BSST in class

Indian Express, 24 May 2010

Comparisons among BRIC countries has become a norm. However, when thinking about policy analysis, this is not the best set of countries for India to compare with. The legal framework and governance characteristics of Brazil, South Korea, South Africa and Turkey (the BSST countries), are much closer to those seen in India, and hence we should be using these four countries much more in policy comparisons.

One element of good policy making is learning from peers. On most questions, it is interesting and useful to ask: How do our peers deal with this? Whether we are looking at problems like Chinese telecom companies, or visa rules, or monetary policy, or tariffs or fiscal deficits: it is meaningful to compare India against peers. These comparisons can sometimes throw up interesting ideas which can be adopted in India. At other times, the specific solutions adopted in India would often be uniquely Indian, but an understanding of what worked in peer countries and why, can improve the analysis.

For such peer comparisons, we need to identify a set of peer countries. These peer countries should satisfy two requirements. First, the should be large and complex countries. Second, their constitutional, legal and governance frameworks should be similar to that present in India today.

Goldman Sachs has made the phrase `BRIC' famous. Brazil, Russia, India and China have come to be seen as four large developing countries. This could suggest that Indian policy analysis could usefully engage in comparisons and contrasts against Brazil, Russia and China. But when careful analysis of policy questions is undertaken, there are acute disparities between India on one hand and Russia and China on the other. Whether we analyse infrastructure regulation or financial regulation, policies about privatisation, about public private partnerships, or the institutional environment in which growth takes place, the policy climate in Russia or China is completely different from that seen in India.

In a democratic society, accountability of government agencies, placing the interests of the population above those of the executing agency and the implementation of a process of transparent rules and laws are of supreme importance. As a consequence, policies that may be acceptable in Russia and China, where the rule of law is not prevalent, are often not acceptable in India. The mechanism through which a highway is built, a public sector enterprise is sold to a private company, or land is acquired for public use, in China and Russia is very different from what would work in India, and we in India would not want to go down their route, given our interest in fostering accountability, checks and balances, and protection of the rights of the individual.

If BRIC is not a meaningful club for the purpose of comparative law and policy analysis, then an alternative club needs to be created. We start from the G-20 member countries, so as to focus on large and complex countries. We then turn to a series of indicators which measure the legal and governance environment, including : (i) voice and accountability, (ii) political stability (iii) government effectiveness, (iv) regulatory quality, (v) rule of law (vi) control of corruption (vii) economic freedom and (viii) political freedom.

On these parameters, China and Russia prove to be highly dissimilar to India, with inferior governance quality. Countries like the UK and the US have very high scores on these issues and are thus also unlike India. Policy proposals that work well in the US and the UK are often not useful in India, given the more fragile governance environment in India.

The four G-20 countries which have values which are the closest to India are: Brazil, South Africa, South Korea and Turkey. We term these `the BSST countries'. There is a striking commonality between India and the BSST countries, when it comes to the above eight measures of the constitutional, legal and governance environment. Brazil and South Africa are complex federal countries much like India in terms of having provinces and diverse ethnic groups. Barring South Africa which has a GDP of $276 billion, the other three are in the right ballpark when compared with India on nominal GDP, with Korea at $929 billion, Turkey at $735 billion and Brazil at $1.58 trillion.

This reasoning suggests that when faced with a diverse array of issues, Indian policy reform should take interest in how things are done in the BSST countries. There is much to be learnt by undertaking comparative law and comparative policy analysis against these four countries. All four countries are ahead of India in terms of per capita GDP. South Korea is ten times of India, and the other three are three to four times of India. South Korea and Turkey are members of OECD, which exerts a beneficial influence on improving laws and governance. Hence, on many issues, the policy choices of these countries are likely to be superior to what India is doing. In other words, there is a lot to learn.

In terms of legal tradition, none of these countries have the British-style common law where India started out after independence. In this dimension, these peer comparisons are not useful, for India needs to move towards more of a UK/US style common law framework, given the extensive evidence of the superiority of common law as a foundation for liberal democracy and vibrant economic growth. But here also, Russia and China are not better peers because neither of them have a common law system, and their rule of law is much inferior to that seen in the BSST countries.

For a policy analyst, studying the BSST countries is difficult given the language barrier: most people in India do not know Portugese, Afrikaans, Korean or Turkish. But this is not particularly different from the constraints faced in studying the Russia or China, where most people in India do not know Russian or Chinese. In practice, examining the BSST countries would be done by looking at cross-country databases and at research materials available in English.

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