10 reasons countries fall apart
Most go out not with a bang, but a whimper, write Daron Acemoglu and James A Robinson
SOME countries fail spectacularly, with a total collapse of all state institutions, as in Afghanistan after the Soviet withdrawal and the hanging of President Mohammad Najibullah from a lamp-post, or during the decade-long civil war in Sierra Leone, where the government ceased to exist altogether.
Most countries that fall apart, however, do so not with a bang but with a whimper. They fail by being utterly unable to take advantage of their society’s potential for growth, condemning their citizens to a lifetime of poverty.
This slow, grinding failure leaves many countries in subSaharan Africa, Asia and Latin America with living standards far below those in the West.
What is tragic is that this failure is by design. These states collapse because they are ruled by “extractive” economic institutions, which destroy incentives, discourage innovation, sap the talent of their citizens and rob them of opportunities.
These institutions are there for the benefit of elites who gain much from the extraction — whether in the form of valuable minerals, forced labour, or protected monopolies. Of course, such elites benefit from rigged political institutions too, wielding their power to tilt the system for their benefit.
But states built on exploitation inevitably fail, taking an entire corrupt system down with them, often leading to immense suffering.
Each year the Failed States Index charts the tragic statistics of such failure. Here are 10 ways in which it happens.
1. North Korea: Lack of property rights
North Korea’s economic institutions make it almost impossible for people to own property; the state owns everything, including nearly all land and capital. People work for the ruling Korean Workers’ Party, not themselves, which destroys their incentive to succeed.
North Korea could be much wealthier. In the 1980s, farmers were allowed to have their own small plots of land and sell what they grew. But even this has not created much incentive, given the country’s endemic lack of property rights.
In 2009, the government introduced a revalued currency and allowed people to convert 100 000 to 150 000 won of the old currency into the new one (equivalent to about $35 (R235) to $40 at the black-market exchange rate). People who had worked and saved up stocks of the old currency found it to be worthless.
Not only has North Korea failed to grow economically, but its people have failed to flourish.
2. Uzbekistan: Forced labour
Coercion is a sure-fire way to fail. Yet, until recently, at least in the scope of human history, most economies were based on the coercion of workers – think slavery, serfdom, and other forms of forced labour.
Forced labour is also responsible for the lack of innovation and technological progress in most of these societies.
Modern Uzbekistan is a perfect example.
Cotton is among it’s biggest exports. In September, as the cotton bolls ripen, the schools empty of children, who are forced to pick the crop. Instead of being educators, teachers become labour recruiters. Chil- dren are given daily quotas from between 20kg and 60kg, depending on their age.
The main beneficiaries of this system are President Islam Karimov and his cronies, who control the production and sale of the cotton.
The losers are not only the 2.7 million children coerced to work in the cotton fields instead of going to school, but also Uzbek society at large, which has failed to break out of poverty.
3. SA: A tilted playing field
In SA in 1904, the mining industry created a caste system for jobs. Only Europeans could be blacksmiths, brickmakers, boilermakers — basically any skilled job or profession.
This “colour bar”, as it was called it, was extended to the entire economy in 1926 and lasted until the 1980s, robbing black South Africans of opportunity to use their skills and talents.
They were condemned to work as unskilled labourers in the mines and in agriculture at very low wages, making it profitable for the elite who owned the mines and farms.
Unsurprisingly, SA under apartheid failed to improve the living standards of 80 percent of its population for almost a century. For 15 years before the collapse of apartheid, the economy contracted. Since 1994 and the advent of a democratic state, it has grown consistently.
4. Egypt: The big men get greedy
When elites control an economy, they often use their power to create monopolies and block the entry of new people and firms. This was how Egypt worked for three decades under Hosni Mubarak.
The government and military owned vast strips of the economy — by some estimates, as much as 40 percent. Even when they did “liberalise”, they privatised large parts of the economy right into the hands of Mubarak’s friends and those of his son Gamal.
Big businessmen close to the regime received not only protection from the state but also government contracts and large bank loans without needing to put up collateral.
They were known as the “whales” whose stranglehold on the economy created fabulous profits for regime insiders, but blocked opportunities for the vast mass of Egyptians to move out of poverty.
Meanwhile, the Mubarak family accumulated a vast fortune estimated as high as $70 billion.
5. Austria and Russia: Elites block new technologies
New technologies are extremely disruptive. They sweep aside old business models and make existing skills and organisations obsolete. They redistribute not just income and wealth, but also political power. This gives elites a big incentive to stop the march of progress.
Consider what happened in the 19th century, as railways were spreading across Britain and the US.
When a proposal to build a railway was put before Francis I, emperor of Austria, who was still haunted by the spectre of the 1789 French Revolution, he replied: “No, no, I will have nothing to do with it, lest the revolution might come into the country.”
The same thing happened in Russia until the 1860s. With new technologies blocked, the tsarist regime was safe for a while. As Britain and the US grew rapidly, Austria and Russia failed to do so.
