The development experience of the past several decades has shed the laissez-faire myth – the fact of the matter is that business needs governments to set the rules and enforce those rules fairly and consistently. Without a system of rules and enforcement, we can talk about individual business transactions, but not a functioning market economy.
The theory is essentially being put to the test in Somalia, a country getting by without a functional goverment for more than a decade. Without a central government, some sectors of the economy are doing quite well there. For example,
…despite the chaos, and the lack of any central government, Somalia has one of the most efficient telephone systems in its region. It takes just three days for a landline to be installed, compared with waiting times of many years in neighbouring Kenya, where a stable democratic government has been in place for half a century.
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Other sectors, too, are operating successfully, despite the absence of a state structure. The World Bank reports that in the supply of electricity, enterprising companies are making good the governance gap. Entrepreneurs have divided cities into manageable sectors and provide electricity on a local basis (there is no functioning national grid), using generators bought overseas. These providers offer households a menu of choices, including daytime, evening or 24-hour supply, and charge per light bulb.
No state – no problem? It may seem so…
A spokesman for one of the phone companies, Telcom Somalia, which started business in 1994, observes: “The government post and telecoms company used to have a monopoly but after the regime was toppled, we were free to set up our own business. We saw a huge gap in the market, as all previous services had been destroyed. There was a massive demand.”
Despite the absence of law and order and a functional court system, bills are paid and contracts are enforced by relying on Somalia’s traditional clan system. Neither is security a problem, despite the fact that the country is divided into hundreds of fiefdoms run by rival warlords.
But the success of one or two business sectors does not imply overall economic prosperity. Somalia remains one of the poorest countries in the world, attracts little investment, still depends on agriculture to generate most of its economic activity, and often relies on foreign aid to fill in the gaps. For now, broad-based economic growth remains a distant dream, not a reality.
Published Date: May 02, 2007