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Written by Jared Stancombe
Indiana University
Spring/Summer, 2009

Vicious Circle: An Analysis of the Role of Narcotics in Insurgent Violence in Afghanistan From 2001 to 2008


I would like to extend many thanks to the various people that have helped me throughout this journey. I would like to thank Professor Sinno for being my honors adviser and helping me along the way. I would like to thank Professor Rasler for helping me collect my thoughts and being tough so I could produce a quality paper. I would also like to thank Professor Spechler for listening to me while I struggled to refine my ideas.

I also extend my thanks to my undergraduate academic adviser, Marsha Franklin for staying positive even though I felt like quitting numerous times, and Professor Wright for helping me think like a political scientist. But most importantly, I thank my family for all the support they've given me.

Thank you,
Jared Stancombe

"War is not a chess game, but a vast social phenomenon with an infinitely greater and ever-expanding number of variables, some of which elude analysis"
- David Galula, Counterinsurgency Warfare (1964)

Chapter 1: Introduction

Afghanistan is a nation that has endured over thirty years of continuous conflict. From the Soviet invasion in 1979 to the rise and fall of the Taliban from 1995 to 2001, the country has been completely devastated. Throughout Afghanistan's recent turbulent past, the Afghans have found resourceful ways to of coping with a lack of economic development and governance. More recently, the Afghans have turned to growing highly profitable narcotics in the absence of a formal economy. This narcotics economy, focused around opium-whose derivatives, heroin and morphine, are sold in markets throughout the world- is said to be financing the insurgency.

Since 2003, the Taliban and al-Qai'da have reorganized into an insurgent force, bent on destroying the US supported Karzai regime so that they may return Afghanistan to Shari'a Law. This Neo-Taliban insurgency is the primary threat to political stability and economic development in Afghanistan.1 This paper will explain the linkages between the opium economy and the Neo-Taliban's strategy of capturing and holding political space in Afghanistan.

In order to truly understand the current conflict in Afghanistan, one must understand the complex systems that have risen from the ashes of decades of conflict. Two perspectives on intrastate conflict provide the best explanations for the motives of the Afghan insurgents.

One perspective comes from Keen (2000), who describes civil conflict not just as a "breakdown" of a state in which the economy is disrupted and people are displaced, but rather as a condition in which violence is used to encourage illicit activities in order for groups to "circumnavigate" the law. Thus, violence is not only designed to destroy the state, but it is a tool to encourage illegal activities so that warlords and insurgent groups can finance their operations. Keen also states that insurgents do not always fight states with the intention of gaining control over the political system; rather, they engage in violence because it is profitable.

However, contemporary analysts such as Jones (2008) and Gustozzi (2008) argue that the opium economy is not the primary reason that the Neo-Taliban insurgents have been able to deepen their social, political and economic ties in areas of high opium production. In fact, Guistozzi explains that the Neo-Taliban insurgents have obtained greater funding from outside sources in comparison to the resources obtained through the opium economy (Guistozzi 2008, 86).

A second and perhaps more persuasive perspective of understanding the processes behind the insurgency in Afghanistan however, comes from Reno (2000), who argues that insurgents are more interested in building "shadow states" by controlling local economies in lieu of building formal state institutions. . Reno (2000) defines a "shadow state" as a political and economic context in which insurgents or state officials exercise political control through "market channels." He also explains that the creation of a shadow state involves the privatization of the legitimate use of force in order to create a low-security environment. In the context of a low-security environment, insurgents can remove "public goods, like security, or economic stability from the general population. (Reno 2000, 47)." This insecure and poverty stricken environment can lead to a relationship in which the insurgents develop relationships with the local population in order to encourage criminal operations. By encouraging illicit enterprises such as opium production, insurgents are able to build a support structure around illicit enterprises that directly challenge the rule of law of the legal state.

In order to understand how insurgents operate in Afghanistan, one must understand that Afghanistan suffers from severe economic deprivation and poverty. For many Afghans, the only way to survive is through the farming of opium since there are few options available to them to grow other crops. Knowing this, insurgents take advantage of the lack of national and local security forces by encouraging the expansion of the informal economy, namely the opium economy, in order to separate the local populace from the government and to consolidate their control over regional areas. This paper explains how insurgents use low-security conflict environments in Afghanistan to expand their political, military and geographical control over wide swaths of territory largely through their economic actions in the opium economy. How insurgents do this is best understood from the theories of Naylor (1993), Goodhand (2004) and Collier (1999).

The theoretical literature will be used to create a framework to help understand how insurgents use a strategy of expansion and control to isolate Afghans from the Karzai regime, the International Security Assistance Forces (ISAF), and NGOS who offer economic development. The framework will also tie together the opium economy and the strategies of the Neo-Taliban insurgency. This paper is not designed to explain the motives or the causes behind the Afghan insurgency. Rather, it offers an explanation for the strategies behind insurgent operations and how they link to the opium economy and insurgent violence.

The paper is divided into seven chapters. After the introduction, the second chapter explains Naylor, Goodhand and Collier's central arguments. Also, the different types of actors in Afghanistan will be defined. In the third chapter, the hypotheses of the paper and methodology are described. In the fourth chapter, the history and mechanisms behind the Afghan opium economy are discussed. In the fifth chapter, the strategy of the Neo-Taliban insurgency on gaining and capturing political space is detailed. In the sixth chapter, a quantitative analysis is conducted to explain trends and linkages in insurgent violence and opium production in critical areas of Afghanistan In the final chapter, the paper will conclude with a summary of the data analysis and a discussion of the policy implications associated with the findings.

Chapter 2: Understanding the Link Between Insurgent Violence and the Opium Economy
The Local Actors in Afghan Insurgency Warfare

In order to understand how the Neo-Taliban and other actors in the opium economy operate, one must understand that not all the actors fighting against the Afghan regime and ISAF seek political control. Five distinct types of actors are involved in violence-insurgents, counterinsurgents, conflict instigators, conflict entrepreneurs, and the civilian population. Differentiating between these five types of actors is important in understanding the linkages between the drug economy and insurgent violence.

Starting with insurgents, Jones (2009) uses the popular definition of insurgency as a political-military campaign by nonstate actors seeking to overthrow a government or secede from a country through the use of unconventional or conventional military strategies and tactics. Essentially, the insurgents are not only seeking monetary or short-term gain-they also seek to overthrow the central regime in order to establish their own government, or to create a "shadow government" in certain areas of the country which they control. Initially, insurgents operate from a narrow social base of support, and look for opportunities to gain control of more space from which to operate.

Another definition of insurgency is offered by Kalyvas who says that "insurgency can best be understood as a process of competitive state building rather than simply an instance of collective action or social contention State building is the insurgent's central goal and renders organized and sustained rebellion of the kind that takes place in civil wars fundamentally distinct from phenomena such as banditry, mafias, or social movements (Kalyvas 2006: 218)." In short, Jones and Kalyvas' perspectives best define what motivates insurgents and how they operate. Unlike the other types of actors, insurgents actively attempt to create a shadow state in order to enforce their own rule of law that is distinct from the legal government.

The next type of local actor in the Afghan context is the counterinsurgent force which is an extension of the legal rule of law and justice in the contested territory. In Afghanistan, counterinsurgents act to restore the rule of law, enforce the law, and bring economic development, humanitarian assistance, and governance to the contested territory. In essence, counterinsurgents seek to enforce their own rule of law in a given area.

Conflict instigators, on the other hand, are those who use violence to simply harass their opponents or prevent them from taking control of a contested area. They do not seek political gain; rather they only seek to protect themselves against a government they view as illegitimate. They are usually organized as small bands, militia or people acting alone or in small, informal groups for the purpose of harassing the military forces operating in their immediate area. They do not have a solid social base to operate from, and they do not usually benefit from the opium economy. While they may have some form of financial support, they do not operate from a base or "safe haven ". 2Unlike insurgents, they do not seek political power, and they have a more local focus, such as protecting their homes and their livelihoods. The presence of conflict instigators may be a reflection of the population's local grievances.

The last type of conflict actor is the conflict entrepreneur. Goodhand (2004) defines conflict entrepreneurs as actors who also do not seek military or political control of an area. Instead, they seek to reap the financial benefits of buying and selling opium. Drug traffickers, arms dealers, and all others seek a slice of the profits, but they use violence as a means to protect their trade routes, activities, and assets. The focus of the insurgents, counterinsurgents, conflict instigators, and conflict entrepreneurs is ultimately the population. Galula states: "If the insurgent manages to dissociate the population from the counterinsurgent, to control it physically, or to obtain its active support, he will win the war because, in the final analysis, the exercise of political power depends on the tacit or explicit agreement of the population, or, at worst, its submissiveness."

These five types of actors interact together as allies when they have common goals. However, as explained in Chapter 4, different types of actors are likely to operate in distinct ways depending on the type of local economy.

