Development reform and economic freedom

Chris Blattman has an interesting post on development reform and the paths to pursue. He considers what development reformers should focus on when rule of law is weak or absent. However, he misses an important point. Reformers can eliminate legal barriers to entry for businesses.
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To understand this point, let us differentiate between reforms which have the state act and reforms which have the state restrict its sphere of action. State action includes both new initiatives and reforming existing ones. Restricting a state’s sphere of action is the elimination of existing programs.
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In a state with corruption and weak rule of law, any state action will necessarily be effected by that corruption. The more corruption, the less effective any state action becomes. On the other hand, restricting state action is not effected by corruption. Because the state is not acting in a sphere, the effectiveness of a state’s capacity to act is not irrelevant to the outcome.
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Take for example two possibilities. A state could introduce a new unit in the police force or eliminate legal barriers to entry for private schools. If there is corruption in the old police force, the new unit is at a high risk for corruption, which would greatly reduce its effectiveness. On the other hand, eliminating barriers to entry for schools would not be effected by corruption. Some bureaucrats would be shuffled around or let go, but corruption or lack of rule of law would have little effect on implementation.
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What this analysis suggests is that on the margin, development reformers should focus on reducing the sphere of state action in states with less rule of law and more corruption.

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