That Bangladesh is graduating from a least-developed to a developing country is marvellous news. Not simply for matters of pride but because it means that the lives of 120 million people are getting better. Who could not think that was a good idea?
It's also true that the government, in the eighth five year plan, has at least some good ideas about what comes next. Yes, agriculture will continue to decline as a portion of the economy. More value must be added in the agro-food sector. Increases in productivity, more training – these are all true and good ideas.
However, the little difficulty is that everyone knows this. Every country knows, and all politicians everywhere know that these are desirable, necessary, things.
The trick is not knowing that they're needed, it's in being able to devise a way to get them. Five-year plans which tell everyone what to do aren’t a notably successful strategy for actually gaining them. If they were, then Russia would have been richer than the United States in 1989 and, having been in both countries at that time, I have to tell you that it really, really, wasn't.
So, how do we get from here to those promised joys of rising productivity, more domestic production and so on?
The answer lies in another measure of the Bangladeshi economy: The World Bank’s “Ease of Doing Business” index. Coming 168 out of 190 countries could in some circumstances be a good thing – but sadly this system of measurement works the other way. Being number 1 is good here, number 2 is still very good and so on. Coming right near the bottom is bad. It keeps the country poorer, for longer than it needs to be.
Some things that are important to growth are not under the direct control of the government. The general productivity of labour, for example, is something that is determined by the whole economic and political system. (If all labour was as productive as that in the US then this country would be as rich as the US. High productivity makes a rich country; low productivity makes a poor one.)
However, some factors are in the government’s direct control. So, what the government should concentrate on is making those things easier. This leads to basic questions like, How easy is it to set up a business? How many weeks or months of average wages does it take to do so? And – given that most new businesses fail – how easy is it to close down a mistake? How long does it take to register to pay taxes? How long does it take to get an electricity connection? To enforce a court order against someone who has broken a contract?
Sure, many of these things are difficult to change or organize; but they are indeed things the government has control over. So that's where efforts should be.
That is, the government should focus on allowing business to take place, not on what business does take place. The government’s job is not, or should not be, to decide which businesses are started or which thrive and survive. Instead, the state’s job is to enable businesses to try.
Government doesn't know, cannot know, what is going to be the next big thing.
Because no one does.
So we need a system that enables people to experiment, and in that way find out what works and what doesn't.
This might all seem a little simplistic, but it’s true. Consider what economic growth actually is. It's people doing new things. So what is it that determines the speed of economic growth? The speed at which people can do new things.
That's what the speed of economic growth is, the speed at which people can set up, try out, test, new things – and then do more of what works and less of what doesn’t. The speed of growth is entirely determined by the speed at which people can do those new things.
Being at the bottom of the ease of doing business ranking is evidence that in Bangladesh this crucial speed of experimentation is slow. What should the government do to speed economic growth? Make it easier to do business in Bangladesh.
Another way of saying the same thing: We humans do less of what is difficult and expensive and more of what is easy and cheap. That's just the way we are. So, make it easier to do business in Bangladesh and there will be more business in Bangladesh – more economic growth. Which is what we all want to be happening anyway, isn't it?
Tim Worstall is a senior fellow at the Adam Smith Institute in London
