RMG sector: Getting paid as you perform

The ready-made garment (RMG) sector that began its journey in the 1980s has emerged the biggest part of our manufacturing industry. Now, it employs more than 4.5 million workers, mainly women from low income families. But the main problem that still remains unresolved to a large extent is the wage structure for workers, who are mainly labourers doing blue-collar jobs. We experienced unrest, vandalism and strike in this sector over the workers' minimum wage demand. But is the minimum wage the best solution? If we visit economic theories, we see a rational individual acts in the best interest of his or her own. Adam Smith chose to call it 'self-love'. This passion of a man drives him to gather wealth for ensuring a comfortable today and a better future. The owners of the garments factories and the workers are no exception. However, the self-interest is not a bad thing until it affects others' legitimate rights. So an owner's inclination for making more profit by reducing the expenses is as simple as it is. On the contrary, the workers want better wages to meet their basic needs. Hence, to solve the conflict of interest and the wage problem, we need to address the problem from both the owners' and workers' perspectives.

What if we introduce performance-based pay or any profit-sharing plan? Economist Martin L. Weitzman, a professor of Harvard Kennedy School, came up with a beautiful but simple equation: Y=MX+C, where Y denotes the total earnings of a worker, M is the reward rate, X is the variable and C is the fixed wage. In our country, C is high, though many people may disagree, and there is no reward for performance. That means the MX is missing. Our goal is to ensure betterment of the workers by not harming the owners' interest either. So, we can reduce C and introduce some variables and rates, based on which the workers will be paid for their performance. The benefits for workers should have its lower and upper limits. A standard could be set in this connection based on agreements between workers and owners. This has various advantages. Once the standard is set, the workers will be more motivated to put up the best performance and this will lead to a higher earning (Y) than before (when C was higher and fixed). Weitzman did research on fixed versus profit sharing wages and their effect on unemployment. He has argued that when firms offer profit sharing wages, that means employees receive higher wages when a company is doing well, firms have the lower rates of unemployment and do better during any recession. If the economy experiences any downturn, the owners have nothing to be worried about, because if firms earn no profit, then they do not need to pay on performance, since the source of MX is the profit but the owners must continue to pay the fixed wages which is not difficult now, because C is now lower. If C is a big figure, a slowdown of an economy can destroy the firms, leading to higher unemployment and unstableness in a country. That's how MX could work as a shock absorbent factor for the firms.

It is easy to understand that if MX is higher, then Y will be higher as well. So the workers will be satisfied and they will cooperate with the owners. Unrest, vandalism and strike will never be there. This will result in a stable industry. Nevertheless, accounting experts see something different in Weitzman's theory and call the above logics legitimate but a layman's notion. They argue that a higher MX will reduce the monitoring costs. When C is higher and fixed, the workers tend to shirk. So, firms need supervisers, foremen, surveillance and other similar things, but performance-related pay (PRP) can reduce this cost and improve the workers' efficiency. Economists view it from a wider perspective. They believe if the money is in the pockets of owners, who are already well off, they will spend it for luxury. They will travel overseas, buy apartments, ornaments, latest techno devices and thus money will be drained out to foreign countries. But more money in the workers' hands will have a more positive impact on the economy. They will meet their basic needs by this money. They will buy food stuffs, clothes and many other things. So, the demand for those products will be higher and it will help enhance their production and supply resulting in a higher purchasing power of the lower class people. This will also help create more jobs and have a positive impact on gross domestic product (GDP).

Now the question is: Can Bangladesh can apply this theory at this juncture? The answer is 'yes but gradually'. The trouble with its implementation is we have a large workforce. But workers are often disorganised and unskilled. So, owners and investors will not be willing to accept Weitzman's theory right now. But the government should persuade the investors to set up factories by providing lucrative tax benefits. The profit sharing with employees is regulated by the government under the Companies Profit Act, 1968 (amended in 1989). The existing act is fine but the government can impose such profit sharing plans on big firms through gazette notification time to time on the basis of mutual agreements. To do this, owners must shun the hardcore capitalistic mindset and the government should shun the extreme fondness for the wealthy owners and, most importantly, they should overcome the narrow partisan interest for the sake of building a better society.

This article was published in The Financial Express, May 29, 2014

Link: Click Here

How wise to follow rich nations?

