It is not just about taka and paisa. Abdul Awal Mintoo explores the indispensable role played by the private sector, and how it has been instrumental in providing employment and acting as the engine of growth for the economy.



Entrepreneurs leading the way

Private sector now represents the global strategy for economic development. It has accelerated at such a pace which one could hardly predict in 1970s. With post-GATT global trade and investment liberalisations, global economic and political conditions have undergone unprecedented changes. Democracy at home and globalisation externally have now created for Bangladesh vast opportunities for accelerated economic and social development.

To attain its modest objectives, however, Bangladesh will have to meet many challenges and overcome many hazards and pitfalls. Like time and tide, opportunities do not wait for anyone. Missed opportunities become inordinately costly. Institutional capacity-building for seizing the opportunities and meeting the challenges will require many changes, some definitely painful, in our administrative and political institutions, economic and financial structures, and also in our social and community ethos and behaviour.

Until very recently (1985), private sector meant a few family-owned enterprises that dominated the business environment in Bangladesh. The only qualification that mattered at the time was who is whose son or nephew and/or who is connected to whom in politics or in bureaucracy. One's academic background or training, entrepreneurship, or potentiality hardly mattered at all. However, from 1980s, private sector has become crucially important to Bangladesh for achieving sustainable and rapid economic growth, alleviating pervasive poverty, enhancing productivity, improving services and ensuring efficient use of its scarce resources. It is encouraging that the private sector is now continuously featuring prominently in the development strategy of Bangladesh. The private sector has been elevated to a dominant role as the engine to spearhead the growth process.

Progressive role of private sector
Private sector in Bangladesh has already demonstrated its capability to create buoyancy in the economy. A new generation of entrepreneurs emerged who are well-educated, hard working, and eager to face challenges of a globalised competitive market. They have proven their worth in all sectors where they have had an opportunity to work with freedom and where the government has played the role of facilitator rather than controller, competitor, or strangulator. The booming industries in textiles, ready-made garments, knitwear, ceramics, cement, housing, construction, construction materials, frozen-food, poultry, fishing, light engineering, banking, insurance, micro-financing, packaging, cereals and vegetables production, pharmaceuticals, inland shipping, distribution system, road transports, and cellular telephone are all clear indicators of the latent capability of the private sector. Besides investment in traditional production and service sectors, private entrepreneurs are now ready to play their due role in power, gas, fixed telephone line, mineral resources, inner-city transport system, education and health service, in fact in every sector of the economy to fulfill its historic role in the 21st century world order of nation building process.

Nevertheless, there is an apathy towards the private sector among the polity. It is largely due to lack of proper appreciation for the potential and capability of the private sector. The private sector has struggled for survival during the long period of strangulation between the 1970s and 1980s. However, in the recent past it has gradually gained momentum as successive Governments initiated and continued to implement various sectoral reforms and trade liberalisation programs to strengthen the free market economy. As free market economic structure takes hold, the government's involvement in production-related and commercial activities is increasingly becoming limited. Government is being forced to take the position of regulator and/or facilitator.

The Bangladesh private sector has traveled a long way within the shortest possible time. This is an achievement of historical proportions. The journey thus far has been careless and unsafe. The uncharted; rocky road has been all along full of pitfalls. Nevertheless, by the efforts of a determined group of young, hard working and educated entrepreneurs, a roadmap has been drawn and the private sector is now designated as the engine of production and economic growth.

The table above clearly establishes that the private sector has taken over the dominant role in the national economy in the areas of employment, investment, production, value addition, exports, banking, insurance, media, and is making speedy advance in electricity and gas production, education, and even in health services.

