Where does the government stand?
The massive mandate received by the mohajote has thrust upon the prime minister the great responsibility of meeting the aspirations of the people. To improve the condition of the people the government may have to invest a huge amount of money. Where will the government get the resources from, given the habitual reluctance of the rich and the powerful to pay taxes and, as seen during the period 2001-2006, to steal wealth of the state, along with the drying up of external capital in the form of assistance and foreign investment?
In developing countries, macro-empirical work on the FDI-growth relationship has shown that, subject to a number of crucial factors such as human capital base in the host country, the trade regime, and the degree of openness of the economy, FDI has a positive impact on the economy.
Notwithstanding some scepticism about accretion of national wealth through foreign investment that often has high social cost, the world is now confused whether, in view of the global meltdown, Adam Smith's theory that minimalist role by the government can lead a country "to the highest degree of opulence from lowest barbarism" is not an outdated theory after all.
Capitalists ignored the fact that perfect marriage between demand and supply is a theoretical concept, particularly in places where a few firms forming syndicates control the supply and price of commodities. In economies like ours, captains of industry and commerce also often dictate state economic policies, either as pressure groups on the political authority or on their election as members of parliament.
The government's decision to halve the price of most fertilisers and reduce the price of diesel has been welcomed by farmers. The International Rice Research Institute does not hold out hope of increased land for farming or any easing in the fertiliser market in the future. Given the global population increase and consequent increase in food price, coupled with the tendency of some businessmen to reap abnormal profit, the "invisible hand" of governmental intervention in the market will be necessary if the mohajote is to fulfill its promise of bringing the price of essentials within the reach of the common people.
The challenge facing the government will be immense. The US Department of Agriculture, in its July 2008 report, predicts that the global economic meltdown combined with food and fuel (though fuel price is going down) price hikes will contribute to the ongoing deterioration in global food insecurity, with a negative impact on countries that are most food insecure.
USDA's long-term projection of price increase shows that 90% of the price shift that the world had seen in 2005-07 will persist, putting tremendous pressure on low-income households. The FAO/WFP crop and food supply assessment mission to Bangladesh, in its August 2008 report, estimates that 40%, or 56 million people, are "absolute poor," i.e. unable to acquire the minimum level of food required to maintain normal health. Among them, 27 million were categorised as "hard core poor," i.e. unable to acquire two-thirds of the minimum level mentioned earlier; and 11 million as "ultra poor," i.e. unable to acquire half of the minimum requirement.
The prevalence of absolute, hard core, and ultra poor increased from 2000-2005 due to population growth. For Bangladesh, import sources will become fewer, i.e. Myanmar, due to cyclone Nargis, will not be able to export six lakh tons of cereals, part of which would have come to Bangladesh. In Thailand, too, exportable quantity is expected to decrease. Added to supply-side constraint, the price of cereals and food-led inflation paints a discouraging picture.
It is absolutely necessary for the government to stock food and to import ahead of any emergency that may occur. The government may also face challenges in reducing the income gap between the rich and the poor. Harvard University Professor Bruce Scott (The Great Divide in the Global Village) writes: "Average incomes have indeed been growing, but so has the income gap between rich and poor countries. Both trends have been evident for more than 200 years, but improved global communications have led to an increased awareness among the poor of income inequalities and heightened the pressure to immigrate to richer countries. In response, the industrialised nations have erected higher barriers against immigration, making the world economy seem more like a gated community than a global village."
The insistence by the rich to erect barriers to immigration and the inability of the poorest nations to attract foreign capital can have adverse effects on Bangladesh. This should naturally bring up the question of the type of economic philosophy that the Bangladesh government should follow. Since the essence of Awami League's manifesto is to provide a better way of life to the down- trodden people, it would be beneficial to define the economic philosophy of the government.
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