Fixing failed states: an insider's view

23 July 2007

Ashraf Ghani, Chairman of the Institute of State Effectiveness, Chancellor of Kabul University and Afghani Finance Minister from July 2002 to December 2004, said there were “open moments” in history, such as September 11 2001, which offered the international community an opportunity to change the course of world politics.

These moments required leadership and imagination. The creation of ‘Europe’ at the end of World War II had, for example, been an act of imagination that had changed assumptions about the nation state and created the opportunity to think about Europe’s future.

Immediately after 1945, it was assumed that the world was based on individual states whose legitimacy rested on a “symbolic contract” between the individual and the state. But this view is no longer relevant: in up to 60 countries, this contract has broken down and, in Europe, individuals have an additional contract - with the European Union - which can override their contract with the state.

Mr Ghani said there was an “emerging consensus” that global security depends on having states that operate effectively, so when countries such as Afghanistan break down and become a haven for terrorists, narcotics and criminality, the international community needs to help rebuild state structures and improve the process of government.

In the past, it was held that states depended on what political theorist Max Weber termed “the monopoly of force” for their power. However, it was now “inconceivable” that, for example, a European state would use its army to maintain power over its citizens. In today’s world, states are bound together by a political, economic and social “glue”.

States operate on many levels, said Mr Ghani, but all properly functioning governments operate within the rule of law and are built on regulations within which their citizens operate. Stable states have a strong “governance” framework which defines what processes and procedures a government will use.

The “European project” shows how this works: Europe operates on the basis of “shared sovereignty”, with different layers of governance that enable states and citizens to cooperate in a multitude of ways. This was amply demonstrated during Europe’s enlargement process, when many different mechanisms and rules were used to build up structures and force governments to operate within certain standards. This approach differs from that used by international organisations which continue to treat each country as “an island”.

Turning to developing governance in ‘failed states’, Mr Ghani said charismatic leadership had to develop into institutionalised leadership, where state power is based on a system of - irreversible - rules. In this context, “paper is far more important than guns”. In all countries, a major issue is how the country’s finances are managed, which requires clear rules and understanding.

Moving onto Afghanistan, Mr Ghani said the country’s “open moment” had been between 2001 and 2004. In December 2001, after the military process had outstripped the political process, the EU had been called in to draw up a road map for rebuilding the state.

At the time, there had been three possible scenarios: the “stalled development Lenin tango”, with three steps forward and two steps back; a narco-mafia state; and a prosperous stable state. To ensure the third, the Afghani people had needed to take hold of the political process, and this had necessitated a process with clear bench marks: holding preliminary elections, choosing a leader, writing the constitution and holding further elections. This had established the legitimacy of the state, by transferring power to the people and showing them progress was being made.

It had also been vital to rebuild the country’s finances. Mr Ghani said that as Finance Minister, he prioritised private business and investment over foreign aid. For example, to build up the mobile phone market, he created a level playing field for awarding licences and this had generated €8 million of private investment, turning the telecoms sector into one of the largest generators of tax revenues.

Another major programme had been a redistribution scheme to encourage national solidarity by giving block grants to villages, with the proviso that they elected local councils to take responsibility for using them. This resulted in 17,000 villages setting up councils and building local facilities.

A key element in building up Afghanistan’s state machinery was to boost governance by shifting decisions to local people, and the budget was a key policy instrument in this. “Revenue is the strongest guarantor of the state,” said Mr Ghani, as it creates strategic partnerships through the regulatory licensing of state assets, getting citizens to participate.

As well as establishing a compact between the citizens and the state, the Afghan government had to establish a ‘compact’ with the international community. Assumptions about giving aid had changed, as project-based lending does not necessarily stimulate good governance. Instead, the international community had been asked to contribute skills and systems for state-building.

In Afghanistan, money was not a constraint, said Mr Ghani, as he had found it was more ‘time effective’ to raise money from the private sector than to coordinate foreign aid, which had taken up 60% of his time.

Above all, the aid community has to understand how the market operates and that private cooperation is the friend of development. It should also “shift its horizon from abstract state building to the concrete process of building institutions”, said Mr Ghani. What is needed in Afghanistan is to establish a system where property rights, a stable market, and financial institutions and mechanisms work with aid donors.