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Trade, lobbies and capacity building in policy making

Mehdi Mahmud Chowdhury | November 15, 2017 12:00:00

In 1994, two leading trade theorists - Gene Grossman and Elhanan Helpman - published an article titled 'Protection for Sale'. The objective of the paper was to analyse the political involvement of special-interest groups in influencing an incumbent government's choice of trade policy. The paper managed to formalise the commonly perceived understanding of how a special-interest group may position itself to influence the trade policy and was able to provide policy guidelines. It is now regarded as a classic of the trade-theory literature.

Since then, 23 years have passed and Bangladesh is yet to learn any lesson. Naturally, for Bangladesh, the objective of the trade policy is the possible maximisation of the welfare of the people of the country. However, the welfare of a country is hard to determine. There are many small and large fractions. The trade policy influences these fractions disproportionately; hence the fractions always want to influence the trade-policy formulation. For creating pressures, these fractions may lobby directly or may get involved in the political processes.

Additionally, pressure comes from outside the country via foreign governments and international lobbies. However, these all are characteristics of modern democracies and globalisation, and there is nothing wrong with these lobbing until something undue is demanded.

It is not to say the policymakers such as Government officials and the incumbent parties are always willing to grant undue favours to these pressure groups, rather in Bangladesh, I believe that the opposite is true. However, the people who occupy important posts are often lacking in capacity to see through the arguments presented by the lobbies and therefore easily yield to the demands. Below, I look at the agricultural trade of Bangladesh to make the point clear.

Contrary to commonly held belief, Bangladesh is not an agricultural goods-exporting country, rather an importing one. To establish it, following line diagram has been constructed using the data obtained from the World Development Indicators databank of the World Bank. Food export and import data are available only up to year 2011 for Bangladesh in that Databank.

The diagram clearly shows that the food import of Bangladesh is always higher than the food export. Notably, in recent years the food import depicted a higher rate of increase, where the food export is relatively flat. The diagram clearly illustrates that Bangladesh, in spite of the commonly held populist belief, is not that good at agriculture.

Given the above data, how should Bangladesh be making policies for agriculture? And what type of agriculture should be supported? Note that agriculture is always a politically-sensitive issue. The lobbies or special-interest groups can play this card very well. First they can say that to encourage agricultural export additional support should be given, which can come in many forms such as direct-export cash incentives, currency devaluation or in any other form.

On the other hand, a pressure group may develop on the import-substituting frontier. This group may start pointing to the fact that import in agriculture is quite high; and suggest that there is a need for investing in import-substituting agriculture. This lobbying may result in development of high tariff or non-tariff barriers for agricultural goods. In addition, it may result in some form of production subsidy. One such existing subsidy in Bangladesh is Equity and Entrepreneurship Fund (EEF) of Bangladesh Bank for the development food-processing and agro-based industries.

In reality the EEF of Bangladesh Bank aims at both export promotion and import substitution. The aim of the write-up is not to criticise the effectiveness of any programme such as the EEF; instead to question the line of arguments that support these export or import policies. The problem here is the simplistic approach for the policy justification which the lobbies can easily exploit.

My suggestion is that policymakers need to have the capacity to look through the arguments of the lobbies. Lobbying will always be present in a democratic process. However, the policymakers should be cautious about committing to policies too quickly. Now look through the diagram presented before. The diagrams clearly show that import is much higher than the export. Here a policymaker should ask him or herself, 'well import by Bangladesh is higher than the food export, but is it a good thing or a bad thing?' And then should ask if any policy is really needed to curb the food import and increase the food export.

Answers are often in the questions. Bangladesh is an overpopulated country. Domestic food production always struggles to meet the domestic demand. Naturally, food import far outstrips export. The import which is used to feed the common people cannot be a bad thing. Obviously there needs to be closer look at the itemised food imports. For example, if imported food items are rice and fishes, then it cannot be damaging, however if imported foods are tobaccos and chocolates then it should be looked at with cautions.

The second question is about designing the trade policy for the regulation of food import and export. To make a strong qualified judgement, one here needs extensive research. I currently do not have access to those researches, if any, or the necessary data. However, given my understanding of the agriculture and food-consumption patterns in Bangladesh, I am rather in favour of increasing food import and reducing food export.

Firstly, agriculture of Bangladesh still uses primitive technologies and lags in productivity. The world in past three decades has progressed substantially in food-production technologies. However, Bangladesh has yet to catch up with that level. Exporting food means exporting the good at which Bangladesh is less efficient and the subsidy to encourage agricultural export is, therefore, welfare-reducing.

The second arguments against export are about the items of export. Again, as per my understanding, the main items of food export in Bangladesh are frozen fish and vegetables. Bangladesh is already struggling with overpopulation and experiencing an unusually high domestic price of fish and vegetables. Therefore, fish and vegetable exports are likely to have a negative effect on the domestic prices and welfare of the general population.

In addition, as Bangladesh is lacking in land-based resources, its export policy should not incentivise overutilisation of the land-based resources, for examples, ponds and rivers.

More prudence is needed for designing the import policy. As mentioned earlier, Bangladesh is already an overpopulated country. To produce enough food within the country to feed so many months is near to impossible. Therefore, import policy needs further deliberations. For example, should Bangladesh discourage import of meat, fish and dairy items? My answer to this is simply no. Consumption of meat, fish and dairy items are important for various health benefits, especially for the physical and mental developments of young children. Any import barriers to these are likely to be welfare-reducing. In addition, home production of these meat, fish and dairy requires extensive use of land-based resources, which, in an overpopulated country like Bangladesh, may create more health and environmental hazards.

