This essay explores the economic impact of terrorism on United States multinational corporations, and will also briefly examine the inverse of these effects: the impact of a global economic system on terrorist groups themselves, which have evolved and developed the same way businesses do to the new era of global capitalism.
Before beginning to examine the impact of terrorism on United States multinational corporations in depth, some precursory background information is necessary to establish how the whole geopolitical and economic situation got to the point where it now is today.
After the radical Islamic terrorist attacks on the World Trade Center buildings on September 11th, President George W. Bush declared war on both Iraq and Afghanistan, thus initially kicking off the global war on terror. With the new millennium the world saw a new kind of war tactics, with an enemy not necessarily affiliated with a particular nation-state as had been the standard custom during the past century of war and throughout history for the most part.
At first, President George W. Bush received widespread bipartisan support in waging the global war on terror, but midway through the decade, public opinion on the war changed and the tide gradually began to turn against the war. Now, almost two decades later, American troops are still abroad combating terrorism across the world, but most significantly in the Middle East and war fatigue from the United States entanglements in the region has set in on the American public.
It appears to some that the United States foreign policy dealing with the Middle East is seemingly stuck in Groundhog Day, with the same misguided plan to liberate people from under totalitarian rule always repeating itself, and always with the same result: a power vacuum which enables various terrorist cells to grow and spread. The primary example of this being the United States’ disastrous attempt to arm insurgent Syrian rebel armies against the uncooperative Syrian dictator, ultimately leading to the inevitable rise to power of the Islamic State in Iraq and Syria (also known by the abbreviation ISIS).
The global war on terror has opened the floodgates to a new era of geopolitical and economic strategy implemented by governments, militaries, non-governmental organizations, and multinational corporations alike. A new type of enemy meant a new type of international relations aimed at keeping the peace in the newly lit fuse of powder keg that is the Middle East.
Even still today, political and military tensions remain higher than ever, with a lot of the region either destabilized beyond repair (such as in the failed state of Libya), or under despotic rule by tyrannical powers — sometimes religious (such as in the theocratic Iran), sometimes monarchic (such as in the kingdom of Saudi Arabia), or even sometimes secular (such as in the tin pot dictatorship of Kazakhstan).
To make matters even further more complicated, the efforts by the Western powers to oust and replace the secular dictator of Syria, Bashar al Assad, has inevitably resulted in one of the worst global humanitarian crises of modern history itself, with not only the Syrian civil war amounting to a country in ruins, but also giving way to the rise of a new sinister enemy in the formidable foe of the Islamic State (ISIS). What is even more sobering than those atrocities being the millions of people displaced and seeking refuge in Europe and other Western countries, as well as some untold number of deaths on all sides of the conflict.
To many people, it may seem that the entire Middle East is in total and utter chaos, with terrorist cells reigning supreme over the scorched wastelands left behind by misguided efforts at intervention by the leading Western powers. “According to the Global Terrorism Index, 2014 had the largest increase recorded from year to year in terrorism, adding to a total of 80 per cent increase since 2013. This adds up to 32,685 deaths in a year just due to terrorism.”
Some of the biggest, and yet least talked about impacts of radical terrorism is the influence of violence and disarray on United States multinational corporations. One would think that the economic impacts of terrorism would be at the forefront of the national dialogue about the global war on terror, but the issues and threats faced by large multinational corporations have chiefly been relegated to bureaucrats, academics, and other thinkers in the fields of finance, economics, and commerce.
Multinational corporations have repeatedly been the targets of extremist violence throughout modern history, with the September 11th terrorist attacks on the World Trade Center towers probably being the most noteworthy example of recent memory. According to the 2002 Joint Economic Committee of the United States Congress report focusing on the economic consequences of terrorism, terrorist attacks have both short term and long-term effects to economic growth.
This essay will aim to examine the wide range of effects that terrorism and the global war on terror has had on United States multinational corporations and discuss the underlying causes of these impacts on American foreign business and economics. Some of these impacts include the effect of terrorism on gross domestic product and foreign direct investments, as well as the new wave of counter active and proactive security measures taken by multinational corporations to prevent future terrorist attacks. In addition to all of this, this paper will also attempt to take a deeper look at the inner workings of terrorist groups, some of which have grown to become so sophisticated that they almost appear to be multinational corporations themselves.
The most effective manner to illustrate the economic impact terrorism can have on United States multinational corporations is to examine the economic aftermath of the September 11th terrorist attacks on the World Trade Center towers. The shock of the attacks caused consumer confidence, as well as economic forecasts of that year’s gross domestic product to drastically drop.
