more developed countries which may save the effort of inventing them from
scratch. Legislation to establish a commission to regulate the domestic finan-
cial sector can probably be best borrowed wholesale from those countries that
have learned how to regulate markets the hard way through trial, error and long
experience. This ‘blueprint’ approach relies on the expertise of technocrats and
foreign advisers. The alternative bottom-up approach is to utilize local knowl-
edge to carefully fit institutional change to underlying informal institutions
(Rodrik, 1999). Institutional change in the latter case is more likely to be grad-
ual and evolutionary (Easterly, 2008:95).
An alternative view of policy implications: accumulation by
dispossession
The case study of Vietnam was a very optimistic one: the market can re-allo-
cate assets to raise productivity and improve equity. To sustain growth over the
much longer term the re-allocation of agricultural assets between small farm-
ers is not enough. Sustained economic growth in developing countries requires
a shift from small-scale subsistence agriculture and petty commodity produc-
tion to large-scale commercial agriculture and industry (see Chapter 8). The
World Bank view is that land rights will change automatically in response to
changing incentives. The greater profits to be earned in commercial agriculture
or in industry will cause enterprising farmers to buy out small-scale farmers, or
industrialists to buy out farmers. Peasants will derive revenue from land sales
and in the longer term earn more from working on large commercial farms or
industry than in previous low-technology subsistence agriculture. According
to this view, any failures in the operation of land markets will be symptoms of
weakly protected property rights or the ease of re-registering land by new
owners. An alternative view is that such market failures are rooted in underly-
ing political constraints and that the growth of the productive capitalist sector
is likely to require non-market interventions.
There are three constraints to achieving the efficient transfer of land through
freely operating land markets (Khan, 2010). First are the problems associated
with clarifying property rights. Overlapping claims or rights to land (for exam-
ple multiple inheritance claims in an extended family) will give multiple veto
rights over sale and/or add to the transaction costs associated with the sale by
necessitating negotiated agreements among multiple sellers. Second, if the
initial distribution of landholdings is too fragmented even with well-defined
and registered property rights, the time and effort associated with multiple
purchase negotiations can be prohibitive. There is a profound market failure
associated with the operation of a land market in such a situation. Once the
buyer commits to buying some plots, the value of subsequent plots will
increase. A single tiny plot could eventually offer its owner veto power over an
entire investment project. In developed countries this problem has been over-
come by the use of ‘eminent domain’ intervention by the state where the
purchase prices can be established by reference to existing market prices in a
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