Nonprofits vs. Jihadis

In this excellent Slate article, Lee Smith points out two important facts about jihadi Islam.

1) He points out that jihadi Islam is primarily about local politics. In reference to the recent terrorist attach on the holiday resort of Taba in Egypt:

After all, [Egypt's] most famous episode of Islamist violence, the assassination of President Anwar Sadat, was carried out by rogue elements of the military who killed the "apostate" Muslim leader for making peace with the hated Jewish state.

It's easy to be parochial in one's interpretation of events, and Americans who fixate on America's instigation of jihadi violence ignore the fact that jihadi violence has been going on for quite a while and, in some ways, is best viewed as a civil war within the Islamic world that the US was dragged into on 9/11.

This civil war pits jihadis against dictators. For a long while, America's policies in the Middle East have backed the dictators. Those wishing to bring stability back to the region are arguing that the US should start backing dictators again. Bush has cut this unpleasant Gordian knot by supporting a third faction that has been largely sidelined in the jihadi war to date: regular muslims. To date, the results in Afghanistan have been amazingly successful, while the jury remains out in Iraq (elections there, I beleive, are scheduled for early next year).

2) Lee also points out that

Militant groups have to continue operations or risk losing prestige and funding. Since Israel's security barrier and the targeted assassinations of Islamist leaders have made it very difficult to strike inside Israel, the groups may have no choice but to go outside if they wish to continue their war. (Emphasis mine)

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Slate's own Rob walker cataloged the "trend in using business-world metaphors to describe the operations of Osama Bin Laden and his al-Qaida terrorist network" before discarding it as being unhelpful, but as Lee suggests, there is an organizational operating model al-Qaida and other jihadi organizations follow: nonprofits and NGOs.

Nonprofits and NGOs are on the side of good, and jihadis are on the side of bad, so by pointing out their financial similarities I in no way intend to imply that they are morally similar. I am merely pointing out parallels in their funding structures and cash flow models, and since it's easier to examine nonprofits, doing so could give us operational insights into jihadi networks.

Here are some observations from my time working in the nonprofit field:

1) Nonprofits compete for funding on the basis of visible, observable outputs and activities, ideally with some appropriately photogenic glamour to them. Causes with emotional appeal, either through shock value or prettyness, beat quiet, material improvements.

2) Funders tend to be faddish, always interested in moving to the new cause-du-jour.

3) When funders give money, they give it for some particular program or measurable output. It is very difficult for nonprofits to attract funds for operations--the day to day capacity building that generate organizational depth and resilience.

4) Nonprofits often rely on charismatic leaders.

5) Attractive causes "pull" charismatic leaders out of other fields and into the nonprofit field. These leaders often do not fit well into the non-nonprofit world.

6) It is very difficult for nonprofits to scale, primarily because a successful program is deemed to be less needy than a less successful program, and so finds it harder to get cash.

With the exception of 6, it's clear how a jihadi network is more like a nonprofit than a corporation. Corporations are focused on maximizing profit, a goal which requires serving customers, employees, and shareholders. Nonprofits are focused on fulfilling their mission and raising cash.

Tracking how well a nonprofit is fulfilling its mission is actually very difficult since they have no profit signal that lets them know whether they are helping their constituency or not. Instead, they rely on activity measures which track outputs, not outcomes.

The mission is also the animating feature that attracts employees and makes up for meagre pay. Galvanizing the troops is the only way to make people stay because the cash just isn't there.

Donors want to give cash to things that directly generate outputs, not to activities that build infrastructure, like HR or accounting. In addition, donors are more loyal to the mission in general than any one incarnation of it, and are looking for the group that fulfils their emotional need best. This means that donors are always open to new, more needy causes, and nonprofits compete in generating obvious displays of mission-fulfillment to win those competitions.

One consequence of the above is that nonprofits have tremendous moral hazard. A donor wants to give to the organization that promises most spectacular upside because they are insulated from downside risk. If a nonprofit spends all its money on some activities that do not actually help their mission at all it does not matter to the donor, indeed, the donor probably doesn't know and neither does the nonprofit.

Even nonprofits that are savvy about organizational capacity and the difference between outputs and outcomes still publish the % of donations they consumre in their operations vs the % they give to the needy. The smaller this percentage is (the leaner they are) the better, even though this ignores the fact that nonprofits can add value to their activities instead of just passing money through.

Terror networks can only grow to a certain maximum size before the chance of infiltration (and disruption) grow too high. In addition, the competition for ideological purity suggests that they are likely to fracture as they get larger as factions peel off to pursue their more authentic version of the truth.

In addition, terror networks also must display activity continually in order to attract donors. The more dramatic the display, the more likely they are to get money. Note that it does not matter if the display actually helps or hurts the terror network in the long run, they need to get the money now. The fact that Al Qaida has been unable to strike the US since 9/11 reduces their street cred in sympathetic circles, and therefore their ability to raise cash and attract volunteers. In addition, it also means that other groups can (and probably are) competing for that crown by executing their own, even more dramatic, attacks.

Terror networks will also be low on infrastructure, making it impossible for them to make significant capital investments in materiel unless they have a state sponser. The state sponser can either provide a safe harbour for them to build economies of scale and benefit from specialization and division of labor (ie Afghanistan) or the sponsor can simply give them materiel as a way to strike a common foes and maintain plausible deniability. When an anonymous nuke goes off in Times Square, who will the US bomb?