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Symposium 2008

Proposal - Responding to the challenge of global terrorism?

The Challenge

Over the past years there has been a dramatic increase in terrorism all over the world. At the same time, many governments are at a loss on how to combat terrorism. Despite massive counter-terrorist ...

Over the past years there has been a dramatic increase in terrorism all over the world. At the same time, many governments are at a loss on how to combat terrorism. Despite massive counter-terrorist activities, terrorist attacks in weak states such as Afghanistan and Iraq have continued and the threat of attacks in developed countries remains strong.

In the aftermath of September 11, 2001 President Bush declared war on terrorism and sought to marshal a coalition in a “war against terror”. It was clear at the time that describing the campaign as a ‘war’ was ill-conceived. The task was too complex, the ‘enemy’ too diffuse and the time horizon too long to sustain co-ordinated commitment. Most importantly, the common values that would sustain a long struggle were not in place. Lamenting the failure to achieve the desired result, Robert Leiken wrote in 2005:
‘With a few exceptions, European authorities shrink from the relatively stout security measures adopted in the United States. They prefer criminal surveillance and traditional prosecutions to launching a US-style “war on terror” and mobilising the military, establishing detention centres, enhancing border security, requiring machine-readable passports, expelling hate preachers and lengthening notoriously light sentences for convicted terrorists. [This] suggests that the European public, outside of France and now perhaps the Netherlands, is not ready for a war on terrorism.’ (Following the tube and bus attacks in London in July 2005, Leiken would no doubt now add the United Kingdom to France and the Netherlands.)
What must be done to mount an effective international response to the threat of global terrorism is defined by three types of engagement:
  • management responses that address the quality of domestic and international intelligence and of investigation, prosecution and the enforcement of sentences handed down;
  • normative responses that address the need to agree on the definition of terrorism, the basis on which terrorist acts will be proscribed and prosecuted, and the severity of the sentences the courts will apply; and
  • prophylactic (or preventative) approaches that respond to the alienation that makes so many young Muslims (and others) candidates for terrorist training.

These three sets of responses are all necessary and must be co-ordinated if they are to be effective. The failure to reach agreement on the normative level has led to failure to co-operate in managing the threat. Leiken notes that ‘. . . counterterrorism agencies remain reluctant to share sensitive information or cooperate on prosecutions’. He suggests that if one is to overcome this, policymakers on both sides of the Atlantic should ‘concentrate their minds on common dangers and solutions’ and that this ‘might come as a bittersweet relief to . . . [both] . . . after their recent disagreements.’
Likewise, preventative action is needed if the threat is not to grow. All recent studies, by the United Nations Development Programme, the World Economic Forum, and others suggest that weak governance, inadequate education, poor skills development and insufficient research and development, and weak growth are hampering economic and social advancement in the Arab region. The 2002 Arab Human Development Report pointed to three critical deficits:
  • a knowledge deficit;
  • a freedom deficit;
  • a deficit in the empowerment of women.
In considering the knowledge deficit, the 2003 Arab Human Development Report noted that
  • higher education in the Arab countries is characterised by falling quality and enrolment, and lower public spending;
  • scientific research is hampered by weak basic research and the absence of advanced research in information technology and molecular biology, and by low R&D spending and too few research scientists and engineers;
  • the regional ICT infrastructure is very weak, having only 20 per cent of the telephone density of the OECD countries and 25 per cent of the global average computer density. Only 1,6 per cent of Arabs had internet access, as against 68 per cent in the United Kingdom or 79 per cent in the USA.

Joint programmes to overcome these deficits are essential. Many agree that delivering superior, business-relevant education is central to a revival of economic activity in the Arab world and that this must be supported by six related initiatives if sustained growth, enhanced job creation and integration of the region into the global economy are to be achieved. These initiatives are:
  • celebrating Arab heritage and civilisation, to deny the field to the religious zealots and rebuild cultural integrity and pride;
  • integrating into global ICT networks to gain access to global best practices and to spark a growth industry in Arabisation and local content.
  • Providing effective international banking access to lower the cost of capital and allow entrepreneurs access to funding;
  • dismantling regional trade barriers to expand the size of markets, permit economies of scale and encourage entrepreneurship and investment;
  • effecting deeper and better integrated capital (and bond) markets, to bring about transparency; transactional efficiency and easier access to capital for established companies, Arab individuals and institutions with large capital sums invested abroad, and entrepreneurs alike; and
  • developing better political, macroeconomic and corporate governance, and more effective institutions, focused on facilitating, not controlling, legitimate activity.