However, as mentioned above, lobbies and political pressures on agriculture are always very forceful. In the past, initiatives to reduce the trade barriers with respect to meat, fish and dairy faced strong domestic repercussions supported by unrest from special-interest groups.

The incumbent officials in charge of making agricultural trade policy need to have the capacity to look through various arguments, for and against various policies. Otherwise they are highly susceptible to making influenced judgements. It is, however, not to say that lobbies or political pressures are always undue. As mentioned earlier, they are important components of a democratic process. Only, the policymakers need the capacity to analyse through the arguments presented by the domestic and international pressure groups.

The above-mentioned argument is presenting a case for a capacity-development programme, which supports political goodwill and visions for a developed Bangladesh. To exemplify this let us again look at the trade policy of Bangladesh. Bangladesh long maintained the policy of keeping the currency devalued. This resulted in development of the readymade garments and many other export-oriented industries. In addition, export activities received various incentives and encouragements. Is it, however, the time to shift towards import substitution? Is it the time to invest more in heavy industries and advancement science and technologies? One of the problems of export-oriented policy that it relies on the whim of large importing countries. Therefore, import-substitution of some key sectors such as transport, energy, telecommunications and others can be useful. It is not to mean that the country will have to stop import of all these goods. Rather, what is required is development of inherent capacity for import-substitution, i.e., the ability of a country to import-substitute when required. This is one of the important characteristics of the most developed countries. It is not that they do not import these goods. However, if need be, they can produce everything internally. Investment in heavy industry has positive spillover effect for science and technology education. As heavy industries require extensive knowledge of mathematics and engineering, the development of domestic science and technology comes naturally, concomitant with the investment in heavy industries.

A vision for the development of Bangladesh requires the capacity to think and analyse possible consequences of different policies, which the policy-makers and intellectuals of Bangladesh are lacking substantially. I identified the lack of modern education as one of the main reasons. The education sector of Bangladesh definitely needs to go through an overhaul. For example, the paper mentioned earlier 'protection for sale' is connected to the literature called the 'New Trade Theory'. This literature emerged in the late1970s, with emphasis on the analysis of trade with imperfect competition. It showed how a country or special-interest groups may adopt policies for shifting profits. One of the leading figures of this literature is prominent Noble prize-winner Paul Krugman. The 'New Trade Theory', however, was absent from the syllabus of Dhaka University when we studied for our economics degrees in the mid- 1990s. Apparently, the situation of other public and private universities was much worse and I do not think that it has much improved since.

Another very important development largely missing from the academic curriculum of economics in most universities is the study of the Game Theory. The graduates of these universities are eventually becoming government officials and getting appointed to various important posts in charge of designing policies. Some of them are participating in international negotiations in places like the World Trade Organization (WTO). These economics graduates, lacking preliminary understanding of most advances in economic literature, are naturally very weak in understanding the general implications of various policies. Even if they have genuine interest for the development of Bangladesh, they are easy preys of domestic and international pressure groups.

Criticisms are easy, but how to overcome this problem? First solution, which is quite intuitive, is increased investment in research and knowledge-exchange programmes. For example, the Ministry of Finance can design a number of special projects to evaluate the effectiveness of trade policy of Bangladesh. The reports of these projects should be openly circulated to all. These will help to neutralise any undue pressure from the domestic or international pressure groups with political influence.

Second suggestion which may not seem very intuitive is special workshops delivered for developing the standard of the university-level teachers. This suggestion may seem surprising as, essentially, I suggest here for teaching the teachers. However, the fact is that the university-level education in Bangladesh does not have a good standard. The individuals who are becoming lecturers/professors of Bangladeshi universities are coming out of this system and therefore, in general, lacking in a good university-level education.

As academic progression in Bangladesh depends on the age of service, the incentive to develop or further the knowledge after graduation is missing. Obviously many try to go abroad for PhD degrees. However, it is a time-consuming and costly process. Many young academics struggle year after year for a scholarship and waste valuable time and energy. Additionally, the knowledge acquired is often not useful for a country like Bangladesh. For example, most economics PhDs learn techniques of data analysis only, without an in-depth understanding of the theories/concepts of Economics.

The data-analysis technique, though it has its own merits, is not very useful in isolation. In order to make policies or negotiate, a comprehensive understanding of the field is required. The data analysis complements that knowledge. I therefore suggest periodic workshops for training the university-level lectures/professors within Bangladesh. These workshops, though not costly, will help to improve the standard of knowledge. This initiative will help develop the general standards of economic education in Bangladesh and, as such, the graduates coming out of the system will not easily give away to the domestic and international pressures.

It is likely that senior university academicians will object to any such initiatives. The truth is that they are beneficiaries of the existing substandard level of education. They will simply have to be told that there is no age limit for acquiring education-anybody can learn at any stage.

To summarise, international and domestic lobbies/pressure groups with political clouts are inherent to any democracy and a reality for a global open-minded country. The political parties/policymakers sometimes yield to undue demands of these pressure groups. However, it is also true that political parties and policymakers can also demonstrate genuine goodwill for the betterment of a country. In this age of fast-progressing knowledge and innovation, only goodwill is not sufficient. The policymakers need the capacity to look through the arguments of the pressure groups and to make judgements about various policy options. Advanced education and research are therefore indispensable for training up the future policymakers. This write-up also identified that the trade policy, in particular, the agricultural trade policy of Bangladesh needs a thorough checkup. It additionally suggested that Bangladesh may need to start thinking to develop import-substituting capacity in some key sectors.

The writer is Senior Lecturer in Economics,

Bournemouth University, UK.

[email protected]

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