Urban Development problem in India - the lack of proper Development Plan

Recently, I had the opportunity to examine the Draft Development Plan released by Maharashtra State Road Development Corporation (MSRDC). The plan is quite badly designed. Yet, what hurt me more was the fact that this plan was developed for Special Planning Area (SPA) which is not developed as much so the development is almost green-field urbanization. And yet, even when we are given a clean slate we make such primary mistakes in planning. I wrote about the shortcomings in an Article in Moneylife.in titled "How can smart cities be built on dumb development plans?"

I have looked at the population, water demand estimation, power demand estimation, waste estimation, transportation planning etc. On every parameter this plan falls short. Have a read and leave comments.

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Law and Order - The missing reform

Manas Chakravarty has an article in Mint title IBC Ordinance a blow against the Promoter Raj. It talks about new Insolvency and Bankruptcy Code reform.That raises some prospects of execution problems.

I think Modi government faces lot of execution problems because it has not acted to root out corruption. Here is my solution I wrote for Moneylife. Do have a read and leave a comment.

Notes:

World Bank report on Reform in Georgia

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The Role of Regulators and Regulation

One of the critical findings of the sub-prime and subsequent crisis is about role of regulation.

The role of regulations is to balance the lop-sided accumulation of bargaining power against the citizenry. Specifically, where the interaction is between firms (organizations) and ordinary citizens, the nature and language of regulation becomes important as the firms actively try to usurp bargaining power against ordinary citizens. 

The job of regulator, as against regulation, is to be hyper-responsive in protecting the balance in bargaining power equations. Regulator, as against regulation, is speedier and active element introduced into the system to prevent the speedier innovations from disrupting the intended effect of regulations (which are rather hesitant to change).

Here is Senator Elizabeth Warren trying to force this concept on regulators who have become guard dogs of industry they regulate.

I have written along similar lines in my book "Subverting Capitalism and Democracy - Systemic faults that caused the financial crisis."

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The Rakoff manifesto

Judge Rakoff's principle based on Contract rights and duties vs. legal rights and duties

Two types of rights (and/or duties)

First are rights created out of mutual agreement, called contractual rights. These exists separately outside the law. Only when there is dispute, the law intervenes. Even then, law only intervenes to clarify what is the real agreement between the parties and has it been honored. Contractual rights exist within the boundaries of law - sort of like a playground where you are free to do what you want so long as you don't hurt anyone. Second are rights created by law. These are typically like the classrooms of strict schools - ordered and disciplined, everything is straitjacketed here. Punishment is imposed by the law to those who transgress the rights of others or duties imposed on them. 

Important consideration is that contractual rights cannot infringe legal rights. Thus contracts to commit illegal acts are void.

Settlement agreement with SEC

Settlement agreements, though contractual in nature, affect rights created by law when settlement is about illegal activity. Hence I agree with Judge Rakoff, one cannot have a settlement and also be considered not guilty. 

Yves Smith has a post on JP Morgan being impacted by Rakoff decisions (read down to comments too) speaks of this debate. (The post itself speaks about not allowing insurance for fraud etc).

I think Judge Rakoff is on the right track. 

1. You cannot settle away an illegal act. And more so when the parties to settlement are not the only ones who are affected. The problem occurs when the other parties are kept in the dark and have no clue they have suffered from illegal acts. The SEC is duty-bound to expose such acts not merely settle them out. Hence the para "But the S.E.C., of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if it fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency’s contrivances."
2. Courts are not house of power that can be called at the whim of parties. In the particular case, SEC wanted the courts to apply injunctive relief to which the counter-party, Citi Group had agreed. The role of the Court was that of an umpire. 

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The Problem of Regulation

The regulatory juggernaut has slowly and eventually reached the gates of wall street.

Regulation, it appears, needs to tackle three issues. First, it should clarify the parties involved. In other words, regulation clarifies attribution or ownership. Secondly, it defines the action required. Finally, it defines the timing for the action. The rest of regulation merely defines the referee and the incentive structure to encourage or prevent the actions. Any regulation without these parts is open to be hijacked or misinterpreted. 

Regulation must clearly specify the action that should or should not be taken by the participants. In most cases, regulation must be designed to rebalance the bargaining power equation. The objective is to prevent the stronger player from taking advantage of the weaker player. The consumer financial protection agency is ideally defining such actions. This part often suffers from necessary and sufficient condition dilemma.

Necessary condition and sufficient conditions are best understood through the example of fire. The existence of fuel, air (or oxygen to be specific) and a spark are necessary conditions for a fire. However existence of a fire is sufficient to prove existence of fuel, air and the spark. Regulators often go to depths defining necessary conditions but often do not define the sufficient condition. Over time, the necessary conditions increase as new special cases are discovered. It makes the regulation unwieldy and creates loopholes in the regulatory paradigm. 

However, just defining the sufficient condition leaves the law ambiguous. This is the type of ambiguity that Paul Volcker likes. However, in the wrong hands such an ambiguity corrupts the system.

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