Strategies that address integrated approaches to combating terror and facilitating an Arab Renaissance are being implemented in Arab gulf countries today.

There is no reason for a clash of Western and Islamic civilisations. Islam is an Abrahamic faith with Hellenistic roots, and was the prime source of the European Renaissance. Nor is pride in the cultural heritage of Islam, and the evident search for authenticity that one can observe in many Muslim societies, a problem. It can be a source of strength and an important element of global coexistence as long as the co-operative and competitive components between the cultures are balanced, and competition is not allowed to spill over into violent conflict. Hedley Bull reminds us that a global society must be premised on:
‘. . . a group of states, conscious of . . . common interests and common values . . . conceiv[ing] themselves to be bound by a common set of rules in their relations to one another.’

Perhaps the most important element in developing these common values is recognising the importance in all societies of an appropriate balance between individualism, which emphasises the atomistic and competitive elements of existence, and community responsibility, which stresses the collaborative and collegial. While leading Western societies, in the traditions of the Protestant Reformation and the Enlightenment, now emphasise the primacy of the individual; and most others, whose cultural histories have taken different paths, tend to focus more on community harmony; no successful society can ignore the need to balance the two.
It is worth noting, however, that over 80 per cent of the people in the world – about 5,5 billion – still live in societies that stress the importance of community over that of the individual. The population of the developed world is just 1,2 billion and some 200 million people there, in countries like Japan and Korea, are more communalist that individualist in orientation. Before the Industrial Revolution, an individual acting independently had little chance of survival, and harmony in the community was essential for success. Those societies, in Asia, the Arab world, Africa and many parts of Latin America that were bypassed by the European and North American experience of Christian reformation, Enlightenment and, in that context, early Industrial Revolution, did not develop the preoccupation with the welfare, excellence and protection of the individual that Western nations prize.
The Islamic notion of obligation to the community resonates more strongly in most of the world, than does the West’s emphasis on individual rights. One has only to consider the importance of ubuntu – properly umuntu ngumuntu ngabantu (A person is a person through other people) – in Southern African tradition, to grasp this point. In the words of Constitutional Court Judge Yvonne Mokgoro: ‘. . . the individual’s whole existence is relative to that of the group: this is manifested in anti-individualistic conduct towards the survival of the group if the individual is to survive. It is a basically humanistic orientation towards fellow beings.’
Individual interests are often at odds with those of society at large – the sense of responsibility that any one of us bears for the global commons is well captured by the familiar refrain of NIMBY – not in my back yard! Many wealthy people agree without hesitation that poor people living precariously in squatter camps ought to be relocated to efficiently planned, low-cost townships, as long as the township is nowhere close to where they live. But Samuel Huntington’s Clash of Civilizations would be disastrous in the closely interconnected world of the 21st century. Indeed, it is not sufficient to avoid a catastrophic cultural clash: managing global risks, whose scale exceeds the grasp of any company, and indeed any government, requires that sense of common interests and common values that Hedley Bull notes are essential for the global society.
We will only achieve a global society if we abandon our desire to impose our cultural values by force, and cease to cloak the pursuit of our interests in moral garb. No ethical singularity is evident, or readily to hand. We need to re-examine some of own premises and then work to craft the balance and the normative framework – a doctrine of limits for the behaviour of states (and indeed individuals) – without compromising our deeply held principles, or requiring others to do so. Coexistence demands compromise and a willingness to craft a détente does not imply surrender, only recognition that the sustained application of force in a particular situation is likely to be economically, socially and morally debilitating. With the benefit of hindsight, imperial overreach is never seen to have been prudent or moral.
Kofi Annan noted in 1999 that “... globalisation is a force for both integration and fragmentation ... which has brought ... obvious, though increasingly unequally distributed, benefits to the world's peoples.” A few challenges in this regard should be singled out: the need to manage the growing economic disparities between societies when access to information and a sense of relative deprivation is near universal; the need to address the changing nature of threats to regional and global security, including climate change, environmental degradation, refugee flows, and the pandemic spread of viral disease, as well as the proliferation of nuclear weapons technology and the risk of biological warfare by rogue states or non-state actors; the need to accommodate cultural diversity in a systemically connected world; and to learn how to apply the principles of individual freedom, popular sovereignty and the rule of law on a global scale. We have done poorly in all of these to date.
As we move forward in addressing these global challenges, the West will continue to play an important role and the values of the Enlightenment will continue to influence the way the future evolves. But we have passed the peak of the Western, post-Cartesian paradigm that has shaped the world since the end of the 18th century. The next hundred years will not be made solely in the Western image.

