How ISIS terrorizes its own economy

ISIS has claimed responsibility for the attacks in Brussels and we now know its supporters had planned for a second Paris attack. As the terror group expands its reach from the Middle East to North Africa, observers fear it has become an entrenched, functioning terrorist state with ample resources to fund continued growth. While we should take these concerns seriously, information coming out of ISIS-controlled territories suggests the group is making the same economic mistakes that have led other authoritarian regimes to collapse: heavy taxes, choking regulation, and destructive price controls.

It’s well known that ISIS generates significant revenue from oil, but as much as half of the group’s funding comes from taxes, fines, and property confiscation. The misfortune of living under ISIS rule is costly — some estimates put income tax rates as high as 50 percent. Taxes and fines pervade their society, covering everything from crops and cattle to smoking, and even wearing the wrong clothes. Under such heavy oppression, increasing numbers of people are struggling to survive, many are trying to flee, and resentment against ISIS is growing.

No matter where they are imposed, high taxes always discourage work and investment. Thus, it’s no surprise to see an exodus from ISIS-controlled territories of those paying the highest taxes: professionals and other highly skilled workers. The loss of economic activity that results from this “brain drain” will severely limit ISIS’s ability to extract more wealth from the region over time.

But taxes aren’t the only thing undermining productivity. ISIS has also hobbled its economy with regulations that prevent women from working in high-skill occupations like eye surgery or from running their own businesses. Newsweek reports that “women are now only permitted to teach in girls' schools, treat female patients in medical settings and work in stores selling feminine products.”

In developed countries, women add talent, competence, and entrepreneurial creativity in a wide range of industries, from medicine and education to financial services and public relations. Restricting female participation to a narrow set of jobs severely limits the prospects for long-term growth in ISIS-controlled territories.

The negative consequences of these taxes and regulations are compounded by a system of ISIS-imposed price controls on everything from bread and vegetables to medicine and Caesarean sections. For the people living under ISIS rule, mandating lower prices leaves many without basic necessities like food, medicine, and clothing, which are being sold on the black market at multiple times the official rate. In fact, the Atlantic reports that prices for some basic food products have increased by 1,000 percent, far out of reach for locals already struggling with high taxes and unemployment. These conditions make life difficult and create resentment and instability.

We’ve seen this story before in places like East Germany during Soviet rule and more recently in Venezuela. Economic policies that penalize work and investment ultimately destroy wealth, result in lower standards of living, and breed social unrest.    

ISIS’ economic sadism can only continue by finding new people and territories from which to extract wealth. And this weakness offers the key to defeating ISIS: stopping its geographic expansion.

If the U. S. and its allies have the will to contain ISIS’s growth, economic activity in occupied territory will grind to a halt, resources will be exhausted, discontent will grow, and ISIS’ authoritarian structure will begin to fall apart from the inside.

To defeat ISIS, we need to put them in a position to defeat themselves.