Finance & Economics

An Appraisal on the Economic Reforms of Bangladesh

Rehana Ismail Abstract
Currently, Bangladesh Government, in spite of its relentless efforts in different forms to better the lot of the peasantry and industrial labor- force, seems to be very keen on amongst intellectuals in the country as to whether to privatize the public sector enterprise consequent upon a important means of production have to be essentially owned and managed by the State on behalf of the society. The very purpose of transfer of ownership and process of production as well as distribution as a whole. control to the State is to ensure equity and justice in the Most probably for this reason, the revolutionary Government of Bangladesh nationalized most of the industries and former public sector enterprises, for example Adamjee Jute Mills and Biman. But we must remember that mere nationalization will not lead us to our nations only a means and not the end in itself. As a means, it should be used in such a way that ensures attainment of our national goal. What we personally feel as humble thinkers of a resourceful and potential developing country is that the Ministry of Industries to kindly put a stop over its thinkers of national and international fame together with the State economic policy- makers should advise our see again if the public enterprise with appropriate national goal. Here one question might relevantly arise: what were the endeavour of privatization for at least for gaining time to measures could be made capable of satisfying the cardinal basics of the Governments recent tendency to projects to encourage, enrich and enlarge the private sector in the country ? May be our enhance thinking that privatization of public enterprise will

fall in their operational efficiency. Controversies are going public enterprise should be allowed to continue after due revamping or the privatization policy of the Government should be welcome. This leads us to re-think over the pros and cons of the issue .This paper is, therefore, an

endeavour to delineate the problem areas related to the the privatization move of our Government, and to situation prevailing in

goal of establishing an economically self-reliant society

operational efficiency of public enterprise, keeping in view prescribe policy implications in the context of the Governments goal of building a democratic society free from exploitation and corruption.
Keywords: Privatization, Economic Reforms, Public Enterprise,

free from exploitation and corruption. Nationalization is

Bangladesh vis--vis our

Nationalization, Corruption and Exploitation.

Focus of the study

The history of economic development of different

countries of the world has demonstrated that the justice and is a panacea for increasing per head output also for offering the fruits of planned economic by ensuring operational efficiency in the industries, and

socialistic pattern of economy is a guarantee for social

privatize the public sector enterprise and to welcome foreign investments for the establishment of joint venture Government is

development to the people irrespective of caste, creed and sex. And nationalization of industries happens to be one of the various mechanisms of reaching the goal of a socialistic pattern of economy. To set up a socialistic nation free of exploitation and corruption, what is pattern of economy aiming at an economically self-reliant needed, first of all, as a matter of principle is that all

our national economy thrive. May be the consequences of way out of financial distress. And the purpose and motive

the operational efficiency and will thus help

the poor performances in public enterprise in Bangladesh

have led our Government to think of privatization as a

Author is Research & Development Officer, School of Business, Independent University, Bangladesh (IUB) Adjunct Faculty, Accounting, School of Business, Independent University, Bangladesh (IUB).
The Bangladesh Accountant/July - September 2008

52

behind allowing establishment of joint ventures may be

Finance & Economics

that this form of organization has the advantage of corollary point of the purpose may be that it would help

identify the possible hindrances to the achievement of to surmount those problems to gain the ground. At the same time, we should not deny that there is a strong logic for our Governments considerable concern regarding low productivity, low profitability, no- profitability and wastage and, in sum, low operational efficiency of public solution. Therefore, we feel that judicious steps have to be enterprise.

sharing the management practice experience which can the international partners to enter markets where reflect the view point of the people. Another set of people, on the other hand, might feel that the policy of the structures of the whole economy and of the whole

operational efficiency target of public sector enterprise and

contribute to the development of managerial skill. The nationalistic barristers exist. All that is true and might privatizing public enterprise in Bangladesh would affect society. They might think that this policy could be adopted in extreme economic situations. They might feel and labour unrest causing fall in productivity as well as the status of the people of the country. operational efficiency . This can also cause severe changes in Be that as it may. If this move or privatization is on an experimental basis, we do not have much worry or agony; But we think it could be better if the move was a large scale as the Government has already started with. a self-reliant economy free from exploitation and corruption. 1. Let us now nationalized with a view to achieving two major objectives: recall an experiment limited to a very few projects, not on such Frankly speaking, privatization policy may not be an ideal idea or solution for achieving our goal of setting up that this policy might result in internal political conflicts

sector enterprise. But the Governments current thinking in

terms of privatization drive might not provide the ideal taken to overcome the obstacles as far as practicable and thus to upgrade the operational efficiency of public While pursuing the study we feel like stating here that

the problems to the achievement of goals of public them because this paper is limited in length and scope. What we will do here in this paper is that we will try to focus on a few selected problems related to the also try to suggest some workable solutions in the corruption-free democratic society. view the privatization move of our Government; we will

enterprise are multiple in number and varied in nature.

