The economic consequences of red tapism

The last time the administrative efficiency of Bangladesh in accomplishing a large scale event was tested 12 years ago when it successfully conducted the parliamentary election in 2008 having a non-partisan government in the driving seat. That success produced good and acceptable results: a largely free and fair election.

Today, the much bigger tasks appear to test the administrative efficiency. The government that has been managing an unprecedented crisis induced by the coronavirus pandemic for around a year has no scope to take a break or feel complacency for the low death rate from Covid-19 in Bangladesh. The battle may swell as the course of the pandemic is full of uncertainty.

However, one thing is certain that the battle against the virus is set to be stretched for another year or more unless the virus disappears suddenly as Trump had announced in the early days of its outbreak. And it is also certain that the longer the Covid-19 remains untamed the longer people will be struggling to protect their lives and livelihood. Any negligence from the part of the administration may wreck havoc on people's lives and livelihood afresh.

Fighting such a large battle requires an administrative preparation and efficiency of unprecedented scale.

Every measure--from implementation of stimulus packages to rolling out vaccination, from implementation of mega projects to ensuring smooth functioning of the supply chain--now requires more care and prudent leadership in the new normal with the resurgence of the virus.

No business remains unhurt in the devastation caused by the pandemic. So, many things may need to be reinvented; many employments must be generated; new initiatives are required to uplift people above the poverty line as the pandemic created 20% new poor; radical measures may be needed to overhaul the education and the health sectors for keeping the wheels of the economy turning for a better today and tomorrow. This is the call of the time as the crisis is like no other in the past requiring the state to redefine its role.

In the words of World Bank President David Malpass: "Policy makers face formidable challenges -- in public health, debt management, budget policies, central banking and structural reforms -- as they try to ensure that this still fragile global recovery gains traction and sets a foundation for robust growth."

While the virus plunged millions into poverty and reversed at least a decade of income gains in about a quarter of emerging and developing economies, the lender said vaccinations should lift confidence, consumption, and trade this year and next.

In spite of the positive outlook, plenty of risks remain including new outbreaks, vaccination delays, financial stress amid high debt, and unemployment and business shutdowns becoming permanent, according to the recent World Bank report on global economic outlook. Persistent economic weakness could trigger bankruptcies and potentially fuel financial crises.

Is our administration--both general and financial--prepared to deal with the challenges?

Some unpleasant past incidents testify to large scale weakness in the administrative efficiency to implement the government's major policy decisions. The incidents include failure to achieve the target to provide 50 lakh poor families impacted by the Covid-19 crisis a cash assistance ofTk2,500 each; inability to speed up the distribution of stimulus packages for small businesses that have been hit hard by the pandemic; slow implementation of major projects and enormous cost escalation; unrestrained bureaucratic complications mired in alleged grafts making doing business difficult. The economic cost of all these unpleasant incidents is very high as those suck the life blood out of the economy.

Democratic or not, an economy cannot grow and remain healthy without an efficient administration largely free from corrupt practices and red tape. Absent such, an administration gets increasingly entangled in troubles in financial sectors, worsening health of banks, and non-banking financial institutions. Unfortunately, Bangladesh is an example of this type of governance system.

The biggest example of economic success contributed by an efficient administration is China, the world's second largest economy which is set to surpass the USA in next several years. China can be criticised for its one-party system that does not allow democratic environment for differing views against the incumbent. But even staunch critics of China praise the efficiency of its bureaucracy that keeps contributing to its economic growth. China has not compromised with administrative efficiency by allowing inefficient people to rise in the system. This is one of the mantras of China's rise as a global growth engine in recent years. It has been reaping the benefits in this time of pandemic when all other major economies are scrambling to recover from the shock. China has made a difference and is poised to accelerate the global recovery.  

The rise of Singapore from a very low status island to its glittering present is another success story of efficient bureaucracy free from red tape. There are many examples. All developed economies keep moving on the back of efficient bureaucracies. All the upper middle income economies have vibrant and efficient bureaucracies. Middle income countries like Bangladesh and others are struggling in their march forward mainly due to the monster: the red tape.        

A clear perspective can be had if we compare their performances in the doing business index prepared by the World Bank.

Developed economies always rank at the top level of the index. Upper middle income countries in the middle, immediately after the advanced countries. Middle income and least developed countries always remain at the bottom of the index. The bad performance on the index tells the story of bureaucratic obstacles in doing business in those countries.

The red tapism also invites grafts. Check the global Corruption Perception Index of Transparency International, you will find the evidence. Again middle income and least developed countries rank poor on the index because of pervasive corruption in the administration.

The similar picture—poor performance --is found on other indexes on rule of law, freedom of the press, and knowledge and competitiveness.    

Consider these examples. On the Ease of Doing Business 2020, Bangladesh ranked 168. Upper middle income countries such as Thailand ranked 21, Malaysia 12, Indonesia 73 and China 31.

The poor performance on the Ease of Doing Business reflects on the Global Competitiveness Index in which Bangladesh ranked 105. Thailand 40, Malaysia 27, Indonesia 50 and China 28 last year.

Bangladesh Investment Development Authority, BIDA, has taken measures to improve the business environment by breaking the barrier of red tape. But their efforts themselves are facing bureaucratic barriers. The future of new investments—be it local or foreign-- depends on the success of the reform initiatives. The vicious cycle appears to be a monster that needs to be slain. Again, it needs efficiency in the administration of BIDA to make a difference. The bureaucracy must be made business-friendly. Otherwise, the target set by Bangladesh to become an upper middle income country by next decade will face a setback.

A number of hurdles stand in the way of Bangladesh becoming an upper-middle-income country by 2031. In 2019, the Planning Commission identified a few of these hurdles in its concept paper, drafted as the first step towards preparing the country's eighth five-year plan which was finalised this year.

Weakness in revenue collection, outdated stock market, increasing default loans, and inadequate investment in the private sector have been identified as major obstacles, according to the paper. Additionally, the lack of skilled manpower, ever-increasing income disparity, and poorly performing or inadequate local government system may also hinder the achievement of the government's target. All these weaknesses point fingers to bureaucratic inefficiency. Things could have been better had the administration not suffered from inefficiency rooted in various factors such as nepotism in recruitment and promotion and grafts.  

Any disaster or outbreak of disease tests the efficiency of the administration. If a country efficiently handles the crisis, it boosts people's confidence and makes recovery easy. If it fails, people panic and behave irrationally. Remember the consumers' behavior in the early days of the shutdown, March last year. They went for panic buying. The same consumer behavior was noticed in some other countries too during the pandemic. It was mainly due to uncertainty and lack of trust in the administration. After the pandemic outbreak, all countries could not efficiently enforce social distancing and other non-pharmaceutical measures needed to contain the spread of the virus. Lackluster enforcement of measures cannot help to increase people's confidence in the administration.

The messages of the nation's trust index by global communications firm Edelman Trust Barometer is noteworthy. The index shows even an "authoritarian regime" can be respected and trusted by people if its administration delivers efficiently. China is an example as it ranked top on the trust index with a whopping 82% of its citizens trusting their government. This means trust matters much during any crisis.

For bureaucracy, the tasks for earning people's trust should never be overlooked. And without being efficient, there is no other shortcut way to being trustworthy.

Shakhawat Liton is the Deputy Executive Editor of The Business Standard