Opportunities in Insurgent Warfare

The insurgents, their organizations and their behavior are shaped by opportunities. Collier (1999) explains that there are four distinct opportunities that are created through civil war and insurgent violence. Collier states that rebels or insurgents may seek to engage in highly profitable and high-risk activities to extend the duration of violence. By engaging in profit-seeking activities, they also come to control areas of production. These opportunities are defined as unpredictability, criminality, creation of monopolies of revenue, and rent-seeking predation.

The first opportunity of unpredictability occurs during civil wars when future prospects become less certain. Collier states "In normal circumstances people tend to be conservative in their business relationships because such behavior damages their reputations and makes it more difficult for them to reach an agreement or make deals in the future (Collier 1999, 8). Therefore, economic actors will seek to create predictable and dependable relationships with other actors. According to Collier, "the less predictable is the future, or the more peculiar are current circumstances, the less worthwhile is it to sacrifice current opportunities for profit in order to maintain reputation (Collier 1999, 8)." Collier also states that "sharp practices" may be instituted to capture profits, leading many actors to become disenfranchised while others reap massive profits (Collier 1999, 8).

Unpredictability may also be translated into the markets, as prices drastically change as supply and demand changes. A less predictable market may force workers to look increasingly to the short term, and they may seek to create a short-term profit rather than look toward greater long-term profits.

The second opportunity, criminality, increases under civil war conditions because the capacity for law enforcement to secure the law decreases. This is because military spending is increased at the cost of law enforcement expenditures. As a result of this negligence, law enforcement institutions lose funding, manpower, and resources, which are necessary to enforce the rule of law in contested and non-contested territory. This creates further opportunity for criminality.

The third opportunity that civil wars facilitate is the creation of illicit monopolies of revenue. Civil wars destroy capital, civil infrastructure, and economic productivity. Collier explains that during civil wars, economic competition decreases as people develop economic relationships that they can trust. As a result, prospective entrepreneurs and new comers to the market find it harder to profit and enter the market because those active in the economy may create illegal barriers to entry. Increasing barriers encourages monopolies and enhances extraordinary profits. Essentially, a civil war may allow some profit-seeking actors to prevent others from entering the market who might come to control the market itself. Therefore, the efforts of insurgents to destroy capital and future economic prospects could be a strategy to control the local economy and eliminate rivals from benefiting from market activities.

The final opportunity that occurs in civil wars according to Collier is the capability to institute predatory rents. Predatory rents are a feasible strategy of driving away all formal and governmental influence from an area in order for insurgents to create a monopoly of violence and revenue. Collier states that to encourage trade during war time, insurgents may seek to create "a monopoly of rebel violence." This translates well into Naylor's concept of a "zone of control," where insurgents seek to implant themselves firmly on a piece of territory from which the state is effectively excluded (Naylor 1993, 1). By controlling the political space, the insurgents also have the opportunity to institute predatory rents and generate profits from which to finance their combat operations.

Insurgents take advantage of all of these four types of opportunities not just to finance their operations, but more importantly to take control of an area and to create their own regimes and/or to gain a social base from which to fight the central government. Afghanistan is an unusual case because thirty years of continuous conflict has left the economy and civil infrastructure completely devastated. Consequently, insurgents look at the drug economy as a means of building a social base while engaging in criminal activities, such as narcotics trafficking, opium production, and refinement.

Insurgent Strategy

Naylor (1993) describes the rise of insurgency as a process in which an insurgent force evolves from a strictly militant organization to an institutionalized structure that has popular support and a means of sustaining itself. Naylor identifies three distinct types of "zones" in which insurgents operate and shape through violence and other political activities. These are defined as zones of contention, expansion, and control. These zones have their own respective conflict dynamics and they have the capacity to change from one type of zone to another as the economy changes and the insurgents gain social support Collier (1999).

In a "zone of contention," in which there are a variety of actors who fight for control of a contested territory, the insurgent seeks to remove all rival aggressors from the immediate geographical area. Naylor describes insurgent behavior in this stage as "predatory, "meaning that the insurgents use violence to bring attention to their cause and to eliminate their enemies. Insurgents may use extremely violent tactics in this stage, and seek to intimidate the local population to embrace their presence. They may intimidate through what Naylor defines as "hit-and-run" operations, assassinations, kidnappings, and raids to make themselves known and to discredit the legitimacy of the government. They may also seek areas of friendly support-sympathizers or those who may benefit from the insurgents' presence. Once insurgents have achieved a military foothold in an area, then they seek to expand their political support base within the local population.

Once a social base has been created-either by force or through finding friendly elements, the insurgent force then seeks to expand in the next phase of its development. Once a "zone of expansion" is created, the insurgents begin to remove all external actors and their influence-whether they are economic, political, humanitarian, or military. They do this to prevent the contention of their presence and to make the civilian population completely dependent upon them. The relationship changes from a predatory relationship to "parasitic," where the insurgents use violence to destroy the formal economy and any sort of external influence. They essentially turn from using violence against civilians and government officials to destroying the civil infrastructure and the economy. This effort gradually removes all capital from the area and isolates the civilian population from external influence, allowing for the creation of a "shadow government," or the expansion of an illicit economy. Also, the insurgents may institute "revolutionary taxes" to expand and finance their military and political operations. Insurgents may collect these taxes as a form of payment for protection very similar to how crime syndicates operate. Naylor argues that the effort of destroying the presence of external actors and their influence is necessary to create both an informal economy that cannot be regulated or taxed by the government and to eliminate government influence over the local population which opens the door for the insurgents to gain political power.

Once the insurgents have expanded and completed their objective of subduing and controlling the population, the insurgents seek to create a shadow government. A "zone of control" is the final stage in an insurgency, in which the insurgents seek to institutionalize and create non-military institutions to replace the legitimate regime. In this stage, the relationship between the insurgents and the local population transforms from parasitic to "symbiotic," where the insurgents seek to gain the support of the local population. They may do this by encouraging illegal activities or by creating institutions that replace the services of the legitimate regime. One way that insurgents do this is to control the economic processes of the existing informal economy through taxation, which allows them to raise funds for military equipment and for building local administrative structures that govern the area.

Economic Structures in the Opium Economy

Goodhand (2004) describes how distinct types of opium economies change as different actors are introduced and interact with each other. He categorizes the opium economy into three distinct phases, and these phases may progress locally faster in some areas than others as violence increases and insurgents begin to exert control. He labels these phases as coping economies, shadow economies, and combat economies. In each of these economic phases, insurgents, conflict instigators, conflict entrepreneurs, and civilians may have different types of interrelationships. Going back to Naylor, we can see that in each zone, the relationship among these groups changes as the insurgency moves from one phase to the next.

In a coping economy, impoverished families attempt to cope with their situation by supporting themselves through agriculture. They are growing crops as a means of survival and their families are directly supported by their agricultural activities. Wages and the prices of goods are low. There is little economic activity beyond basic subsistence farming. This is due to the lack of civil infrastructure, meager economic development, and a government that has little or no influence. Farmers may work on a farm owned by a landowner or sharecrop if they do not own their own arable land. Agricultural production and cultivation may be low in this economy because the farmers are only seeking to provide for themselves and their families. Because trade is minimal, there is no incentive to plant and harvest crops for significant profit. Because of this extreme level of underdevelopment, there are public health concerns such as malnutrition and starvation, as well as social problems such as low levels of education and illiteracy. The economy cannot develop because people lack the education, the incentives and the tools necessary to expand production. According to Goodhand, "...involvement in the opium economy is motivated by the need to cope or survive in adverse circumstances. (Goodhand 2004, 66)."

The coping economy reflects an economic state of deprivation, mere survival, and helplessness. The lack of economic development, political stability, and security has forced many Afghans to harvest a durable and comparatively more profitable crop. However, drug traffickers, insurgents, and instigators such as militias do not play a major role. Therefore, violence is relatively low. Opium production may also be low because production has a local focus, as access to smuggling routes may be difficult. Though, violence may increase as insurgents and conflict instigators eventually fight for control over the opium production. Once an insurgent force has established a foothold, it may seek to expand in order to gain greater control and influence over the local opium production.

In a shadow economy, the output of natural resources such as agricultural products may increase because prices have increased as a result of higher economic activity. Conflict entrepreneurs, such as drug traffickers and opium merchants may drive production because the prospects for higher income increase. Instead of merely trying to survive, the opportunity exists for farmers to try to seek significantly higher profits with the presence of drug traffickers and insurgents-who have may have access to international opium and heroin trade markets. Violence may also increase because insurgents seek to create an environment where opium farmers look to make short-term rather than long-term profits. When the economic situation changes, violence escalates because of the illicit nature of opium and the lack of governmental control. Insurgents may battle government forces for control of the area, essentially securing opium smuggling routes and creating an environment conducive to expanding criminality in which farmers are uncertain of their economic prospects of successfully selling their opium yields.

