The debate over development and democracy is a highly charged one, because the two concepts are open to such divergent interpretation. In recent years, while academics were discovering globalisation, the major international financial institutions have been championing a particular version of the democracy‐development debate centred upon the notion of governance. They contend that democratisation and institutional reforms must occur before or alongside economic development. This article argues that their vision of governance is highly normative and simplifies reality for ideological purposes. This revolves around a particular reading of liberal political economy which sees political institutions as neutral arbiters and civil society as a space of freedom for plural voices. These formulations are implicitly spatial since they see political space as divided neatly into the international, national and local and thereby ignore the multiple power flows between these sites. The article concludes by trying to reformulate some of these concerns around the idea of the developmental state and progressive democracy.