The real Muslim extremists

War on Terror: Saudi Arabia - Bin Laden and his gang are just the tentacles; the head lies

The hijackers responsible for the 11 September outrage were not illiterate, bearded fanatics from the mountain villages of Afghanistan. They were all educated, highly skilled, middle- class professionals. Of the 19 men involved, 13 were citizens of Saudi Arabia. Their names are recognisable. The three al-Ghamdis are clearly from the kingdom's Hijaz province - the site of the holy cities of Mecca and Medina. Mohammad Atta, born in Egypt, travelled on a Saudi passport.

Regardless of whether Osama Bin Laden gave the order or not, it is indisputable that the bulk of his real cadres (as opposed to foot soldiers) are located in Egypt or Saudi Arabia - America's two principal allies in the region, barring Israel. In Saudi Arabia, support for Bin Laden is strong. He was a close friend of the Saudi intelligence boss Prince Turki Bin Faisal al-Saud, who was dismissed in August apparently because of his failure to curb attacks on US personnel in Riyadh. The real reason, however, was probably his refusal to take sides in the fierce faction fight to determine the succession after the death of the paralysed King Fahd. Both sides are aware that too close an alignment with the US could be explosive. That is why, despite its support for the US, the Saudi regime is not "allowing its bases to be used".

Normally, the Saudi kingdom receives little coverage in the western media. The ambassadors report to their respective chanceries that all is well, and that the continuity of the regime is not threatened. It requires the imprisonment of a US or British citizen, or a British nurse to be chucked out of a window, for attention to focus on the regime in Riyadh. Even less is known about the state religion, which is not an everyday version of Sunni or Shi'a Islam, but a peculiarly virulent, ultra-puritanical strain known as Wahhabism. This is the religion of the Saudi royal family, the state bureaucracy, the army, the air force and Bin Laden - the best-known Saudi citizen in the world, believed currently to reside in Afghanistan.

Sheikh Mohammad Ibn Abdul Wahhab, the inspirer of this sect, was an 18th-century peasant who tired of tending date palms and grazing cattle and began to preach locally, calling for a return to the "pure" beliefs of the seventh century. He opposed the excessive veneration of the prophet Mohammad, denounced the worship of holy places and shrines, and stressed the "unity of one god". He also insisted on Islamic punishment beatings and more: adulterers should be stoned to death; thieves should have limbs amputated; criminals should be executed in public.

Religious leaders in the region objected when he began to practise what he preached, and the local chief in Uyayna asked him to leave. In 1744, Wahhab fled to Deraiya and won over its ruler, Mohammad Ibn Saud, the founder of the dynasty that today rules Saudi Arabia. Saud and his successors used Wahhab's revivalist fervour to inculcate a sense of proto-nationalism among the tribes fighting the Ottoman empire in what Wahhab called a jihad, or holy war. Two centuries later, they laid the foundations of what is now Saudi Arabia.

The discovery of liquid gold changed the region for ever. Fearful of competition from Britain, the US merged the petrochemical companies Esso, Texaco and Mobil to form the Arabian American Oil Company (Aramco). This link, established in 1933, was strengthened during the Second World War, when the US air-force base in Dhahran was deemed crucial to "the defence of the US". The Saudi monarch was paid millions of dollars to aid development in the kingdom. The regime was a despotism, but it was seen as an important bulwark against communism and nationalism in the region and, for that reason, the US chose to ignore what took place within its borders.

The entry of the US and the creation of the kingdom is brilliantly depicted in the fictional work of Abdelrahman Munif, the exiled Saudi novelist. I met him about ten years ago when he was on a rare trip to London, and he told me that "when the west looks at us, all it sees is oil and petrodollars. Saudi Arabia is still without a constitution, the people are deprived of all elementary rights, even the right to support the regime without asking for permission. Women, who own a large share of private wealth in the country, are treated like third-class citizens. A woman is not allowed to leave the country without a written permit from a male relative. Such a situation produces a desperate citizenry, without a sense of dignity or belonging." The desperate citizenry gave vent to their frustrations in a number of unsuccessful rebellions in the 1960s and 1970s.