This violence may be targeted less towards specific citizens but towards all forms of formal economic production and civil infrastructure. The ultimate goal in a shadow economy is to expand the size of the local population that must participate in the opium economy. One way that this is accomplished is through predatory loans that farmers have difficulty paying off. Poor wage farmers are forced into severe poverty because all other methods of livelihood are destroyed as violence intensifies and civil infrastructure is destroyed.

In a "combat economy", opium production is extremely high and insurgents who seek power will tax opium and use their tax revenues to procure arms and equipment to fight the government and other opponents. While conflict entrepreneurs may be present, they do not drive production as much as the insurgents do. However, the insurgents may never seek peace because violence creates an incentive for farmers to cultivate more opium, which expands the opium economy. In the absence of local security forces, farmers are more likely to think about opium yields as short-term profits with less concern about long-term profits.

Drug traffickers and other conflict entrepreneurs at this stage may be giving out loans and credit and insurgents may be taxing the population as a form of control. Taxation is a form of consent among the Afghans who have become completely dependent upon the insurgents for their livelihoods. Economic regulations and rules made by the insurgents have created a situation in which economic activities are more closely observed. The insurgents and conflict entrepreneurs then drive the farmers and other parts of the population dependent upon opium cultivation into severe debt. The population then becomes dependent upon the insurgents for their livelihoods in the face of eradication efforts by counterinsurgent forces. Insurgents create symbiotic relationships with those in the opium economy by protecting their farms and assets. Insurgents may also secure and protect trafficking routes to ensure access to regional and international drug markets, thus creating a situation in which the farmer receives little profit and drug traffickers and insurgents take most of the earnings. Essentially, the insurgents and drug traffickers become the primary economic beneficiaries, as profits are driven disproportionately up in the supply chain.

Drug traffickers in a combat economy may have more access to international narcotics markets and smuggling routes. However, in a coping economy, the economy is mostly localized, with only people at the top receiving significant profits. More access to regional and international trafficking routes creates an increase in demand, thus providing incentives for cultivators to supply more opium. A low-security environment may provide opportunities for drug traffickers to create more smuggling routes, and they may also ask insurgents to protect their operations.

In the next chapter, I argue that different economic systems offer distinct opportunities for insurgents to control political space, create a social base, and secure their control over the opium economy.
Chapter 3: Methodology and Hypotheses

In this chapter, the paper will present the hypotheses on the role of opium in insurgent violence in Afghanistan. Both qualitative and quantitative evidence will be used to support the claim that the opium economy provides a vehicle to insurgents for creating a social base and eventually a shadow regime. To explain the relationship, a model will be utilized that links insurgent violence to opium production. While opium production has been shown to increase crime and non-political violence in countries such as Iran, Uzbekistan, and Pakistan, the model will not cover these kinds of situations and conditions. In this paper, aspects of the opium economy will be the only variables related to insurgent violence in certain areas of Afghanistan. The analysis of this relationship will be relegated to those areas in Afghanistan where there is sufficient data and information to examine. Such an analysis will provide a more adequate explanation of how insurgent violence affects the whole country, and how opium production and insurgent violence may be correlated. The hypotheses below are derived from the arguments that will be outlined in chapters five and six. These chapters will also provide detailed case study material on how the opium economy functions, how insurgents seek to take control of contested territory, and how they incorporate the profit-seeking opportunities presented in Collier (1993) into their strategy of creating shadow states.
Hypothesis 1: In areas of high levels of violence in Afghanistan, insurgents take advantage of three opportunities.

1a.) They will seek to expand criminality through the opium economy.

1b.) They will seek to create monopolies of revenue by monopolizing profits from local opium farming.

1c.) They will also institute predatory rents through taxation and credit.

Based on Collier's work (1999), internal conflicts present unique opportunities not available during peacetime that allow for the expansion of illicit economies and criminal practices. Insurgents may take advantage of these opportunities and incorporate them into their strategy as a means of gaining popular support and expanding their influence. Also, as Collier suggests, insurgents will take advantage of unpredictability, offer incentives to criminals, and use predatory means to drive civilians further into debt.

These hypotheses will be tested by describing the various market forces that drive the opium economy as well as the insurgents' ability to take advantage of opportunities presented to them in order to gain control over territory.

Hypothesis 2: Each respective economy type (coping economy, shadow economy, and combat economy) provides distinct opportunities (criminality, creation of monopolies of revenue, rent-seeking predation, and uncertainty) that insurgents use to gain political control over territory.

Based on Goodhand's argument, different economic systems in local areas will be associated with an array of specific types of actors. Despite their differences, these actors may work together to achieve common goals. Moreover, different economic systems provide certain advantages and disadvantages to all the local actors, including civilians, insurgents, conflict entrepreneurs and conflict instigators. Finally, these different economic types will be associated with variations in the level of violence. The reason for this is that local actors will use violence to achieve dissimilar objectives.

To test this hypothesis, several areas in Afghanistan will be assessed in order to determine how insurgents have operated within these economic systems and how local opportunities within these systems have shaped insurgents' strategies.

Hypothesis 3: There is a positive correlation between the amount of debt and the amount of violence in low-security areas.

To test Collier's claims that insurgents will institute predatory rents, a quantitative analysis will be done correlating insurgent violence and private debt. Insurgent violence will be operationalized into the annual amount of attacks in areas of low-security. The data comes from the National Counterterrorism Center (NCTC) World Incidents Tracking System (WITS), which measures insurgent and terrorist attacks throughout the world. Private debt will be analyzed through the amount of debt owed through the salaam system, which is an inherently predatory credit system that will be described in the next chapter.

Hypothesis 4: There is a direct positive relationship between opium production and insurgent violence. In other words, as opium production increases, so does insurgent violence.

To test this hypothesis, extensive descriptive statistics and geographical analysis will be used to see if there is a direct correlation between opium production and insurgent violence. ,The independent variable will be operationalized by measuring opium output in hectares (ha) and insurgent violence will be measured by the number of insurgent attacks in a given area from 2004-2008. The data comes from the World Incidents Tracking System (WITS). The relationship will be measured in Helmand, Kandahar, Nangarhar and for Afghanistan as a whole. Since this thesis is based on a case study of Afghanistan, there are certain advantages and disadvantages associated with such an approach. These issues are discussed in the next section.

According to Van Evera (1997), case studies may be the weakest method of hypothesis and theory testing. He argues that case studies may not adequately take into account external variables that may influence the relationship between the independent and dependent variables. Next, he argues that antecedent conditions may not be adequately identified in a case study, and that a single case study may "mask the action of antecedent variables (Van Evera 1997, 53-55). This is particularly important because conflict in Afghanistan is highly complex, and this thesis will focus on a specific causal linkage, e.g. the relationship between economic conditions and internal conflict. Other variables such as cultural, religious, and ethnic factors that could also cause conflict are not the focus of this study. Therefore, other antecedent conditions associated with these latter variables may be overlooked. Nonetheless, I argue that the Afghanistan conflict is driven mainly by economic conditions, not religious, ideological differences, or ethnic divisions.

Van Evera also argues that the strengths of case studies outweigh their weaknesses. For instance, he maintains that " studies can supply quite decisive evidence for or against political theories (Van Evera 1997) In other words, causal mechanisms can be discerned more successfully in detailed case studies than in large n-studies with many variables and cases. Moreover, "process tracing" can be used to describe the causal connections between the independent and dependent variables an advantage that large n-studies do not provide.

The next three chapters will provide the case study evidence for the hypotheses outlined above. In the next chapter, a detailed description of the Afghan opium economy and its relationship to the insurgents will be discussed. Then, the evidence for the hypotheses will be presented in chapters five and six.
Chapter 4: The Afghan Opium Economy

Since the Soviet invasion in 1979, opium has become an increasing problem for the various regimes attempting to control rural areas. Protracted conflict has brought a complete lack of governance to the rural areas of Afghanistan, where insurgents base their operations. The Taliban, who ruled much of Afghanistan from 1996-2001, did nothing to stop opium cultivation, fearing an uprising (Rashid 2000, 118). Instead, they taxed opium production and used the revenue for combat operations against commanders such as Ahmed Shah Massoud and for the creation of local government administration (Rashid 2000, 124). An increase in security brought about by the Taliban allowed for a more successful opium crop, and the Taliban jumped at the opportunity to use the opium economy to finance its military efforts against political and military rivals.

Agriculture is a bastion of the rural Afghan economy. According to the Central Intelligence Agency (2009) it composes of 38% of gross domestic product (GDP). But after the Soviet invasion in December 1979, opium production dramatically increased. Mujahideen warriors used the profits they received from opium farmers to finance their military campaigns against each other and the Soviet military. While the Central Intelligence Agency (CIA) in the United States, Saudi Arabia, and the ISI, the intelligence branch of the Pakistan military gave billions in military aid to mujahideen warlords and commanders, the opium economy was also a means of support for them.

Figure 4.1 illustrates this gradual upwards trend from 1980 until 2007. The figure shows an overall increase in opium production, measured in Metric Tons (MT).

