Rising Muslim Schizophrenia

20 THE INTERNATIONAL ECONOMY FALL 2006
Rising
Muslim
Schizophrenia
An investor’s guide
to globalization and
the war on terror.The current political debate over the war in Iraq has become
tendentious and unproductive. Most of the issues debated
now—whether Iraq is part of the war on terror or not,
whether we are “winning” or “losing” in Iraq, whether
Saddam had weapons of mass destruction, whether he had
connections with al Qaeda, or whether “mistakes were
made,” and so forth, ad nauseam—are dominated by partisan
posturing. Their outcome will not have the slightest
effect on the course of the war. The war is following its own logic, forcing the
adversaries’ hands at each step of the way.
The war decisions of nations are driven by sheer necessities of survival,
not by the outcomes of partisan debates. On matters of sheer survival, people,
from ordinary voters to national leaders, are forced into decisions they would not
have imagined moments earlier. Cumulatively, these strings of previously
unimaginable decisions are known as “the fortunes of war.” These are not susceptible
to forecasting.
However, from the standpoint of investment decision making and of financial
markers generally, there are four useful things to know about the war—
things that cut through the passions of partisan debate and through the fog of war:
■ This war is the point of the spear in the fight over globalization—regardless
of the deceptive pseudo-theological garb its Islamist combatants
have chosen.
Criton M. Zoakos is President of Leto Research, L.L.C.
BY CRITON M. ZOAKOS
THE MAGAZINE OF
INTERNATIONAL ECONOMIC POLICY
888 16th Street, N.W.
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Washington, D.C. 20006
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■ It is a risk-reducing, not a risk-augmenting
enterprise.
■ It is less costly than the Cold War.
■ It will not end at the pleasure of political
decision makers in the United States. It will
end when clear victory or clear defeat
comes—regardless of which party is in
power in the United States.
THE WAR AS STRUGGLE OVER GLOBALIZATION
Privatization, financial transparency, rule of law,
trade liberalization, even central bank independence,
are not culture-neutral. The great themes of globalization
are not culture-neutral; they are a menace to
traditional cultures, Islam included. They subvert
the status and authority of village elders, shamans,
tribal sheikhs, princes and potentates, intellectual
classes that function as curators of traditional cultures,
hordes of state-franchised compradors, and
other worthies who make their illustrious parochial
living by sucking on the cultures that globalization
subverts.
Compared to the epic strides toward economic
integration made by the rest of the world, the
domain of Islamic countries looks like The Land
That Time Forgot. Iran’s Islamic Revolution came to
power and proposed isolation at approximately the
same time as Deng Xiaoping opened up China to
the world economy. Since that time, Islam’s economic
weight plunged below its already measly levels.
The OIC (Organization of the Islamic
Conference) reports that its fifty-six member countries
comprise 20 percent of the world population—
but produce only 5 percent of world GDP, much of
The great themes of globalization
are not culture-neutral; they are a
menace to traditional cultures,
Islam included.
“The strategy is to destroy the
Islamist fascists’ ability to
intimidate Islamic populations
and blackmail reform-minded
Islamic governments. The western
military interventions in Afghanistan
and Iraq have precisely this aim of
destroying the Islamists’ capacity to
impose their values through intimidation,
and in the process to introduce
value systems compatible with modernization,
economic progress, and
globalization.”
—Criton M. Zoakos
Right, U.S. Army 1st Sgt. Dan L.
Schoemaker helps secure the street
outside of a mosque in the Ad
Hamyah district of Baghdad, Iraq, so
Iraqi army soldiers from the 9th
Iraqi army can search it for
ammunition caches on Sept. 2, 2006.
DEPARTMENT OF DEFENSE PHOTO BY PETTY OFFICER 2ND CLASS ELI J. MEDELLIN, U.S. NAVY
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it oil. The average per capita GDP for these countries is
$2,600 which drops to $1,400 if you exclude the rich oil
exporters. Of the fifty-six OIC countries, thirty-two have
per capita income less than $1,000 and twenty-four of
these have per capita income below $500 per year. The
global average per capita GDP is $8,000.
