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Neoliberal Financial Globalization: Emboldening Jihad

Paper Type: Free Essay Subject: Finance
Wordcount: 5274 words Published: 23rd Sep 2019

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Neoliberal Financial Globalization: Emboldening Jihad


 Over the past three decades, financial globalization has been a defining feature of the global economy. What is clear about financial globalization[1] as it adheres to the tenants of modern neoliberalism is that the phenomenon does not play by the rules of the parameters set up by the nation-state system and their borders. From the 1970s, after the Nixon Shock of 1971 and the shift towards the era of the dollar standard, financial liberalization, deregulation, and the ease of capital controls became pillars in what is now considered to be neoliberal financial globalization (Fiorentini, 2015, p. 124). As the easing of capital controls became an increasingly prominent phenomenon after the end of the Bretton Woods system as liquid international funds grew and production became even more globalized than before (Goodman & Pauly, 1993, p. 79).

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As globalization continues to remove barriers to the movement of money, goods, ideas, and cultural systems, various nonstate actors have taken advantage of this increasingly borderless world. Namely, terrorism and terrorist activity seems to have an inextricable link to globalization — financial globalization in specific. As nation-state regulation and controls over capital and the movement of money have become relaxed since the beginning of the Washington Consensus, jihadis[2] and terrorist activity has become more prominent on the world stage as an issues that plagues the global order. Jihad — in its fundamentalist form — similarly to the inherent nature of globalization in all of its forms, seeks to profoundly modify the nation-state system

There exists a dearth of academic study establishing a concrete and explicit link between the rising tide of jihadism, terrorist activity, and neoliberal financial globalization. As such, what this paper will attempt to accomplish is to contribute to that subsection of academic literature by analyzing the causal relationship between the establishment of the Washington Consensus and the neoliberal agenda and the increase of jihadism and terrorist activity post-Bretton Woods era. In studying this specific relation, I expect to find that neoliberal financial globalization, with is inevitable ease on capital controls, has made terrorist financial activity much more efficient and untraceable, thus increasing the efficiency, magnitude, and frequency whereby jihadis execute their objectives. The reason why it is particularly essential to examine the critical relationship between these two phenomena is twofold. First, establishing a link between neoliberal financial globalization and jihadism allows more academic literature to develop as to why and what specific aspects of the economy increase transnational crime. Second, a concrete link between these two phenomena would give more significant insight as to the possible remedies and methods use in international counterterrorism efforts.

Literature Review

 The literature surrounding globalization itself has no pure consensus on the genesis of the phenomenon. There is also no clear definition that is agreed upon in the academic literature of globalization and global studies. What is evident, however, is that globalization involves deep and intense global interaction through transnational processes, whether these processes are political, economic, or social phenomena (Juergensmeyer, 2014, pp. 05-06). As financial globalization become an emerging field of academic study, there exists a view, backed up by a noteworthy amount of literature, that expresses globalization has facilitated a movement of resources that have emboldened crime groups that operate transnationally, as well as the illicit trafficking of weapons (Hassan, 2001, p. 162). However, based on my research, there currently does not exist any accurate or overarching methodology by which to measure the intensity or scope of financial globalization in the neoliberal era. This is a significant hindrance to the study of neoliberal financial globalization and its connection to global transnational terrorism. As such, in order to approximate a measure of financial globalization, I will be using a measure for the degree of capital controls, of which its ease is an essential feature of neoliberal financial globalization.

 Especially in a post-9/11 environment, there are scholars who argue that financial globalization has contributed significantly to the rise of transnational terrorist activity, while a minority of scholars argue the direct opposite (Li & Schaub, 2004, p. 253). Due to the fact that terrorists and jihadis function as nonstate actors, reliable and absolutely accurate data pertaining to the link between jihadis and their economic activities are hard to come across. Much of the financial activity pertaining to jihadis involves money laundering, smuggling, hawala networks[3], and drug trafficking, which are all extremely difficult to measure because of the nature of these crimes. The illicit and underground methods by which these crimes are committed are almost thoroughly invisible to the state, which makes them much harder to track. Tracking these crimes, which are essential methods of finance for syndicated terrorist networks, is a necessary prerequisite for measuring the scope of these crimes. Due to this lack of efficiency in tracking jihadist activity, the literature surrounding jihadist financing is not thorough enough to form a broad understanding of these illicit financial networks.

