Person:

Pritchett, Lant

India is an emerging global superpower as its rapid growth has transformed its economy and has maintained itself as the world’s largest democracy. But at the same time India lags in many dimensions—its malnutrition rate is one of the highest in the world, its immunization rates are lower than most African countries, and Bangladesh has a better infant mortality rate. I argue that this is in part because the India state is “flailing”—its very capable head is not longer reliably connected to the arms and legs of implementation. In the four-fold transition of economy, polity, administration, and society the administrative capability of the state is lagging. I use examples from services like health, education, and routine transactions like issuing driver’s licenses to show that the agents of the state routinely do not implement the tasks they are assigned—causing a massive divergence between de jure and de facto reality. The paper concludes with speculations about the causes of flailing and possible future trajectories.

Firms in Africa report "regulatory and economic policy uncertainty" as a top constraint to their growth. We argue that often firms in Africa do not cope with policy rules, rather they face deals; firm-specific policy actions that can be influenced by firm actions (e.g. bribes) and characteristics (e.g. political connections). Using Enterprise Survey data we demonstrate huge variability in reported policy actions across firms notionally facing the same policy. The within-country dispersion in firm-specific policy actions is larger than the cross-national differences in average policy. We show that variability in this policy implementation uncertainty within location-sector-size cells is correlated with firm growth rates. These measures of implementation variability are more strongly related to lower firm employment growth than are measures of "average" policy action. Finally, we show that the de jure measures such as Doing Business indicators are virtually uncorrelated with ex-post firm-level responses, further evidence that deals rather than rules prevail in Africa. Strikingly, the gap between de jure and de facto conditions grows with the formal regulatory burden. The evidence also shows more burdensome processes open up more space for making deals; firms may not incur the official costs of compliance, but they still pay to avoid them. Finally, measures of institutional capacity and better governance are closely associated with perceived consistency in implementation.