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What holds us back

  • Published at 11:51 pm October 7th, 2017
What holds us back
Bangladesh is doing better but should be doing better still. That’s according to the World Economic Forum and this year’s edition of their Global Competitiveness Index. Every year, they rank countries by the usual standards we’d use to measure whether they’re a good place to be doing business or not. As with every such ranking, how much we agree with it depends upon what we think of what they decide to measure. This particular report isn’t bad in that manner. For we do think that things like the level of education of the workforce, the general efficiency of the market itself, and so on are good indicators about how competitive a place is. How attractive it is to do business in – another way of saying much the same thing. And, as I say, Bangladesh is doing better here. Last year we were at 106 on the list (higher numbers are worse) and this year at 99. We are travelling and doing so in the right direction, which is great. However, quite obviously, there’s a considerable distance to go still. It won’t come as a great surprise to find that the nations at the top of the list are the rich ones, those at the bottom the poor. For this competitiveness, this ease of doing business, is also a measure of how many people are doing how much business.
To make Bangladesh richer just cut the bureaucracy. After all, the complaint is that it is currently inefficient so we’re not going to miss it much. This will also neatly take care of our other problem as corruption is usually, although not exclusively, about doing an end run around an intrusive bureaucracy
And business itself is that very economic activity which makes a place rich, its absence what makes one poor. The process of economic growth therefore, that business of us all getting richer, is the very same thing as climbing this table. Which is why we want to do it of course. Some of the measurements are a little beyond our direct control. Market size for example – this is just another way of saying that poor countries are poor. A small market is not much economic activity, not much economy is the same statement as poor. Similarly, technological readiness is much the same thing. If we’ve got all of the whizzbang modern technology then we’re a rich place, pretty much by definition. Many of the indicators are about where we’d expect them to be. A country which is around 100 on the list is going to be, at least we’d expect it to be, around 100 or so in things like infrastructure, health care, education and so on. For they’re all things that feed through into that economic activity and thus these things do tend to balance out. Other matters are rather more under at least our potential control and the report points to the most important two here. The first is corruption, the second inefficient bureaucracy. These two together – and of course, to whatever extent they overlap into a corrupt bureaucracy – mean Bangladesh is stuck in a low-level trap. Economic activity is far too determined by factor input and not enough by efficiency. This is an important distinction. There are two sources of economic growth, we can just use more stuff at the beginning of the process or we can use what we have more effectively. So, we can use more labour, or land, or capital, or educate people more, these are all examples of higher inputs. This does indeed produce growth. Or we can use what we’re already using more efficiently, this also produces growth. The importance of the distinction is that Bob Solow, a Nobel Laureate, has studied what produced that phenomenal growth in the rich economies in the 20th century. The answer being that it was only 20% from the use of more resources, more inputs, and 80% from greater efficiency. As what we’re trying to do in 21st century Bangladesh is catch up with what those now-rich nations managed in the 20th century – this is something we’ve got to take note of. And copy, of course. Which gives us the beginning of a plan. If corruption and an inefficient bureaucracy are our two main problems, then we obviously want to reduce the both of them. Fortunately, there’s a good way of doing this too. Which is simply to reduce the amount of bureaucracy we’ve got. Of course, there will be those horrified at the thought that fewer things will be regulated – not least those currently enjoying jobs in doing the regulating. But a basic truth about the world is that not everything needs to be controlled. Humans do spontaneously order, much of life can indeed be left to people to just get on with. There are some things that absolutely have to be done and which can only be done by government, that’s entirely true, but the list is a great deal shorter than what any actually existing government attempts. A favourite example here in Bangladesh would be that people who package rice probably do know what’s the best thing to use to package rice in. Rather than the government insisting that jute be used, in order to provide something for the subsidised jute mills to produce. We’d probably, as I’ve mentioned before, all be better off without the insistence and just leaving it to the market. So, to make Bangladesh richer just cut the bureaucracy. After all, the complaint is that it is currently inefficient so we’re not going to miss it much. This will also neatly take care of our other problem as corruption is usually, although not exclusively, about doing an end run around an intrusive bureaucracy. Get the government back to doing only what must be done by the government, rather than what can be done badly by it and watch the economy grow.   Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.
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