 An additional common thread throughout the pertinent literature is that contemporary financial globalization, and by extension, financial liberalization and openness has contributed to income inequality not only between individuals within a state, but between nation-states within the global order. Many scholars agree upon the warrants that link financial liberalization, characteristic of the neoliberal financial agenda, to the unevenness of income and wealth distribution across the globe. As the Washington Consensus was prescribed to the rest of the world by economically hegemonic Western states, opening domestic markets to the flows of foreign finance has led directly to the negative consequences observed in research both domestic and between-state income inequality (Fiorentini, 2015, p. 126). Privatization, one of the staunch pillars of neoliberal financial globalization, shifted away from regulation and coincided with reductions of progressive taxation, lowered tax rates for financial investments, and the destruction of labor rights throughout the developing and developed world. As the wage share of nation-states’ Gross Domestic Product slowly deteriorated and the tax-burden shifted from high-income earners to lower-income households, distribution of income became increasingly unequal. Moreover, academic scholars on the topic often assert that the liberalization of capital controls that is instituted alongside the neoliberal financial agenda, when not managed correctly, will pose detrimental banes to the stability of global finance (Kose, Prasad, Rogoff, & Wei, 2006, p. 07).

One of the resounding consequences of this uneven income and wealth distribution is its compounding of the nature of poverty, dividing the international order into what is typically referred to the Global North and South divide (Trefzer, Jackson, McKee, & Dellinger, 2014). Coincidentally, the top ten countries that carried out over 75% of the world’s terrorist attacks in 2016 were overwhelmingly from the Global South (Institute for Economics and Peace, 2018). As such, multiple studies have been dedicated to finding the causal link between poverty as it exists under the neoliberal status quo and its relationship to terrorism. The conclusions on this particular area of study differs but the most clear explanation exists at the intersection of the political and the economic. It is important to view poverty with an acutely political origin, argues several authors. There endures enough evidence to suggest that terrorism, when understood in the context of political violence, as well as political participation, is not related to education nor income, but rather it is a response to the political atmosphere (Krueger & Malečková, 2002, p. 32). Authors often possess the view that terrorists and jihadists view poverty as an acutely devastating outcome for their communities that is a result of the existing political order. Therefore, while poverty might not be a direct cause for the actions of jihadists, it is arguable that the presented literature on the subject views terrorism as a form of political engagement and participation. The exact reason for this participation has not been pinpointed by academic research but there is enough presented evidence in the literature to suggest that the response to poverty within the top ten countries that produce terrorist activity has its origins in political motives — jihadism exists as a reaction to the neoliberal world order that has spawned poverty in these respective countries.

Further, what scholars have agreed upon in the relevant academic literature is that financial globalization has made it much easier for syndicated terrorist networks to move money illicitly. Even though jihadis are not the majority of actors who use globalization outside of the bounds of legality, terrorism has largely kept up with the rapidity of globalization, moving innovatively to take advantage of the diminishing of barriers to financial flows (Hassan, 2001, p. 168). However, as is the recurring theme within the relevant literature, analyzing and understanding this innovation and its causal relationship with globalization is extremely difficult because of the underground nature by which terrorist syndicates operate — purposefully beyond the eyes of the state as nonstate, transnational actors.

Added to the difficulties of measuring jihadi financial activity is the fact that financial globalization is also a phenomenon that transcends nation-state borders. Scholars on the topic of global studies and financial globalization agree that globalization, as a study, encompasses a number of narratives and anecdotes that include critical analysis of culture, religion, communications, and the diffusion of norms. However, it is much harder to form an overarching, all-encompassing narrative of financial globalization, much less examine how the neoliberal agenda has stringently impacted this phenomenon. Studying this phenomenon, specifically in the context of academic research, has been largely reduced down to measuring the characteristics of neoliberal financial globalization, as establishing a real and concrete measure of the phenomenon has not been accomplished thus far in the research. As such, what this paper will strive to rectify is this missing concrete link between neoliberal financial globalization and the rise of contemporary jihadism.


 The work presented in this paper will observe the causal relationship between neoliberal financial globalization, catalyzed by the end of the Bretton Woods system in the early 1970s, and the rise of worldwide terrorism. As seen below in Figure 1, global terrorism has increased significantly between the period of 1970 and 2015.

Figure 1: (Datagraver, 2016)

Evidently, there exists some kind of relationship between the socio-economic order imposed by the all-encompassing nature of neoliberal financial globalization and the significant and steady increase in terrorist activity since the Nixon Shock of the 1970s. There are several explanations as to why this relationship currently exists, and quite arguably, thrives. I will be focusing on socio-economic deprivation theory and its relation to perceived poverty as an explanatory argument for the behavior of fundamentalist jihads.

