A Strategy for Better Governance
I. THE CONTEXT
Bangladesh is a country of paradoxes. It is a homogenous nation with a rich culture, yet it remains one of the poorest nations in the world. Located in a region ravaged by natural disasters – frequent floods, cyclones, tornadoes and even droughts, it is nonetheless very close to achieving self-sufficiency in food and has succeeded in steadily improving per capita income and most of the basic measures of welfare. Since 1975 life expectancy has risen 12 years, child mortality has fallen by 30 percent, fertility has halved, primary school enrolment has doubled to over 90 per cent and now there are almost as many girls going to school as boys. Despite these impressive gains, the country still suffers from lawlessness, political turmoil, and wasted public resources.
For a large part of its existence as an independent state the development of Bangladesh’s institutions was hampered by the lack of democracy. With the advent of democratic government in 1991, there were high hopes that decisive action would be taken to tackle the well-publicized failures of governance. These hopes have been largely disappointed. In some respects the problems have deepened.
This Review analyzes the underlying causes of Bangladesh’s poor governance, the consequential weak performance of public institutions, and reasons for the government’s slowness to reform. The starting point is the Bank’s comprehensive study of public sector institutions entitled Government That Works (GTW) published in June 1996. This in turn drew on major earlier reports prepared by government officials (e.g. The Four Secretaries’ Report and the Nurunnabi Commission Report). The question that must be asked is why has so little action been taken to implement public sector reforms that a wide spectrum of informed opinion has agreed are needed?
Redefining the role of the government -- refocusing the public sector on the core functions of government and leaving business activities to the private sector –although agreed in principle, largely remains to be done. Privatization has been stalled by vested interests and, in the absence of effective regulation, the private sector has often abused the public’s trust. This has undermined public support for privatization. Establishing a modern regulatory framework for private sector activities – a severely neglected and misused core function of government -- and accelerating privatization are still priorities for accelerated development.
This Review argues that progress has been slow because too little attention has been given to social and political obstacles in the design of reforms to strengthen the rule of law, reduce corruption and arbitrary decision making, and improve service delivery -- which are the government’s avowed objectives.
To succeed, reform must benefit all the stakeholders whose cooperation is needed. Because reformers have generally adopted a technocratic approach, and largely ignored the way incentives play out, the record of institution building is mixed – with few real successes and many setbacks to learn from. Effective incentives linked to real accountability are the key to better public sector performance.
The Review concludes that reform requires a clear long-term vision, a readiness to investigate and make explicit the factors that drive behavior, pragmatism in exploiting windows of opportunity, a readiness to adjust programs in the light of experience, imagination in circumventing entrenched vested interests, and a willingness to be engaged over the long haul. Bangladesh’s development partners, if their assistance is to help improve governance in a sustainable way, must be willing adapt their modalities to the fact that institutional reform takes decades not years and even then will only succeed if pursued with a constancy of vision and determined single-mindedness.
Good governance depends on holding public officials accountable. Yet, in all countries public officials, both elected and appointed, will resist being held accountable. Everywhere reform must be driven forward by the force of public opinion and the empowerment of ordinary people whom public agencies are paid by the taxpayers to serve. Transparency and genuine participation of stakeholders are essential elements of that process.
It follows from this analysis that Bangladesh’s highest priorities should be: human development as a fundamental condition for building capacity and empowering civil society; judicial reform to establish a firmer basis for the rule of law and to underpin accountability mechanisms; and building partnerships with civil society to help articulate and empower the “voice” of ordinary citizens in demanding better governance. Institution building requires patience, persistence, and continuous reassessment and adaptation based on the lessons of experience.
Poverty, Governance and the Performance of the Public Sector
Ever since its emergence in 1971 as an independent country, a critical challenge to Bangladesh’s development has been to create viable and well-managed institutions. The civil war devastated not only the physical but also the institutional structures of the country, which in any event had been degraded by many years of corrupt military rule. Rebuilding bridges and the like was a costly but reasonably straightforward matter. But creating accountable public institutions needed for rapid social and economic development has proved to be elusive.
In the early years of independence, a socialist government embarked on wide-scale nationalization and the state dominated the economy. The outcome was disappointing – corruption and inefficiency abounded. Subsequently, the government gradually gave increasing space to private enterprise. Meanwhile, NGO activities expanded impressively, providing services to the poor that the state was unable to deliver. Consequently, the relative importance of the state as a producer of goods and a provider of services declined. Nonetheless, public ownership still accounts for over 20 percent of manufacturing output, 80 percent of commercial bank assets, and most utilities’ services. Last year the losses of the state owned enterprises were over $300 million, while the percentage of non-performing loans in the nationalized commercial banks exceeds 50 percent.
After over a quarter of a century of independence the State still cannot ensure the rule of law or to provide a well functioning regulatory and policy environment. Extortion and “toll” taking are widespread. Lawlessness is particularly damaging to the small and medium sized enterprises. Student political factions frequently engage in armed clashes on the university campuses. At times it is hard to distinguish between the political “activism” of various party youth cadres and simple thuggery. The police are ill disciplined and often seem more intent on extracting money from citizens than protecting them.
Land title registration is chaotic and tax administration corrupt and ineffective. Power outages are frequent, the main port is a major constraint to trade, and telephone services are among the worst in the world. In short, the inefficiency and corruption of the public sector remains a huge drag on the economy and a major constraint to improving the welfare of ordinary citizens.