This poverty is accompanied by extreme inequalities
of wealth and income, and the world’s highest obstacles to
entrepreneurship. The World Bank’s annual survey, Doing
Business 2007, ranks most of the Islamic countries among
the worst for doing business. Of the fifty-six Islamic countries,
thirty-six are ranked among the worst third of the
world’s countries, together with the likes of communist
Laos and Congo and the kleptocracies of Venezuela and
the Central African Republic. The minimum cost of starting
a business anywhere in Muslim North Africa and the
Middle East is 819 percent of the region’s per capita
income. The cost in East Asia/Pacific is 103 percent of
per capita income; in Latin America it is 66.2 percent; in
the OECD 41.4 percent. In the United States it is 0.7 percent
of per capita GDP.
For example, the minimum cost for starting a business
in Egypt is $9,530, in Syria $58,730 and in Saudi
Arabia $131,270. By contrast, this cost in China is $5,213
and in the USA $286 and in Singapore $229 and in
Thailand $159.
Islamist fascism—the cause of the war—aims at preserving
these cultures of squalor and economic repression.
It is not the victims of poverty that inspire this
movement but the cultural purveyors of poverty. If
embracing globalization is the only means for overcoming
the poverty of their constituencies, they shall have
none of it. They have mobilized all their religious, cultural,
clannish, and other emotional resources to fight
globalization because it threatens to crush the status and
authority that the traditional culture confers on them—
because it threatens their identity. They fight an existential
war for their own identity, not for ending the squalor
of their followers. It is the kind of war that ends only with
the extinction of one of the two adversaries.
The immediate adversary of the Islamist fascists is
not the West but those among their own people and governments
that attempt to modernize. That is why Islamist
terrorism kills far greater numbers of Muslims than westerners.
It is Muslims that they must terrorize into submission.
Westerners are targeted for the secondary tactical
reasons of warning them to stay out of the fray, of demonstrating
prowess, and of stirring the myth of “Global
Caliphate” for recruitment purposes.
Most governments in Muslim nations are caught in a
schizophrenic situation. On the one hand, they must attend
to their formal function as governments and minister to the
needs of their societies, and this draws them toward
modernity and economic integration with the rest of the
world. On the other hand, they must satisfy the interests of
their constituent local elites and factions, whose survival
depends on opposing globalization. For example, Saudi
reformers around King Abdullah are hemmed in and
intimidated by the Wahhabi clergy, while the Pakistani
reformers around President Musharraf are under siege by
landowning clans, the religious establishment, and their
minions in the security services of the state.
It is this schizophrenic situation of Muslim governments
that has dictated the western strategy in the current
war. Simply put, the strategy is to destroy the Islamist fascists’
ability to intimidate Islamic populations and blackmail
reform-minded Islamic governments. The western
military interventions in Afghanistan and Iraq have precisely
this aim of destroying the Islamists’ capacity to
impose their values through intimidation, and in the
process to introduce value systems compatible with modernization,
economic progress, and globalization.
An excellent sample of how western decision makers
deliberated to shape this strategy is a speech by U.K.
Prime Minister Tony Blair at the Los Angeles World
Affairs Council last August. The speech is worth reading
in full and can be found at http://www.number-
10.gov.uk/output/Page9948.asp. Here are the key passages:
…It is in part a struggle between what I will call
Reactionary Islam and Moderate, Mainstream Islam.
But its implications go far wider. We are fighting a
war, but not just against terrorism but about how the
world should govern itself in the early 21st century.…
Ever since September 11th, the U.S. has embarked
on a policy of intervention in order to protect its and
our future security. Hence Afghanistan. Hence Iraq.
Hence the broader Middle East initiative in support of
moves towards democracy in the Arab world.
The immediate adversary of the Islamist
fascists is not the West but those among
their own people and governments that
attempt to modernize.
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The point about these interventions, however,
military and otherwise, is that they were
not just about changing regimes but changing
the values systems governing the nations concerned.
The banner was not actually “regime
change” it was “values change.”
What we have done therefore in intervening
in this way, is far more momentous than possibly
we appreciated at the time.…
The moment we decided not to change
regime but to change the value system, we
made both Iraq and Afghanistan into existential
battles for Reactionary Islam. We posed a threat
not to their activities simply: but to their values,
to the roots of their existence.
We committed ourselves to supporting
Moderate, Mainstream Islam. In almost pristine
form, the battles in Iraq or Afghanistan became
battles between the majority of Muslims in
either country who wanted democracy and the
minority who realise that this rings the deathknell
of their ideology.