Figure 4.1

3Opium Production in Afghanistan, 1980-2007

The overall trend is striking. From 1980 until 1987, opium production only gradually increased. However after the defeat of the Soviets, opium production skyrocketed. This alarming trend was affected by a drought that occurred between 1995 and 1998. After the drought during Taliban rule, opium production surged to over 4,000 MT in 2000 (Blanchard 2009, 4). In 2001, the Taliban, caving into international pressure declared opium production illegal (Blanchard 2009, 3). This campaign was very effective, and in 2001, only 200 MT of opium was produced. But, in 2002, when the new, weak Karzai regime took control over Afghanistan, opium production increased and reached record levels, with an unprecedented yield of 8,200 MT, or 193,000 hectares in 2007 (Blanchard 2009, 4). The rise in the opium economy has created many opportunities for insurgent groups, militia, and warlords to finance their operations against one another.

The next section of this chapter will describe the various actors operating inside the current opium economy. The third section will outline how the opium economy operates, and how local actors interact with each other to achieve mutual gains. The last section will describe the various market mechanisms that increase the opportunity for insurgents to expand the opium economy itself and to isolate an Afghan populace from the central government and the national formal economy.
Actors Operating in the Opium Economy

Approximately 365,000 Afghan families participate in opium cultivation and approximately 2 million people, or 8.7% of the population was estimated to have participated in opium cultivation in 2008 (Blanchard 2009, 3-4). In order to understand the relationships between the actors in the Afghan opium economy, they must be formally defined.
  • Rich farmers and landowners are those that benefit significantly from the opium economy. These individuals own large swaths of land and may hire sharecroppers to help them cultivate the opium (World Bank 2005).
  • Poor farmers and wage laborers, which are estimated to be approximately 356,000 households in the rural areas, or approximately 68% of those involved in the opium economy, are largely farmers attempting to make a living (Blanchard 2007, 4). Unlike rich farmers who make a profit, poor farmers make only enough to survive. They may own land, but only small plots that generate little profit. They are also inundated with debt, and may be former rich farmers who were unable to deliver to their debt collecting opium merchants. The only way to pay off their large debt may be to continue opium cultivation (World Bank 2005).
  • Small opium merchants are those who buy and sell raw opium in small "opium bazaars" and handle only small volumes of raw opium. Unlike drug traffickers, who operate regionally and internationally, their operations are largely local (World Bank 2005).
  • Drug traffickers and heroin refiners are those that operate on a much larger scale than their localized counterparts. They seek to refine the opium into heroin, which dramatically increases the value of the product. Owing to international demand for Afghan heroin, they seek to develop trade routes and smuggle the refined heroin or raw opium out of the country, where it can be purchased in countries such as Russia and the United Kingdom (World Bank 2005).
  • Local commanders and insurgent organizations may use the opium economy to exert political or economic control. In exchange for protection, they may seek a share of the profits and also may institute an opium tax to seek revenue in order to finance their operations (World Bank 2005).
  • Corrupt Afghan government officials receive bribes from the previous actors in exchange for favors. They may be officials in the Ministry of the Interior, Ministry of Counternarcotics, or other Afghan government institutions (World Bank 2005).
Structure of the Afghan Opium Economy and Conflict

While the opium economy is inherently illegal in nature, its structure is much like that of a free market, contrary to the common notion that drug traffickers and warlords act as drug cartels to drive opium production. The economy has several layers-local, regional, and international. Income is also organized along these layers. In each layer, the more markets that can be accessed, the more profits that can be gained. Actors such as farmers, land owners, wage workers, and local opium merchants do not share a relatively significant income of the total profit. According to Kilcullen (2009, 64), the opium economy is estimated to be of $4 billion in value, while just $800 million of this value is translated into farmer profits. This is mostly due to the nature of opium itself: it can be refined into a highly potent product that has incredible international demand. Raw opium is much cheaper than refined heroin, and opium buyers such as drug traffickers buy the opium at farm-gate values. As a result, local actors, who make up most of the actors in the opium economy, make only 1% of total revenue from the total supply chain (Rashid 2000, 119). Those that refine and smuggle heroin to regional and international markets have much higher profits. This is also in part due to the scale of their business, their accessibility to markets, and their ability to smuggle heroin and opium safely out of the country.
  • Other opium producing countries have stopped production. Iran, Pakistan, and Turkey have clamped down on opium production and are now poppy-free. Combined with a growth in demand, opium prices have increased, and Afghan farmers have more of an incentive to grow opium (World Bank 2005).
  • Collapse of the rule of law and the Afghan state have allowed opium production to increase significantly. When the Taliban came into power, it did not stop opium cultivation and sought to formalize it by taxing it (Rashid 2000, 124). Trade routes and roads were subsequently much safer.
  • Commanders, militias, and warlords have used the opium economy for the past thirty years to help finance their combat operations-which need weapons, equipment, ammunition, and clothing. Mujahideen commanders taxed local opium production to finance their efforts from the time of the Soviet invasion to the rise of the Taliban. After the Taliban was defeated in 2001, groups pacified by them were allowed to assert control again and to procure arms necessary to carry out combat operations against US forces, the Afghan government, and also against rival groups operating in the periphery. To pay for protection, Afghan farmers and landowners paid as much as 10% to 40% of their income to local commanders and insurgent forces (World Bank 2005).
  • The destruction of civil infrastructure and the removal of capital due to decades of conflict have created a massive drain in the Afghan economy and have driven many Afghans into poverty in rural areas. Markets used to trade legal crops have been destroyed as well as transportation routes. Also, opium farmers whose crops failed as a result of a massive drought in 2001 have been forced to cultivate opium to pay off their debts (World Bank 2005).
  • The lack of law enforcement and government influence in Afghanistan has given Afghan opium production a comparative advantage over other countries producing it. Large-scale production, especially in provinces such as Helmand has allowed Afghan heroin and opium to dominate most of the international heroin economy. In 2007, Afghanistan was responsible for 93% of all global heroin production (Blanchard 2007, 1).
These factors have produced an opium economy that is flexible and resilient. The constant state of war since the beginning of the 1980s has encouraged farmers, drug traffickers, warlords, and the Taliban to learn how to cope with a lack of security and the instability.

The flexibility of the opium economy is its greatest asset. The more international demand for opium and heroin, the more Afghanistan produces. The more demand from insurgents and drug traffickers, the more incentive Afghan farmers have to cultivate a successful crop. Due to Afghanistan's comparative advantage in the global opium and heroin market, international demand largely determines opium production.

But, because Afghanistan's infrastructure is completely destroyed, Afghans cannot find relatively medium to high wage jobs in the formal economy. Compared to wages in the formal sector, opium cultivators make almost four to five times as much (World Bank 2005). Incentives to work on government projects and in the formal sector is low as the opium economy simply has more economic prospects for struggling Afghans.

In short, the opium economy is structured to work not for the benefit of the poor wage farmer in the field, but instead to aggregate wealth at the top. Wealth is disproportionately aggregated in the pockets of drug traffickers, wealthy landowners, and other conflict entrepreneurs. Wage farmers are inherently kept poor, forcing them to continue working the opium fields year-by-year to sustain their basic livelihoods. This structure, combined with an environment of violence and conflict, creates opportunities for insurgents to utilize market uncertainty and the destruction that comes with war to expand criminal enterprises in order to isolate a population from its central government. The next chapter will describe how insurgents, namely the Neo-Taliban, have incorporated the structure of the opium economy and its processes into its strategy of controlling political space.

Financial Systems and Market Processes in the Opium Economy
Forms of Credit

According to the CIA, Afghanistan is a country with only 12% of arable land. Due to the harsh climate, many crops cannot be grown. (2009). Opium is a strong, resilient crop that can be grown under harsh environmental conditions. Nonetheless, the drought from 1998 to 2001 destroyed many opium crops and the credit system, salaam, placed many Afghans in severe debt. Because of the inherent nature of the poor economic conditions in Afghanistan, many farmers rely on credit to meet their basic needs (World Bank 2005). Salaam, a credit system of advanced payment of products by prospective buyers, is a primary force that drives opium production at the local level. Because of the harsh climate, many Afghans depend upon salaam to pay for goods during the winter months (United Nations Office of Drugs 2008 and Crime and The World Bank 2005). Drug traffickers, local opium merchants, and insurgent organizations develop relationships with opium farmers and land owners on the basis of credit systems. Pegge (n.d.) identifies three distinct credit systems in Afghanistan:
  • Interest free loans from family members.
  • Advance payment (salaam) based upon a fixed amount of production. Farmers may sell their entire crop before they harvest it. Poor farmers are more inclined to use this option, where drug traffickers, local merchants, and insurgent organizations may lend the farmer half the value of the crop at the current market price, which makes it possible for farmers to support themselves and their families during the harsh winter months.
  • Opium merchants will permit farmers to delay payment to pay for basic needs and agricultural equipment during the winter months.
The credit system is inherently dependent upon a system of trust among the actors in the social structure of the opium economy. Lenders will not hand out money to farmers that they do not trust, and farmers must make an effort to gain that trust by developing social networks and cordial relationships. But at the same time insurgents seeking to create a shadow government may use predatory loans to lend to farmers that they know cannot repay them. Besides the monetary gain, farmers become completely dependent upon their lenders for support. This creates a socioeconomic environment where many farmers become completely dependent upon opium production as a means of survival while those actors higher in the hierarchy gain most of the profits.

