Keynote Address by Professor Gutav F. Papanek, President, Boston Institute for Developing Economics:
Monday, 17 May 2010
‘Let me quickly summarize the points that I am going to make. Bangladesh has a unique opportunity in the next year and a half or two years because it has the possibility of taking over part of the world market that China is going to abandon. China is no longer competitive in many of the goods that Bangladesh could supply. Bangladesh can compete in this market because it has some major assets and the greatest of which is the low-cost labor. However it also has some real disadvantages and problems and the most important to my mind is not the power problem or gas problem, but the systemic weakness of the government decision-making in Bangladesh. So if it is to take advantage of this opportunity which will not come again in our lifetime, then it needs to capitalize on its strengths and deal with its weaknesses.’
‘A once in a lifetime opportunity, this opportunity is for the government to be the first in the history of Bangladesh, to achieve a rate of growth of 8 to 10 percent. This would transform not only the economy, but also the society by dramatically reducing poverty which is after all the main purpose of development. As I said earlier, this opportunity is due to the fact that China, which has a huge share of the world market for labor-intensive manufactured goods, is vacating that market not because it wants to but because it is not longer competitive. There are several reasons: China’s labor costs are rising, its pollution costs are increasing, its labor regulations are getting stricter and it will be forced within the next six to nine months in my guess to revalue the Yuan. Its own currency will make it less competitive for labor- intensive goods. By labor-intensive manufactured goods I don’t mean only garments, but textiles, toys, shoes, furniture, car and motorcycle parts and a whole host of consumer goods such as crockery and silverware. When we go to a store and we are often not surprised to see that these are all made in China. These are all labor-intensive and require a large input of labor.’ China is no longer competitive and it really does not care because after 20 years of double-digit growth, it is now competing in higher value goods.’
‘The next slide just takes garments and textiles to give some idea of who is in this market. Please note that the exports of China of these two goods are $185 billion and it is a market that grows by about $40-$50 billion a year and only China has maintained the share. If Bangladesh can get 10 percent of this Chinese market, it would more than double its total export of labor-intensive goods and this would create millions of jobs.’
‘Now this table also shows that Bangladesh is not alone in looking to capturing the market that China has occupied for labor-intensive goods, there are three other competitors that are large and have a substantial share of this market now. They are India, Indonesia, and Vietnam. All of them have about the same share of the world textile and garment market as Bangladesh. Vietnam is smaller because it is much smaller in population, India is of course much larger so it also has a larger share of the market; but all of them have much larger share than Bangladesh does of other goods. They are already competitive in many other goods that Bangladesh has yet to become competitive in. Now in this competition, one of the assets that Bangladesh has clearly the most is low-cost labor. I was struck in finding out here that industrial labor in Bangladesh still is paid roughly a $1.50 a day. This is unskilled workers in the garment industry. Indonesian industrial workers are getting about $4.50 a day which is triple of what it is here and Indonesia is the next lowest labor-cost country to Bangladesh. The only other country that has low wages of that kind is Cambodia but that is too small a player to make much difference. The same discrepancy is seen it the terms of agricultural labor and it is a powerful advantage for Bangladesh particularly because wages here have not been rising rapidly as they have been in the other countries.’
‘There’s a second advantage less important, which is location. There’s a tremendous potential for imports and exports from neighboring countries: power from India and from Bhutan; transit fees for India; and investment by India. Now immediately you’ll realize that I am touching on a politically sensitive subject. In addition Bangladesh has a very favorable incentive package for foreign investment in terms of tax regime and so on. Now these incentive packages are usually over-rated. They are not very important to foreign investors. It doesn’t make much difference how high or low the profit-tax is if you make no profit. So giving tax free status does not make much difference unless the enterprise is profitable.’