Here in this paper it is not possible to examine all of

operational efficiency of public enterprise, keeping in context of the situation prevailing in Bangladesh vis--vis, our Governments goal of building an exploitation and

that our industries were initially

Statement of the Problem

to employ all available factors of production in such a way that goods and services can be produced with each unit of output. the least possible expenditures of productive agents on

Following a fall in the operational efficiency of public enterprise and the Government policy to privatize them for improving their operational efficiency, controversies are going on as to whether public enterprise should be allowed to continue after due revamping or the variables are most carefully examined and studied. privatization policy of the Government should be welcome. No conclusion can be drawn unless certain Whether a particular industrial enterprise will be able to operate efficiently or not depended upon the extent of its success in performing the tasks assigned to it. The is a function of : a. operational efficiency of public enterprise, as we believe the extent of expertise, experience and sacrificing spirit of the management personnel and other employees including workers for the achievement of goals of public enterprise and of the nation at large; 53

2.

to ensure that the profit or the economic surpluses are not exclusively enjoyed by the very few Lucky owners of the industries; rather, the fruits of as distributive justice. production shared by all members of the society

according to the principle of what is generally known If nationalization program is not properly implemented, the purpose of nationalization is sure to be defeated and public sector enterprise will die a natural death as a sequel. We should therefore, have the guts to face the challenge and take necessary troubles at this time (when
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debate is going on nationalization vs. privatization) to

b. c. d. e. f.

the general competency of the persons delegated to discharge the responsibility of managing the enterprise. making decisions; the nature and degree of autonomy they have in the policy and role of the Government; utilized and managed; how well human and non- human resources are how well industrial relation is maintained. who work in the enterprise; enterprise; and efficiency. how well incentives are provided to motivate those the efficiency measuring system used by the how well different control-mechanics are used to check

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prevailed regarding the role, sphere of activities, functional authority, controlling responsibility and relationships among individual enterprise, the respective industrial corporations. Non-availability of well-qualified managers coupled with the problems of finance, raw materials, labour unrest, nuisance created by the merchants and so on contributed much to the current inefficient operation of the public sector enterprise. Above all managers and other employees have not changed their traditional outlook of personal and private gains. They are not trained and taught as to, how to operate efficiently in public enterprise where the objective is: social gain. The training program does not imbibe them with the national ideology of building an economically self-reliant nation free from exploitation and corruption.

g. h. i.

The problem centers around these various aspects. An endeavor would now be made to address all of them.

Dearth of well-qualified, Experienced & Sacrificing management personnel

Degree of autonomy and authority to the organizations

The truth is: State is the source of authority and power of

public enterprise, and it acts as creator, owner, investor and development banker. But organizational efficiency balance between authority delegated and responsibility assigned. cannot be maximized unless an attempt is made to strike a In Bangladesh where the Government policy envisages the self-reliant nation free from exploitation and corruption, the public sector industrial units have been put under different Mills Corporation, Bangladesh Jute Mills Corporation,

Management of the public sector enterprise does not have

enough well-qualified, skilled and experienced personnel with sacrificing outlook. The situation worsened after the occupation army had damaged our industries and non-Bengali owners and managers had left this country. With their industries, the Government tried and has been trying to fill in the vacuum of knowledge and experience. Currently, our

departure from here, the availability of already inadequate managerial skills sharply decreased. After nationalization of country is not only war ravaged - it is also repeatedly hit by done by the management personnel and other employees to save our economy has not been done, in fact their performances, on the whole, seem to be discouraging. The reasons may be several for their failure. In many cases,

goal and ideology of building a democratic and economically corporations. The corporations (namely, Bangladesh Textile Bangladesh Steel and Engineering Corporation etc.) report to Nationalized Industries Division (NID) of the Ministries on policy matters related to industrial sector. Because of control and supervision which tier will control and the creation of these four tiers (taking the Minister as a separate one) a necessity of devising an optimal system of supervise whom to what extent and in what way- has

natural calamities as well as political instability even after so many years of our independence. What should have been

operational efficiency of the public sector enterprise has had a serious fall as a result of lack of planning and organizing. The administrators/ managers were not capable enough of resolving the intricate managerial problems well (because of including workers of the public enterprise lacked industrial labour jumped up. A good many confusions
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emerged. This is really a difficult task. We must realize the magnitude of this problem and try to solve it according crop up so deeply as to jeopardize the very purpose of to our best possible ability, otherwise inefficiency may nationalization. In this country where democracy and a society free from exploitation and corruption have to exist simultaneously, the public sector industries should be dilemma occurs here because of the polarizing nature of 54 accountable to the legislature for their performances. A

their lack of training and proper orientation and lack of

experience). Management personnel and other employees sacrificing spirit. Level of expectation and aspiration of

accountability and the autonomy and flexibility which must exist on the ground of democracy and efficiency. Industries Division (NID), sector corporations and the The working relationships among the Ministry, Nationalized subordinate enterprise are yet to be defined. Unless this is done, the present operational inefficiency is likely to economic catastrophe and social disability. continue, which will result in future in nothing but

