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The whole country should be open for business

  • Published at 12:05 am January 12th, 2018
  • Last updated at 09:39 am January 12th, 2018
The whole country should be open for business
We’re told that Bangladesh should try to set up 100 economic zones. Or perhaps prioritise a dozen of those mooted. Or maybe accelerate just five of them. Or, you know, do something to have more economic zones. This is wrong, entirely so. The underlying idea does make great sense, of course, because building a new factory or lining up a good chunk of foreign investment into Bangladesh is difficult, so we should do what we can to make it easier. The country has excess labour, that we know, but making the people richer requires capital to be added to that workforce. Bangladesh doesn’t have that capital, nor perhaps the know-how to deploy it to make everyone richer as quickly as we’d like through employing that labour in more productive ways. So, yes, of course, let’s go make it easier for people to invest, build factories, develop the country economically, this is a good thing. But the idea of special “economic zones” is still a bad idea. If it is good to do these things on this piece of land here, and that one over there, then why isn’t it a good thing to do the same all over the entire land area of the whole country? Why are we limiting the good things we do to encourage investment to just certain patches of land?
The answer is not to provide a privileged route for favoured foreigners, rather, the government should bulldoze much of the bureaucracy which produces the problem in the first place
There are a number of minor benefits that come from setting up in these special zones. Freedom from profits taxation for the first 10 years, for example; but not something which is really worth that much as it usually takes a decade to start making a profit in a new business. Other countries also provide the same perk for all new investors -- not just those investing in certain areas of the country – and equally so with freedom of taxation of dividends, with gaining visas for foreign workers, and so on. None of these need to be tied to one piece of land in any manner.

Cut the red tape

There are a couple of useful things that government provides when acting as a government. It’s true that assembling a parcel of land to be used as a factory can be difficult, so any help with that is useful -- but then that equally applies to domestic companies trying to establish a factory. This is also true of the much vaunted “one-stop” service. But the bureaucracy here is so tangled that without a deliberate attempt to guide foreigners through it, foreign investors will never be able to negotiate it to gain the necessary licences and permissions. The answer to this is not to provide a privileged route for favoured foreigners, rather, the government of Bangladesh should bulldoze much of the bureaucracy which produces the problem in the first place. There is no reason whatsoever that non-Bangladeshis should be spared the complexity of the Bengal Bureauracy while locals have to endure it. Reform the system, don’t provide exemptions to it. However, the big one is that raw materials brought into an economic zone pay no import duties (assuming locally produced are not available) and there are no similar export duties. But then why do we want to have import and export duties anyway?

Selective protectionism hurts us

To a decent enough first approximation we know that trade tariffs make us poorer, that is, the citizens of the country that imposes them. Do we want to make Bangladeshis poorer? If the answer is no, then don’t impose import duties; equally so with export duties, and most other forms of protectionism. True, there are exceptions there, in theory, but they apply to near monopoly suppliers and no one else. We then go one stage of silliness further, for a possible -- even if not quite true -- justification for import duties is to preserve those fragile flowers of local producers who are just starting out -- the “infant industry protection” argument. But this cannot possibly apply to imports of things that are not produced locally. So we really shouldn’t be having these tariffs at all in the first place. Which brings us to what is really odd, un- or in- sensible about this basic idea. Why is it that we provide all of these privileges to these special economic zones? Because we all agree that no tariffs on imports, a one-stop shop with the bureaucracy, and so on, make it more likely that industry will set up. And that more industrial activity will make us all richer. But that opens up the obvious question: Why are we doing this only for certain favoured investors on certain favoured pieces of land? If we don’t believe these arguments, then we shouldn’t be providing such privileges to anyone at all. If we do believe them, then we should be providing them to everyone. We most certainly don’t believe that only factories, or investments, in certain specific areas are going to aid in developing the economy. We think that any and every investment is going to do that. The end result of this being that we don’t want to have 100, or 12, or five, economic zones. We want to have just the one, the boundaries of which are exactly the same as the national boundaries of the country. The very fact that we think that we can gain more investment by changing policies, the argument in favour of economic zones, is the entire and whole argument for our changing policies for the country, not limiting the privileges to certain areas or zones. Whatever it is that we do to encourage investment in those zones is, therefore, by definition what we should be doing for the whole country. We shouldn’t have economic zones at all. Unless it’s the entire country being declared open for business and investment. If the zone policies are good ones why shouldn’t we have them everywhere?   Tim Worstall is a senior fellow at the Adam Smith Institute in London.