By supporting the private sector growth, are we going down the "fausse route"?

I recently finished reading Why Nations Fails, and although the authors seem to state the obvious – that nations’ success is mainly due to the existence of inclusive institutions – I do not see this factored in many of the development related discussions and plans, by international organization and development banks. And I guess the most disturbing part was the questioning of the very premise of any development finance institution out there:  by financing and developing the private sector, revenues grow and the trickle-down effect will do the rest.
Relying on various examples across history,  from the Kongo Kingdom, to Mugabe’s Zimbabwe (or Ben Ali’s Tunisia), the book demonstrates how most of the growth is absorbed by extractive institutions, increasing the wealth of the elite and the governing families, and persisting in a vicious circle by which the ruling groups hinder innovation, competition and new entrants to prevent any “creative destruction” that might change the status quo and the existing structures. The book argues that no successful development strategy can be designed and implemented without inclusive institutions building , because no growth can be sustained without inclusiveness, that is the condition of  innovations and risk taking (unfortunately the book does not tackle City-states like Singapore or Dubai).
I have however to temper such claim, although I obviously agree that institutions are key to the development of a country. Many “commercial” or “development” investors are very careful to this issue. Before considering an investment, significant discussions are held with many stakeholders, including government bodies, central bank etc. Standards of governance and transparency are openly discussed. Of course, it will not lead to immediate institutional improvements, but it pushes the local business and institutional leaders to think more seriously about them. I do believe that a country that deals with such partners and that is often subject to risk assessments, is more likely to improve that a one that does not. At FMO, we just started efforts to measure the “inclusive” part of our investments, and similar trends are emerging across the development finance industry.
On then other hand, some governments have indeed become proficient in window dressing and  telling what we want to hear, and any assertive initiative to improve institutions when possible can be seen as paternalistic if not” imperialistic “.
Bottom line, nothing can happen without the involvement of the people and the civil society (as I hope has been shown in Tunisia) and it is better to have a finished bridge and a functioning bank thanks to the international aid when the uprising happens… than not.

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