Summary
The Challenge of Terrorism Todd Sandler School of Economic, Political and Policy Sciences University of Texas at Dallas
This paper was produced for the Copenhagen Consensus 2008 project. The final version of this paper can be found in the book, ‘Global Crises, Global Solutions: Second Edition’, edited by Bjørn Lomborg (Cambridge University Press, 2009)
copenhagen consensus 2008 terrorism executive summary
Transnational Terrorism Todd Sandler, Daniel G Arce and Walter Enders Introduction Some form of terrorism has characterized civilization for the last two thousand years, but high profile incidents in the recent past – from Black September's attack at the Munich Olympics of 1972 to the 9/11 attacks in 2001 – have highlighted the issue. It is human nature to overspend on unlikely catastrophic events, and terrorists seem to have succeeded in getting the world to overspend on counterterrorism, taking resources from other pressing problems. Unlike the other Copenhagen Consensus challenges, transnational terrorism leads to relatively minor loss of life (on average 420 annually), but citizens of rich countries regard it as one of their greatest threats. It is also different in that defensive measures may simply change the focus of attacks (for example from hijackings to kidnaps) and even increase attacks by creating new grievances. Guarding against terrorism can use large resources for little reduction in risk, and poses dilemmas for liberal democracies. Terrorism continues to evolve to encompass more deadly forms of attack. Moreover, the evaluation of solutions is difficult because the effect of taking no action is hard to measure.
Basic messages
There is no solution to transnational terrorism: it can be put into remission but cannot be eliminated. Several of the solutions we offer have very adverse benefit-cost ratios. Because of the relatively low loss of life, the primary economic benefit is the GDP saved by counterterrorism measures. But both the costs and benefits of such measures are extremely difficult to calculate. Although terrorists are intent on inflicting economic damage, their past influence on economic growth has actually been small. Despite giving greater weight to benefits than cost, we still arrive at adverse BCRs for three of the five solutions owing to huge costs involved with defensive and proactive counterterrorism measures. Primer Terrorism is the premeditated use of violence or threat to use violence by individuals or sub-national groups against noncombatants in order to obtain a political or social objective through the intimidation of a large audience beyond that of the immediate victim. Although attacks are carefully planned, they appear to be random and thus everyone feels at risk. Other definitions can be used, with some including attacks on soldiers (eg US Department of Defense). We follow the majority by excluding violence perpetrated by the state as terrorism, although state-sponsored terrorism falls within the definition. The audience – the group which the terrorists mean to intimidate – can be effectively global in instances such as the 9/11 attacks. Terrorists hope that the target audience puts sufficient pressure on decision makers to meet their demands, but granting these demands may cause more problems than it solves. The dilemma is greatest for liberal democracies, which must be more restrained in their reaction than autocracies. Incipient democracies in some developing countries seem particularly prone to terrorism.
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copenhagen consensus 2008 terrorism executive summary
Domestic versus Transnational Terrorism
Homegrown terrorism has consequences just for the host country. In this case it is often associated with insurgency and civil war. Liberal democracies such as Italy, France and Belgium have successfully employed the right balance of defensive and proactive policies to neutralize specific threats (the Red Brigades, Action Direct and Combatant Communist Cells respectively). Transnational terrorism, on the other hand, encompasses incidents where the perpetrators, victims or audience are from more than one country. Most terrorist attacks directed at the USA, for example, are transnational because they take place on foreign soil. Although domestic terrorism is much more prevalent, we focus on the transnational type to put it in perspective with other global challenges analyzed by the Copenhagen Consensus. Terrorism should be distinguished from warfare and insurgency. Nevertheless, in a guerrilla war, terrorism may be used as a tactic.
