Markets as institutions Historically, markets emerged in particular locations as places where goods
Markets as institutions Historically, markets emerged in particular locations as places where goods
and services were exchanged. Over centuries, markets have developed to become more diffuse in their physical forms with greater volumes of exchange operating at great distances and, more recently, via technology such as the internet directly linking buyers and sellers in distant locations. It is therefore not location that defines a market. So what defines it then? In contemporary usage, the term refers to supply and demand, buyers and sellers, and competition and exchange. But, surprisingly, the definition of ‘market’ itself has not been much discussed by economists. Indeed, it is notable how little attention mainstream economics has devoted to either defining markets or studying how they work. As North (1977, p710) observes, ‘It is a peculiar fact and services were exchanged. Over centuries, markets have developed to become more diffuse in their physical forms with greater volumes of exchange operating at great distances and, more recently, via technology such as the internet directly linking buyers and sellers in distant locations. It is therefore not location that defines a market. So what defines it then? In contemporary usage, the term refers to supply and demand, buyers and sellers, and competition and exchange. But, surprisingly, the definition of ‘market’ itself has not been much discussed by economists. Indeed, it is notable how little attention mainstream economics has devoted to either defining markets or studying how they work. As North (1977, p710) observes, ‘It is a peculiar fact
As we have indicated above, the 1990s saw a transition in the dominant development discourse from ‘getting prices right’ to ‘getting institutions right’. Under the Washington Consensus (see endnote 13, Chapter 1), it was expected that significant liberalization and de-regulation of the economy would enable markets to operate. Prices would become effective incentives and lead to efficient resource allocation and eventually improved productivity and economic growth. The failure of governments to allocate resources effectively through either planning systems or state intervention in developing countries led to the unexamined view that markets would be effective where governments and planning had failed. There was little real thought or policy on how exactly markets would be developed, simply because mainstream economics did not have the analytical tools with which to examine them. Indeed, markets were expected to emerge spontaneously or, as Williamson (1983, p20) puts it, ‘in the beginning there were markets’. In some contexts, especially the transition economies of the socialist bloc, this belief caused widespread problems since the mechanisms through which markets could work effectively did not ‘spontaneously’ emerge, and the vacuum left by planning failures allowed opportunism to fill the gap. This inadvertently led to the emergence of markets, but markets that were turbulent and chaotic and not those anticipated by the proponents of market reform.
This episode of failed policy led to the re-examination of a few underlying assumptions about markets. Specifically, it led to the recognition that markets require a wide variety of institutions in order to work effectively. Hence, the transition to ‘getting institutions right’ is significantly related to the view that markets can work to allocate resources effectively if they have the ‘right’ institutional framework.
Parts
» Economic growth can be sustained without considerations for human flourishing
» A bird’s-eye view The idea of human development has been circulated in policy circles and public
» 1 The Basic Needs Approach The best shorthand way of describing basic needs is:
» Innovation systems Innovation systems can be defined as ‘the network of institutions in the public
» The relationship between economic growth and human flourishing
» Rawls’ theory of justice in a nutshell
» Rawlsian justice versus the capability approach
» What do we need for a capability theory of justice?
» From theories of justice to just practices and policies
» The importance and limitations of measurement
» Income poverty measurement: Identification
» Measures of multi-dimensional poverty Measures using aggregate data: The Human Poverty Index (HPI)
» Measuring freedom Most frequently, when trying to measure multi-dimensional poverty or
» Testing the theory This view, which suggests that economic development is determined in part by
» 1 The embeddedness of a microfinance market in gender relations in Kenya
» Institutions and markets in the human development approach
» A mechanism for exercising agency in the public sphere
» Instrumental value The intrinsic value of democracy, that the ability of people to take part in
» 3 The democratic construction of social welfare-related values in Costa Rica
» From democratic theory to practice
» Political participation at global level
» 7 Gender equality in education: Human capital, human rights and capabilities
» Health as output The reverse has also been argued, where wealth is seen to be a necessary input
» Health at the heart of inter-locking deprivations
» 2 Fatima’s story: The coincidence of health deprivation, illiteracy and material deprivation 4
» Anthropological perspectives
» Cultural freedom The 2004 Human Development Report asserts the importance of culture as a
» Religion as a dimension of well-being
» The possibility of reasoning
» Randy Spence and Séverine Deneulin
» Macro-policy Constitution and legal system
» Policy in the private, non-profit and international sectors
» A human development perspective
» Technical assistance programme
» Post-conflict policy in Liberia
Show more