Constitutional constraints
In conformity with the worldwide trend, Bangladesh is also, from the end of 1970s, pursuing the private sector-led production, distribution, and creation of wealth, but it is not absolutely clear what is the constitutional mandate. The Preamble of the Bangladesh Constitution (second para) pledges “Socialism -- meaning economic of social justice” and again in the third para it pledges “a socialist society, free from exploitations.” In addition, Article 13 of the Constitution deals with principle of ownership which states:

“The people shall own or control the instruments and means of production and distribution, and with this end in view ownership shall assume the following forms:

a) state ownership, that is, ownership by the State on behalf of the people through the creation of an efficient and dynamic nationalized public sector embracing the key sectors of the economy;

b) cooperative ownership, that is, ownership by cooperatives on behalf of their members within such limits as may be prescribed by law.

c) private ownership, that is, ownership by individuals within such limits as may be prescribed by law.”

It seems that the framers of the constitution intended to establish a socialist state, and perhaps a welfare state driven by a socialist economy at worst or a mixed economy at best. In conformity with the above constitutional principles, Bangladesh pursued the socialistic patterns of the economy up to the end of the 1970s, but since then, in keeping with the worldwide trend, the course has been altered to private sector-led free market economy. As such, to conform with the pursued principle, the constitution must be changed to assure the full protection of private property, private ownership, fundamental rights, and economic rights of individuals.

Profit, morality and private sector
According to contemporary Western morality, profit is good, but profiteering is bad. The principal argument against the classic liberal society is that its economics is dominantly driven by profit motive, and profit is immoral. It is associated with greed. Businessmen fail in corporate responsibility as they often see only their own narrow interests and not those of the community as a whole. I profoundly believe profit as a motive is overstated by those who oppose the private sector on principle. Many entrepreneurs are motivated by occupational satisfaction as much as by profit, though profit is necessary for their survival. In classical economic theory, profit is considered as merely the regulator of goods produced.

Globalisation of the economy will demand a shared sense of morality that is far from agreed upon today. Economic morality changes over time and is different in different places. No amount of morality, though, will bring equality in income, reduce the gap between the rich and the poor, or reduce poverty. The key to reduction of poverty or of the gap between the rich and the poor lies in increased productivity through promotion of the private sector.

Concentration of power
The principal cause of underdevelopment and poverty is excessive power in the hands of rulers and ruling parties. Holders of excessive power accumulate resources excessively and prevent productivity of the people and the economy from functioning optimally, thereby preventing the maximum possible production of goods and services by the private sector. They prevent balanced growth of rules and regulations for the market forces to function properly, or prevent the market from functioning by excess of rules and regulations and allow corruption unabatedly. When power is concentrated in one hand or a few focal points, corruption pays off for the powerful, since they are in a privileged position.

Therefore, it is imperative that in order to achieve full economic potential, to reduce income inequality, reduce the gap between the rich and the poor, and to reduce the poverty, we must remove all obstacles and impediments to our production process and economic growth and allow the private sector to grow. The success or failure of any country over the next few decades hinges on private sector-led economic growth, which requires profound change in our society. However, momentum of change in any society has to be generated from within the society itself. The civil society must therefore come forward and take the initiative for fulfillment of these tasks.

Competitiveness and competitors
We are at a turning point in history. The global environment is changing fast. Sweeping and relentless changes are taking place in international economic and trade relations and in production processes. These changes are posing formidable problems for the Bangladesh private sector. If the private sector is to survive and thrive it must face challenges of stiff global competition. Achieving and sustaining much needed economic growth in the new environment requires an efficient but careful management and competitive production.

To be competitive, we must reduce cost, improve quality, adopt new technologies, improve management. Inefficient, high cost of production, and loss-making public sector has a depressing impact on private sector enterprises because they are bound to buy inputs and services at high price from these SOEs. Not only SOEs are notoriously inefficient, they are also incurring colossal losses (to the tune of 2500 crores annually) which works out to about 2 percent of the GDP and 45 percent of the country's annual project aid disbursement, which otherwise could have been used for poverty reduction, education, health, and much needed infrastructure. In many sectors the SOEs are also acting as competitor to the private sector.