On Terrorist Rationality
Terrorists are rational actors who respond in a predictable fashion to counterterrorism measures, shifting their targets as their initial ones become better protected. Causes of Transnational Terrorism Terrorism stems from many causes, and there have been a number of waves since the 1870s. The early anarchist campaigns had a transnational orientation, whereas anticolonial struggles of the 1950s and 60s were more domestically focused. The left-wing terrorism which formed the third wave from the late 60s (and still continues, with an anti-globalization agenda) had a strong transnational bias. The current wave of fundamentalist terrorism is also strongly transnational. Fundamentalist terrorists come from all major religions, but Islamic groups are the main influence currently. The 9/11 attacks and a stated desire to use ever more destructive means of attack by al-Qaida and others has led to huge increases in security expenditure by the US and other governments. The rise of this fundamentalist terrorism wave has been blamed on the failed foreign policy of America and its allies, exacerbated by measures such as detention without trial at Guantanamo Bay. Statistical Overview Analysis of the available data from 1968 to 2006 shows that transnational terrorism is responsible for relatively few deaths (420 annually on average) and injuries (1249). The number of incidents peaked in the 1980s, primarily because of state sponsorship. It also seems clear that there are cycles of terrorist activity, with peaks occurring for example after the US retaliatory raid on Libya in 1986 or after the first (US-led) Gulf War in 1991. Other points also emerge clearly: bombing is the favorite tactic, there was a downward trend from the early 90s to 2002 in the post-Cold War era, but there has been an upward drift since then, and attacks have resulted in more carnage.
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copenhagen consensus 2008 terrorism executive summary
Economic Consequences of Terrorism
Economic damage can be inflicted in a number of ways. Foreign direct investment may be reduced, specific industries such as airlines and tourism may be affected and government investment may be redirected to homeland security. However, it is small and developing countries that are most adversely affected economically. Rich, diversified countries are able to endure terrorism with relatively little impact on GDP, and stock markets are in general little affected. Why is Transnational Terrorism so Difficult to Eradicate? Terrorism is a cheap and effective way for groups to capture world attention, and governments find it remarkably difficult to get good information on the perpetrators, despite huge expenditures. The numbers of people involved are small (and difficult to determine accurately) and even al-Qaida was believed to have an operational budget of just $30 million prior to 9/11. Damage caused vastly exceeds the cost of operations, even allowing for the value of terrorists' lives if they are killed. Transnational terrorism is virtually impossible to eradicate because terrorists need minimal resources and little manpower to set up shop.
Asymmetries between Terrorists and Targeted Governments
Numerous asymmetries work in the terrorists' favor. Very important is their ability to cooperate and support each other, whereas governmental autonomy makes collective action difficult. Governments' very strength gives them a false sense of security. Moreover, governments do not always agree on which groups are terrorists and terrorist groups themselves take a much longer time horizon when making decisions compared to governments whose policies may change with the electoral cycle. Liberal democracies provide many targets, whereas terrorists are themselves difficult to target. Most governments also have to be more restrained in their response to incidents. When terrorist cells are infiltrated, the cellular structure limits the vulnerability of other parts of the organization. Overall, terrorists have many advantages in conducting their operations.
Other Considerations
Countermeasures are only as effective as their weakest link. Terrorists will make use of a single country which provides a safe haven, hide their assets in countries with the weakest controls, and target the airports with laxest security. Rogue nations may continue to support terrorism and collective action against them is rarely forthcoming. Terrorists are also adept at making use of new technologies such the internet, and authorities must see the threat they pose as dynamic and constantly changing. Past successes – particularly concessions by governments – also provide a prototype and encourage more attacks. Transference of Terrorist Attacks Actions by government to protect against one form of attack leave alternatives more vulnerable. Increases in homeland security have shifted attacks to US interests in the Middle East and Asia. Installation of metal detectors at airports in 1973 immediately reduced skyjackings, but increased hostage-taking. Transference can also be temporal, whereby operations are postponed at times of increased security. To avoid transference, proactive measures are needed.