In the 1840s, Britain was undergoing a railway mania in which more than 9 656km of track was built, while only one railway ran in vast continental Russia. This line was not built for the benefit of the Russian people; it ran 27km from St Petersburg to the tsar’s imperial residences at Tsar-skoe Selo and Pavlovsk.
6. Somalia: No law and order
One must-have for successful economies is an effective centralised state. Without this, there is no hope of providing order, an effective system of laws, mechanisms for resolving disputes, or basic public goods.
Although countries like Somalia or South Sudan do have internationally recognised governments, they exercise little power outside their capitals.
Both countries have been built on societies that historically never created a centralised state but were divided into clans where decisions were made by consensus among adult males. No clan was ever able to dominate or create a set of nationally respected laws or rules. There were no political positions, no administrators, no taxes, no government expenditures, no police, no lawyers – in other words, no government.
This situation persisted during the colonial period in Somalia, when the British were unable to collect poll taxes, the fiscal basis for their African colonies.
Call it Somalia’s law: without a central state, there can be no law and order; without law and order, there can be no real economy; and without a real economy, a country is doomed to fail.
7. Colombia: A weak central government
Colombia’s central government is unable or unwilling to exert control over probably half the country, which is dominated by left-wing guerrillas, and, increasingly, right-wing paramilitaries.
The state’s absence from much of the country leads not only to lack of public services such as roads and health care, but also to lack of welldefined, institutionalised property rights.
Thousands of rural Colombians have only informal titles or titles lacking any legal validity. Although this does not stop people from buying and selling land, it undermines their incentives to invest — and the uncertainty often leads to violence.
During the 1990s and early 2000s, for example, an estimated 5 million hectares of land were expropriated in Colombia. The situation got so bad that in 1997, the central government allowed local authorities to ban land transactions in rural areas. As a result, many parts of Colombia essentially fail to take part in modern economic activities, instead languishing in poverty, not to mention proving to be fertile havens for armed insurgents and paramilitary forces of both the Left and Right.
8. Peru: Bad public services
Calca and nearby Acomayo are two Peruvian provinces. Both are high up in the mountains, and both are inhabited by the Quechua-speaking descendants of the Incas. Both grow the same crops, yet Acomayo is much poorer, with its inhabitants consuming about one third less than those in Calca. The people know this.
It is much harder to get to Acomayo from the regional capital of Cusco, the ancient centre of the Inca Empire, than it is to get to Calca.
The road to Calca is paved, while the one to Acomayo is in terrible disrepair. To get beyond Acomayo you need a horse or a mule – not because of any differences in topography, but because there are no paved roads. In Calca, they sell their corn and beans on the market for money, while in Acomayo they grow the same crops for their own subsistence. Acomayo’s people are one third poorer than Calca’s as a result. Infrastructure matters.
9. Bolivia: Political exploitation
Bolivia has a long history of extractive institutions dating back to Spanish times that has brewed resentment over the years.
In 1952, Bolivians rose up en masse against the traditional elite of land and mine owners. The leaders of this revolution were mostly urbanites excluded from power and patronage under the previous regime. Once they seized power, the revolutionaries expropriated most of the land and the mines and created a political party, the Revolutionary Nationalist Movement.
Inequality fell sharply at first as a result of these land seizures, as well as the party’s educational reforms. But it set up a one-party state and gradually rescinded the political rights it had extended in 1952. By the late 1960s, inequality was higher than it had been before the revolution.
For the great mass of rural Bolivians, one elite had simply replaced another in what German sociologist Robert Michels called the “iron law of oligarchy”. Rural people still had insecure property rights and still had to sell their votes for access to land, credit, or work. The difference was that instead of providing these services to the traditional landowners, they now provided them to the party.
10. Sierra Leone: Fighting over the spoils
Intense extraction breeds instability and failure because, consistent with the iron law of oligarchy, it creates incentives for others to depose the existing elites and take over.
This is what happened in Sierra Leone. Siaka Stevens and his All People’s Congress party ran the country from 1967 until 1985 as their personal fiefdom. Little changed when he passed the baton to his protégé, Joseph Momoh, who continued the plunder.
The trouble is that this sort of extraction creates deepseated grievances and invites contests for power from wouldbe strongmen hoping to get their hands on the loot.
In March 1991, Foday Sankoh’s Revolutionary United Front, with the support of Liberian dictator Charles Taylor, crossed into Sierra Leone and plunged the country into a vicious, decade-long civil war.
Sankoh and Taylor were interested in only one thing: power, which they could use, among other things, to plunder.
The country soon descended into chaos, with the civil war taking the lives of about 1 percent of the population and maiming countless others. Sierra Leone’s state and institutions collapsed.
Government revenues went from 15 percent of national income to practically zero by 1991.
The state, in other words, did not so much fail as disappear entirely. – Washington Post-Bloomberg
Acemoglu and Robinson are co-authors of Why Nations Fail: The Origins of Power, Prosperity, and Poverty.