States, Reforms and Institutional Change: on the Dynamics of Failure Weak States and Strong States: a Useful Dichotomy?

The results expected from economic policy reform in developing and transition economies-sustained economic growth, poverty reduction and widespread prosperity, democracy and social empowerment-have frequently proved, in practice, to be disturbingly elusive. A handful of countries have restructured their economies and have done so relatively smoothly. Many more have become embroiled in political chaos, economic recession, ethnic, regional or other forms of social conflict, endemic corruption and authoritarianism. Reforms have generated new opportunities for personal gain and for patronage, exacerbating rent-seeking features they were expected to eliminate. Evidence seems to suggest that, unless their interplay with political interests is better understood and more fully anticipated at the outset, reforms will continue to be incomplete and result in major problems. Over the last two decades, discussions of economic policy reform reflect a growing awareness of its enormous complexity, and new dimensions have been found and incorporated to try and increase its effectiveness. The need to underpin it with strong public sector organisations was recognised relatively early. The inability (or the 2 unwillingness) of government agencies to carry through prescribed reforms was seen to spotlight problems of organisation and policy management. Burdensome administrative requirements, corruption, lack of accountability and bureaucratic leadership or lack of "political will" were seen to have contributed heavily to past policy failures. Reducing the size and role of the state became a major plank of policy advice, and emphasis was placed on reducing corruption, democratic good governance and the management capacity of government (World Bank 1992, 1994). As awareness grew of the limitations of the "a-institutional" nature of much of the early reform thinking, this line of analysis was taken further. It linked to the expanding economic literature on institutions and extended discussion to the micro-institutional arrangements affecting economic policy and (in the wake of experience in the FSU and then the East Asian crisis) the importance of macro-regulatory institutions and corporate governance. More recently, concern has broadened to non-market institutions that could affect growth of the economy-to social networks and participatory organisations that stimulate flows of information, promote competition, and speed up the adoption of norms and values functional to market development (World Bank 2002). Over time, new dimensions have steadily been added, seeking more effective management and institutional solutions to problems that often seemed in practice to be inherently political. Political dimensions were not overlooked but, as the emphasis shifted from policies to process, they tended to …