A Ja­panese De­vel­op­ment Course for In­dia

The Pak Banker - - OPINION - Noah Smith

For decades I've been hear­ing about In­dia's need to mod­ern­ize its in­fra­struc­ture. In­fra­struc­ture is cru­cial for man­u­fac­tur­ing, since var­i­ous in­puts need to travel quickly and re­li­ably be­tween and within cities in or­der to cre­ate sta­ble sup­ply chains. Man­u­fac­tur­ing, in turn, is cen­tral to de­vel­op­ment -- it moves peo­ple from farms to cities, where they be­come more pro­duc­tive, and it helps lo­cal com­pa­nies ab­sorb ad­vanced tech­nol­ogy from the rest of the world.

Although man­u­fac­tur­ing is de­clin­ing in im­por­tance in the global econ­omy, there is still a chance that In­dia can hop on the man­u­fac­tur­ing-based de­vel­op­ment bus. At a min­i­mum, it's def­i­nitely worth a shot. And to do so, In­dia needs much bet­ter in­fra­struc­ture -roads, rail­ways, air­ports and power grids. Eco­nomic re­search even sup­ports this hy­poth­e­sis -- In­dia's Golden Quadri­lat­eral high­way pro­ject, started in 2001, has helped In­dian com­pa­nies and boosted pro­duc­tiv­ity. Yet In­dia needs to do a lot more in the in­fra­struc­ture depart­ment. A 2013 re­port by Price­wa­ter­house­Coop­ers puts it thus:

Rapid in­dus­tri­al­iza­tion is in­ten­si­fy­ing the strain on [In­dia's] un­re­li­able net­works for elec­tric­ity and wa­ter. The rail­way sys­tem - al­ready in­fa­mously over­crowded - faces ris­ing de­mand for freight ca­pac­ity. And the gov­ern­ment has fallen far short of its plans to build 20 km of roads each day - an ur­gent re­quire­ment in a na­tion where 65% of all freight is trans­ported by road, and where traf­fic is so se­vere that the max­i­mum high­way speed for trucks and buses is only 30-40 km per hour. The need to up­grade In­dia's in­fra­struc­ture is es­pe­cially acute in huge cities such as Mum­bai, New Delhi, Kolkata and Ban­ga­lore. ..[M]as­sive in­vest­ment will be re­quired in ev­ery­thing from metro sys­tems to clean wa­ter sup­plies, power gen­er­a­tion to af­ford­able hous­ing. Why is In­dia such an in­fra­struc­ture lag­gard, al­ways strug­gling to patch things to­gether, while China -- the world's other su­per­giant de­vel­op­ing coun­try -- races ahead? The tra­di­tional an­swer is that democ­racy is hold­ing In­dia back. China, we are told, was able to build top-notch road, rail and wa­ter trans­port net­works be­cause, as a dic­ta­tor­ship, it could sim­ply or­der peasants to move out of the way. Many take this as a re­ceived truth -- In­dia, they say, sim­ply has to choose be­tween democ­racy and ef­fi­cient gov­ern­ment.

But this story, con­vinc­ing as it sounds, isn't right. History shows that it's pos­si­ble for democ­ra­cies to build ef­fec­tive in­fra­struc­ture. Per­haps the best ex­am­ple is Ja­pan. Ja­pan is a strongly demo­cratic na­tion, con­sis­tently re­ceiv­ing high marks in terms of po­lit­i­cal free­doms. And it's im­pos­si­ble to deny that the coun­try has built one of the world's best in­fra­struc­ture sys­tems. It's shock­ing how easy it is to get from Point A to Point B in Ja­pan, whether you're a busi­ness trav­eler rid­ing a high-speed train or a trucker driv­ing down the high­way.

One gen­eral les­son many peo­ple took from Ja­pan's suc­cess -- at least, be­fore the Ja­panese econ­omy stalled out in the 1990s -is the power of tech­noc­racy. If they work effi- ciently, tech­noc­ra­cies al­low demo­crat­i­cally elected leg­is­la­tures to give small groups of ex­perts the abil­ity to make pol­icy in the short term, while keep­ing them ac­count­able in the long term. If the tech­nocrats over­step their bounds and do some­thing strongly con­trary to the public's wishes, the leg­is­la­ture can rein them in. But most of the time they can op­er­ate with a long leash, get­ting things done quickly and de­ci­sively. Dur­ing its early de­vel­op­ment, Ja­pan com­bined pow­er­ful min­istries, with mem­bers re­cruited from top schools, with pow­er­ful public cor­po­ra­tions.

In­dia seems to be tak­ing that gen­eral les­son to heart. The gov­ern­ment of Prime Min­is­ter Naren­dra Modi has es­tab­lished a Na­tional In­vest­ment and In­fra­struc­ture Fund, for which it prom­ises to re­cruit the "best tal­ent in the world." With In­dia's huge pop­u­la­tion and deep tal­ent pool, it will not have to look far. In ad­di­tion, Modi has promised $1 tril­lion of in­fra­struc­ture spend­ing by 2017. Of course, bu­reau­cra­cies are not om­nipo­tent. Some re­searchers claim that Ja­pan's sys­tem of com­pe­ti­tion be­tween gov­ern­ment min­istries has re­duced the ef­fec­tive­ness of Ja­pan's in­fra­struc­ture pro­grams in re­cent years. And Ja­pan has over­built in­fra­struc­ture, ac­cord­ing to a re­cent McKin­sey re­port, in a mis­guided ef­fort to stim­u­late growth. As for those vaunted public cor­po­ra­tions, many are now un­prof­itable.

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