The first noteworthy explanation involves the theory of socio-economic deprivation[4]. Research often points a negative relationship between the number of jihadist occurrences and the degree of development and the literacy of the given population (Bravo & Dias, 2006, p. 329). Thus, several authors posit that there is a causal relationship between deprivation and terrorist activity — in essence, it would be ignorant to ignore the geopolitical circumstances in which jihadism exists. This deprivation has been argued to derive from the institution of neoliberal economic policies that exacerbate the economic inequality between the Global North and Global South. Combined with factors of extremely religiosity observed specifically in the regions where terrorism derives, this socio-economic deprivation is arguably an important driving factor for fundamentalist jihadi behavior.

Therefore, because of the abundance of research the wholly dedicated to the explanation aforementioned, the definitive hypothesis that this paper will endeavor to reach is that, all else equal, where capital controls are relatively lax, one can expect to find a related high rate and deep severity of terrorist activity within that particular nation-state and region.

Research Design

 Since the onset of neoliberal financial globalization in the 1970s, a key factor in this phenomenon has been the ease of capital controls as the financial institutions of various nation-states increasingly become more interconnected. Therefore, as a proxy for financial globalization, I will be analyzing for capital controls based on measure of Foreign Direct Investment (FDI). As there currently exists no standardized measure for the degree of capital controls[5] instituted by individual nation-states, using measures of capital controls on FDI, including observation of exchange rates, capital accounts, and export proceeds that will serve as a proxy for the independent variable.  I will be using preexisting data[6] on exchange rates, capital accounts, and export proceeds in order to analyze the openness of countries within the Middle East[7], where each case I later observe is mainly located. This degree of openness of countries within the Middle East will serve as the independent variable for this research paper.

Middle East/North Africa (12 countries)

Exchange Rate

Capital Accounts

Export Proceeds













Figure 2: Percentage of countries within the Middle East with Open Regimes

The research design will also include a dependent variable based on the findings from the Global Terrorist Index (GTI), which is arguably one of academia’s authoritative resources for data regarding the prevalence of terrorist activity. The GTI utilizes a scale between 0 and 10, whereby 10 is used to denote very high levels and impacts of terrorism within a nation-state and 0 denotes no impact of terrorism within a nation-state. The dependent variable in this case encompasses an event-count variable. Figure 3, located below, contains data from the GTI, evaluating the impact, scope, and magnitude of terrorism in the epicenter of the world’s jihadist activity.

Figure 3: (Institute for Economics and Peace, 2018).


The data presented in the above section seem to confirm my original hypothesis that there exists a relationship between the period where neoliberal financial globalization intensified and the intensity, scope, and number of terrorist attacks and activities within the past three decades. Analysis of the findings will be presented in five case studies — Iraq, Afghanistan, Nigeria, Syria, and Pakistan[8]. All five cases were chosen because they are the world’s epicenters for the production of jihads, as well as jihadist activities (Institute for Economics and Peace, 2018).

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The recurring themes throughout these five cases is twofold. First, capital controls have been continually eased since the 1980 and onwards, when the process of neoliberal financial liberalization really began to ingrain itself in to the global economy. Second, enforcement of financial controls against jihadis is inefficient, flawed, and in effect, useless. This ultimately renders such legally codified controls toothless.


 The Global Terrorism Index ranks Iraq as the world’s nation-state with the highest GTI Score, with a score of 9.746. This is a position that the country has helmed since 2014, whereas changes are mostly in the terrorist group that controls the country’s crime syndicate[9]. Iraq itself faces significant deficiencies in enforcement of laws that combat money laundering[10] and terrorist finance (United States Department of State, 2018, p. 131). Though it has increased its regulations of financial crime syndicates, mostly surrounding ISIS’s financial behavior, its openness to foreign direct investment and lax capital controls, as well as actual enforcement of financial crimes executed by jihads has contributed significantly to an increase in the impact of terrorist activity within the nation-state.


 The Global Terrorism Index ranks Afghanistan as the world’s nation-state with the second-highest GTI Score, with a score of 9.891. Afghanistan holds the title for highest death toll as a result of jihadism. Though a member of several international anti-terrorism initiatives, the Afghan government often fails to enforce existing controls on terrorist finance. More notably is the fact that the Afghan government actively refuses to sanction corporations that are fronts for terrorist money laundering, as there some unknown relationship between these corporations and the financing of the Afghan government (United States Department of State, 2018, p. 169). The ability of these corporations to move freely beyond the borders of Afghanistan has contributed significantly to the proliferation of not only domestic Afghani jihad, but transnational terrorist action.


