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How Afghanistan Was Really Lost
By Ricardo Hausmann

The West’s failure in Afghanistan may well have resulted from not spending enough money in the right places. A different balance between US military expenditure and economic aid might have convinced ordinary Afghans that they had a significant stake in the success of the state that the US and its allies were striving to build.

Assume you knew nothing about a particular low-income country except the following facts. Its annual income per capita in 2020 was just $509, the seventh lowest in the world. In the decade to 2019, annual aid inflows had halved, to just $114 per capita, or 31 cents per person per day. As a result, its GDP per capita fell by 14% over this period. Meanwhile, annual per capita imports also fell by half between 2012 and 2020, to $179, or just 49 cents per person per day – one of the lowest levels in the world. Exports per capita, at just under $38, were the world’s lowest. The official poverty rate increased from 38% in 2011 to 47.3% in 2020.

Given these numbers, you would not expect the population to have much enthusiasm for the status quo. Nor would you expect the government to garner significant support or exhibit much capacity to improve matters.

Indeed, aid flows to the country were by no means unusually large. According to the World Bank, the $114 in per capita assistance in 2019 was less than the aid received by 26 other countries, including Somalia ($121), Bosnia and Herzegovina ($141), Yemen ($151), the Central African Republic ($159), Lebanon ($223), Jordan ($277), the West Bank and Gaza ($477), Syria ($600), and the Marshall Islands ($1,122). Clearly, therefore, the reduction in aid was a choice, not an obvious necessity.

You may be surprised that the country in question is Afghanistan, which the United States and its Western allies regarded as important enough to warrant the sacrifice of more than 3,500 troops and an amount of treasure that dwarfs the sums above. According to the US Department of Defense (DoD), the cost of the US military engagement in Afghanistan in 2020 alone was $39.7 billion – twice the country’s total GDP, or $1,060 per Afghan.

From 2001 to 2020, the war cost America an estimated $815.8 billion, equivalent to more than 40 times Afghanistan’s 2020 GDP, or $21,000 for every Afghan living today. Between its 2012 peak and 2020, annual US military spending in Afghanistan declined by 60%, or $57.8 billion. But instead of using some of the savings to increase aid to the country, the West cut its assistance by $2.5 billion in that period.

According to Brown University’s Costs of War project, the DoD’s military spending numbers are gross underestimates, because they exclude the costs of US veterans’ medical and disability care, as well as the interest payments on the debt incurred to pay for the war. The project instead puts the war’s cost at more than $2.2 trillion, equivalent to 115 years of the country’s 2020 GDP, or 30 times the level of aid to Afghanistan from 2001 to 2019.

Looking at these numbers, it is difficult to avoid thinking that the US-led coalition lost the war on the economic front, owing to a serious misallocation of resources. Given the West’s clear readiness to spend money in Afghanistan, it should have been possible to engineer a growth miracle that would have created a political constituency in favor of more of the same. Notwithstanding the formidable obstacles to building a strong state in Afghanistan, it would have become obvious to millions of citizens that playing ball with the government was in their interest.

Furthermore, such an effort need not have been costly. According to the World Bank, Afghanistan has a purchasing-power adjustment factor of about 0.24, among the seven lowest in the world, meaning that a standard consumption basket costing $1 in the US could be purchased for less than 25 cents in Afghanistan. But the US decided to forgo those savings by pursuing a development-assistance strategy that used US-based contractors (the “Beltway bandits”) that charge US costs plus appropriate margins, overhead, and hardship pay. To this, one should add the cost of maintaining their security inside Kabul’s Green Zone.

Some might argue that these higher expenditures were unavoidable, because Afghan officials could not be trusted with direct cash transfers or lacked the skills to perform the needed tasks. But this implies that the trade-off was not just between corruption and honesty, but between corruption and a much more expensive proposition.

Consider an alternative plan. Suppose that the US had coupled its decision to cut military spending in Afghanistan after 2012 with an increase in aid aimed at doubling the country’s GDP per capita by 2020. This would have averted the austerity, recession, and import decline that in fact ensued. Suppose, in addition, that America had delivered the bulk of this additional aid in the form of appropriately conditioned budget support, and channeled a significant portion to regional and local governments rather than spending it through Western contractors, mostly in Kabul.

Imagine, too, that the Afghan armed forces and police had used less imported equipment and US operational support (which was expensive and unsustainable) and more people. After all, the country’s 300,000-strong army and police force comprised only 0.8% of the population, less than half the share in countries such as Jordan or Israel. And add to this a strategy to develop Afghanistan’s mineral resources, maybe through joint ventures with a state-owned enterprise, in order to give the country a sustainable source of foreign exchange and tax revenues. Regional governments would have had a chance to develop their capabilities, set priorities, and draw public support away from the Taliban.

Such a strategy would have probably required an extra $5-7 billion per year in aid, a small fraction of even the much-reduced $39.7 billion of US military spending in Afghanistan in 2020.

Although it is easy to criticize Western policymakers for the choices they made in Afghanistan, much of the blame lies with the overall approach. The US-led strategy in Afghanistan should have paid more attention to fostering economic success and state capacity, and the economics profession should have been able to provide better guidance on how to do this. The task was not easy but, given the Western powers’ willingness to spend enormous amounts of money in the country, nor should it have been that hard.

Ricardo Hausmann, a former minister of planning of Venezuela and former chief economist at the Inter-American Development Bank, is a professor at Harvard's John F. Kennedy School of Government and Director of the Harvard Growth Lab.
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