‘Now given all these advantages, why is Foreign Direct Investment in Bangladesh “pathetic”? Investment has an average of far less than $1 billion until 2008. There have been years when it has bumped up especially in the investment in the mobile phone industry, but on an average it has always been below $1 billion. Just compare this with any other country. The statistical artifact shows that Vietnam has a Foreign Direct Investment of $20 billion. This means a country that has one-third the population of Bangladesh has 20 times more Foreign Private Investment than Bangladesh. That is a huge discrepancy and it tells us that Bangladesh has great weaknesses for investors.’
‘So back to the main story, I am saying this because I am making an argument for more capitalism but I am making it with that intellectual and moral perspective. Changing such a system that makes it undesirable to make decisions is hard and governments do not do things that are hard unless they have to. My view is they have to because not changing the system would be catastrophic. Why am I saying this, because the alternative is millions of unemployed people to be here who consume but do not add to production. Bangladesh has low labor costs because it has millions of people who are looking for work and are willing to take any wage that will sustain them.
Now let me give you some numbers. What it is saying is this, poor people are not unemployed. They cannot be because if they were they would starve. They need to have an income that requires them to work. So in Bangladesh virtually everybody is known to be employed. The number of unemployed is always known to be very small. People who misunderstand the society say, “Where is the problem? Everybody is working?” Yes indeed, but are they contributing to production? I say many millions of them do not. Why has Bangladesh added 3 million workers to the agricultural labor force in a short period of time? It’s not because agriculture needs 3 million people; instead agriculture ought to be shedding workers. The land for workers is already too small and yet more people are crowding in. Why, because these people need an income. So where there used to be two people cultivating a tiny plot, now there are three people cultivating the same plot producing more or less the same thing but they are sharing it among three people. They used to be two people shining shoes on the corner, now there are three people.
So these people show up in the statistics as employed but they are not adding to production. I have tried to divide everybody into two groups- those who get employed because there is a demand for their labor and those who are employed even though there is no demand for their labor. This is because there is an increase in the supply of labor and the additional workers must have a job. I come up with a rough division- half and half. That’s the last two numbers their. Half is the additions in the labor force and remember 2 million of the additional people join the labor force each year; so over the six years, for which I have the data, 12 million people join the labor force and roughly half of them found jobs. This includes the migrants-the people who could not find job in Bangladesh, but found it elsewhere, but at least they are gainfully employed. The other half could not find gainful employment. So, roughly of 2 million who join the labor force each year, one million find jobs in the country or outside, one million do not find jobs and work off long hours in order to earn a living but add little or nothing to the output. If I were an economist, I would say that the marginal product of labor is zero or close to zero. This is what keeps wages low, this is what keeps growth low, and this is what keeps Bangladesh poor. If every year, Bangladesh created 3 million jobs rather than 1 million jobs, growth would increase by 1 percent from that factor alone, income by one billion, wages would rise and poverty would decline. If the system continues to be as it is; not only will increasing millions not find jobs and this would be horrible economic waste. You have people who are not adding to production. It is an unexplored resource-the only resource that Bangladesh has. Not only that, but also a political disaster will happen sooner or later because people want jobs and if they do not get jobs they will not be happy politically.’
‘Now I come to how Bangladesh can come to create 3 million jobs. If Bangladesh can have a rate of economic growth of 8 to 10 percent it can create 3 to 4 million jobs a year if it can take advantage of its assets and overcome its handicaps. The main source of the growth will have to be labor-intensive exports. There is no other place to go. There is a new fashion in Washington and many other places saying to increase domestic demand. Well if it were that simple then all the countries would have been rich by now. The past eight years, the export of labor- intensive manufactures grew about 10-12 percent a year. The maximum that it reached was 14 percent and on average it was around 12 percent. Those exports should be growing at 35 percent a year. This means that they should double every two years and that would mean that you would add in the first 2 years $14.5 billion more of exports. If you did that, by 2011, 3.5 million jobs will be created in manufacturing for exports.’