In addition, priority for bringing about change in our controlled-oriented economy is paramount. We must realise that an economy that is controlled by the state is subject to distortions and inefficiencies that blunt optimum performance. A controlled economy substitutes genuine markets, based on real consumer demand, with a tangle of bureaucratic regulations; it blurs the signals which free markets send to producers and consumers alike; it destroys incentives and inhibits the ability of entrepreneurs to seize opportunities. Crucially, it politicises enterprises whose operational performance should properly depend upon economic factors. Promotion of private sector development is therefore essential because an efficient private sector makes an essential contribution to the attainment of the goal, of quick socio-economic growth as well as providing essential services to citizens. In the word of E.S. Savas: “The word government is derived from a Greek word, which means to steer. The job of government is to steer, not to row, the boat. Delivering services is rowing and government is not very good in rowing.”

Infrastructure development
Efficient and modern physical, social and economic infrastructure is the prime requirement for efficient private sector. Advanced technology and new production methods require better and much efficient physical infrastructure (telephone, communication technology, energy supply, transport system, port services), social infrastructure (education system, health services, transparency, accountability, consistent policy etc), economic infrastructure (banking, insurance, credit, capital market, monetary policy, fiscal policy, etc.). Physical, social, and economic infrastructure is critical stimulus to private sector-led economic development.

Infrastructure development helps business perform efficiently at a lower cost, which means competitive production. For conventional socio-economic growth, particularly in industry, agriculture, trade, and services, institutional infrastructure and policy regime are perhaps as important, if not more important, than physical and social infrastructure.

As the private sector is coming to dominate the functional economy, mass media, financial, education and health services more and more, the issue of governance, including the corporate governance is also becoming more and more important. The subject has become an issue of fierce debate amongst policy makers, professionals, business community and other stakeholders in the recent time.

Unfortunately, corporate governance system only evolves around a whirlpool of economic, political, legal, cultural, and historical factors. Therefore the effectiveness of the corporate governance mechanism depends on the quality of monitoring, the legal system, a good operating environment, stable and market friendly regulations and regulators. Furthermore, the strengthening of corporate governance hinges on an effective legal system. Without a strong legal system in place to enforce disputes and violation arising out of contracts and agreements, the mechanism will function poorly, or fail to function at all.

I may reiterate that good corporate governance has a direct relationship with good political governance and democratic practices at the national level.

Government policy
Cooperation between the government and the private sector is very critical for strengthening the private sector-led growth. The government must play a decisive role by improving the infrastructure, by creating a conducive environment for rapid industrialisation. Private sector led industrialisation is only possible if government ensure pro-active and pro-competitive public policies that help competitiveness.

Government support
In recent times, too often national policies fail to recognise the perceptions and preferences of ordinary citizens, let alone the business community. As a result, more often than not, the nature of the relationship between the government and the private sector is not conducive to private sector development. Sometimes desperate situations drive government and business leaders into adversarial and mutually suspicious frames of mind. This must be avoided. The solution is to enlarge the scope of stakeholder participation through appropriate consultations and public hearings, as has been suggested by the business community.

All endeavours, whether economic, cultural, or intellectual, need government support. Inventive ideas would never see the light of the day or creative ideas could never be translated into reality unless government and civil society supports them.

With a population of 130 million in 147,000 square kilometers, we have no other choice but to work hard to change our society. I am convinced that the private sector can make it happen, but they need a supportive civil society and policy makers and a conducive environment.

For Bangladesh, good governance and meaningful socio-economic reforms are still a far cry. The question is how long will it take for this country to undertake serious and meaningful reforms. For the last 20 years successive governments has been dragging their feet over substantive reforms. However they are only making cosmetic changes to keep donor agencies and countries in good humour. Bangladesh really must genuinely embark upon a crash reform program to render the polity a fair playing ground for competitive enterprise and optimum economy.

