Loretta Napoleoni at TEDGlobal 2009: Running notes from Session 8

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Loretta Napoleoni at TEDGlobal 2009, Session 8: July 23, 2009, in Oxford, UK. Credit: TED / James Duncan Davidson

Macroeconomist Loretta Napoleoni is here to talk about how terrorism interacts with our daily life. Fifteen years ago she was asked if she would like to interview the Red Brigades — a terrorist organization in Italy from 1980s who never spoke to anybody except their own members. In 1993, they drew a list of people who they would talk to, and she was one of them. One of the women in the brigade was her childhood friend and had put her name forward.

Napoleoni had just had a baby and wasn’t sure it was the right time to be interviewing terrorists. But, she says, she wanted to know what had turned her best friend into a terrorist and why she had never tried to recruit her. Napoleoni discovered that she failed the psychological profiling of a terrorist, as sh was too opinionated but her friend was good at following orders and had even embraced violence.

She also discovered that the life of a terrorist was not ruled by politics or ideology, but by economics. They were constantly searching for cash. Terrorism, she explains, is actually a very expensive business — arms, vehicles, explosives. If you live underground, it’s very hard to produce this amount of money. Most people were extremely reluctant to talk about politics, because they had no ideas. The ideology is decided by leadership of a terrorist organization, all the others do is search for money.

Napeoloni began thinking that there might be commercial links between organizations. It was when she interviewed Mario Moretti, the head of the group, she realized that terrorism is actually a business. When she talked to him, she realized that he thought like a banker or fellow economist. Now, Napoleoni wanted to investigate the economics of terrorism, but could not find funding. So, she sold her company and funded the research herself.

She found in terrorism a parallel economy, that had been around since the close of World War II. It has followed step by step the trends common to any other economy. First, there was state sponsorship. During the Cold War there was a fully funded mix of legal and illegal entities, and she also points to the contras in Nicaragua. During the 1970s and 1980s, some groups carried out privatization. They gained independence and started funding themselves.

An even greater change came with globalization. Napoleoni says that now, organizations were able to link with each other and started to do serious business with crimelords. This is when we see the birth of Al Qaeda, an organization able to source money in many countries and operated in many countries. This she says, is rogue economics, which is constantly lurking in the background of history. Politics loses control of an economy and economy becomes a rogue force acting against us.

Until 9/11, the bulk of all the money produced by terrorism was in US dollars and flowed into US. This was a vital injection of cash. Napoleoni says that, since the 1960s, a growing number of dollars have leaving the US never to come back. These was money taken out by criminals and money launderers to fund the growth of terror and criminal economies. As a result, the US was the country that funded the reserve economy of the world. The US was borrowing against the growth of the terror and illegal economies.

Then came the “war on terror” and with it the Patriot Act. Napoleoni explains that there is a section in the Act that refers specifically to finance that prohibits US banks from doing business with offshore banks. It also gave US authorities the ability to monitor any banking activity in the world. So criminals got out of the dollars. People moved their money laundering activities away from the US to Europe. In six months, she says, Europe became the epicenter of the money laundering activities of the world.

Terrorism can affect your pockets, your wallets, Napoleoni asserts. The “war on terror” has cost the US about seven trillion dollars and it did not have that kind of money. So, a decision was made to use government bonds on international capital market to fund the war and the best way to make bonds competitive is to lower the interest rate. Interest rates went from 6 percent on eve of 9/11 to 1.2 percent in the summer of 2003 (at the “end” of the war in Iraq). These created the ideal conditions for the sub-prime mortgages crisis, Napoleoni says. This is the genesis of the credit crunch.

She concludes by urging us to understand that there is a world that goes well beyond the headlines of the newspaper. She says, “You’ve got to question everything that is told to you, including what I told you. It will be scary and frightening but it will enlighten you and abve all its not going to be boring.”