Liberalisation of reg ulatory measures and gfobahsatlon of econ omtes are the buzz words at present. About 140 countries all over the world are now going through these exercises tn the name of structural adjustments under the watchful eyes of IMF and World Bank and backed up by the financial and technical assistance of the latter Bangladesh is also one of them.

The purpose behind these measures is to create more space for private Initiative both at home and abroad to operate freely based on market forces leading to greater efficiency and higher productivity than public enterprises. According to this view, market system functions properly: only its minor aberrations need to be corrected occasionally. In contrast, public enterprises, bereft of profit motive and tangled with political and social considerations, function inefficiently. According to the protagonists of the magic forces of market', there is a positive relationship between liberalisation and superior macro economic performance reflected through growth of output and income, export performance and reduction In the degree of vulnerability to external shocks.

Let us examine critically the assumptions behind this contention. First, about perfect competition. Neo classical economic theory takes property functioning market system as granted. But is there perfect competition anywhere In the world including in the developed country like USA? The

rcal world experience tn that there Is neither absolute monopoly nor perfect competition. What prevails every where is imperfect competition where the playing field is not even and competition is not perfect.

Secondly, there 1s no clear evidence of positive relation between liberalisation and economic growth. Most cases of Uberahsatton have been associated with deteriorating rates of ^owth. This is only to be expected because they usually accompany adjustment measures Involving reduction of external deficits through deflationary measures to lower aggregate income. This conclusion In hardly surprising since growth depends on investment and productivity rates. Not even the naive economists would agree that these can be Improved solely by freeing market forces.

Thirdly, a similar argument can be made with regard to Increasing exports. The evidence is that success cases of export-led growth have been highly regulated economies and certainly policy makers In Japan or South Korea have never been guided by comparative advantage as defined by international prices.

Fourthly, the idea that the greater openness of an economy reduces vulnerability to external shocks. The actual evidence of developing countries experience particularly in the last decade goes to support the opposite argument since trade openness Is impossible without exchange rate flexibility which, tn a developing economy, means an important source of

external Influence on domestic Inflation and Income distribu tion. This Is particularly dangerous If the trade pattern of a country shows structural defects. In such a situation, with the expectation of continuous devaluation of currency over time there will be only capital outflow reducing the autonomy of domestic decision making. It is not possible to narrate here Individual country experiences owing to shortage of space. Enough documentation of the experiences of a number of developing countries are however available in various publications.

Even assuming that public sector is bad and private sector is good and that magic forces of the market Should be given free and full play without let or hindrance to lift the economies of the developing countries, the question still remains whether this Is feasible. Unlike market economies of developed countries, the need of the economy like that of Bangladesh Is not only that the economy should be doing well but ft must also do good What comes around must go around. The standard IMF prescriptions for balance of pay ments difficulties are devaluation and monetary tightening. These prescriptions work tn developed countries for many obvious reasons. These coun tries usually have excess capacity or at any rate considerable flexibility in the nature of moving resources from one sector to another. Then again, monetary tightness—with higher in tercst rates-lmmedlately at-

tracts inward capital flows, the first effect of which is to correct the balance of payment disequilibrium affecting the concerned country. Also, the large Investment required In developing countries for many Infrastructure and other essential sectors together with their tong gestation period make them unattractive to private Investors Who fills up this gap? Furthermore, when economists Imbued with the World Jiank philosophy speak of rent seeking In a regime of trade and Industrial controls they conveniently forget the problem of rent seeking under monopoly and oligopolistic private enterprise system.

In short, unlike countries in the developed world, develop Ing countries have always to keep 1n view the social Imperatives of growth and dtstrfeu-tion while undertaking structural adjustment reforms in their economies It has to be remembered that economic growth does not grow on trees. It has to be derived from the extraction of surplus from the social product and the optimal deployment of that surplus for increasing the productive capacity of the economy as a whole. Such a ^ask involves pain and planning and needs allocation of pain to various segments of the society tn an equitable manner. This can not be done by ruling out public intervention altogether. It Is equally important to keep tn mtnd that the financial sector of a country must reflect the real economy which ft seeks to

feed with Inputs of capital and credit.

It is doubtless that our economic system does need reform In many directions. There is a plethora of unnecessary controls and irritating rules and regulations. I have dealt with them at length In my article published 1n The Dally Star last year in three Instalments. There are public sector units which deserve privatisation and even outright liquidation. There are areas where private sector can perform better than the government or public. sector. But these have to be chosen with care on the basis of their performance and importance to the economy. It should not be done as budget support measures tn order to meet budget reduction targets set by our lending agencies, or to accommodate footloose finance capital tn their quest for quick kill out of speculative bubble. It Is also understood that today we five in an Interdependent world and can not go it atone.

Nevertheless It will be wrong if we forget essential aspects of the problems and proceed, without informing parliament and without public debate, to ditch planning and go tn for market oriented Investments such as to be decided not by us but by International finance capital. For. market signals will Inevitably move towards areas where . profits are high. Given the present unequal distribution of income opening up of competition will also mean that high priced consumer durables will be produced for the upper 10

per cent of the households while roarntlais for the poorer groups—necessarily yielding lower profits will not attract Investment, in such a situation even the ^owth of GDP will mean growth of the wrong basket of goods In tact this trend » already visible In our

rty alleviation programmes as empty slogans.

The basic Issue that needs our carefal consideration is the relevance of the goal of achieving higher degrees of competition and efficiency to compete in the international markets at the expense of ignoring social and economic develop ment of our villages and small towns where 90 per cent of our people live. The choice confronting us to: Should we as a nation worry about taking 10 per cent of our urban population and Industrial sector closer to the moot advanced

which we may not be able to accomplish given • our resources—at the risk of ignoring the social and economic development of the other 90 per cent who fare in the rural and semi-urban areas? Is It social

a few that is our goal or is tt the social and economic well being of a majority of our people that is our main concern? In other words, who is making our policy and for whom?

The writer Is a former Governor of the Bangladesh Bank and a consultant to IMP Now a resident tn Washington DC. he is currently visiting Dhaka.