State Failure in Developing Countries and Institutional Reform Strategies

Abstract

Two radically different theoretical views on the role of the state in economic devel-opment have driven policy debates on the location of state failure and the priorities of institutional reform in developing countries. A lack of clarity on this underlying difference has been the source of much confusion. I shall refer to the dominant view, which has underpinned the mainstream consensus on the state, as the service deliv-ery model, and the second view, which looks at the role of the state in the context of the transition to capitalism, as the social transformation model. The service delivery model focuses on a range of services that states should deliver, in particular, public goods such as law and order, social security, and market regula-tion, and relies on competitive markets to deliver all other goods and services. The social transformation model looks at the more critical and problematic role the state plays in the transformation of essentially precapitalist and pre-industrial societies into dynamic and essentially industrial, capitalist ones. While states do deliver serv-ices, the service delivery model of the state is misleading for poorly performing devel-oping country states undergoing reform. Historically, success in service delivery has