‘There is a multiplier. That is if you have more jobs in producing exports then those people have more money and they buy more haircuts, they buy more transports, they build houses, the money eventually circulates in the economy. Generally this multiplier in most countries is close to two. Nobody, as far as I know, has even calculated it for Bangladesh. So if you add in the indirect jobs that are going to be created particularly in the construction, services and trade; and if the multiplier here is the same as it is in another country, you would have 7 million jobs in 2 years from now on for labor-intensive manufactured exports alone. Of course if 7 million more people are employed at good wages, low but steady wages, they pay more taxes and government will have more resources to invest in infrastructures development which will create even more jobs.’
‘Finally Bangladesh could benefit from the program that has been hugely successful everywhere including Afghanistan. It’s the only donor-sponsored or government sponsored program in Afghanistan that has been successful. If it can be successful there, it can be successful here. It provides employment in the agricultural off-seasons to people in rural areas to build rural infrastructure. Bangladesh started such a program long ago. It was in fact the only country where such a program was tried. It can only be executed with total decentralization and this is why it has been proposed in all the countries by both the political and rural leadership. It generates no income and no power for anybody except the leadership because the money goes directly from the national treasury to the village community. It does not flow through any other channel.’
‘Well of course, say you need 35 percent growth of labor-intensive exports. That is easier said than done. Those exports need to be profitable because investors foreign or domestic will always want to make money. One major obstacle in the way is the high tariffs on imports into export production. The reason for which the garment industry developed was because of the duty-free imports into bonded warehouses. The ship- building industry also enjoys this benefit but other industries do not and it needs to be universalized. Incentive packages are nice but they are rarely a major factor to these foreign investors. To get these kinds of exports, it is crucial, to my mind, that Bangladesh attract $10 billion a year of Foreign Private Investments- not $1 billion but $10 billion. It is a tough job for Dr. Samad and it cannot be achieved unless other things change. ’
‘You need Foreign Direct Investment to develop the major assets of gas reserves. All countries use major oil and gas companies for more difficult technologically sophisticated exploration and development tasks. Bangladesh is no different. Secondly it needs some Foreign Private investment to build very large power stations quickly and to provide temporary power in the short run. It is often overlooked that foreign investors are also needed in many areas of labor extensive exports in order initially to provide access to market and technology that is necessary. No country exports sport shoes without the involvement of Nike or Reebok and so on. They provide specifications, they provide the training, and they provide the market. Same thing is true of high-fashion garments. Bangladesh could get into high-fashion business but you need to know what sells. I met a very entrepreneurial lady in Indonesia while interviewing people in the garment industry. She said that every month she goes to Bali which is full of foreign tourist. She takes her instant camera along and takes pictures of foreign tourist which tells her what they are wearing. And she said that the Australian surfers wear different clothes from the Italian surfers and the Italian surfers, it depends from whether they come from northern Italy or southern Italy. She takes their pictures and asks them where they come from. She then imitates what they wear and sell them not only in Bali but in their home country. Moreover, she and many other people also had foreigners as silent partners. Foreigners who loved staying in Bali became their pipeline to the world market. These foreigners moved back and forth and informed them about the latest fashions and trends.
‘Capital is much less important in Bangladesh because you have substantial pools of capital. What does it take to attract this kind of FDI? First, I think it takes a major political & philosophical decision that you want FDI. When Dr. Samad speaks to foreign investors, he says that, “We want it.” And he does. But many of the people here are of two minds. There are people that think it is evil and you do not want it under any circumstances. May be it affects the decisions or may be it does not, but it does affect the perceptions. So to my mind, the essence of nationalism is not to keep out foreigners but to use them to advance the objective of society. This is what the Chinese have done. Do not let foreigners exploit you, you exploit the foreigners.