This dependence on credit creates further debt among the poor wage farmers. In 2001, the Taliban outlawed opium production-driving more farmers into debt. But after the Taliban fell, many opium farmers resumed planting mostly out of economic necessity (Goodhand 2004). During the ban, lenders monetized loans that were to be paid in opium; however the conversion from cash to opium was based upon the current monetary value of the opium on which the advance was originally obtained. Therefore, interest rates on loans increased from 1,000-15,000 percent (Goodhand 2004, 59).

These forms of credit were ultimately used as a strategic tool by the insurgents. The idea was to create severe poverty among poor wage farmers and make them completely dependent upon their lenders. Moreover, since credit was calculated based upon current opium prices, prices could severely fluctuate, resulting in astronomically high interest rates. This situation benefits the insurgents but not the Afghans whose credit dependences means that they cannot possibly pay back their loans. Hence, opium production is the farmers' only route to begin to make a dent in their loan payments.

Methods of Taxation

According to Goodhand (2004), taxation of the opium economy takes two forms:
  • Ushr: A ten percent tax on all farm products
  • Zakat: A twenty percent tax on opium traders
These forms of taxation were popular during the times of the Taliban from 1995 until 2001 and they continue in areas essentially under insurgent control. These forms of "revolutionary taxes" are not just forms of financial support. They are also resources that make it possible for insurgents to develop new institutions in order to generate a social base of support and hence a safe haven. Therefore, these taxes and forms of credit create a favorable environment for the emergence of a full-fledged insurgency and the groundwork for a shadow state.
Chapter 5: Neo-Taliban Insurgent Strategy and the Opium Economy

The invasion of United States forces in Afghanistan in 2001 quickly squashed the Taliban regime. In December 2001, Hamid Karzai was appointed president of Afghanistan and the new regime began to build itself. From late 2001 through 2002, US forces fought battles that drove the Taliban from key cities and towns such as Mazar-e-Sharif in the north and eventually Kabul. The famous Battle of Tora Bora where Al-Qaida leader Osama Bin Laden was nearly captured drove him from the mountains along the Pakistani border, where he eventually escaped. Operation Anaconda in March 2002 was an operation to drive out insurgents from the Shahk-e-Kot Valley along the Pakistani border (Jones 2009, 94). The Taliban and Al-Qai'da quickly recovered from these fierce military operations and later reformed into a guerrilla fighting force in early 2003 (Guistozzi 2008, 99).

Guistozzi (2008) describes the Neo-Taliban insurgency's strategy of infiltrating into a contested area, removing all government and economic influence, and consolidating their rule by establishing a shadow government. With the Taliban regime destroyed, most areas in Afghanistan had no government presence to enforce the rule of law. This chapter will explain how insurgents captured political space and created shadow governments as a result of market shifts in the opium economy. The previous chapter described the structure of the opium economy. This chapter will explain how those systems became integrated into the insurgents' strategy.

The defeat of the Taliban in 2001 created a governmental vacuum, which the current Afghan regime has yet to fill. With no central authority to enforce the law, opium production in the rural areas skyrocketed. To put this into perspective, the year before the US invasion in 2001, Afghanistan farmers cultivated only 8,000 hectares of opium, but in 2002, the year after the U.S. invasion, 74,000 hectares were harvested (Peters 2009, 107). This development occurred as a result of economic necessity, especially when the Taliban ban in 2001 devastated the opium economy. Heavily indebted farmers went into even more debt and they struggled to repay their loans (Goodhand 2004, 59). According to Goodhand, the ban forced creditors to monetize their loans, which were based upon the "then current cash value of the amount of opium on which the advance was originally obtained (Goodhand 2004, 59). Drug traffickers, opium bazaar owners, and other conflict entrepreneurs jumped at the opportunity of lawlessness to work with the desperate opium farmers in order to buy their opium stocks. With the Taliban and Al-Qai'da on the run in the mountains bordering Pakistan, the drug traffickers were working with Afghan farmers to increase production for immense profits.

In 2003, the Taliban and Al-Qai'da, which had been severely fragmented due to intense battles with US forces, began to reorganize into a guerrilla force. Instead of confronting US forces, the insurgents began using tactics that intimidated the local population and destroyed the influence of NGOs, the Afghan regime and other foreign militaries. Eventually, their targets expanded beyond the International Security Assistance Forces (ISAF) or the Afghan National Army (ANA) to include the Afghan populace itself.

In areas where Coalition forces operated, the insurgents began to create zones of contention in which the insurgents challenged whatever legitimate authority existed and began attacking the population. With a reorganized insurgent fighting force, the insurgents began using predatory tactics. These tactics were a part of a comprehensive strategy to separate and isolate the Afghan public from the government.

To build areas of popular support, the Neo-Taliban used small contingent groups to infiltrate into areas where enemy militaries were present. These teams, numbering from ten to twenty insurgents, infiltrated rural areas to find areas that would provide hospitality and support (Guistozzi 2008, 100). In 2007, the Afghan National Army (ANA) found approximately 135 of these teams operating in Kabul, Pansjir, Pawran, Kapisa, Bamyan, Wardak, Logar, Laghman, Kunar, Nangarhar, and Nuristan (Guistozzi 2008, 101). These teams would use a variety of strategies to gain popular support, involving both diplomatic and predatory practices depending upon the level of local resistance. Predatory policies appeared in the zones of contention where insurgents sought to gain a foothold.

These predatory policies involved attacking Afghan National Security Forces such as the army and the military, international forces, local infrastructure, NGOs, and civilians. Peters (2009, 109) says that the insurgents used motorcycle attacks to ambush foreign troops and aid workers. Also, "night letters" were used to intimidate opium farmers. In the night letters, insurgents offered protection for farmers' opium fields, and threatened violence if the farmers did not consent (Guistozzi 2008, 101). By threatening the local population to work for the insurgents and thereby create a social base, the insurgents then moved onto the next stage of the insurgency.

The second phase of the insurgent strategy was to drive out all rival and governmental presence in the area. For example, the insurgents used their small bases of support to launch campaigns of terrorism and violence against those that were obstacles in the insurgent's plans. For instance, it launched assassination campaigns against government officials, and executed "collaborators" that worked with the Afghan government and international forces (Guistozzi 2008. 102). The Taliban even attacked senior clerics, doctors, teachers, judges, police officers, National Security Directorate officials, NGO workers, and anyone else cooperating with the government (Guistozzi 2008, 102). To drive out civilian cooperation, the insurgents offered bounties for people who collaborated with Afghan and international forces. Relentless attacks, brutal campaigns, and the elimination of external influences drove formal influence from local areas, transforming these "zones of expansion" into "zones of control" where the insurgents then established formal structures and institutions to create a shadow government.

But how exactly does the opium economy fit into all this? The opium economy created opportunities for the insurgents to gain a social base, expand, and create formal structures that helped to protect, drive, and regulate the opium production. By expanding the opium economy, the government found it increasingly difficult to successfully recapture contested space. With an independent economy free of government control, the insurgents were able to tighten their influence over local participants in the opium economy who depended on local security to insure that their operations succeeded. This Neo-Taliban strategy appears in every stage of insurgent warfare as described by Naylor (1993) including all of the various types of economic systems that are described by Goodhand (2004).
Hypothesis 1

Predatory rents, expansion of criminal activities, and the salaam system were tools that the Neo-Taliban used to transform local economies while controlling the political space. While predatory rents were not a primary source of financial support, they were used as a means to gain popular support in an area since they provided incentives for opium production.

As Collier (1999: 9) states, in order to institute predatory rents, insurgents must create a monopoly of rebel violence which removes any opportunities for dissenters to challenge the rents (Collier 1999, 9). As a result of working with drug traffickers and conflict entrepreneurs, insurgents expanded their criminal activities in order to make the local populace dependent upon the opium economy for their survival and livelihood. For example, insurgent teams attacked security checkpoints to secure smuggling routes for drug traffickers. Insurgents have even requested fees for their services, earning as much as $1 million in fees (Peters 2009, 116).