Identifying the West’s war aims in this way provides
the benchmark against which to measure
progress. The perennially nagging question of “are
we winning in Iraq” featured daily in the opposition
press loses all meaning against this benchmark.
If “regime change” were the criterion of “winning,”
the West already won. But, as Blair puts it, the aim
of the war is “values change,” and therefore the
West has not yet “won.” Any other criterion for victory
or defeat is spurious and partisan.
This war is not merely about defeating the terrorists
in military terms. That is only a means to a
further end. If it were an end in itself, it could have
been done a long time ago with the application of
the sufficient sheer military might. But this would
have defeated the deliberately adopted war aim of
“values change.” Critics of U.S. Defense Secretary
Donald Rumsfeld’s choice of the size of the expeditionary
force in Iraq fail to understand this.
The war is about making the Greater Middle
East suitable for modernity and globalization. This
takes time. “Values change” entails the creation of
institutions (the physical embodiments of “values”)
by Muslim populations themselves. The size of
western military forces must be proportionate to
what is required to safeguard the local populations’
efforts to create such institutions. If western military
forces are enlarged in order to assume the role
of local security and police forces, they defeat the
aim of building values-embodying local institutions.
THE WAR AS A
RISK-REDUCTION ENDEAVOR
Because of this choice of war aims, this is going to
be a long war. For the same reason, unlike most
other wars, this is a war that reduces risk. Let me
qualify this: it reduces risks to the globalization
process occurring in the rest of the non-Muslim
world, in so far as it focuses the conflict where it
belongs—between moderate and extremist
Muslims.
This may seem counterintuitive, given that
markets instinctively view wars as risk-enhancing.
But it is true. “Taking the war to the enemy in order
to keep the homeland safe” has worked. The Rand
Corporation maintains a comprehensive database of
every terrorist incident, making it possible to compares
the number of terrorist incidents in the United
States and Iraq between January 1993 and August
2006. A similar picture obtains in comparing the
total number of terror incidents in all OECD countries
and in all Muslim countries. The fact is that
once the West “took the war to the enemy” with the
invasions of Afghanistan and Iraq, the number of
incidents in the Muslim world skyrocketed and
those in the western world declined (though the
number of deaths did not).
Also note that during and in the immediate
aftermath of all three major battles of the war—the
invasion of Afghanistan, the invasion of Iraq, and
the Israel-Hezbollah war—the stock market was rising
and the price of oil was either stable or declining.
Nevertheless, market valuations as reflected in
If western military forces are
enlarged in order to assume the role
of local security and police forces,
they defeat the aim of building
values-embodying local institutions.
Continued on page 64
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the S&P 500 index are 30 percent below fair value
benchmarked against the 10-year bond yield, reflecting
a rather large war risk premium. This risk premium
appeared during the harrowing debates of 2002 over
the impending Iraq war, and the market has not been
able to shake it off ever since. The perceived risk of
that divisive debate remained, even though the risks
that were feared at the time never materialized. It
remains with us today as the price of national division.
A LOW COST WAR
Anti-war critics place the total “eventual” cost at $2.6
trillion by compiling real and fictionally projected budgetary
appropriations that include lifetime healthcare
costs, interest payments on debt, imagined costs of an
eventual demobilization, economic opportunity costs
of civilian wages lost to people enlisting in the military,
depreciation of military equipment, the imputed
value of lost human lives (assessed at $6 million per
human being), the price of oil, the “macroeconomic
effects” of the price of oil, and so forth.
A less fantasy-ridden estimate would look at the
actual total defense outlays of the budget plus the nondefense
reconstruction appropriations and outlays relating
to Iraq and Afghanistan as a percentage of GDP.
Defense outlays as percent of GDP are much lower
today than they were in 1993 when the first attack
against the World Trade Center occurred, and far lower
than the entire Cold War period, including the Vietnam
War years.
The non-defense budget costs of reconstruction
were originally estimated at $56 billion for the fouryear
period between 2004 and 2007. As of now,
Congress has authorized $30 billion and disbursed $16
billion. Compare this to the Marshall Plan that restored
Europe in the four-year period of 1948 to 1951. The
authorization for the Marshall Plan was $17 billion,
which amounted to 6.2 percent of the U.S. GDP in
1948. If Congress ends up authorizing the entire $56
billion estimate, it will be the equivalent of 0.4 percent
of the U.S. GDP in 2006—less than 10 percent of the
Marshall Plan in share of GDP equivalent. ◆
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