Second, it takes a major effort to change the perception of foreigners about Bangladesh. Perceptions matter even if they have no basis in reality. A year ago, Indonesia was not on the horizon of foreign investment. I talked to foreign investors, they said people in Indonesia say that it’s a great place to invest, but they say that, “I will never take this to my CEO that we should expand our investments in here because he will react in horror and this will not be good for my career. Within a year or may be a year and a half, this has changed and they are all going to their CEOs and saying that Indonesia is the next place to invest. Why, because some things have changed there now. A serious change that took place was the end of corruption. The main thing is a shift in perception. I think the reality is people are afraid to move into China. So now things that looked risky don’t look so risky elsewhere. You have it going for you only if you can persuade foreigners that this is a good and safe place. The Indians did major effort along those lines which cost them millions and millions and was very successful.
‘Third, the key to my mind is speedy decisions that are reasonably fair. It’s not absolutely necessary that foreigners be treated equally with Bangladeshis. They expect favoritism to Bangladesh. All countries do that. They want to know that there are rules that Bangladesh investors will be favored to this extent, under these conditions, in this industry. If you can meet those conditions, you will get the license not the Bangladeshis. So there is favoritism but it’s known, it’s transparent and there is not uncertainty.’
So the key thing to my mind is that you need a government that renders reasonably quickly decisions with a reasonable degree of certainty. You don’t need a government that is perfect because you are not competing to have perfect governments. Those who know Indonesia, Vietnam and India, you know that there is corruption, delay and inefficiency and of course those of you who ever worked in Boston, know that we have a series of mayors who went to jail for corruption. So it exists. The question is how serious is it. How much does it affect decision- making? I think the way to change the system here is to dramatically change the way the government officials make their decisions. A biggest step that was taken here and elsewhere is to end the import licensing system which gave the government huge power to delay, obscure, and to do things that enrich them and the ones whom they favored enormously. Ending that system made a huge difference in the functioning of the economy.
I just want to make one last point. Reforms are difficult and therefore often avoided. But reforms pay politically over the medium term. Look at what has happened in India. For the first time in a long time the Congress party was reelected with increasing majority. This is because it produced growth, it reduced to some extent corruption, the reforms paid off, and the Prime Minister whom I thought would be out of office in six months had prospered because he has produced results.
I think if Bangladesh takes advantage of its assets and its strengths, it can launch a program of development that will be unprecedented and change the economy and its society for a long, long time to come. I hope it does that, I wish it will because the people of Bangladesh need it and deserve it. To continue to permit poverty is a moral outrage and it should not be permitted especially when it is in your power to change it.
‘A once in a lifetime opportunity, this opportunity is for the government to be the first in the history of Bangladesh, to achieve a rate of growth of 8 to 10 percent. This would transform not only the economy, but also the society by dramatically reducing poverty which is after all the main purpose of development. As I said earlier, this opportunity is due to the fact that China, which has a huge share of the world market for labor-intensive manufactured goods, is vacating that market not because it wants to but because it is not longer competitive. There are several reasons: China’s labor costs are rising, its pollution costs are increasing, its labor regulations are getting stricter and it will be forced within the next six to nine months in my guess to revalue the Yuan. Its own currency will make it less competitive for labor- intensive goods. By labor-intensive manufactured goods I don’t mean only garments, but textiles, toys, shoes, furniture, car and motorcycle parts and a whole host of consumer goods such as crockery and silverware. When we go to a store and we are often not surprised to see that these are all made in China. These are all labor-intensive and require a large input of labor.’ China is no longer competitive and it really does not care because after 20 years of double-digit growth, it is now competing in higher value goods.’
‘The next slide just takes garments and textiles to give some idea of who is in this market. Please note that the exports of China of these two goods are $185 billion and it is a market that grows by about $40-$50 billion a year and only China has maintained the share. If Bangladesh can get 10 percent of this Chinese market, it would more than double its total export of labor-intensive goods and this would create millions of jobs.’