Salaam, which increases the debts of poor wage farmers, were utilized in a predatory manner to create a class of actors that became completely dependent upon their creditors, who were either insurgents or drug traffickers. Due to the nature of salaam, poor farmers were put into extreme debt, leading them to work the fields for years to pay them off. These debts may have been incurred because opium prices increased as demand increased. Therefore, the credit system became a form of economic warfare in which the insurgents created a class of farmers heavily in debt and dependent upon the insurgents for security and financial stability. Some poor farmers who were uncertain about their future have actually joined the insurgency in order to protect their livelihoods from government counter-narcotics (CN) forces. Other poor wage farmers have been directly recruited for insurgent operations. Peters describes a video survey by the Toronto Globe and Mail conducted in 2007. The survey found that in Kandahar, a province in the south that has significant opium yields, the majority of insurgents were actually opium farmers (Peters 2009, 119). The survey also found that 95% of the farmers interviewed expressed an "urgent desire" to get rid of the Taliban and grow legal crops (Peters 2008, 120). However, the poor wage farmers that have been recruited have become completely dependent upon salaam loans and their opium yields for their livelihoods and their security. They became locked into a set of economic relationships that have driven them into poverty and later into the insurgency.

When critical conditions were achieved in Afghanistan, the insurgents then established a "zone of control". These conditions included: insurgent taxation of opium; the participation of drug traffickers in loan-making; insurgent control over smuggling routes, the destruction of civil infrastructure to prevent formal economic development and the presence of an opium economy as the primary form of livelihood. Once this zone of control was created, insurgents were able to build a safe haven from which to create a shadow government. Since a zone of control is free from external influence, it can be exceedingly difficult for government forces to recapture the area. By embedding themselves within the economic processes of the opium economy and enabling other actors within the opium economy to successfully continue their operations, the insurgents were then able to enlist a wide base of recruits for their operations. This situation lead to protracted conflict and exhausted ISAF and ANA forces which became demoralized as more soldiers were killed and millions were spent for military operations that had little effect in reducing the Neo-Taliban presence.

In sum, this strategy of insurgency contributed to the Neo-Taliban's growing military and political strength. The Neo-Taliban insurgents essentially acted as the militant component of a complex campaign conducted by conflict entrepreneurs, conflict instigators, and insurgents who wanted to separate the local civilian population from the government as a result of expanding the opium economy. This opium economy actually destroyed the influence of the central government, who became incapable of breaking the hold of these actors over local farmers.

Hypothesis 2

Going back to Reno (2000), it can be observed that insurgents take advantage of market processes to gain control of political space. The evidence for this hypothesis shows how insurgents take advantage of opportunities presented to them in different economy types.

As stated previously, in zones of contention, violence is more directed against the population, while in zones of expansion, violence is focused against government and external economic influences. In a zone of control, violence is used as a means to protect opium production and criminal activities. Different actors and different relationships emerge as opportunity arises for political control and financial gain.

In Afghanistan, where there were coping economies there was is little government interference in opium production,. Therefore, farmers had several incentives for growing opium. The primary incentive was is that it provided a livelihood in a harsh environment (Goodhand 2004, 66). The other was that the comparative advantage opium created incredible international demand for opium and its derivatives (Goodhand 2004, 66). One of the most important aspects was is that by growing opium, farmers had access to land and credit (Goodhand 2004, 66). In a coping situation, access to credit to purchase equipment and supplies to scale up cultivation efforts iswas critical. By allowing farmers to scale up their cultivation efforts through credit, and allowing for safe passage of drug traffickers, the farmers were mobilized towards the opium economy. They also had less incentive to participate in the formal economy.

In a coping economy, several advantages emerged as insurgents battled for control of the area. Uncertainty was created by using violence against the population, government influence, and the formal economy. With more drug traffickers and other conflict entrepreneurs in the area, there was a further incentive to grow opium because the probability for getting a loan increased. This uncertainty became is translated into the markets as prices shifted and farmers increasingly became short term oriented. Through uncertainty, farmers looked to shopkeepers, traffickers, and insurgents for access to salaam credit. By looking to the short-term, farmers hoped to create the maximum amount of profits in the shortest amount of time, as opium yields increased. The salaam system essentially took advantage of the uncertainty in the markets and trapped farmers further into debt. The salaam system was inherently predatory and in some instances, farmers had to sell their daughters to settle debts (Peters 2009, 118). By trapping farmers into debt, more uncertainty was created, and the incentive to grow opium increased primarily to pay off these debts.

Once farmers have transitioned from a coping-based economy in which farmers cultivate opium as a means to survive, to a profit-based economy where multiple actors benefit, then the economy changed from a coping economy to a shadow economy. In a shadow economy, more opportunities emerged. In a shadow economy, monopolies of revenue were created as the divide between conflict entrepreneurs and the civil population active in the opium economy grew (Goodhand 2004, 64). With a heavily indebted population, insurgents took advantage of the situation and worked with drug traffickers, warlords, corrupt government officials, and others to expand the opium economy and secure trafficking routes to smuggle opium into international markets. The opportunity to expand criminality was exploited as more people became incorporated into the opium economy. This is because as opium fields expanded, more workers were needed to harvest the fields. By expanding criminality, monopolies of revenue in a shadow economy were created as the divide between those who were heavily in debt and those who created massive profits increased. Despite having large profit margins, insurgents and drug traffickers shared very little of the profits with the population. Of the $4 billion value of opium profits in 2008, only $800 million of those profits went to the farmers (Kilcullen 2009, 64). Essentially, the civil population was made vulnerable through salaam credit and as a result, it became more susceptible to insurgent control.

Also, insurgents in a shadow economy used "revolutionary taxes" such as ushr and zakat to capture political space and begin the enforcement of the insurgent rule of law. With access to larger regional and international trafficking networks, supply and demand of opium increased, and the population was further mobilized. When the Taliban was in power from 1996 until 2001, they generated on average $30 million per year in tax revenues throughout Afghanistan (Goodhand 2004, 63). However, after the Taliban was defeated in 2001, they continued to generate tax revenues in select areas under their control. For example, $50 million in revenues were generated in Herat, and in Kandahar $18 million in revenues were raised (Goodhand 2004, 63).

As opium shop owners, drug traffickers and other conflict entrepreneurs faced obstacles posed by government forces, they turned to the Neo-Taliban insurgents to protect them. Once this happened, the line between insurgents and conflict entrepreneurs blurred as more actors came into play and the economy changed from a profit based economy to a combat based economy, where violence became the end instead of the means. The perpetuation of violence expanded into other areas as opportunities emerged for insurgents to assert their control. Insurgents protected the opium fields and attacked government counterinsurgent and counternarcotics forces. They also attacked checkpoints to create diversions for massive drug convoys (Peters 2009, 116).

Also, during the beginning of US combat operations in 2001, warlords began to institute protection fees for farmers and passage fees for farmers and other Afghans transporting goods other than opium (Peters 2009, 110). For example, Haji Khan Gul, a Taliban leader in northern Helmand charged 5% on all goods including opium moving through the area under his control (Peters 2009, 118). By using taxation and fees, insurgents engaged in profit-seeking behavior while asserting control over an area. Also, as analyzed in the first hypothesis, the salaam system mobilized disenfranchised farmers into the insurgency movement itself. By engaging in these practices, the civil population became involved in the insurgency effort, mobilizing the population to support, finance, and sustain combat operations against the state.

Within a zone of control, a combat economy leads to a plethora of new actors who were recruited for the Neo-Taliban insurgency. Although these actors were likely to have diverse motives, not necessarily aligned with the beliefs of the Neo-Taliban, some of them were most likely joining in order to protect their crops from destruction. Meanwhile, local warlords, some insurgents and conflict instigators took advantage of the combat economy by shifting into roles of conflict entrepreneurs in order to participate in the profits of the drug trade. For example, warlords and insurgents constructed labs to refine opium into heroin or morphine (Peters 2009, 12-13). So, the line between conflict instigators, conflict entrepreneurs and insurgents was blurred over time as everyone tried to secure personal profits. Meanwhile, insurgents provided local security for smuggling operations and expanded trade routes to neighboring countries. These trade routes also brought in arms traffickers who provided the necessary equipment and resources to fight a full scale war. The end result was a combat economy, which supported insurgent forces that fought against external threats to the opium economy in order to protect their local profits. With secured trade routes to smuggle in arms, equipment, and goods, the insurgents then began to create a shadow state that was is independent from the legal regime and outside influence.

A striking observation was as the economic system changed; the relationship between the population, insurgents, and conflict instigators also changed. These relationships in turn permitted insurgents to centralize their military and political control through the various phases of Naylor's zones of conflict. In a coping economy, the relationship was largely predatory, with night letters, kidnappings, and attacks largely predominant. In a shadow economy, the relationship was parasitic, where conflict entrepreneurs instituted predatory rents and created monopolies of revenue. In a combat economy, the relationship was mostly symbiotic, where insurgents protected those who were involved in the opium economy such as local populace and drug traffickers. The change in the relationship between insurgents and the population explained how insurgents gained military, political, social and economic control over local areas.

