Libya: The challenges of building a state, growing an economy, and income inequality

In 1982, Forbes magazine unveiled a list of America’s wealthiest 400 individuals and their fortunes. This roster featured a mere 13 billionaires, amassing a total wealth of $92 billion. Fast-forward four decades, and Forbes’ updated list of America’s richest 400 reveals a staggering increase to $4.5 trillion. A striking 30.6% of this wealth is now controlled by just 1% of the US population.

Is the global disparity in income and wealth a catalyst for social and political instability? The answer is a resounding yes, mainly when the gap between the affluent and the impoverished is wide enough to fuel persistent social unrest.

While Western nations have built inclusive political and economic institutions and implemented measures to narrow this wealth gap, many regions in Africa and the Middle East, where this disparity is widening, are witnessing the continued suffering of the poor and middle classes. A stark illustration of this is oil-rich Libya, where the middle class has been steadily shrinking since 2012, and the impoverished are sinking deeper into poverty. This dire situation directly results from a feeble central government, incompetent officials, and the collapse of the country’s political and economic institutions.

The roots of Libya’s failure date 500 years ago, if not more, and can be summed up to the failed political systems that controlled the country over five centuries. In their book Why Nations Fail, authors Acemoglu and Robinson wrote, “Political and economic institutions, which are ultimately the choice of society, can be inclusive and encourage economic growth. Or they can be extractive and become impediments to economic growth. Nations fail when they have extractive economic institutions supported by extractive political institutions that impede and even block economic growth.”

For the past 50 years, Libya has been facing a significant crisis due to the absence of a rule of law and a robust political system. As a result, the entire country has been left vulnerable to lawless and immoral characters and greedy international players. Sadly, 40% of the population is living in poverty with no hope of a sustained plan to help them get out of their misery. This situation has trapped them in a country lacking political and social identity.

Libya’s lack of inclusive political and economic institutions has given rise to powerful groups that control the sources of money. Power was centralized among a few individuals during Qaddafi’s reign and in the post-Qaddafi era, leading to a concentration of money and country management. Currently, armed militias and prominent families are in a bitter struggle for political and economic power, possibly leading the country toward bankruptcy and collapse. Unfortunately, Libya’s political change in 2011 re-created the same system as before, if not worse.

Libya is facing a significant challenge as the country’s political and financial elite have no interest in sharing the nation’s wealth with the rest of the population or involving them in nation-building. This situation is similar to what the English philanthropist Robert Owen experienced in the mid-1800s when he tried to persuade the Austrian government to implement reforms to benefit low-income people. One of the prince’s assistants responded, “We have no desire for the masses to become wealthy and independent. Otherwise, how could we govern them?”

Libya is a country with abundant natural resources, but it needs to catch up in terms of progress and modernity. It missed the Industrial Revolution and is struggling to keep up with the technological advancements in the Western world, China, and key Gulf states like the United Arab Emirates. There are concerns that Libya’s current leadership will fail to catch up with the agricultural revolution 300 years ago in the 1800s. This is reflected in the fact that the country still heavily relies on imported essential vegetables and grains for consumption.

Libya is being held back by a powerful group of elites who resist change and fear losing their power and status. A large number of them come from underprivileged backgrounds and have a criminal past, which has made them social outcasts. However, the 2011 civil war/revolution gave them influential positions in the government and business world, enabling them to legally pursue and strengthen their illegal activities, such as drug trafficking, human smuggling, money laundering, extortion, illicit sale of arms, and government contract corruption. For the past 12 years, these armed illegal militias have strengthened their positions of power through allies and at times support from the country’s head of state.

The failure of Libya’s nation today, including income and social inequality, stems from an ongoing battle between traditional and modern economic sectors. The current power players in Libya support an extractive system that has made them wealthy, allowed them to build private armies and mercenaries, buy officials and judges, and reject and manipulate elections. These players have no incentive to give up the wealth they have amassed over the past decade and will make sure Libya remains a failed state.

What does the future hold for Libya and Libyans? Unfortunately, the current extractive system has led to high social and economic inequality, which may prompt other groups to organize and take power from the current players to benefit from the available riches. This could lead to more chaos, lawlessness, and an extended civil war. Can elections solve the situation? Most likely not. Even if elections were held today, they would result in a weak and crippled democracy that could eventually turn into a dictatorship. Many Libyans secretly hope for a strong, despotic, enlightened ruler who could bring peace, stability, and some order into their lives, away from the chaotic militia life.

The United States and the United Nations have a moral and legal responsibility to the Libyan people to repair the damage caused by their involvement in Libya’s violent regime change in 2011. The longer they take to address the issues, the greater the risk of Libya descending further into chaos and lawlessness. This would negatively affect the security of the Maghreb region and Southern Europe. Therefore, the U.S. and international community must act quickly and restore Libya as a key player globally and in the region.

*Omar “Masinessa” khattaly – A researcher on the political economy of the MENA region and sovereign wealth funds.

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