Somalia: how to manage an economy outside the system.

Anagnoste, Sorin ; Agoston, Simona ; Draghici, Mihai 等

1. INTRODUCTION

We are going to present the statelessness concept in Somalia in the context of African development. When one hears "Somalia" one thinks of words like disaster, disorder, chaos etc. We will conduct an analysis of how it developed from an economic standpoint starting from the end of Siad Barre's dictatorship and identify the institutions that provided a form of order in the absence of state.

The northern part was colonized by the British and the southern part by the Italians. When it comes to constitution, its enforcement cannot be exported from them. In just a few years a dictator came to power and stayed until 1991, when the state collapsed. After that, the war lords and various clans plunged the society into a brutal war of all against all (Buchanan, 1975), trying to take the power and become the central government. This is a characteristic of the African states, as well. Their experience as concerns the state was a brutal one: first, they had colonialism, which took their resources away; after that came the modern government, during which all resources were extracted for themselves and now, once it collapsed, the expectations were the same and every clan was trying to take the power and get all the resources.

2. HISTORICAL PERSPECTIVE ON STATE DYNAMICS

Afterwards, the UN mission and the US troops were sent there, and once these troops left the country an interesting thing happened: they stopped the fight. The prospect of having a central government diminished and the clans stopped fighting against each other. While they were peaceful, they found other ways to solve the disputes and actually achieve economic growth. In the meantime, six governments were formed outside, but when it came to take the power they found it difficult due to the clans that all fought against the government.

They do have so-called "states": Somaliland and Puntland. We are going to talk about the all country. Having a state implies having at least a monopoly of force in a given territory, sovereignty, and a standing army. However, no dispute is settled, no medical services are offered etc. They hope to get recognition from the international community because once this happened money can come in and in the end can be stolen.

It is an interesting place to look at for a variety of reasons: testing the statelessness, how life is going to be etc. Classical economists like Rothbart (1973) and Friedman (1989) theorized that private companies could provide what states could not and that will drive internal order in the society. The truth is close to the libertarians' view: order is provided while it is not a libertarian anarchist-capitalist utopia, but it does relatively well in providing order as compared to realistic alternatives, basically the institutional analysis given the level of wealth there, of culture, the capital, and the Somali statelessness compared to the Somali state and to other African states.

They first adopted "scientific socialism" in order to get military aid from the Soviet Union. They used land nationalization and distribution. They dislocated clans that were against the Government and located them in other territories, while more land went the ruling clan. In 1991, 90% of GDP represented military expenditures and only 1% social services. The black market employed most of the labour force and provided activities like: banking, education, dispute settlements. George Ayettey (1998) referred to these states as "vampire states" that suck the life blood of the economy.

In this respect, there were three different periods: 1961-1991, 1991-1995, 1995--present. In 2006 another Government was formed in exile and did not do quite well either. Because the Somali people did not support them, they were supported by Ethiopian troops to reach Mogadishu. The problem is that Ethiopia has been its long-hated neighbour and it seemed like a foreign invasion coming with a regime that was not wanted inside. At this moment, the Transitional Regime is having the control of Mogadishu and is fighting with the local clans supported by the Islamic Courts to keep it that way.

3. ECONOMIC INDICATORS

Further, we will analyze how different sectors look and we will start with the most important one: the rural pastoral sector. Little (2003) conducted a large amount of research on this topic and found out that the main export went to Kenya and the cattle sales increase by 400% between 1991 and 1998, while the volume quadrupled compared to the period when there was a state. The northern cities of Bossaso and Berbera exported 95% of all goats and 52% of all sheep to East Africa and the volume of exports in 1999 was larger than at the time when Somalia had a government. What is interesting is that the Somali bring the products to the ports, ship them to foreign markets and so they get international trade for the country while there is no state. It is thus proven their ability to provide security. Despite the fact that there was a drought in 2000 and Kenya and the Eastern African nations faced the same problems, Somalia performed better compared to those states and this is quite problematic when there is no state.

When it comes to security costs for animals, they arise to $0.01/km per animal. Little (2003) did a survey of these people and found that only 26% of traders identified security to be an issue and only 13% thought it was more of a problem as compared to 1990. The Government would not provide security and it had to employ armed security. However, when the government collapsed there was no security at all.

As concerns urban and commercial activity, major companies came in the country: Dole Fruit, Coca Cola, DHL, GM, BBC, British Airways etc. Taking a look at the second largest city, Berbera, where the population varies by around 150-300k by season, statistics show it that the town has 95 tea shops, 90 restaurants (out of which 8 with star ratings), 145 elementary shops, 106 retail shops, 16 hotels (out of which 4 with international star ratings), 18 fuel stations (7), 30 pharmacies, 1 airport, 2 hospitals and a University with 100,000 books. The seven fuel stations have underground tanks and this is very important for our analysis, because if there are no security and property rights people are afraid that the government or private criminals will take it.

Next, we will further focus on the living standards. We compared the following indicators: death rate, infant mortality, life expectancy, child malnutrition, telephone main lines, mobile cellular phone, internet users, households with TV, immunization, sanitation facilities, tuberculosis. We compared eighteen indicators using World Bank Development Reports concerning Somalia for 1985-1990 to 2000-2008 to the other 42 Sub-Saharan countries and we noticed that 13 improved, 2 worsened and 3 are questionable. Among the worsened indicators are education and literacy. This is mainly due to the fact that there was no written language before 1970. Life expectancy rose by seven years as compared to the period when there was a government and this indicator represents the third best improvement in Africa. Moreover, telephone lines surged and long distance calls to or from Somalia became cheaper and benefited by a better signal than anywhere else in Africa. This is because there is no government regulation, and prices decrease due to competition. Regarding immunization and water source, their situation is the worst, but they were the same even before 1990. It is worth mentioning that during this period 17 out of 42 Sub-Saharan states were peaceful and 25 had at least one war. When we compared Somalia to those 17 nations we could notice that Somalia followed the same trends.

