Two Unconventional Ideas in Breaking with Bad Governance

March 15th, 2011
in Op Ed

z ajay shah by Ajay Shah

Idea 1:  Jumpstart a city

Cities are the heart of civilisation and growth. A well functioning city is a great opportunity to obtain economic growth and social change. The best thing that we can hope for, in thinking about the lives of poor people or those facing discrimination in rural India, is for them to escape to a city. We in India don't have a single well functioning city. As an example, governance in Bombay is deeply broken.

Follow up:

How could a poor country kick start the emergence of one or more good cities? Paul Romer has an idea : To walk down the Hong Kong route, to create `charter cities'. See Two paths to good cities. Writing on, Sebastian Mallaby reports some big events. Last year, Madagascar came close to signing onto a charter city, but it did not work out. And last month, Honduras approved a Constitutional Amendment which will make this possible. So Paul Romer's three-year crusade appears to be going from a wild idea to the zone of possibility. If it works, it'll score bigger impact than Romer, 1986, which is in Nobel Prize range.

I personally think it would be a much better use for aid money, to go down this route, instead of the conventional development economics that aid agencies emphasise. I feel these existing strategies range from useless to counterproductive. In contrast, it seems that under the right conditions, a charter city could work, and if it works, the upside is phenomenal. So even if 10 charter cities are attempted and one works, it'd be a huge contribution.

On a related theme, you might like to see: What if India had a Hong Kong?

Idea 2:  Elect a foreigner

Raghuram Rajan has been talking about another line of attack. He has a recent paper titled Failed States, Vicious Cycles and a Proposal. The blurb reads:

...examines the problems of failed states, including the repeated return to power of former warlords, which he argues causes institutions to become weaker and people to get poorer. He notes that economic power through property holdings or human capital gives people the means to hold their leaders accountable. In the absence of such distributed power, dictators reign.

Rajan argues that in failed states, economic growth leading to empowered citizenry is more likely if a neutral party presides. He proposes a unique solution to allow the electorate to choose a foreigner, who would govern for a fixed term. Candidates could be proposed by the UN or retired leaders from other countries; they would campaign on a platform to build the basic foundations of government and create a sustainable distribution of power.

Rajan emphasizes that this is not a return to the colonial mode: the external candidate (like all the others) would be on a ballot and the electorate would choose whether he or she was their best chance to escape fragility.

Each country is unique and we have to ask ourselves what might work where. In India? Bangladesh? Sri Lanka? Pakistan? Afghanistan? Libya?

Dr. Ajay Shah is a Professor at the National Institute for Public Finance and Policy (New Delhi) holding a Ph.D. in Economics (University of South California) and B.Tech in Aeronautical Engineering (I.I.T. – Bombay). His hard cover book “India’s Financial Markets: An Insider’s Guide to How the Markets Work” is available at Amazon, and pens his thoughts on Ajay Shah’s blog. Econintersect cannot begin to summarize Dr. Shah’s impressive resume, which includes being listed in the Top Ten Economists in India.

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