In addition to worsening the 2001 recession, the attack also caused the Dow to drop 600 points and closed the stock market for four trading days. Tragically, some four hundred businesses were physically destroyed in the devastating attack and over one thousand businesses in New York City were forced to close. The airline industry lost $7 billion in 2001 and between 2001 and 2010, the airline industry suffered $74 billion in losses, according to The Financial Times.
Airlines were not the only industry who suffered major financial losses as a result of the attacks: in the two weeks following the attacks, the tourism industry lost a total of $2 billion. Moreover, the insurance industry lost around $33 billion in insured losses. The economic effects of this terrorist attack are still being felt by some industries today.
First and foremost, in this exploration of the impact of terrorism on United States multinational corporations one of the most significant metrics to look at is foreign direct investments (FDI). To put it simply, foreign direct investments are a form of business investment in a country other than the country where the business itself is headquartered. According to the lexicon published online by The Financial Times, these types of business investments can include purchasing another corporation in a foreign country, or alternatively, expanding or scaling up the existing operations and properties of that company abroad. As reported by a series of surveys of executives in multinational corporations during the 1960s and 1970s, political events ranked among the most important issues affecting a business’s or investor’s decision to make foreign investments abroad.
According to the International Risk Management Institute, “One would think that acts of terrorism would have a negative impact on Foreign Direct Investment (FDI) flows to affected countries. Common sense dictates that the loss of foreign investor confidence following acts of terrorism would prompt large outflows of capital in affected countries, and that once a country is branded a terrorist target, it would attract reduced levels of FDI. Some academic studies have demonstrated that sometimes this is in fact the case. However, foreign investor sentiment is not always dictated by common sense. The lure of profit and desire to establish trade partnerships is often a stronger motivational force than perceived political risk is a disincentive to invest.” This is interesting because all common knowledge would suggest that the overall increase in terrorism globally would increase the risk of doing business abroad and thus result in lower business confidence and deter corporations from making investments in other countries, particularly countries which have demonstrated a pattern of terrorist activities.
Yet another point of interest related to foreign direct investments comes in the form of findings from financial research by the United Nations Conference on Trade and Development, which revealed that foreign direct investment flows to the developing world increased a whopping 200 percent between 2000 and 2004 while simultaneously foreign direct investment flows to the developed world decreased by 27 percent. This United Nations research has demonstrated a clear and defined trend: foreign investments to the developing world were taking a sharp upward increase, meanwhile foreign investments to the developed world were taking a slightly less sharp decline. Strangely enough, almost every modern terrorist attack occurs in developing countries, such as those in the Middle East and north Africa which have become breeding grounds for the spread of radical Islamic terrorism.
In addition to all of this research, a study from Pennsylvania State University even further suggests that terrorism may not impact business confidence or investor decision making as much as one would believe. This study found “that terrorist incidents do not produce any statistically significant effect on the likelihood that a country will be chosen as an investment destination, or on the amount of FDI it receives. Further, it states that unanticipated acts of terrorism do not generate any changes in investor behavior, either in terms of investment location choice or the amount of investment.”
In order to further establish this rather puzzling apparent trend of foreign direct investments, one need not look much farther than The FDI Conference Index, an annual publication put out by the business consulting firm A. T. Kearney which polls decision makers in the world’s top one thousand largest businesses to find out their opinions on a plethora of issues related to foreign direct investments. In 2003, the final results of the poll were astonishing — it found that terrorism and security concerns were tied with the conflict in the Middle East, only ranking number 7 on a list of 11 concerns most likely to impact their foreign investment decision.
It may seem rather odd that in 2003, during the height of the global war on terror when the United States had troops spread across both Iraq and Afghanistan, that terrorism and the conflict in the Middle East were ranked almost at the bottom of the list of concerns from business decision makers. However, other sources of information appear to contradict this apparent apathy from businesses toward the threat of terrorism. The previous data listed above seems to suggest that terrorism has had little to no impact on foreign direct investments, but some contrary research and data seems to suggest that the threat of terrorism has had a profound impact on foreign direct investments.
For example, a recent study from Harvard University found that “higher levels of terrorism risk are associated with lower levels of net FDI”. Some other sources of academic research have also found that United States capital markets recover from terrorist attacks significantly faster than they used to a century ago. On a side note, in addition to these findings on foreign direct investments, other economic research has suggested that terrorism can have a substantial negative impact in both the short term and long-term on the gross domestic product (GDP) of the countries where terrorist attacks occur.
