#88 Economics Matters, Capitalism Works

This newsletter is really a weekly public policy&#160;thought-letter. While excellent newsletters on specific themes within public policy already exist, this thought-letter is about frameworks, mental models, and key ideas that will hopefully help you think about any public policy problem in imaginative ways. It seeks to answer just one question:&#160;how do I think about a particular public policy problem/solution?<br/><br/>PS: If you enjoy listening instead of reading, we have this edition available as an audio narration courtesy the good folks at&#160;<a href="https://www.ad-auris.com/">Ad-Auris</a>. If you have any feedback, please send it to us.<br/><br/>India Policy Watch: Pro-market Vs Pro-business<br/><br/>Insights on burning policy issues in India<br/><br/>&#8212; Pranay Kotasthane<br/><br/>Indian governments have a rule-making obsession. These myriad rules, regulations, and laws are particularly onerous for running businesses. One anticipated unintended consequence is self-evident: over-regulation incentivises businesses away from the regulated activity into an activity that is far more harmful. <br/><br/>But that&#8217;s not all. The other unintended consequence is that overregulation increases rent-seeking opportunities i.e. some businesses cut side-deals with regulatory agents and thrive. Hallward-Driemeier and Pritchett explain this succinctly in <a href="https://www.aeaweb.org/articles?id=10.1257/jep.29.3.121">their 2015 paper</a>:<br/><br/>&#8220;when strict de jure regulations meet weak governmental capabilities for implementation and enforcement &#8230; researchers and policy makers should stop thinking about regulations as creating &#8220;rules&#8221; to be followed, but rather as creating a space in which &#8220;deals&#8221; of various kinds are possible&#8221;.<br/><br/>Kar, Pritchett et al in a <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3437764">2019 paper</a> find further evidence of the way these deals play out. They reach an interesting conclusion that as regulatory stri