Privatization in Bangladesh: An evaluative study

Abstract

This study of the privatization process of state owned enterprises (SOEs) in Bangladesh and its impact (social, financial and economic) was initiated in 2003 for the awarding the degree of Doctor of Philosophy (PhD) from the University of Dhaka, Bangladesh. This study has occasioned some controversy and difference of opinion, which is to be expected with such a sensitive topic as privatization. It is this lack of direction as well as the underlying absence of transparency and accountability in the privatization process, which has persuaded by the study. It is today arguable that the absence of a privatization policy, as well as lack of transparency in both the process and also its outcomes, has severely compromised the privatization process over the lifetime of three successive elected governments. Whilst 125 SOEs were privatized in the 1980s under the tenure of the autocratic Ershad regime, in the last 14 years, the privatization process has visibly decelerated. Since the inception of the privatization Board in 1993, only 77 SOEs have been privatized. Given the slow progress with privatization, the GOB has now begun to shut down loss-making SOEs and to retire their employees with a “golden handshake” provided through funding by the World Bank and Asian development bank (ADB). This study argues that there is little evidence at hand to suggest that privatization of SOEs has yielded significant benefits to Bangladesh in the way of enhanced output, employment, productivity, profitability, investment or innovation in the affected enterprises. There is no doubt that some privatized enterprises have indeed registered gains in all or some of the indices cited above. Whilst more definitive empirical work needs to be done on privatization outcomes, there are few grounds to suggest that privatization has generated a universal trend, which is measurable in improved macro performance in the manufacturing sector or significant improvement at the enterprise level. We, therefore, need to know much more about the why privatized enterprises have not been able to respond to the expectations underlying the privatization process before we embark on a further phase of privatization. The conclusion that follows from this study is not that the privatization should be rolled back or that Bangladesh should revert to an era of SOE-driven development. Over the last two decades, Bangladesh has witnessed a progressive degeneration in virtually every aspect of state activity from general administration to law enforcement, from regulatory functions to revenue collections, from human development to SOE activity. This process has been aggravated by the politicization of all aspects of administration, which has served to universalize corruption, generate severe disincentives to efficiency in public service and has contributed to institutional decay in every area of public life. In such circumstances, it would be not just unwise but potentially counter productive to the sustainability of development to encourage any major entrepreneurial initiative through the SOEs. The SOEs in recent years have been exposed to exponential of deterioration in their performance not just due to the general degeneration in governance and depreciation in their managerial capacity but the complete absence of policy guidance to indicate whether they will live or die or how they should function. This has so comprehensively demotivated workers and management in the SOEs that full time prediction rather than occasional corruption is seen as the best way to survive whilst they dwell in the state of limbo to which they have been consigned by an irresponsible state. The decline in state capacity does not suggest that mindless privatization and socially irresponsible closure of SOEs is any answer. Thus the problems of market failure along with the no less severe crisis of corporate governance, which has perpetuated the default culture in Bangladesh, demand comprehensive and creative resolution. These structural concerns, which afflict both the state and private sector in Bangladesh, need to be addressed with in along term policy, which spells out the future of the state sector. Such a policy will need to demarcate the respective role of the public and private sector with in a realistic time perspective. This policy would need to focus on the modalities of privatization, its accountability and transparency both during and after the privatization process. At the same time, such a policy would need to address ways in which what remains of the state sector can be restructured to function competitively and its employees motivated to enhance their performance in the days ahead. What is important for Bangladesh is to break away from an ideologically driven agenda for privatization, which seems to largely originate from external sources. Indeed, the GOB should join with other developing countries to challenge the legitimacy of particular multilateral institutions advocating ideologically driven policies and using aid conditionalities to impose such agenda on aid recipient governments. Bangladesh needs to formulate an indigenously designed, pragmatic policy for privatization as well as SOE reform, which is publicly debated and eventually approved by parliament. We have already paid a heavy price for pursuing an externally imposed agenda without formulating a national policy underwritten by a domestic consensus. This volume is designed to encourage such a national debate on privatization within Bangladesh and to stimulate further research, which can enhance the transparency of the process.