The Roofless room
A Lawyer and a Young Professional shares her experience of listening to Michael Porter, Professor, Harvard Business School at the NITI Transformational Lecture.
“Professor Porter suggests that each region must concentrate on their strengths and identify their existing unique cluster”
“We need to invest in our walls which represent laws, executive institutions, judiciary and the standards framework”
On 25 May 2017, Vigyan Bhawan achieved a rare feat. At around 5 pm, it suddenly transformed into a Harvard Business School classroom. This rare sight was on the occasion of the Third Lecture in “NITI Lectures: Transforming India” series. On the stage was the Harvard Prof. Michael E. Porter, delivering the fascinating talk. In the audience were the Hon’ble Prime Minister, other ministers and Indian government officials. The packed hall listened to the entire lecture in rapt silence for nearly two hours. Well, this is the power of great ideas.
He began with a caveat that he will only talk about “what” India may need to do by giving a framework for competitiveness and talking about his famous “cluster theory”. He cautioned that he was not an expert on India and so would leave the “how to do it best for India” to Indian policy makers in the audience.
Here I suggest the concept of a “Roofless Room” and each part of the room is explained using different arguments of Prof. Porter. Our ultimate goal is to build this roofless room. But the road is not easy. So this article also highlights the challenges that lie ahead for India in building this room.
To begin with, imagine a simple roofless room. So, it consists of three walls, floor, windows and a door. Here, the floor represents the base. For Dr. Porter, the floor would have three constituents. First would represent the natural endowments that a country possesses. Within this, he includes natural and geographical assets, population and land. But this is not all. Second, the floor would also represent sound macro-economic fundamentals like monetary and fiscal policies along with a stable economy. Third, would be educated, skilled and healthy individuals. There is no doubt that one needs a strong base to build anything on it. From the government’s point of view, the challenges lie in providing this strong base.
Coming to the three walls in the room, they stand for facilitation and regulation by the pillars of democracy. The first wall can be imagined to represent laws of a state. These include criminal laws to check law & order issues and crime rates, commercial laws to encourage commerce, regulatory laws like Competition/Anti-trust laws to ensure fair competition and IPR laws to protect IP holders and laws for dispute resolution. The second wall can be imagined as constituting executive and judicial branches of the state to implement laws and policies and settle disputes respectively. So this would essentially constitute what Prof. Porter referred to as “effective public institutions”. The third wall is the standards framework to ensure a certain quality in different sectors. For him, this is equally important. It would ensure high quality education, health and infrastructure. Again it is the state that has to build and maintain these sturdy walls which have their own set of challenges.
Now, this room will house what Dr. Porter calls the “cluster” of businesses. He argues that businesses are interdependent. So competitiveness of a single business can’t be judged in isolation. Surrounding factors including the backward and forward linkages are equally important. Further, he suggests that each region must concentrate on their strengths and identify their existing unique cluster. So the Government shouldn’t try to build from scratch but invest in an existing one. Duplicating efforts may not be the way forward, as put forth by him. So each region needs to work out their own success formulae. He also pointed out that the cluster may not necessarily conform to political boundaries of a state.
Coming back to the roofless room, growth of the cluster is dependent on the congenial environment provided by the room. An obvious question is why is the room roofless? The deliberate absence of the roof is to ensure that growth of the cluster is not in any way fettered. So to use the clichéd expression, sky is the limit. Moreover, presence of windows and doors represent opportunities for the cluster to build partnerships and collaborate with others. In toto, absence of the roof, presence of windows and a door lend flexibility to the system to breathe.
Prima facie, it looks like an easy task to build and sustain this roofless room. But on digging deeper, there are some challenges that need to be addressed. As mentioned above, the floor consists of natural resources, economic policies and the human resource. While building it, one needs to keep in mind certain principles. In this age, sustainable development has become an accepted goal and needs to be respected. While dealing with natural resources, the government has to protect them like an honest trustee. Globalization has made almost every country susceptible to sudden shocks, so there is need to formulate appropriate economic policies. A pertinent example is how India was able to tide over the 2008 Global Recession. Finally, India needs to make the maximum of its demographic dividend by devising appropriate human resource related policies and schemes like Beti Bachao, Beti Padhao (education); Skill India and Start-Up India (skilling and entrepreneurship) and Swachh Bharat Abhiyaan (health and sanitation). Moreover, ensuring effective implementation is of paramount importance.
At the same time, we need to invest in our walls which represent laws, executive institutions, judiciary and the standards framework. In terms of laws, there is a need to ensure that they are easy to understand, allow flexibility and are not burdensome. Further, the idea of sunset clause for ending laws needs to be explored. So laws can have an end date beyond which they can exist only after an informed debate on their continued need. Sectoral regulators need to be strengthened so that they can ensure fair play among competitors. Beyond this, role of the executive should be to facilitate growth of clusters. Another challenge is to effectively use technology in easing operations like policing and public administration. Further, as forcefully pointed out by Prof. Porter, there is a need to break away from what he called the “silo approach” and take a co-ordinated view of things. Weeding out the corrupt is another task. Coming to the dispute resolution process, speedy and effective justice is a dream that needs to be realised for all. The newly inaugurated Integrated Case Management System which will help in e-filing of cases, serving online summons/notices and tracking case progress is a step in the right direction. But many more such steps are needed. Next, there are challenges in strict enforcement of quality standards. Be it educational standards or professional standards, revamping the present system is imperative.
Coming to the cluster, its application to India raises some issues. Constitutionally, we have the Central Government, State Governments along with Union Territory administrations and local self-governments. In light of this complex and diverse quasi-federal structure, how does one choose which cluster to promote? Who chooses it? Further, concentrating on building upon one cluster for a region may lead to neglect of some other budding clusters in the same region. So how does one maintain the right balance? These are some pertinent questions to be tackled on the way.
While the lecture indeed gave an innovative model for India to pursue, the ingenuity would lie in applying it to our complex country. Optimistically, if we are able to build this roofless room, it will indeed be a victory for Indian cooperative and competitive federalism.