Gurgaon is the Cyberpunk Utopia

The New York Times has a dystopian article on the burgeoning Indian city of Gurgaon. Alex Tabarrok rebuts with partial defense of the city, and I want to go much, much further.

To understand Gurgaon, you need to place in context with two failed modernist models for which it serves as a foil — Le Corbusier's Chandigarh, and Lutyens' Delhi.

Chandigarh is on the opposite side of the state of Haryana from Gurgaon, and is in many ways its complete antithesis. As it happens, there is also where I was born. The city was conceived by Jawaharlal Nehru as a future Administrative capital that would embody his rationalist, secular, modernist vision for an independent India. The city was largely designed by Le Corbusier, who had an overlapping modernist vision, and was fortunately unable to inflict this dream on too many other countries. Here is James Scott on the city in his Seeing Like a State:

Whereas road crossings in India had typically served as public

gathering places, Le Corbusier shifted the scale and arranged the zoning in order to prevent animated street scenes from developing. Notes one recent observer: "On the ground, the scale is so large and the width between meeting streets so great that one sees nothing but vast stretches of concrete paving with a few lone figures here and there. The small-scale street trader, the hawker or the rehris (barrows) have been banned from the city center, so that even where sources of interest and activity could be included, if only to reduce the concreted barrenness and authority of the chowk, these are not utilized."

As he goes on to detail, Le Corbusier built the sort of city Times readers might prefer to read about at a distance -- one with large boulevards and carefully planned and segregated townships. Yet this city is sterile, non-diverse, and in a certain sense unlivable.

Luytens' Delhi, too, was a forceful stamp of an alien vision on India. Designed as the center of the British Raj, it was rapidly appropriated as the center of the bureaucratic, license raj India.

Gurgaon came into existence, in a concrete and visceral sense, as the rejection of these modernist aspirations. Though near Delhi (and connected by a privatized highway), it is in the state of Haryana — and so did not suffer from the regulatory and tax impediments of the national capital. Its growth has taken place in reverse proportion to the stultifying effects of India's regulatory regime, which was partially dismantled starting in 1991.

Unlike the commercially and socially bleak Chandigarh, Gurgaon rapidly became a dynamic hub, home to both large industrial plants as well a torrent of service industries in fields ranging from IT to financial services to real estate. The local mall culture, though sneered at by the mandarins of Luytens' Delhi, reflects the consumerist aspirations of a new generation, while the nightlife is booming as well. Both Chandigarh and Gurgaon rank among the top three richest cities in India; yet Chandigarh derives much of its wealth from the income of bureaucrats. Gurgaon’s wealth is all privately generated.

Despite these substantial achievements, many people — even in India — react to Gurgaon with disdain. On paper or in a photo, Gurgaon is a messy place. This sense of disorder manifests itself most literally in the realm of unorganized and intermingled uses of property. When seen in a picture by those conditioned to "see like a state," this appears haphazard and disturbing. Surely, some state entity must come in and clean that up, and return us to an orderly world of happily segregated functions. Yet the form of such economically integrated units, though perhaps not visually appealing to an eye conditioned by Leviathan, are in fact most conducive to the functions of economic and social fulfillment, and are partially why immigrants flock to the city. There is a hidden internal logic here. Jane Jacobs would have hated Chandigarh, and perhaps come to love, or at least appreciate, Gurgaon.

Gurgaon tends to be lowly ranked on indices of where people would like to live based on “objective” criteria; yet regularly tops surveys of where people actually say they want to live. Surely the collective decisions of 1.5 million people count for more than the editorial decisions of magazines or the fleeting judgments of parachuting foreign journalists. Rather than asking Gurgaon to conform to your aesthetics; shift your aesthetics to accommodate Gurgaon.

Yet Gurgaon will handle just fine the concerns of well-intentioned leftist bloggers. It is wealthy and powerful enough to constitute a power center of its own, and various other public goods will come into the city soon enough through political pressure (the Delhi metro, for instance, is being extended there). Somehow, the city seems to have given everybody access to electricity, which is a challenge in other parts of India where the state is marginally more present.

More at risk are politically vulnerable slums. Like unplanned Gurgaon, the state sees these entities as blemishes on the earth to be destroyed. Dharavi for instance is a well-known slum in the heart of Mumbai, and is routinely at risk of destruction in resettlement plans.

What city planners rarely realize is that such slums, just as much as Gurgaon, reflect exciting engines of opportunity and capitalism. New York for instance has long been home to large centers of industry — the meatpacking district for instance. The advantages of density and transportation offer huge advantages for a number of industries; and indeed Dharavi is something of the commercial hub of Mumbai, home to thousands of business, tens of thousands of factories, while being the recycling center of the city. India has actually struggled to translate booming economic growth into employment gains — unlike in China, onerous labor laws have limited large-scale manufacturing employment. However, areas like Gurgaon and Dharavi, in their own ways, are the employment hotspots of the country.

They are also inclusive of newcomers. Millions of Indians hope to transition from a life of subsistence farming to something better. Yet regulatory restrictions on urban land, paired with city slicker xenophobia about foreign migrants, make this difficult. Only in Dharavi are there cheap enough rents and an inclusive enough attitude to absorb migrants, many of whom sojourn through the place over time to something a little nicer. Various redevelopment plans in motion would completely destroy this social fabric. Even if families receive comparable housing plots, the networked system of small industrial plants would be completely destroyed, and a valuable form of commercial growth would disappear. For more on this, see this Tedx talk by Matias Echanove and Rahul Srivastava. They point to pictures like this:

The left half of the picture is Dharavi; the right half is Tokyo. The reason they seem to blend right in is that well-situated historical cities like Tokyo tend to build organically up from their underlying source, rather than relying solely on state initiatives to place things in nice grids or dismantle everything in favor of high rises.

