Academic journal article International Journal of Management

The Political Economy of Public Enterprise Privatization: The Case of Bangladesh

Academic journal article International Journal of Management

The Political Economy of Public Enterprise Privatization: The Case of Bangladesh

Article excerpt

Historically, public enterprises were the mainsprings of the Bangladesh economy. However, largely because of the poor performance of public enterprises and the world-wide trend towards privatization, successive governments in Bangladesh have embarked on selling these enterprises to the private sector Despite concerted efforts, the privatization program in Bangladesh has failed to deliver the promised results. This paper analyzes the problems involved to improve our understanding of the privatization process in developing countries. It argues that many of difficulties in privatizing stateowned enterprises in a country such as Bangladesh are caused by problems in the political economy of the country, rather than problems in the privatization process itself. The paper identifies a number of problems such as the presence of speculative buyers, preponderance of the international donor agencies, nexus with state politics, the sale of enterprises and bank loans, social costs of privatization and weak organizational strength. Finally, the paper makes suggestions for improving privatization including strengthening political will and commitment, enacting a comprehensive privatization policy, reinvigorating the institutional strength of the privatization commission, improving the monitoring of the performance of the privatized enterprises and making the process more transparent and open

Introduction

Over the last two decades, changes have taken place in the role of the state in both developed and developing countries. These changes have greatly affected the theory and practice of public management and called for rethinking the role of the state in economic and social development. It is well-documented that the post-war economic development was bolstered by successful state intervention (Farazmand, 2001). However, despite its tremendous contribution, its role has come under scrutiny in recent years circumscribed by both indigenous and exogenous factors. Fiscal crises, declining revenue base, declining public sector performance, corruption, and wastage of resources have prompted many governments to go for the privatization of public enterprises. Along with the failures perceived by national leaders, the international donor agencies, particularly the World Bank and International Monetary Fund, have also played a pioneering role in translating their intentions of privatization into the policy regimes of many developing countries. Despite all-out efforts over the last two decades, the privatization experiences have fallen short of expectations. While there is a large literature on diverse aspects of privatization, convincing analyses pertaining to the political economy factors and their implications for privatization are not many. This paper attempts to analyze privatization experiences in Bangladesh from a political economy perspective. The objectives of this paper are: (a) to sketch the historical background of privatization; (b) to identify and elucidate the factors, both internal and external, that led to the privatization of SoEs; (c) to analyze the political economy factors underpinning the dynamics of privatization in Bangladesh.

The Changing Nature of State Intervention and Privatization

Star (1988) has defined privatization as an idea, as theory and rhetoric and as a political practice. There is a large literature which tends to view privatization as deregulation, application of user charges, contracting-out, marketization, commercialization, corporatization and other reforms intended to introduce market forces into public organizations (Farazmand, 2001 ; Hodge, 2000). In this paper, privatization is defined as the transfer of ownership and or control of state-owned organizations to private investors (Vickers and Yarrow, 1988).

In recent years, the concept of privatization has gained momentum in both developed and developing countries. Historically speaking, state-led development was quite popular in post-war periods until 1970s. …

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