The recent food crisis in Malawi has drawn stark attention to the failures of development policies over the last forty years to create wealth and develop a robust economy or the markets on which such an economy must depend. Current market liberalisation policies have achieved at best mixed success in addressing the generic problems inhibiting smallholder agricultural development: low returns to farmers' and service providers' investments, with high risks from natural shocks, price variations, coordination failure and opportunistic behaviour. Post-independence institutional mechanisms in Malawi were more successful in addressing some of these problems, in particular those of coordination risk, although external and internal difficulties led to increasing costs and declining effectiveness of these mechanisms, and to their collapse. They do provide, however, important lessons about the different failures of both market intervention and market liberalisation policies. We suggest and discuss a set of critical elements needed for economic development and wealth creation in poor rural areas, and propose four basic principles to guide the search for, and design and implementation of, effective rural development strategies and policies.
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