Somalia: Failed State, Economic Success?


This article draws heavily on his research in “Somalia After State Collapse: Chaos or Improvement?” coauthored with Ryan Ford and Alex Nowrasteh, published in the Journal of Economic Behavior and Organization, vol. 67, 2008.

Perhaps the title overstates the situation slightly. It is hard to call any country mired in poverty an economic success. Yet by most measures Somalia’s poverty is diminishing and Somalia has improved living standards faster than the average sub-Saharan African country since the early 1990s. In that sense Somalia is at least a relative success story. The most interesting part of Somalia’s success is that it has all been achieved while the country has lacked any effective central government.

For many, the “A” word—anarchy—conjures up notions of chaos. For others it simply means the absence of a single government ruling a geographic area. In this second sense, Somalia has been in a state of anarchy since the fall of Siad Barre’s dictatorship in 1991. The result has been, in general, economic development rather than chaos—although there certainly have been chaotic periods. The interesting questions are how has development been promoted and what has caused the chaos.

Somalia, located on the eastern horn of Africa, gained independence from Italy and Great Britain in 1960. A democracy was initially established but it was overthrown in a military coup in 1969, when General Barre was installed as dictator. He ruled until his government was overthrown in 1991. Since the fall of Barre’s government there have been multiple attempts to establish a new central government, but Somalia has remained an essentially stateless society.

Immediately after the central government collapsed the chaos many would have predicted came about. Rival warlords plunged the country into civil war as each attempted to install himself as the new head of state. During this period the famous “Black Hawk Down” incident, preserved in novel and movie, occurred. Eighteen U.S. soldiers and more than 1,000 Somali died in a violent conflict that followed U.S. and U.N. intervention. The foreign forces eventually withdrew in 1995.

With the withdrawal of U.N. forces the immediate prospect for installing a new government diminished—and with it so did the fighting. Somalia’s entire experience with formal government has been one of plunder and resource extraction by the ruling elite. As long as there was a prospect for a new government, each clan had a strong incentive to fight to make sure it was on the receiving, rather than giving, end of the plundering. Once there was no longer the immediate prospect for a new central government the clans began to settle back into their traditional customary and mostly peaceful relationships with one another.

Each period of violent chaos in Somalia has generally centered around outside attempts to establish a new government inside Somalia. The most recent of these, which is still going on, is the Ethiopian-backed Transitional Federal Government (TFG), which entered Somalia in 2006. Opposition to the TFG bolstered support for the Islamic Courts Union (ICU), which itself became a de facto government in some areas of southern Somalia, including the former capital, Mogadishu. In December 2006 Ethiopia invaded and overthrew the ICU and installed the TFG in the former capital. However, there is little popular support for the TFG. Its control is weak and there are frequent decentralized attacks against TFG officials and soldiers and their Ethiopian supporters. It remains to be seen whether the TFG will gain greater control over the country or if clan factions and warlords will overthrow it.

From the U.N. withdrawal in 1995 until Ethiopa’s invasion, Somalia did have some violent crime, but nowhere near the level that existed during its civil wars. In fact the Somali were able to maintain a functioning customary legal system that not only provided law and order but also formed the institutional foundation that enabled them to achieve greater rates of economic development than they achieved while they had a state and greater rates than many of their African neighbors.

Customary Law in Somalia

Somali law is based on custom interpreted and enforced by decentralized clan networks. The Somali customary law, Xeer, has existed since pre-colonial times and continued to operate under colonial rule. The Somali nation-state tried to replace the Xeer with government legislation and enforcement. However, in rural areas and border regions where the Somali government lacked firm control, people continued to apply the common law. When the Somali state collapsed, much of the population returned to their traditional legal system.

The Xeer outlaws homicide, assault, torture, battery, rape, accidental wounding, kidnapping, abduction, robbery, burglary, theft, arson, extortion, fraud, and property damage. The legal system focuses on the restitution of victims not the punishment of criminals. For violations of the law, maximum compensation to victims is specified in camels (though payment can be made in equivalent monetary value). Typical compensation to the family of a murder victim is 100 camels for a man and 50 for a woman; an animal thief usually must return two animals for every one he stole.

Clan elders chosen on the basis of their knowledge of the law judge cases. The elders cannot create the law. They only interpret the community customs. Elders who make decisions that deviate from community norms are not consulted in future cases. When a dispute arises between two members of different clans, their clan elders must reach a compromise. If they are unable to do so they appoint an elder from another clan to settle the dispute.

