There's an old joke, vaguely traced back to Mark Twain -- of Tom Sawyer and Huckleberry Finn fame -- that the people of the Scilly Isles make their living by taking in each other's washing. This is a play on how Scilly -- the islands off the very south west tip of England -- is pronounced silly. For obviously people who send out their own laundry in order to do that of others are not making a living. And yet to economists this is not a joke. Yes, that's right, that's how economies do work. What's silly about that?
Which is the thing we should keep in mind as we consider “Bangladesh: What's next?”
Clearly, I'm not one to comment upon the food scene, or the state of marriage, or whether taupe or teal suit the walls of the living room better. A quick glance at my diet, relationships and living room will cure any of that delusion. But on economic development yes, there is something to say.
Nearly all discussion around the Bangladeshi economy is over what should we be doing? Where should the emphasis be, which industry to support? In the long term, this is not really the right way to be thinking about it. Sure, we can mutter about transitional stages and so on, what's right to do this year or next. But we really do have to grasp the fundamental truth about an economy. It is all us taking in each others' washing.
So, talking about industrial relations in the ready made garment industry -- OK, that's a big export earner, pays better wages to millions of women than any other industry in the country would. Workers abroad sending money home -- the remittance workers. Yes, a large part of the economy right now. But this isn't what the long term success of anything is based upon, let alone the Bangladeshi economy.
That's all about foreign trade (remittance workers are an export, their wages are sent back into the country, that's an export just as much as RMG is) and yes, foreign trade is nice. We get the foreign currency with which we can then buy things made by foreigners. As foreigners make some things better than we do then how super, right? But that's all it is, it's a “how super” not the defining issue of an economy.
Now me saying it's all about taking in each others' washing is, of course, my own little joke. Sadly, none of mine are as good as any single one of Twain's but there we are. What is true of an economy is that we all live by taking in the work of others. The entire point and aim is that thing which Adam Smith described in that pin factory example which has tortured economics students ever since. If we divide and specialize the labour then each individual task will be done better and overall production will be greater. As production is greater and it's a logical certainty that everything produced is consumed we are therefore richer. We get, we in general, to consume more -- obviously we are richer.
Using the example of everyone's washing doesn't work. But Ahmed does the accounting, Faisal the management, Ishrat the lawyering, Chandra the sporting excellence, and so on through any combination of people and jobs. That people specialize, do better work, produce more output from those labour hours, means that we all get to consume more more lawyering, accountancy and my, aren't we the lucky ones. Or we can talk of housebuilding, laundry, cooking, clothes and telecoms if we wish. The division and specialization of labour works. It's also what an economy is. The interaction of that division and specialization.
How that interacts with the world outside our society -- that trade part, the balance of payments and all that -- is the least important part of it. The vast majority of any economy is the domestic part of it, therefore the part we've got to work to get right is that domestic part.
There is, obviously, that part of well, who does what? This was sorted out by David Ricardo -- who, as it happens, first read Adam Smith just around the corner from where I grew up. No, really, he was on holiday in my hometown when he did.
People think that Ricardo on comparative advantage is some terribly complicated thing -- examples of Portugal and wine and England of cloth and so on. But those are examples. The actual lesson is that we all do what we're least bad at and trade what we've produced. No, not what we're best at -- for someone else can easily be better than us at everything, we therefore not being the best at anything. The insight is that if we all do the best we can -- the thing we are least bad at -- then everyone is contributing to total production as best as is possible. Therefore, by doing it this way total consumption is as high as it can be -- we're all as rich as is possible.
So, division and specialization of labour. Comparative advantage. Over the long term, that's about it really. Everything that the economic planners try to tell us is about their having better knowledge of what labour should be divided, specialized, right now. What they think the comparative advantage is. It's even -- vaguely, but we must consider it as a possibility -- true that they might be right about the next two years, five. But given that absence in this world of crystal balls they'll not be of the next twenty or fifty.
Which gives us that problem. The domestic economy is where living standards -- wealth and incomes -- really rise. That's driven by the division and specialization of labour aided by comparative advantage. So, well, how do we maximize that? There are no eggheads, all seeing and knowing experts who can direct industry, the economy, the country, toward those things over the long term. Yet we still desire a system that allows, encourages, incentivizes them. What to do?
Adam Smith again: “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things.“
Get those three things right and leave the economy be. That's my answer at least. The work to be done in Bangladesh would probably be getting those commercial courts sorted out. One of those areas where the right answer is often less important than a certain and swift answer. But that is to descend into detail again.
I'd like Bangladesh -- Bangladeshis -- to get rich. We'd all like Bangladesh, Bangladeshis, to get rich. Following the path of those places, those peoples, who have already got rich seems like a logical way to try it. So, what’s next for Bangladesh? Peace, easy taxes, and the tolerable administration of justice. All else will happen as the natural course of things.
Tim Worstall is a senior fellow at the Adam Smith Institution.