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council actually functions, so far as day-to-day decisions are among its members. Thinking in Yugoslavia line is not probably irrelevant in the workers to actively participate in both producing the

concerned, through a management board which it elects from context of Bangladesh. Her political leadership is pledged to

eliminate social exploitation, and allow the toiling mass the industrial output and sharing the benefits thereof. In Yugoslavia, labourers actively participate in all decision social revolution. Marshall Tito has organized industrial production in such a way as to induce the workers to making-processes; but they do this after going through a long period of orientation to a particular ideology, training and

Workers participation at all managerial levels

Toiling workers participation at all managerial levels is a Without a sense of belonging and participation, no workers can put his or her best in the productive processes. Unless the

prerequisite to efficient operation of the public enterprise. workers are given the scope to participate in decisionmaking and policy-making, they will not naturally feel duties, and also they may indulge in strike, absenteeism and fall. In Bangladesh this is an important problem area apathy. Consequently, operational efficiency is sure to have a particularly in public sector enterprise. Here in Bangladesh, program to equip our employees and workers with we are yet to implement a suitably designed training necessary management tools and to orient them to our national ideology the ideology of building an inclusion of the toiling workers representatives in the extent the effective participation of the economically self-reliant democratic nation free from exploitation and corruption. To achieve this national goal, important requirement. The question may arise: to what representatives should be allowed in decision-making? On this point of issue relating to workers participation in some kind of democracy has flourished. In Yugoslavia under management board of public sector enterprise is an labour interested to apply their creative energies to perform their

perform efficiently and to apply creative energies to their duties rather than to sabotage their enterprise through strike, absenteeism and apathy. Can we, therefore, think in efficiency of public sector enterprise. Yugoslavia line to allow our workers participation in management for the purpose of improving the operational

Role of Government

This is another issue which merits serious consideration. Our

Government, in view of the declining operational efficiency of public enterprise, has already privatized Government has decided to turn the public sector industries better management. The Government is determined to several of them including Grameen Bank in particular. The into holding companies to make them more profitable through close down the industrial units, which will run at a loss. A study by the U.S. Agency for International Development describes Bangladesh as one of the developing worlds essentially socialist economy rapidly transformed into more spectacular examples of denationalization, its one with far greater reliance on the private sector. Since 1985 Bangladesh has denationalized more than 600 companies including many involved in the chemical , the distribution of fertilizer, an act that substantially to heavy losses suffered by the same mill under Government textile and jute( burlap and twine) industries , and privatized increased retail fertilizer sale. Within two years the new textile mill owners were making substantial profit compared ownership. The Government is also encouraging joint venture make them responsible for managing costs and improving 55 projects to stimulate its privatization policy. Our Government

management we may look for the experience of a socialist country like Yugoslavia, where hand in hand with socialism, what in TITOISM is known self-management, the workers council manages an enterprise independently, but is obligated enterprize operator under a workers council and is a free and the general responsibility for operations, including determination of how and what to produce, prices, wages, investment and distribution of surpluses. The workers
The Bangladesh Accountant/July - September 2008

to conduct its affairs in accordance with the law, and fulfill its autonomous unit. All the workers elect the council which has

legal obligation to the community. Each individual economic

seems to believe that providing employees with shares will

quality of services. The Government thinks that privatization provides an environment for healthy competition that can Through transformation the Government has brought about in efficient, dynamic and competitive lines. privatization policy, the unleash the creative and productive potential in any society. dimension and management and operations of privatized enterprises have, according to our Government, taken a different turn along This step of privatization by our Government is undoubtedly

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Given (a) Bangladesh planning Commission will not, unlike GOSPLAN, impose on the individual enterprise centrally planned targets in terms of material use, wage, labour hours, price, profits etc. and (b) the producing units will enjoy maximum autonomy, we need to simultaneously apply a package of criteria expressed in the form of desired These desired data can probably be summed up as follows:1. 2. the quantum of output should be as large as possible; data to evaluate organizational and operational efficiency. the output should include items required by the consumers in general, and should be of the best constraints; materials, other supplies and labour inputs per unit of output should be as small as possible; operation; there should be minimum possible utilization of working capital, but with some flexibility in there should be maximum utilization of plant capacities and human & non-human resources; possible; cost of production should be minimum as far as the output should be given delivery to the consumers according to a pre- determined and socially desirable time-schedule. possible quality, given/remaining resource and other 3. 4. 5. 6. 7.

a great obstacle to the growth and development of public make them run efficiently. There is no doubt that the

enterprise. Unless the Government machinery is willing to nurse and nurture public sector industries, it is difficult to Government will have to play the role of a catalyst in Bangladesh. Its administrative machinery therefore must be made organizationally viable and staffed and manned in such a way that can cope with the suddenly increased need for high efficiency in public enterprise.

