Classical Liberalism and the Future of Public Policy
New Thinking in Political Economy series
Chapter 7: Institutions and International Development: Global Governance or the Minimal State?
INTRODUCTION Recent discussions concerning classical liberalism have been dominated by competing approaches to international development. At issue have been the questions of which institutions are more likely to promote progress in the developing world, and what kind of responses are required from the already developed nations to bring these institutions about. While it is fairly well accepted that an expansion of international trade supported by domestic institutions hospitable to markets is essential, the ‘development’ literature maintains that such institutions cannot function effectively without widespread government action and the creation of new ‘governance’ structures at the global scale. On the one hand, it is argued that ‘market failures’ that block potentially successful paths out of poverty require concerted government intervention at both the national and at the international scale. On the other hand, it is maintained that a laissez-faire approach would destroy communitarian relationships and perpetuate inequalities of income and well-being that are fundamentally at odds with social justice. This chapter sets out to test the classical liberal analysis of development issues and those of its rivals against the principles of robust political economy that have run throughout this book. It uses theory and evidence to argue that the institutions of private property, open markets and a limited government are a necessary condition for economic and social progress. The process through which these institutions may arise must however be sensitive to the ‘knowledge problems’ and incentive-based constraints that lie at the core of the robust political economy framework. For classical liberals,...
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