(Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the position of DynCorp International).

The international development community is abuzz with impending budgetary cuts and a blurring of the lines between traditional development assistance and stabilization and reconstruction initiatives implemented through defense agencies.

Amidst this clatter, it is important to not lose sight of a few fundamental understandings. Core elements of international development will continue to be framed and measured in economic terms. Regardless of the proliferation of schools of thoughts on development, the struggle for developing nations and increasing the choices of individuals will center on generating economic growth.

Economic development requires sustainable growth and sustainable growth occurs in countries with market economies that are effectively and democratically governed.

The creation of a fair and functional market system requires more than just clusters of economic changes. Similarly, developing effective democratic governance in developing economies takes more than simple governance reforms. Transitioning to a market system and fostering democratic governance constitute a deeper transformation of the social framework.

The economic argument for a market system is grounded in its efficient allocation of resources. Achieving such efficiency involves more than vesting the private sector with the power to allocate resources; the support of a range of complementary institutions and practices is also necessary. Key among these institutions is a legal infrastructure that sets rules for interaction among market participants (including interaction between the private and the public sector), enforces these rules, and resolves conflicts in a way that enables individual participants to gain from society’s development and sets consequences for avoiding these rules. Because this infrastructure is essential to the development process, the design and function of public sector institutions and private sector organizations that interact with it are core determinants in a country’s development.

Designing, implementing, and maintaining such a system is a core government function. Those in the development field often wonder what kind of government is capable of this task. I believe the answer is a market-augmenting government.

A market-augmenting government is not a compromise between the view that a minimum degree of law-abiding and government intervention is required in the free market and the view that government shouldn’t meddle with the markets. On the surface, the concept challenges many of the neo-liberal tenets that have supported most of the agendas of free-marketers.

The need for market-augmenting government is combined with the growing awareness that significant variables in per capita income across countries cannot be explained by differences in capital markets, in the ratio of citizens to land or natural resources, or in the quality or marketable human capital or culture. These differences are caused by the different qualities of institutions and economic policies. Government supplements the economy by fostering sustainable growth and supplying public goods and the legal/institutional infrastructure for private goods. A market-augmenting government is one that expands the reach and depth of markets by optimizing voluntary and reliable exchanges. In essence, a market-augmenting government consists of ascertainable and secure property rights and enforcement of agreements.

The ideal market augmentation would allow all beneficial voluntary exchanges and would ensure that marginal benefits and costs triggered by each exchange are factored into the decision of the participants, and would cost no more to establish, operate, and maintain than the aggregate surplus for participants and outsiders.

The institutional nature of well-functioning markets is advantageous to more than just market participants. Private sector attempts to supply private markets are doomed to be “sub-optimal” in the language of economics. It is because of this that market augmentation is inherently a governmental public function, and should not be pushed sideways in the rush to “do more with less.”