Further we will analyse how complex goods and services are provided. When there was a state there were one international route and one national carrier. Now there are 6 international routes and 15 planes. In order to provide airline safety certification, planes are flown on behalf of other governments and once the contract for a certain route is safe to fly in that country, the same planes are used in Somalia. Basically, safety certification is outsourced.

Regarding banks and transfers, the Hawala system is used, which handles around $1 billion/year. When money is transferred a test is used in order to recognise the person concerned. Usually it consists of a question based on family history. There are sales that take place abroad and the money that is received is sent back to themselves using the Hawala system and this is how security is provided.

The Somali Shilling is still used even after the government collapsed. In this country, anybody can print money, so there is competition for seigniorage in the same currency. As a result, the inflation should be infinite, but this does not happen in Somalia due to the expected value people have for the currency. Despite the fact that is known that everyone is counterfeiting, everybody knows the old bills and they would not accept anything bigger than the old denominations. It is costly to manufacture money: ink, paper and transportation everywhere in the country. Money became a commodity currency whose costs are made up of paper, ink and transportation. Once inflated to that level, a stable price level is reached. Larger transactions are more problematic, but US dollars are used.

The way social insurance and security are provided is through the clans system. Usually, the clan in which a person is born offers the necessary social insurance, the legal system and security. In a detailed fashion economists report that 10% taxes are paid on an annual basis for all this services, which is far way better than the states with a government. A lot of security is provided through the existing legal system. There is a specific customary legal code caller Xeer, which has some common characteristics with the British Common Law. When two persons are members of the same clan and have a dispute they settle it by turning to the elderly member of the clan, who makes the ruling. What this member rules is mandatory and if somebody does not obey he/she risks to be shunned inside the community. If the sentence is to pay and the person who is liable cannot afford to do so his/her family will pay instead. If the two persons belong to two different groups, they will seek for advice from the clan elderly members. The latter meet and discuss and what is negotiated applies for both parties. If they do not reach an agreement, they resort to a third party and what is decided therein becomes law. Different clans have different laws, but when facing problems clans try to establish the custom that suits best. Another important aspect to be mentioned is that people are free to leave a clan and join another clan if the other clan is willing to accept them, and they do so quite often, sometimes for business reasons, sometimes for political reasons, sometimes for marriage reasons. Clans do not have geographical monopoly because the society is a nomadic one and it may integrate throughout the country. Basically, different people subscribe to different kinds of laws and different legal codes. When somebody does not obey over time, that person becomes an outlaw and if someone wants to kill, rob etc. that person there will be no legal repercussions, as there are no jails in Somalia.

There is no army, but people can still be mobilized. One situation was when these clans gathered their resources in order to defeat the new governments created in exile and the UN and US troupes. The reason why things are like this is primarily not an economic one, but rather an ideological one regarding "vampire states".

Regarding the pirates' activities two major things have been noticed: the illegal fishing in Somali waters conducted by foreign states decreased especially due to the fact that people now have other perspectives. In the past this situation was possible because Somalia did not have a Coast Guard. To the second point, the ships that used to wash the petrol containers and pollute the water diminished significantly.

4. CONCLUSION

In conclusion, Somalia does fairly well in a comparative institutional analysis. It succeeds in providing a certain degree of law and order without a government and the economy is growing well as compared to what it used to be like before and relative to the other Sub-Saharan States. Given ideology, culture, resources, Somalia is performing better than at the time when it had a state and equally or better than many neighbours.

The real challenges are to line up the informal norms with the formal institutions in this society. One good example of that is Botswana. Another big challenge is for the customary law to evolve because it is hard to integrate the outsiders. The western civilization should not harm this process. When aid is offered the political spirit is enhanced at the expense of the private sector, which affects entrepreneurship and it locks in the existing political equilibrium. The existing political equilibrium in Africa is inefficient and violates the population's rights while keeping them poor. One solution to this would consist in cutting aid flows to Somalia and letting the modern sector implode if that is the normal course of action. Another thing that has been noticed is that foreign trade renders the nation more free from an economic standpoint and when there is trade with a less free nation, the less free one tends to improve freedom over time. This is basically what can be done to help such nations, but the real change has to start from inside.

5. ACKNOWLEDGEMENT

This article is a result of the project "Doctoral Program and PhD Students in the education research and innovation triangle". This project is co funded by European Social Fund through The Sectorial Operational Programme for Human Resources Development 20072013, coordinated by The Bucharest Academy of Economic Studies.

6. REFERENCES

Ali, A. (2004). "Coke Plant Heralds New Beginning in Somalia." African Business Journal, August/September

Ayittey, G. (2007) "The African Development Condundrum." in Making Poor Nations Rich: Entrepreneurship and the Process of Development, CA: Stanford University Press, Palo Alto. ISBN-10:0804757321; ISBN-13:978-0804757324

Friedman, D. (1989, 1995). The Machinery of Freedom. La Salle: Open Court 28. ISBN-10: 0812690699

Little, P. (2003). Somalia: Economy Without a State. Univ. Press, Bloomington, IN: Indiana. ISBN-10: 0253343623

*** (2009) http://www.countrywatch.com--Somalia review, Accessed on: 2009-02-01