The Bangladeshi salt industry tells us that people are importing a tariff-free close substitute for salt and converting it. This has two effects -- it is killing the Bangladeshi salt industry, and also killing people through the inadequacies of the conversion process.
Therefore, tariffs must be placed upon this close substitute for salt. Everything is correct there until that conclusion, which should read we must remove the tariffs upon salt.
The reasoning here being that, of course, we’d like to have that edible table salt, it’s a necessity for the continuance of life. We’d also like not to be killing people in its provision. But that’s all we’re really interested in -- who produces it and where is of no consequence at all. We want it, yes, and we want it clean and safe, but that’s all.
In the current system, there’s a substantial import tariff upon the import of that edible salt -- sodium chloride. About 100% of that free market global price in fact. This obviously protects the domestic Bangladeshi industry of salt production quite nicely, they’re presumably getting something like two times the world price for their output.
That also means that it’s a very bad idea for salt consumers -- that is, absolutely all of us -- as we’ve got to pay that something like two times the world price.
So, what happens? Well, as it happens, there’s a salt -- sorry, to a chemist any compound, any chloride, oxide, sulfide etc, is “a salt” even as the thing we put in food is “salt” -- which is heavily used in the garment industry, sodium sulphate. As it’s an input into the nation’s major industry, it comes near tariff free. It’s also not beyond the wit of man to convert the sulphate into the chloride and the claim is that this is done. Not too well, not too cleanly, nor purely. So, this cheaper method of producing table salt also carries health complications.
This isn’t good, certainly. We’d much prefer not to be poisoning the nation with inadequate versions of a dietary necessity. But the question becomes, well, what do we do about it?
The domestic salt industry wants further controls upon imports. That’s the wrong way to go around this. Instead, we should stop the tariffs on the edible salt. For, what is it that we want to have? That supply of reasonably priced and safe salt. The domestic industry cannot manage the reasonably priced, that’s why they demand the tariff protection.
The current system of tariffs also leads to the unsafe product, as standard incentives lead to people trying to beat the system. It’s only the global market which can achieve both the safe and the reasonably priced. Thus, that global market is where we should be getting the thing we desire, the safe and reasonably priced salt, isn’t it?
There is another, and rather more controversial, manner of approaching this same story. The provision of salt has always been a contentious issue across the sub-continent. The Mughal Empire derived much revenue from taxing salt, the British -- in their folly -- continued the practice. Gandhi, correctly, made a great issue of what should be everyone’s right, to gather or prepare salt as they wish, without such taxation. And without the restrictions which made the taxation possible.
One way of describing this is that those who controlled salt extracted an economic rent from that control. That it’s the government taking the rent as tax doesn’t change that underlying rent extraction story. Anyone who can control an essential can indeed extract more from our pockets than is entirely necessary -- very much what an economic rent is.
How to kill such rent collection is also well known. David Ricardo pointed it out about land rents themselves, if there’s unlimited land then no rent can be charged. In more limited supplies, the more competition there is, then the lower any rent can possibly be. That is, competition among supply is what kills the possibility of collecting an economic rent.
Current Bangladeshi salt supplies are higher than world market prices. Those high prices are protected by those tariffs, exactly the same thing which leads to that sodium sulphate being imported and converted. This is, in our pure economic terms, simply a rent that is being charged to us by the Bangladeshi salt industry. They get to charge us more than they could in the absence of those protective tariffs.
The answer, when it’s put this way, is obvious. Remove the tariffs, remove the protection, and we’ll have removed the opportunity to charge us all that rent. That is, the answer is not to protect the domestic industry more, it’s to remove the protection entirely.
As a result, the country will have clean, safe, and cheap salt -- exactly what we would all be aiming for if we sat down and designed the industry from the start. The only reason we don’t have this right now is that the domestic producers are trying to charge us rent.
Just as much as the British did when they taxed all the salt in Bengal. We didn’t like them when they did that, so why put up with it now?
Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.
