Somalia and the theory of anarchy

Somalia continues to provide a unique test of the theory of anarchy (competitive governments) promoted by David Friedman, Murrary Rothbard and others. Somalia has no government but in many respects it is booming. Somalia has what is perhaps the best phone system in Africa, for example, because entrepreneurs are unburdened by any regulation. See, Andew Cockburn's amazing piece in National Geographic (not all here but watch the videos) for more description.

A prominent critic (you know him well) of the economics of anarchy once argued that even if anarchy was a good idea competitive governments would devolve into unitary government. Possibly so, but so far the trend has been in the opposite direction. Here is the Economist

There is still no proper central government but, where once there was only a handful of warlords, there are now at least 24, and that is only the serious ones. With smaller fiefs to pillage, few can now afford the $100,000 or more that it costs to wage a six-hour battle, so such battles are less common. This is what passes for peace in Somalia, and it is enough to tempt many homesick exiles to return. They bring money as well as skills and contacts. In the past few years, hospitals, schools, businesses and even a university have appeared.

In some ways, anarchy makes doing business easier. There are no formal taxes—given how heavily-armed the average Somali is, these would be hard to collect—and no regulation whatsoever.

On the other hand anarchy is turning out to be quite expensive. The Economist continues:

But the costs of chaos outweigh the benefits. You can roar through a warlord's road block unmolested if you have ten gunmen in the back of your pickup, but you have to pay your gunmen. Nationlink, one of the country's three mobile-phone operators, employs 300 guards to protect 500 staff. Everyone yearns for a restoration of stability and a proper government.