Pranab Bardhan on Authoritarianism and Democracy

Prof Pranab Bardhan in the Financial Times on “What does this authoritarian moment mean for developing countries?”

India’s experience suggests that democracy can also hinder development in a number of ways. Competitive populism– short-run pandering and handouts to win elections– may hurt long-run investment, particularly in physical infrastructure, which is the key bottleneck for Indian development. Such political arrangements make it difficult, for example, to charge user fees for roads, electricity, and irrigation, discouraging investment in these areas, unlike in China where infrastructure companies charge full commercial rates. Competitive populism also makes it difficult to carry out policy experimentation of the kind the Chinese excelled in: for example, it is harder to cut losses and retreat from a failed project in India, which, with its inevitable job losses and bail-out pressures, has electoral consequences that discourage leaders from carrying out policy experimentation in the first place. Finally, democracy’s slow decision-making processes can be costly in a world of fast-changing markets and technology.

Author: Atanu Dey

Economist.

7 thoughts on “Pranab Bardhan on Authoritarianism and Democracy”

  1. Atanu,

    Any post forthcoming on Lehman Bros,AIG et al? Would love to know your thoughts.

    I still have a feeling that Capitalism is not evil, although it has flaws. We have seen countries like USA bounce back from one crisis after another. I am assuming this pattern will continue.
    But what do I know? 🙂

    Thanks for your percepective. Apologies for diverting from the current post.

    -Kaunteya.

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  2. I do not think that democracy hinders India’s development or that authoritarianism has helped China’s. If anything, authoritarianism has been and remains a barrier to China’s real potential and it is only in areas where China has loosened its iron grip and allowed individual freedoms (i.e. only in the global economic marketplace) that they have experienced success.

    Also, the practices of neo-liberal economics and markets have little or sometimes nothing to do with democracy. This is most evident in places like China where authoritarian central control has been successful in ensuring, very undemocratically, that labor is constantly made available at oppressively low cost to the service of neo-liberal business practices.

    Ask any trader in Mumbai why Chinese goods are flooding the Indian market and they’ll tell you that it is because they are so cheap, not because they are better. China is able to ensure this because cost of labor is cheaper, not because they have any superior technology that is unavailable to India. India laments this reality and would love to bring the cost of labor on par with China but is unable to do so because of its democracy. This is a subsidy which the market is demanding of governments across the world, including India, but democracy is the hurdle towards this desire. And this is the biggest threat to democracy across all developing nations.

    Mr. Bardhan complains:

    Competitive populism also makes it difficult to carry out policy experimentation of the kind the Chinese excelled in.

    Unfortunately, those being experimented upon live on less than 25 rupees a day and have very little left to be experimented upon. They also have very little faith in economic experiments where they become guinea pigs.

    As far as populism is concerned, I think what Mr. Bardhan is trying to say, as far as India is concerned, is pure corruption of the political system. For eg: The relief package for debt ridden farmers announced by P. Chidambaram, which was clearly a populist stunt (some of you may remember the smirking grin on that man’s face when he announced it in his budget speech) is purely cosmetic. First it only addresses formal debt and most farmer debt is informal. (Local money-lenders, not banks provide most debt to rural India and are the largest cause for farmer suicides). And the reason they fall into the trap of local money-lenders is because of the failures of formal or public channels of credit being made available to them.

    And corruption, like markets, can happily thrive in both democratic and undemocratic societies.

    Democracy is a powerful idea and is so much more than competitive populism. For eg: Blogs like yours or mine and many others in India could get us imprisoned in places like China. Free speech is just one small part of true democracy and I’m sure you agree that neither one of us are willing to let go of that, regardless of the percentile ratio of our GDP.

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  3. I am sorry if I am going on a tangent; but why the obsession with matching the China price?! We cannot match it, and let’s face it. Rather, we do not wish to match it. We are too fond of our politico-economic system, even with its flaws. If changing our system and bringing it closer to how China operates is the only way of matching the China price, we don’t want to match it.

    Strategy101 taught us that if you want to beat competition, you don’t have to overtake them on the very dimension on which they beat you. Price is very significant, but it’s not the only way. Chinese goods cannot be returned if flawed. Chinese goods aren’t “in”. Consumers needs a good price-quality bargain, not just a good price bargain. If I am incapable of balancing my products’ price-quality well, I have no business hiding behind the China Price excuse.

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  4. I am sorry if I am going on a tangent; but why the obsession with matching the China price?!

    Because it’s the Second Commandment of the “Free Market” Manifesto, perhaps, that the faithful have to follow? Just a random guess.

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  5. kaunteya,

    Seems like Atanu’s blog has been somewhat counterproductive. 😉 🙂

    Why do you think you need an “expert” to explain it to you? I’d think that you are educated and smart enough to read a few different sources, use common sense and reach your own independent conclusion about AIG, Lehman Bros. fiasco. I’m assuming you do have some rudimentary knowledge of how politicians, elected officials and businesses work, what ideologies they profess and how their actions differ from such ideologies.

    Please, one SSRS cult is enough, we don’t need an AD cult to rival it. 😀

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  6. Amit – ur wisecracks notwithstanding, i have ‘rudimentary’ knowledge alright
    … I was looking for some ‘AD-mentary’ insight if you will…

    P.S: I know, I know.. it’s friday morning.. and I need some coffee…

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  7. kaunteya,

    I’m glad you took my friendly dig in good humor. 🙂
    Didn’t mean to offend you.
    I’m sure our patience will be rewarded by the oracle with some insights. 😉

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