Advancing capital goods industry | The Daily Star
12:00 AM, April 29, 2012 / LAST MODIFIED: 12:00 AM, April 29, 2012

Advancing capital goods industry

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ECONOMISTS opine what we produce makes us who we are; i.e. a nation is known by the goods it produces. It is not merely a matter of pride but also of economics. Nations that produce high value-added commodities such as capital, durable and intermediate goods requiring sophisticated human intellect have the highest national per capital income. The case of Japan or Germany, and more recently that of the BRICS countries, provides evidence to support this contention.
In fact, the market price of a product is determined to a large extent by the extent of human intellect that goes into it. The production of capital (as well as durable and intermediate) goods is known to absorb a high-level of sophisticated human intellect. Such technical know-how cannot be easily replicated. The capital goods production facility, especially a machine tools factory, has an added advantage: it can replicate itself. For these reasons, the market is willing to attribute high value to capital goods.
According to various researchers, the capital and durable goods industries of Bangladesh currently possess a considerable amount of production capacity. But the local producers are unable to sell their products in sufficient volume in the domestic market because of unfavourable tariff structures, perceptual biases against domestic products, lack of continuous investments to modernise production facilities, lack of on-going innovation, and related factors.
The successful establishment of a domestic capital goods industry with in-house design and analysis capabilities, it was felt, would result in the creation and retention of high-level technical skills in the country that would ultimately ensure the well-being of the country. This is because the production of capital goods and related activities require very complex and sophisticated technical and engineering skills; once this knowledge and experience is mastered, the country's productivity and income will increase.
The component of the capital goods industry that adds the greatest value is the design and analysis function. Thus, to be meaningful, the development of Bangladesh's capital goods industry must be combined with instituting design and analysis establishments that will imbue the products with intellectual sophistication. In this regard, how to establish formal connection with the higher academic institutions of Bangladesh (e.g., Buet or Ruet) in furthering development and growth in the capital goods industry was avidly discussed.
Such design and analysis centres of the capital goods industry need to be staffed by highly skilled and educated individuals with bachelor's, master's and doctorate degrees. Centres such as these create demand for highly educated individuals, which a country's universities and colleges are expected to supply. This is how the capital goods industry gets formally linked to technical academia. Furthermore, these design and analysis centres can spur the growth and development of related academic disciplines such as finance, economics, marketing, management, operations, law, and so on.
The highly skilled employees of the capital (as well as durable and intermediate) goods design and analysis centres routinely use sophisticated technical know-how, which results in high-level personal productivity. For example, during the design phase, these experts (a) consider all possible environments the product would be subjected to in its service life; (b) make analytical design predictions and match them with extensive physical testing on full-scale (or scaled-down) prototypes; (c) predict design life analytically and verify such predictions by compressed physical (fatigue) testing that replicates the entire design environment the product would be subjected to.
As a result, the labour rate or personal productivity at large corporations of industrialised nations producing capital goods is multiples of their own average national productivity. Thus, if the United States of America has a national per capita income of fifty thousand dollars, its capital goods industry may have a labour productivity of even half a million dollars per employee!
Thus, there was general consensus amongst all participants that Bangladesh must begin domestic production of capital goods with (design and analysis) provisions, either in-house or in partnership, so as to achieve GDP growth rates in the desired range of 7 to 10% per year, thereby advancing the national per capita income to a respectable level. One way to do so is to produce parts and components of capital and durable goods by partnering with the industrialised countries.
It is important to note, however, that mere production of capital goods without in-house design and analysis provisions will not add the type of high value we suggest above. For example, the Maquiladora type assembly-only programme near the USA-Mexico border area does not add sufficient value from the Mexican assembly employees, thus commanding low wages. Bangladesh assembles capital and durable goods, e.g., ships, automobile parts, etc. from imported parts and components; it also produces antibiotics and other medicines, furniture, and other goods by importing value-packed intermediate products such as advanced chemical fibers, medicinal formulae, etc. These assembly-type production operations without in-house design and analysis provisions do not at all add high value from Bangladeshi employees, thereby depressing wages.
It was also pointed out that the training programmes offered by the ministry of industry's capital goods organisation, Bangladesh Industrial Technical Assistance Center (BITAC), is geared towards operation, maintenance, and some aspects of production of capital goods. We stress that this type of training will not add the high value that can be augmented by the design and analysis centres with highly skilled employees.
In addition, developing long-term partnerships with technical academia, staffed by Ph.Ds, should be explored as soon as possible. Embellishment of these partnerships in the form of research grants, establishment of research chairs, developing internship programmes, availing short-term training abroad, inviting technical experts seeking sabbatical opportunities, rewarding innovation, and related activities may be considered to develop a vibrant capital goods industry serving, initially, the domestic market and gradually catering to the export markets.
In summary, the domestic production of capital goods with provision for in-house design and analysis work could significantly increase personal labour productivity; higher productivity would increase national per capita income; and higher national per capita income would certainly enhance socio-economic well-being.
Dr. Syed Saad Andaleeb is Distinguished Professor of Marketing, and Program Chair, Sam and Irene Black School of Business, Pennsylvania State University, USA.
Dr. Syed Saad Andaleeb can be reached at: saadandaleeb@gmail.com
Dr. Ashraf Ali can be reached at: e-sas@msn.com

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