More capitalism means less terrorism

I submitted this to the San Antonio Express-News

 

Last year the Peruvian economist Hernando de Soto wrote an article in The Wall Street Journal titled “The Capitalist Cure for Terrorism.” He favored promoting economic empowerment in less developed countries.

 

In his research, de Soto has documented the great difficulties poor people face in legally starting a business and establishing titles to property. When you can’t get title to a property and establish that you own it legally, it makes it hard to get credit at a bank. That limits your business’s size and income.

 

Any business a poor person starts remains in the underground economy and can’t grow and flourish to its full potential. Just starting a business legally in a less developed country can take months of filling out a great deal of paper work, something only the well off and well educated can do easily.

 

In Egypt, de Soto says in another article, “To open a small bakery… would take more than 500 days” and “an aspiring poor entrepreneur would have to deal with 56 government agencies.”

 

He explained how the Shining Path terrorists were defeated in Peru. A change in policy “gave indigenous entrepreneurs and farmers control over their assets and a new, more accessible legal framework in which to run businesses, make contracts and borrow.”

 

This led to more economic growth than the rest of South America as well as a faster growing middle class. He recommended doing the same in Arab countries.

 

In the Arab Spring in 2010, the big problem was small entrepreneurs being harassed by government bureaucrats who constantly demanded bribes and payoffs to let them continue operating their businesses.

 

James Surowiecki wrote a similar article in The New Yorker in 2011 called “The Tyrant Tax.” He argued that the stifling of entrepreneurship was especially hard on young people since it limits their opportunities and slows down economic growth.

 

That just increases their chances of turning to terrorist groups like ISIS. But given we have a case, Peru, where terrorism was successfully fought through the expansion of entrepreneurship, we should again be looking at it as a viable policy option.

 

The views of de Soto and Surowiecki are supported by more widespread research done by economists William Easterly and Ross Levine. They found that institutions matter more for economic growth than natural resources.

 

What are those institutions? They include, along with political stability, protection of property, security of contracts and freedom from regulatory burdens.

 

How much difference can this make? If Mexico had the same institutions as the U.S., its per capita income would be just as high, instead of only being about one-third as much.

 

If there were greater opportunities in Arab countries because regulatory burdens were eased, then maybe fewer young people would turn to terrorism.

 

Fighting terrorism through reduced regulations might seem farfetched. But George McGovern, the very liberal democratic candidate for president in 1972, told of how the regulatory burden affected him.

 

He ran an inn after he left the senate. It went bankrupt and he wrote in a Wall Street Journal article that costly regulations may have played a role. He also noted that we should make sure policies are not “choking off those opportunities” for entrepreneurs.

 

If someone like McGovern had problems with regulations, just imagine how hard it is for a poor entrepreneur in a less developed country who faces even more bureaucracy, delays and red tape. We get slow growth economies that fall short of opportunities for young people, creating a breeding ground for terrorism. Herndando de Soto shows us this can be reversed.