Posts Tagged ‘Cronyism’

The need to differentiate cronyism from libertarianism

May 28, 2015

Recently, Algeria made airbags compulsory in all cars imported into the country.  Algeria is an attractive market for automobile OEMs, many of whom have manufacturing operations in India.  Predictably, the big daddies of auto inc have made visits to Algeria (and possibly the govt of India) to see if something can be done about a rule that would improve safety of passengers.  India is also expected to make airbags compulsory with the pending Motor Vehicles Act, presently stuck in Parliamentary logjam.  Wonder whether suits and boots have made advances to the opposition.

However, the point of bringing this up (the fact that Algeria has legislated more advanced road safety norms than India) is to contrast it with a popular example cited by libertarians.  The seat belt example is one of the absolute favourites of libertarians.  They ask what business does govt have to make it mandatory for cars to offer seat belts?  They opine that manufacturers should be allowed to offer cars without seat belts, thereby bringing down their cost, and let customers choose if they wish to pay more rather than ‘force’ features onto them which they don’t ‘need’.  By this standpoint, India must be some sort of a libertarian paradise because standards and norms are lax even in theory and very poorly enforced in practice, leading to a laissez faire system (again, in practice).

Except, India, most emphatically, is not a libertarian paradise.  Rather, its system is loaded in favour of cronies with deep pockets and against individual citizens of limited means.  So how does this work?  Basically, by means of stiff entry barriers combined with a lax operating environment that awaits the privileged ones who manage entry.  In a way, the state of things in higher education in engineering and medicine mirrors the Indian economy.  Very tough to get in without ensuring a commensurate standard of proficiency in the professionals it turns…or quality of produce in the case of the economy.

Through a combination of ambiguous laws with a frequently verbose, archaic turn of phrase and a corrupt bureaucracy, especially at lower levels of the chain, India makes it expensive to set up shop and obtain the requisite permissions.  Once you get in, though, it willingly turns a blind eye to your activities…that is, as long as you do what is necessary to remain in their good books.  An example of how this too is loaded in favour of the fat suits and boots is that a small time hawker running his operations without a licence can lose his equipment if he does not cough up the ‘rent’ in time but a certain well-decorated entrepreneur evades responsibility after failing to repay loans due to banks from some of his troubled enterprises. The latter can enlist the help of lawyers and accountants to arrange his affairs such that he can, in effect, legally get away with murder but the former pays a heavy price for a crime that ultimately causes little harm to anyone apart from worsening traffic congestion and overall hygiene in the city.

Thus, the seat belt example only resonates in an environment where optimal conditions for the starting and shutting of business activity as well as efficient and effective procedures and law enforcement already exist.  Like the United States or Singapore, perhaps.  And these economies see fit to enforce certain regulations to ensure a minimum quality of life for their citizens.  What, then, is a more practical test of market liberalisation in an economy (a pre-requisite for libertarian conditions) is, simply, the ease and efficiency of doing business in an economy.  Regulations that tell you what you can and cannot do do not by themselves make it tough to do business, contrary to the libertarian view, as long as said regulations are transparent and unambiguous.  What does make life tough for a businessman is having to contend with an army of hungry bureaucrats who can interpret the rulebook in a million ways to get you.  I remember a relative’s car attracting the attention of the traffic cop not because the driver had oversped or jumped signals, but because the quality of the number plate was allegedly suspect (emphasis on allegedly).  There you go.

Prime Minister Narendra Modi is spot on in saying that doing business should be made easier for aam aadmi (common man) too and not just Ambani.  That is indeed what market liberalisation is all about.  It remains to be seen whether that, though, is indeed what the BJP will actually execute over the next four years of their term in office. Whether they do so or not would depend on an appropriate understanding of liberalisation and, specifically, ease of doing business.  Hand in hand, libertarians ought to dream up better examples to communicate their ideology to those not already converted.

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