A combination of four issues perpetuated and worsened the decay of state institutions and transformed political corruption in Liberia during the Charles Taylor regime: the demands for political and economic liberalisation made by Western international financial institutions (IFIs); the United Nations’ long-time refusal to place sanctions on the Liberian timber trade; a clandestine network of predatory foreign firms; and corrupt rent-seeking state elites. Investment from foreign timber firms in Liberia reinforced an informal, clandestine economy that thrived and took primacy after the collapse of Liberia's formal economy. Charles Taylor and his associates profited from these transactions, leaving ordinary Liberians alienated by the exigencies of collapsed political and economic institutions.

This article places the political economy of Liberian timber in the context of the theory of state failure. I explore the relationship between private investment, state failure, and war. To address this question, I focus on informal arrangements between Charles Taylor and foreign timber firms. These arrangements illustrate the connection between unregulated private investment in weak states and state failure, which, I argue, greatly increases the likelihood of internal war. Timber firms served as proxies for collapsed state agencies, including the army, cloaking Taylor with sufficient security to remain president despite widespread discontent with the regime. Taylor's private economy had serious negative effects on ordinary Liberians. Since Taylor depended on foreign investment for capital and security, not the productivity of domestic citizens and industries for these goods, he had little incentive to provide Liberians with public goods or services.