Economic crisis has emerged in recent times in Sri Lanka, Pakistan, Bangladesh and a number of other countries in South Asia. While the governments of these countries place the blame on the Covid pandemic and the Ukraine-Russia war, the fundamental problem lies in the economic practice of these countries.
What is mal-economics?
Everyone knows what economics is, but what is mal-economics? Generally speaking, the policies and programmes that do more harm than good to the economy, are considered to be mal-economics. Specifically speaking, when the government deviates from the economic rules and norms in running the economy, we can term this as mal-economics.
Mal-economic practice on the rise in the country
In recent times, the practice of mal-economics has increased extensively. Therefore, first we may briefly look at six economic practices carried out by the governments in all countries, and then, in contrast, we can turn to a few examples of mal-economics in Bangladesh.
Maintaining legal and social frameworks
Under this activity, the government establishes laws, courts and property rights, and a monetary system, and provides accurate information and date, assisting in the growth of the economy.
A glaring example of weakness in Bangladesh's legal framework is adopting the laws of England and the legal framework of other countries as governing laws when signing deals with foreign agencies, and also selecting locations like London and Singapore for arbitration and settling disputes. Other than legal weaknesses, there is a general perception that the lack of competence, impartiality and integrity among the judges, delays in the trial proceedings and backlog of cases are reasons for this predicament.
A recent example of the failure in providing accurate information and data in the country is, holding on to the price of the US dollar in order to project a large GDP and also, at the same time, projecting a lower population than actual in order to depict a higher per capita income. All this was done to project a high per capita GDP, so Bangladesh could be touted as a low middle income country. Now, in order to face the impact of that, the taka has been speedily and extensively devalued.
The function of the government here is to have an effective anti-trust law in place and to control monopolised business. The objective of competition is to ensure consumers can avail quality products at affordable rates. In the case of government procurement, there must be purchase of highest quality products and services at lowest prices.
In Bangladesh, competition is restricted to small businessmen only. We are well aware of how the big business cartels create a crisis of essential goods and push the prices up.
In the case of purchasing government commodities, competition is more or less totally absent. It is shocking that they have used the quick power and energy supply act to legitimately send competition into exile.
Social supplies and services
It is the government's responsibility to supply defence and other common supplies and services, which the market system is unwilling or unable to supply. The example of following mal-economy in the case of social supplies and services, is the pitiful state of our hospitals and schools, irregularities in the power sector and unbelievably inordinate delays and skyrocketing cost increases in implementing physical infrastructure projects.
Redistribution of income and wealth
In order to restrict the disparity in income and wealth in the country, it is the government's responsibility to impose high tax rates on the wealthy, create social safety nets, ensure basic medical treatment at low costs and redistribute income and wealth. A significant fallout of the policy failure to collect taxes from the wealthy, is the steady fall in the tax and GDP ratio. Due to inadequate tax revenue, it is not possible to widen an effective social safety net.
Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economistJohn Keynes, economist
Also, it is not possible to share even a small fraction of success from the programme, as it is snatched up along the way. As a result, income disparity has widened, with 16.3 per cent of the national income being pocketed by 16.3 per cent of the people.
Inadequate investment in education and health is another example of mal-economics. Economists now contend that physical infrastructure without developing human resources is a mere skeleton.
Amending externalities and protecting the environment
Imposing taxes on negative externalities like cigarettes so that these commodities are produced less. Proving subsidy in the case of positive externalities like primary education and basic medicare so that these products and services increase. Identifying the adverse impact of development work on the environment and ensuring its remedy.
Maintaining economic stability
It is a fundamental responsibility of the government to accelerate economic growth through the budget and monetary policy, curb inflation and decrease unemployment.
In this context it is noted that in the case of preparing the budget, financial and monetary policies, the government loses its independence and becomes dependent on vested quarters. At the behest of such quarters, the interest rates are determined at will, default loans are rescheduled, money laundering spirals. The common people are victims of financial oppression, default loans are on the rise, while foreign currency reserves, the value of the currency and investments plummet. And unemployment goes up.
Why politicians like mal-economy
While economists work as consultants, advice on the above issues and their implementation are all in the hands of the politicians.
Why do politicians like mal-economy? The main reasons behind this are, One, the politicians have less knowledge of economics but have a know-all attitude. So they become dependent on bureaucrats or others or just don't bother about advice.
Two, even if they know about the matter, they fall into the regulatory capture of vested quarters. That means, those who are supposed to be controlled, are the ones controlling the politicians.
Three, lack of understanding about conflict of interest or failure to circumvent it. Four, appeasement and propensity towards corruption.
Economist John Keynes' terse words
In his book, General Theory of Employment, Interest and Money, the learned economist John Keynes claimed, "The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist." But if that is so, how do politicians get away with practicing economics?
Is IMF a defunct economist?
So was Keynes wrong? I do not think so. Economists are a lot like a spurned lover, out for vengeance! That is why politicians who follow economists push the country to the brink of disaster because of their own interests. If the way out of the mess is blocked, then the politicians turn around once again and approach the economists for help.
For example, Sri Lanka, Pakistan, Bangladesh and other countries turned to IMF. If you see the conditions of IMF, such as increasing taxes, making currency value and interest rates dependent on the market, withdrawing subsidies, etc, it is obvious these are nothing but an antidote to take mal-economics back to economics. So the question may well arise, is IMF that defunct economist mentioned by Keynes?
We want the practice of mal-economics to stop in the country. Let the country return to the trend of healthy politics and advance ahead.
* Muhammad Fouzul Kabir Khan is a former secretary and economist. He may be contacted at [email protected]