Efficiency Measuring System

Talking of operational efficiency will be meaningless if we do not have a suitable system to measure what we call efficiency. A system based upon well defined criteria should be developed in evaluating performance of the individual enterprise. No doubt that there are certain and against what? Is indeed a tough question to answer in problems in measuring efficiency. What should we measure respect to country like Bangladesh. In a free market economy, a firm or industry that cannot make profit will cease to exist. Thus, efficiency is a simple matter demonstrated through cost and price relationship. In case of

These desired data have to be kept in view. Then we will enterprise.

need to form High control Boards in our country to

evaluate the efficiency or performance of the individual

our public sector industries, neither these nor other question may arise what criterion or criteria of efficiency should be applied to a public sector industry of Bangladesh? The problem could have been made some what easier, had our public sector industries been operated as parts of a would be planned, the production results to be obtained comprehensive economic plan (as done in Soviet Union). If that were the case, inputs of physical factors of production would be specified, and the failure of the former to yield indications are there that Bangladesh will not have Soviet type of economic planning.
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Incentive Plan

efficiency criteria can be clear . Hence, a fundamental

This is a very important problem area because the

operational efficiency depends to a great extent upon the

motivational forces and incentives available to the essentially a system should be developed to encourage worthy persons to pursue managerial carrier. And it has to be done by providing a handsome basic pay plus other

employees working in the productive processes. Hence,

attractive fringe benefits. Every one should keep in mind that none can work adequately without motivation. The operational efficiency of any enterprise public or private -- is sure to have a fall if the working people are not properly motivated. Every socialist country has recognized 56 this point of view and has found monetary incentives quite

the latter would be adjudged as inefficiency. But sure

motivating. Both Stalin and Khrushchev laid stress to a maximum extent upon monetary incentives to enhance the operational efficiency of the industrial enterprise in Soviet Union. But the problem is : how to devise an attractive monetary incentive system that will encourage all be done most carefully. The incentive program must be management people equally to put their best and to act in the best interest of the State and its people? This has to capable of harnessing the satisfaction of individual employees sector industries, in real world situation, will have to our social outlook appreciably undergoes changes.

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enterprise, Government and labourers both have to play

their respective parts in creating an atmosphere of good dispute or clash of interests, it can no longer, hold the ring, it is in the ring as one of the contestant. Government decided that labour-representatives would be members of the management board. It thus seems logical to assume that some kind of shift in the industrial

industrial relations. Government, in effect, is the employer of

labourers in our public sector industries. In the event of

to the achievement of enterprize goals. However, the public face real troubles to make the desired incentive plan until

relations is in the scene. It is nice that our Government is very much concerned about labour problems, and improve industrial relations. But it is sad that despite the industries of our country, industrial unrest is still there. thinks of reforming and developing labour policy to efforts of the Government to establish peace in the While increased production is the utmost need of the away with labour problems, Government, management hour, the trend is not that much encouraging. To do and labourers, i.e. all the concerned three parties need to be very careful in discharging their respective and as a result, the operational efficiency is sure to responsibilities. If they are not serious in the matter, deteriorate, causing the defeat of overall national industrial realtions shall not improve rather deteriorate objectives.

Price Policy

Formulating a rational price policy which is the backbone of financial performance of public enterprise is a very important problem area. That formulating a rational price policy is a problem is true for both competitive and noncompetitive sectors. The problem of fixing a rational price policy is more complex in non-competitive sector, although this problem exist in both the sector. The price policy which determines the value of output of problem area for public sector industries. Pricing policies

public enterprise, in fact, indirectly influences their return on investment. Obviously, this is an extremely important formulated in the public sector industries of Bangladesh sign. It is worth noting for the public sector enterprise that pricing policy is important for the survival, growth, are not that much rational. This does not seem to be a healthy development and overall success of public sector industries. Issues of profit earning, optimal use of factors of society is very production maximum advantage to the people of the every public industry has to have a rational price policy not only for its own growth and development but also for much related to pricing policy. Hence,

Personnel Management

This is a very important problem area of public sector enterprise. Public corporations (such as, Bangladesh Jute Mills Corporations which control all the public sector jute mills of the country), Bangladesh Textile Mills mills of the country), Bangladesh Steel and Engineering of the country) and so on of our country have earned the Corporation (which control all the public sector textile Corporation (which control all the public sector steel mills bad name of being overstaffed. People do very often call bureaucracy debar those organizations from doing anything useful when needed. In selecting personnel to run them white elephants. They also say that the chain of different organizations of this kind, nepotism rather than placed in the right position. It is unusual to find: (i) an

the benefit of general public societynation. The more rational is the price policy of a public enterprize, the more is its contribution to the social welfare. And this is public enterprise. one of the indicators of the operational efficiency of

skill, virtue, qualification and ability reigns supreme. Moreover, they say that often the right man is not related to his field of study, (ii) a person having no idea 57 engineering graduate does the administrative job not at all