 The Global Terrorism Index ranks Nigeria[11] as the world’s nation-state with the third-highest GTI Score, with a score of 8.660. Though Nigeria possess a high level of international participation in counterterrorism efforts, its infrastructure, weakened not only by the impacts of the resource curse but also foreign extraction of its resources and its adherence to the prescribed Washington Consensus, is lacking in terms of enforcement of financial counterterrorism. Nigeria, after decades of extremely lax capital controls, only just introduced capital controls within the last year. Thus, it is too soon to tell what the impacts of what these capital controls will be on the movement of monetary resources beyond and within the borders of the nation-state (Onuah, 2017)


The Global Terrorism Index ranks Syria[12] as the world’s nation-state with the fourth-highest GTI Score, with a score of 8.315. Syria is an anomaly within this study because of the current geopolitical context in which it exists — the Syrian Civil War continues to rage on at the time of this paper’s research. Therefore, one of the most significant factors of Syrian terrorism is state-sponsored terrorism, with an inextricable link to the neoliberal financial agenda. Syria continues to devote its military and monetary assets to terrorist organizations and crime syndicates, using to its advantage the nonstate status of these specific actors. Because these actors are able to move beyond border more easily and therefore move money beyond borders without the enforcement of capital flows, state reliance on terrorist activity for funding has increased significantly since the onset of the war.

The Global Terrorism Index ranks Syria as the world’s nation-state with the fifth-highest GTI Score, with a score of 8.181. Though Pakistan does belong to an assortment of various international counterterrorism efforts and initiatives, the implementation of these programs domestically have been extremely lax and uneven (United States Department of State, 2018, p. 186). Though the financial laws codified in Pakistan technically adhere to anti-money laundering standards established by the United Nations, the Pakistani government refuses to sanction states and individual nonstate actors that it relies on for financing. One possible explanation as to why this is so is due to the fact that Pakistan still wants to remain as integrated as possible with other economies, which is an important phenomenon associated with globalization. Further, the system of hawala, which is virtually undetectable by law enforcement when it moves beyond financial borders, is widely used within the nation-state as a means to finance terrorist activity.


In short, financial globalization has made executing the objectives of terrorist groups much more efficient. The cost of the neoliberal economic agenda, in its venture to deregulate and remove barriers to liberalization, is significant. Not only has the occurrence of terrorist activity and attacks increased considerably since the 1970s, but the net damage caused by these attacks, as brought on by the development of new advanced communications and technologies, has also increased profoundly. The research at hand, with the accompanying academic literature, poses significant implications for policy, especially in terms of both domestic and international counterterrorism efforts.

 Ultimately, several questions are still left unanswered by the academic literature pertinent to the relationship between jihadism, terrorism, and neoliberal financial globalization. For example — is jihad a response to a perceived broken economic system, rather than an intrinsic issue with fundamentalist religion in and of itself? Since neoliberal financial globalization has empirically led to drastic income inequality and wealth concentration within the hands of a financially privileged class, is poverty reduction a key pillar in counterterrorism policy? The final objective of this paper was to contribute some kind of explanation as to why the socio-economic environment in the world’s terrorist epicenters exist as they do under the neoliberal status quo.


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[1] Fiorentini argues that the Washington Consensus, which at its core is neoliberal financial globalization, is characterized by labor reform and financial market restructuring, ultimately leading to income inequality and the concentration of wealth (Fiorentini, 2015, p. 115).

[2] Jihad is a type of violence permitted by the Quran that is characterized by the struggle against any perceived enemy of Islam. The ideology behind jihad is generally what motivates terrorist attacks.

[3] Hawala networks are ancient methods by which people can move money to other recipients without being tracked by the state. Essentially, this money is not actually “moved” because it cannot be traced (Investopedia, 2017).

[4] Socio-economic deprivation is a term used by the social science disciplines to explain the severe lack of material provisions deemed absolutely necessary for survival.

[5] It is also important to consider that various countries observed in this research have legally codified capital controls that are extremely strict according to legal doctrine, but enforcement of these controls is often more lax than the de jure regulation. Therefore, the official research presented in Figure 2 does not account for the possibly higher level of integration into the world economy due to the toothless nature of some of these capital controls.

[6] Asiedu, E., & Lien, D. (2004, March). Capital Controls and Foreign Direct Investment. World Development, 32(03), 479-490.

[7] The Middle East has evidently been more open to foreign investment than most other regions (Edison & Warnock, 2003).

[8] These five countries scored the highest on the Global Terrorism Index, which produces a composite score for each nation-state for the purpose of providing an :ordinal ranking of countries on the impact of terrorism.” (Institute for Economics and Peace, 2018).

[9] ISIL currently is the stronghold jihad syndicate within Iraq.

[10] Money laundering is one of the most prevalent sources of finance for fundamentalist jihadism.

[11] The terrorist organization with the strongest hold in Nigeria is currently Boko Haram.

[12] It is important to consider the geopolitical context of the Syrian Civil War when considering this specific case. War operates beyond the established economic norms of the global order.


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