Areas like Dharavi and Gurgaon also represent one of India’s few strong areas of economic comparative advantages relative to China, a country with an economy three times as large. China's mega cities are actually relatively smaller than one might expect for a country of its level of development and urbanization — a legacy of controlled migration into urban areas. By contrast, India’s greater Delhi — including the capital region plus satellite cities like Gurgaon — has over 22 million people. This mass density and agglomeration of individuals facilitates a far greater degree of specialization and interaction, something that economics from Adam Smith on down have placed at the heart of economic growth.

To be sure, Gurgaon and Dharavi have real prolbems. But too frequently, urban developers use these problems as excuses to implement overweaning solutions that destroy local social capital, networks of economic activity, and the decentralized tricks that people come up with to solve local solutions. More Chandigarhs, Brasilias, or project housing aren't the way to handle urban problems. Just let these cities be and they'll surprise you.

Is Industrial Policy a good idea?

Industrial Policy is back—or so Dani Rodrik proclaims. Several European countries openly advocate the government promotion of particular industries, while the World Bank’s chief economist now supports industrial policy for developing economies. America, too, is flirting with increased government intervention in firms, through various green initiatives.
Yet the debate over industrial policy remains simplistic. Advocates frequently point to countries that support industrial policy—such as China or France—and observe that these countries are rich or growing. Industrial Policy is presumed to be the cause of their growth, and it is pronounced a success.

There are many problems with this analysis. As William Easterly notes, it is important to get the comparison right. France might be doing even better if its firms had less state interference. A better analysis would examine all countries that try industrial policy—including the failures—and examine their relative success.

There are also a variety of non-GDP related costs associated with Industrial Policy that are difficult to nail down. To see this clearly: take the contrasting story of cell phones in India and China.

In India, the telecommunication sector shows the success of privatization. As long as a state-run firm handled phones, few people had landline access. Auctions of telecom licenses led to this huge burst of investment and innovation. The so-called “Indian Model,” that resulted delivered the world’s lowest cell phone prices and the mass adoption of cell phone services.
By contrast, China’s telecom policy has been based on the idea of getting state control over the commanding heights of telecommunications. Companies like China Mobile dominate cell phone services, while companies like Huawei are growing giants in telecom hardware. Judged from a pure economic standpoint, this type of state control is compatible with high rates of economic growth. These state-sponsored companies are also highly profitable.

But state control comes at a cost. China has higher cell phone rates, and texting is more popular partially as a result. International corporate acquisitions are also affected. India’s Bharti—a top private mobile operator—has purchased Zain, another private African mobile operator. Bharti plans on exporting its low-cost outsourcing model there, potentially revolutionizing African telecoms. State strategic interests, on the other hand, motivate China’s acquisitions. India’s competitive environment may be better geared towards generating internationally competitive firms.

The hidden costs of industrial policy may not show up on a simple economic ledger. But they are real nonetheless. If the past few years have shown private industry at its worst—think AIG or BP—it’s not clear that injecting more government control would produce better results.

Copenhagen and Climate Change

The White House has released a joint statement in the aftermath of Manmohan Singh's visit. On the subject of climate change, the agreement promises a program to advance clean energy to counter climate change.

This statement follows direct negotiations with China, and is accompanied by announcements of US cuts "in the range of 17 percent below 2005 levels in 2020 and ultimately in line with final U.S. energy and climate legislation." These negotiations have raised the possibility of a meaningful deal at Copenhagen.

Not so fast. There is much less progress on contentious issues than meets the eye.

First, the House, but not the Senate, has signed off on those emissions cuts--which are in any case half-achieved due to ongoing economic troubles. Thus Obama will address a global audience asking them to trust that he can get the Senate to sign off, despite no evidence that it will do so.

Second, Chinese commitments are themselves weak. China has pledged to reduce only the intensity of its emissions in the long-run, safely after the tenure of current political leadership. Plainly China has demonstrated that it will not sacrifice its growth trajectory unless greater financial inducements are on the table.

Finally, the list of goodies offered by America are rather weak. A number of US-India partnerships on clean energy have been offered, but it is unlikely that their aggregate impact will be large. To meet India's energy needs, wind and solar are not enough.

For signs of a more proactive approach, one need look only as far as George Bush. The Indian-US Nuclear Deal has the potential to generate 470 GW of electricity by 2050. Construction of foreign-aided nuclear plants is well under way. These efforts will likely dwarf anything Obama achieves on climate change in India.

In fact, the probability of a meaningful deal at Copenhagen is minimal. In all likelihood, failure to reach a deal will cause a number of climate-related problems. Yet the best solution to these problems is not to further go down the rabbit hole of global negotiations; but to increase economic growth. Wealth and technology are the best weapons to fight unanticipated changes in the climate, as richer countries are better able to mitigate and adapt to any possible changes. For instance, the Maldives are currently under threat of going underwater, yet the country could easily meet the cost of building levies if it were a rich country (as the Netherlands does with its sea wall, for instance). Whatever the consequences of climate change, a wealthy India will be able to bear them. A poor India will face serious problems regardless of the state of global coordination.