‘Now this table also shows that Bangladesh is not alone in looking to capturing the market that China has occupied for labor-intensive goods, there are three other competitors that are large and have a substantial share of this market now. They are India, Indonesia, and Vietnam. All of them have about the same share of the world textile and garment market as Bangladesh. Vietnam is smaller because it is much smaller in population, India is of course much larger so it also has a larger share of the market; but all of them have much larger share than Bangladesh does of other goods. They are already competitive in many other goods that Bangladesh has yet to become competitive in. Now in this competition, one of the assets that Bangladesh has clearly the most is low-cost labor. I was struck in finding out here that industrial labor in Bangladesh still is paid roughly a $1.50 a day. This is unskilled workers in the garment industry. Indonesian industrial workers are getting about $4.50 a day which is triple of what it is here and Indonesia is the next lowest labor-cost country to Bangladesh. The only other country that has low wages of that kind is Cambodia but that is too small a player to make much difference. The same discrepancy is seen it the terms of agricultural labor and it is a powerful advantage for Bangladesh particularly because wages here have not been rising rapidly as they have been in the other countries.’
‘There’s a second advantage less important, which is location. There’s a tremendous potential for imports and exports from neighboring countries: power from India and from Bhutan; transit fees for India; and investment by India. Now immediately you’ll realize that I am touching on a politically sensitive subject. In addition Bangladesh has a very favorable incentive package for foreign investment in terms of tax regime and so on. Now these incentive packages are usually over-rated. They are not very important to foreign investors. It doesn’t make much difference how high or low the profit-tax is if you make no profit. So giving tax free status does not make much difference unless the enterprise is profitable.’
‘Now given all these advantages, why is Foreign Direct Investment in Bangladesh “pathetic”? Investment has an average of far less than $1 billion until 2008. There have been years when it has bumped up especially in the investment in the mobile phone industry, but on an average it has always been below $1 billion. Just compare this with any other country. The statistical artifact shows that Vietnam has a Foreign Direct Investment of $20 billion. This means a country that has one-third the population of Bangladesh has 20 times more Foreign Private Investment than Bangladesh. That is a huge discrepancy and it tells us that Bangladesh has great weaknesses for investors.’
‘So back to the main story, I am saying this because I am making an argument for more capitalism but I am making it with that intellectual and moral perspective. Changing such a system that makes it undesirable to make decisions is hard and governments do not do things that are hard unless they have to. My view is they have to because not changing the system would be catastrophic. Why am I saying this, because the alternative is millions of unemployed people to be here who consume but do not add to production. Bangladesh has low labor costs because it has millions of people who are looking for work and are willing to take any wage that will sustain them.
Now let me give you some numbers. What it is saying is this, poor people are not unemployed. They cannot be because if they were they would starve. They need to have an income that requires them to work. So in Bangladesh virtually everybody is known to be employed. The number of unemployed is always known to be very small. People who misunderstand the society say, “Where is the problem? Everybody is working?” Yes indeed, but are they contributing to production? I say many millions of them do not. Why has Bangladesh added 3 million workers to the agricultural labor force in a short period of time? It’s not because agriculture needs 3 million people; instead agriculture ought to be shedding workers. The land for workers is already too small and yet more people are crowding in. Why, because these people need an income. So where there used to be two people cultivating a tiny plot, now there are three people cultivating the same plot producing more or less the same thing but they are sharing it among three people. They used to be two people shining shoes on the corner, now there are three people.
So these people show up in the statistics as employed but they are not adding to production. I have tried to divide everybody into two groups- those who get employed because there is a demand for their labor and those who are employed even though there is no demand for their labor. This is because there is an increase in the supply of labor and the additional workers must have a job. I come up with a rough division- half and half. That’s the last two numbers their. Half is the additions in the labor force and remember 2 million of the additional people join the labor force each year; so over the six years, for which I have the data, 12 million people join the labor force and roughly half of them found jobs. This includes the migrants-the people who could not find job in Bangladesh, but found it elsewhere, but at least they are gainfully employed. The other half could not find gainful employment. So, roughly of 2 million who join the labor force each year, one million find jobs in the country or outside, one million do not find jobs and work off long hours in order to earn a living but add little or nothing to the output. If I were an economist, I would say that the marginal product of labor is zero or close to zero. This is what keeps wages low, this is what keeps growth low, and this is what keeps Bangladesh poor. If every year, Bangladesh created 3 million jobs rather than 1 million jobs, growth would increase by 1 percent from that factor alone, income by one billion, wages would rise and poverty would decline. If the system continues to be as it is; not only will increasing millions not find jobs and this would be horrible economic waste. You have people who are not adding to production. It is an unexplored resource-the only resource that Bangladesh has. Not only that, but also a political disaster will happen sooner or later because people want jobs and if they do not get jobs they will not be happy politically.’
