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Posts Tagged ‘Iraq’

Over at ABC News, Devin Dwyer and Luis Martinez report that the first week of the U.S. intervention in Libya has cost at least $600 million. According to their sources, the most costly items include

  • 191 Tomahawk cruise missiles – $269 million
  • F-15E fighter – $60 million+
  • Fuel for jets and ships
  • Other munitions

Other news sources report lower costs for missiles and the fighter, so I would take ABC’s numbers with a grain of salt until there’s official sourcing. Still, they give a useful sense of the financial costs of the operation.

By any normal standards, $600 million (and counting) is great deal of money – bigger, indeed, than some of the programs that Congress is fighting over in its never-ending debate over the 2011 budget.

For full context, though, keep in mind that we are on track to spend $110 billion in Afghanistan this year and $44 billion in Iraq.

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The Economics of Al-Qaeda in Iraq

Follow the money. From Al Capone to Watergate and beyond, that’s been sound advice for anyone trying to understand the workings of shady organizations. In the latest installment, a group of researchers at the RAND National Defense Research Institute have analyzed accounting ledgers that document the activities of Al-Qaeda in Iraq (AQI) in Anbar province during 2005 and 2006.

In their new report, “An Economic Analysis of the Financial Records of al-Qa’ida in Iraq,” the researchers (Benjamin Bahney, Howard J. Shatz, Carroll Ganier, Renny McPherson, Barbara Sude with Sara Beth Elson, Ghassan Schbley) trace how AQI organized its activities, raised and spent its money, and compensated its members.

For example, they find that during this period, most of AQI’s resources in Anbar came from stolen goods, spoils, and car sales:

From June 2005 to May 2006, AQI’s Anbar administration raised nearly $4.5 million or roughly $373,000 per month (Figure 3.2). AQI in Anbar was financially self-sufficient. This is consistent with the concept of al-Qa‘ida’s franchising strategy as described by [Steve] Kiser (2005), who argued that al-Qa‘ida central provides seed capital to its franchises but pushes them to quickly become financially self-sufficient.

The group obtained more than 50 percent of its revenue from selling what appear to be stolen goods, most of which were highly valuable capital items, such as construction equipment, generators, and electrical cables. In contrast to what has been suggested in much news reporting, the data do not support the claim that the group was largely financed by selling stolen oil, as the revenue garnered from oil appears to be fairly negligible in the context of total group revenues at this level of administration (note that oil revenues are not shown separately in Figure 3.2 but are instead a small portion of the stolen goods entry in the figure). However, it is also entirely possible that oil revenues were garnered by one of the many Anbari AQI sectors that we do not have data on, as well as by the national AQI administration, which had a number of purported ministries and claimed to have a specific “oil minister.”

Another interesting finding: Al-Qaeda’s foot soldiers aren’t in it for the money:

Individual members of AQI made less money than ordinary Anbaris—AQI average annual household compensation was $1,331 compared to $6,177 for average Anbar households—but faced a nearly 50-fold increase in the yearly risk of violent death. AQI compensation included monthly payments for members and their dependents, as well as monthly payments to the families of imprisoned and deceased members. These latter payments constituted a form of insurance unavailable to civilian Anbar households, but still resulted in lower risk-adjusted expected lifetime earnings.

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The U.S. military is now a major player in economic development. In Iraq and Afghanistan, for example, economic stabilization is a core tenet of its counterinsurgency strategy. Which makes good sense, in theory, but raises a troubling practical question: does the military actually know anything about economic stabilization and development?

In a recent essay in Foreign Affairs (Expeditionary Economics: Spurring Growth after Conflicts and Disasters), Carl Schramm answers in the negative. The U.S. military does not have these skills in anywhere near the measure that it should. He then recommends that:

[P]ostconflict economic reconstruction must become a core competence of the U.S. military. … It is imperative that the U.S. military develop its competence in economics. It must establish a new field of inquiry that treats economic reconstruction as part of any successful three-legged strategy of invasion, stabilization or pacification, and economic reconstruction. Call this “expeditionary economics.”

Schramm goes on to argue that expeditionary economics should emphasize entrepreneurship and “messy” capitalism, not just large-scale infrastructure efforts that often get the most attention. If you are interested in these issues, his essay is definitely worth a read.

For more context and other views, you should also check out the conference that Kauffman held to discuss these issues. You can read highlights from the conference here.

Some excerpts (not attributed to any of the specific participants):

The core idea behind the Marshall Plan was to stimulate the private sector through direct financial support of businesses rather than distribution through local government institutions, and it continues to serve as a potential model for efforts today, especially insofar as it deeply considered the nature of the war and the pre-existing institutional conditions in Europe.

Stability and economic development operations in Iraq and Afghanistan have been problematic for quite different reasons. In Iraq, the United States squandered the opportunity to demonstrate a real concern for the welfare of the Iraqi people in the months after the invasion because it failed to adequately plan for stabilization and reconstruction activities after major combat operations—as a result, both the economic and security planning systems failed. Many government agencies were complicit in this failure, including the military. In Afghanistan, the rush to respond and the limits of time constrained stabilization and reconstruction planning along with a desire to maintain a light footprint. Military, political, and development strategy was cobbled together as the conflict progressed. This meant the United States began trying to catch up with ideas, and has been trying to acquire and deploy resources ever since. As part of a “peacebuilding” strategy for the future, the military should address these core challenges to improve its stabilization operations

One pre-requisite of a market economy might be the rule of law, although China’s success over the past few decades offers an interesting challenge to that premise.

There is debate and uncertainty over what we mean by the phrase, “rule of law,” and whether it simply includes a justice system, courts, and efficient policing or extends beyond that to contracts, finance, commerce, and beyond. The answer is no one knows, and the rules of the game don’t have to be perfect—they just have to be certain and perceived as fair. The two things businesses always look for are stability and certainty.

In war, just as there are human casualties, there also are financial casualties, and we need to accept this reality. Some dollars will be misappropriated, and some will go to the enemy, to criminal networks, to ineffective local leaders, and to bad projects. This doesn’t make it okay, but we need a productive dialogue to determine what is a reasonable level of these financial casualties.

Some disagree that economics is … a soldier’s job. Yet, economics is required to win, and a soldier’s job is to win. The military has no choice but to use economics as a weapon in stability operations, so let’s be as good as possible at it. What we need to be thinking is, “What are the appropriate economic principles we can teach military leaders so they can use them to accomplish their mission?”

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