Why Do States Fail?

This year’s edition of the Failed States Index (FSI) is out. The Index is a ranking of 178 nations compiled by the Fund for Peace in cooperation with Foreign Policy magazine based on events in 2011. Perhaps somewhat misnamed, the index does not designate state failure per se but rather susceptibility to failure, quantifying pressures on states as well as their capacity to deal with these pressures. It consists of 12 key political, social, and economic indicators triangulated from content analysis of public reports and information, quantitative data, and opinions of experts. Based on these factors, nations are categorized into Alert, Warning, Moderate, and Sustainable bands.

Although the bottom of the ranking, Somalia, and its top spot, Finland, were occupied by the same countries  as last year, the current FSI does show some dramatic shifts. Civil war in Libya and the tsunami in Japan caused the most precipitous drops in the ranking: 16.2 and 12.5 points year-on-year, respectively. Japan still is a distant 151^st on the list of states most likely to fail while Libya is only 50^th, highlighting the profound differences between the two. At the same time, Japan’s problems illustrate that even wealthy, democratic countries are not immune to shocks that test their strength.

The FSI raises important points about the factors that increase the risk of state failure, ranging from demographic pressures and uneven economic development to unaddressed group grievances. Whether a state can withstand pressures generated by these factors depends on the capacity of its institutions, which include leadership, law enforcement, the judiciary, the civil service, civil society, and the media. When pressures mount and these institutions are too weak to cope, states become susceptible to collapse.

In a recent Foreign Policy article, Daron Acemoglu and James A. Robinson, co-authors of Why Nations Fail: The Origins of Power, Prosperity, and Poverty, discuss 10 common reasons why countries fall apart using both contemporary and historic examples:

1. Lack of property rights – The prime example here is North Korea, where it is almost impossible for people to own property because the state owns nearly all land and capital. As a result, the contrast with South Korea’s development record could not be starker.
2. Forced labor – Uzbekistan is a place where child labor is common and where the government coerces 2.7 million children to work under harsh conditions in the cotton fields instead of going to school during harvest time in order to fuel one of the country’s biggest exports.
3. A tilted playing field – With the history of apartheid in South Africa came the legacy of a segregated workforce where only white South Africans could work in skilled professions, relegating the rest of the population to low-paid jobs in mining and agriculture. The situation only started to change in 1994 with the advent of democracy.
4. The big men get greedy – In authoritarian regimes elites control not only the political process but also the economy. Hosni Mubarak’s Egypt saw the emergence of politically connected monopolies that dominate whole industries and block new market entrants.
5. Elites block new technologies – New technologies can be extremely disruptive not only to old business models but also power structures. For instance, when a proposal to build a railway was put before Francis I, emperor of the Habsburg Austria, he feared the scenario of France in 1789 and said, “No, no, I will have nothing to do with it, lest the revolution might come into the country.”
6. No law and order – A large-scale economy cannot function without a state that provides security, a legal framework, a judicial system, and basic public goods. Acemoglu and Robinson 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. A weak central government – In some countries such as Colombia the central government is unable to effectively control its entire territory. The state’s absence leads to lack of public services such as roads and health care and to lack of well-defined and secure property rights. This in turn creates uncertainty and encourages violence.
8. Bad public services – Acemoglu and Robinson give an example of two Peruvian provinces: Calca and Acomayo. Both are high in the mountains and grow the same crops, yet Acomayo is much poorer because it has no paved road. As a result, the inhabitants of Calca are able to trade their crops while in Acomayo the same crops are grown only for subsistence.
9. Political exploitation – In 1952, Bolivians rebelled against the traditional elite of land and mine owners. Yet once the revolutionaries seized power and expropriated most of the land and the mines, the political system became dominated by the single party they created, the Revolutionary Nationalist Movement (MNR). From the perspective of many ordinary Bolivians, one predatory elite was simply replaced by another.
10. Fighting over the spoils – Mineral-rich countries often face instability and failure because their natural resources create incentives for power struggles. This is exactly what happened in Sierra Leone in the 1990s, leading to a protracted and brutal civil war.

As the FSI shows, sudden developments can significantly increase the risk of state failure. But Acemoglu and Robinson stress that despite some examples of precipitous state failure, most failing states instead deteriorate progressively due to skewed incentives and dysfunctional institutions.

“Most countries that fall apart (…) 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. (…) 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. (…) But states built on exploitation inevitably fail, taking an entire corrupt system down with them and often leading to immense suffering.”