The size of the civil service has doubled since independence while, by common consent, the quality of public administration has declined along with purchasing power of the salaries of public officials. This problem is compounded by the arrival at senior levels of a batch of officers recruited in the early 1970s without passing the usual competitive entry examination; these have less education and training than their predecessors and are generally much less competent. The gradual lowering of educational standards has also contributed to the low quality of the civil service. Recent surveys show that corruption is endemic and people’s expectation of public services is minimal. For example, a survey conducted on behalf of the Bangladesh Chapter of Transparency International in 1996 revealed that 97 per cent of those questioned had no confidence in the integrity of the police. The figure for the lower judiciary was 89 per cent.
Most serious of all, the country continues to be mired in political dissension that has led to the loss of nearly 200 work days in the past five years and a whole month lost in 1999 through hartals or general strikes which close down the formal economy. Each day lost has been roughly estimated by the business community to cost some $60 million. This political impasse results from the unwillingness of the political leaders across the political spectrum to adhere to democratic processes for the settlement of disputes – to play politics by democratic rules. Street violence is the preferred mode of political discourse. Neither major political party allows genuine democracy within the party. And the conduct of parliamentary debate is thoroughly unparliamentary. On the positive side, gradual progress is being made by Parliamentary committee members to work constructively together to review the actions of the Executive.
But, with the right leadership public institutions can perform well. A few islands of excellence --for example, the Rural Electricity Board – make this clear. The Supreme Court remains a respected institution. And the NGOs have gone from strength to strength; they have developed a strong and productive working partnership with many government agencies in the field – especially in the delivery of health, family planning, nutrition and non-formal education. The NGOs are also playing an important role in social mobilization and by assisting poverty groups to defend their interests against encroachments on their rights to land and fish resources by local mastans. In addition, their legal aid and advocacy work is steadily grown to the benefit of the community.
Grinding poverty, nonetheless, remains the fate of nearly half the population. The recent study Bangladesh 2020 (UPL, 1998) demonstrated that to achieve a real impact on poverty within a generation, with the absolute numbers in acute poverty starting to decline, substantially higher economic growth is needed (closer to 8 percent). This prerequisite is attainable only if the Government were willing to adopt a vigorous public sector reform program, as well as put in place policies which more effectively encourage and support private sector investment, entrepreneurship and job creation. A parallel program of accelerated human resource development is also essential.
Economic losses from the inefficiency of the public sector are huge. For example, it has been calculated that the added costs of inefficiency in the Chittagong Port amount to as much as 5 percent of the value of goods passing through the port – a sum that exceeds $600 million a year. The “system losses” in the power sector have been estimated to amount to well over $100 million a year. The revenue loss to government of corruption and inefficiency in the customs and income tax departments must surely exceed 5 percent of GDP – for example, it is extraordinary that 56 percent of income tax collections come from 700 taxpayers in a country of 130 million people. Over 40 percent of the commercial banks’ loan portfolio are overdue, a large part of which will never be recovered. And these numbers do not capture the real costs to the economy that arise from the discouragement of investors resulting from such poor governance.
In addition, the positive development outcomes noted earlier do not take account of other aspects of the quality of life, which seem to be in decline. The physical insecurity of poor people and women, and the rapid deterioration of the natural environment – all documented daily in the Press -- have very adversely affected the quality of life of ordinary citizens.
Poor governance has a particularly harsh impact on the poor who are least able to fend for themselves, lacking as they do both the resources and the knowledge to assert their rights. The instruments of governance are controlled by a self-serving elite whose behavior is reinforced by the deep-rooted social norms of dominance and subservience characteristic of a patrimonial society, reinforced over years of military rule. These “chains of poverty” can only be loosened through initiatives that extend poor people’s control over their lives and expand their access to assets and their entitlements from the State.
Recent Reform Efforts
Since the publication of GTW in 1996, government actions to advance reform have been sparse. Most notably, Union Parishad elections have been held under a new law that provides for the direct election of women. Yet, these local bodies are still heavily supervised by the central government representatives and have a long way to go to become truly democratic. New financial courts have been established to handle cases arising under the recently enacted bankruptcy law, as well as to pursue loan defaulters more effectively. Considerable efforts have gone into the preparation of a judicial reform project. The public accounting system has been redesigned and extensive training of accounts staff to implement the new system has taken place. And some railway passenger services have been successfully privatized and the ticketing system computerized.
Actions are noticeably absent in terms of restructuring government following the recommendations of the Nurunnabi Committee, or addressing civil service reform and corruption, or appointing an Ombudsman, or repealing the much abused Special Powers Act, or abolishing the state monopoly of radio. However, the government has agreed to grant a license for two carefully selected TV stations to be privately run. No much has been done to increase the transparency of government decision-making.
The annual IDA Country Portfolio Performance Reviews, now completed jointly with Asian Development Bank and in consultation with other donors, have identified agreed measures to overcome a number of systemic weakness in public management adversely affecting project implementation that merit the government’s urgent attention. To date most of these actions, many dating back several years and renewed each year, still await government implementation.
An important number of actions aimed at strengthening institutions have been pursued in the context of donor supported projects. Despite these and other important initiatives (some of which are faltering because of opposition from vested interests and lack of strong leadership), poorly performing public institutions remain a major obstacle to development and the more rapid reduction of poverty. While lack of skills and weak capacity within government is undoubtedly part of the problem, far more important is poor governance -- lack of public accountability, corruption, and private agendas that prevail over the public interest. In an increasingly competitive world, Bangladesh’s future depends critically on the government’s willingness to address the systemic weaknesses in the governance and management of public institutions.