Tuesday, June 18, 2024


Dhaka Tribune

Between growth and equality

Is possibly slowing economic growth to reduce inequality a viable option for a nation like Bangladesh?

Update : 04 Jun 2023, 02:14 PM

Sometimes we can just dismiss suggestions out of hand. As with this one from the Bangladesh Economics Association. 

Even if this isn't quite how they put it, the BEA is saying that the people who are “good at kissing babies” should have three times more of everything than they do at present. They also suggest that this is how the country will get richer. 

Now, it's possible to be an irredeemable cynic like myself and just suggest that more money running through political hands isn't the way to make a place rich. You know, on the basis that we can see what politics does with the money once it gets it. But there is more to it than that.

The suggestion comes in the form of the alternative budget that the BEA has presented. The key point of which is: “Besides, the alternative budget is three times larger than the government's Tk679,000 crore budget for the current financial year.”  

Currently the government -- governance perhaps -- gets some 8-9% of GDP each year. That is, of all the economic activity in the country, the government collects that one tenth or so and then spends it. Government spending is, by definition, defined by politics. Politicians are those who are good at kissing babies -- the American slang for pleasing the crowds in order to gain their votes.

One tenth of everything you do, we all do, goes to be disposed of by the baby-kissers. This may or may not be a good idea. Certainly, there are some collective problems that can only be solved by communal effort and thus communal payment for them. 

The BEA suggestion is that those in those political offices should instead handle three times as much of everything. Politics and thereby politicians should determine the disposal of 25-30% of everything. 

One quarter to one third of everything we all do should be spent by the people who didn't create it. This might be more difficult to support than the 10% idea.

The logical mistake being made here is that in most rich countries the government does spend that much of GDP. In the US it's 26% for example, in the UK perhaps 35%. But the mistake is to think that that's how those places got rich instead of the result of their having got rich. Or at least that's a potential mistake.

For the truth is that we can run a government dealing with those communal problems through communal payment of the costs on some 15-20% of GDP -- of everything. Places like Singapore do exactly that. 

That's including the costs of an excellent, by any global standard, health care system, and so on. In fact, places like Sweden -- where the government gets perhaps 45% of everything -- also only spend 15 to 20% on the government. 

All of the rest of it is taking money from one section of the population -- we'd hope the richer, of course -- to give to some others -- the poorer.

That is, the government isn't that expensive, it's income redistribution which is. And there we encounter a known effect. The more income redistribution we do the slower economic growth is going to be. 

At least, above the absolute bare minimum of making sure people aren't starving in the streets that is. 

This means that large amounts of income redistribution are what countries can afford to do after they have become rich. They're not the method by which places become rich at all.

Now, it may well be true that by the ethical standards of the BEA, a less unequal country is a better place. We might even agree with them on that. But that's different from saying that a still poor -- yes, we know, getting richer very fast but still not rich yet -- country like Bangladesh should be redistributing income at the price of slowing economic growth.

Economics itself has another way of putting this. Luxury goods are those things we spend more of our income upon as we get richer. Meat in the diet perhaps, holidays, life insurance, pensions -- at different levels of income all of these have been identified as luxury goods. 

Slowing economic growth in order to reduce inequality is, I would suggest, also just such a luxury good. It's something we spend our higher incomes upon, not something that causes the higher incomes. 

We can also come back to being irredeemable cynics. Regard your current MP. Consider them for a moment. At present they and their cohorts determine the destination of 10% of everything in the nation. The BEA insistence is that you will be richer if that MP, those politicians, determine 25% to 30%. 

Now really consider your MP. Are you convinced of that argument? 

I've worked in the Westminster parliament (as an assistant in the House of Lords) and up close experience of politics has not made that argument powerfully persuasive to me. 

But it's obviously your decision, even if that is what the BEA is trying to convince you of. 

That you will be richer if Bangladeshi politics controls three times more of your life than it currently does. 

As I say, your decision, but I'd consider that a hard sell when put in those terms.

Tim Worstall is a senior fellow at the Adam Smith Institute in London.

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