ACCUMULATING PERIPHERALS


Think global, rent-seek local by mattsteinglass
March 1, 2009, 9:13 pm
Filed under: Uncategorized

Matthew Yglesias makes an excellent point about the tendency for US states to be more domineering, to engineer more pointless regulation and to be even more prone to regulatory capture than the federal government. I just wanted to point out that this also holds true around the world. It’s widely recognized that the Chinese national government is far more progressive, less corrupt, and more interested in the rule of law and in forward-looking issues like environmental policy than the provincial governments, and because provincial governments are vastly more important in implementing most kinds of policy that’s become a severe stumbling block to China’s modernization.

The same is absolutely true of Vietnam, which like China has a highly federalized system of government. There are some cases in which regional autonomy really has allowed experimentation — rapid economic progress in Ho Chi Minh City owes a lot to the ability of its local leaders to move faster in attracting foreign investors, and the city and provincial leadership in Danang is widely viewed as offering a model of urban planning. But for the most part the competition between provinces has not tended to make the economy more free-flowing and liberal, but to make it more overregulated and distorted. Numerous initiatives on cutting red tape for establishing new businesses and getting land-use licenses issued faster have been issued at the national level and explicitly violated at the provincial or district level, by local institutions that want to maintain their power and opportunity for rent-seeking.

The current example of this problem that really sticks in my craw is the inability of the Vietnamese government to pick one major port hub in the center of the country for development; each province, and indeed each mini-economic zone within each province, is trying to build its own deepwater port. This means that Vietnam’s gorgeous coastline is being torn apart to build dozens of inefficient little ports that will never be able to compete with Singapore and Hong Kong for the ultra-giant container ships that handle today’s global freight. For example, Van Phong Bay, home to the wonderful Jungle Beach, is about to become the happy host of a $4 billion oil refinery and a $4 billion transshipment port, even though it’s 2.5 hours from the nearest airport and 350 kilometers from the nearest manufacturing centers (with no freight rail link). Such are the down sides of decentralization.

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