We have to see individual freedom as a social commitment.

Amartya Sen¹

The previous chapter made the case that for people to thrive-especially over a longer time horizon-a wide range of assets must also thrive. Managing a broader portfolio of assets can ensure that the growth process contributes to people's well-being on a sustained basis. Policies can be designed to improve the management of assets.² In practice many socially worthwhile policies are not adopted or implemented. The institutional perspective examines the forces that work to shape and implement policies.

If institutions are to protect people and a broad portfolio of assets, they must respond to and shape the major changes that will unfold over the next 50 years: urbanization , technological innovation, economic growth, shifting social values, changing scarcities for environmental and natural assets, and stronger linkages among nations. Institutions thus must be stable, but they also must be capable of changing and adapting, and new institutions must emerge.

Chapter 3 focuses on the coordination of human behavior that is required for people and assets to thrive, particularly institutions that sustain this coordination-by channeling interests, and by shaping the quality and effectiveness of growth. This chapter addresses four questions:

• What are institutions? They are the rules and organizations, including informal norms, that coordinate human behavior. They are essential for sustainable and equitable development. When they function well, they enable people to work with each other to plan a future for themselves, their families, and their larger communities. But when they are weak or unjust, the result is mistrust and uncertainty. This encourages people to "take" rather than "make," and it undermines joint potential.³
• What are the key functions of the institutional environment in promoting human well-being? It must pick up signals about needs and problems-particularly from the fringes; this involves generating information, giving citizens a voice, responding to feedback, and fostering learning. It must also balance interests-by negotiating change and forging agreements, and by avoiding stalemates and conflicts. And it must execute and implement solutions-by credibly following through on agreements.
• What are the barriers to the emergence of such an institutional environment? One is dispersed interests. Concentrated interests are often given too much weight, as in the assignment of property rights for land and water, and in the operation of government. A second barrier is the difficulty of forging credible commitments to protect and nurture persons and assets. And a third is institutions that are not inclusive. When societies and processes are unequal and undemocratic, it is more difficult to coordinate dispersed interests and forge credible commitments.
• How can these barriers be overcome? Sometimes social and economic development offers opportunities for change. Structural changes-urbanization, the demographic transition, the redistribution of wealth (particularly increments of new wealth)-unleash dynamic forces and opportunities for institutional change. Initiatives to channel information can also serve as catalysts for change. Information can empower people by giving them more voice in public services and allowing greater transparency and accountability in the activities of governments and firms.