Business environment
To advance socially, politically, and economically, a society and its entrepreneurs need the right environment. There must be the right mix of disorder and order, chaos and discipline, respect for law and condemnation for lawlessness, challenges and opportunities, a coordinated fiscal policy and monetary policy, security and peace, conscionable civil society and contending social organisations. Too much order becomes restrictive, too much disorder becomes anarchy. Finding the right blend is a complicated and complex business. Nevertheless, to be successful, a society must create and manage the tensile dynamics of two opposing forces, without letting either get out of hand. Progress can be made and society improved when the preferences of some, perhaps the majority, can be satisfied without making the rest of the people (minority) worse off and disaffected.

While we are talking about conducive business environment, anyone who can read a newspaper probably has noted various indices which create the perception of the business environment.

In 2005, an article by Simon Denyer of Reuters circulated around the world and was printed probably in hundreds of newspapers worldwide. He wrote: “Bangladesh may be at one of the most important crossroads in its history. One road leads to a gradual unraveling of its post independence gains, towards rampant violence, corruption, and even perhaps rising extremism. The other leads to emulation of such Asian tiger economics as Malaysia and Thailand. Bangladesh has made huge strides since its violent separation from Pakistan (1971), not least in bringing women into the economy and girls into school.

Once completely dependent on aid, it now feeds 140 million people itself, on flood prone plains half the size of Italy. But for all its achievements, some diplomats and political analysts worry the country may yet still take a wrong turn, heading towards chaos rather than towards Kuala Lumpur.”

Simon Denyer is merely echoing what has been shown in various indices published by various multilateral agencies and institutions or even what majority of Bangladeshis think. Cumulative meaning of all these indices simply means that our country is suffering from governance failure. Whereas good governance is not only desirable, but also an essential condition for private sector development, because it entails the building of capabilities in the public sector as well as making rules, regulations and institutions that set the framework for private sector led economic growth, in fact the growth of the private sector itself.

Strategy for private sector growth
We must analyze the challenges faced and the opportunities lost since independence and prepare ourselves to face the challenges ahead so that we may consolidate the achievements of the last thirty years:

1.We must forgive and forget yesterday's sentimental but nonsensical conflicts and give society a chance to unite.

2.The government, the opposition, civil society and social organisations and institutions must be redesigned with a renewed commitment to economic growth.

3.We must institute good governance to accelerate economic growth, create employment, return to rule of law, and engage our civil society to actively participate in nation building.

4. We must immediately improve the education system.

5.We must strive for the real-life application of technology to bring about improvements in the standard of living.

6.We must formulate the goals, strategies, and implementable policies to maximise the effort to develop and optimize the use of our human, energy, water and agricultural resources.

7.We must reform and strengthen the financial sector, including the capital market.

8.We should develop our society by taking advantage of our homogeneous society. Bangladeshis share the same food, culture, tradition, customs, and geography.

9. We must commit to new principles of economic development through constitutional changes and commit to new fundamentals of social, political, and economical reform.

Many Third World developing countries including Bangladesh, are in socio-economic crisis today, but not because they are doing everything wrong. We may be doing a lot of right things, but probably our timing is wrong. As times change, the nation must also adapt to new fundamentals. The new principles of socio-economic development suitable to new economics are required to be put into practice urgently to make a difference for the new generation of the young and educated entrepreneurs. As the situation is urgent and the condition is getting increasingly desperate, the solutions must be rushed, even though our political leadership must work hard through layer upon layer of inherited polemics, cynicism and bureaucratic rigidity. We have neither much time, nor enough choices. Challenge and opportunity, both are real and both are at the doorstep. Our socio-economic conditions are deteriorating much faster than one can imagine, and therefore, it is also imperative to draw and implement the remedial measures.

Bangladesh already lost precious opportunities for progress in recent years due to several factors, the slowdown in the face of structural reforms, the emergence of serious law and order issues and confrontational, often violent politics, and severe governance problems. These factors not only slowing down socio-economic progress and limiting the private sector from their achievement, but for the first time in thirty-five years is beginning to threaten the sustainability of our past achievements. So this is a real moment of challenge, opportunity, and choice. The only choice, of course is to reverse the present trend to improve on the achievement of the last three decades.

Abdul Awal Mintoo is Chairman and CEO, Multimode Group.

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