Over the last decade Bangladesh's economy has developed rapidly. Its per capita income in 2012 was estimated at US$ 747.34. According to the International Monetary Fund (IMF), the country was the 44th largest economy in the world in 2012 in terms of the purchasing power parity (PPP) and 57th in the nominal terms. The gross domestic product (GDP) is currently US$ 347 billion in terms of the PPP and US$ 115.6 billion in the nominal terms with an average GDP growth rate of 6 per cent per annum over the past few years. Alike the developed countries, the service sector is the highest contributor (>50 per cent) to the GDP. Though, Bangladesh is a densely-populated country, it has a big labour force of 87.9 million people with the unemployment rate estimated at 5.0 per cent in 2012. If the pace of economic growth remains stable, then Bangladesh will emerge a middle income country very soon. However, 24 per cent people still live under the poverty line while the public debt is 22.8 per cent of the GDP and still we present a deficit budget every year and a staggering amount of money is spent on debt servicing.

The statistics shows the state of development. But truly, the meaning of development may vary depending on the thinking of each of the people. Statistics could be manipulated and the people may think the economy is founded on a good footing while actually it is not. In the book on 'Economic Development', authors Michael P. Todaro and Stephen C. Smith have mentioned three core values of development, namely, sustenance, self-esteem and freedom from servitude. They have claimed that development will be meaningful, firstly when the state can help its population meet the life-sustaining basic human needs such as food, shelter, health etc. Secondly, the general people have to have a sense of worth and self-respect, the belief of not being exploited by others. The nature and level of self-esteem may vary from society to society. Last but not least, the people should enjoy the freedom from servitude which means the independence from misery, oppressive institutions and dogmatic beliefs such as poverty is the unchangeable fate. Nobel laureate economist Amartya Sen has propound an idea of 'capability to function' where he argues that development cannot simply be measured by income or statistics, rather a person's functioning is the main factor that can help us understand the extent and meaning of development.

Unfortunately, these things cannot be easily measured or if somehow it is done, the government is not willing to do that for political reasons. Notwithstanding, the eclectic account of information of Bangladesh's economy is definitely a good sign and many organisations are now considering Bangladesh as a role model for other developing countries. American economic historian Walt W. Rostow's stages of growth model are worth mentioning. According to him, the transition from underdevelopment to development can be described in terms of a series of steps or stages, through which all countries must proceed. Presumably Bangladesh is in the pre-takeoff stage before entering the self-sustainable growth stage and he has argued that all developed countries had passed all the stages and still the developing countries are doing the same.

Now the focal point is what will be Bangladesh's course of action in this transitional period of rapid development. Institutions like the World Bank (WB) and the IMF often impose many conditions on Bangladesh along with many other developing countries before granting loans. Those conditions are set by following the growth path of developed countries. Those are often irrelevant and insignificant, when it comes to our economic environment. At this critical juncture the question arises: Do we really need to follow the path of the developed countries? Or do our transition period and their transition period have any valid resemblance?'

In this context we need to take a look at the earlier stages of currently developed countries, when they embarked on their era of modern economic growth. Contemporary developing countries are often less endowed with natural resources. Most developed countries are located in the northern hemisphere and developing and underdeveloped countries are in Asia and Africa where natural resources are scarce. The people of contemporary developing world have, on an average, a lower real per capita income that their counterparts from developed world had in the 19th century. The most developing countries are now situated in tropical and subtropical regions and most economically successful countries are in the temperate zone. The population size and density are much higher in developing nations compared to the developed countries. In fact, in no time Europe or North America had a population growth rate of 2.0 per cent per annum while the contemporary developing countries had a growth rate of more than 2.5 per cent in the recent decades. International migration, multiculturalism and import of brains from under-developed countries have enriched Europe and America. Basic scientific and technological research and development, efficacy of domestic institutions and international free trade had given the developed countries an added advantage that the contemporary developing countries do not get to that extent.

Against this backdrop, it is not wise to comply with all the conditions of the WB or IMF. This is a very important period for Bangladesh. If it can successfully take off for the next stage of Rostow's model, then it is not so far when Bangladesh's economic development will become meaningful to the country's people. Curbing corruption, keeping political stability, avoiding narrow partisan interest and wise economic decisions with effective management can make Bangladesh a middle income country in this decade, and within 2030 there will be a big change in our economy. Uncertainty exists but we must not forget that we are doing well and every cloud has a silver lining.  