In this respect, costly negotiations that involve expensive subsidies or onerous environmental regulations may do more harm than good. Indur Goklani has an analysis which makes this point clearly. He estimates the GDP per capita in 2100 of developing countries under energy-intensive development--$72,800--and under a more environmentally friendly regime--$40,200. For the next hundred years, at least, countries like India are far better off with high economic development and more climate change than without. Pranab Mukherjee, not Jairam Ramesh, will have the biggest impact on India's sensitivity to climate change in the long-run.

What a Free Market in Healthcare Looks Like

From the WSJ:

Dr. Shetty, who entered the limelight in the early 1990s as Mother Teresa's cardiac surgeon, offers cutting-edge medical care in India at a fraction of what it costs elsewhere in the world. His flagship heart hospital charges $2,000, on average, for open-heart surgery, compared with hospitals in the U.S. that are paid between $20,000 and $100,000, depending on the complexity of the surgery.

The approach has transformed health care in India through a simple premise that works in other industries: economies of scale. By driving huge volumes, even of procedures as sophisticated, delicate and dangerous as heart surgery, Dr. Shetty has managed to drive down the cost of health care in his nation of one billion...

Mr. Parashivappa says he can't himself pay for the surgery, but it is covered by a farmers' insurance plan that Dr. Shetty began several years ago in partnership with the state of Karnataka, which includes Bangalore.

Nearly one third of the hospital's patients are enrolled in this insurance plan, which costs $3 a year per person and reimburses the hospital $1,200 for each cardiac surgery.

That is about $300 below the hospital's break-even cost of $1,500 per surgery.

The hospital makes up the difference by charging $2,400 to the 40% of its patients in the general ward who aren't enrolled in the plan. An additional 30% who opt for private or semi-private rooms pay as much as $5,000.

You can complain about purchase price parity here. But the costs faced by a private hospital--wages for skilled doctors and medical equipment--are more comparable to US prices.

The Chimera of Chimerica and Obama's Foreign Policy

Really, I've just been looking for an excuse to put up that title. But check out Acorn, my co-blogger at INI:

It is one thing to argue that the US-China bilateral relationship is one which is most important to the world, but quite another to call it “G-2″ suggesting it would engage, in some form, in the task of global governance... an important reason why the US-China relationship is seen as important is because it is a problem. It is important to the rest of us in the same way as Pakistan is for international security. So just like how you wouldn’t entrust Pakistan with the job of ensuring international security, you wouldn’t entrust the United States and China with the task of global governance.

Unfortunately, this G-2 mindset... is influencing the Obama administration’s foreign policy. “US-China consultations regarding India and Pakistan,” the former argued, “can perhaps lead to more effective even if informal mediation, for a conflict between the two would be a regional calamity.” Sure enough, the joint statement at the end of President Obama’s summit with President Hu Jintao included a words that said that “the two sides welcomed efforts conducive to peace, stability and development in South Asia.” Clearly, there is an attempt by the two countries to get China involved in India’s relations with Pakistan, as well as in Afghanistan.

On Taiwan, you have a statement that goes:

The two countries reiterated that the fundamental principle of respect for each other's sovereignty and territorial integrity is at the core of the three U.S.-China joint communiqués which guide U.S.-China relations. Neither side supports any attempts by any force to undermine this principle. The two sides agreed that respecting each other's core interests is extremely important to ensure steady progress in U.S.-China relations.

This is just one joint statement. But it seems to reflect a durable assessment among the Obama team that the G-2 relationship is of primary importance due to China's role in global imbalances, Treasury holdings, climate change, and regional/security issues. These items are apparently of such importance to the Administration that they are willing to sacrifice relations with India, Taiwan, and other local powers--as well as the human rights agenda--even for little substance in return.

My own impression is that an "allies-first" approach of deepening ties to local democracies is more in line with American values, ensures the spread of democracy and human rights as sources of stability for the entire region, and grants greatest bargaining power with respect to China. I suspect that China's domestic constraints are greater than America's in some sense, and little cooperation will be forthcoming. But I'm no foreign policy expert, and the China-first strategy may well work out.

But whether or not this works out for China and America; certainly it's India (and Taiwan) that has room to be concerned. While Bush and Clinton saw the potential for a serious potential partnership with India; the new Administration seems largely intent on viewing India as either an adjunct to Af-Pak (Holbrooke) or a bargaining chip to be wagered to further the crucial China policy. Surely Obama is aware that China and India are going through one of the worst patches of bipartisan relations since the 1962 war--and a failure to consider that is a sign that India has little strategic significance to America beyond Thomas Friedman-ish platitudes of "largest democracy, peaceful Muslims, etc. etc." One can't really fault America for this. It's a failure of Manmohan Singh's foreign policy to think beyond America and consider strategic partnerships with democracies and China-skeptic powers around Asia. The Pakistan-China geopolitical nexus represents an existential threat to India's survival and economic progress, and the US has demonstrated where they stand on that, push come to shove.

I was initially impressed by Obama's foreign policy. There were seeming turnarounds in relations with rogue states like Iran, Cuba, and North Korea; and you heard great things about his team and their professionalism. You have a President who can seemingly get out of any bad scrape through a well-delivered speech.

But whether it's the lack of Asian trade policy, the reversal of the stance against settlements in Israel, or the now-ambiguous Af-Pak strategy; I think it's fair to say things look murkier. Obviously it's a little soon to pass judgments, nor do I think that Glenn Beck-style rants hold. Most Administrations have a crappy first year and this seems to be going better than most.

