If Walton’s management desires to be such a major exporter, we should expose the company to the full rigours of international competition at home
Walton has declared that it wants to become a global brand in electronics and to an economist, this is simple enough - we should just stop protecting Walton’s home market, Bangladesh, with tariffs and other import barriers.
This is most unlikely to be what Walton’s management desires, but if they really do want to be such a major exporter, we should expose them to the full rigours of international competition here at home.
There’s a certain obvious logic to this.
Walton, like all other industries and companies protected from foreign competition, insists that it needs that protection. Yes, of course, Walton is excellent and all that, using the latest production technology and so on.
But this cannot really be quite true, can it? For they also argue in favour of those protections. Then the argument is that the foreign companies have had more time to get things right, have greater access to capital perhaps, or a trained workforce.
These lacks mean that while Walton is truly excellent, it cannot be expected to be as good as those foreign producers and products. Thus, in order to stop everyone just buying the imports, there should be protections, to make sure that things are built at home - providing domestic employment.
Walton is already world-class but also needs protection - the two insistences aren’t compatible with each other.
Obviously enough, the Bangladeshi government cannot protect Walton’s exports. Other countries aren’t going to favour the company with better tariff or import deals after all.
If Walton insists that it really can compete in those foreign markets then, it doesn’t need that protection at home. For it can slug it out with all the other global producers elsewhere - so the company insists - therefore it should be able to do so at home.
However, there’s another level to this, part of that super secret economists’ decoder ring, which so explains the world. It does tend to be only the top 10% of producers in any industry or country that export.
Again, the logic is simple enough - mediocrity is easily available anywhere, just around any corner you care to choose. It’s excellent, which is rare, and thus it’s only those who are excellent who go through the extra costs and difficulties of exporting. It is their better products, or better production processes, which can carry those extra costs.
Furthermore, it is competition which creates that excellence. There are entire libraries filled with studies of what happens when there is no competition, and the results are always dire.
Bad products at high prices isn’t what we’re trying to achieve at all. Further libraries contain the evidence of what happens when competition arrives - firms produce better products more cheaply, which is our aim.
Again, the logic is simple enough, why do that difficult work of improving processes if one doesn’t have to? Humans tend to enjoy not having to work too hard after all.
There’s also much more detailed work showing that this really is what happens. Only the top 10% of producers bother to try and export. This means that imports are, by definition, coming from the top 10% of the globe’s producers of whatever it is.
Thus, local firms are being exposed to the most productive producers in the world -- they must become that productive themselves or they’ll not exist long. The very fact of being exposed to this import competition is what drives domestic producers into raising their productivity.
So, how do we make Walton more productive?
We expose it to the foreign competition here in Bangladesh. We do that by dismantling the import protections and tariffs it currently enjoys. Obviously enough, one benefit is that we all get to enjoy those cheaper and possibly better-imported goods, at least unless and until Walton is as good as they are.
There are really only three possible situations here. The first is that Walton is already as good as everyone else. In which case, it doesn’t need protection against imports and we can dismantle them.
The second is that it isn’t as good, and we in Bangladesh have to make do with inferior goods at high prices. Thus, we should dismantle the import protections so as to create the competition which will force Walton to become as good.
The third one is what we appear to be being told, which is that Walton is good enough to export, but still needs domestic protection. That situation isn’t logically sound, as if it can beat other producers elsewhere, therefore, it can also do that here. So, again, we get to dismantle the import protections.
So, given that these are the only possibilities, it would appear that we should be dismantling those import protections, doesn’t it?
Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.