‘Now I come to how Bangladesh can come to create 3 million jobs. If Bangladesh can have a rate of economic growth of 8 to 10 percent it can create 3 to 4 million jobs a year if it can take advantage of its assets and overcome its handicaps. The main source of the growth will have to be labor-intensive exports. There is no other place to go. There is a new fashion in Washington and many other places saying to increase domestic demand. Well if it were that simple then all the countries would have been rich by now. The past eight years, the export of labor- intensive manufactures grew about 10-12 percent a year. The maximum that it reached was 14 percent and on average it was around 12 percent. Those exports should be growing at 35 percent a year. This means that they should double every two years and that would mean that you would add in the first 2 years $14.5 billion more of exports. If you did that, by 2011, 3.5 million jobs will be created in manufacturing for exports.’
‘There is a multiplier. That is if you have more jobs in producing exports then those people have more money and they buy more haircuts, they buy more transports, they build houses, the money eventually circulates in the economy. Generally this multiplier in most countries is close to two. Nobody, as far as I know, has even calculated it for Bangladesh. So if you add in the indirect jobs that are going to be created particularly in the construction, services and trade; and if the multiplier here is the same as it is in another country, you would have 7 million jobs in 2 years from now on for labor-intensive manufactured exports alone. Of course if 7 million more people are employed at good wages, low but steady wages, they pay more taxes and government will have more resources to invest in infrastructures development which will create even more jobs.’
‘Finally Bangladesh could benefit from the program that has been hugely successful everywhere including Afghanistan. It’s the only donor-sponsored or government sponsored program in Afghanistan that has been successful. If it can be successful there, it can be successful here. It provides employment in the agricultural off-seasons to people in rural areas to build rural infrastructure. Bangladesh started such a program long ago. It was in fact the only country where such a program was tried. It can only be executed with total decentralization and this is why it has been proposed in all the countries by both the political and rural leadership. It generates no income and no power for anybody except the leadership because the money goes directly from the national treasury to the village community. It does not flow through any other channel.’
‘Well of course, say you need 35 percent growth of labor-intensive exports. That is easier said than done. Those exports need to be profitable because investors foreign or domestic will always want to make money. One major obstacle in the way is the high tariffs on imports into export production. The reason for which the garment industry developed was because of the duty-free imports into bonded warehouses. The ship- building industry also enjoys this benefit but other industries do not and it needs to be universalized. Incentive packages are nice but they are rarely a major factor to these foreign investors. To get these kinds of exports, it is crucial, to my mind, that Bangladesh attract $10 billion a year of Foreign Private Investments- not $1 billion but $10 billion. It is a tough job for Dr. Samad and it cannot be achieved unless other things change. ’
‘You need Foreign Direct Investment to develop the major assets of gas reserves. All countries use major oil and gas companies for more difficult technologically sophisticated exploration and development tasks. Bangladesh is no different. Secondly it needs some Foreign Private investment to build very large power stations quickly and to provide temporary power in the short run. It is often overlooked that foreign investors are also needed in many areas of labor extensive exports in order initially to provide access to market and technology that is necessary. No country exports sport shoes without the involvement of Nike or Reebok and so on. They provide specifications, they provide the training, and they provide the market. Same thing is true of high-fashion garments. Bangladesh could get into high-fashion business but you need to know what sells. I met a very entrepreneurial lady in Indonesia while interviewing people in the garment industry. She said that every month she goes to Bali which is full of foreign tourist. She takes her instant camera along and takes pictures of foreign tourist which tells her what they are wearing. And she said that the Australian surfers wear different clothes from the Italian surfers and the Italian surfers, it depends from whether they come from northern Italy or southern Italy. She takes their pictures and asks them where they come from. She then imitates what they wear and sell them not only in Bali but in their home country. Moreover, she and many other people also had foreigners as silent partners. Foreigners who loved staying in Bali became their pipeline to the world market. These foreigners moved back and forth and informed them about the latest fashions and trends.
