As Bangladesh recovers from the ravages of covid-19 and the economy reopens, both government and business must face an important fact: the world is not going to be the same again and the normalcy that everyone desires will be a New Normal. Dealing with this new world will require new ways of carrying out and governing economic activity. As Bangladesh reopens it must also reimagine.
So, what does “reimagining” the economy involve? This article focuses on three aspects of this agenda. First, the private sector needs to be more competition-oriented. It needs to invest in productivity improvements and not in personal connections. Second, the government needs to be more performance-oriented, focusing less on expenditure targets and more on the results of its spending. Third, there is a critical need for people to work together. There needs to be coordination within government and collaboration between government and the non-governmental sector.
A productivity-oriented private sector
Most discussions of Bangladesh’s competitive advantage focus on low labour costs. It is time to move away from such a mind-set and think about productive labour, not cheap labour. The capacity of Bangladeshi workers to learn fast is now well recognised. This ability should be better leveraged to make it possible to achieve significant increases in productivity through learning and technology diffusion.
The time has come to establish a productivity culture in the private sector. Consider the garment industry, 75% of whose export revenues now come from just five products. The industry urgently needs to diversify and improve productivity. This requires better wages for workers. A demand for higher wages typically triggers concerns among factory owners about the potential impact on profitability and competitiveness. But such a trade-off is not inevitable. An increase in wages will bring some relief to the lives of thousands of poor families. It will also trigger a more serious search for efficiency improvements in the industry. It is possible to have the best of both worlds.
Changes are needed in the leather industry too, where better environmental performance will be key to achieving the desired increases in exports. And quality assurance is critical to the growth of the pharmaceutical industry. In brief, the focus needs to move from just growth in output to increases in productivity, ensuring quality and protection of the environment. The respectable gross domestic product growth rates of many years have masked the fact that productivity and quality consciousness remain low in much of Bangladesh’s private sector.
How can this change be brought about? There is no shortage of recommendations on what needs to be done. The challenge is to make the relevant actors do what that they need to do. Long-entrenched behaviour is difficult to change but is not immutable. In some contexts, this might be a question of a big push. In Bangladesh, it may have to involve a series of nudges – of well-executed dribbles rather than a free kick.
A starting point is to look for existing good practices in the business sector. Consider the textile factories that serve the garment industry. The growth of the textile industry is a good example of backward linkages in Bangladesh. However, it has come at a cost. The hugely inefficient use of water in the industry, with many factories taking in three to four times more water than is needed, has led to an alarming drop in water levels around the textile clusters. A few years ago, one could find water by digging 100 feet; now one must go deeper, to 400 feet or more in many places. But there is hope. One large textile factory, whose water consumption per kilogram of fabric was 120 litres – lower than the industry median of more than 150 litres but higher than what it need be – has now reduced this to only 60 litres. This has been done through modest investment in upgrading equipment and simple good practices such as insulating standpipes, repairing leaks and water recycling. The factory also has a state-of-the art effluent treatment plant and facilities for the rain harvesting of water. The cost savings repaid the investment within two years.
Similar stories can be heard in other industries – stories of those at the vanguard who are introducing new products, achieving productivity improvements and experimenting with new processes and business models. Such stories demonstrate that productivity gains are possible. The challenge now is to replicate their experiments and experiences in the rest of the business sector. Industries have often developed when laggards have learned from the front-runners.
Assume that only 10% of the factories in an industry are pursuing good practices. If two laggards can learn from one front-runner, and it takes two years for the learning process to yield fruits, then the 10% may become 30% in two years and 60% in five years. That is not a bad outcome at all!
As management experts tell us, benchmarking is critical to change. There is a need to know how our companies are performing relative to best practice, both globally as well as in Bangladesh. This brings us to the critical need for data. This is an area where much more needs to be done. Consider the garment industry. It is unfortunate that, for an industry of such size and importance to the economy, there is no easily available database providing granular, regularly updated data, which allows government and others to thoroughly assess the structure and performance of the industry, including trends over time. Some macro data, such as on total production, exports and employment, is available, but what is really needed is firm-level data. If the industry associations are not collecting such data, this is a poor reflection on the benchmarking practices in the second largest garment exporter of the world. Similar issues of data availability exist in other parts of the private sector.
So, this is the place to start. Get better data and disseminate good practices. But, more importantly, incentivise the private sector to change. This brings us to the role of government.
A more performance-oriented government
The private sector will need a conducive policy, regulatory and institutional environment to address the challenges mentioned above. The government has a large role to play in this. Just as the private sector needs to be productivity-oriented, the government needs to be performance-oriented.
