There is the same contrast even between people; between the few highly westernized, trousered, natives educated in western universities, speaking western languages, and glorifying in Beethoven, Mill, Marx or Einstein, and the great mass of their countrymen who live in quite other worlds.
--W. Arthur Lewis, "Economic Development with Unlimited Supplies of Labour"
Lant Pritchett (2009) has called India a flailing state. A flailing state is what happens when the principal cannot control its agents. The flailing state cannot implement its own plans and may have its plans actively subverted when its agents work at cross-purposes. The Indian state flails because it is simultaneously too large and too small: too large because the Indian government attempts to legislate and regulate every aspect of citizens' lives and too small because it lacks the resources and personnel to rule according to its ambitions. To explain the mismatch between the Indian state's ambitions and its abilities, we point to the premature demands by Indian elite for policies more appropriate to a developed country. We illustrate with four case studies on maternity leave, housing policy, open defecation, and education policy. We then conclude by discussing how the problem of limited state capacity points to presumptive laissez-faire as a preferred governing and learning environment for developing countries.
Matt Andrews, Lant Pritchett, and Michael Woolcock (2017) point to one explanation for India's flailing state. In order to satisfy external actors, the Indian state and other recipients of foreign funding often take on tasks that overwhelm state capacity, leading to premature load bearing. As these authors put it, "By starting off with unrealistic expectations of the range, complexity, scale, and speed with which organizational capability can be built, external actors set both themselves and (more importantly) the governments they are attempting to assist to fail" (62).
The expectations of external actors are only one source of imitation, however. Who people read, listen to, admire, learn from, and wish to emulate is also key. We argue that another factor driving inappropriate imitation is that the Indian intelligentsia--the top people involved in politics, the bureaucracy, universities, think tanks, foundations, and so forth--are closely connected with Anglo-American elites, sometimes even more closely than they are to the Indian populace. As a result, the Indian elite initiates and supports policies that appear to it to be normal even though such policies may have little relevance to the Indian population as a whole and may be wildly at odds with Indian state capacity.
This kind of mimicry of what appear to be the best Western policies and practices is not necessarily ill intentioned. It might not be pursued to pacify external or internal actors, and it is not a deliberate attempt to exclude the majority of citizens from the democratic policy-making process. It is simply one by-product of the background within which the Indian intellectual class operates. The Indian elites are more likely, because of their background, to engage with global experts in policy dialogues that have little relevance to the commoner in India.
In the next sections, we discuss the flailing state and the demographics of the Indian elite. We then illustrate with case studies on maternity leave, housing policy, open defecation, and right-to-education policy how India passes laws and policies that make sense to the elite but are neither relevant nor beneficial to the vast majority of Indians. We conclude with a discussion of the optimal governing and learning environment when state capacity is limited.
The Flailing State
In India, corruption often takes the form of circumventing the law. Some 30 percent of driver's licenses are estimated to be fake (PTI 2016). Of the licenses that aren't fake, a large number of drivers manage to avoid taking the driver's test, which leads to unqualified drivers and more accidents on the roads (Bertrand et al. 2007). It's possible to tell a story in which these outcomes are a design from the top, but it's more realistic to see them as a consequence of agents who do not obey principals--a flailing state. In China, this kind of corruption leads to executions. The executions don't happen in India, one feature or bug of democracy, but that shouldn't be taken to imply acquiescence, let alone approval. Despite some of its own problems with corruption, India's top-level bureaucracy is of very high quality. The rot in India usually does not come from the head (Vaishnav and Khosla 2016).
Part of the problem is a simple lack of personnel. India, for example, has surprisingly few government workers--about one-fifth as many per capita as the United States. The number of police per capita, for example, is only 135 per 100,000, one of the lowest rates in the world and far below the median (318) or mean (333) of police officers per 100,000 capita in the rest of the world (UN Office on Drugs and Crime 2017). Moreover, a significant number of the police are assigned to VIPs rather than to protecting the public at large (Vaishnav 2017). The number of judges per capita (12 per million) is far below the U.S. rate (108 per million), which helps to explain India's enormous backlog of 32 million cases, millions of which have been in process for more than a decade (Joshi 2017).