After a verdict is reached the criminal must compensate his victim the appropriate amount. If he is unable or unwilling, his extended family must pay the compensation. Every Somali is born into an insurance group based on his lineage to a common great-grandfather. Out of their own self-interest these insurance groups help enforce the judgment on wrongdoers. When an individual becomes particularly troublesome a family can publicly declare that he is no longer a member, effectively making the person an outlaw. Outlaws must find another insurance group willing to sponsor them, or they are expelled from the larger clan. In cases in which more formal enforcement of the law is necessary, clan elders can call for all clansmen to form a posse to enforce the verdict; clansmen are obligated to answer the call.

Since Somali courts are independent of one another, they often interpret customary law differently. Within clans, differences of interpretation are usually quickly resolved, but this process can take much longer on the national level. Ultimately, through the resolution of disputes the law is discovered and conflicts in interpretation are resolved. Although the interpretation of the law stems from clan elders, the clans are not de facto governments.

Throughout Somalia individuals are free to choose new insurance groups and elders on becoming adults. They are allowed either to form a new insurance group with themselves as head or join an established group, if it accepts them. Movement between clans is particularly widespread in southern Somalia: Some clans have more adopted members than native-born members.

The individual clans and insurance groups are not geographic monopolies. Geographic distribution of clans does not match territorial boundaries. As pastoral Somali move throughout their country, their legal system moves with them. So in any given area multiple clan governance systems can exist.

While local cleric courts became the dominant source of law in some regions, and Qur’anic law is traditionally applied to marriage and inheritance, the common law of Xeer and the accompanying elder dispute resolution and insurance groups are the main source of law in Somalia. The Xeer shares a focus on restitution and the protection of life and property with English common law and other polycentric systems. The traditional Somali legal system existed unofficially during the reign of Siad Barre and since the collapse of the state it has emerged to provide some level of the rule of law on which coordination in the Somali economy could be based.

Economic Performance

There is no doubt that Somalia remains extremely poor today. However, as far as living standards can be assessed, they appear to be improving since the collapse of Somalia’s national government. In fact, standards are improving faster in Somalia than in most of sub-Saharan Africa.

In other research my coauthors and I used the World Development Indicators to compare Somalia’s performance with 41 other sub-Saharan African countries in both the current period and, when data allow, over time. All data from Africa—and perhaps Somalia in

particular—should be treated with caution. But our findings are broadly consistent with the improvements other ethnographic and anthropological evidence has found.

Unfortunately, using a broad cross section of countries over a 20-year period for a region with often unreliable (or uncollected) data limits our metrics of comparison. We examined 13 measures: the death rate, infant mortality, life expectancy, child malnutrition, telephone mainlines, mobile phones, Internet users per 1,000 population, households with television, DPT immunization, measles immunization, percent of the population with access to sanitation and an improved water source, and cases of tuberculosis.

Although Somalia’s 2005 standard of living was low by western standards, it compared fairly favorably with other African nations. Of our 13 measures, Somalia ranked in the top 50 percent of nations in five and only ranked near the bottom in infant mortality, immunization rates, and access to improved water sources. Although in 2005 the nation placed in the bottom 50 percent of countries on seven measures, it has actually improved performance relative to other countries since the collapse of the Somali state. Somalia ranked in the bottom 50 percent of all seven variables for which we have 1985-1990 data. In the last years of the Somali nation-state (1985-1990), its performance relative to other African countries deteriorated from the early 1980s, with Somalia losing ground in life expectancy, death rate, and infant mortality as well as DPT and measles immunization. Only telephone landlines showed a slight improvement during this time.

Life expectancy in Somalia fell by two years from 1985 to 1990, but it has increased by five years since becoming stateless. Only three of the 42 countries improved life expectancy as much since 1990.

While Somalia’s infant mortality ranking has continued to slide, its death rate has improved, jumping from 37th to 17th since 1990. While still in the bottom 50 percent in cases of tuberculosis, Somalia’s relative rank has improved from 40th to 31st since the collapse of the government. Although Somalia’s immunization rates for measles and DPT are among the lowest in Africa, its problems in this area existed before the collapse of the state. During the last five years of government rule Somalia’s immunization rankings fell from 19th and 21st, respectively, to next to last in both categories. While the country has stayed near the bottom of this ranking, the percentage of children immunized has improved.

Access to improved water sources is a problem in Somalia. It ranks considerably better in access to improved sanitation facilities. Unfortunately, neither of these measures was available over a long enough time period to compare performance before the collapse of the state.

