[ There are five functions that public institutions must serve for markets to work adequately pro

16. Author's note: see, however, the experience of Andhra Pradesh in the decentralization of management of large numbers of irrigation systems, described in Chapter 6, where the topic of local management of irrigation is treated in some depth.

17. R. Fisman and R. Gatti, Decentralization and corruption: evidence across countries, World Bank Working Paper, The World Bank, Washington, DC, USA, 1999.

18. Pranab Bardhan, 'Institutions, reforms and agricultural performance', in K. G. Stamoulis (Ed.), Food, Agriculture and Rural Development: Current and Emerging Issues for Economic Analysis and Policy Research, Economic and Social Department, Food and Agriculture Organization of the United Nations, Rome, 2001, pp. 155-158.

tection of property rights, market regulation, macroeconomic stabilization, social insurance, and conflict management. In principle, a large variety of institutional setups could serve those functions. We need to be skeptical of the notion that a specific institution observed in a country (like the United States, say) is the type that is most compatible with a well-functioning market economy.

Partial and gradual reforms have often worked better because reform programs that are sensitive to institutional preconditions are more likely to be successful that those that assume that new institutions can be erected wholesale overnight. Learning and imitation from abroad are important elements of a successful development strategy. But imported blueprints need to be filtered through local experience and deliberation. .. .

The lesson of the 20th century is that successful development requires markets underpinned by solid public institutions. Today's advanced industrial countries - Japan, the United States, Western European nations - owe their success to having evolved their own workable models of a mixed economy. While these societies are alike in the emphasis they place on private property, sound money, and the rule of law, they are dissimilar in many other areas: their practices in labor market relations, social insurance, corporate governance, product market regulation, and taxation differ substantially.

All these models are in constant evolution, and none is without its problems.. . . What is true of today's advanced economies is also true of developing countries. Economic development ultimately derives from a homegrown strategy, not from the world market. Policymakers in developing countries should avoid fads, put globalization in perspective, and focus on domestic institution building. They should have more confidence in themselves and in domestic institution building and place less faith in the global economy and the blueprints that emanate from it.19

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