Although most of India's governance problems can find links to the lack of manpower in state services, there is also the problem of regulatory overload. The top levels of government impose a massive regulatory burden that is increasing each year, with little attention paid to personnel and state capacity. Many regulatory and civil offenses are increasingly categorized as criminal offenses and arbitrarily enforced (Rajagopalan 2017).
India has essentially all the inspections, regulations, and laws a developed country such as the United States has, but at approximately $235 of federal spending per capita the Indian government simply cannot accomplish all the tasks it has assumed. (1) Consider: U.S. federal government spending per capita was five times higher in 1902 than Indian federal government spending per capita in 2006 (Andrews, Pritchett, and Woolcock 2017, 58). Yet the Indian government circa 2006 was attempting to do much more than the U.S. government did in 1902.
The lack of state capacity (relative to ambition) doesn't simply mean the government does everything at a proportionately smaller scale. The lack of capacity creates diseconomies and problems, such as corruption, that reduce capacity even more than resources. Consider New York City's system of A, B, and C rankings for restaurant hygiene. Even though there are peculiarities in the data, such as bunching, that suggest ratings are somewhat manipulated, the system works tolerably well. Why? The incentives on both the inspector side and the restaurant side generate a stable, low-evasion equilibrium.
Inspectors, for example, are paid up to $37 an hour (Salary.com 2018), which is likely higher than their next-best wage. Thus, health inspectors earn a rent. Because the wage-rent would be lost if the inspectors lost their jobs, inspectors have an incentive to follow the rules even when the probability that they might be caught accepting a bribe is low (Becker and Stigler 1974). The wage-rent earned by inspectors is only part of the solution, however, because if many restaurant owners offered bribes, the wage would have to be extremely high to make bribe taking unprofitable--so high that the system would be rendered uneconomic. But most restaurant owners don't offer bribes because offering a bribe to an honest inspector could lead to a worse outcome (jail) than accepting the rating.
Thus, most inspectors don't take bribes, in part because there aren't enough bribe givers to make bribe taking profitable given the inspectors' wage-rent. And most restaurants don't offer bribes because there aren't enough inspectors willing to take bribes to make bribe offering cheaper than fixing the hygiene problem. Thus, health inspectors maximize utility by being honest given the actions of restaurant owners, and restaurant owners maximize utility by being honest given the actions of health inspectors. The system is in equilibrium (Kleiman 1993; Tabarrok 1997).
The low-bribery equilibrium, however, is not the only possible equilibrium. Suppose we begin with a situation in which bribery is more common, perhaps because of differences in culture, such as tribal connections, that increase the cost to inspectors for not taking bribes. In this case, the same wage may not be enough to incentivize honesty on the part of health inspectors. With more restaurants offering bribes, it's more profitable to accept bribes. Moreover, inspectors' chance of being caught may decline as the number of bribes increases--what Mark Kleiman (1993) calls "enforcement swamping." At a low level of bribe taking, a small enforcement squad can capture most bribe takers; but the probability of being caught can decline as bribe taking increases. Compare this situation to vandalism and theft. Because the probability of capture is usually high, most people don't routinely smash store windows and run off with television sets. But if lots of people smash store windows and run off with television sets, then the probability of capture declines, and so more people do likewise--thus setting off a riot (Tabarrok 1997).
Establishing a restaurant inspection system in a developing country can be like trying to create law and order during a riot. Given lots of potential bribe givers, wages can't be set high enough (economically) to prevent bribe taking. Given plenty of bribetakers, it's cheaper for bribe givers to offer bribes than to fix their hygiene problems. A more extensive regulatory system can simply make the problem worse by increasing the incentives to offer and take...