Wahhabism remains the state religion of Saudi Arabia. During the war between Afghanistan and the Soviet Union, Pakistani military intelligence requested the presence of a Saudi prince to lead the jihad. No volunteers were forthcoming, and Saudi leaders recommended the scion of a rich family close to the monarchy. Bin Laden was despatched to the Pakistan border and arrived in time to hear President Jimmy Carter's national security adviser, Zbigniew Brzezinski, turban on head, shout: "Allah is on your side."

The religious schools in Pakistan where the Taliban were created were funded by the Saudis, and Wahhabi influence was very strong. Last year, when the Taliban threatened to blow up the old statues of Buddha in Afghanistan, there were appeals from the ancient seminaries of Qom in Iran and al-Azhar in Eygpt to desist on the grounds that Islam is tolerant. A Wahhabi delegation from Saudi Arabia advised the Taliban to execute the plan. They did. The Wahhabi insistence on a permanent jihad against all enemies, Muslim and non-Muslim, left a deep mark on the young boys who later took Kabul.

In those days, the attitude of the US was sympathetic. A Republican Party packed with Christian cults could hardly offer advice on this matter, and both Bill Clinton and Tony Blair were keen to advertise their Christianity.

Just last year, the liberal and former expert on Pakistan for the State Department, Stephen P Cohen, wrote in the Wall Street Journal: "Some madrasas, or religious schools, are excellent." He admitted that "others are hotbeds for jihadi and radical Islamic movements", but these account for only about 12 per cent of the total. These, he said: "Need to be upgraded to offer their students a modern education." This indulgence is an accurate reflection of the official mood before 11 September.

After the collapse of the Soviet Union, the internal opposition in Saudi Arabia became dominated by religious groups. These core Wahhabis now saw the kingdom as degenerate because of the US connection. Others were depressed by the failure of Riyadh to defend the Palestinians.

The stationing of US troops in the country after the Gulf war prompted terrorist attacks on these soldiers and their bases. The people who ordered such attacks were Saudis, but Pakistani and Filipino immigrants were sometimes charged and executed in order to appease the US.

The expeditionary force being despatched to Pakistan to cut off the tentacles of the Wahhabi octopus may or may not succeed, but its head is safe and sound in Saudi Arabia, guarding the oil wells, growing new arms, and protected by US soldiers and the US air-force base in Dhahran. Washington's failure to disengage its vital interests from the fate of the Saudi monarchy could well lead to further blow-back. It should heed the warning first sounded by the secular tenth-century Arab poet Abu al-Ala al-Maarri:

And where the Prince commanded, now the shriek
Of wind is flying through the court of state:
"Here", it proclaims, "there dwelt a potentate,
Who could not hear the sobbing of the weak."

This article first appeared in the 01 October 2001 issue of the New Statesman, What would you do?

MILES COLE
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The new Brexit economics

George Osborne’s austerity plan – now abandoned by the Tories – was the most costly macroeconomic policy mistake since the 1930s.

George Osborne is no longer chancellor, sacked by the post-Brexit Prime Minister, Theresa May. Philip Hammond, the new Chancellor, has yet to announce detailed plans but he has indicated that the real economy rather than the deficit is his priority. The senior Conservatives Sajid Javid and Stephen Crabb have advocated substantial increases in public-sector infrastructure investment, noting how cheap it is for the government to borrow. The argument that Osborne and the Conservatives had been making since 2010 – that the priority for macroeconomic policy had to be to reduce the government’s budget deficit – seems to have been brushed aside.

Is there a good economic reason why Brexit in particular should require abandoning austerity economics? I would argue that the Tory obsession with the budget deficit has had very little to do with economics for the past four or five years. Instead, it has been a political ruse with two intentions: to help win elections and to reduce the size of the state. That Britain’s macroeconomic policy was dictated by politics rather than economics was a precursor for the Brexit vote. However, austerity had already begun to reach its political sell-by date, and Brexit marks its end.

To understand why austerity today is opposed by nearly all economists, and to grasp the partial nature of any Conservative rethink, it is important to know why it began and how it evolved. By 2010 the biggest recession since the Second World War had led to rapid increases in government budget deficits around the world. It is inevitable that deficits (the difference between government spending and tax receipts) increase in a recession, because taxes fall as incomes fall, but government spending rises further because benefit payments increase with rising unemployment. We experienced record deficits in 2010 simply because the recession was unusually severe.