Industrial relations

Experiences show that the operational efficiency is a function of good industrial relations. In public sector
The Bangladesh Accountant/July - September 2008

about labour management, labour laws, and general management principles in the position of personnel manager of labour officer, (iii) a person having no position of chief Accountant/ Deputy Chief Accountant and (iv) a person having no knowledge about marketing marketing manager. It has also been observed that the background of accounting principles and practices in the principles, policies, and practices in the position of civil servants with limited or no technical knowledge and expertise occupies the top most positions in industrial efficiency and progress. Now the question is : would the selecting personnel? Certainly not. For new recruitments, a problem would have to be encountered. What would those industries do with misfits?

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Other problem areas

Public enterprise managers very often find strategies based

upon capital investment more appealing that strategies work study) strategies yield results, and strategies based a low rate of return or a negative rate of return. Some other utilities, high inventory of raw material spares, high operational efficiency of our public enterprise.

based upon better management. They ignore the fact that (according to the international labour organization s results. Consequently, several projects are accomplished with experience high consumption of raw materials fuel and maintenance cost, low capacity utilization, idle manpower, etc. All these problems must be controlled to check the upon better management are less costly and yield quicker

enterprise and corporations. Even for a capitalist country, public sector industries and enterprise still carry the new rational policy may, however, be adopted. Another Skilled manpower is scarce in our country. A good number of skilled personnel of the management bodies of these Pakistan. With the Liberation of Bangladesh, they left the industries were from East Pakistan while the rest from West

these practices are not justified. They impede operational legacy of Pakistan and follow their rotten principles in

Conclusions and Policy implications

In view of the discussions made in the foregoing it would

not be necessarily right to conclude that nationalization -transfer of ownership and management control to the Statewill lead to a decline in operational efficiency of the public sector industrial enterprise. If our present revolutionary Government can take appropriate measures with firm determination and resolute mind, as it has done

country. So, the availability of skilled manpower became more scanty. To run these public sector enterprise properly, effective executive and skilled manpower is a dire necessity and with the scanty supply of skilled and suffering from operational efficiency. An overall policy regarding this and allied matters are not yet to be formulated. In a changed socio-politico-economic form of organization for public sector industries is a gigantic task. While continued research is necessary, it should be conditions of the current transitory period, effective measures need to be taken with ultimate objectives of enterprise. The reason is obvious. Personnel-management enterprise. Good planning for human resource needs , like are really absent from our public sector enterprise.
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in decentralizing administration with the mission of maximum possible production in addition to ensuring

giving the benefit of administration to the village people distributive justice. It is also equally true that without sincerest cooperation and help from the employees and people, it is not possible for any Government, how so ever revolutionary it might be, to make the public enterprise. It is essential for us that they should , first of believe and understand what they are doing for their nation- for their state- for themselves, infact. They should operational efficiency will be enjoyed by the whole all, change their attitude drastically. They should feel, understand that if they can work efficiently, the fruits of nation by all people without any discrimination. If they can learn how to feel this feeling and work most enterprise, the operational efficiency is sure to have a rise resulting in a concomitant rise in productivity, provided that the Government has a sound policy of saving public 58

at their door- steps, public enterprise will surely yield

effective manpower, these industrial enterprise have been

enterprise operationally more efficient than the private

mentioned here that keeping in view the prevailing enhancing the operational efficiency of the public sector problems are very much there in our public sector proper appraising and compensating of employees behaviour, good employee and work environment and the

faithfully in their respective capacities in the public

enterprise by properly nursing and nurturing them.

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The problems to the achievement of the goal of the public sector enterprise are undoubtedly serious. But we as a revolutionary nation certainly have high potential strength to overcome them. We require to have a new training and education program which will not only train the future committed to our national goal - establishment of an managers and workers but will also make them devotedly exploitation and corruption free democratic society. Secondly, we require a net work of well-structured state administrative apparatus to guide and control the industrial units with minimum intervention in their internal working arrangements. In this connection what is autonomy should co-exist. Autonomy should not diminish important is that the two concepts accountability and accountability or relieve public enterprise of this obligation. How to strike a balance between these two supposedly really a dilemma. This dilemma may, however, be resolved if the accountability of the public enterprise of different are much broadly defined. A useful consensus can be opposing principles accountability and autonomy is industries is clearly defined and clarified. The perceived conflict lies in the fact that accountability and autonomy arrived at if these concepts are made more specific in application to real world public sector enterprise. Thirdly, the individual organizations should be given scope and discretion to apply an effective program of motivation belonging . Public enterprise-managers have to look for better and offer attractive incentives that all people working for the

