THE BLOG
11/11/2014 02:39 pm ET Updated Jan 11, 2015

Economic Empowerment Is Needed to Fight Terrorism

While the main focus on fighting terrorism is through the use of intelligence, military muscle and force, another tool that is even more powerful in the long run is simple economics. It is well-established that there is a direct link between job creation and property rights and a drastic reduction in terrorism and political violence. Economic empowerment and citizen ownership of assets are proven weapons against terrorism and can and must be used to combat this problem.

According to economist Hernando De Soto, terrorism can be drastically reduced when a country's citizens join the formal economy. When we started working with De Soto, 62 percent of Peru's economy was non-tax paying and not officially recognized by the government; nevertheless, this "informal sector" generated 34 percent of Peru's economy and had more than $70 billion in assets. In his native Peru, De Soto was the architect of an economic reform program that brought over 380,000 informal businesses into the tax paying economy, creating over 500,000 jobs and generating $8 billion in tax revenue that was used for education, health, and infrastructure improvements. These changes gave hope to many who were economically disenfranchised.

What we saw in Peru is that when citizens are supporting their families and contributing to their community in a positive way, the threat of terrorism decreases. Before the reforms, Shining Path, a group that sponsored terrorism, controlled over 60 percent of Peru. Once the reforms took hold and the economy rebounded, the terrorists lost their grip on power. They had lost their biggest recruitment tool -- poverty and despair.

While the terrorist threat in Peru may have differed in many ways to what we face today, the lessons learned there can be applied elsewhere, since one fundamental element has not changed -- a lack of opportunity and employment feed resentment and violence.

As De Soto himself has pointed out, these grievances were one of the main impetuses behind the initial protests that led to the Arab Spring. The key to economic empowerment is to create an environment where individuals have the opportunity to fully contribute and domestic economic growth can flourish. Such an environment requires institutions that allow individuals to start and grow businesses and join the formal sector. These institutions include the rule of law, property rights, upholding of contracts, and regulations that provide a level playing field where individuals can pursue their dreams and build a better life through hard work and innovation.

Without these fundamental elements in place, many small businesses are unable to move from the informal sector where they have difficulty accessing the credit needed to expand their businesses and where they can fall prey to corrupt practices. When you create an environment that enables people to succeed, citizens have a stake in the economy and a sense of hope for the future. These fundamental points must be kept in mind when fighting both terrorism and the poverty -- and the lack of opportunity -- that fuels it.

Reducing world poverty is being tackled on a global level through the Millennium Development Goals (MDGs) that were established by the United Nations in 2000 and will expire next year. One of the Sustainable Development Goals (SDGs) that will form the basis of the post-2015 global development agenda is to promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all. One of the sub-goals is to achieve at least seven percent per annum GDP growth in the least developed countries.

Developing and building the institutions that support entrepreneurs as they start and grow businesses will need to be a fundamental piece of the strategy if these goals are to be accomplished. Peru has provided us with a compelling lesson. The message to policy makers around the world is clear: creating an environment where entrepreneurs and their businesses can succeed is a key tool in fighting poverty, providing economic opportunity and defeating terrorism, and one that must not be ignored.