Sunday, October 30, 2005

It is the elections, stupid!

The recent Economist has an article that sums up quite a few points on the reforms in India very succintly! Read Democracy's drawbacks here. Most of it is nothing new except for the distinct style of Economist which is clarity of narrative. We have all the usual suspects of "lousy infrastructure bumbling, burdensome regulations, and restrictive labour laws", and then we have the conclusion "the free market that has helped the tigers so much often works better in Communist China than in India-not least thanks to India's own democratically elected Communist politicians."

It may be useful to understand whether democracy is the culprit, especially when you hear it often being blamed for slow pace of reforms. It has more to do with elections than democracy. Elections are the process (especially the ones that we have) from where groups emerge that though few in number, can hold the majority to ransom! Usually, these groups stand to lose a lot more in the immediate term, that gives them powerful incentives to form a group and seek to relieve their demands.

Imagine 110 people. A reform brings Rs 1 benefit per person to 100 of them, but imposes a cost of Rs 10 on the other 10. Who has greater incentives to get organised? Obviously the rest 10, and it is their demands that through the process of elections often end up as legislations. The rest 100 citizens who lose little in the short-term simply don't have enough incentives to form a group. In this case, the loudest cries of 10 people drown out the sniffles of 100 people, to give a crude analogy!

The kind of elections that we practice (especially the First Past the Post System that we practice) are of a rudimentary form and it is unfortunate that we are locked into them! There are better and scientific processes of elections, that can help not allow interest groups to exert such an overwhelming influence. And though too often we blame democracy, cast a glance upon the election process for that is the worksmith of a democracy. And the "mettle" that he maketh are the faults that you see!

Elections, broadly understood, gives power to elected representatives to effect transfer of money for public goods, "public" as defined by the elected officials themselves. Can these officials have less control of public goods? If there is less of public goods, how will the voiceless be able to effect changes that benefit them? To give a concrete example...if subsidies are taken off the public goods list, what would be the outcomes?

The Centre for Civil Society has an interesting project called the Legitimacy Index that looks at the proportion of government spending in terms of public good and private good expenditure, the definition of public and private being based on broad consensus of economists. Now that is something that I would be really interested in knowing!

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