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OP-ED: Make it clear and simple

  • Published at 07:58 pm October 3rd, 2020
money
Simplify the rules around FDI BIGSTOCK

Why foreign competition is a good thing for Bangladesh

The Economic Development and Research Organisation, EDRO, says that Bangladeshi laws and regulations on FDI -- foreign direct investment -- should be simpler and more clear. They are right, one thing that scares off capitalists more than most others is the absence of clarity. It’s necessary to know, exactly, how the system works, what is to happen, before anyone commits tens or hundreds of millions of dollars to a new factory, new process, or new market.

However, this isn’t something to be done just to be nice to those foreign capitalists. It all goes rather deeper than that.

The complaint is two-fold in the first place. Firstly, that the rules can be inconsistent, some of them contradicting others, they’re also confusing and difficult to understand let alone meet. OK, that’s one reason why we’d like to streamline everything. 

It’s the second which is of the deeper importance though. For that second complaint is that there’s rather a lot of discretion allowed to the bureaucracy and political system in who has to meet what standards and rules. On the one side, we can think that this is sensible. For politics is the running of the nation and so clearly, the political system should be able to differ in its treatment of desirable or undesirable investors. 

That though is to ignore two real world points. The first is that discretion leads -- can lead that is -- to corruption. If someone has the power to allow, or not allow, an activity then the temptation, to put it mildly, for those who want to do that to pay the person who can give the permission. That’s why we want a system of rules, of laws, not of decisions. Our system should be: “Here are the rules, you obey them, you may” rather than that someone gets to give their opinion on whether you may or may not.

There is also, within this second point, the truth that bureaucrats and politicians are not in fact very good at deciding what is a good investor and what is a bad one. This is the entire argument about planned economies versus market ones all over again, we’re just restricting the discussion to foreigners here. 

Planned economies don’t work in that prime task of making the population richer over time, market economies do. Just because we’re dealing with foreigners doesn’t change this simple truth -- therefore we don’t want to have that political system, that planning, deciding what foreigners may or may not do.

What we actually desire -- not that any country at all entirely and wholly lives up to this ideal -- is that foreigners get to invest, start businesses, sell, buy, engage in economic activity, on exactly the same grounds and under the same rules as any domestic actor. That is, there shouldn’t be any rules about this FDI, no rules other than those that apply to everyone who invests in the Bangladeshi economy.

You know, obey the law, pay at least the minimum wage, pay your taxes, don’t pollute, and so on. Why treat foreigners differently?

Some would say that we don’t in fact want all that foreign investment, for the international capitalists are more productive, more efficient, and this will crowd out local companies. This is to misunderstand the subject entirely. For it is true -- proven by simple observation -- that it is only the most productive companies that do expand into the international economy. This is true of exports, it’s true of investing outside the home economy. It is also true that it is competition which improves productivity -- and also that improving productivity is the very thing which makes a place, people, or country richer.

So, we wish to improve productivity, competition is how that happens, we want to have the competition from those more efficient, more productive, foreign companies. Far from protecting domestic producers from the foreigners, we positively lust after exposing them to them.

Far too many see the regulation of FDI as being a manner of keeping those foreigners out of the economy, of limiting their access. This is to get the idea entirely and wholly the wrong way around. We want as much of it as we can gain.

Not just because it’s more money that builds the economy, but because the very thing some complain of, the competition, is what again makes us richer still. All of which underlines the lesson of what the laws should be about these foreigners investing in Bangladesh. There shouldn’t be any. At least, none that don’t also apply, equally, to any Bangladeshi trying to do the same thing. And we all understand that we want those to be as simple as possible, right?

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

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