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Analysis of Argument #2

1991-1995 – Civil War

Between the years of 1991 and 1995 (4 years) and after an initial drop caused by war, the GDP grew above and beyond the levels the Dictatorship managed to perform in 20 years. Not only that, the market did so in the middle of a fierce Civil War.

Let’s be honest, it is a little bit difficult to conduct business when your business may be blown to pieces at any moment, yet the Free Market did it. Did we mentioned that during those 4 years there were no governments formal or informal? The Free Market ruled and did what it was supposed to do. No enforcement of rules required.

Furthermore, during those years money contracted by about 50%, yet, the economy continued to function. This is a very elegant demonstration of the Austrian Principle that once money is established in a marketplace, its quantity does not matter.

1995-1998 – Decentralization

During those years mini-states were created and the economy grew even more. Was this due to the administrative laws that were imposed in those states? In small part yes, but we must dig deeper. In all those states the most widely used laws were the Sharia and Xeer.

Xeer is the classic example as to how a custom-based decentralized law works in a stateless society. Disputes are arbitrated by elders based on this natural law.

Sharia is classic Islamic law that can be applied in a stateless or state-based environment. In Somalia was mostly conducted by Islamic Courts in the absence of state judges, this is, it was used in its stateless mode.

The main differences between a state law and a stateless law is that the former is uniform, codified, standardized and centrally co-ordinated. The latter exhibits large variations, being interpreted in many different ways, it is not standardized (xeer is not codified) and it is not centrally co-ordinated.

And so the economic growth was not due to the enforcement of administrative laws coming from a centralized Judicial system, but through the application of either natural law or religious law that was mutually recognized by most participants. Furthermore, these laws were not enforced but mediated to settle economic disputes.

In addition, in many places where UICs were in control, they were paid by local businessmen to control crime in the same manner that a private security firm would do. Again, no centralized government was required.

This is a clear example of economics working by direct contract among parties without the intervention of government laws.

These facts clearly show that Free Markets do not require the existence of governments to enforce laws, but simply the mutual recognition of market participants in a series of market rules. These rules are not enforced but mediated in order to settle disputes. Private security forces are more than enough to maintain peace and civilization. These ideas are much closer to Libertarian and Austro-Economic beliefs than to any government-based law enforcement system.

And so the period between 1995 and 1998 was much closer to a Libertarian system of Free Markets than to a government-based enforcement of formal law and order.

1998 – 2000 Consolidation begins

Up to 1998 mini-states continued with their economic activities mostly under informal or natural laws. After 1998 UIC’s begin their expansion and consolidation. GDP continued to grow. Again, Libertarian and Austrian-Economic principles were clearly at work.

2000-2004 - TNG

In 2000 the TNG was established but the views of the rival faction (the SRRC) were not taken into consideration. The TNG attempts to control Somalia but due to its unwillingness to recognize SRRC claims, it plunges the country into another wave of clan and intra-clan fighting. The attempted imposition of law and order from a central location only fuels acts of war that are reflected in the GDP drop between 2000 and 2002. Again, this GDP drop is due to the interference of fighting with a Free Market, despite the fact that higher levels of law and order were theoretically imposed. Again, centralized law and order does not improve Free Market performance.

This drop was further fueled by printing of large quantities of currencies which created large inflation. Because the inflation was so rapid, it had a noticeable destructive power on the economy and hence the GDP dropped.

Between 2002 and 2004 the GDP begins to recover. This is due to the widespread recognition that the TNG is essentially powerless and its influence negligible, hence fighting decreases. Between 2002 and 2004 Free Markets return and the GDP grows accordingly.

This growth was further fueled by a surprising Somalian attitude; they refused to accept bills with denominations larger than the available pre-1991. For issuers of paper money this brought a large problem. Printing of notes in pre-1991 values was not profitable (each note’s cost was higher than its purchasing power) and higher note values were not accepted by the people. Hence, a virtual state of no inflation or even dis-inflation set-in starting at approximately July 2001.

Again, during this period war and inflation had a severe negative impact on the GDP, despite the fact that theoretically speaking, there was a higher level of centralized law and order and plenty of currency. Furthermore, as soon as war subsided (to a degree) and inflation stopped (thanks to the people, not the government) the economy recovered rapidly.

Yet another profound demonstration of how governments hamper Free Market activities, while freedom without governments improves it significantly.

2004 – 2009 – TFG

In 2004 the TNG accepts SRRC demands and the new TFG is formed. This TFG is essentially a federal government with very little control over a series of quasi-autonomous regions or mini-countries with their own custom and religious laws administered by mediators and essentially private security personnel. The TFG avoids conflict with the UIC’s in the south until end of 2006. Again, the Free Market is allowed to operate freely and the GDP keeps growing. In 2007 the TFG attacks and defeats the UIC. Part of the UIC surrenders and part splinters into different fighting Islamic groups. GDP grows for one more year and then it begins to fall.

The fall of the GDP is primarily due to the hyperinflation imposed to Somalia by the TNG. Massive printing began in 2007 with their effects fully felt by the beginning of 2008. Hyperinflation set in. Prices rose by 150% in 2007 and 150% in 2008 alone. GDP went into free-fall throughout 2009 including.

Again, between 2004 and 2007, war was limited and inflation remained at a stable level. Accordingly, Free Markets prospered. However, as soon as war was brought back and, more importantly, frantic printing of currency began; Free Markets were severely affected and economic activity dropped like a stone.

2009 – Civil War and Federal Government

Past the defeat of the UIC’s and its integration into the TFG, UIC splinter groups continue to fight. This fighting alongside with continued hyperinflation, impacts the Free Market and the GDP continues to fall up to 2010.

Up to 2010 it is clear that the mayor culprit for the GDP drop is hyperinflation which was brought by the government and severely impacted the Free Market.

Widespread famine begins in late 2010 and ends in approximately 2012 killing about 1/5 of the population.

Fighting against UIC splinter groups begins its final stage in 2011 and ends in 2012 with their defeat. By the end of 2012 a new Federal Government is set up.

Hyperinflation reaches a maximum at mid-2011 and then it begins to decrease. Local currency begins to appreciate against the USD also at mid-2011 until today.

During 2011 and 2012 there is massive influx of foreign aid, increased business opportunities (particularly exports), infrastructure rebuilding and progressively lower violence levels.

The data does not provide sufficient information to ascertain what triggered the 2010-2011 stabilization of the GDP, although the post-2011 growth was most likely caused by increased favorable economic conditions (due to the –arguable- cessation of hostilities) and decreasing hyperinflation.

Rebuttal of Argument #2

From the above analysis it is clear that for a Free Market to exist, government existence and/or intervention is superfluous. Furthermore, it is also clear than every time a government intervened in the Free Markets, it precipitated an enormous drop in economic activity. These facts contradict the notion that economic activity did not increase until the establishment of governments.

Furthermore, it is to be noted that the adoption of informal and stateless rules such as the Xeer and Sharia are effective in settling economic arguments. In addition, Somalian events proved that private paid security forces are equally or more effective than state police organizations.

In summary, positive economic conditions improved through self-organization processes while negative economic conditions derived from government actions.

This fully rebuts Argument #2.

Rebuttal summary

It is therefore clear that a Libertarian way of life did not appear simply because of normal political change process and economic growth was enhanced without formal laws and therefore truly Free Markets (as indicated by Libertarian and Austrian Economic principles) were demonstrated viable.


Note: please see the Glossary if you are unfamiliar with certain words.

 Continue to Somalia - the great austro-libertarian failure? - Part 4


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