Still, I think it's fair to say that the more overblown hype is gone. Here is Andrew Sullivan almost two years ago:

Consider this hypothetical. It’s November 2008. A young Pakistani Muslim is watching television and sees that this man—Barack Hussein Obama—is the new face of America. In one simple image, America’s soft power has been ratcheted up not a notch, but a logarithm [sic]. A brown-skinned man whose father was an African, who grew up in Indonesia and Hawaii, who attended a majority-Muslim school as a boy, is now the alleged enemy. If you wanted the crudest but most effective weapon against the demonization of America that fuels Islamist ideology, Obama’s face gets close. It proves them wrong about what America is in ways no words can.

Yet a recent poll finds that far more Pakistanis rate the US as a threat than India or the Taliban. Having a lower impression in Pakistan than India is quite an accomplishment, and suggests that American policy--for instance the drone strikes so beloved among the doves in the Administration--rather than the identity of the American President drives resentment and blowback. Obama's star power has moved the US in global polls (with the telling exception of Pakistan), but it remains to be seen how much of that increase is durable, and to what degree that assists America in achieving foreign policy goals or cubing terrorism.

Indian Politics

After five years of UPA rule, and before the next elections in India, here are my thoughts:

The crisis of governance continues as both Congress and the BJP decline in importance.  The Congress has lost a coherent message or stance, its constituency has steadily siphoned off to the regional parties, and it is only held together through feudal loyalty to the Gandhi family.  Meanwhile, the BJP is radioactive as a coalition partner.  As fear of the Congress party declines, the need to ally with the right goes down.  They have virtually no presence in critical states, and those allies they do have often prefer leftist economic ideas.  

That is, the move to coalition governments that prize the contribution of the regional parties continues.  The problem is that these governments lack stability or ownership in national problems, so you see institutional decay.  It's very hard to govern large countries--the US is hard enough to govern, but now you're seeing the economic rise of very large, very diverse countries like Nigeria, China, and India.  These countries have fractured and conflicted polities, and are looking at poor institutions for some time to come.

This is crucial in India as the next stage of reforms will need to build state capacity.  Plenty of bad regulations and laws exist, but the bigger hurdles involve a more engaged state.  Establishing law and order is crucial an environment where Naxals and terrorists run free, while criminals run for public office and court systems are overburdened.  A bigger problem is establishing health care, education, and physical infrastructure.  The state has failed catastrophically at providing these goods in the past, though various governments have seen progress in coming up with public-private partnerships to deliver infrastructure.  Creating these links and investing in social/physical infrastucture tackles the biggest hurdles towards growth in the future.  It also complements a more market-driven approach; with a greater social safety net, people are more insulated against the creative destruction of the market and can better support market initiatives.

But you look at the UPA government in the last five years and they failed badly in that role.  Sure,  NREGA and Bharat Nirman provide useful rural spending.  But that the most a government flush with cash after hard-won reforms could do is corrupt populism doesn't bode well for the polity.  Much of this work simply continues existing schemes, while the transfers could be made much more efficient through direct cash vouchers.  These types of populist sops now dominate the budget, which is facing a deficit of 11%--about as bad as in the days when this led to a crisis.

This is not the end of the world, if only because Indian savings are heavily directed towards government borrowing needs.  This leaves the corporate bond sector short of funds and dependent on foreign inflows--which are quickly diappearing.   State incoherence here comes directly from the fact that the UPA governs as a coalition and is dependent on obstructionist coalition partners to remain in power.  That said, Vajpayee while in power was able to pass bills while in power by threatening to resign.  Manmohan spent this type of political capital on a Nuclear Bill.  

The outlook going forward doesn't look great.  Both coalitions on the left and right are falling apart.  The best possibility I can see would involve a Nitish Kumar-led government with support from the BJP and some Third Front parties.  

The Dirt Industry

Just back from a trip to India.  Lots of cool stuff going on--Gurgaon looks like Hong Kong, Bhopal's still livable--but from an economist point of view there's something very strange about Asian economies: The reliance on the dirt industry.

This is perhaps most evident in China, where a full logistics supply chain links dirt farms to dirt distribution centers, onwards via truck and barge to dirt refineries, where they are processed before being sent to additional refineries.  This serves to efficiently combine and distribute many different kinds of dirt via a long logistics supply chain.  Final uses include fertilizer and plaster for construction purposes, but much of the dirt remains in a closed loop from one area to another--something of a modern day shell-trading circle.

India has further specialized in the dust and rock industries.  Abundant rock farms supply the necessary raw materials, which are distributed for end use alongside roads.  These are slowly ground into smaller and smaller rock forms, before reentering the economy in pebble form.  The dust industry tends to be a little more nature-oriented.  As leveling forests opens up vast plains of dust, these gradually enter the ecosystem in a vast cyclic pattern.  Falling on the ground, they are laboriously brushed and swept and trodden back into the air, before circulating and falling again through the efforts of time and (especially) rainfall.  On the land, patterns of dust use create migratory dunes.  

I await the work of more distinguished ecologists and economists looking into this criminally understudied economic sector.

Indian Foreign Policy

Some great stuff from my favorite South Asian diplomat about India's America delusion:

The past four-week period has also shaken up Indian illusions regarding Washington's regional policies. It is plain to see that the US never really abandoned its "hyphenated" policy towards India and Pakistan as South Asia's two important rival powers, both of which are useful in their own ways for the pursuit of the US's geostrategies. 

That's about right.  The pro-US bias in the Indian strategic community is driven by America-envy and regional disgust much more than it is by realpolitik.  Bush has done an expert job at playing on this Rodney Dangerfield ethos by convincing people that superpower status is possible if you sign on a sufficiently pro-US agenda.  This is really the status and respect Nehru cultivated people to expect, but India really doesn't offer enough to America to justify a broad licence.  Even the British are kept on a short leash, and their interests mesh pretty well.  

