Somalia fell apart in 1991, when several clan militias clubbed together to remove a dictator, Mohamed Siad Barre (who was a proponent of what he called “scientific socalism” i.e. Marxism) and then turned on each other. A year later US peace-keeping forces fought with Aidid’s forces in Mogadishu, chronicled by the film Black Hawk Down. By 1995 the US and the UN had removed themselves from Somalia, leaving the country to continue fighting. Aidid was killed in 1996 in a gunfight.

Two northern regions, Somaliland and Puntland, seceded from Somalia in the 1990s but remain internationally unrecognized. Some have commented that Mogadishu is the only “anarcho-capitalist” regime in the world. But that is false because the city has no legal foundation whatsoever. One cannot have an utterly lawless regime and call that capitalism. It fails even the classical definitions put forth by Smith. Somalia is simply a failed state, which is entirely different in its ambitions and in its purposes.

But Somalia is a resilient failed state, and has some anarcho-capitalist features. Consider its amazing currency, the Somali shilling, which has operated for 14 years without a central bank or reserves of any kind, save the will of ordinary Somalis. Though the country has lacked a government, it has never quite ceased to exist.

Numerous attempts to revive the state, mostly backed by rich-country donors, have failed. A transistional government backed by Ethiopian forces, created in 2004 in the alternative capital city of Jowhar, began with a lot of ambition. But by June 2006, it had lost out to Islamist militias in Mogadishu, whose power is spreading. The Straussian Policymakers at Heritage have linked these forces to Al Qaeda. For any hope of stability in the region, engagement with political moderates would be necessary. There are too many extreme forces in Somalia. The Islamists are fiercely opposed to foreign troops – particularly their neighboring Ethiopians – in Somalia. Since November, war between Islamists and Ethiopians seemed very possible.

Ethiopia has just this week, on Christmas Day in fact, bombed the airport in Mogadishu. The battles now fought are between an alliance of Mogadishu warlords known as the Alliance for the Restoration of Peace and Counter-Terrorism (ARPCT) and a militia loyal to Union of Islamic Courts (UIC).

Habitat, a UN agency that tries to provide housing and shelter, is struggling to bring some order here and in other Somali towns. But it is more trade, not aid, that might improve things the most. Saudi Arabia could help by restoring its imports of Somali livestock that were stopped in 2000, and Somalia needs help developing its offshore fishing waters, which are being plundered by foreign boats. The country also has some untapped oil reserves, which foreigners are too weary to explore for fear of violence. Trading oil wouldn’t necessary turn Somalia into a healthy anarcho-capitalist regime, or even a healthy liberal democracy. Would we prefer living in Riyadh over Mogadishu? Islamist militias would most likely still fight over its oil, but the foreign investment this would bring is going to be worth the risk.