Thursday, April 21, 2011

Institutional Bypass!

In a week where Indians have been discussing institutional reform, Mariana Mota Prado of the University of Toronto, School of Law, published her paper suggesting Institutional bypasses as a way of development reform.

Prof Prado argues,
"Beginning in the 1990s, an institutional perspective on development has become increasingly prominent in development thinking, captured in the mantra, “Institutions Matter,” or “Governance Matters.” Based on the assumption that “institutions matter”, there has been a massive surge in development assistance for institutional reform projects in developing and transition economies involving investments of many billions of dollars. However, these reforms have had mixed to disappointing results thus far. Against this backdrop, this paper identifies successful institutional reforms, and claims that they have one common feature: instead of trying to fix dysfunctional institutions, as most failed reforms do, they simply bypass them. For this reason, they will be called “institutional bypasses”. Like a “coronary bypass” surgery, an institutional bypass creates new pathways around clogged or blocked institutions. Institutional bypass uses the same strategy: it does not try to modify, change or reform existing institutions. Instead, it tries to create a new pathway in which efficiency and functionality will be the norm. Understanding what is a bypass and how it works can provide answers to an important question in the law and development literature: how to reform dysfunctional institutions. This paper argues that under certain circumstances an “institutional bypass” presents a promising alternative for institutional reforms in developing countries, but at the same time it should not be regarded as a panacea for development problems"

It would be promising to think of this in the Indian context, if only to get a sense of the stakes involved in institutional reform.

Also relevant is a debate between Kaushik Basu and P. Sainath over Basu's proposal to legalize certain forms of bribe giving as "acceptable costs". Basu's argues that this might lead to a decline in bribe taking, as someone who pays a bribe to get her work done, might on completion be interested in cooperating in getting the bribe taker caught. Sainath, in a cutting riposte argues that this 'obscene idea' would serve the middle classes but leave the poor even more disempowered than before


Jean Dreze responds to Basu as well. He argues, "It may be argued that paying a harassment bribe is not morally reprehensible in the first place, because the bribe-giver is a victim and the bribe is an act of self-defence. I am not persuaded. When you pay a harassment bribe, you abdicate your duty to use other means to resist the harassment, not only for yourself but also on behalf of others who might face the same situation. You also secure an advantage for yourself, vis-à-vis others who may not be able or willing to bribe. This does not sound particularly ethical."

More strikingly he takes issue with a certain brand of economics, " Kaushik Basu’s paper is symptomatic of a common disease in the economics profession: the tendency to make sweeping policy recommendations based on analytical models that have a very limited domain of validity. "

Interestingly, both Dreze and Basu hold official positions as policy makers to the UPA government
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