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It’s all about the experimentation machine

  • Published at 10:32 pm June 3rd, 2017
  • Last updated at 10:36 pm June 3rd, 2017
It’s all about the experimentation machine
Good grief, is Bangladesh really as bad as this? How does anyone get anything done, how is it possible to have an economy at all? That’s the only rational reaction to one part of FM Muhith’s budget speech, where he outlines plans to improve the ranking of the country in the World Bank’s “Ease of Doing Business” rankings. Bangladesh currently ranks 176th and the aim is to get it up to 100th over the years. That is, the ambition is to get from ever so slightly better than DR Congo, a place which doesn’t really have a formal economy at all, or Equitorial Guinea, a strict dictatorship floating on a sea of oil, Yemen, suffering a full own shooting war, all the way up to the position of say Lesotho or the efficient places like Zambia. This is a notably modest ambition -- note that there are only 190 countries ranked (Somalia is at the bottom, not really even a country at present) and a higher number is worse. I think we can and probably should be able to demand a rather better performance than this. And that takes us into a particularly thorny economic point. It is actually necessary for us to have a government. Anarchism, the Ayn Rand style Objectivist fantasies are exactly that, fantasies. Someone, somewhere, needs to secure the country, organise those things which only the imposition of state power can organise, along with that monopoly upon legal violence and so on. That means a government and taxation to fund it. aaaaaaaaaaaaa The thorny part of the point being that all too many think that the necessity of having some government means that all things must be governed, that being a large error. To take one little example, there is now talk about legalising gold imports, this talk being part of the same budget speech. The concern being that there is no policy laid out and thus Bangladesh is missing out on an opportunity. It seems likely that there is an opportunity being missed. There’s very definitely a market for hand made jewellery out there across the globe. Bangladesh is not short of craftsmen, the Bengali history of fine arts and crafts is renowned. The conversion of gold ingot into fine pieces by the application of that skilled labour and historical, cultural background, yes, why not? But to think that there must be a policy about this is to be in error. What we need instead is a policy which does not forbid nor interfere with it. All that needs to be done is to amend the import regulations so that gold is a legal import. Then we’re done. We also don’t need to try to distinguish between imports for domestic consumption and for re-manufacturing for export. We just need to let the market, the participants in it, make their own decisions. That is just an example but it is the exemplar for the entire economy. Sure, there are things that government and governance must do. A decent bankruptcy law is vital for any functioning economy. We need to know who owns what -- not so that we can keep an eye upon it but so that transfer is possible -- we know the seller owns what they’re selling. Thus, land registry is a vital task. Laws stating that employers may not poison or otherwise kill off their workers seem like a pretty good idea, even Adam Smith insisted that government financing of at least basic education was a good idea. There are these many things which government can and should do to create the structure within which an economy can flourish. But going beyond that to try to insist that government should be planning what economy will then flourish is where the mistake comes in. Because the truth about the economy in detail is that we just don’t know. Technology is an ever moving feast, what is possible for us to do changes over time. The tastes of the people change too. Thus, we have an ever expanding universe of combinations of resources and technologies to match up with that ever changing consumer taste. As Friedrich Hayek got the Nobel prize for pointing out (and it was the basis of his Nobel lecture) there is just no manner in which the centre, the government, can gain access to the information needed to plan this. Even Kantorovich, the only Soviet economics Nobel winner agreed with this point. We really just don’t know. Thus, we’ve got to leave it up to the fertile imaginations of the people to work through the possibilities. And that’s really what the free market is, the experimentation machine. Vast numbers, nearly all in fact, of these experiments fail. Four out of five new businesses cease to exist within five years. For reasons like: The originators of the scheme were simply deluded all the way through to other people just doing it better, perhaps with side routes through the technology just don’t work for anyone wanting the finished production. The task of government in economic management is thus to create that structure within which economic activity can occur. The rule of law, a bit of education, providing public goods, and so on. But then to stop and just leave the room for that economic activity to happen within. Or, as Adam Smith again put it, 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. We might expand the list of things which government can usefully do a little these days. But the basic concept still holds. Those things which must be done and which can only be done by the government are the things which the government must do. But once they are done, government needs to get out of our way as we make headway to build that opulence. So why shouldn’t Bangladesh be at the top of the ease of doing business list alongside New Zealand -- that being the one single thing which would propel it to being as rich as New Zealand? Why is the ambition limited as to desire to be only in top 100 on the list? l  
Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.
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