Glib assertions that poverty breeds terrorism have been tossed around of late. Of course, no simple equation between the two can be drawn. Yet, such statements do contain grains of truth. Poverty may not cause Islamic terrorism, but Islamic terrorists manipulate poverty to their advantage. Thus, any viable strategy to prevent terrorism must address core issues of economic development.
The first issue to be recognized is that development took a wrong turn about 30 years ago, when OPEC imposed two severe oil-shocks on the global economy. Developed countries shifted from promoting growth to fighting inflation. World growth slowed dramatically (except in East Asia) and the growth of world trade was halved.
OPEC countries grew rich, while the rest of the developing world struggled with unsustainable trade deficits and indebtedness. Most experienced negative growth. During the 1980s and 1990s, half of the IMF's member developing countries endured severe financial crises and were forced to scale back social expenditures so that poverty, inequality and the potential for civil strife increased substantially.
In the wake of this, development policies changed. America, the IMF, and the World Bank began to emphasize globalization by stressing trade liberalization, restrictive macro-economic policies and the institutional strengthening of markets - the policy package known as ``The Washington Consensus.''