Why the interference and what’s the hold up?

Adam Smith pointed out that we really need to do very little, or rather get government to do very little, to enable economic development. A bit of public justice light taxes to pay for that and everything else will just happen on its own. Of course, we’re all more sophisticated these days, we do understand that there’s more than just this which government should be doing in order to push along that entirely desired process of us all getting richer. However, we should also recall that not really entirely and wholly a joke, which is that all of economics is either a footnote to Smith or wrong. To extend a point that Smith made is therefore fine, but to come up with something contrary means that we’re at high risk of error. At which point, what Smith actually said about development: “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things.” That’s a good starting point but as I say, we tend not to think of Smith these days as being the end point, rather something capable of elaboration. One other way to think of the same point is that there are many things that must be done. There are also somethings that can only be done by the government. As it happens, there’s also a subset of both of those things which must be done and which can only be done by the government. That peace, that administration of justice, certainly. And given that taxes are the cost of gaining those things we’d like those costs to be low. So far so good, but as the International Chamber of Commerce – Bangladesh points out: “In order to step into higher growth trajectory, Bangladesh urgently needs to overcome the hurdle of project implementation delays, reduce an average number of days required for contract enforcement, and improve port facilities…” Contract enforcement is just that tolerable administration of justice when applied to civil and commercial procedures, rather than criminal and thus is very much a government necessity. It’s the ability of people to go to a court and shout “Oi! He said he would do this and he hasn’t!” and then get someone to force the agreement to be complete. The other two are a little different and this is where the important distinctions start to come in. Why, for example, might there be delays in implementing a project? Imagine we want to put up a building, we’ve got the land, we know who can make concrete, there are enough builders around, right, off we go, correct? Ah, no, that’s not how it happens in any place at all. There are a number of permissions that are needed. Sometimes these are entirely sensible of course, we’d not like another Rana Plaza to be built to then come down again. But in every real estate market in the world the biggest complaint is how long it takes to gain that government approval. One of President Trump’s party pieces over in the US is to unroll a hugely long scroll detailing why it takes 10-20 years just to get permission to build a road. Permissions from 17 agencies, under 29 different statutes, that’s just the Federal government, there’s the state ones to deal with as well. This is why President Obama’s idea of building infrastructure – a good idea in standard macroeconomics – to beat the effects of the crash and recession didn’t go so well. They had $800 billion to spend but they couldn’t actually find any infrastructure projects to build. Any and all of them would have taken years just to get the permissions. That is, while we agree that permissions are and should be needed, we’d rather like the government to be rather more efficient at issuing said permissions. Similarly, congestion at ports – this applies to Dhaka Airport as well as the main seaport at Chittagong. Who is it that currently creates the rules for how these places work? Ah, that would be government, at least of a kind, wouldn’t it? So, again, we simply want government to be more efficient at those things which it does. What we haven’t found in our lists, either from Smith or the ICC-B, is where government should be doing more than it already is, we’re only asking that it might do things a little better. It’s rather more likely in fact that we will find things that the government should stop doing. For example, there are import tariffs upon cows from India coming into Bangladesh. Umm, why? Moving cows from where people generally won’t eat them to where they generally will sound like making both sides better off. Why intervene in this process? If the relative prices don’t indicate that people are so becoming better off them the movement won’t occur. We thus end up with a useful extension to Smith here. Yes, government must indeed do those basic things which need to be done and which only government can do. Our list of these is a little longer than it was in Smith’s day and really our major complaint is that government should do them better, rather than as they do them today. But we also, in keeping with Smith again, have our little lists of things that government just shouldn’t be doing at all. And that’s where our real problem is, how in heck do we get them to stop interfering where they shouldn’t be?  Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.