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The Mongolian Clusterhuddle Explaining Why India And Bangladesh Are Still Poor

It’s entirely possible – and true – to point out that both India and Bangladesh are actually rather rich places. They’re well above the historical level of living standards for example. And I’d be willing to take or place a bet on the idea that they currently provide a living standard better than the median human one of the past few millennia since we invented agriculture.

It’s also entirely possible – and true – to point out that India and Bangladesh are poor places. For a quick look around the world shows that we know how to do better than this. As the lifestyle of anyone likely to read this shows. There’s absolutely no one at all in the “Atlantic” economies – NW Europe, N America and some others, Japan, S Korea these days etc – living on something as low as the average lifestyle in India and or Bangladesh.

The entire subject of course being at the core of why we try to study economics. As Brad Delong has pointed out if not in these exact words there’s really only one great empirical question in the subject. “What the buggery happened?” Millennia of everyone living worse than a current day Bangladeshi peasant and then around 1750 something happened. Some to many to most climbed up out of that pit of destitution.

The cute and accurate answer is that productivity rose. Sure, some of it came from using more inputs but there’s a limit to how much economic growth that produces. What really rose – Bob Solow thinks 80% of 20th century growth came in this manner – is the productivity with which we use economic resources, most especially human labour.

As to the how this was done, well, go read some of the libraries packed with books attempting to explain it.

And as to how it wasn’t, a story from the India/Bangladesh border:

Indian truck drivers at the Hili Land Port have halted export-import operations, demanding the immediate release of imported rice.

Around 10am Wednesday, the truck drivers took up positions at the main road of the port. This resulted in a complete halt in trading and a couple of hundred trucks carrying perishable goods got stuck on the Indian side.

Well, borders, tariffs, customs checks, yes, reductions in productivity.

Rice importers Mamunur Rashid Lebu and Harunur Rashid Harun said, according to Commerce Minister Tofail Ahmed’s statement on June 4, the tax on imported rice will be increased to 28% so that local farmers are not affected financially.

As a result, rice importers with issued letters of credit (LCs) started to stock huge quantities of rice on June 5 and 6 at the port aiming to have the earlier tax rate of 2% applied to their rice imports.

But after completing all the formalities of import taxes, when the importers went to submit the bill of lading, they were informed that the customs server was out of order and the goods could not be released on June 6 and 7.

Ah, yes. So, the public administration has a problem or two. People rushing to beat the tariff rise can’t because the computer breaks.

Hmm, OK. Such things happen. It’s what happens next that matters.

To return to our productivity point. It’s not that we tie a steam engine to some 6 year old waifs and thus invent the cotton spinning factory. It’s that we increase the productivity of doing anything, of doing everything. This matters. For there are people out there – Dani Rodrik steps perilously close to this assertion – who say that because robots are going to do all the manufacturing then poor places never will get rich. Because there will be no manufacturing to enable them to increase productivity and thereby get rich.

This is an error. As anyone who has ever tried to do anything in a poor place will know. The effort, the truly vast and huge effort, required to do absolutely damn anything. Yes, often bad government, but it’s not just that. You simply have to spend so much time getting the simple things- going shopping, clearing customs, permission for an adventure, travelling across the city, anything – done that there’s no time to be productive in doing anything.

Improve that and the place will be richer. Another way of putting the same thing is that even if only the domestic services (no, not domestic service) industry becomes more productive then the place will still be getting richer. Manufacturing might be a nice way of doing it, might have been the historical way but it’s not the exclusive and necessary way.

Which brings us back to our truck drivers:

The traders also said the Indian truck drivers stuck at the port are in a crisis for money and food and that is why they are protesting, which is also a humanitarian matter and this needs to be fixed soon.

Human Resource Official of Hili Land Port, Sohrab Hossain said: “209 truck drivers, carrying 8, 000 tons of rice from India are stuck in the port for the last one month due to tax related issues. Goods did not cross the land port on Tuesday and Wednesday due to the ongoing protests of the Indian truck drivers. Talks are in progress with them, to come to a solution.”

That little breakdown of the customs server has led to all concerned being stuck at the land port for a month. And that’s why India and Bangladesh are still poor. Because everything, every attempt to do or organise anything, turns into just such a Mongolian Clusterhuddle. Start to solve these problems and productivity will rise. The place will, as above, be richer as a result. Richer by whatever the output of those trucks and those drivers are for a month in this instance.

Another way to make the same point, sure, wealth increases by the application of ever more advanced technologies. Organisation is a technology just as much as a steam engine and a rather more important one too. Improve the organisation of such things and we’ll all be richer.

It’s also a rather better solution that the alternative, shoot all the bureaucrats. Less satisfying perhaps, but also more likely to be effective as Stalin showed.

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5 years ago

Between applying advanced technologies and shooting bureaucrats, I would prefer the latter. Because all that advanced technologies have achieved here is the advanced excuse that “the server is down” to justify a one-month wait while food spoils in the trucks. This border inspection station exists to protect local farmers from competitive imports. The tax on the latter was increased from a token 2% to 28% to — as Tim wrote about yesterday — buy farmers’ votes. Suppliers contrived to evade the tax increase by changing the dates of their shipments. If this were business, an executive anxious to maintain his… Read more »

5 years ago

So, have I read the the right way around, Bangladeshi officials conspiring to make Bangladeshi people poorer by forcing Bangladeshi people to buy expensive food. Isn’t that some sort of human rights violation?

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