The famous Coase Theorem on the 'efficiency' of tort rules, can be reformulated in the present Indian context to ask the following question: If reforms are so good, how come it is so hard to implement them? The answer, if Mr Vajpayee's recent Cabinet reshuffle is any indication, is because there are only a few good men to implement them.
As an over-simplified explanation there may be some merit in it but to stop at that will be quite risky due to a couple of reasons.
For one, because of such an understanding of the policy-making process, economic reforms begin to take very idiosyncratic characteristics.
Second, and more importantly, it is being glossed over that there is a generalised systemic incapacity to strike and realise efficient inter-temporal political agreements necessary to implement good policies.
This incapacity, in turn, is conditioned by the unreformed institutional endowments of the country.
Seen in this context, replacing a Pramod Mahajan with an Arun Shourie is nothing more than a temporary reallocation of institutional power. More specifically, it is a temporary reallocation of effective power among underlying interest groups.
At the most basic level, policies are rules that regulate or seek to regulate the behaviour of economic agents. For instance, a policy that defines tax bases and tax rates. These have been introduced and a wide range of changes have been implemented in the Indian policy environment.
It is at the next level, the instrumentalist arena, where it is determined who has the power, under what procedures, to legislate (for example, on a particular tariff rate across different players) where problems keep cropping up.
The whole debate of Arun Shourie versus Ram Naik is nothing but a manifestation of this. Even as this engages most commentators today, more important are the politico-institutional rules.
They together with a number of contextual and informal elements determine the actual workings of the policy making system (i.e., is the bureaucracy professional, are legislators policy-oriented, do the ministers act in concert with corporates).
For brevity, one calls these deeper institutional determinants, structural factors.
In this scheme, reforms carried out so far have been pure policy reforms (like fiscal reforms), and some intermediate level of reforms like (divestment). But all these reforms have left structural basis for the most part unaffected.
What is now becoming increasingly evident is that the structural factors heavily condition not only the choice of policy reforms but also details of implementation and effectiveness.
It is obvious that the capacity the political system has to enforce certain rules is limited, pointing to a need for structural reforms.
Instead of recognising and addressing this, what is being done is to deal with the instruments of operation. It is doubtful whether such superficial changes of changing and swapping ministers will foster the introduction of deeper reforms.
What the system needs is an approach that focuses on enhancing the ability that the polity has of undertaking political exchanges necessary to bring about good public policies.
In pure game theoretic language, the inefficient policies (e.g in telecom) that are now being debated can be seen as the outcome of a non-cooperative movement in the policy making game.
In reality, policies are complex objects, with multiple stages, and taking reform to full fruition is a process involving multiple actors through multiple stages of the policy process, requiring specific responses from economic and social agents, and hence requiring several forms of cooperation and positive beliefs on the durability of the policy.
That is, policies require a lot more than one magical moment of a special person in order to produce effective results. These can at best yield a decentralised equilibrium, which is likely to come about in the absence of an encompassing institutional setup that would enforce cooperation.
As such, there is need to generate conditions for the deliberative construction of bargains and consensus necessary to sustain quality policies and solid institutional reforms.
But here again, this capacity for constructing inter-temporal cooperation is heavily affected by the political institutions of the country, the institutional environment which has remained virtually unchanged.
It needs to be recognised that most aspects of reform have temporal dimensions that require substantial inter-temporal cooperation.
At the macro level, better policies can be fostered by procedural rules that facilitate inter-temporal cooperation.
At the micro level, there has to be approach to policy initiatives that endogenise the governance structures that support those policies.
More than men, it is the politico-institutional environment, together with the underlying features of the policy issues at stake, that determines the governance structure for each politically sensitive policy initiative.
These endogenously derived features of political transactions are the characteristics of public policies. Whether policies (and processes) with desirable properties emerge, will depend on whether the political institutions underlying the policy process lead to cooperative behaviour or not.
Since these structures are not reformed, it is leading individual policymakers to behave in an opportunist manner and individual opportunism leads to poor coordination.
Also, to legitimise such opportunism, actors embed rigidities in policies, thereby impairing efficient adjustments.