This article was published in The Financial Express, Dec 09, 2013

Link: Click here

The Pursuit of Real Democracy in Bangladesh

Bangladesh is on the verge of 10^th national parliamentary election. But an ambiguousness in the constitution of this republic has been developed over the tenure of Awami League (AL) led government on the issues of interim government in election time and the maturity of the assembly. Though, the one and only valid explanator of the constitution is the Supreme Court but many a quarter including constitution specialists therefore lawyers and politicians are explaining it from different angles. The prime opposition party is holding a stubborn position about not going to elections under the current system of voting while the government is also rigid in their stance. This standoff is apparently leading us to an unexpected calamitous situation where everyone desires for peace and a peaceful transition of power.

What is happening in this country now deserves an in-depth look.  How have we come to this point is a question of general citizens, voters and obviously the civil society. Back to January 2009, Awami league came to power with a landslide victory of 230 seats among the 300 seats and with a huge popularity. The opposition, BNP, had virtually no power in the parliament with few public representatives to interfere in the government’s actions of passing laws or changing sections of constitution. Although it was a big blunder, but the opposition chose to leave the house and occupied the streets. Nobody is concluding that the government, in and out of the parliament, did all wrong with the huge power but the list of mistakes or corruptions is not short as well. The AL led government has contributed a lot in the development of the country in different sectors like electricity, gas, agriculture, education, production and so forth that our country has ever seen. The construction of fly-overs in Dhaka city within a single term is highly commendable. The achievements of sea area after the suit with Myanmar, huge amount of free supply of books in primary school level are some of the accomplishments of the government. From a political valuation, the handling of the situation after BDR mutiny, the settlement of Hifazat’s long march and their Dhaka occupying movement, the rigid position against radicalism is highly admirable success of the government. The implementation of justice in Bangabondhu assassination case, the revival of war crime tribunal and arresting of the alleged criminals are some valiant step of the AL government. On the other hand, the flacks against government are often too severe. World Bank- Padma Bridge, Weak diplomatic negotiations with India, quick rental, stock market scandal, Hallmark- Sonali bank scam, Rampal power plant, Teesta-Tipaimukh dam are few to name from a long list of accusations. Now the time of election has come and it is the choice and responsibility of the citizens and voters to value the success and failures of government and opposition, determine the political parties’ competence and most importantly to send a party to power for next five years to run the country.

Parliament House of Bangladesh (A symbol of democracy)

To focus the opposition party, they left the government in a playground with no rivalry. They felt comfortable in the streets and in the talk-shows instead of parliament. They chose to stick to a party of alleged war criminals and remained silent in the times of moral crises. There are lots of examples where they showed violence instead of wisdom. They didn’t stand against the government with the national issues like they stood up for their narrow partisan interest. Even in some cases, they failed to capture the public sentiment while government was in a backward situation. From a bird’s eye view, the opposition wasn’t careful enough to resist the government from their autocratic moves.

Hence, for the currently ongoing political deadlock, both the government and the opposition are equally responsible. The government has changed the constitution legitimately and the election time is very near now. However, it is very understandable that without the participation of BNP the election will not be fair and acceptable. And as a developing country we cannot afford that type of election and reelection again; what the current opposition and the then government, BNP, showed us before in 1996. The politicians do not have a good experience with unelected caretaker government after infamous 1/11. But the formula that the AL government has developed is not a perfect one. And it has become almost impossible for the government to revert the changes made in the constitution. So, whatever the acceptable solution is must come out from a participative dialogue. It is also to remember that, all power including the vote, in a democracy, is held by general public. Hence, powerful neighbors or third parties have nothing to determine the fate of this country. But unfortunately, both the parties are acting very rigid and childish which will bring no good for the future.

A real democracy is where the parliament holds a balance. For instance a 170/130 or similar wining makes a balance of power. What our voters do is not to vote for the candidate rather they vote for the logo or the memories of iconic leaders or the party. This happened in 2001 and again in 2009. That’s the exact reason why democratic political parties become autocratic and a weaker opposition occupies the street and takes the path of violence. Whatever the situation has lately been developed in our country must not be solved by bloodshed or machetes. Wisdom, toleration and an intention to sacrifice are expected from all political parties, smaller or bigger.

In the 43 years of liberation, we experienced assassination, military coup, unelected government, bloodshed, attack and resilience. We want to believe that the time of darkness has been over. In this decade our generations are dreaming of a bright future and holding passions to go forward. In this context, we implore to the political parties not to hold our back but to show a bit of wisdom and sagacity. The path of going forward is not smooth; don’t make it worse anymore, please. 

October 25, 2013

This article is directly uploaded to [www.asifreza.blogspot.com]