Institutional Reforms

I recently returned from India after a 3 week vacation. Visiting Calcutta where I grew up and spending time in my parents place 25 miles outside the city gave me two starking contrasts of how things have changed there over the last 5 years. Yes, I was visiting India after 5 years. My views on what I saw, understood, and failed to understand (for which probing will continue!) will appear in subsequent posts. I begin with the overarching observation that the biggest barrier to economic development (more so) in city outskirts is lack of pace of institutional reforms. More specifically, the enforcement of contracts leading to the culture that builds the right perspective on property rights and doing the right thing is yet to mature and develop.

In my early years, we lived in a company estate in the suburbs of Calcutta. Almost every week, we would make trips to Calcutta for doing anything meaningful. Shopping in New Market, browsing used books in College Street or Free School Street, to eating-out in Park Street. The drive to the city was a nightmare. There were two alternate routes and our driver would switch between the two choosing the one that was less broken. Come monsoons, the roads would be completely destroyed with tar and mud lumped into sizable blobs that solidified into rocks - hard enough to damage the car. But those days are now happy memories. Those bumpy rides that were enjoyed as a vicarious experience of riding on a camel's back are gone. Now - expressways have been built and the ride is as smooth as one can imagine. But this has resulted in a different problem. In the world of slow, the chance of a fatal accident was very low. In my 3 weeks, sadly enough, I had to witness two fatal accidents of people getting run over. Why? Because people are driving as fast as their cars can go. No traffic rules. Traffic is going in all directions. No cops. No tickets. No law enforcement. It did not take much to conclude - yes economic development in form of much infrastructure has come in, but without law enforcement the full benefit will not be leveraged. And for that, if Douglas North was right, it would take a while. Interestingly, in quite contrast, I came across Dani Rodrik's post where he argues that formal institutional reform is not a binding constraint for economic development. I hope this is true. Btw, the two videos that he uses as illustrations are quite amusing. Here and Here.