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Proactive measures may also have a downside. Closing off political means of dissent may cause more violent attacks. Recruitment may be boosted, and groups under threat may respond by going for riskier operations which are potentially much more destructive. Transference may also be geographical. As security has tightened in the Western Hemisphere and Europe, there has been a shift to the Middle East, Asia and Eurasia. Measurement and Other Problems There is no real solution to international terrorism; any stream of benefits can only be expected to last for two to five years before new threats arise. In addition the counterfactual – what would have happened without a particular course of action – cannot be properly assessed. Costs are also difficult to calculate. Some factors (eg intelligence spending) are not made public, and other components may have shared goals or be difficult to categorize. The cost in DALYs is difficult to estimate, since records are kept only of the number of injuries rather than their type and severity. The direct damage caused is also rarely accessible, so we prefer to measure net losses in terms of changes to GDP levels. The Building Blocks of Benefit-Cost Analysis
Human Costs: Computing DALYs
Little data on injuries is available, so we use as a proxy the results of a study on 21 attacks in France in 1982-87, extrapolated to the known number of injuries resulting from transnational terrorism for 2005 as a representative year, when 550 people were killed and 864 were wounded. In this analysis, injuries are weighted by type, using higher weights for ambiguous cases. Each injury is treated as being permanent for the remainder of the individual's lifespan, which we take to be half of the total life expectancy, taking figures for the Eastern Mediterranean, Europe and the United States. Combining the years lost to disability and years of life lost (for fatalities), we arrive at a human cost of between $65.1 million and $70.5 million when a DALY is valued at $5,000. These figures would increase by over tenfold if domestic terrorism was included, but even then this is rather small when compared to other challenges, such as perinatal conditions, HIV/AIDS or road traffic accidents.
Homeland Security Costs
Domestic security costs following 9/11 are available for the USA and UK, and can be extrapolated on a percentage of GDP basis (0.35% and 0.15% respectively in 1995 for defensive spend only). Total costs can be assumed to be purely defensive or to include proactive measures such as the invasions of Afghanistan and Iraq. We use a range of methods to estimate total costs, but settle on two conservative approaches to calculate purely defensive spending and defensive plus proactive spending. These give lower and upper bound figures of $63.6bn and $153.7bn for the global annual cost. The net present values for a five-year periods are $298bn and $725bn respectively. Even with conservative assumptions, the cost of homeland security is the dominant factor in the benefit/cost analysis.
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Lost GDP
A study of 177 countries over the period 1968-2000 shows that each year of transnational terrorism reduces growth in income per capita by just 0.048%. For all countries experiencing transnational terrorism in 2005, the total GDP loss was $19.4bn. Taking an average incidence of terrorism in the period 2001-5, this figure is reduced to $17.4bn. The capitalized 5-year loss is calculated as $83.4bn. For terrorists, the fact that this is much smaller than the increased homeland security cost means that the direct economic damage is magnified by the need for governments to make a response. Solutions While there are no true solutions, we offer here options which may produce fewer attacks in the short term (up to five years).
Solution 1: Business as Usual
This option means continuing with the measures put in place by the USA and other target countries following the September 2001 hijackings. Comparing 2002-6 with 19902001, there have been 129 fewer incidents each year (a 34% drop), with 120 fewer injuries, but 67 more deaths. The benefits in terms of capitalized five-year GDP savings amount to $28.4bn, with a small net loss in DALYs. The defensive costs, estimated conservatively over the same period are $298.3bn, rising to $725.7bn with proactive elements included. BCRs are then just 0.095 and 0.039 respectively. Even valuing a life at $2 million makes a minimal difference. Nevertheless, governments continue to overspend to avert the potentially large loss of a 9/11 attack or worse and to deflect attacks onto foreign soil.
