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INVITATION TO A DIALOGUE

Market economy should not be confused with perfect competition

The public-vs-private sector debate is therefore atone age polemica. The fact is that there is the government and there are individuals across society striving to make the most of their lives. The government's role is to help individual citizens in thia struggle, or, at worst, stay out of their way as much as possible. The so-called "private sector" consists of everyone outside the institution of government, even government servants in their private capacity.

Feisal Siddiqui
I must admit at the outset that 1 cannot resist engaging Prof Rehman Sobhan in a debate While a tender 20 year old undergraduate student ol economics. I attended a talk by him at the London School of Economics at which I fared rather badly tn trying to take on the legend Fifteen years on, 1 am doggedly pursuing hi? contributions in the newspapers. 1 was itching to put pen to paper after the Oct 9 piece in Holiday entitled "An agenda to discuss” (why not just get on and discuss rather than dis course on the agenda for the discussion?) but managed to let it pass. In my fevered imagination, this lack of response on my part has emboldened Prof Sobhan to follow up with the longer piece of Oct 16, "The open market and Its en emies", and a spate of other writings, in The Daily Star (provocatively asking for a response). so that I can no longer relax.
In the "open market and its enemies." he starts off by stating that he decided to write the piece "not because I have become a recent convert to the virtues of the open market but " A brilliant use of
the English language, which is certainly his strong suit, by which he could either be: a) a recent convert to the virtues of the open market but writing the article for other reasons, or b) not a recent convert to the virtues of the open market. It is brilliant for two reasons: 1) It keeps his followers and critics guessing. 2) It camouflages and eases his entry into a pro-market stance, leaving open the option of a quick retreat.
Of course I am assuming that the turn of phrase was not pure accidental genius. His next sentence once again betrays a British touch of circumlocution as he "proposes to ar gue" (why not just argue and be done with it?). Jokes aside, there were actually some Ents he makes that 1 whole-trtedly agree with, and I hope my present contribution should fulfil his intention of provoking debate. I agree with him that a large number of people are talking about the market economy without any idea of what it means for
Bangladesh (or for any other country, for that matter). As a leading and highly Influential economist of Bangladesh, Prof Sobhan himself has to shoulder some of the responsibility, for sins of both omission as well as commission.
Discussing the essential pre-conditions for an open or free market, he actually outlines the parametres of an Ideal society. An ideal society is not a pre-requisite for a market economy, nor does a market economy tn Itself guarantees an ideal society. Perhaps he is confusing classical conceptions of perfect markets and perfect competition with the market economy. These are different in that the classical conception is a model, while the market economy is its quite Imperfect manifestation. For example. China and Vietnam may have Invested heavily in education, which may be considered a constituent part of the classical conception of perfect competition, but by no stretch of the Imagination was this directed towards a market economy. Otherwise, the dictates of an open society, as envisaged by him. resemble rather closely the norms of a Western democracy and is therefore nothing new for most of us. though perhaps it may have been a revelation for the Professor and his followers.
This intrinsic confusion and Prof Sobhan's enduring ideological bias tend to surface again and again in his analysis. His criticism of the donors, for instance, seems to be a habit he just can't quit. I. for one, derive some sense of security from the fact that our aid dependency ensures the donors a strong voice in our economic management, which, if left entirely to our own people, would almost certainly be disastrous (as Prof Sobhan himself proved in 1972). Even with all the flaws of poor adaptation to local conditions and lousy Implementation (and admittedly there are considerable problems). the donors' policy prescriptions may still be preferred to the local quackery.
Ills criticism of the Western countries is equally simplistic. Bangladesh has run up against quotas only on some garment
Items (admittedly the main categories) in only the US market. He appears to be completely oblivious to the fact that the US (and others) are also countries populated by human beings who may be expected to protect their own jobs and livelihoods
The GOB itself as a major obstacle to the market econ omy is very accurately analysed by him. What the Professor conveniently fails to mention Is that, as an Insider with the first government of this country, he was party to the most devastating blitzkrieg on openness and accountability in this country, which successive governments are still strug gling to recover from. Perhaps the pain of being an outsider in those days is being appreciated (albeit at a lower level) by him today, and hence his newfound
respect for openness.
In identifying the "business sector" as being among the enemies of open markets, he has taken rhetorical posturing into uncharted territory. To the best of my knowledge, the entire business community Is welcoming the opening up of the economy as long as it is sensibly phased in. In casually referring to private banks as poor creditors, his ideological bias against the private sector is exposed again. If being prudent, avoiding bad Ioans, and trying to maximise returns for shareholders is not a sound approach for banks, it is not clear what is.
Private banks are not crying about defaulters, while there are examples of successful Industrial financing by them (Islam! Bank, for instance, has a substantial share of its loan portfolio in the garment industry and is thriving today despite initial problems). The reasons for the apparent prob-
lem* of "big busine**" as he put* it, can be traced back to the nationalisation programme and it* lingering after shocks on the economy, even a decade after the denationalisation programme's commencement. The sooner the GOB can dis engage completely from the buainca* arena (Including the financial institutions), the better In terms of establishing a more efficient economy.
The conclusion reached by me 1* thus a little different than the one reached by Sobhan The bureaucracy as an institutional force Is no doubt the single most important enemy of openness, whether In the market place or else where, and this Is almost by the very nature of the system the bureaucracy operates within, from Its origins In the
British colonial period. Civil service overhaul and reform is thus critical to the eventual success of the economy, be It a market-oriented or a centrally planned one.