nations oriented towards a socialist economic pattern would need to pass through some stages of capitalist pattern of planning and development. To my mind, this point of Marxion school of thought. So, those who hold the view some hasty and premature thoughts are not probably of the public sector enterprise is not the result of passing. view is not correct. This view point misrepresents Karlthat nationalization in Bangladesh is the outcome of correct. With regard to their view point , what we would like to say here is that the present operational inefficiency nationalization, rather it is a by-product of the transitional Experiences of the newly free countries demonstrate that reorganization are largely influenced by the nature of the hands of the big-bourgeoisie or big landowners or both, any programs of bringing industries under nationalization ultimately becomes a weapon of class oppression of the public sector properly guided, noursed and nurtured by any progressive regime like the present one, the economic toilers through a system of new State capitalist enterprise. If the nationalization program is rightly carried out and structure resulting there from is expected to be democratic and people oriented. This economic structure can create encouraging that the present revolutionary Government of material pre-requisites for social structure. It is really nice and Bangladesh is keen to build a self-reliant economic setting free from exploitation and corruption. Nationalized or public enterprise that we have in our country can be of great help to our Government in achieving the goal. But none should forget that unpatriotic forces are there to stand in the way of growth and development of an exploitation and corruption free society. Clearly, they with the imperialists. Some of the present Governments would oppose public sector enterprise. They ally themselves revolutionary steps like decentralization of administration, however, indicate that the most reliable support of our in those who toil. Although this most progressive and 59 Government that has espoused the goal of building an revolutionary but most herculean step ( of decentralization economically self-reliant and exploitation free society lies period through which they (public enterprise) have been the trend and rates of socio-economic and cultural political super- structure. If the State power is in the

public enterprise enjoy a genuineness of participation and management, that is, better forecasting, better organization, better coordination and better control. Public enterprise with this country than those with large projects in the private sector. better management can contribute more to the economy of Problems of varied nature are there at present and will be there in future also. The problem areas identified in the foregoing should not lead us to be pessimistic about prospects of nationalized or public enterprise. Undeniably, free from exploitation and corruption . This is what one set are of the belief and thought that newly developing
The Bangladesh Accountant/July - September 2008

nationalization is no panacea but it is an effective mechanism to establish an economically self-reliant society of people feel, believe and propagate. Another set of people

of administration) of the Government was not initially welcome by the upper and middle class people of the society, it now bids fair to crown with success ultimately. Hence, we are confident that if any attempt is enterprise and to upgrade their position , the attempt is sure to be fruitful and the operational efficiency is sure to rise. Our country is not only war hit, it is also cyclone and flood ravaged. Our operational efficiency in the public enterprise has had a fall which has caused a decline in patient. Before we take any new step hastily, we should deeply think before hand of its consequence in terms of existing public enterprise. state ownership are productivity. This is not at all good. We should be little more operational efficiency and at the same time , we should In Bangladesh, as we all know, industries placed under mostly managed

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activities of the individual units. But at the same time, decentralization of decision making without having adequately/properly trained and qualified personnel at the personnel have to be properly evaluated before arriving lower levels will not be any solution. The need of the at the solution to the problem of centralization Vs. management of public enterprise deserves a good deal of attention by all concerned since this issue can have much of public enterprise. Our national Government, therefore, the performances of the sector corporations responsible for managing and controlling public enterprise.

made by our Government to protect the public sector

individual enterprise as well as the availability of efficient decentralization. This matter of organization and impact on industrial relations, productivity, rate of growth need to give proper supervision, and monitor and evaluate Labour-management relation must be improved in the public sector enterprise. As we all know, labourers are promised to have the right to participation in decision and policyeffective management bodies consisting of labourManagement-Government representatives can be a desirable step in this direction. Such bodies in Algeria, Guinea, United Arab Republic and several other countries of the world have proved their efficiency and worth. They would are properly organized and if right persons are rightly success of the management in managing the problems in making of their enterprise. Their participation would clearly widen the environment of peace in the enterprise.Establishing

and development and ultimately, the operational efficiency

not ignore the matter of improving the situation of the by sector

corporations specially constituted for each country. These are also managed by Government departments directly under special corporations is to ensure full autonomy in the different ministries. The main purpose of creating the performance of day-to-day activities of the public sector industries. Possibly, this will make administration efficient as the civil servants working in the various Directorates will not get any scope to unduly interfere in the detailed making which is normally found wanting in the Government corporations.

