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 lamppost, 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 not in an explosion of war and violence but by being utterly
unable to take advantage of their society's huge potential for growth,
condemning their citizens to a lifetime of poverty. This type of slow, grinding
failure leaves many countries in sub-Saharan Africa, Asia, and Latin America
with living standards far, far below those in the West.
What's tragic is that this failure is by design. These states collapse
because they are ruled by what we call "extractive" economic institutions,
which destroy incentives, discourage innovation, and sap the talent of their
citizens by creating a tilted playing field and robbing them of opportunities.
These institutions are not in place by mistake but on purpose. They're there
for the benefit of elites who gain much from the extraction -- whether in the form
of valuable minerals, forced labor, or protected monopolies -- at the expense of
society. 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 and often
leading to immense suffering. Each year the Failed States Index charts the
tragic stats of state failure. Here's our guide to 10 ways it happens.
Korea: Lack of
economic institutions make it almost impossible for people to own property; the
state owns everything, including nearly all land and capital. Agriculture is
organized via collective farms. People work for the ruling Korean Workers'
Party, not themselves, which destroys their incentive to succeed.
North Korea could be much wealthier. In 1998, a U.N.
mission found that many of the country's tractors, trucks, and other farm
machinery were simply unused or not maintained. Beginning in the 1980s, farmers
were allowed to have their own small plots of land and sell what they grew. But
even this hasn't 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 only 100,000 to 150,000 won of the old currency into
the new one (equivalent to about $35 to $40 at the black-market exchange rate).
People who had worked and saved up stocks of the old currency found it to be
Not only has North Korea failed to grow
economically -- while South Korea has grown rapidly -- but its people have literally
failed to flourish. Trapped in this debilitating cycle, North Koreans are not
only much poorer than South Koreans but also as much as 3 inches shorter on
average than the neighbors from whom they have been cut off for the last six
2. Uzbekistan: Forced labor
Coercion is a
surefire 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 labor. In fact, the list of strategies for
getting people to do what they don't want to do is as long as the list of
societies that relied on them. Forced labor is also responsible for the lack of
innovation and technological progress in most of these societies, ranging from
ancient Rome to the U.S. South.
Modern Uzbekistan is a perfect example of what that
tragic past looked like. Cotton is among Uzbekistan's biggest exports. In
September, as the cotton bolls ripen, the schools empty of children, who are
forced to pick the crop. Instead of educators, teachers become labor
recruiters. Children are given daily quotas from between 20 to 60 kilograms,
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 under
harsh conditions in the cotton fields instead of going to school, but also
Uzbek society at large, which has failed to break out of poverty. Its per
capita income today is not far from its low level when the Soviet Union
collapsed -- except for the income of Karimov's family, which, with its dominance
of domestic oil and gas exploration, is doing quite well.
Africa: A tilted
In 1904 in South Africa, the mining industry created a
caste system for jobs. From then on, only Europeans could be blacksmiths, brickmakers, boilermakers -- basically any skilled job
or profession. This "color bar," as South Africans called it, was extended to
the entire economy in 1926 and lasted until the 1980s, robbing black South
Africans of any opportunity to use their skills and talents. They were
condemned to work as unskilled laborers in the mines and in agriculture -- and at
very low wages, too, making it extremely profitable for the elite who owned the
mines and farms. Unsurprisingly, South Africa 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 South African economy
contracted. Since 1994 and the advent of a democratic state, it has grown
4. Egypt: The big men get greedy
control an economy, they often use their power to create monopolies and block
the entry of new people and firms. This was exactly how Egypt worked for three decades under Hosni Mubarak. The government
and military owned vast swaths of the economy -- by some estimates, as much as 40
percent. Even when they did "liberalize," they privatized 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, such as Ahmed Ezz (iron and steel), the
Sawiris family (multimedia, beverages, and telecommunications), and Mohamed
Nosseir (beverages and telecommunications) received not only protection from
the state but also government contracts and large bank loans without needing to
put up collateral.
Together, these big businessmen
were known as the "whales." Their 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.
