Study finds strikes costly for big firms, costlier for small

Strikes (hartals) increase cost of production in firms as the cost of raw materials goes up significantly during the period. These also cause significant production losses due to loss of working hours, a study has revealed.
It has found that the cost of production also rises as extra energy has to be used after hartals to recoup the losses.  
Big enterprises adjust the increased production cost while economic impact of strikes is more adverse in case of small firms as 're-optimisation' is difficult for them.
The findings were revealed on the last day of the three-day international conference on 'Political Economy, Accountability and Governance' at Brac Centre Inn in the city.
Brac Institute of Governance and Development in collaboration with Think-Tank Initiative, International Growth Centre and ESID organised the event.
The seventh session of the day titled 'Political Economy of Incentives' in which the paper was presented was chaired by Dhaka University professor of Economics MA Taslim.
The research paper titled 'Economic Impact of Political Protests (Strikes) on Firms: Evidence from Bangladesh' was presented by Abu S Shonchoy of the Institute of Development Economics, IDE-Jetro and University of Tokyo.
The research was conducted on the basis of surveys of 2007 and 2013 on 1,673 Bangladeshi firms.
Using the 'factor bias' method, the researcher found that in case of big enterprises, material cost increases significantly swelling the production cost during hartals. As part of the internal re-optimisation, these firms cut the number of workers and redistribute resources like making less capital investment to reduce the increased cost which still remains higher.
Referring to the Enterprise Survey Reports, Mr Shonchoy said difficulties of doing business in Bangladesh were related to electricity, access to finance and political instability in 2007 while in 2013 political instability  came to the top.
"Small firms suffer the most due to hartals as they massively re-optimise the factors to reduce the cost in the short run," he said.
Political strikes lead to a substantial productivity losses which cannot be mitigated by the well-known coping strategies, employed by the firms in Bangladesh.
The biggest direct impacts of hartals on individuals are the loss of human lives, injuries and their long-term sufferings (physical and mental). However, estimating such an impact in monetary terms is nearly impossible, the research findings revealed.
The indirect impact of hartals is price hike of necessary commodities and loss of working hours, especially in the informal sector.
Brac IGS research head Minhaz Mahmud said it is equally important for the researchers to look into the changes in behaviour of people in anticipation of hartals because at that time too, people have to go to offices and factories that remain open. Those activities also have some economic impact, he added.
Four other papers were presented during the seventh session. IGC representative Adnan Khan presented a paper titled 'Tax farming Redux: Experimental Evidence on Performance Pay for Tax Collectors', Columbia University representative Meghan Shen presented 'Princeling's Privilege: Estimating the Economic Return of Political influence', University  of Washington representative Fahad Khalil presented 'Auctioneers as Emcees: Evidence from Chittagong Tea Auctions', and Brac University representative Wahid Abdallah presented 'The Economic Impact of System Loss'.
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