Improving Agricultural Market Performance:
Creation and Development of Market Institutions
31
Chapter 2 – Developments of Market Institutions in the World
The motivations driving state interference and associated development of market institutions
in order to improve the efficiency and efficacy of (agricultural) markets as explained in the
Conceptual Framework has changed considerably across space and time. Market institutions
have been created with different reasons and ideas to address different challenges and realize
different policy objectives. Therefore, their functions and features also evolved differently.
The following Chapter discusses the developments of (agricultural) Government intervention
and (agricultural) market institutions in a historical context and shows how these have
enhanced – or impeded - the efficiency and efficacy of (agricultural) markets. It concludes with
presenting some best practice models for country and commodity groups to demonstrate the
latest trends and ideas on the creation and development of market institutions.
2.1 Historical Development of Market Institutions
Government intervention or “economic intervention” in order to correct for market failures, as
mentioned in the previous Chapter, and to promote economic growth and welfare has
historically been one of the key responsibilities of Governments and is certainly not limited to
just the agricultural sector. The first records of the development of markets and market
institutions, which have can be traced back to as early as Babylon and the early empires in the
Middle East and Mediterranean regions.35
However, Government intervention accelerated particularly during the period of
Industrialization and introduction of a capitalist market economy. These developments
required intervention, which was more aligned with the changing scope, speed, and scale of
capitalist economic activities and its impact. Government intervention shifted from more
moral obligations such as reducing income inequalities, ensuring equal access and reasonable
prices to facilitating fair competition in an industrialized economy. Market institutions such as
regulatory authorities developed along with this increasing Government intervention in
economic markets, as they had to be re-shaped in response to the growing amount of market
information, larger volumes of trade, and more transactions.
The degree of market intervention by Governments and, hence, the development and creation
of market institutions, generally reflects changes in political and philosophical perspectives on
Government intervention and market economies, and forms the key factor which transforms
the attitude towards market institutions. The more liberal perspective, which prevailed at the
beginning of the 20th century, perceived Government intervention as unnecessary and
impeding market forces, creating economic distortions, and avoiding an optimal allocation of
production resources. This view is characterized by a “laissez-faire” approach with minimal
Government intervention and, therefore, a minimal number of market institutions.
The ideals of a Welfare State in combination with Keynesian economics, which emerged across
the globe after the Second World War, led to a considerable increase of Government
intervention and associated market institutions to plan, regulate, facilitate, and manage
35 Casson, M. & Lee, J. (2011), “The Origin and Development of Markets: A Business History Perspective,” Business History
Review, 85(1), pp 9-37.