affairs of the enterprise/establishments. Undertakings of purely commercial nature require much freedom in decisiondepartments. From this point of view, it is justified that Normally public sector industries are found to be very large as they are entrusted with the responsibility of supplying goods for the whole nation. A public sector industry normally has a good number of units located at Vs. decentralization does always arise: What specific

certainly prove their worth in Bangladesh also, if they placed. The efficiency of management in achieving the goals of public sector enterprise is closely related to the the labour-management relation area. Management needs to inculcate all those working in the enterprise ( in public sector) with a spirit of public service. Mere non-monetary of frustration and discontent of the workers must be verbal motivation cannot help in the matter. The root causes found out and necessary measures have to be taken at the right/ correct to assume that the labour problems are merely of political in nature and always guided by national level to relieve the existing frustration of employees. What we feel in this regard is that it is not

these enterprise be managed by the specially constituted

different places but their activities are coordinated by a functions are to be reserved for the central authority and

central authority. So, naturally the problem of centralization what to be delegated to the individual units? We should

not ignore the fact that too much centralization will retard/hinder the efficient performances of the day-to-day
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emotions. What is most important in attaining cordial labour-management relation and in inducing the workers to increase productivity is to fix wages in consideration 60

of cost of living. The workers will not be naturally unless their physiological needs are

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interested to enhance the productivity of an enterprize

the price changes for different products should product in the industry should not include a portion of the cost of another product of the same industry. These two

physiological and cultural needs have also to be taken into consideration to satisfy them. There should be Management will have to give up its bureaucratic and authoritarian outlook towards manual workers. Instead, it will have to develop democratic outlook towards them. It should worker representatives involved in decision and policyand the nation. It is possible only when management be the responsibility of the management to get the making as far as practicable. The workers must be made to feel that they would henceforth work for themselves tries to solve problems following a pragmatic approach to labour issues. Management has to be very careful at the time of taking any step or action in regard to labour to some, undue favour, keeping workers away from like cannot help create within the enterprise. issues. Management has to keep in mind that privileges decision-making body, divide-and-rule strategy and the any suitable environment for complete mental revolution of the management personnel too.

met. Their

correspond to relative costs, i.e. the price of one particular guidelines obviously take into account the cost of output. But output of all the products manufactured by an industry. It

it is not always possible to determine the exact cost of is important to note that the actual cost incurred may not always be an appropriate factor of price fixation because require more money for its operation and will unduly burden the consumers. Over and above, there may be an industry, if inefficiently organized and managed, will some customers who, if charged with the full load of fruits of the nationalization program. Thus, obviously, this administration.

the products costs, will be hard hit and deprived of the price fixation area deserves special attention by public enterprize management and the concerned tiers of recruitment and selection of executives has to be at least for those who will be newly recruited for The standing policy for all public enterprise about formulated so that public sector enterprise can be manned by competent, honest and sincere personnel. We think that, executive positions in public sector enterprise, industrial not be made to fit a person, rather advertisement has to establishing Industrial Service Commission which should promotion policy should also be fair. Proper care should be and wrong in promotion policy. Simultaneously with

cordial industrial relations and coordinated team-work Every industry in the public sector has to have a rational price policy. According to many economists, prices of public same way as it works excellent in regard to the pricing practices of the private enterprise. In a monopolistic service industries should be fixed at marginal cost. In a competitive situation, this principle can work well in the situation, however, the practices of private enterprise are not identical. There can be a considerable differences between the price and the managerial cost in both the phases of price fixation in a monopolistic public sector industry. structure of such an industry should tend to correspond to marginal cost. Economists like James E. Meade suggest that the rate The aim of public sector industry is to promote public increasing and decreasing average costs. With respect to

services should be introduced. What we virtually

recommend in this regard is that advertisement should be made to find a person to fit a particular job by operate in line with Public Service Commission. The taken so that no employee feels hurt because of injustice recruitment of new or fresh executives, there should be scope for promoting the employees from the lower level None of us should deny that every body has the right to improve his/her position and no body is born to serve in one position for good. There should be an adequate and so that the morale of the employees is not affected.

interest i.e., to render the best possible service at the lowest cost. From this point of view, profit-making is a public sector industry should follow in fixing prices not make any profit or loss, i.e. it should break-even; (b)
The Bangladesh Accountant/July - September 2008

not the objective of public enterprise. The sort of policy may be stated as : (a) after meeting all expenses it should

suitable training program for the existing potential such a manner that they can feel interested to change 61

employees to make them fit to work very efficiently and faithfully in public enterprise. They should be trained in their old outlook and attitude. There should be set rules for

promoting employees. The uniform job specification particular person. Hence, the proposed Industrial Service

Finance & Economics

should be followed in lieu of allowing the practice of

putting the contents of job advertisement to fit a Commission, if it can see the light of day, will have to work hard in framing rules of recruitment, selection, management in public enterprise. promotion and various other issues relating to personnel It may be recommended that Management Audit should be introduced for the purpose of enhancing management efficiency. Management Audit has to be conducted byManagement Audit Commission consisting of management experts, accountants, financial analysts, commission should be fully empowered to examine and statisticians, economists, engineers, and the like. This investigate the whole affairs of public sector industries. Management Audit is wider in scope than customary controls). Management audit is concerned financial audit (which restricts itself only to accounting with

