A Tale of Two GDPs

Afghanistan Study Group Blogger
Will Keola Thomas

The latest report from the outgoing Special Inspector General for Afghanistan Reconstruction (SIGAR) summarizes the progress made in laying the foundation for long-term and sustainable economic growth in Afghanistan, a key requirement of the U.S. stabilization strategy for the region.

How are things progressing on this front? Gangbusters — if one is considering the World Bank’s prediction of 8.5-9% growth in Afghan GDP for 2010/2011. That puts Afghanistan just behind China (at 10.3%) in global rankings, which is pretty fine company.

How was this accomplished? It helps to start from zero. War-devastated economies similar to Afghanistan’s circa 2001 often experience extremely high rates of growth as even modest economic activity makes the indicators spike upward from the flat-line levels of wartime.

But what really gets the GDP jumping is a massive infusion of cash…like a stimulus program.

Since 2002 the United States has “stimulated” the Afghan economy to the tune of roughly $56 billion in foreign aid. In the coming year alone, the U.S. will spend over $18.7 billion on reconstruction in a country whose government is projected to collect only $1.7 billion in revenues and whose entire (legitimate) economy was valued at under $17 billion in 2010.

To put this in perspective, President Obama’s ever controversial domestic stimulus package amounted to just 5.5% of U.S. GDP and President Roosevelt’s “New Deal” equalled 5.9% of the economy in 1933. In Afghanistan we are flooding the economy with aid equivalent to 110% of the country’s entire GDP every year.

So the present achievement of 9% growth is neither long-term nor sustainable, because, as the SIGAR report states:

“The chief factor behind this strong level of economic activity…(is) the high demand for goods and services resulting from the security economy and the influx of U.S. and other donor spending.”

In other words, the United States and coalition partners are trying to develop a stable Afghan economy as an essential requirement for ending the war and facilitating the withdrawal of troops, but the presence of those troops and the war they prosecute is the Afghan economy.

However, deflating the war economy by negotiating an end to the conflict won’t harm the economic aspirations of ordinary Afghans. Why? Because the vast majority of Afghans don’t benefit from the war economy anyway. While a small circle of elites and “conflict entrepreneurs” siphon up foreign funding so they can stimulate Dubai’s economy, most Afghans are left no better off. In fact, many fare much worse as they struggle to feed themselves while surrounded by increasing violence and a government more beholden to foreign donors than to its citizenry.

While billions of dollars of U.S. taxpayer money is spent to create the illusion of sustainable 9% growth in Afghanistan, the American economy struggles to maintain a 3% growth rate that has failed to solve the problem of long-term unemployment for millions of Americans and is disproportionately impacting veterans returning from the war. Increasingly, voters from across the political spectrum are connecting the dots between the $120 billion spent yearly on the war in Afghanistan and severe budget cuts at home. Perhaps the raised voices of these voters will help elected officials in Washington make the same connection and realize that some of the biggest budget savings are to be found at the negotiating table in Afghanistan.

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