The posts, telecoms and IT ministry has recently argued that there should be taxes on the import of computers and laptops. This is part of a grander plan to encourage the production of those devices within Bangladesh.
The answer to this, as Ben Bernanke said, is no.
The former head of the Federal Reserve gave a speech in which he said the following: “However, careful economic analysis does have one important benefit, which is that it can help kill ideas that are completely logically inconsistent or wildly at variance with the data. This insight covers at least 90% of proposed economic policies.”
Is the proposed tax policy part of the 90%? To save any narrative or dramatic tension: Yes, it is. It should not be done.
We can see what they're trying to do. Those foreign factories which make computers and laptops are very efficient. No one trying to replicate those production lines within Bangladesh could hope to compete on price. This is why there are none -- or very few, perhaps -- of those domestic manufacturers. Anyone trying it will be steamrolled by those foreigners being so dastardly with their efficiency and low, low prices.
So, why not tax those imports and encourage domestic manufacture? We can see that this is what they're thinking, too. Partly because they actually say so, partly because they suggest not taxing components -- absolutely no one thinks Bangladesh should build its own memory chip plant, for example -- and giving tax rebates to domestic assemblers of those imported parts.
It is possible to argue in favour of this if we think about final goods -- things that people buy in order to consume. We've got to get our tax revenues from somewhere, and a tariff on imported goods -- when there's no local manufacture at all -- is the same as having a higher VAT rate. We might also think about all those jobs created by the assembly.
These aren't good arguments, note, but they are rational arguments.
But now we need to come to the careful part of the economic analysis. Computers are not in fact “final goods,” they are “intermediates.” They're the tools with which we do things: Write software, check the accounts, learn from online videos and classes. They're tools. Making computers more expensive is like making shovels more expensive when we're trying to dig ditches. Simply not something we want to be doing at all.
And yes, it will make computers and laptops more expensive -- that's the point of the exercise after all.
No, it isn't just that imported ones will cost more because of the taxes. Think about it, why have we put that tax on? Because no one domestically can make them that cheap. So, we have to raise the local price so that native producers can compete. The whole point, the aim, of this plan is to make computers more expensive inside Bangladesh.
Why do we want to do that? We don't want to, do we?
We don't think more expensive shovels help with digging ditches. Rice going up in price doesn't help us fix lunch. Deliberately fixing the economy so as to increase the price of intermediate goods -- things we then make other things out of -- is a bad idea. It falls into that 90% of proposed economic policies to which the answer is: “No.”
The comeback will be that people will be employed in adding that value domestically. Jobs are good, right? Except, careful analysis shows that in fact those workers won’t be adding value. Computers under this new system of domestic manufacture will be more expensive than just buying them from the foreigners.
That's a subtraction of value, not an addition.
We can even appeal to history and theory. The technical name for this proposed tax policy is “planned and subsidized import substitution.” It was quite the rage from the end of colonialism up into the 1980s or so. You know, that period of time when there was nearly no economic growth per capita (per person) in the countries that practiced it? That growth appearing when folk instead applied themselves to wondering what value could be added to things that could be exported.
Just say no to bad economic ideas -- that is, 90% of them.
