State sponsored dis-equalising factors

The state itself had deepened inequality as it "sponsored dis-equalising factors", exempting corporations from taxes and helping banks with liquidity for years on end only to benefit the elite, said Prof Rehman Sobhan, chairman of the Centre for Policy Dialogue, yesterday.
The major governance problem has been around loan default through the years, and it continues to pile up even today. After a period, the bad loans were rescheduled and then written off, he said.
"This led to a financial crisis for state-run banks and the government recapitalised the banks year after year," said the noted economist at the annual conference of the Bangladesh Institute of Development Studies (BIDS).
According to the central bank, bad loans of six state-owned banks were Tk 65,781 crore in December 2023, making up 20.99 percent of their total outstanding credits. The amount would be much higher now because those banks classified more loans as default after the fall of the Awami League regime.
Prof Sobhan said he saw that a proposal for recapitalising banks came up at an advisory council meeting in 1991 for the third time when he was part of the caretaker government. By now, the government has recapitalised banks several times, spending thousands of crores.
"If one adds up all the recapitalisation… and also adds up the implications of written-off loans, this will give one an idea of how resources were transferred and who were the beneficiaries.
"Similarly, if you deconstruct your budget and you take into account both subsidies, tax forgiveness, and various tax concessions… you will find a significant transfer of resources."
The problems can be solved if the government intervenes and redistributes resources to the deprived, he said at the event at a hotel in Gulshan.
Regarding the spread of inequality, Prof Sobhan said there were high profits in politics and getting elected as an MP.
As a result, 70 to 75 percent of the MPs were businessmen. The elected representatives ran businesses using their political power, he said.
As crony capitalism became embedded in the political system, the political elites became "Zamindars" in rural areas. Besides, the power was concentrated in the Prime Minister's Office, and the main parties ran undemocratically. This is an in-built problem in the political structure which manifested in the administrative system, he said.
Governance is identified today as a paramount concern.
Law and order, default loans, all-pervasive corruption, and deterioration of administration are now embedded in the social-political fabric of the country, he said, adding that these problems originate from the state's failure.
As the previous regime stayed in power for a long time, it could move forward from these problems, but it failed to do so, and the problems deepened and consolidated, he said.
"Now, the country needs not just therapeutic intervention, but surgical interventions."
The country saw the emergence of an articulated and concentrated class enjoying power. In the recent white paper, they were termed crony capitalists and oligarchs.
The economy has transformed from agricultural to manufacturing, while the apparel sector played a significant role. During the transformation, many sectors that were protected by the government are now competitive.
In the meantime, the country did remarkably well in poverty reduction.
Prof Sobhan said some of the problems embedded in the social and political system are the politicisation of administration, erosion of judicial independence, and weaponization of law enforcement.
He proposed that small producers associated with the agro-processing sector be given opportunities to be shareholders of the agro-processing enterprises.
He also recommended associating garment factory workers with opportunities of equity participation so that they become stakeholders and share the value addition process even without nationalisation.
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