Yet another considerable impact of global terrorism on United States multinational corporations can be easily quantified by the costs incurred by these businesses as a result of terrorism prevention as well as damages suffered as a consequence of terrorist attacks. When doing business operations in a country with a risk of terrorism, top of the line business security is a necessity to protect a corporation’s personnel, property, and equipment from the perceived threats. More often than not, an effective security plan can be extremely costly for multinational corporations, but protecting lives means that no expense can be spared in the proactive preventative measures taken to prevent future terrorist attacks.
According to a 2005 academic research paper published by the University of Northern Iowa business school and written by John J. Mazzarella, “A survey of 178 multinational corporations conducted in 1993 showed that, in terms of response to the threat of global terrorism, they spent the most company funds on “equipment-based” security–installation of security devices and other physical protection of corporate assets [Harvey, 1993, par. 9 and 19].”
Some of the typical steps taken by multinational corporations to increase their security plans include a detailed initial security evaluation of their office, facilities, and other properties. After this security evaluation is completed, from the results of the initial security survey, the corporate management regularly choose to upgrade the physical hardware security of the properties, often times in the form of closed circuit surveillance camera systems, as well as installing metal detectors at building entrances and reinforced doors in certain important offices. In addition to these increased security measures, the corporation may even opt to hire more security guard personnel to protect their overseas property and employees. However, even these can have a short term negative effect on a company since upgrading corporate security procedures can have a poor impact on less quantifiable factors such as investor confidence, public relations, and even workplace morale.
Many corporations will employ the services of a security consulting firm, which will handle, operate, and implement all of these security measures on behalf of the corporation. Unfortunately, it is increasingly the case that the short-term cost of the services of a security consulting firm have nearly become a necessity for companies with their sights on conducting international business abroad.
With the vast amounts of money spent by multinational corporations on these types of preventative measures the ensuring of corporate security and safety has even grown to become an entire industry of its own. “By January 2003, seven major international corporations had joined “The Corporate Preparedness, Security, and Response Network.” Each of the seven members of the network were willing to pay an annual fee of $10,000 to be provided “…with information on best corporate security practices as well as a chance to exchange security ideas…” [Fannin, 2003, par. 12–17].” This fact makes it clear that amped up security can be a steep cost for multinational corporations.
In their acts of violence against multinational corporations, some terrorist groups have even become a sort of multinational corporation of their own, complete with corporate bureaucracy, business operations, media outlets, and even a public relations wing all of which are the case in the Islamic State.
For example, the Islamic State has taken control of various oil fields and refineries across Iraq and Syria, which it sells on the black market to buyers in Turkey, among other countries. And the infamous terrorist group is not simply looting the oil for profit, but even managing and operating the oil field and refineries on their own. The Brooking Institution told the New York Times that the Islamic State produces somewhere between 25,000 and 40,000 barrels of oil a day.
The United States Treasury Department has long struggled to come up with exact figures on the subject, but estimates that the Islamic State takes in millions of dollars every month in profits from black market oil sales around the world. CNN reports that the Islamic State may earn between $1 million and $2 million a day, and the Huffington Post reports that according to United States intelligence officials, the terrorist group may be raking in the upwards of $3 million a day.
In addition to oil revenue, the Islamic State — as well as many other terrorist groups — receives generous contributions from sympathetic governments and wealthy private donors in the Gulf States. Furthermore, the Council on Foreign Relations estimates that the Islamic State receives $8 million a month in “taxes” collected from the territories they control in Iraq and Syria. Most tragically of all, the Islamic State is also believed to be making millions of dollars in the human trafficking industry.
The Islamic State has their own expenses as well, spending massive amounts of money on salaries, weapons, supplies, and even pensions for the families of terrorists killed in the line of fire.
Global terrorism has no doubt grown to become one of the biggest — if not thebiggest — political and economic threats of the new millennia. Gone are the old days of states fighting other states as in traditional warfare, with conflicts now settled through military coalitions targeting various terrorist cells who can be partially or even entirely independent of a sanctioned state government. Now battle is down through proxy wars between rebel armies, which has become the new norm in twenty-first century combat.
When dictators are toppled, it seems to only make room for new radical terrorist groups to carry on the reign of terror even more brutal than their predecessors. The enemy is no longer a foreign country’s military, but radicalized individuals online, abroad, and at home, who make up the international terror networks who pose a threat to United States citizens, as well as United States corporations.
Terrorists pose an economic threat to corporations ranging from a direct, physical attack (such as the September 11th attack on the World Trade Center towers) to the less direct seizure of American assets — military and civilian alike (such as the seizure of arms and oil facilities by the Islamic State).
