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Does it make sense to mandate the use of jute?

  • Published at 02:06 am August 19th, 2018
Jute packaging can be relatively expensive Mahmud Hossain Opu

The gains may be smaller than the losses

Once again the government is damaging the wider economy in favour of the jute industry. This is something that it really shouldn’t be doing -- making everyone else poorer and the country less efficient just isn’t the manner to aid anyone at all. Why it is doing this should be obvious -- there are a lot of jute farmers. That still doesn’t justify the actions.

What is being done is to insist that all animal feeds must be packaged for domestic consumption in jute sacks. These are more expensive than the current PP woven sacks, perhaps Tk50 instead of Tk20. So, everything bought in such packaging is now more expensive to every single consumer across the country. 

Given that poultry feed is so packaged, that means the price of chicken rises. This is not known to be a good way of increasing the standard of living of the people.

There is also the slight problem that Bangladesh is beginning to export such feeds and foreign markets won’t accept jute packaging, not by preference at least. Thus requiring two different packaging lines and reducing economies of scale.

There are complaints by the packaging companies that jute itself is a less useful material to be using. This seems well-justified too. If it were better, they would already be using it. The very act that the government has to mandate the use, banning the preferred material, shows us that people don’t want to use the jute.

We’ve touched on this issue before here. That was back when, as a special dispensation, the government allowed imported rice to be packaged in materials other than jute. The use of jute would cost consumers perhaps 10% of the price of the coarser types of rice. Again this isn’t obviously a way to make people better off, making them pay more for the basic foodstuff.

Except, of course, that’s not the purpose of the exercise, to make all people better off. It’s to make some better off at the expense of others, that’s the point. It is as with protectionist measures against imports. The protectionist being the person who argues that you should be poorer so that they can be richer. So it is with mandated uses, and the banning of alternatives, in such packaging materials. 

The people made poorer are all the people who have to pay the costs of the packaging -- everyone who buys or uses the goods being packaged that is. The people who gain are those who produce the new packaging format that everyone must use. There are many more of the former than there are of the latter. So why would government do this, make so few people better off at the expense of many more others? 

Plus, given that we have moved to less efficiency, we’ve moved the entire economy to being less well off as well. The gains to the winners are smaller than the losses to the losers that is.

So, why do this? Because this is the way things normally work, and it takes a great deal of vigilance to stop it being so. The problem is the battle between a concentrated interest and a dispersed one.

All of us out here aren’t really going to know about how our chicken dinner is now a little more expensive because of the rules about jute packaging. And even if we did, that greater expense is going to be small to each of us. There are more important things in life for us to worry about and so we do, we think of those other things. That there are tens of millions of us who are going to suffer in this manner, each of us only losing a tiny bit, makes us a dispersed interest. It’s very difficult to rouse us into opposing something when we only care a very little bit.

Now think of the position of a jute famer or processor. Here’s the government insisting that the economy use your product. You’ve just been guaranteed a vast market -- quite possibly one larger than the current level of production can supply. You’re rubbing your hands in glee of course. And there are many fewer jute farmers than there are consumers in the economy. Thus we’ve a concentrated interest here. A smaller number of people, sure, but they’re very, very, interested in how animal feed is packaged. Just this one change can make the difference between scraping along and having a decent income in fact.

In any form of politics -- no, not just democratic such -- concentrated interests beat dispersed ones. Just because the people with the interest are so much more interested. In a democracy such as we have, votes will be swayed by how the government “supports” the jute industry. None will be moved either way by how consumers lose out from support to any industry. 

Thus the direction of politics is always to carve out exemptions for the special interests, to ensure that laws and regulations are passed which benefit one specific group. And obviously and substantially support them, so that they become a concentrated interest supporting the policy and the people who imposed the policy.

There’s really only one way out of this process too. Which is a general insistence that we don’t have government making any such rules. No regulations which imposes costs on one group in order to benefit another. 

Then we don’t have to play this battle of the interest groups. That war in which we consumers out here always lose to the interests of one or other of the producer groups over there. That is, the only way to win this war is not to do battle at all, but simply to have a free market.

Then people will package animal feed in whatever sack they think best. To the benefit of all of us of course, even if the jute farmers won’t be that happy about it.

Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.