Finance: Research, Policy and Anecdotes


I decided not to blog or tweet on the chaotic Afghanistan withdrawal at the height of the events, as I do not consider myself an expert in military strategy or international relations in a broader sense. However, economics and social sciences, more generally, have something to say about the failure of state-building in Afghanistan. For the past two decades, there has been the illusion that with the right amount of money and the right strategies, the necessary institutions for economic and political development of Afghanistan could be built. And on the technical level, this might have had some successes, e.g., in central banking or pockets in public administration. But the building of broader institutions, such as democratic checks and balances, broad access to public administration and a functioning and accountable enforcement framework seems to have failed.  Most importantly, the occupying forces turned a blind eye to the widespread corruption among the governing elite. So, while many in Washington DC held out hope that eventually there would be a self-sustainable democratic regime in Afghanistan, some observers were not surprised at all by its failure, as this article from 2017 shows.


But why did the regime collapse so quickly, contrary to the expectations of many observers (though not necessarily the intelligence services)? Here is a fascinating thread with links by Andrew Bennett, including on information cascades. Once it became clear that the Taliban would eventually win, why would Afghan soldiers try to hold out and simply delay their march towards Kabul, risking their own lives? Why would regional strongmen put up resistance if accommodation with the Taliban is safer?


Daron Acemoglu, one of the leading economists of the institution-growth literature has written on why nation-building failed in Afghanistan, pointing to the failure of top-down approaches. In addition, there is the issue of persistence; in a country with no functioning institutions or primarily extractive institutions, new rulers have limited incentives to build inclusive institutions and state capacity to support the broader society. We have seen this in many countries in Sub-Saharan Africa after independence, where the new rulers inherited and perfected extractive institutions; we could see this in Afghanistan where  personal and political survival seemed to have been more important than any ambitions of state building.


What to do if nation-building turns out elusive? There are several failed states around the globe, Afghanistan only one of them. But there is not only an institutional dimension to it, but also an economic one – what Lant Pritchett refers to as ghost countries, countries that, if there were population mobility, would only have a very small fraction of their current population?  What to do with such countries – trillions of development aid or – cheaper and most likely more sustainable – migration?


There is a lot of finger pointing about the failure of 20 years of Western intervention in Afghanistan. There are also fears of a new migration wave towards Europe. Hopefully, there will be a more serious debate on both nation-building and international migration in the future, beyond political point scoring.