India's regional objectives--contain Pakistan, limit terror, hegemony over neighboring states, deter China, while getting guns and oil in exchange for tech support--overlap only partially with America's.  The decades old partnership with Russia is lapsing, while Iran is given the cold shoulder over a necessary pipeline deal, and other Middle Eastern states spurned, for what end?  So an English-speaking elite can feel good about being a star player on the Asian League of Democracies?  The American treatment of Pakistan shows that they value combating terror as a national priority, and India's treatment will be judged as a part of a regional settlement taking into account Pakistan's feelings.  In the 1960s, Johnson restricted food aid out of spite for India's non-cooperation with Vietnam.  

It's unreasonable to expect any more, and also bad to pass a nuclear deal which will solidify relations with the Americans at the cost of near-collapse of the government while bringing meager energy returns.  Just build some roads, privatize everything, and get the Russians on the phone.  Their Shanghai alliance has the same facade of autocratic unity that the Communists put up in the '50s, and beneath that you can see the tensions between a state which is rich in energy and land but short on people and one with the reverse endowments.  I'm sure the Russians could make better use of a South Asian ally (the Chinese already have theirs) with substantial technological expertise, the better to weigh against the Chinese, Americans, and whomever else they feel like annoying.

One-Party Democratic Rule

Bryan Caplan wants to know why certain places, like Singapore develop as single-party Democracies.

The traditional two-party result in Game Theory makes the assumption that voter preferences lie on a linear continuum. So given any two people, one will be more "left-wing" than the other, and you can find some moderate in between. Parties then jostle for the median voter, and political dominance is unstable.

In reality, the political landscape tends to be more broken up. You have issues like abortion which cleave the electorate. With large population areas, such large Democracies, there tend to be sufficiently many issues that the two parties take on many differing positions and you can effectively think about a "marginal voter" who is torn about which policy preferences should receive greater weight. So any political dominance is always unstable, as the other party can create enough wedge issues to come back.

The problem in smaller political units is that voters are split on fewer issues. Voters tend to be much lower information on local races and go with identity more often. In Chicago for instance, the Daley machine can get at least 60% of the vote in primaries from their vote bank of Irish, immigrants, and other whites. It's hard to compete as another Democrat (let alone a Republican) since Daley serves his base very well (plenty of union and city jobs), and his base is over half the Democrat primary pool. Add to that the fact that city dwellers tend to have relatively uniform social preferences on issues such as abortion, gay marriage, teaching evolution in school, etc.

Similar ethnic divisions are at play in Singapore (Malaysia too). With a large Chinese supermajority, the Lee family makes sure to reward their supporters well. South Africa displays this pattern too, with the ANC commanding the undivided support of a large black base (though high-profile splits in that party might be important).

Explaining this paradox is all about showing why a competing party can't arise in small places while they can in large ones. If you can get >50% of the population to care about a simple set of issues, and then become the best person at providing them with their needs, you have a stable dominant equilibrium even in a democracy.

More interesting perhaps is explaining the long legacy of one-party rule in large and pluralistic democracies like India, Mexico, Taiwan. There the answer also has to do with the costs of building a political machine, and the use of state coercion to tackle political opposition, as well as reputation buildup in the freedom struggle (in India). Information costs in large democracies mean that the scions of politically powerful families start with a heavy stock of reputation capital, explaining the prominence of political dynasties in South Asian Democracies (Gandhi, Bhutto, Zia), and also American and Japanese Democracies.

This is also why you see a greater share of female political leadership in some foreign democracies than in America. In the US, political leaders tend to be drawn from the stock of well-connected lawyers (which is largely male), while in other countries leaders are often drawn from certain families (which are, presumably, half female). Hillary Clinton's rise was only possible from her position in the Clinton family, and Pelosi too is politically well-connected. Just like female rule in those countries, the rise of female politicians here is more a dynastic victory than a feminist one (just like how Queens Elizabeth and Hatshepsut didn't really advance women causes either). People like Merkel, Thatcher, and Mayawati seem like better signs of social progress. But it's also seems easier for women to run in Parliamentary systems rather than in a more direct democracy system. With a Parliament system, you can become a great advocate for your party's views, making you as valuable as any other person, with the added benefits of tokenism. When you're running for election among real people, you also have to deal with certain stereotypes. Successful female candidates always seem to behave hyper-masculinely (Clinton, Thatcher, M from Bond) or very nurturing and non-threatening (Palin, Sheila Dixit), but they have the advantage that it's harder to attack them without looking bad. Widespread acceptance of female leaders is going to take a bit.

I suspect that as China goes democratic, it will also follow a one-party democracy. Running political operations in all Chinese states is very expensive, so a single party can take advantage of economies of scale. Meanwhile, there is a relative population homogeneity and relative policy consensus. Most political disagreements center on personality differences between rival power cliques, which currently takes place behind closed doors but could easily be democratically decided. The government is very popular and would easily win elections; popular pressures already determine much of state policy. The big difference might be on foreign policy, in which a democratically elected government would be constrained into acting more hawkish on a world stage to save face domestically. Economic policy would also probably become more distorted through the influence of rent-seeking interest groups. On the plus side, voting out incumbents is a great way to let of political steam. Right now this is taken care of by the occasional execution or firing of the designated fall-guys, but if conditions are bad enough you want the guy at the top to change too.