Solution 2: Greater International Cooperation
Cooperation to freeze assets, extradite suspects and increase police coordination is relatively cheap and can have long term benefits, but is difficult to introduce because nations do not want to sacrifice autonomy. Also, a single non-cooperator can undo much of the effort. Increased police cooperation could involve a permanent doubling of the budget of Interpol to $116 million. We assume that the IMF allocates 10% ($71 million) of its monitoring, governance and capacity-building budget to enhanced counterterrorism. At a 5% discount rate, the present value of both these perpetual increases is $3.74bn (a high end estimate). Assuming just half of the Interpol budget and 5% of the IMF administrative budget, we get a lower-end estimate of $1.29bn. This enhanced cooperation would make little difference to low-level terrorism, but we assume that it would prevent one spectacular incident each year, conservatively valued at $1bn. Using these assumptions we arrive at BCRs of 5.3 and 15.5 respectively for the high- and low-end cost estimates.
Solution 3: Increased Proactive Response
This solution calls for more proactive measures such as the invasion of Afghanistan and other components of Operation Enduring Freedom. We estimate the impact by comparing the number of incidents in the two years following 9/11 with 2002-6 and 1990-2001. In 2002/3, there were 50 fewer attacks each year, a drop of 13%. This 5
copenhagen consensus 2008 terrorism executive summary
equates to a $2.26bn saving in world GDP for one year. Over the two years, at a 5% discount rate, the total benefit becomes $4.41bn. Deducting the cost of increased deaths and injuries in those years, the net benefit is $4.34. Using the cost of Operation Enduring Freedom over two years ($35.5bn), the benefit/cost ratio is 0.122, and this falls to 0.077 if the costs of Operation Noble Eagle (protecting American bases) is taken into account.
Solution 4: Augmented Defensive Measures
Hardening defenses around valuable targets will transfer attacks to softer targets, although these may be less valuable. Let us assume a 25% increase in defensive measures. Using the low-end assumption for homeland security costs, the capitalized five-year costs of this option are $74.6bn. In the unlikely event that attacks are reduced by 25%, total capitalized saved GDP comes to $20.9bn, together with DALY savings of $117 million. The BCR for this option is only 0.28, but in practice benefits are likely to be less than our optimistic estimate.
Solution 5: More Sensitive Foreign Policies on the Part of a Prime-Target Nation
This solution would project a more positive US image, negate terrorist propaganda, identify terrorist hypocrisy and show a more humane side to foreign policy. It is the most difficult to evaluate quantitatively. The USA has the capacity to do more to address global challenges. A more even-handed approach to foreign policy and provision of greater foreign assistance with no strings attached would gain respect from the world community. Taking the moral high ground with culturally-sensitive policies which do not impose Western values could help to win hearts and minds. If attacks against US interests could be reduced by 25%, that equates to a 10% reduction in total transnational terrorism, or $8.3bn in GDP terms over five years. If homeland security spending could be reduced by 10%, this would save $29.8bn, and reductions in casualties would add $46.9 million to that. Total benefits over five years would amount to $38.2bn. The necessary changes are essentially costless with the exception of increased foreign aid. Given the projected benefits, US aid could be increased by $7-8bn annually and still give a BCR of 1 or more. This would be a one-third increase in official US development assistance.
Solution Summary
Since security-based solutions have highly adverse benefit-cost ratios, we favor low-cost solutions which promote international cooperation or put forward a more sensitive foreign policy. Neither is easy to implement. Prognosis for the Future and Conclusions The security solutions we evaluated have poor returns largely because attacks are generally not deadly or damaging enough to justify the costs. Nevertheless, such overspending is driven by the fear of devastating major attacks, and there are certainly concerns about potential use of chemical, biological, radiological or nuclear weapons. 6
copenhagen consensus 2008 terrorism executive summary
Nevertheless, the cellular structure of effective terrorist networks makes it more difficult to acquire sophisticated weapons, and their use could alienate some supporters. And, as 9/11 showed, conventional attacks can be extremely deadly. In summary, we repeat that there is no panacea for transnational terrorism. We do not advocate that governments accede to terrorists' demands, but we recommend that terrorism is countered by low-cost solutions, particularly international cooperation and a more sensitive foreign policy.
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