On the road to reform

Reform, as it generally goes, is the improvement or amendment of existing  erroneous, irregular, corrupt and unbearable laws, rules and procedures which are archaic in nature  and non-implementable. Reform may not necessarily be equated with revolution as the latter means basic or radical change, whereas reform may be no more than fine-tuning, rectifying serious errors without altering the fundamentals of the system.

Reform seeks to improve the system as it stands, never to overthrow it wholesale.

Radicals, on the other hand, seek to improve the system, but try to move out of the group or government. Society or countries, both developed and developing,  may carry out a wide range of reforms to improve their living standards, often with the support from international financial institutions and aid agencies.

This can include reforms to macroeconomic policy, public service, budget or fiscal policy procedures and public financial management at large.

Governments have to reduce their role in the economy and focus their spending on priority areas. This means curbing spending on the civil service on subsidies and on state-owned enterprises. Even some governments (for example, in Ghana) have cut spending by creating a roster of the civil servants to ensure that only bona fide workers-and no 'ghost' or 'phantom' workers are on the payroll.

An alternative is to release workers with a lump-sum benefit. This may increase the short-sun cost of reducing the size of the government and may encourage the better workers to leave but in some countries it has provided an impetus for the development of private entrepreneurship.

A sudden removal of subsidies may not be possible, but targeting them to the truly needy further reduces costs as many subsidies benefit urban dwellers who are relatively well-off.

Rapid population growth also may offset the improved economic performance through adjustments. Kenya, Senegal and Somalia, despite a fairly strong economic growth in 1980s, have had yielded low or negative growth in per capita GNP (gross national product). Excessive population growth accelerates the problems of food security, education, urbanisation and environmental degradation.

So may be the case with a country counting for gaining manpower dividend, like Bangladesh, it may not be so fruitful if  human resource development occurred without proper quality education and technical know-how. Mere growth of manpower in numerical term should not be supportive for productivity and development at large.

Traditional economic reform in some cases has been viewed as a reform-trap. At the microeconomic level, the traditional reform is understood decentralisation, which is a mistake in many senses.

Decentralisation essentially means shifting the locus of decision-making without making parallel changes in the basic characteristics of the system, starting with ownership on the one hand and with incentives, on the other.

Even if at first sight the idea of decentralisation in an over-centralised economy sounds rational, often it is misused and the outcome cannot overcome the investment.

It is a trap because all other things being equal, shifting the locus of decision-making to macroeconomic agents without changing the basic characteristics of the system rather brings problems than solutions.

Should reform be gradual or a 'shock therapy'? Gradualism may sometimes be justified when reforms face particularly large economic uncertainties. And, by their nature, some reforms take longer to happen than others. But some gradual reforms (for example, in Japan, Korea and Thailand) may have succeeded because they took place in relatively strong and stable economies.

In general, the analytical case for speed is strong. Often speed appears to be the best way because swift actions bring benefits of reform more quickly. Speed may also make sense if the political opportunity for reform is unlikely to last.

Gradualism may not be feasible for economies in acute crisis or for governments with limited credibility. If the policy shift is sudden, potentially productive employees may be dismissed from their jobs and in such a distorted climate a gradual policy change may reduce the overall costs of adjustment by spreading out the adjustment overtime.

Sometimes gradualism allows time for political fine-tuning. Policy-makers have time to learn about the probable gainers and losers and to forestall opposition. Policymakers can diffuse potential opponents by giving them something they want from reform.

On the other hand, in some contexts, rapid action can improve the political sustainability of reform if it prevents a joint assault by special interest groups against changes that are in the general interest.

However, the choice of gradual versus rapid reform is also a choice between two sets of risks: rapid reform is likely to lead to greater dislocation in the short run, whereas slow reform often creates inconsistencies that thwart further progress.

Again, waiting for an ambitious and intellectually perfect reform project may postpone the reform process for the eternity. In that situation, there will never be a reform. What is even worse is, when the reform process has already started, is to wait for the blueprint.

It may lead very quickly to a chaotic disintegration of the economy, as it was evident in the former Soviet Union. And even when reform is well designed, governments have to be sure to encounter unforeseen setbacks, some of them entirely beyond their control. Development is indeed a challenge but as history tells us, one that can be met.

The functioning of an efficient capital market may ensure smooth floatation of funds from the savers to the investors. When banking system cannot meet up the total need for funds to the market economy, capital market stands up to supplement it. It facilitates an efficient transfer of resources from savers to investors and becomes conduits for channelling investment funds from investors to borrowers.

The capital market is required to meet at least two basic requirements: (a) it should support industrialisation through savings mobilisation, investment fund allocation and maturity transformation and (b) it must be safe and efficient in discharging the aforesaid function.

Capital market in Bangladesh has now good prospects of developments. We should take this opportunity to boost the market as well as contribute to our economy. In addition, our mindset needs to be changed regarding earning profit from the capital market overnight. If we can develop our capital market, it will definitely enhance our national economy.

Developing countries which accounts for 75 per cent of the world's population, have an enduring need to attract capital and technology to improve their infrastructure and standard of living. Developing economies, thus, look forward to their capital markets as the engine for future growth. In Bangladesh, we have a capital market that is yet to be mature.

Without doing this we cannot undergo heavy industrialisation and other capital-based development. We have various limitations like the market has been suffering from inadequacy of good scripts. Out of around three thousands public companies, only five   hundred plus have issued securities keeping a large number away from the securities market.

The government is still holding lion portion of many blue chip company shares. We must overcome these sorts of problem to strengthen our capital market. Various methods and policies may be adapted regarding this, but the investors' mindset is one of the most important things that must be changed to ensure the development of the market.

Muhammad Abdul Mazid PhD, former Secretary to GoB and Chairman, NBR, is Chairman of Chittagong Stock Exchange Limited

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