By taking advantage of the unpredictability associated with conflict, rent-seeking predation, criminality, and creating monopolies of revenue, insurgents then created a shadow government. By transforming economies, more opportunities presented themselves. However, unpredictability stemming from the use of violence against the population and government was the first opportunity that insurgents took advantage of. This uncertainty translated into the markets, where farmers became uncertain of prospective profits and looked to the short-term. With an unstable market, insurgents instituted predatory rents such as ushr, zakat, and salaam credit which ultimately trapped farmers. Insurgents also used the the conflict environment by creating monopolies of revenue by participating actively in opium production and the refining of opium into heroin. Finally, insurgents took advantage of the expansion of criminality, where the opium economy hads expanded and most Afghan civilians had become active in market activities. These actions mobilized the population to support the insurgents which in turn isolated them from m government influence.


Historical evidence has been provided in order to illustrate the connections between the opium economy, insurgent violence, and how insurgents and other actors have taken advantage of the various opportunities that conflict brought. Essentially, the evidence shows that different economies produce a variety of new actors and opportunities. And, insurgents used these changes by expanding and creating zones of control in order to enforce their authority over local territories.

The evidence for hypothesis 1 shows that insurgents capitalized on the the various opportunities that wartime offered. They collaborated with conflict entrepreneurs and conflict instigators while also relying on tactics of intimidation and coercion against the local population. They also looked for ways to expand the opium economy and separate the local population from the central government's influence and the country's formal economic development policies.

The evidence for hypothesis 2 shows that that different economies do indeed have different conflict dynamics and that insurgents adapted their tactics and strategies successfully. Figure 5.1 below illustrates the relationship between these economic systems and insurgent strategies.

Figure 5.1

Insurgent Strategy
Chapter 6: Quantitative Analysis and Findings

This chapter focuses on hypotheses 3 and 4 and presents some quantitative analysis to show the correlation between various aspects of the opium economy and insurgent violence. Hypothesis 3 suggests that private debt increases and insurgent violence are positively linked. As the informal economy grows around opium production and the salaam credit system, insurgents focus their efforts in these vulnerable, low-security areas. Hence, areas where opium production is high will also be associated with more insurgent activities and violence. Fortunately, data on private debt has been collected by the United Nations Office of Drugs and Crime (UNODC) This data is correlated with insurgent violence which has been collected by the World Incidents Tracking System (WITS). To look for possible correlations between private debt and insurgent violence, three provinces in Afghanistan will be examined-Helmand, Kandahar, and Nangarhar. Helmand and Kandahar are southern provinces where insurgent violence is most severe, and opium production is dominant.

This chapter is divided into three parts. In the first part, the third hypothesis is tested by correlating private debt with insurgent violence in certain provinces in which opium production is significantly high or low. The second part of this chapter will focus on presenting evidence for hypothesis 4 and the last section will summarize the overall findings.
Hypothesis 3

To test this hypothesis, data available from the United Nations will be used to correlate insurgent violence with the percentage of villages with loans throughout Afghanistan in 2008. The United Nations Office of Drugs and crime conducted surveys to measure how many villages in Afghanistan have taken out loans to pay for opium farming and cultivation.

To measure insurgent violence, data from the National Counterterrorism Center will be used which measures insurgent and terrorist attacks from January 2002 to September 2008. The data shows the frequency of attacks against Afghan provinces by month and year. To measure opium production, data from the United Nations Office of Drugs and Crime will be used. The data is opium production measured in hectares (ha).

The table below shows six provinces that have the most civilian participation in the opium economy in Afghanistan. The data show that the relationship between villages with private loans and the number of insurgent attacks in a province does not support Hypothesis 3. While Helmand Province has a high level of population participation in the opium economy (93%), a significant proportion of its villages (60 %) have taken out private loans. Uruzgan, which is located between Helmand and Kandahar, also has a high level of population participation (66%) in the opium economy which is associated with 80% of its villages taking out loans. United Nations figures show that while there has been a 445% decrease in opium production over all in Afghanistan, three out of the five highest producers of opium have had between a 1% and 7% increase (United Nations 2008, 45). Uruzgan in 2008 was the fourth highest producer of opium, and it also had the highest number of villages that have taken out loans (United Nations 2008, 45).

Table 6.1

Isurgent Attacks

Meanwhile, Table 6.1 also shows that Helmand Province which has a high percentage of population participating in the opium economy, and a large percentage of villages with cash advances is also associated with a large number of insurgent attacks (358) from 2004-2008. Meanwhile, Uruzgan has 66% of its population participating in the opium economy with 80% of its villages associated with private loans, but it has much fewer insurgent attacks (85%) over the same time period. The fewer number of attacks is probably due to the mountainous terrain and the lack of water access in certain districts. On the other hand, Kandahar has the greatest number of insurgent attacks from 2004 to 2008, while having only 22% of its population participating in the opium economy. However, with a population of 913,000, that equates to a significant population involved in the opium trade. Of the entire population, 65% lives in rural areas.4 Overall, there are no observable quantitative trends suggesting that there are positive linkages between private debt and insurgent violence.

Despite the evidence in table 6.1, a survey by the United Nations showed that 50% of Afghan farmers stated that one of the primary reasons for growing opium was due to the availability of loans (United Nations 2008, 105). Poverty alleviation, however, was the primary reason for growing opium, with 92% of surveyed farmers stating that they grew opium to repay loans and to sustain a livelihood (United Nations 2008, 105).

Hypothesis 4

This hypothesis suggests that there will be a direct positive relationship between opium production and insurgent violence. Data on opium production from the United Nations Office of Drugs and Crime (UNODC) is correlated against data on the number of insurgent attacks derived from the World Incidents Tracking System (WITS) from January 2004 to September 2008 in Figure 6.1 below. The data was aggregated on an annual basis for Helmand, Kandahar and Nangarhar provinces and plotted as a single data point for each year and province. Finally, data was also obtained for all of Afghanistan and was plotted for each year. The next three figures show these plots for Helmand, Kandahar and Afghanistan.

The graphs below illustrate these relationships for each year between 2004 and 2008. The x-axis represents the number of annual attacks, while the y-axis represents the amount of opium production produced in hectares.

The correlation between insurgent violence and opium production was a positive .42 value for Helmand Province. Helmand is the province that analysts say has the strongest linkages between insurgent operations and the opium economy. Helmand is also one of the most active provinces in regards to insurgent violence and activity and the province has also become the focus of military operations and counternarcotics efforts. The correlation coefficient could be skewed simply because of the scale of the opium economy itself in relation to the number of recorded insurgent attacks. To further test the relationship between opium production and insurgent violence, data was also gathered on Kandahar Province. Kandahar saw the highest correlation with .84. This suggests a strong relationship between insurgent violence and the province's annual opium yields from 2004-2008. Kandahar has significantly lower annual opium yields, but also has a startlingly high number of insurgent attacks.

Figure 6.1

Correlating Insurgent Violence

While insurgents continue to operate within provinces with high opium yields, they also focus their efforts along the border with Pakistan, and continue to cross the border and launch attacks on Coalition forces. However, the correlation here suggests that despite these outside factors, the relationship remains moderately strong.

Kandahar and Helmand have strong relationships between insurgent attacks and opium production. These relationships suggest that these provinces are possibly combat economies, and that they are under significant insurgent influence. Other provinces do not share a high correlation, as many have either gone poppy free or have very low and erratic opium yields. These coping economies that have gone poppy free, never had a significant insurgent foothold, and because of that counternarcotics efforts were largely successful .

Figure 6.2

Correlating Insurgent Violence

Nangarhar is one such province that had relatively high opium yields that eventually went poppy free in 2008. Data from WITS suggest that there was moderately low insurgent activity, with an average of 22.8 attacks per year. Opium yields were also low, but on par with that of Kandahar. However, insurgent activity is significantly less. With a lack of insurgent influence, drug traffickers and others had no way to protect their operations, and counternarcotics forces succeeded in bringing down one of the largest opium producing provinces in Afghanistan. Nangarhar saw a correlation of only .10. This means that perhaps in areas where opium production has ended, there is little correlation between violence and production to begin with, thus allowing for counternarcotics forces to more easily operate. Farmers may not have incentive to grow massive crops with high yields because counterinsurgent forces may have secured the trafficking routes, which does not allow access for drug traffickers to reach regional and international markets. Figure 6.3 illustrates the trend .

Figure 6.3

Opium Production and Insurgent Attacks in Nangarhar Province

It can be observed that the correlation is extremely low, with data points spread out throughout the graph. 2004 saw the highest opium yields, while 2008 saw an aggregate yield of 0.

Figure 6.4

Correlating Insurgent Violence and Opium Production

These figures suggest that there is a moderate to high correlation between insurgent violence and annual opium yields from 2004 to 2008. However, further analysis is necessary to view the relationship for the entire country. The figure above illustrates the relationship on the aggregate data from all provinces and the correlation coefficient is .65. This suggests a moderately high correlation, and although many provinces have gone poppy free, insurgents still continue to operate in those areas. The data could be skewed because of insurgent activity in provinces such as Ghazni and Pakika, which are located in the central and western areas of Afghanistan, respectively.


