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INSIGHT

The Draft Fifth Five-Year Plan

kabir U Ahmad
***The best plan fbr Bangladesh would be a kind of flexible demonstrative plan which will indicate to the market what is possibly the best outcome for the country and facilitate the resource allocation for such outcome through appropriate monetary and fiscal policies***
THE Draft Fifth Five Year Plan (DFFYP) has envisaged that Bangladesh economy will grow from 5.7 per cent tn 1996-97 to 6.01 per cent tn 1997-98, 7.27 per cent in 1998-99, 7.55 per cent In 1999 2000, 7.98 per cent In 2000 2001, and Anally to 8.54 per cent in the terminal year of 1001-2002. The annual average growth rate for the entire period has been shown to be 7.3 per cent. (Table-3.2, page-111-3. The DFFYP. 1997 2002) The Panel of Economists (PoEs) found this growth scenario to be ambitious on which some ob-aervatlons have been made in the previous section of this article in the last week's column.
However, what is analytically more Important is that this scenario implies a belief in the well-known but simplistic concept of Steady State Growth (SSG) path (that is. the economy jail] be growing regularly every year at a constant rate! over the next five-year period. This Is not only a matter that one sees tn only DFFYP but also In all previous plans. Although it has not happened regularly In the past, yet it has become an article of faith . as it were, with the planners. Be that as It may. The point here is that such a faith in SSG path rules out that there can be any business cycle in the economy during this plan-period which can derail, if not wreck, the entire growth path of the economy. This needs some attention.
Business Cycle and the Planned Growth Path That business cycles are dead or that planned growth can eliminate whatever fluctuations there may be in the economy has come from two strands of economic thought, one is the Marxian thinking and the other is the Keynesian thinking or in some cases a mixture of the two. in a socialist economy where there la complete state control on all production, trade and distribution, and also if it is completely insulated from the outside world either by intent or by boycott of the outside governments, then a plan with a SSG path or a non-constant growth-path is almost a necessity. But socialist societies of Eastern Europe were not able to avoid it. Planners of the Soviet Union of the latter decades of 1950s and 196Os faced the effects of business cycles through trade with the outside world as
well as of their own internal inventory cycles of substandard industrial productions as well as shortages of agricultural productions
Their plans could not stop the occurrences of these unexpected events. Socialist system of the Soviet and Eastern European variety has broken down and so has planning tn a completely controlled economy. The reasons for this break down are many.-Nevertheless, coming to the main line of argument. Marxist thinking does not accommodate business fluctuations in socialist economies.
In a quite different way, John Maynard Keynes, whose main contribution to economics was on the maintenance of full employment in an advanced Industrialised economies by controlled use of fiscal and monetary policies . advanced the ideas of maintaining both the Internal and external economic stability. For the latter, he became the architect of the Bretton Woods Institutions (The present World Bank and IMF wnlch these days perform different functions). His vision was to maintain full employment level of activities in an economy with both domestic and international sta bility. The system that he Instituted lasted only up to 1974 when international stability collapsed and somewhat later maintenance of full employment also was thrown out of the domestic political agenda of the industrialised world. But the influence of his thinking on managing the economy by using fiscal and monetary pollciea has not only persisted over the years but also became an article of faith with planners of many third world countries. Keynes was not an economist of medium or long-term growth, which he made fun of. but his emphasis on savings and Investments became tne roots of later explosion of growth theories.
But it is his theoretical ideas of economic management and controllability of the economy that became the foundations of planning in the Third World countries. Some third world Marxist economists blended
Marxism and Keynesianism in both development analyses and planning. All in all. it is his ideas of manageability and controllability of the economy that contributed to the SSG growth-Kth in the planning exercises.
it these ideas have Increasingly been challenged in the face of the cyclical pattern of world development and. as a result. have become least exciting and useful these days. Business cycles, as J R Hicks said, do exist and have been active in quite a powerful way. As one can see. these are playing havoc tn various parts of the world. The upshot of all these is that five-year plans envisaging SSG path may remain far from being fulfilled The DFFYP has no
recognition of this important reality, let alone accommodating its effects in a meaningful way.
Since the end of the second world war, countries after countries In Europe, Asia and Africa started with five-year plans with all the good intentions to speed up their rates of economic growth thinking that this would ensure their millennium sooner than by other means, but eventually most of these countries. If not totally abandoned, have been thoroughly disillusioned with planning as a tool for development. Today, it will not be an overstatement to say that five-year plans as development toots nave loot their original aura and appeal all over the world. Very lew countries these days seriously pursue five-year plans or have been successful In Implementing them.
