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Dealing with Failed States

July 22, 2008


Regular readers of this blog are familiar with the Enterra Solutions® Development-in-a-Box™ approach for helping emerging market countries achieve sustainable development. It will come as no surprise, then, that a book review in The Economist entitled “Nation-building for dummies” caught my eye [28 June 2008 print edition]. The book being reviewed was written by Ashraf Ghani and Clare Lockhart [Fixing Failed States: A Framework for Rebuilding a Fractured World (Oxford University Press, 2008)]. The review begins by naming a few countries that could be classified as “failed or failing states,” namely, Afghanistan, Iraq and Somalia.


Although there are many differences between them, these nations also have certain characteristics in common. At any one time, these can include political and economic instability, poverty, civil disorder, terrorism, human trafficking, ethnic conflict, disease and genocide.”


The review also provides a quick overview of the authors’ expertise about the subject at hand.


Ashraf Ghani and Clare Lockhart have worked in many of these countries. In 2005 they founded the Institute for State Effectiveness in Washington, DC, to help advise countries that are trying to make the leap from failed to functioning state. Before that, Mr Ghani was finance minister in the first post-Taliban government in Afghanistan.”


What intrigued me most about the book and The Economist‘s review of it was the idea that it presents a “framework” for dealing with failed or failing states. Since Development-in-a-Box also provides a framework for dealing with those states, I was curious if the review would reveal anything new.


Past efforts at state-building have been dogged, Mr Ghani and Ms Lockhart argue, by a failure to understand what developing countries need in order to be effective in the modern world, particularly with regard to engaging their citizens and connecting to the global network of economic and political power. The outside world has also failed to help struggling governments become effective. Instead, it veers between two unsatisfactory extremes: imposed solutions tinged with a colonial or imperial flavour, and the hands-off neglect of ‘interested observers‘.”


Although I agree completely with that assessment, even if it contains little new about past approaches or the challenges faced by failed states [see Explaining Development-in-a-Box]. The review does explicitly stress a point that my discussions about Development-in-a-Box have only implied.


It is often said that globalisation makes the traditional nation-state less relevant than it was before. Mr Ghani and Ms Lockhart disagree. Building an effective sovereign state is more crucial than ever, they say. In order to achieve this, developing countries must focus on establishing legitimacy at home and in the wider world at the same time.”


That observation is both accurate and important. The nation-state may have less influence in some areas than it did in the past, but it is far from becoming irrelevant. There are activities in which nation-states engage that cannot easily (or ever) be assumed by other organizations. To be successful, states need to assume their place at the table of nations and connect with other countries in a myriad of ways that ensure diplomatic, security, and economic activities work together for the good of the globe. Other organizations may try to influence nations to act in a particular way, but only nation states can work together to bring about global change in a legitimately recognized way.


Ghani and Lockhart recommend a two-pronged framework for development, with one prong focusing on domestic challenges and the other prong focusing on international challenges. First, they address the home front:


At home, even before democratic processes are put in place, the authors favour extensive consultation, decisions taken from the bottom up and the introduction of autonomous spending powers. A new foreign-backed leader, taking decisions from the top down and often in secret, is far less likely to be seen as legitimate by citizens, or to inspire their loyalty. New programmes should be transparent and accountable. One success the authors cite, in a moment of justified self-congratulation, is the transformation of Afghanistan’s public-finance system under Mr Ghani, who defied gloomy IMF predictions by introducing a new currency within four months, thanks in part to the use of the existing hawala informal banking network.”


Even though the authors talk about the importance of “transparent and accountable” programs for domestic development, those characteristics are just as important for programs aimed at attracting foreign direct investment and connecting to the global economy. Although some things, like regulations and legal protections, require a top down approach, I agree that governments gain true legitimacy only when they are perceived as representing the interests of those being governed. The perception of how well those interests are being met is much more important than the type of government in place.


The authors then turn to the framework for addressing international challenges.


To improve legitimacy abroad, the authors argue for co-operation with international bodies and, above all, for a focus on integrating the domestic economy—and the majority of workers, not just a few elite companies—with the global economy. They point to the success of countries such as Singapore and Ireland in creating effective states and escaping from poverty through pro-market openness. Yet citing such rare examples of effective economic transformation can make the reader gloomier about the chances of doing the same in today’s basket-case countries. The authors could have done more to explain why these countries are plausible models for civil-war-torn states such as Afghanistan and Iraq, especially as they seem sceptical about advocating the greater use of force, which lately seems to be working in Iraq and is necessary in Afghanistan.”


I’m not surprised that individuals who have worked closely with humanitarian and development groups would eschew the use of force. Conflict always affects most those least prepared to deal with its consequences — the very victims of poverty who are the focus of humanitarian and development groups activities. As I have constantly stressed, however, security and development must go hand-in-hand. Regular readers know that I certainly agree with any approach that favors “co-operation with international bodies and … focus[es] on integrating the domestic economy—and the majority of workers, not just a few elite companies—with the global economy.” International bodies help establish the standards that can be used by failed states to earn trust for programs where there is no previous history or tradition of trust. Those standards, regulations, and best practices are essential if the second part of the framework — connecting to the global economy — is to be achieved.


The authors then go on to tackle another of my favorite subjects — leadership (or the lack thereof).


Lack of leadership is one of the main reasons why attempts at fixing failed states so often fail. Mr Ghani and Ms Lockhart advise those in charge to immerse themselves in the proliferating business-management literature in order to understand the importance of putting in place a strategy, communicating it widely, prioritising what needs to be done and doing these in the most efficient sequence. The books they cite are Alfred Chandler’s ‘The Visible Hand’ and ‘Execution’ by Larry Bossidy, the no-nonsense former boss of Honeywell, a computer company, and Ram Charan, a management guru; not the usual set-texts of nation-building.”


One of the things that differentiates Development-in-a-Box from other approaches is its business-like approach to transforming economies. It begins with taking a holistic and realistic look at a global economy and then developing a long-range plan against which decisions can be made. “No nonsense” is a good way to think about helping failed states. They have neither the resources nor the time to be pampered or coddled. That doesn’t mean that those trying to help should be either patronizing or dictatorial — they just need to be honest and forthright. Dramatically reducing corruption at all levels of government and business is essential to ensuring that the right kind of leadership is in place for sustainable development.


The review goes on to note that the authors also have a problem with “the international aid system, which they say is ‘now deeply out of synch with the challenges of the contemporary world’. All too often, they point out, it is an obstacle to change rather than a catalyst.” Aid, although important in many areas, is not as important as foreign direct investment for getting an economy up and moving. The bottom line, however, is that all parties interested in seeing a failed or failing state progress must work together in an accepted framework. The review concludes:


Mr Ghani and Ms Lockhart have produced a useful book. Their chapter on the ten functions of the modern state should be helpful for policymakers everywhere. Yet their dense, academic style represents a missed opportunity, particularly for two authors with so much inside knowledge. Readers would have benefited from more straight storytelling about what happened in Afghanistan and Iraq, and what an America seriously committed to nation-building might have done better.”


I find it encouraging to see others supporting a holistic and realistic approach to sustainable development. There are so many seemingly insurmountable challenges associated with such efforts that getting people and programs moving in a common direction is an essential first step.

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