South Asian International Relations

Two thoughts:

1.  There are not nearly enough Indian realists.  V.S. Naipaul's biographer and the National Interest are two good examples, but generally people respond with either a "invade Pakistan" or "as always, Hindu nationalists are to blame" perspective, neither of which are entirely valid.  Is it too much to ask for a government which can coherently formulate national goals, and execute them with a minimum of fuss?  Apparently it is, so you have a government which is both incapable of fixing national security or intelligence, and also lashes out at Pakistan in unproductive ways.  

2.  Am I the only one disappointed at Obama's foreign policy policies on South Asia so far?  He talked about publicly declaring strikes against Pakistan, which John McCain rightly criticized as leaving Pakistan no option but confronting you.  Obama had to establish enough of a warlike posture at the time (given his policy on negotiating with Iran) so I can overlook that.  But now there are all these thoughts coming out about how Obama wants to appoint an envoy to "fix" the Kashmir problem.  Daniel Larson and Reihan both point out how this isn't a terribly feasible option, and can be pretty counterproductive.  We'll see how this fusion of realism/liberal interventionism philosophy goes, but my suspicion is that it breaks down in the next crisis.

Mumbai Terror

Kristol points at this piece by Martha Nussbaum, which discusses all sorts of acts of terrorism except the one that prompted the piece.  It's almost as if the academics are not disinterested scholars, but ideologues with big axes to grind.  I really lose more and more respect for these sorts of academics the more I read the things they write.  This Slate piece is also fairly inane.  

In contrast, the Indian media has pretty good reporting (especially of government failures, which were many), while the Economist has been excellent.  The always valuable Asia Times Online has a great article on the attacks.  Read the whole thing, as they say, which shows (if true) how the attacks were planned out of Pakistan, aided by rogue ISI officials, and executed by the LeT, with Al-Qaeda involvement.  Of course the Indian Embassy in Afghanistan was also attacked with Pakistani assistance.  The civilian government appears to have little control over the actions of their intelligence agencies.  

One of the reasons this makes a lot of strategic sense for Pakistan's military is that cross-border tensions will expand the need for their traditional mission--mass troops against the border with India--and reduce the urge to attack terrorism near Afghanistan.  A really interesting response--not that it's going to happen--would be for India to deploy troops to Afghanistan where NATO won't go and continue to implicitly support separatist movements in Pakistan.  Pakistan has plenty to fear from asymmetrical warfare too.  This bears costs of its own, but India has a pretty solid track record in post-conflict stablization (and has the troops to do it with).  That would squeeze Pakistan pretty badly, and that's exactly why it makes for a great barganing chip in any Kashmir discussion.  

Send in Rainbow Six

Looks like my grandfather could be right in predicting that the Mumbai terrorists came from Pakistan via boats.  This was a pretty sophisticated attack, in line with LeT's growing reach.  The stated goal was to scuttle peace talks, but there's another pretty clear goal in terms of the coming elections in six states, most of which are a close BJP-Congress lineup.  The worst impact could be in Delhi, where, despite the fact that Sheila Dixit is surprisingly popular and competent, the UPA government has managed to both suffer a string of attacks and damage their Muslim base through suspicious police shootouts.  I think it's tough to imagine this going any other way than seeing the BJP back in office, with Advani as PM and Modi on his heels with a vision of a much more muscular Hindutva agenda.  Hopefully as they stay in power, they become captured by national interests and moderate a bit away from the Sangh Parivar in favor of a broader, conservative agenda that can actually capture half the national vote on a regular basis.  They dropped swadeshi easily enough; hopefully they can go from anti-Muslim to anti-Pakistan or anti-terrorism.  Otherwise there will be more terrorist attacks to come, and not all of them from abroad.  

India will survive.  Meanwhile, the idea of Pakistan is making less and less sense.  There is essentially a Punjabi core and a series of lawless, politically mobilized frontier areas.  Shaukat Aziz, a former Citi executive, did a great job at Finance Minister, but Pakistan has seen growth surges before, and this one looks to be ending the same as the previous ones with institutional collapse (though the lawyers' revolt was surprising and a testament to growing bourgeois sentiment).  They look to be in a serious financial crisis too (who isn't?) while the military state is keeping much of the mess together, and will probably intervene again sooner or later.  As Kaplan points out, Afghanistan and Pakistan are increasingly linked, and Obama has decided to double down in this part of the world.  

More Regional Disparities

The point of talking about changing political competition is to explain the regional disparities that prop up in many places. So far there is the story of how that happened in the South--that the end of Democrat political dominance and the beginnings of economic growth are related--but I think this is broadly applicable in many places.

In India, you have the result that the Congress Party saw an close to their political monopoly in 1991 and many good things started around the same time. These are commonly seen as unrelated but my sense is that there is a relation. This appears to make that point, though a little dated, while this makes the argument with respect to human development indicators.

One interesting consequence of this idea is that wedge issues that break up an otherwise indifferent electorate really matter. The end of Democrat power in the South was fueled by such issues as abortion and Civil Rights, while several Indian states have seen the rise of regional parties that exploit various linguistic differences and petty concerns. The actual issues may be inconsequential, but they perhaps explain why southern Indian States--in which these issues were more salient, resulting in greater competition between the regional parties and Congress--generally developed more before 1991.

After 1991 you have the development of a plausibly national party of the Right as well as many other regional parties. It's tough to tease out the effects on the national level, but on the state level there were many differences coinciding with the growth of state-level disparities. The effects are not entirely positive, as in order to gain popularity the parties do all sorts of things such as incite violence, go for blatant populism, and so forth. The current Reddy-led Congress government in Andhra Pradesh is a great negative example of this--aside from bad populist schemes catered to every group, they went to far as to declare a cease-fire with Maoist rebels to allow them time to rearm, so now you have more violence than ever. And the anti-incumbency factor being what it is, many parties plunder as much as they wish while in office and rail against corruption once out of office.

