Liberalization and Structural Dislocations

Harsh and I have co-authored a piece on how liberalization brings structural dislocations with it. The solution is counter-intuitively not to stop liberalization, but to liberalize deeper and faster:

The fable of The Shop Around The Corner rings true in all market-oriented economies. Customized clothing makers in London’s storied Saville Row found themselves unable to compete with the onslaught of ready-to-wear high-street fashion, and many of them closed down. The street once famed for its bespoke tailors recently saw the opening of American casual wear chain Abercrombie & Fitch.
The catch is that the economies of London and New York are open and dynamic enough to absorb such change, since they are far more free from government control. This is simply not the case in India, and also why the government must design and sequence its reform policies correctly, following through with more market reforms if it indeed manages to push through FDI in retail.
More here.

A Nosy Government

Harsh and I have co-authored a piece on how government interference across industries hamstrings India’s economic performance:

The irony is that farmers and billionaires alike suffer the same fate at the hands of a nosy government that wants to needlessly interfere in economic activity. Farmers, of course, have it even worse – the government retains so much influence over their industry that they can’t even price their products themselves. The romanticization of poor farmers prevents us from thinking of them as private sector participants. Various agricultural commodities in India are still subject to strangulating regulations on aspects such as pricing, transportation, packaging and point of sale. Labour and energy markets for farmers continue to be distorted. Inefficient employment schemes make labour expensive during harvest season. Power availability remains inconsistent because most states – Gujarat being a notable exception – do not have the political courage to say no to free electricity. Of course, the effective price of something which is not available is not zero, but infinite.

More here.

India’s Road To Fiscal Ruin

Harsh and I have co-authored a piece on the Indian government’s irresponsible spending spree:

“My appetite is infinite and my greed is more.”

These words were uttered not by a banker or CEO from the top 1% of the income pyramid, but by finance minister Pranab Mukherjee. He was exhorting his officials to ramp up tax collection, according to a June report by the Press Trust of India. His government’s addiction to ever-increasing spending is decimating the nation’s balance sheet.

More here.