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Taxation without representation?

  • Published at 11:46 pm September 16th, 2017
  • Last updated at 12:19 am September 17th, 2017
Taxation without representation?
There’s a certain amount of grumbling coming out of the Bangladesh Council of Scientific and Industrial Research (BCSIR) the basic complaint being that they’re inventing all sorts of hot new stuff that people can use as the technological basis of a new business but very few people are doing so. This is a known problem and there’s a known solution to it: BCSIR should be giving thee technologies away rather than trying to charge for them. Yes, really, the government spends money on inventing and refining new technologies and then just gives them away and lets the businessmen wax fat and rich off the taxpayers. No, I don’t say this just because I am myself one of the capitalist pig-dogs, but because this is good economics here. The reason we ask the government to do scientific and technological research is because we think it’s a public good. No, this is not what is good for the public, nor is it a good that the public gets, this has a precise meaning in the technical jargon. Which is something that is non-rivalrous and non-excludable. The first means that, however much of it someone uses this doesn’t run down the supply of it, the second that once the thing exists we cannot stop someone from using it either. The standard examples here are things like the protection we all get from vaccinations, the herd immunity. If around 95% of the people are vaccinated then there’s nowhere for the disease to hide and incubate, so that last 5% gains all the benefits of the vaccinations without actually having one at all. And there’s no way we can stop them nor does their doing so mean that everyone else doesn’t still benefit. Economists then point out the other side of this: If we can’t stop someone and there’s no restriction of supply, then how can anyone make money out of this? The answer being, well, we can’t make money out of public goods. As that’s true therefore private companies won’t produce them. Well, of course, they do, a bit, but we do think they’ll do so less than might be a good idea for society. At which point the government should step in. In the UK, the government pays for all vaccinations and that works. In the US you pay for your own kids to have them but they can’t attend school until they’ve had them. Different methods of intervention work. Which brings us to knowledge and invention. It’s hard to invent something new and we do like it when people do so. But, we also think that there’s quite a lot of research which is really a public good. Once it’s known that it works it’s much easier to copy it than invent anew, so it’s really difficult to make a profit from having invented. One solution to this is patents which allow people to charge for their invention, and to stop people copying it. But, in the general scheme of things, we think that’s not enough. So, we also get the government to employ scientists working in labs to do some of that research. We pay taxes, they do the discovery, we get those public goods. And that’s when the BCSIR complaints start. They’ve a good number of these new technologies but they’re not being licensed. One obvious part of this is that the bureaucrats who do the licensing are in the main office in Dhaka, not out at the lab in Rajshahi – we all know how that’s going to go. But the other is that they are charging for these inventions. Which leaves us with this really quite delightful problem, which is that the reason we pay taxes to get government to do this is because it’s difficult to charge for the output, yet the government then insists upon charging for the output, the difficulty of that being the very reason we use government to do this in the first place. The obvious answer is, therefore, to stop trying to charge for letting people use these inventions. We’ve all already paid for them through our taxes and we want to get the benefits of using the technology, so just give it away. There is an economist called Mariana Mazzucato who insists that all of the basic technologies which make up the iPhone were invented by the government. She then goes on to insist that government should charge for those technologies, gaining lots of revenue back again. She also points out that the largest and most successful government backer of new technologies is DARPA, which is the US department of defence funder for exactly this sort of technological invention. Mazzucato’s argument rather falls apart when we note that the reason DARPA is so successful is because it never charges for the use of the inventions it has funded. They take my view, tax has paid for the work to be done because the private sector wouldn’t. Now we want people to be able to use what the tax has paid for. Well, go on then folks, have fun! All of which gives us the answer to what should be happening at BCIRS. We do, indeed, want the government advancing science and technology, but, once they’ve done so, just allow anyone to use it. And cut out that expensive set of visits to Dhaka to the bureaucrats at the same time. Do what the most successful program to support invention does – just give it away. After all, we’ve all already paid the taxes to pay the scientists, they’ve produced those public goods as we asked them to, there’s nothing else here that needs to be done or paid for, is there?   Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.