But in a general climate of institutional decay, you do see some degree of improved state-level governance spurred by political competition within states and economic competition across states. To some degree this has happened across all parties: the current BJP governments in Gujarat, Madhya Pradesh, Rajasthan, Chhattisgarh, and Karnataka are all reasonably promising, while BJP-supported governments in Orissa and Bihar have upended both political dominance and bad governance. Bihar is a particularly good example, as former Chief Minister Lalu put together a populist majority and let the state wither away. New governance has improved conditions, while Lalu himself--pulled by the incentives of ascending to Prime Minister one day--has turned out an unexpectedly good manager of the Railway system. Meanwhile, Congress control of Delhi has turned out extremely well.

There's much, much more to this than just that. An excess of competition (this seems similar to the excess-entry argument in IO) in places such as Uttar Pradesh seems to simply make governing anarchic. When parties compete on grounds of solidarity or identity rather than issues or ideologies (no matter how apparently distant from actual conditions) there are fewer incentives for governments to perform well. The growth of the middle-class is really important as well, as parties begin to compete on the basis of their political values. There are many particular state-level dynamics--in Gujarat the BJP has simply dominated for some time and run a tight ship--that complicate issues. But the basic theme seems right to me, and also relatively unexplored in past studies.

Edit: It would be awesome if I knew the politics of more than two democratic countries.

More New South

Thanks to those of you (especially Chris) who had things to say about the South.  To the left is some data that gets at the point I'm trying to make.  You have a graph of per capita personal income growth relative to 1948--so this is measuring post-WWII regional disparities in growth.  The Southern states appear to be moving in unison faster than the other plotted "blue" states like California and Illinois.   

Obviously, some of this is catch-up, as the South was relatively undeveloped for a while and then various changes made it economical for companies to take advantage of the income differential.  But the development literature is also clear that convergence requires meeting certain hurdles.  Going back to 1948, armed with knowledge of future trends in services, manufacturing, and agriculture, I think you'd be hard pressed to imagine the South as a leading area of growth in the country, but that's in fact what has happened.

So then the question is why did this happen.  Here is a long list of potential explanations, implicating among others a big push in infrastructure, human capital development (the Rockefeller-funded hookworm and malaria eradication projects were also useful), climate, and of course AC.  I find these explanations slightly ad hoc and they really seem to beg the question, while also better at explaining the earlier takeoff rather than the current trajectory.  My suspicion is that within a country like the U.S., state-level institutional differences explain at least some of the difference.  

And there is in fact a political explanation which largely makes my point by arguing that the breakdown of the Democrat majority after 1960 spurred economic growth.  While I emphasized Republicans, the point is really more about the changing electoral dynamics and the growing political power of people who do not have quite the entrenched economic interests as people elsewhere in the country (though if I read the paper right, the Republicans do have a larger impact on growth).  So the argument is that the South grew because it got better political leadership which prioritized high-growth policies, though of course other things were involved.  

If you look at the right of the graph, you'll see that the growth gap appears large and growing (though blue states remain richer).  These are very partisan viewpoints, but they argue fairly convincingly that Southern states are doing well and Blue/Rust Belt states are not doing so well.  In some sense it's no surprise that the Chicago politician sees a bad economic climate and the Arizona senator sees good fundamentals.  Of course assigning causality is hard, but it's much easier on a state level--where governors can get legislation passed and attract businesses--than on a national level, where all one really has to do is not make too many mistakes and hope you get lucky.  

If you really believe these results, they point to a radically different American regional differentials.  This New Yorker article is an interesting view on Rust Belt/Appalachia and their future prospects.  They really don't look great, and I somehow doubt that Presidential politics--which was the focus of the piece--is really going to change that.  Of course, there are really two issues here.  One is the increasing regulatory and business advantage certain states hold, and the other is the continued breakdown of the American family.  The second is a lot more important--I know of no community in this country that doesn't prioritize stable families, education, and hard work that isn't doing pretty well for themselves--but the first is much more open to political change.  But again that comes from the grassroots, and the South was lucky in that it lacked the unions and pork and could jump ahead to the jucier bits of development.  It's hard to imagine this happening in many struggling states and cities, which seem to face single-party dominance and not much of a constitutency for change (more of the same?).  

The overall situation here seems to be a global trend, in which the world as a whole converges with substantial hetergeneity on political and cultural grounds.  India is a good comparison as a pluralist democracy with substantial political devolution of powers to states.  And you see the better run states getting better while other struggle.  Freer markets seem to accelerate this process; amplifying the gains while making it harder to deny people their rationalizable worth.  Many people see a "race to the bottom" but optimistically, the incentives are there for everyone to govern and produce better.

The Fundamentals

There's a good bit over at the Center for Global Development on taking the long view with respect to the economic consequences of the financial crisis.  At the end of this post are a bunch of graphs illustrating that point, containing actual and extrapolated GDP per capita for the U.S., Western Europe, China, and India on a logarithmic scale:

Looking at the actual data, it's interesting the extent to which the American real economy basically grows at a steady rate, without reference to bubbles, panics, wars, or economic and financial crises.  So despite this talk from Naomi Klein and others that we're facing a monumental crisis of faith in our economic organization, as far as the economy as a whole is concerned, we will probably just revert back to the hist

orical average.  That's not to say that there won't be distributional issues.  

