Wednesday, December 07, 2005
What's wrong with our reform process?
It doesn't go far enough. Ravikiran Rao explains, better than anyone else I have read, why it's not likely to go much further, in his post, "Why we reformed what we did." An excerpt:
The gradual, step-by-step opening [of the Indian economy] was supposed to be a good thing from the point of view of eminent caution. It was supposed to be a continual experiment, the results of which would help us to take further steps. If this experiment succeeded, the argument went, we would feel more confident, and it would be politically more acceptable to take those steps.Read the full post, it's one of the best I've ever read.
As an experiment it has succeeded spectacularly. Where we reformed, we did well. We reformed the stock market, and the stock market is doing well. We allowed foreign investment and foreign investment flowed in. We liberalized the telecoms sector and now the poor have mobile phones.
Where we did not reform, we are doing badly. We did not liberalize the labour market and so organized sector unemployment is still high. We did not dereserve the small-scale sector and we are still lagging in manufacturing. We haven’t touched agriculture and farmers are still committing suicides.
This is as perfect a controlled experiment as you can ever get in the social sciences. If you want to test out the efficacy of a drug, you split a population into two, give one of them the drug and the other a placebo. If the group that receives the drug improves and the control group that received the placebo does not improve, we know that the drug makes a difference.
You cannot take the drug’s lack of effect on the control group to claim that it isn’t effective, can you? But that is exactly what I’ve been hearing for the past ten years that I’ve been following this debate. It is bad enough that we are conducting this cruel experiment - where the rich and the middle-class are administered the medication while the poor are given the placebo.