Julien M. Hekimian/GettyImages
and Russia: Elites block
are extremely disruptive. They sweep aside old business models and make
existing skills and organizations obsolete. They redistribute not just income
and wealth but also political power. This gives elites a big incentive to try
to stop the march of progress. Good for them, but not for society.
Consider what happened in the 19th
century, as railways were spreading across Britain and the United States. When
a proposal to build a railway was put before Francis I, emperor of Austria, he
was still haunted by the specter of the 1789 French Revolution and 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, at least for a while. As
Britain and the United States grew rapidly, however, Austria and Russia failed
to do so. The track tells the tale: In the 1840s, tiny Britain was undergoing a
railway mania in which more than 6,000 miles of track were built, while only
one railway ran in vast continental Russia. Even this line was not built for
the benefit of the Russian people; it ran 17 miles from St. Petersburg to the
tsar's imperial residences at Tsarskoe Selo and Pavlovsk.
6. Somalia: No law and
One must-have for successful economies is an
effective centralized state. Without this, there is no hope of providing order,
an effective system of laws, mechanisms for resolving disputes, or basic public
Yet large parts of the world today are still dominated
by stateless societies. Although countries like Somalia or the new country of
South Sudan do have internationally recognized governments, they exercise
little power outside their capitals, and maybe not even there. Both countries
have been built atop societies that historically never created a centralized
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
This situation persisted during the colonial period in
Somalia, when the British were unable even to collect poll taxes, the usual
fiscal basis for their African colonies. Since independence in 1960, attempts
have been made to create an effective central state, for example, during the
dictatorship of Mohamed Siad Barre, but after more than five decades it's fair
and even obvious to say they have failed. 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
Somalia. All the same, its central government is unable or unwilling to exert
control over probably half the country, which is dominated by left-wing
guerrillas, most famously the FARC, and, increasingly, right-wing
paramilitaries. The drug lords may be on the run, but 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 well-defined, institutionalized property
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, typically at gunpoint. The situation got so bad that in 1997, the
central government allowed local authorities to ban land transactions in rural
areas. The 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.
Calca and nearby
Acomayo are two Peruvian provinces. Both are high 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. In Acomayo, they ask
intrepid foreigners, "Don't you know that the people here are poorer than the
people over there in Calca? Why would you ever want to come here?"
Indeed, it is much harder to get to Acomayo from the
regional capital of Cusco, the ancient center 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 due to
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.
8. Peru: Bad public services
Calca and nearby Acomayo are two Peruvian provinces. Both are high 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. In Acomayo, they ask intrepid foreigners, "Don't you know that the people here are poorer than the people over there in Calca? Why would you ever want to come here?"
Indeed, it is much harder to get to Acomayo from the regional capital of Cusco, the ancient center 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 due to 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 a result. Infrastructure matters.
AIZAR RALDES/AFP/Getty Images
9. Bolivia: Political
Bolivia has a
long history of extractive institutions dating back to Spanish times -- a history
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 (MNR). Inequality fell sharply at first as a result of
these land seizures, as well as the MNR's educational reforms. But the MNR set
up a one-party state and gradually rescinded the political rights it had extended
in 1952. By the late 1960s, inequality was actually 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 main difference was that instead of providing
these services to the traditional landowners, they now provided them to the MNR.
over the spoils
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 exactly what happened in Sierra Leone. Siaka
Stevens and his All People's Congress (APC) party ran the country from 1967
until 1985 as their personal fiefdom. Little changed when Stevens stepped
aside, passing the baton to his protégé, Joseph Momoh, who just continued the
The trouble is that this sort of extraction creates
deep-seated grievances and invites contests for power from would-be strongmen
hoping to get their hands on the loot. In March 1991, Foday Sankoh's
Revolutionary United Front, with the support and most likely the command 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 steal diamonds, and they could do so because of the regime that Stevens and
his APC had created. 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 totally collapsed. Government
revenues went from 15 percent of national income to practically zero by 1991.
The state, in other words, didn't so much fail as disappear entirely.