poverty, poor education, and wealth disparities in developing countries as primary factors for terrorism. Despite this, it is not uncommon for terrorists to come from backgrounds of wealth, education, and sometimes even political power. Why is this? To truly understand the logic behind most terrorist groups’ origins and later successes, it is more important to analyze them in the context of incentives.


The Taliban, like many terrorist organizations, was founded on principles of theocracy rather than economics. The Taliban has proclaimed to follow strict Sunni Islam practices, and their long-stated mission has been to install a hardline Islamic state in Afghanistan. Incentivized by the withdrawal of Soviet Union troops from Afghanistan in 1989, the group seized on the power vacuum and took control of the country, imposing Sharia law, a set of strict social and legal codes that restricted all Afghani’s freedom, especially women. Following a military campaign by the United States and other NATO countries, the group was ousted from power, that is until the most recent withdrawal of U.S. troops.


Yet regardless of what may have initially inspired the Taliban and other groups' formation, these organizations tend to become increasingly more concerned with the accumulation of wealth as they grow in size and power. At the end of the fiscal year 2020, the Taliban had brought in $1.6 Billion, only relatively smaller than the $5.5 Billion the real Afghani government had brought in during that same period. Like many terrorist organizations, the Taliban’s primary sources of income are through illicit trading. The majority of their income comes from opium trading, as Afghanistan accounts for 84% of global opium production. The group imposes a 10% tax on every link in the supply chain, earning them roughly $416 million annually as of 2020. Despite this, the group claims to have religious and moral objections to drug trading. How can the two exist at the same time? When looking at their economic logic in the context of incentives, the answer becomes quite clear.


Despite the political, religious, or social foundation of most terrorist groups, the reality is that like all organizations, terrorists must fund their goals and aspirations too. “Organizations that may originally have a political objective shift their activities towards wealth accumulation in the illegal economy… In doing so, they become entrenched, essentially moving into gaps created by political, economic, and social weakness” says David Gold, Professor of Economics at New School University. This change of motives, often referred to as “agenda shifting”, commonly becomes justified as a means to fund groups’ initial aspirations. Often, wealth accumulation becomes the primary goal, leaving their original goals and aspirations merely as a means to achieve more financial and political success.


Despite the political and/or religious facade that many terrorist groups wear, the truth is that the majority of them function more like business states than theocratic or military organizations. With the most recent overthrow of the Afghani government, the Taliban is once again responsible for supplying public goods and services to the Afghani people, regardless of how those people may feel about them. As a private organization in charge of public resources in a competitive region, they will likely resort to violence and fear as means of controlling these resources, just as they and many others have done in the past. As the Taliban begins to impose a strict social code once again, the impact on those living in the region is destined to be, at the very least, negative. Only time will tell how long they will remain in power, but as of now, one thing remains true: it is the business side, not the political one, that dominates the decision-making of the Taliban and many other terrorist groups.