Thoughts on economics and liberty

Changing India will require tailoring reforms to align with India’s beliefs

Below is a link to a fascinating talk between two of the best thinkers in the world today, Timur Kuran (who taught me at USC) and Douglas North (whose seminal work on institutions has generated an entire field of study).

The process of achieving social outcomes can be summarised thus:

Cognitive (brain) imperatives [System 1, System 2] > Constructs of reality > ideology (overarching worldview) > beliefs and belief systems > institutions (formal and informal) > technological and economic outcomes.

There is a missing link in this logic chain which I'll touch upon it briefly below, but this (above) description is an excellent starting position.

Institutions are sticky and have a tendency to freeze, particularly where religious beliefs get involved.

An open society continually improves outcomes by evaluating, feeding back the evaluation into new ways of thinking, creating new constructs of reality that ultimately lead to new and better (more efficient) outcomes. No institution is efficient, in that sense. All have scope for improvement. 

What this way of looking at the world does is to show that we can't copy institutions/rules that have worked well in some other country into India. We need to tailor 'best practice' rules to the Indian context. That's what I've attempted briefly to outline in BFN (chapter 6), and that's what FTI will need to do – in greater detail.

At the end North asks Kuran about the $64,000 question: how does one motivate blatantly inefficient institutions to change? I believe in this regard, Kuran rightly mentions openness. The internet is forcing such openness in the world today.

But I believe both Kuran and North have missed the elephant in the room: Leadership. They talk about Lenin but miss the point about Lenin. He was the ORGANISER who translated ideology into institutions. You need an actor between belief and change. 

I don't mean bureaucratic or academic leadership here. That's all good, but a Hayek without Thatcher is impotent. Today you see this with Ayn Rand. Without the Tea Party, her ideas would remain merely on paper.

Therefore, while all levels of leadership are important, POLITICAL leadership is the main driver of institutional change.

I'm not saying that transformational political leadership is easy, or that it can flourish without the right circumstances, but I'm saying that political leadership is the only way to achieve significant institutional change.

Sanjeev Sabhlok

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