by  Alex Tabarrok

This article is from Tyler Cohen’s Feedspot Weekly. The paper on which it is based has some lessons for South African sustainability practitioners:

Walking around one of the tonier districts of Mumbai I came across a sign, “Avoid Using Plastic Carry Bags.” The sign would not have been out of place in Portland or Berkeley but less than a block away cows and people were sleeping on the street. The incongruity motivated my new paper, Premature Imitation and India’s Flailing State (with Shruti Rajagopolan). We argue that one reason that India passes laws which are incongruous with its state of development is that Indian elites often take their cues about what is normal, good and desirable from Western elites. There’s nothing wrong with imitation, of course. We hope that good policies will be imitated but imitation in India is often premature. Premature because India does not have the state capacity to enforce the edicts of a developed country.

Premature imitation doesn’t simply mean that proportionately less is done,  it results in tensions that lead to corruption and a flailing state, a state that cannot implement its own rules because it is undercut by the incentives of its own agents. Premature imitation amplifies a development trap.

What then is to be done? We argue that the ideal policy regime for a government with limited state capacity is presumptive laissez-faire.

The Indian state does not have enough capacity to implement all the rules and regulations that elites, trying to imitate the policies of developed economies, desire. The result is premature load bearing and a further breakdown in state capacity….At the broadest level, this suggests that states with limited capacity should rely more on markets even when markets are imperfect—presumptive laissez-faire. So when the cost of state action increases, markets should be used more often.

Presumptive laissez-faire is not an argument that laissez-faire is optimal but an argument that state capacity is a limited resource that must be allocated wisely. The idea runs against the “folk wisdom” of development economics. The folk wisdom says that developing countries today can leap over the laissez-faire period  that most developed countries went through and instead move directly to the middle way.

In the alternative view put forward here, relative laissez-faire is a step to development, perhaps even a necessary step, even if the ultimate desired end point of development is a regulated, mixed economy. Presumptive laissez-faire is the optimal form of government for states with limited capacity and also the optimal learning environment for states to grow capacity. Under laissez-faire, wealth, education, trade, and trust can grow, which in turn will allow for greater regulation.

Read the whole thing.