ii. Building institutions for markets
The World Bank (amongst other institutions, including governments) sees a close relationship between the role of the state, the process of governing, and the extent to which there is effective market development (and by implication, economic development). In addition, the state is seen as having a role in maintaining the general welfare of populations, in particular in cushioning them against so-called market failures, particularly with respect to service provision, and in protecting vulnerable groups. Thus the World Bank World Development Report 1997 opens by saying:
Far-reaching developments in the global economy have us revisiting basic questions about government, what its role should be, what it can and cannot do, and how best to do it. An effective state is vital for the provision of goods and services – and the rules and institutions – that allow markets to flourish and people to lead healthier, happier lives … the state is central to economic and social development, not as a direct provider of growth but as a partner, catalyst, and facilitator.
(World Bank, 1997, p. 1)
The introductory overview also states that
… we now see that markets and governments are complementary … the state is essential for putting in place the appropriate institutional foundation for markets. And government's credibility – the predictability of its rules and policies and the consistency with which they are applied – can be as important for attracting private investment as the content of those rules and policies.
(World Bank, 1997, p. 4)
This view is based on a number of surveys in different countries around the world about people's perspectives on their governments, the institutional frameworks in which they invest in business or earn a living, and the degree to which the institutional context is or is not seen as conducive to economic development. The state is expected to provide such a framework when the role and size of the state in the economy is changing, in particular in the privatisation and decentralisation of services.
This interest in ‘building institutions for markets’ is further taken up in the 2001 World Development Report. In this report, the market is centre-stage, yet its role, like that of the state, seems to have been rethought. The emphasis on strengthening and extending market opportunities is seen as having two (related) goals – boosting economic growth at a national level and reducing the poverty of individuals (p. 1). Market mechanisms are seen as a key driver of this potential transformation, with the state, the private sector and communities playing their role to ensure participation in market activity. Rules, norms and values that ensure effective markets have to be promoted – and enforced. The state in particular is presented as a key partner – ‘a key feature of all industrial market systems is a strong state that can support a formal legal system that complements existing norms and a state that itself respects the law’ (p. 4). The report recognises, however, that the specifics of what constitutes an ‘effective’ institution may vary in different contexts.
The World Bank has also stated that private interests can contribute to institution building for markets – and can play a role in development efforts. Indeed, interest in public–private partnerships has been increasing globally – particularly in relation to the promotion of private sector involvement in the delivery of services such as health care, transport and housing, with the private sector increasingly identified as a development partner.