Vol. 1, No. 2 August 2002

The Bush administration is trying to win support at home and abroad for a strike against Iraq to remove Saddam Hussein. Disagreements center on how the administration should define victory in Iraq and how it should “win the peace.” History and economics provide the answers.

The only true victory in war is to conquer the enemy, occupy the country, and rebuild its institutions. Anything short of that, as we learned in Afghanistan in 1989, Iraq in 1991, and Somalia in 1993, will not ensure an outcome favorable to freedom-loving people and will be seen as appeasement by our enemies, encouraging further violence.

It is hard to imagine how the tragedy of September 11 could have been worse. Yet, a single chemical, biological, or nuclear attack could kill millions. The United States and its allies have a moral obligation and legal authority—“anticipatory self-defense” in international law—to prevent this catastrophe by seizing states that threaten mass destruction before they become stronger.

But in the wake of a military victory in Iraq and elsewhere, what is the next step? The answer is to cultivate economic freedom, the tonic for terrorism.

It is no accident that the seven countries on the State Department’s list of terrorist nations—Cuba, Iran, Iraq, Libya, North Korea, Sudan, and Syria—are at the bottom of the barrel in terms of economic freedom. They rank between 145 and 155 of 161 countries in the Heritage Foundation/Wall Street Journal 2002 Index of Economic Freedom.

Studies find that cross-country differences in economic freedom and physical-capital investment explain 40 percent of the variation in economic growth rates during the past 20 years. Lack of economic freedom, therefore, translates directly into poverty and despair—ideal breeding grounds for terrorists. The same is true for the 22 Arab League nations. Contrary to conventional wisdom, they are not wealthy.

A blunt, new United Nations report on human development in Arab countries, prepared by 50 Arab scholars, finds that in 1999 the entire Arab world had a gross domestic product less than Spain: $531 billion compared with $595 billion. Over the past 20 years, its growth in per-capita income was the lowest in the world except for sub-Saharan Africa.

Of the 280 million people in the Arab world, 65 million adults are illiterate—two-thirds women—and 10 million children don't attend school. Investment in research and development is less than one-seventh the world average. The number of books translated since 1,000 A.D. is about 100,000, roughly the number that Spain translates in one year.

Arab isolation in trade, technology, and thought has produced poverty, ignorance, and frustration, especially among its young people. This is a formula for disaster, creating a pool of disheartened people who are open to the simplistic, intolerant, and often destructive answers that religious extremists offer—disguised as education in the madrass “colleges.”

The long-term solution to terrorism requires building social institutions that produce wealth and opportunity for ordinary people, thereby eradicating terrorism at its roots. The model is Japan and West Germany following World War II, not Iraq after the Gulf War. The process will be slow and involve explicit constitutional decisions, often starting with the resolution of historic disputes within wholly synthetic nation-states. Consider Iraq, although the model can be applied to other regions as well.

Kurdish separatists occupy the north, Shiite Muslims are in the south, and Sunni Arabs govern from Baghdad. A factional disease requires a federalist cure. Short of redrawing the map, which might be appropriate in some cases, the cycle of ethnic conflict can only be stopped by constitutional means.

A federal system of government that shifts most political decision making away from the center to regions having a high degree of autonomy, combined with a representative, civilian legislature empowered to resolve tightly defined questions of national policy, particularly the use of military force, offers a time-tested way of accommodating the varied interests of ethnically diverse populations. National constitutions must also create independent judiciaries that enforce commercial laws encouraging entrepreneurship and trade.

As the anniversary of 9/11 looms, the Bush administration must show that it has learned the lessons of history and understands the role that sound economics must play. Creating institutions that provide economic freedom to ordinary people is the only effective means of improving living standards, fostering political and civil freedom, and preventing terrorism around the world.

Lawrence J. McQuillan is director of the Center for Entrepreneurship at the California-based Pacific Research Institute. He can be reached via email at lmcquillan@pacificresearch.org.