02/01/2011 01:15 pm ET | Updated May 25, 2011

Privatization: It's Not Just for State Forces

I'm in an academic mood so for the next several days I'll be writing about various journal articles.

First up is an article in the current issue of Studies in Conflict & Terrorism. The article, "Taking Hand-Outs or Going It Alone: Nationalization versus Privatization in the Funding of Islamist Terrorist Groups," explores the consequences for the funding of terrorist groups of nationalization, in the form of state sponsorship, versus privatization, in the form of autonomous financing.

The author is Joshua Alexander Geltzer, a third year law student at Yale Law School.

Now, before anybody jumps to the wrong conclusion I am in no way suggesting that private military or security contractor (PMSC) is akin to or equivalent to a terrorist. Although if Al Qaeda and the Jaishi-e-Mohammed ever form their own trade association I might reconsider.

However, there is more than a little similarity between the arguments touting the presumed private sector advantages of PMSC and the modern, non-state backed terrorist groups. Of course, the comparison is not perfect; as Geltzer notes, "As governments and companies, as well as those who study them, continue to weigh these benefits and costs associated with nationalization versus privatization, the framework of that debate can be applied to terrorist group financing, though the associated advantages and disadvantages are, of course, rather different from those characterizing the business context." Still, perhaps by looking at the latter case we can be more dispassionate in examining the claims of the former.

Those who have witnessed terrorism over the past half century understand that the terrorists of the sixties and seventies are unlike those of today. State-sponsored groups gave way to autonomous but territorially based; autonomous and transnational but centrally directed; autonomous and decentralized with seed money; and autonomous and decentralized with dispersed sources of funding. The important point here is that terror itself has been privatized. And, if the 9/11 attacks were the most significant terrorist attack ever, at least in terms of casualties, it bears remembering that it was a privatized terrorist group that carried it out.

Geltzer's principal conclusion is:

Nationalization's benefits and costs generally center on a terrorist group's constituency, while privatization's advantages and disadvantages relate most directly to a terrorist group's agenda. Hence, a key insight is that nationalization generally boosts a terrorist group's constituency while privatization typically bolsters a group's agenda. In turn, determining which set of advantages takes priority for a particular terrorist group at a particular time depends on the relative importance to that group of enhancing its constituency versus promoting its agenda.

Just as in the debate over PMSC Geltzer finds there are tradeoffs involved in state sponsorship versus autonomous financing. What benefits does a terrorist group get from state sponsorship? Primarily, reliable funding, the obviation of peripheral, non-terrorist activities, and the protections associated with a state defender.

What's the downside? Mainly, subservience to a state, unavoidable linkages to the fate of a particular regime, and potentially greater ease for counterterrorist authorities.

On the other side the benefits of privatization for a terror group are strategic and operational freedom.

A terrorist group that is financially independent need neither answer to a particular regime nor do its bidding. As a consequence, the group can pursue its own objectives in its own desired manner, dictating its own strategy and tactics. With control over its own purse strings, a group has control over its own terrorist activities, as well--much as a privatized corporation can behave entirely as a market actor, making the decisions deemed most conducive to increasing profit.


Furthermore, not only does privatized funding enable a terrorist group to enjoy self-direction even to the point of resembling a state sponsor, but it also allows a terrorist group, like any successfully financed private venture, to see its budget grow in light of its own success.... terrorist activity. Much as a major argument for the privatization of companies is that private enterprises tend to generate greater profits, so, too, in the world of terrorist groups can privatization mean an enhanced cash flow.

Another advantage of rejecting state sponsorship in favor of privatized fund-raising is that a terrorist group's fate is not tied to that of a particular regime, much as a privatized corporation is generally insulated from the vicissitudes of any particular government.

A third benefit for terrorist groups is the difficulty, for those pursuing counterterrorism, to crack down on funding sources not tied to a single country, diversified in nature, and spread around the world.

What are the costs? These include the include the waxing and waning of funding, the additional risks of exposure associated with fund-raising in several areas, the absence of a state defender, and the loss of support from those who might support a terrorist group's cause but oppose its involvement in criminal activity.

The bottom line for Geltzer is that that "certain circumstances will -- in general -- make one model more appealing than the other, while different contextual factors will favor a different model. In particular, whether nationalization's benefits or costs are more significant for a terrorist group depends on the group's constituency, while whether privatization's benefits or costs are more salient is determined largely by a terrorist group's agenda."

Imagine if we applied to this conclusion to the perennial debate over PMSC. Instead of having people arguing that PMSC are always more cost-effective than regular military forces or, conversely, are never as effective, we could actually have a rational debate where people say the obvious answer, it depends on what your goal is.