Government, Planning and Market Economy

The Second World War turned out to be the watershed marking the beginning of the dismantling of colonialism. In fact, within a quarter of a century since the War, most of the colonies gained independence. The Indian subcontinent led the way by coming out of the shackles as early as in 1947. That, of course, was a period characterised by a bipolar world - the era of the Cold War.

On the one side there was capitalism led by the USA, and on the other communism led by the USSR. This bipolarity was reflected in the way the newly-independent countries shaped their development strategies. While some of the newly-independent countries adopted a centrally planned development paradigm, most adopted a mixed economy approach - a mix of state interventions and market mechanism. Characterised by widespread poverty, critically limited human capability, and paucity of investible resources, these countries generally chose the easier option of dependent development, which meant that foreign aid and advice became the principal determining factors behind the strategies adopted by them.

Given the orientation of the leaders buttressed by the prevailing configuration of social forces, a country chose western or eastern bloc, but, not infrequently, both to turn to for aid and advice. Given the dynamics of the Cold War, both blocs came forward to assist the same countries to retain or enhance their respective spheres of influence. The process was characterised by the national governments of the newly-independent countries being the pre-eminent actors in national socio-economic management and, hence, the principal vehicles for receiving foreign assistance and utilising it for nation-building purposes as conceived by them. While the countries that opted for central planning followed a command system, others used planning as the key guiding instrument for pursuing the goals.

In fact, both bilateral and multilateral donors required the countries seeking foreign assistance to prepare elaborate national development plans (setting the national development goals and outlining the strategies, programmes and projects to achieve them) to serve as the basis for negotiations and channelling of foreign assistance. This paradigm held its sway for about three decades. But as the developing countries around the globe in general failed to achieve sustained acceleration in their economic growth, their interventionist economic policies and strategies were, by the mid-1970s, being increasingly identified by the bilateral donors led by the USA and the multilateral financing institutions led by the World Bank and the IMF as bottlenecks constraining growth instead of being the means, as they had so far been perceived to be, to growth and poverty alleviation.

The result was the entry of the ongoing era of economic reforms - deregulation, privatisation and globalisation. In the international environment of the late 1980s characterised by a fast transforming eastern block and the emergence of a unipolar world order led by the USA following the eventual collapse of the former USSR in 1991, the developing countries, one after another, fell in line as the (western) donors prevailed upon them, making it clear that assistance would be available only if they (the developing countries) were prepared to embark upon a process of economic adjustments and liberalisation. The principal elements of this paradigm were total reliance on the market economy and a small government. A kind of free market fundamentalism began to be propagated. The role of the government and hence of planning was decried as antithetical to reforms and development.

However, this "laissez faire" enthusiasm, even among its staunchest proponents including the World Bank, lasted for less than a decade from around the mid-1980s. The issue is no longer a small government; it is in fact an effective government. An effective government is one that can carry out its responsibilities in an effective manner. Its size therefore depends on the responsibilities it has to carry out. It became clear from the experiences of the reforming countries that the 'invisible hand' of the market needs guidance and regulation by the "visible hand" of the state.

Most of the reforming countries experienced increased inequity, many failed to accelerate growth, and some (notably the East and South East Asian 'Tigers') were engulfed by severe financial and economic crises. A major responsibility of the state therefore is to provide an effective regulatory framework for the private sector to function properly, which should also embody adequate safeguards against serious financial and economic crises.

It is now generally agreed that the absence or inadequacy of government regulation was the main cause of the East and South East Asian crises. World Bank economist Joseph Stiglitz and MIT economist Lance Taylor were among the first to point this out. However, it is to be recognised that market forces played their role in helping these countries achieve high rates of economic growth over many years previous to the crises. History also tells us that while the government could not always deliver, the capitalist economies experienced market failures throughout their histories requiring government interventions to bring them out of the crises. It is also the case that international trade and cooperation are important sources of growth for all individual participating countries, provided the system is fair and national interests of each country are properly articulated in the process.

The question, therefore, is not: government or market; globalisation or not. Government, market and globalisation have their respective roles. The issue is to delineate their roles properly. It is here that planning assumes a crucially important role in a currently reforming developing country.

One can easily see that supply (production, import) and distribution (domestic, foreign) of goods and services should be the private sector's domain. But in the infrastructure and utility sectors (roads, water supply, electricity supply, telecommunications, etc.) there can be participation of both the government and the private sector, depending on the prevailing reality.

For example, for building a major bridge or a dam/barrage, the private sector investors may not come forward because the investment may be too high and profits may be too long in coming and may not still be adequate. The same may be true of the extension of electricity supply to an emerging key industrial area, at least for a time. The private sector should be encouraged to take up more and more projects in these sectors; but the private operators must agree to provide services of a given quality at fair prices and they will also need to take care of the environmental pollution that they may cause. In the social sectors such as education, training, health and women status, the government needs to play the pre-eminent role. These statements are in broad outlines. But, in the running of an economy, it is necessary that such outlines are developed into full-pledged working documents detailing out policies, directions, programmes and interrelations among various actors.

Let us consider the case of Bangladesh. This country had been pursuing development within the framework of Five-Year Plans even when it was part of Pakistan. On Liberation in 1971, socialism was adopted as a constitutional goal and the first five year plan was formulated in that context. However, socialism had since been abandoned; and the liberalisation paradigm was adopted in the late 1980s, which has since then been the state policy. What role can there be in Bangladesh for planning? Planning indeed has a crucial role to play in this country. Wherever there is resource limitation, planning needs to be resorted to. The question is: what kind of planning?

As late as 1997, a new Five-Year Plan was adopted for the period 1997-2002 in the traditional format, outlining sectoral goals and providing sectoral targets and investment profiles as well as a policy framework for national socio-economic development. Such a plan, to my mind, is totally irrelevant to the present context. Another planning is called for. This plan will delineate clearly the roles of the government, the private sector and other actors, propose a comprehensive regulatory framework for all actors to perform their responsibilities properly and to relate to one another equitably. For the sectors and activities the government is responsible, detailed planning exercises will need to be carried out.

It is also necessary as a planning exercise that a comprehensive assessment of resources (natural resources such as land, water, and forest; human; financial), their development/augmentation needs and possibilities, and their utilisation options for optimum benefits are worked out for use by both the government agencies and the private operators alike.

This planning process should play an important role towards establishing a true working partnership between the government and the private sector, which is so necessary to help move the economy forward for the benefit of all citizens of the country. But, both the partners are imperfect. The government suffers from widespread inefficiency, procrastination, vested interest groupings, and corruption and the private sector from widespread collusion, unfair competition, corruption and disregard for social responsibility.

But it is possible in a democracy to institute proper checks and balances and incentives and restraints to control the anti-social characteristics of both the government and the private sector and establish the primacy of national interests in their approaches and workings. It is essential in this process to invoke morality and ethical integrity as the key concepts to guide the behaviour patterns of all concerned.