The other group, operating at a strictly individual level as opinion shapers tn society, are the large number of persons who are not clear about the fundamentals of the market economy, including the Professor himself (as his essay confirms). In fact, it is possible, through direct Institutional reform, to make the bureaucracy more responsive almost overnight but tackling the problem of making a large body of individuals across society more aware of the dimcn sions of a market economy In Bangladesh is a much more difficult and open-ended proposition. Prof Sobhan. a very important opinion shaper himself, unfortunately continues to contribute to this confusion. His recent article in this
paper bpread over two days, is entitled “Policy agenda designed by donor* fall to find cure". The truth of the matter Is that there is nothing wrong with the “policy agenda", which Is correctly attributed to the donors, but there I* everything wrong with Its adapts tton to the Bangladesh context and its implementation, which Is our administration's business. I wish he would make the effort to establish these distinctions as a professional economist. Instead of going for a populist approach, which does not result In anything constructive. For example, he compares the economy's growth rates of 1987-92 with the post liberation figures. I do not believe that hi* understanding of the use of economic statistic* Is so week
that he is unaware of the dis tortions tn the immediate post-liberation period. I do not find this approach acceptable from a person who considers himself a senior and responsible citizen of the country, let alone a professional economist, Just because he was directly associated with that period In our nation's economic history.
But he is undoubtedly correct in asserting that the economy is sick. Nobody, including the donors, is disputing that fact. The donors and the GOB are however trapped into a “wishful thinking" syndrome and are heard, from time to time, to make predic-tio'ns of Improvement "just around the corner". The fact is that aggregate demand management Is lacking, the output from existing capacity is not being closely monitored to achieve maximisation, there is no effort to identify why private investment — both domestic and foreign — is not taking
place the major financiers are in confusion and disarray and not lending. and moat impor tantly (he administration Itself appear* to be almost schizophrenic in It* role a* leader of the economy In short, the delivery mechanism of the broader policy Is almost completely paralysed but this does not mean the policy Itself, which Is almost univer sally accepted now, 1* Invalidated. Our job as Bangladeshis is to accept that we alone are responsible for thl* paralysis and the general malaise afflict >ng our country, and get on with the job Instead of arm chair phlloaophlatng and trying to blame someone else
I urge Prof Sobhan to actually come out and recommend an action plan Instead of dis coursing endlessly on the need for one Aa it 1*. most of his
follower* are confused as to whether he Is now a champton of the individual-oriented market economy or a centrally monopolised economy. After all, by taking the example* of the Japanese model, Korea and Taiwan, he 1* talking about all out government support for private business, big or small. I am sure the donors have got nothing against the GOB going all out to facilitate and support private business growth in almost a partnership sense, they will probably be happy If the GOB just achieves neutrality in the sense of not being an obstacle.
The GOB as partner can be successful if the GOB is sophisticated, but can have disastrous consequences otherwise. So at the Initial stage It is less risky if the GOB merely maintains a neutral but friendly distance from business. This Is in fact what Prof Sobhan himself has been arguing In The Dally Star recently, with "The
pubic and private sector* two sides of same coto" While It ta Indisputable that the public sector units suffer from excea • Ive centralisation and gov ernment control |a* doe* the private sector too. though ob viously to a leaaer extent) thl* la by no means the whole atory. aa he would have ua believe
The problems with any public sector organisation anywhere tn the world originate from a single universal truth everybody's property to no body's property The grand social experiment of transforming man or woman from an es aenttalfy self-centred being to a selfless non materialistic •pint dedicated to the larger community has failed — the new socialist man or woman haa not evolved The ways and wherefores of thia great debate Is beyond the scope of thia article; aufffee It to say that the failure of the socially owned centrally planned econ omy is universally accepted as a starting point for current discussions on economic issues. leading inevitably to some variant of market based economic principles.
In short. If public sector cannot be made to work even In countries like the UK. It certainly cannot work In Bangladesh, whatever exhortation* Prof Sobhan may make to the contrary. Nlneteen-ntnefy’s thinking on thia matter, widely accepted now, is truly simple and straightforward governments shall get out of any function which can be handled through competitive market mechanisms. For example, many organisations and Individuals In Dhaka today obtain security services from a com pany named SECUREX Instead of maintaining their own inhouse security department. The analogy would be for a government to contract out for the nation's defence services Instead of maintaining a standing armed forces. While this is an extreme Illustration, there are cases of a country’* contracting out to private Arms for customs services, in place of the usual government customs department. In the case of Bangladesh. It would certainly be interesting to think about
abolishing the bureaucracy running the ministries. and contracting their work out to
•ecretartes could do • great tab on a private baste'
Th* public vs private sector debate Is therefore stone agr polemic*. The fact la that there to the government and there are Individuals aero** aoclety striving to make the moot of their five* The go* eminent’* role to to help Indi vidua) cittoens in thio struggle or. at worst, stay out of their way ss much aa possible The so called "private sector" con Mat* of everyone outaide the institution of government, even government servants in their private capacity
The question of the government remaining In actlvl-ties which are easily handled otherwise cannot therefore arise in any form, and it to high time Prof Sobhan came to grips with this reality To argue that the government can improve performance of the PSU* by allowing greater autonomy flexibility and Instating on commercial performance, accountability. and responsive ness to market forces I* to suggest that they emulate prl vate enterprises; why not simply go for the real thing? The Indian Finance Minister Manmohan Singh has been In tellectually honest by re pud tat Ing his past positions and committing himself completely to a programme of drastic market oriented reforms. He has stood by his bold •nd pragmatic action* without reference to donor conditionalities I fee) ashamed that we Bangladeshis are falling behind In every respect, with no sense of direction and a tendency to blame other* for our Ills. I ap-Cl to Prof Sobhan and all lers of society to objectively and honestly reassess their current input, so that we may regain our intellectual clarify arid self respect aa a nation.
The writer Is an Assistant Professor of the Institute of Business Administration. University of Dhaka