Capitalism in poor countries: why Somalia and Somaliland have elites but no middle class

Hargeisa — Somalia and Somaliland are both very poor, there is no substantial middle class, and yet a very small elite has monopolised much of what passes for a private sector. Hospitals, schools and dental clinics almost all charge fees that the poor can barely afford. Vocational schools and training programmes are scarce, and those who have accumulated wealth are widely seen as indifferent to the country's long-term future.

That observation reflects a real issue economists and development experts have raised about many low-income countries: when markets exist but institutions are weak, the benefits of economic growth can become concentrated among a small elite rather than spread across society.

Several factors contribute to the situation in both economies. The formal private sector is small — activity revolves around trade, telecommunications, livestock, remittances and imports, with a relatively small number of large business groups dominating those sectors. State institutions are weak: limited tax collection, inconsistent regulation and difficulty enforcing competition law make it easier for dominant firms to hold their positions.

Industrialisation has barely begun. Neither economy has built a manufacturing base capable of creating hundreds of thousands of stable middle-income jobs. Unemployment and underemployment remain high, with many people relying on informal work or on relatives abroad, which makes accumulating wealth extremely difficult. And access to finance is thin — starting or expanding a business is hard for ordinary citizens when affordable credit does not exist.

None of this means capitalism itself is the sole cause. Different forms of capitalism produce very different outcomes. In Denmark or Norway, market economies are combined with strong competition law, progressive taxation, universal education and healthcare, and social safety nets — a combination that helped build large middle classes. Where institutions are weaker and economic power is concentrated, the same market system can turn into what economists describe as crony or oligarchic capitalism, in which political and economic influence reinforce one another.

For Somalia and Somaliland, many economists argue that strengthening the middle class would require investing heavily in education and vocational training; supporting small and medium-sized businesses rather than only large conglomerates; enforcing competition law to reduce monopolistic practices; improving infrastructure such as electricity, roads and ports; increasing transparency and reducing corruption; and encouraging manufacturing, agriculture, fisheries and technology to diversify the economy.

There are differing views on how to get there. Some argue that a more market-oriented economy remains the best path but needs far stronger institutions. Others believe the state should play a larger role in strategic industries, healthcare, education and infrastructure. Between free-market capitalism and state-led systems sits a wide range of mixed models.

The absence of a substantial middle class is an important signal. A broad middle class is associated with greater economic stability, stronger consumer demand and more resilient democratic institutions. Building one usually depends not just on the choice of economic system, but on how effectively that system is governed — and whether opportunity is widely accessible rather than concentrated among a small number of powerful individuals.