In 2009 governments had raised spending and cut taxes in an effort to moderate the recession. This was done because the macroeconomic stabilisation tool of choice, nominal short-term interest rates, had become impotent once these rates hit their lower bound near zero. Keynes described the same situation in the 1930s as a liquidity trap, but most economists today use a more straightforward description: the problem of the zero lower bound (ZLB). Cutting rates below this lower bound might not stimulate demand because people could avoid them by holding cash. The textbook response to the problem is to use fiscal policy to stimulate the economy, which involves raising spending and cutting taxes. Most studies suggest that the recession would have been even worse without this expansionary fiscal policy in 2009.

Fiscal stimulus changed to fiscal contraction, more popularly known as austerity, in most of the major economies in 2010, but the reasons for this change varied from country to country. George Osborne used three different arguments to justify substantial spending cuts and tax increases before and after the coalition government was formed. The first was that unconventional monetary policy (quantitative easing, or QE) could replace the role of lower interest rates in stimulating the economy. As QE was completely untested, this was wishful thinking: the Bank of England was bound to act cautiously, because it had no idea what impact QE would have. The second was that a fiscal policy contraction would in fact expand the economy because it would inspire consumer and business confidence. This idea, disputed by most economists at the time, has now lost all credibility.

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The third reason for trying to cut the deficit was that the financial markets would not buy government debt without it. At first, this rationale seemed to be confirmed by events as the eurozone crisis developed, and so it became the main justification for the policy. However, by 2012 it was becoming clear to many economists that the debt crisis in Ireland, Portugal and Spain was peculiar to the eurozone, and in particular to the failure of the European Central Bank (ECB) to act as a lender of last resort, buying government debt when the market failed to.

In September 2012 the ECB changed its policy and the eurozone crisis beyond Greece came to an end. This was the main reason why renewed problems in Greece last year did not lead to any contagion in the markets. Yet it is not something that the ECB will admit, because it places responsibility for the crisis at its door.

By 2012 two other things had also become clear to economists. First, governments outside the eurozone were having no problems selling their debt, as interest rates on this reached record lows. There was an obvious reason why this should be so: with central banks buying large quantities of government debt as a result of QE, there was absolutely no chance that governments would default. Nor have I ever seen any evidence that there was any likelihood of a UK debt funding crisis in 2010, beyond the irrelevant warnings of those “close to the markets”. Second, the austerity policy had done considerable harm. In macroeconomic terms the recovery from recession had been derailed. With the help of analysis from the Office for Budget Responsibility, I calculated that the GDP lost as a result of austerity implied an average cost for each UK household of at least £4,000.

Following these events, the number of academic economists who supported austerity became very small (they had always been a minority). How much of the UK deficit was cyclical or structural was irrelevant: at the ZLB, fiscal policy should stimulate, and the deficit should be dealt with once the recession was over.

Yet you would not know this from the public debate. Osborne continued to insist that deficit reduction be a priority, and his belief seemed to have become hard-wired into nearly all media discussion. So perverse was this for standard macroeconomics that I christened it “mediamacro”: the reduction of macroeconomics to the logic of household finance. Even parts of the Labour Party seemed to be succumbing to a mediamacro view, until the fiscal credibility rule introduced in March by the shadow chancellor, John McDonnell. (This included an explicit knockout from the deficit target if interest rates hit the ZLB, allowing fiscal policy to focus on recovering from recession.)

It is obvious why a focus on the deficit was politically attractive for Osborne. After 2010 the coalition government adopted the mantra that the deficit had been caused by the previous Labour government’s profligacy, even though it was almost entirely a consequence of the recession. The Tories were “clearing up the mess Labour left”, and so austerity could be blamed on their predecessors. Labour foolishly decided not to challenge this myth, and so it became what could be termed a “politicised truth”. It allowed the media to say that Osborne was more competent at running the economy than his predecessors. Much of the public, hearing only mediamacro, agreed.

An obsession with cutting the deficit was attractive to the Tories, as it helped them to appear competent. It also enabled them to achieve their ideological goal of shrinking the state. I have described this elsewhere as “deficit deceit”: using manufactured fear about the deficit to achieve otherwise unpopular reductions in public spending.

The UK recovery from the 2008/2009 recession was the weakest on record. Although employment showed strong growth from 2013, this may have owed much to an unprecedented decline in real wages and stagnant productivity growth. By the main metrics by which economists judge the success of an economy, the period of the coalition government looked very poor. Many economists tried to point this out during the 2015 election but they were largely ignored. When a survey of macroeconomists showed that most thought austerity had been harmful, the broadcast media found letters from business leaders supporting the Conservative position more newsworthy.