Stabilising the Middle East: A comprehensive approach to peace
We also need to address the regional elements that lie at the core of the threat. The situation in Iraq, conflicts in the broader Middle East, especially between Israel, Hamas in Palestine and Hezbollah in Lebanon, and tensions between Western states and Iran have been grist to the mill of global terrorist groups, as well as a destructive source of regional turmoil. Efforts to pursue fragmentary agendas in resolving these conflicts have failed and attempts to exclude certain actors, notably Syria and Iran, have had perverse effects. The situation demands a comprehensive response. As always, proper appreciation of the threats and better understanding of the environments in which they have emerged, is necessary to identify solutions and develop strategies to achieve them.
The conflicts and in Afghanistan, Iraq, Israel-Palestine, Lebanon, Syria and Iran are now intimately related. Western powers are no longer able to impose their will on those who are pursuing paths that Western governments find undesirable. The futile clash of wills that has followed has led to misery and to the destruction of livelihoods and critical infrastructures. If a comprehensive peace is not crafted, more destruction will follow.
Many regional governments and parties are also acting in ways that do not serve the longer-term interests of the communities they represent. In part this is due to the intensity of the life-and-death struggles in Afghanistan, Iraq, Gaza and Lebanon, in which each participant focuses solely on what is needed to survive, seek revenge and secure advantage. In part, it is due to a loss of faith that co-existence is possible: several actors are now pursuing mutually-exclusive outcomes. It is also due to the fact that governments in the region have not had the experience of creating and maintaining mutual security regimes based on the belief that while national interests will differ, all have an overriding interest in averting war and sustaining peace.

The most urgent needs are:
  • a comprehensive peace between Israel and all Arab states, premised on the birth of a politically and economically viable Palestinian state, restoration of the Golan Heights to Syria, recognition by all parties of Lebanon’s independence and territorial integrity, and diplomatic recognition of the State of Israel by all Arab states in accordance with the Saudi Arabian proposal approved by the Arab League
  • stabilization of the situation in Iraq, to allow for the withdrawal of the Occupation Forces and the transfer of full power and authority to a government representing all Iraqis.
  • averting a nuclear arms race in the region and moving towards the goal of a nuclear free, broader Middle East.
  • creating an effective Regional Security Regime, incorporating all the states of the Gulf and the Levant, and eventually extending to include Afghanistan.

The first step should be a joint initiative by the U.S., Russia, the EU and the UN – the Quartet responsible for the Middle East peace process – to convene a conference of Egypt, Jordan, Saudi Arabia, Iran and Syria to address the issues of Iraq, Lebanon, and Iran’s nuclear intentions. The governments of Iraq and Lebanon would, of course, be present in these talks. A parallel negotiation, involving the same five governments and including Israel and Lebanon, would address a comprehensive peace between Israel and Arab states. Success is possible if [and only if] the states of the region recognize and accept their responsibility for securing and maintaining peace and stability in the broader Middle East. If it proves impossible to secure peace, the threat of jihadist terrorism will surely continue and energy security will remain elusive. This will put further strain on public and private sector actors seeking to manage and mitigate these risks.

