Don’t let the perfect become the enemy of the good
A useful rule in politics and management of the economy is to avoid allowing the perfect to become the enemy of the good.
This is a stricture which the government of Bangladesh is in danger of ignoring. We’ve two current examples of this, one about taxation, and another about the forms of organization allowable in farming for export. We can make useful cases for the actions undertaken in both matters. And yet that striving for perfection may be unwarranted.
The first example is the taxation of luxury cars. Yes, obviously, those who can afford some large engined and big-name car should be paying more into the tax pot than those who cannot. It’s also reasonable that we tax simply large engines because that does indeed imply greater emissions and pollution. But how much effort should we expend in chasing down those who bend such rules?
The specific point is that there’s a tax on such large engines, one which is being collected. However, those who have more than one should be paying higher than the usual tax on the second and subsequent ones -- though it appears that not all of them are. Perhaps we should chase those scofflaws.
And yet, the tax is Tk120,000 per large car engine. There are a total of 930 such cars in the country apparently. Most of this tax is being paid -- it’s charged when the car is registered. It’s the additional tax for multiple holdings which may not be. We’re thus talking about a small sum in total. How much effort should we be spending in tracking this down?
The other example is in the export of agricultural products. Tens of thousands of small farmers aren’t going to be exporting on their own, there’s obviously going to be a system of middlemen -- wholesalers. Quite apart from anything else, no one farmer is going to be producing enough to make an export worthwhile, there must be a combination of crops to make up a useful shipment.
The government has just insisted that all such crops exported must have been grown by contract farmers. This again has potential merits. If the contract is signed before the “growing” starts, monitoring how the export crop is grown is possible. Such monitoring may well have value. And yet, well, do the recipients of those exports -- the importers -- insist upon such terms?
As things stand currently, no they don’t. So, despite the manner in which traceability and so on are enhanced by contract growing, why should we impose it?
The requirement is also to miss an important part about farming, its variability. If we here in Bangladesh have a good growing season, and those elsewhere do not, then we’d like to export some of our surpluses to them. This isn’t something we can do if the crop has initially been grown for export.
Think through what this means in those times of glut. As is usual, when all the local growers have a good crop, the local price falls substantially. But if we can ship off produce to other regions, we have an outlet for that surplus -- prices don’t fall so much in those times of glut.
Therefore, we are improving the lives and incomes of farmers by allowing exports.
Yet our system has just decided that this cannot be allowed? It is possible to insist that in a perfect world, all farming would be done under the strictest of conditions; that absolutely everyone who owed the merest taka in tax has paid it to the last poisha. We also know that this is never going to happen in this real world. The task, therefore, is to ponder how far we’re going to go to be good enough rather than aiming for that perfection.
A useful guide to this being a power law. We can get to 90% or so of our goal with the expenditure of one unit of effort. The effort here is variable, in the one case the taxman’s time, or perhaps the disruption by hunting down the scofflaws.
In farming those losses from not being able to export gluts perhaps. To get from 90% good enough to 99% better takes another unit of effort. From 99% to 99.9%, another unit and so on. At some point, obviously enough, the expenditure of the unit is no longer justified by the result.
So, how far do we go? A useful guide to this being what do people actually care about in their transactions? No, not what the bureaucracy does, not what anyone trying to plan our lives does, but what do we, the people out here do. How much do we care? It’s at this point that we do in fact get different answers.
The rich getting to skip their taxes is enraging. Thus, we chase those cars rather more than a pure discussion of the cost of revenue collection against revenue collected might indicate. However, if foreigners are entirely happy to eat food we’ve grown without the contract farming system, why should we insist upon the use of it for growing exports? If the importers of what we grow really did care, they’d insist themselves, wouldn’t they?
The entire idea is usually expressed as: “Don’t let the perfect become the enemy of the good.” That is, don’t fuss over the details of the last little bit, we’ve all got far too many problems and interests for that. Instead, let’s get our varied systems to good enough, and then go solve something else.
Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.