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In my view, mediamacro and its focus on the deficit played an important role in winning the Conservatives the 2015 general election. I believe Osborne thought so, too, and so he ­decided to try to repeat his success. Although the level of government debt was close to being stabilised, he decided to embark on a further period of fiscal consolidation so that he could achieve a budget surplus.

Osborne’s austerity plans after 2015 were different from what happened in 2010 for a number of reasons. First, while 2010 austerity also occurred in the US and the eurozone, 2015 austerity was largely a UK affair. Second, by 2015 the Bank of England had decided that interest rates could go lower than their current level if need be. We are therefore no longer at the ZLB and, in theory, the impact of fiscal consolidation on demand could be offset by reducing interest rates, as long as no adverse shocks hit the economy. The argument against fiscal consolidation was rather that it increased the vulnerability of the economy if a negative shock occurred. As we have seen, Brexit is just this kind of shock.

In this respect, abandoning Osborne’s surplus target makes sense. However, there were many other strong arguments against going for surplus. The strongest of these was the case for additional public-sector investment at a time when interest rates were extremely low. Osborne loved appearing in the media wearing a hard hat and talked the talk on investment, but in reality his fiscal plans involved a steadily decreasing share of public investment in GDP. Labour’s fiscal rules, like those of the coalition government, have targeted the deficit excluding public investment, precisely so that investment could increase when the circumstances were right. In 2015 the circumstances were as right as they can be. The Organisation for Economic Co-operation and Development, the International Monetary Fund and pretty well every economist agreed.

Brexit only reinforces this argument. Yet Brexit will also almost certainly worsen the deficit. This is why the recent acceptance by the Tories that public-sector investment should rise is significant. They may have ­decided that they have got all they could hope to achieve from deficit deceit, and that now is the time to focus on the real needs of the economy, given the short- and medium-term drag on growth caused by Brexit.

It is also worth noting that although the Conservatives have, in effect, disowned Osborne’s 2015 austerity, they still insist their 2010 policy was correct. This partial change of heart is little comfort to those of us who have been arguing against austerity for the past six years. In 2015 the Conservatives persuaded voters that electing Ed Miliband as prime minister and Ed Balls as chancellor was taking a big risk with the economy. What it would have meant, in fact, is that we would already be getting the public investment the Conservatives are now calling for, and we would have avoided both the uncertainty before the EU referendum and Brexit itself.

Many economists before the 2015 election said the same thing, but they made no impact on mediamacro. The number of economists who supported Osborne’s new fiscal charter was vanishingly small but it seemed to matter not one bit. This suggests that if a leading political party wants to ignore mainstream economics and academic economists in favour of simplistic ideas, it can get away with doing so.

As I wrote in March, the failure of debate made me very concerned about the outcome of the EU referendum. Economists were as united as they ever are that Brexit would involve significant economic costs, and the scale of these costs is probably greater than the average loss due to austerity, simply because they are repeated year after year. Yet our warnings were easily deflected with the slogan “Project Fear”, borrowed from the SNP’s nickname for the No campaign in the 2014 Scottish referendum.

It remains unclear whether economists’ warnings were ignored because they were never heard fully or because they were not trusted, but in either case economics as a profession needs to think seriously about what it can do to make itself more relevant. We do not want economics in the UK to change from being called the dismal science to becoming the “I told you so” science.

Some things will not change following the Brexit vote. Mediamacro will go on obsessing about the deficit, and the Conservatives will go on wanting to cut many parts of government expenditure so that they can cut taxes. But the signs are that deficit deceit, creating an imperative that budget deficits must be cut as a pretext for reducing the size of the state, has come to an end in the UK. It will go down in history as probably the most costly macroeconomic policy mistake since the 1930s, causing a great deal of misery to many people’s lives.

Simon Wren-Lewis is a professor of economic policy at the Blavatnik School of Government, University of Oxford. He blogs at: mainlymacro.blogspot.com

 Simon Wren-Lewis is is Professor of Economic Policy in the Blavatnik School of Government at Oxford University, and a fellow of Merton College. He blogs at mainlymacro.

This article first appeared in the 21 July 2016 issue of the New Statesman, The English Revolt