Telecommunications is a major area of success in Somalia. The one measure for which we have complete data, telephone landlines per 1,000 of population, shows dramatic relative improvement since Somalia became stateless, moving from 29th to eighth among the African countries included in our survey. It ranks high in mobile phones (16th) and Internet users (11th), while it ranks 27th in households with televisions.

In many African countries state monopolies and licensing restrictions raise prices and slow the spread of telecommunications. In Somalia it takes just three days for a landline to be installed; in neighboring Kenya waiting lists are many years long. Once lines are installed, prices are relatively low. A $10 monthly fee gets a customer unlimited local calls, and international calls are only 50 cents per minute. Web access costs only 50 cents an hour. According to The Economist, using a mobile phone in Somalia is “generally cheaper and clearer than a call from anywhere else in Africa.”

We also compared Somalia to a subset of African countries that have been peaceful to make sure that it was not wars in other countries that account for Somalia’s relative improvement. We found basically the same results.

Although the data should be treated with caution, our findings are consistent with the evidence showing the rural pastoral sector growing and an increasing willingness of international businesses to open up in Somalia. Unfortunately there is one new international “business” in Somalia that has many observers concerned—piracy.

What About the Pirates?

Piracy has been on the rise in Somalia over the past year. In fact, if you have heard about Somalia in the news recently, it is likely because of the piracy. Some Somali have organized themselves into pirate bands that use small craft to raid large foreign ships passing by the country. They often hijack the cargo and crew and demand ransom. Somali pirates have attacked more than 100 ships in the last year. As of December they were still holding 17 ships with approximately 300 crew members for ransom. Estimates indicate that these pirates were paid nearly $30 million in ransom over the last year.

Because of Somalia’s strategic location at the entry to the Red Sea and Suez Canal, the Somali pirates are becoming an increasing international concern. The already well-armed pirates have used some of their profits to invest in more sophisticated weaponry, making themselves an even greater threat.

Although they are a concern, this is not merely a symptom of a “failed state,” as many media reports make it out to be. In one sense, that the piracy is committed against passing foreign vessels is a tribute to the internal effectiveness of Somali customary law. The pirates are well-armed and obviously not hesitant to use violence. Yet they do not plunder Somali ships. What’s more, they interact peacefully with other Somali when they are on land. Although the total number of pirates is small, it has been estimated that 10,000 to 15,000 people are employed by the pirates indirectly in related industries such as boat repair, security, and food provision. (Other enterprising Somalis have set up special restaurants to cater to the hostages.) That pirates use voluntary market transactions to purchase goods and services on land, rather than pillage, provides some evidence that Somali law is fairly robust if even these otherwise violent people respect it when conducting their internal affairs.

Somalia’s pirates are criminals, of course, but the nonpirate Somali are not and should not be subject to retribution, including the imposition of an internationally “friendly” government, for the criminal acts of a few.

Instead, Somali pirates should be dealt with like any other violent criminals. Those responsible for crimes should be punished and stopped from committing future acts of piracy. This is probably best accomplished by armed ships protecting shipping lanes, not an internationally backed invasion or sponsoring of a new Somali government. Any government sponsored in Somalia would likely prey on the population just as Siad Barre’s regime did. Such predation would likely result in many more criminal acts with far worse consequences than anything done by the pirates.

Somalia's Lesson

Somalia’s lesson should not be overstated—it is no libertarian utopia. I certainly don’t plan to move there anytime soon. But Somalia does demonstrate that a reasonable level of law and order can be provided by nonstate customary legal systems and that such systems are capable of providing some basis for economic development. This is particularly true when the alternative is not a limited government but instead a particularly brutal and repressive government such as Somalia had and is likely to have again if a government is reestablished.

Economist George Ayittey often refers to many African governments as “vampire states,” which suck the lifeblood out of their citizens and their economy. He recently wrote that the “rogue African nation-state should be left to the fate it deserves—implosion and state collapse.” Many would react with horror to such a suggestion and say, “If that happened you’d end up with another Somalia!” The lesson we should learn from Somalia is that that’s not so bad—at least when compared to the often ghastly alternatives.


April 2009



Benjamin Powell is the Director of the Free Market Institute and teaches at Rawls College of Business. He is also a Senior Fellow with the Independent Institute and the North American Editor of the Review of Austrian Economics. He earned his Ph.D. from George Mason University where he studied Austrian Economics and Public Choise Theory. This summer he will be giving a lecture for FEE, Who Will Build the Roads? And Other Questions About Free Societies at Embry-Riddle Aeronautical Universtiy in Prescott, AZ.

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