What does this mean? Let us consider the case of government support to the private sector. East Asian countries, such as South Korea and Taiwan, for many years provided a wide range of support to businesses, especially export-oriented ones, to help them grow. But the support came with tough conditions, such as meeting export and productivity growth targets. Failure to do so would mean drastic withdrawal of the benefits. The Korean government, for example, was ruthless in instilling such discipline and was ready to let even chaebols, the large conglomerates, die if they did not meet the targets. Our readymade garments industry repeatedly asks for help on one pretext or the other. The government usually obliges but does not always demand performance in return. Even when it does, this is more about maintaining business as usual, not bringing about the much-needed transformation in the industry.
In a post-covid-19 world, the relations between government and the private sector will have to change. Industry cannot go on asking for bailouts from government. Government support should be linked to strict performance conditions, such as diversification and productivity improvement targets, and should not favour some sectors over others. Asymmetric government support is rampant in Bangladesh. First, there is a bias against exports. Second, within the export sector, there is a bias against non-garment products. Third, within garments, there is favouritism towards a small set of products. No wonder Bangladesh’s export basket is undiversified.
The performance orientation needs to cover all aspects of the government’s work. While there are islands of good performance in government, it still lacks a strong performance culture that permeates all levels. As a result, implementation failures are common.
Let us consider the various covid-19-related initiatives of government, such as the economic stimulus programme to address the adverse short-run impact, and the FY2020/21 budget, which represents an effort to start to address the medium-term challenges. How do we ensure we get value for money from these programmes? There is a very substantial (23%) increase in this year’s budget allocation to the health sector. Historically, agencies in this sector have struggled to spend allocated funds, let alone achieve good results from the spending. Given the multiple examples of ill-practice in this sector – note recent reports of artificially inflated procurement prices for health sector purchases – this huge increase in allocations and the resulting spending pressure on government agencies may lead to widespread inefficiency and wastage.
Addressing this challenge requires a sound monitoring framework underpinned by a logical framework that links inputs (such as government expenditures on health) to outputs (such as more hospitals and hospital beds, better doctors and nurses, a greater supply of equipment and medicines) and finally to outcomes (such as widely available, high-quality health services). In real-life projects, inputs may not lead to the expected outputs if project implementation is deficient. Money may be spent inefficiently, for example siphoned off by undeserving contractors and their aiders from respective public agencies.
However, outputs do not necessarily lead to outcomes. For example, extra hospital beds may be put in place but poor people may not benefit if they cannot afford to pay for a hospital stay. Such risks should be considered and addressed in addition to building more hospitals. Failure to do so would mean poor project design. If the design is deficient, even a well-implemented project will not produce the desired results.
The same is true of the economic stimulus package. Liquidity support to banks, an important plank of the stimulus programme, may not achieve the desired goal of reviving production and employment in the small and medium enterprise (SME) sector, for a variety of reasons: banks may struggle to complete the formalities of lending, especially to new customers with whom they have no prior relationship; the demand for loans may be poor if SMEs are discouraged by onerous loan processing conditionalities; or enterprises may face a shortage of demand or disruptions in raw material supplies.
A good monitoring system based on measurable indicators will help verify whether the expected results of a government programme are being achieved and, if not, may trigger corrective actions by providing clues about the underlying reasons for implementation failures. Central agencies such as the Planning Commission, the Ministry of Finance and Bangladesh Bank may establish overarching monitoring mechanisms to assess the macro trends, while individual ministries may have mechanisms to keep track of implementation at the project level. Annual Performance Agreements with ministries and government agencies, introduced a few years ago, are a step in the right direction, but many of these still focus more on delivery of outputs and need to be made more outcome-oriented. The prime minister’s recent directive to establish branches outside Dhaka of the Planning Ministry’s Implementation Monitoring and Evaluation Division is laudable and should be followed through. The indicators to be used, and their target values, should be set at the beginning of a project. Establishing a monitoring framework is not something to be left for the future.
A different relationship between government and the private sector
Engendering a productivity culture in the private sector and a performance culture in government will require a paradigm shift in the relation between government and the private sector. At the core of this will be a focus on accountability for results.
There will be a need for collaboration. The monitoring systems mentioned above will require real-time information from the beneficiaries of government programmes, including the private sector. While the government needs to take the initiative to establish such feedback mechanisms, private sector associations can help design these mechanisms and ensure that their members provide the feedback when asked. Businesses should also be forthcoming in suggesting what corrective actions are required to improve implementation. Data will also be critical in designing government policies and programmes to facilitate the shift to a productivity culture in the private sector.
The paradigm shift will require a significant change in the mind-set of the business sector, from seeking protection and privilege to becoming truly competitive. The government should also see its role differently, moving from privilege distribution to performance-demanding. Policies and programmes need to be competition-enhancing. That is the demand of a post-covid-19 world.
Photo ©️ Mahmud Hossain Opu