AS most people know the economic policy environment has undergone rapid changes over the last decade and especially over the last two years, at least on paper. The major thrust of these policy changes towards liberalization, deregulation and private sector based development are necessary and positive developments. This is not the time or place to delve into the theoretical or practical intricacies to Justify this statement. Let me only point to some of the examples of 'a broad spectrum of countries that have been following the same course of liberal reforms. Mexico, Zimbabwe and. victorious, revolutionary Vietnam. There are very good reasons why these countries in three different continents found it necessary to scrap, to varying extents, the previous strategies of state led growth and development. The past strategies has simply failed to sustain their growth in the face of changing conditions, domestic andglobal.

The case of Vietnam Is particularly profound in this regard. This Is a country that built a planning and organizational mechanism strong enough to defeat the foremost superpower in war. Yet. when it came to running the economy, the country has had to increasingly. and now perhaps primarily. rely on the market mechanism to drive its economic growth and welfare. This has been so to the point where the market oriented economy of the south now acts as the engine of growth. We can dismiss these lessons from across the world only at our peril. The consequences of such an obstinate attitude will be continuing low productivity, low Investment, missed foreign Investment and technology transfer, in short, economic disaster.

This of course Is not to say that all is well with the recent spate of economic policy changes. But ironically, one of the biggest weaknesses of the

recent wave of policy reforms is that it has not been, to use Americanese. sold well to the people; i.e. the need for these policy changes and Its trade-offs in the from of short ran costs to some people vis a vis long run gain for the country has not been adequately explained. One high cost of the government's failure to explain their economic policies well, is the resulang perception that these policies are being dictated from the outside and are consequently inimical to our welfare. It hardly needs to be emphasized that such a perception is not beneficial either to the effective implementation of these much needed policy reforms or to the political image of the government.

The government needs to take the initiative here and resolve its problems in communicating to the people by explaining the economic policy reforms in the most concrete terms possible. For instance. It needs to explain: Why is the Introduction and the revenue collection success of the VAT a good thing? How does import liberalization help the country? Why is it necessary to stop the fiscal hemorrhage by privatizing the gamut of loss making industries and what trade off to these loss making public enterprises have In terms of lost schools, hospital. roads and other necessary public goods?

There are also other specific aspects of the present economic policies that can and need to be questioned. For example how much attention have we paid to the need for carefully sequencing the liberalization of the economy? Have we embarked on a overly swift course of trade liberalization and tariff reductions relative to one of our chief trading partners, India, forsaking all reciprocity?

Do we need a pro-active,

supportive government policy for the vital task of promoting manufactured exports? Has the government abdicated too much of its responsibility in the area of industrial policy? Why has the liberalization of interest rates been accompanied by a large a spread between saving and lending interest rates? Are we bearing too high a price for fiscal and monetary prudence in terms of real sector performance? How sensible is a 1 -2% inflation rates — though this is probably underestimated because the share of rice is overly weighted — for a developing economy like ours? Perhaps even the extremely 'conservative Bundesbank would be startled at such a turn of events in an economy like Bangladesh. Of course, the list of these questions can be enlarged.

But. to repeat, the broad thrust of economic policies that stresses liberalization and deregulation is profoundly right and necessary. Take the case of import policy for instance, five years ago our ministries were controlling the Imports of some 2306 .items. That is bureaucrats. sitting in their offices with- little or no experience in business, were deciding on the state of supply and demand, and the economic value of these 2.306 items; implicitly they were also passing Judgement on the value of all economic activities that depended on these imported Items. Now, what information and what kind of qualifications did these civil servants have to wield such decision making power? Also how much real' resources were being wasted in the legitimate and illegitimate lobbying of these civil servants by importers trying to get. or ■evade, the licensing of these restricted items. No doubt this lobbying amounted to a

rather costly game of hide and seek between these two parties in this maize of Import controls. Now, thankfully, this absurd situation has been ameliorated, and as of last year the imports of only 584 such items were still on the controlled list.

Take also the case of tariffs.' One interesting thing that 1 have noticed in my recent trips is the widespread awareness of the price that consumers have to pay for higher protection. As economists know very well, only part of this higher price paid by consumers goes to pay producers and as government revenue, that hopefully will be productively spent. But another portion of the lost value simply disappears and represents a real loss to national income.

But this does not necessarily call for a simple minded return to the fictional world of free trade. There are indeed grounds for protection of infant industries that are potentially competitive by world standards. When other and learning, higher manufacturing production-. investment and savings are not available, one can make respectable case for protection from economic theory.

