Hearts, minds, and dollars

Last week, Peter Bergen wrote an optimistic post titled "The Afghan Phoenix" over on the AfPak Channel, giving some counterfactuals to the doom and gloom over the plight of Afghanistan and the U.S. mission there. Five million refugees have returned to Afghanistan. One in six Afghans owns a cell phone. And, he notes, "You were more likely to be murdered in the United States in 1991 than an Afghan civilian is to be killed in the war today." This statistic struck me most, though: "In 2008, Afghanistan's real GDP growth was 7.5 percent. Under the Taliban the economy was in free fall."

I won't argue that Afghanistan's economy was anything other than terrible, and worsening, under the Taliban. It was and remains an impoverished country with a host of profound basic infrastructure and business development challenges -- from the lack of roads to the surfeit of bombs to the high illiteracy rate. It has a massive black-market economy. 80 percent of working-age men are involved in subsistence farming. A woefully high proportion of its population relies on the drug trade.

But I still don't find the 2008 GDP growth figure too much of a reason for optimism. Why? Afghanistan's GDP isn't growing because of booming Afghan production and consumption, or rising wages. Afghanistan's GDP is growing because of all the Americans and other foreigners -- around 65,000 troops and 200,000 nongovernmental workers -- building and buying things there (with dollars, no less), and because of the $57 billion pledged by international donors since 2002.

For an illustration of the phenomenon, see this chart of Afghan GDP in inflation-adjusted dollars, which I made with UN data. The Taliban took over in 1996, and Afghanistan's economy dwindled. The U.S. invaded in 2001, and it boomed. Afghanistan's GDP depends entirely on the armed force in charge. This isn't to say the local commerce supplying the 265,000 relatively flush foreigners in Afghanistan isn't real. But were the United States to drawdown, aid workers and military contractors and commerce would follow. My guess is that much of the GDP growth comes from service-sector jobs, not from new production. 

That's the real issue. Foreign spending in Afghanistan is a good thing for GDP. It's less clear whether it has fostered economically meaningful development. Dollars are all well and good -- but won't do much unless they help create businesses, employment, infrastructure development, and longer-term growth. (This is why Jonathan Zasloff's plan to hand out cash to Afghans wouldn't do much more than stoke inflation.) Whether they can remains the question.

Plus, many worry the U.S. troop presence cannot foster the foreign direct investment, local economic growth, agricultural development, and security and economic paradigm the country so desperately needs. But the U.S. military is hoping so. The civil-military plan by U.S. Ambassador Karl Eikenberry and Gen. Stanley McChrystal Laura Rozen posted today mentions the Afghan economy, licit agriculture, cross-border commerce, and reconstruction dozens of times.