A careful look at countries like India, Egypt. Pakistan and other similarly placed ones will confirm this observation For sheer Internal Imbalances and external recessions and booms. Bangladesh could not success-
fully implement any one of its five-year plans so far Yet it does not seem to have learnt the right lessons of history. There is a deeper question that the situation raises Are the traditional five-year plans at all possible ? This will be dealt with in a different article sometimes later.
Prices, Institutions and
Incentives in the Plan
All planners and economists are familiar about the role of prices in economic activities For medium-term plan of five-year term, resource allocation with shadow prices and their translation Into projects and other activities at market
prices Is an exercise that one does not see in the plan. May be the planners have done It in a background paper. But optimisation exercise requires that out of many possible projects at different rates of return, plan expenditures will be allocated to those which ensure the high eat return. That Is the only way resources will be efficiently al
_ located and growth will be op-' timised Has this exercise been done to ensure consistency? If not. It is an Inoptlmal plan of expenditures. Take only one example. The DFFYP says that 42 per cent of plan expenditures will be made In the public sector.
Have the projects on which this horrendous amount of money going to be spent been compared with the rates of return of the same projects If these were implemented in the private sector ? No one has any clue. One expects that prices and private incentives would have made a difference here. This also brings up the question of Institutions in the DFFYP. When It has been found by all calculations that public sector
industries have become white elephants and causing hemorrhages to the taxpayers' money, what Is the rationale for assigning additional project development and management responsibility to the thor-oughly inefficient public sector? Inis raises the question of a planning In a normal economy versus in a corrupt economy.
Planning in a Regular Economy versus Cornet
Economy
The question that is most pertinent today in Bangladesh is whether a five-year plan drawn under the assumptions of a regular economy be useful in an economy which is widely acknowledged to be a thoroughly corrupt. By and large one can say that except the output prices of rice, vegetables and raw jute etc., of the agricultural sector, prices of all industrial products, transports, services and trade are influenced by corrupt practices of officials and extortionists. The prices with which DFFYP has calculated its planned expenditure reflects (his phenomenon to some extent since it has used market prices But while doing the exercises on capital-output ratio and world prices of imported machinery, spare parts and raw material prices etc., one feels somewhat certain that the corruption charges at the customs and at other points have not been entered. The costs of projects at the delivery points and of Imported goods for industrial purposes will be much higher than what the plan has calculated. Over »he years, this divergence between the plan estimates and the real costs in a corrupt economy will go up. The real costs of delivery of all the projects whether in public or Krivate sector will oe much
Igher than what has been estimated. Therefore, the real fulfillment of plan targets will be very much lower.
Further, by retaining a huge amount of resources at the command of public sector officials. the corruption of which Is well documented, the plan has created avenues of enriching this segment of the fortunate
few in the society This will further skew the existing pattern of unequal income distribution. Are the planners promoting poverty alleviation and economic growth etc.. through such allocations?
What Kind of Plan is Suitable for Bangladesh?
The old traditional Five-Year Plans will not yield expected results in Bangladesh for reasons pointed out above. The best plan for Bangladesh would be a kind of flexible demonstrative plan which will indicate to the market what is pos sibiy the best outcome for the country and facilitate the resource allocation for such outcome through appropriate monetary and fiscal policies. It should not distort prices and private Incentive structures and should withdraw from all economic activities which market can do better retaining only the basic defence, law and order. Judiciary and social services. The structure of the plan should be a very flexible and adaptive one so that risks can be estimated and revisions can be made easily as soon as any im-gortant set of data changes, uch a model should be estimated regularly every month to feed the market and the entrepreneurs. It should fix the export, import and production targets of the economy to reach certain growth and employment objectives. It should maintain interest and exchange rates at reasonable levels so as to stimulate the economy to meet the specified targets
Let the economy grow with an expanding private sector and a decreasing size of public sector while the government plays only the role of facilitator. Indirect tax burden, which distorts prices and resource allocation, should be reduced while the direct tax burden, which is now at a scandalously low level, should be increased to finance a substantially downsized and efficient government. The government should have a clear plan and Implementation programme of social safety network which should be an inte-Sal part of the planning model, lis should be the general direction of planning and development of Bangladesh.
This Is the concluding part on the subject; the first one was published on last Sunday