Thursday Idiocy on Wednesday: Are Any of the Hierarchs Past and Present in the Catholic Church in Ireland Not Damned?
Afternoon Must-Read: Michael Albertus and Victor Menaldo: Gaming Democracy: Elite Dominance during Transition and the Prospects for Redistribution

Afternoon Must-Read: Martin Wolf: Legitimate business unlocks growth

Martin Wolf: Legitimate business unlocks growth: "If Narendra Modi, India’s prime minister...

...seeks an example of a democratically elected leader embarked on radical reform, he could look to Enrique Peña Nieto. True, the latter is president of a far-smaller country, and a richer one – Mexico’s average standard of living is double India’s.... Both need to generate market-oriented growth in economies that show a huge gulf between a high-productivity formal sector and a low-productivity informal one. Mr Peña Nieto has embarked on bold reforms. Is his the model to be followed?... For those who believe that opening up to trade is a guarantee of rapid growth, this is a sobering tale: the ratio of trade to GDP jumped from 39 per cent in 1990 to 65 per cent in 2011. Exports to the US rose sixfold under Nafta. Yet the economy underperformed.... While productivity rose at a compound rate of 5.8 per cent a year between 1999 and 2009 in companies employing more than 500 people, it rose at just 1 per cent a year in companies employing between 10 and 500 people, and fell at a rate of 6.5 per cent in companies employing fewer than 10....

What lies behind the falling productivity and rising share in total employment of small businesses? Why, for that matter, have midsized businesses been so undynamic? McKinsey advances three hypotheses... the regulatory and fiscal burdens of becoming large and formal are high... small businesses lack access to credit... infrastructure, energy costs, supply of skills and quality of governance leave much to be desired. This affects businesses both big and small but makes it particularly hard for small and midsized companies to prosper.... The McKinsey analysis is... limited. The informal sector is operating as a sink for Mexico’s excess labour.... Declining productivity in the informal sector is not just a product of what is happening in that sector. It is a result of slow employment growth elsewhere....

Since Mexico is already a middle-income country, that will require not just market-oriented reforms but a radical improvement in the quality of state institutions. The informal sector will need to be brought within the ambit of a supportive regulatory and legal framework.... Mexico’s past offers a warning; its present offers hope. But it is far from certain that the programme of reforms, albeit necessary, will also be sufficient.... What is needed is not just a big improvement in policy but also one in governance. This is true in Mexico and India alike...

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