INTRODUCTION

Governance is what states do, and since states play a vital role in the development process, almost all economists can agree that governance must be important for development. The growing recognition within mainstream economics that governance is important, is simply a belated recognition within economic orthodoxy that the state plays a critical role even in a market-oriented society. The controversy and debate is about what the feasible governance capabilities are of a poor country attempting to develop in a global market with an essentially market-oriented economy. The answer to this is not as obvious as it may seem. The answer provided by the good-governance approach is based on a theoretical understanding of a market economy that is contested by many economists supporting the construction of a market-oriented economy. But most significantly, the good-governance approach ignores the feasibility of achieving these governance capabilities in poor countries, and therefore overlooks alternative methods of overcoming the obstacles and constraints that are preventing many developing countries from fully participating in and benefiting from the global economy.

Markets are simply mechanisms for private contracting. The good-governance reform agenda is based on the presumption that efficient markets are achievable in developing countries, and are sufficient for achieving sustained growth and development. These presumptions are derived from a specific reading of institutional economics that is plausible in theoretical terms, even though many of the theoretical links that it asserts can be strongly challenged in terms of alternative readings of orthodox economic theory.