[PDF Notes] How to bring about sustainable reforms in India?

Deep distributional conflicts and constraints embedded in state institutions are at the heart of the explanation for so many countries’ failure to reform. But they are not immutable. Ultimately, change comes when the incentives to throw out the old policies and old institutional arrangements become stronger than the incentives to keep them.

An economic crisis or an external threat, or the arrival of a new government with fewer vested interests in the old system, may provide the impetus for reform. But reform can be delayed if those in power stick with outdated policies because it is in their (or their allies’) interest to do so. And the delay can sometimes be painfully long, as in Haiti under the Duvaliers, or Zaire today.

Neighbors, too, can be a powerful motivator for change. There is a clear domino effect at work in the wave of reform sweeping East Asia, Latin America, and much of Eastern Europe and the former Soviet Union.

The threat being left behind can goad countries to improve the functioning of their bureaucracies. But research has yet to explain why some countries respond to crises and others do not. Why, for example, does popular tolerance of inflation seem to be much lower in Asia than in parts of Latin America? And why can some countries endure a long period of economic decline before responding, while others take action much sooner?

Often the analysis of winners and losers yields a prediction of when-or at least whether-reforms will be undertaken. Reforms have little appeal if the winners cannot compensate the losers even when the potential gains are enough to allow for compensation, reform can be hard to achieve because the gains are spread over many people, whereas the losers, although smaller in number, are powerful and articulate.

A further problem is that the benefits are often realized in the future, whereas the losses are immediate. Yet sometimes conditions have deteriorated so far that the winners far outnumber the losers. Then reform can produce immediate economic and political gains.

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