Another interesting point from the historical data: Recent growth rates are higher for America 

than Europe.  Of course at least some of European growth after WWII reflects capital replacement, but it's still interesting to see that growth rate pivot somewhere in the '70s, while American growth rates continued to rise.  It's not shown here, but England shows no pivot while Ireland pivots up.  There's an argument out there that under conservative governance (but also going back to Kennedy's supply-side tax cuts and Carter's deregulation), England and America made the necessary but painful transition into a more free-market system and so enjoyed hig

her growth rates than their Continental peers.  It's certainly true that while there are many people out there calling for the demise of American economic hegemony, as the graph shows, America has kept its share of world GDP relatively constant over the last few decades while Europe and Japan have plunged and non-island Asia risen.  The American model of relatively free immigration and relatively free markets may lead to a financial crisis every ten years or so, but in the long run it's very good at generating wealth.

Looking at India and China, you really see the growth takeoff in recent years.  While China's pivot is located at the Deng political reforms, India's growth actually took off a bit before the 1991 liberalization.  This is well-known among Indian economists but tends to be overlooked by people elsewhere who prefer the reform narrative.  The growth that did happen in the '80s was unsustainable, related to hesitant reform, and fueled by currency depreciation and excessive government debt.  In fact India did face a balance of payment crisis in 1991, leading to the "shock capitalist" systemic reforms that did, of cour

se, lift millions out of poverty.  

As Easterly notes, the biggest consequences of economic shocks tend not to be in the economy itself--which recovers eventually--but on the world of ideas informing regulatory and economic structures.  So the worst economic consequences of the Great Depression are not actually felt in America--where the country is about as rich as it would be were there no Depression--but in the developing world, where the Depression served as a cautionary tale of the free markets previously dominant and encouraged cataclysmic failures in government planning worldwide.  Due to historical influence, these institutions persist till today and continue to impoverish.  I guess what I'm trying to say is that some sort of Sarkozian arrogant claim of necessity for changing the structure of the economy could end up very very badly.  

As far as the predictions go, I estimated a model and fudged the numbers from there.  In constant 1990 dollars, in the year 2030, I see Europe with a GDP of $29,000 per capita, America with about $45,000, China with $14,000 and India with $6,700.  The Europe/America gap is of course large.  Given the wealth of talent over there, I have to imagine 

that some degree of convergence will bring the two areas closer to each other as they have been historically; but maybe this will only happen for those parts of Europe that improve their institutions and maintain fertility? 

Regional Disparities

It's a myth that countries grow and that unequal growth is somehow pathalogical. Generally, a few people in a small area start growth, which then feeds into the economy as a whole. Trickle-down does in fact work, which is why the poorest decile of a rich country is much better off than the richest decile in a poor country. When the relevant area to figures out growth coincides with the political grouping--say in Botswana or Hong Kong or Mauritania--we say that the country is getting richer. When that area is inside of a larger political unit, we say that there are regional disparities.

And so you have the well-chronicled fact that India's growth is regionally unbalanced. This is often sold as the claim "western and southern states do well" but there's a bit more to it. This map (blue and red are good, brown and yellow bad) is a little dated--from the 1991 census--and so does not capture recent unequal growth, but does look at some measure of development at a district level.

One thing to note is that the landlocked northern "bimaru" states in the Hindi belt--Bihar, Madhya Pradesh, Rajasthan, Uttar Pradesh are not doing so great. Most inland areas in general are doing fairly poorly as well. Development is largely clustered into two sets of districts: Those near the coast and those along the far northern Delhi-Punjab corridor. Of course, there are some cities here and there that do well, and the whole of Maharashtra appears well-run. Coastal Andhra and Orissa are not uniformly great, but those two states have made a lot of progress in the last fifteen years not seen on the map.
This disparity is a little striking as northern India was for a long time the richest portion of India. It was the seat of the Mauryan, Gupta, and Mughal Empires and home to the British Raj. This wealth persisted even after independence.

Political mismanagment goes a long way towards explaining this gap: National Congress rule tried to eliminate regional imbalances, which involved neglecting the richer states. On the state level, coastal and far Northern states are simply run better than those in the center. Geographical size seems to matter, as smaller states tend to be better run, while the bimaru states are all massive (Though Maharashtra is rather large as well). This was the rationale for breaking off some states from the larger ones, a policy that seems to have worked rather well.

You also have to wonder if being landlocked is a curse, as per Sachs and Collier. State-level variation in GDP in America does not seem to be especially correlated to distance from the coast, but that also reflects massive investments in infrastructure that reduce transportation costs. Those inland states in India that got rich did so by exporting crop surpluses on highways and railways.

Increasing the ties betwen inland India--which includes the bimaru states as well as rural portions of coastal states--into the part of India which is growing rapidly is obviously important. It's also essential to tapping into India's "demographic divididend"--India's relatively youthful workforce. It turns out that this bonanza is largely expected in the high-fertility bimaru states--which already contain about 40% of India's population between them. For labor-intensive industry to take advantage of these workers, inland states will need to be as investment-ready as coastal states. Otherwise, the rich parts of India will see large wage inflation and the poorer parts significant unemployment.

Massive investments in human capital and infrastructure are necessary to close this gap, and accountable governance in smaller states is the way there. Plans for a freight corridor between Delhi and Mumbai along Tokyo-Osaka lines are promising, and the Golden Quadrangle linking major Indian metros is working well. Another corridor from Delhi to Calcutta along the Grand Trunk Road could hit another quarter of the population.