Facilitating informal sector of the economy
Monday, 2 June 2008
In most of the developing and least developed economies business is yet to overcome the many hurdles placed by bureaucracy and clientelism. As a result, it is not the business proper, but the organised groups of rent or commission-seekers at every stage of starting and operating a business that flourish at the expense of the entrepreneurs. This is a syndrome that most of the countries of Asia, Africa and Latin America share. What is more, the kind of economy the businesses have to operate in is also dominated in larger part by what is known as the informal sector. And more often than not, the informal sector is overwhelmingly controlled by the undisclosed money which again is rooted both in the unearned income of the functionaries of the government and the local government bodies, who have the power to issue licenses for business, give registrations, supervise, etc., and the proceeds of the illicit trades within and across the national borders. According to a report of the International Finance Corporation (IFC), the private sector arm of the World Bank, it costs about 60 per cent of the average yearly per capita income to set up a business in Honduras, a poor Latin American country. Earlier, a business operator had to fill in 35 forms, pass through 180 procedural steps and wait for more than a month to obtain a license to start business. And one need not mention the hassles and the demand for inducements the hapless would-be business operator had to face and meet at every table of the mayoral office there.
But recently the scenario has changed there as the government has reformed the whole system so much so that one can get the necessary permission to start a business within a day of applying for the same. The access to the credit for start-up capital has also been made easier and faster.
The overall socio-economic condition for business is not very different in Honduras, though geographically it is at a far-flung corner of the globe, from what it is in Bangladesh. But that poor Central American nation has been able to say good bye to its anti-business practices through certain radical reforms undertaken by the government.
An understanding of the ground realities about how the economy and society operate in a poor Third World setting has led to the reforms through giving official recognition of the informal economy and the consequent changes in Honduras. The roadblocks to business are also more or less the same here. So, it is not a figment of one's imagination to effect such reforms also in Bangladesh through formalising the informal sector of the economy, which according to a rough estimate is more than 50 per cent of the total size of the national economy. Moreover, the role of the informal economy and its growth in alleviating poverty has been an issue of serious interest for long among the development thinkers. The experiment being done by the IFC in 10 Latin American countries including Honduras by way of allowing the small business to flourish through ridding administration of red-tapism has come up with very positive results.
So far as the issue of poverty alleviation is concerned, Bangladesh, however, has to its credit the invention of the most powerful tool to this end, the micro-credit. But we are still a long way to go in freeing business, especially the smaller operators, from the shackles of procrastinating bureaucracy, which is proverbially, the thief of time. The people have long been denied their enterprising spirit a chance to thrive. It is therefore time we also bade goodbye to our past and brought about an administrative reform to free business from red-tape and corruption the way Honduras did it.
But recently the scenario has changed there as the government has reformed the whole system so much so that one can get the necessary permission to start a business within a day of applying for the same. The access to the credit for start-up capital has also been made easier and faster.
The overall socio-economic condition for business is not very different in Honduras, though geographically it is at a far-flung corner of the globe, from what it is in Bangladesh. But that poor Central American nation has been able to say good bye to its anti-business practices through certain radical reforms undertaken by the government.
An understanding of the ground realities about how the economy and society operate in a poor Third World setting has led to the reforms through giving official recognition of the informal economy and the consequent changes in Honduras. The roadblocks to business are also more or less the same here. So, it is not a figment of one's imagination to effect such reforms also in Bangladesh through formalising the informal sector of the economy, which according to a rough estimate is more than 50 per cent of the total size of the national economy. Moreover, the role of the informal economy and its growth in alleviating poverty has been an issue of serious interest for long among the development thinkers. The experiment being done by the IFC in 10 Latin American countries including Honduras by way of allowing the small business to flourish through ridding administration of red-tapism has come up with very positive results.
So far as the issue of poverty alleviation is concerned, Bangladesh, however, has to its credit the invention of the most powerful tool to this end, the micro-credit. But we are still a long way to go in freeing business, especially the smaller operators, from the shackles of procrastinating bureaucracy, which is proverbially, the thief of time. The people have long been denied their enterprising spirit a chance to thrive. It is therefore time we also bade goodbye to our past and brought about an administrative reform to free business from red-tape and corruption the way Honduras did it.