The Financial Risks of Terrorism: Balancing Public and Private Roles
The attacks on the Twin Towers and the Pentagon on September 11, 2001 led the US Congress to enact the Terrorism Risk Insurance Act of 2002 (TRIA) to protect consumers by maintaining ‘availability and affordability of . . . insurance for terrorism risk’ and to allow private markets time to adjust to the new risk environment. This was a significant step, prompted by fears that insurance markets had not priced in risks of this sort and that there was a real risk of market and industry failure. The Act introduced a federal Terrorism Insurance Program that guaranteed public compensation for insured losses resulting from acts of terrorism, to supplement the resources available from private pools. TRIA expired on December 31, 2005, but terrorist attacks have not ceased and U.S. and British intelligence agencies expect further attempts to inflict mass casualties and cause economic disruption.
After the private insurance industry had argued persuasively in hearings before the U.S. Congress in 2005 that the current circumstances did not allow them to assume the risk of insuring against damage caused by acts of terrorism without governmental support, President Bush signed the Terrorism Risk Insurance Extension Act into law on December 22, 2005, extending TRIA through December 31, 2007 and maintaining in place the temporary federal Terrorism Insurance Program.
The challenge we face here is to understand individual and organisational responses to low probability, high impact events, and to develop strategies to overcome the weaknesses of these responses and manage these risks. Insurance is clearly an element. A Wharton Risk Management Center study in 2005 suggested correctly that if homeland security is a top priority in the US, US policy-makers and citizens must decide how financial protection against terrorist attacks will be provided. The TRIA requires US insurers to offer coverage against foreign (although not domestic) terrorism, and the US government currently underwrites most of this risk. The reinsurance industry largely withdrew from such coverage after it had to absorb about $30 billion of the $40 billion in losses incurred in the September 11 attacks.
The US Treasury and the Congressional Budget Office argued in 2005 that private markets should have been be able to adjust to the new environment over three years and that TRIA was meant to provide a bridge to allow them to do so. They expected the insurance industry to have found ways to offer insurance at reasonable rates while covering its risks. But the Wharton report correctly noted that this had not happened, and that some type of long-term private-public partnership is needed for terrorism insurance. It called on the US Congress to create a National Commission on Terrorism Risk Coverage to review the issues before a new law is passed.
Two factors prevent the private market from properly assessing and pricing terrorism risk.
  • Terrorism is not like low-probability, high-impact events such as natural disasters. Although actuaries cannot estimate the risk of an earthquake or a tsunami with precision, there is a wealth of scientific data available and quantitative models have been built that allow insurers to set premiums. But it exceptionally difficult to estimate the probability and location of the next five terrorist attacks: Terrorists often respond to the actions of others. If certain buildings, aircraft, trains or utility plants are protected, other targets will be selected, or different courses of action planned. So insurers cannot use probability estimates in setting premiums for terrorism coverage.
  • The legal requirement in TRIA that certain types of cover must be provided, means that insurers cannot decide what coverage to provide or decline. This exposes them to additional, involuntary risks that could cause their liquidation.

The Wharton team suggested that a range of strategies be studied in order to develop long-term solutions; some can be implemented by private firms, others will require governmental action or support. The idea is to develop an effective mix of options that distributes the risk and the cost. The approaches they proposed include retaining self-insurance for a large part of terrorism risk; underwriting potential losses affecting commercial property through higher interest charges on long-term debt financing to property developers; reducing insurers’ and reinsurers’ tax costs of holding capital so as to expand their capacity to insure terrorism losses; a TRIA-like program that would only provide government payments once losses exceeded a large aggregate threshold; the use of terrorism catastrophe bonds; mutual insurance pools in combination with a government backstop; a publicly administered mutual insurance scheme with each insurer choosing a level of protection through the pool and paying an estimated premium up front, to be adjusted at the end of agreed periods in the light of claims; and a federal reinsurance program with explicit premium charges levied in advance by the government.

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