As an aside, 1 find it particularly interesting when American economists vehemently and one-sidedly emphasize the benefits of free trade for an economy, ignoring all nuances, । Historically, efficiently or not. the might of American manufacturing grew under a nearly century long policy of protection — though perhaps not on the scale seen in developing countries. Also, the true father of the infant industry argument for protection was Alexander Hamilton, the first Secretary of the Treasury. Friedrich Ust. the German ministry who is com-

monly regarded as the father of the Infant industry theory obtained his ideas from Hamilton, when List was living in Philadelphia.

But then having said all this we still have to beware. The arguments that I have just mentioned above have been much abused, in practice, tn the past to Justify all kinds of disastrous protectionist policies in the past in developing countries. To make trade protection effective some key questions have to be tackled first: how much protection. or for how long? Very difficult questions and hardly resolved among economists. And contrary to widespread impressions. the present wave of tariff reforms has not completely exposed our manufacturing sector. The average nominal Import tax based protection rate for manufacturing goods stood at 50% last year as opposed to say some 90% five years ago. Now a protection rate of 50% — I ignore the factor of the dispersion . of tariff rates — is still fairly healthy, and to ask for more protection manufacturers have to make a very good case of why they should be less than half as efficient than their foreign competitors when they start, and how also they plan to increase their efficiency and reduce their dependence on protection.

This last is important because to be economically effective protection has to be temporary. If their is one key lesson of trade, and industrial policy from the "super" growth economies of the Far East, it is not that they did not protect their industries, but rather they were ruthless when th.e time came to withdraw protection. The reasoning is fairly intuitive. If manufacturers know that protection is going to last, they will have little incentive to invest and acquire technology so that they can be globally efficient. Thus the government has to make it clear that whatever protection that manufacturers will be given will only be temporary. This, unfortunately. in both theory and practice, is much more easier said then-done. This will require considerable political strength, but again this strength can be obtained if one does the Job of explaining the simple basics of the new policies well to the people, by taking the people into confidence. There is no room here to make that tired, old, argument that the people of our country are too illiterate to understand all this.

But what the preceding discussion In the last few paragraphs also imply that there is scope for a pro-active industrial policy and fine tuning the re cent spate of reforms After, all Bangladesh Is not Mexico, nor even India — where protection Is arguably considerably higher — In Its state of industrial de velopment. The government needs to think more of what it can do to support the growth and productivity of small industries. especially In the informal sector, the growth of manufar tured exports and acquisition of technology. But this must not be implemented in the tradition of past, where rent seeking and

adhocisrq held complete sway. Rather the government and the private sector needs to work in a spirit of partnership, perhaps working through regular meetings of what has been called the "deliberation councils' in the Far East.

Having said this, the danger of the wrong, highhanded kind of government Intervention is still paramount. Even after all these reforms there is still too much of government intervention In too many economic decisions that should be left to the private sector. Let me give one stark example from of our "success story" sector, garments. It appears that the ministry in charge of regulating this sector had decided, for reasons best known to them, that we would reserve 20% of our US garment quotas for the month of January. This was despite all protests to the contrary by the garments manufacturers. But our bureaucrats, led by their bureaucrat turned politician, decided that they, in their perennial wisdom, knew better. Well the Inevitable happened. It proved too difficult to process such a large volume of exports in one month and we undershot our quota target by a substantial margin. This could have very real costs, as the US quota next year may be down by the amount of the unutilized quota.

Equally Important as further sustaining these pro-market reforms through legislation and law is -how to actually implement the reforms that have already taken place in paper. That is how does one persuade our bureaucracy, our customs and police to respect the new laws and to try and cultivate an attitude of cooperation with the private sector. Those who know of the terrible incident at Zia International Airport, where one of the leading garments ex- . porters. Mr Nurul Huq Shikder, j was grossly humiliated and"1 manhandled by customs officials will understand what I am talking about.

At this point it is necessary to emphasize something. A move to economic liberalization and deregulation does not imply that the state or government does not have a role to play in the economy, even that the role of the state Is even less important than before. On the contrary. such a change probably Implies that the state's role is in some sense even more important; but It is a role that has to be played with more focus and greater effectiveness.

Instead of trying to do too many things all at once, the economic role of the state should focus hard on a few critical areas where market failures abound. I.e. in those area where, to use Jargon, economic externalities or spillovers alxnind. To give one class of examples. Ill defined property rights cause markets fails to adequately supply "beneficial, goods, or conversely supplies too much of "harmful goods. Thus the market, by definition, will not supply enough of public services like law and order, primary schooling. Immunization. garbage cleaning, funding' for technology and research, roads and highways In many areas etc And accordingly the state should channel Its re sources to these areas rather than to areas where the private sector can do the )ob