08/23/2011 03:39 pm ET

New Management Wanted for the Italian Job: Somalia

Somalia's story is one in search of a happy ending. The remains of an Italian experiment in Africa the size of California, Oregon, and Washington combined, Somalia has no government, few resources, and limited prospects for development. Nearly every change in Somalia has been marked by violence, which destroyed what little infrastructure the Italians left behind.

Today, Somalia has no functioning government. Photographs of famine litter the desks of newspaper editors around the world. Somalia's capital has become a synonym for danger and disorder. Few in Somalia have the skills or capital necessary to recover from the current tailspin: the country is intellectually and fiscally bankrupt. But, there is a way out: Sell the real estate.

The framework for this hypothetical begins with these questions:

What if a company bought Somalia? How would things change? Would things improve?

Suppose the few valid claims to land would be bought out by a new management corporation that would own Somalia. Investors with interests from petroleum to shipping would back this entity with the resources needed to control Somalia while protecting maritime routes and infrastructure investments. Even if it did a poor job, this new management corporation could hardly provide less security or fewer services than the people of Somalia presently enjoy. The company, armed with a potentially-lucrative local monopoly on major shipping lanes, would be unlikely to devolve into a simple protection racket.

Further, to meet its shareholders' expectations, the corporation will need to grow while establishing secure roads and coastal routes along which to move supplies -- exactly what the Somali economy needs to begin its recovery. Neoliberal legal theorists have examined and advocated the ingredients needed for an effective corporatocracy (see, e.g., Richard A. Posner, The Economics of Private Law (2001)). Almost certainly, a corporate-owned neoliberal state would require consistent dispute resolution and a strong rule of law to function (see Ronald H. Coase, The Problem of Social Cost (1960)) -- the same things that would be needed for a successful Somali recovery. While some will oppose corporatocracy as a solution for Somalia, it almost certainly would create better chances for a developed future Somalia than a continued cycle of violence, despotism, and plutocracy.

Already cases of privately-run municipalities exist, such as the "Lavasa" project in India. Privatizing Somalia would better-align the country's interests with those of international investors. Putting commercial interests ahead of warlords' frolics is the best thing for Somalia's people, too: Somalia will not have industry, entrepreneurship, and investment without safety, infrastructure, and the rule of law. The Horn of Africa is an area that could, and should, have a net-positive impact on the international economy in the Indian Ocean. Instead, it is a minefield for commercial shipping, a repellent for investors, and a case study in failed international intervention.

Without real management, Somalia will continue to be a haven for troublemakers, a model of state failure, and a black hole for aid money. Somalia is far more likely to have its successful turnaround story told in the Harvard Business Review than in the development studies literature. Liquidating Somalia's real estate may seem an extreme proposition, but until Somalia is a well-run business, it will stumble as a poorly-run charity -- one whose beneficiaries cannot afford another generation of incompetence.