‘Capital is much less important in Bangladesh because you have substantial pools of capital. What does it take to attract this kind of FDI? First, I think it takes a major political & philosophical decision that you want FDI. When Dr. Samad speaks to foreign investors, he says that, “We want it.” And he does. But many of the people here are of two minds. There are people that think it is evil and you do not want it under any circumstances. May be it affects the decisions or may be it does not, but it does affect the perceptions. So to my mind, the essence of nationalism is not to keep out foreigners but to use them to advance the objective of society. This is what the Chinese have done. Do not let foreigners exploit you, you exploit the foreigners.
Second, it takes a major effort to change the perception of foreigners about Bangladesh. Perceptions matter even if they have no basis in reality. A year ago, Indonesia was not on the horizon of foreign investment. I talked to foreign investors, they said people in Indonesia say that it’s a great place to invest, but they say that, “I will never take this to my CEO that we should expand our investments in here because he will react in horror and this will not be good for my career. Within a year or may be a year and a half, this has changed and they are all going to their CEOs and saying that Indonesia is the next place to invest. Why, because some things have changed there now. A serious change that took place was the end of corruption. The main thing is a shift in perception. I think the reality is people are afraid to move into China. So now things that looked risky don’t look so risky elsewhere. You have it going for you only if you can persuade foreigners that this is a good and safe place. The Indians did major effort along those lines which cost them millions and millions and was very successful.
‘Third, the key to my mind is speedy decisions that are reasonably fair. It’s not absolutely necessary that foreigners be treated equally with Bangladeshis. They expect favoritism to Bangladesh. All countries do that. They want to know that there are rules that Bangladesh investors will be favored to this extent, under these conditions, in this industry. If you can meet those conditions, you will get the license not the Bangladeshis. So there is favoritism but it’s known, it’s transparent and there is not uncertainty.’
So the key thing to my mind is that you need a government that renders reasonably quickly decisions with a reasonable degree of certainty. You don’t need a government that is perfect because you are not competing to have perfect governments. Those who know Indonesia, Vietnam and India, you know that there is corruption, delay and inefficiency and of course those of you who ever worked in Boston, know that we have a series of mayors who went to jail for corruption. So it exists. The question is how serious is it. How much does it affect decision- making? I think the way to change the system here is to dramatically change the way the government officials make their decisions. A biggest step that was taken here and elsewhere is to end the import licensing system which gave the government huge power to delay, obscure, and to do things that enrich them and the ones whom they favored enormously. Ending that system made a huge difference in the functioning of the economy.
I just want to make one last point. Reforms are difficult and therefore often avoided. But reforms pay politically over the medium term. Look at what has happened in India. For the first time in a long time the Congress party was reelected with increasing majority. This is because it produced growth, it reduced to some extent corruption, the reforms paid off, and the Prime Minister whom I thought would be out of office in six months had prospered because he has produced results.
I think if Bangladesh takes advantage of its assets and its strengths, it can launch a program of development that will be unprecedented and change the economy and its society for a long, long time to come. I hope it does that, I wish it will because the people of Bangladesh need it and deserve it. To continue to permit poverty is a moral outrage and it should not be permitted especially when it is in your power to change it.