CovOps
 Location : Ether-Sphere
Job/hobbies : Irrationality Exterminator
Humor : Über Serious
 |  Subject: Libertarian take on India's economy and corruption  Mon May 26, 2014 6:03 am | |
| Politicians plunder. But not all plunder is equal. The democratic state, to satisfy the demands of various interest groups, could expropriate part of the economy’s wealth—directly through taxes and indirectly through rent-seeking. Or it could undermine the whole wealth creation apparatus through indiscriminate use of its taxation and rent-seeking powers.
The 2G spectrum allocation scam and the coal block allocation scam, to mention two of the largest corruption episodes exposed under the UPA, shut the access of business cronies to resources.
The reason democracies often choose the latter path has been under debate. But the most probable reason is democracy suffers from the same set of incentives that lead public resources in general to be inefficiently used. For one, the preference of interest groups that government policy reflects is often short-sighted from the perspective of efficiency of the overall economy ([url=http://www.livemint.com/Search/Link/Keyword/Hans Hermann Hoppe]Hans Hermann Hoppe[/url], Democracy: The God That Failed). Stated in other words, individual voters do not directly bear the costs of their poor decisions, thus paving way for sub-par decisions and outcomes ([url=http://www.livemint.com/Search/Link/Keyword/Bryan Caplan]Bryan Caplan[/url], The Myth of the Rational Voter). This is also the reason why countries under natural elites and monarchs are more likely to choose policies that better encourage long-run economic efficiency.
Such a “closed access order” (to use American economist [url=http://www.livemint.com/Search/Link/Keyword/Douglass North]Douglass North[/url]’s term) was exemplified by the Indian economy under Nehruvian socialism. And even today, as many would argue, most sectors of the economy have changed little from then. But since reforms in the early 1990s—at least in certain sectors which have witnessed considerable growth in the past two decades—the nature of rent-seeking has fundamentally changed. Reforms marked the transition of certain pockets of the economy to a “limited access order”, where economic elites enjoyed privileged access and limited competition. Sectors like coal and natural gas, for instance, that were previously under total state control—and thus inefficiently exploited—were partially opened to the cronies of the state.
Restricted as these sectors remained to only a few players, thanks to entry barriers raised by bureaucrats in connivance with business cronies, they represented considerable improvement from the days of state monopoly—when much of the resources remained unexploited due to price control and dominance of the public sector. Production improved, and growth picked up to benefit consumers. The “India growth story” was based mainly on this transition to a limited access order, with some sectors opened up more to competition than others. The telecom sector, for instance, witnessed a much larger degree of freedom and competition compared to the energy and manufacturing sector—and the resultant benefits to consumers have been greater too.
More: http://www.livemint.com/Opinion/XE3HGIGfdS5dciAfQNJ2cL/Congress-pays-for-inefficient-corruption.html |
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