The evidence shows a definite correlation between areas of high insurgent violence, particularly in Helmand and Kandahar, and opium production. This relationship also exists at the national level. While some provinces such as Nangarhar may not have a strong correlation, this could be because they are in different stages of insurgent violence and also within different economy types. Evidence suggests that Nangarhar was a coping economy, along with many other provinces such as Badakshan, and Ghor, where insurgent activity was sparse.

While evidence produced in hypothesis one is supported by surveys and qualitative evidence which suggests that many farmers took up arms because they were in severe debt, the quantitative evidence does not substantiate this linkage. Helmand Province, contrary to the hypothesis, has a significantly lower percentage of farmers and villages taking salaam loans. More farmers in poppy free areas where insurgent activity is low in the northern part of the country are actually taking out more loans. But, there are significant percentages of farmers in the southern provinces, taking loans. However, comparing the data does not produce a significant correlation to adequately link private debt with insurgent violence.

However, there is some quantitative evidence linking insurgent violence with the opium economy for the entire country. The next chapter will provide some policy implications of the findings in the past chapters and present some concluding thoughts.
Chapter 7: Policy Implications and Conclusion

Evidence has shown that the opium economy works in various ways to undermine the Coalition's counterinsurgency effort. By enlarging the opium economy through their collaboration with conflict entrepreneurs, Neo-Taliban insurgents have been successful in isolating local populations from the central government in Afghanistan and its formal economy. Once this has been achieved, the insurgents then have been able to enforce their own rule of law and recruit from a vulnerable population. The analysis provided in the last few chapters illustrates how the opium economy has permitted the insurgents to capture and hold political space, despite government efforts to forcefully remove the insurgents through military action.

If the Afghanistan government and Coalition forces are to succeed in Afghanistan, they must rely on a counterinsurgency strategy that understands the linkages that the opium economy has made between the average Afghan farmer, international drug traffickers, and the Neo-Taliban insurgency. While the Afghan government and Coalition forces have focused on driving insurgents out of local areas, they have neglected to create adequate social bases in the rural areas that support the rule of law of the government. By failing to take and hold areas, the insurgents simply come back when Coalition forces have left. The following policy implications are solutions that the US government, its allies, and the Afghan government can take into consideration. These policy implications argue for changes in existing policy which for the most part fails to consider the connections between the opium economy and the insurgents who exploit the opportunities that the opium economy and wartime conditions offer.
Policy Implications
Counternarcotics must be seen as a component of a counterinsurgency policy.

The effort to eradicate opium in Afghanistan has become separated from the overall counterinsurgency effort. The British military have led the effort in training Afghan Counternarcotics Forces (CN). CN operations have been largely successful in areas of low insurgent activity, where there are no armed groups to protect the fields. But in the combat economies where insurgents have an established presence, eradication may have negative effects. In those areas, insurgents may seek to recruit disenfranchised farmers that have had their livelihoods and honor destroyed. But another effect is that farmers are driven further and further into debt, making them more dependent upon the informal opium economy. CN operations in Afghanistan may have negative effects as more people turn away from the government and angry farmers are recruited to work for the insurgents. Farmers may turn to the insurgents for the protection of their fields, which in turn creates a social base for the insurgents from which to gain legitimacy and expand.

Alternative economic development projects are integral to the counterinsurgency effort.

The key to a classical counterinsurgency is winning over the population rather than defeating the enemy. Rather than focusing on military efforts to drive out insurgents from the rural villages and towns, the Afghan government and ISAF should focus on providing basic essential services to the Afghan farmers and give them incentives for planting legitimate crops. A lack of security and rampant government corruption contributes to the destruction of transportation routes for legal crops. In "zones of expansion," insurgents seek to eliminate civil infrastructure and force out all government presence. Farmers can no longer sell their crops in markets, and drug traffickers and insurgents may set up checkpoints to prevent the sale of legal crops. Opium merchants and drug traffickers go to the place of production-to the opium fields and buy the opium directly from the farmers. Alternative economic projects must be increased as a tactic of "population-centric" counterinsurgency.

Creating dependence upon the government for basic services rather than the insurgents is critical, as a sustainable means of social support for the government will compel civilians to drive out insurgents from their villages and towns. The presence of the formal economy in areas of opium production is absolutely necessary in reducing production and the opportunities for insurgents to exploit the lack of economic opportunity and government presence. The presence of the formal economy will allow farmers to be taxed, which will then create revenue for the government to provide basic services.

The combat economies of Afghanistan should not be dealt with using an "enemy-centric" approach of counterinsurgency. As previously described, CN operations will only increase violence and provide more opportunities for insurgents to create a social base. The primary strategy for the Neo-Taliban is to drive out the government and the formal economy, then force the population to consent to their presence.

With a significant law enforcement and military presence combined with alternative economic projects, the government is more likely to win the support of the population. As a result, local farmers may also provide more information and intelligence to government and ISAF forces. Centers of economic opportunity could be used to permanently drive out insurgent presence. Rather than using the military to drive out the insurgents on a regular basis, a sustainable security strategy must empower Afghans economically and provide them with more opportunity. Rather than using the military to primarily use its resources in finding and defeating insurgents, they should be used to work with Afghan citizens-to essentially allow the counterinsurgent forces to embed themselves in the society, creating a common enemy.

Law enforcement and government influence is necessary to create legitimate opportunities for Afghan civilians.

A lack of government influence increases opportunities for insurgents to more freely operate and embed themselves in Afghan civilian social networks. Creating economic opportunities for civilians should take a priority and the rule of law is absolutely necessary in defeating the centralization of insurgents.

The situation in Afghanistan will continue to deteriorate in the southern areas and the border region with Pakistan. While international attention is currently in Pakistan, particularly in the Federally Administered Tribal Areas (FATA) region where the Neo-Taliban have signed a truce with the Pakistani government and spread into the Punjab, Afghanistan's security depends upon creating economic opportunity, basic services, and enforcing the law while defeating the insurgents. Governance is critical in embedding formal influences among the Afghan population. Rather than focusing on the "enemy," the Afghan government and Coalition forces must return to a "population-centric" form of counterinsurgency warfare.

This form of warfare involves the full spectrum of US political capital-humanitarian aid, state-building, military operations, intelligence gathering, and building the capacity of the government. However, the question is whether the international community is ready to treat Afghanistan as a true international security threat or as a mere inconvenience that should not be neglected. The situation in Afghanistan is not hopeless, but it is dire. But the key to success relies in the support of the Afghan people, rather than the defeat of the Neo-Taliban insurgency.

Policies that have worked in coping and shadow economies may not work in combat economies.

Despite government efforts that have otherwise succeeded in other parts of the country, Helmand and Kandahar continue to produce ever-increasing opium yields. These combat economies may prove difficult to break, as drug traffickers, insurgents, and the Afghan population themselves may all have a stake in its continued prosperity. The Afghan population may turn against counterinsurgent forces, as they watch their livelihoods being destroyed by government efforts. The best way to deal with these combat economies is to hit the centers of demand, focusing on the drug traffickers. Using force against the population is not a sustainable counterinsurgency policy, and once the demand has diminished, then alternative economic programs may succeed.

ISAF nations and the Afghan government must develop a comprehensive counterinsurgency strategy to take into account insurgent success and opium production.

The multinational effort in Afghanistan has produced strategies that often conflict with each other. The British have trained Afghan counternarcotics forces, mostly because 90-95% of all opiates in the UK originate there (Blanchard 2007). The US is also dedicated to defeating and destroying al-Qai'da and defeating the Taliban. However, their strategies both undermine each other in that CN operations strengthen and provide legitimacy among the civilian population to the insurgents. The development of a comprehensive, population-centric counterinsurgency strategy that takes into account opium production as a function of insurgent violence is critical in achieving success.

Counterinsurgent forces have been successful in eradicating opium from areas of low insurgent influence, but as my analysis shows, eradication efforts where insurgent influence is high along with opium production may prove exceedingly difficult and perpetuate more violence due to a lack of economic alternatives. The key to combating the insurgency may be to focus on economic opportunity and building the capacity of the government to enforce the rule of law and drive away insurgent influence instead of focusing on solely military objectives. These economic opportunities will allow for the creation of a formal economy in which the government can exert control and decrease criminal opportunities and prospects for insurgents seeking to undermine the state. Unless these actions are taken, then the vicious circle will continue, and Afghanistan will continue as a failed state.


(1) Tarzi (2008) describes the newly formed insurgent Neo-Taliban force as a group consisting of various actors with differing motivations, ideologies, and goals.

(2) Sinno defines a safe haven as "...a portion of the contested territory where organization's rivals cannot intervene with enough force to disturb its operations (Sinno 2008, 44-45).

(3) From Afghanistan: Narcotics and US Policy, by Christopher M. Blanchard. September 14, 2007. Blanchard, Christopher M., Narcotics and US Policy. Congressional Research Service. 2007.



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