An alternate history that I find interesting is a scenario where, in 1947, the British kept one city in India - e.g. Surat. This is analogous to the British control of Hong Kong in China after the communist revolution.
Why is Surat interesting for such an analysis, and not Bombay? It sounds too implausible for free India to have tolerated colonial rule for Bombay. A solution like Hong Kong, Macao or Goa for a less important place is more plausible. The other reason why Surat is of interest is that before Shivaji sent the merchants of Surat scurrying to the safety of British-controlled Bombay, Surat was the commercial capital of the West Coast. So there is perhaps some natural geographical advantage of that location.
If the British had run Surat in the fashion that they did for Hong Kong, how might this have changed India's trajectory? The analogy with Hong Kong is straightforward. In this scenario:
- Surat would have become a place with a market economy, with strong public goods of law and order, judiciary and legal system.
- When India embarked on socialism, this would have been a place for people and capital to go to. Some of the brain drain and capital drain that India suffered to locations all over the world would have instead gone to Surat.
- Surat would have then become a key mechanism for India to plug into globalisation, for trade in goods and services and for financial services.
- When India started stepping out of socialism, a good deal of institutional capability, human capital and financial capital would have been ready at hand to help get the mainland going again.
- When a country wants to undertake institutional reform, it is quite useful to have `regional role models' (a term drawn from the World Bank's East Asian Miracle book). India unfortunately has few regional role models other than the good work done in Sri Lanka on trade liberalisation before the war, and the work done in Bangladesh in microfinance; this is in contrast to East Asia where each country is able to pick and choose from regional success stories in any area of reform. If Surat had been a Hong Kong, then institutional arrangements there would have been a natural starting point for thinking about legal, regulatory and institutional development in India. This would have given faster institutional evolution and thus growth in India, once India wanted to actually do institutional reform.
- The last point is a bit speculative. Suppose Surat was a vibrant outpost of good institutions and laissez faire, while India was headed off into a bad institutions and dirigisme from the late 1950s onwards. Would the very existence of a visible alternative have modified India's trajectory? It is easy to think that from the early 1990s, when India was getting interested in reintegrating into the world economy, and in building institutions, that a Hong Kong would have helped. But look back even before that; would India's long descent have been reduced or even averted by having a counterpoint? We know that in the Chinese case, they had Hong Kong and still suffered from the disasters of the cultural revolution. But in a functioning democracy with freedom of speech, the power of ideas and impact of information is greater.
In summary, if you think that China's incredible economic success was aided by having laissez-faire Hong Kong handy, then in this alternate history, a similar evolution for Surat would have helped India.
I recently came across similar arguments being made by Paul Romer. He uses the term `Bridge Cities' for such cities, which can help speed up the development of the host country.