Management Audit Commission, if allowed to be set Audit system to arrest even the little scope of help the sector corporations to avail themselves of the

achieving the objectives of public enterprise.

up, will need to introduce a half-yearly Management misutilization of resources in public enterprise. This would not only help the Government in controlling, but would also services of management experts, marketing experts, allowing the evaluation to be done by persons having no organization and management.

accounting experts, etc, in evaluating the management problems of the public sector enterprise in lieu of idea of the operational aspects of the industrial Another recommendation is for introduction of Cost Audit in public sector enterprise. Cost Audit is a message for an effective and efficient utilization of money, material, men and machine resources. It is the appraisal of cost and management accounting techniques by the cost auditor who has to ensure that all the cost decisions are based enhance the operational efficiency of public enterprise cost audit can probably do a lot. It has been a demand for a more and more seminars to create more and more on an effective and efficient utilization of resources. To long time in Bangladesh. The Institute of Cost and

administrative controls .Management audit requires an

inter-disciplinary approach since it involves a review of all

aspects of management functions. It goes beyond internal audit. It appraises and reviews management policies and practices. It proceeds with the objective of overall managerial efficiency. Analysis of profitability, appraisal of organization procurement systems, labour relations, planning, scheduling and control etc come under the fold of management audit functions. Keeping in view all these, Management Audit Commission will be required to: 1. constructing the basic policy framework and in operations; charts, examination of production, purchasing and

Management Accountants of Bangladesh need to conduct awareness about the utility of cost audit. The Institute ordered by our Government on an annual basis. Our consideration of the Government of Bangladesh. has long been advocating for the introduction of cost audit suggestion towards this is requested to be under active As we all know, the closing inventory, for instance, in of profits of the public sector enterprise. It is unfortunate that there is no provision under the existing system that published accounts plays a vital role in the determination closing stock should be certified. This lack of provision adjustment of profits. The Cost Accountant/ Cost Auditor is the most right person to determine the value of closing stock. He/She should be empowered to certify the closing provision of the Companies Act whereby the Cost 62

but it is unfortunate that the cost audit has not yet been

help the management of public sector enterprise in achieving the most efficient administration of the

2. 3. 4. 5. 6.

advise the management on how to achieve the working efficiency of the management itself; effectiveness; help the management in establishing and reviewing the planning system and in evaluating its efficient discharge of their duties and responsibilities; communication system; and aid the management at all levels in the effective and aid the management in improving the entire suggest ways and means to the management for

leaves a very big gap which can be manipulated for

inventory to rectify the deficiencies. We request the Government of Bangladesh to suitably amend the Accountant is required to certify the closing inventory in

The Bangladesh Accountant/July - September 2008

the published accounts. There should be a clear provision in the companies ordinance form of an amendment to the companies act. The that we recommend in the

Finance & Economics

for maintenance of cost accounting records and cost audit operational efficiency of public enterprise can surely be increased if the Cost Accountant is allowed by our Government of Bangladesh by way of enactment of Companys ordinance to conduct cost audit by: a.

evaluating management performance

corporations social responsibilities. If Social Audit be introduced, it will be possible to systematically assess and which have a social impact. Through such audit it can be responsibilities to the society consisting of the people workers, consumers, suppliers, various Government examined to what extent the enterprize has discharged its with different social status, namely, lenders, employees, departments and agencies and the community in which it operates. Our every industrial corporation (such as, Bangladesh Jute Mills Corporation, Bangladesh Textile Mills Corporation etc.) should maintain a panel of experts in social matters, who would examine all the evidence and come to a conclusion about the social impact of the

of the industrial

report on those aspects of activities of an enterprise,

appraising and evaluating the cost system, methods and procedures to establish effective cost control for the purpose of reporting and certifying true and fair cost; ensuring control of wastages and defective works sickness at its initial stage, and applying remedial

b.

and arresting of inefficiencies at all levels of measures at proper times;

management, pinpointing the symptoms of industrial c. d. e. f. g. presenting cost data in a systematic manner to aid short and long term planning; pinpointing the surpluses, wastages, shortages, redundancies, spoilages, scraps and losses in process; suggesting alternative course of action, if any to expenditures on capital as well as current operations; the close of the financial years; improve profitability and to reap best return from checking the valuation of inventories and work-inprogress at various stages of completion especially at providing assistance for keeping the costs within countrys favorable balance of payment;

public enterprize decisions and activities. Social Audit which should be prepared to uphold the possibility that it recorded. It is , however, recommended that the audit be confirmed for use by management to enable it to

like any other audit needs a comprehensive formal record may be complete and all items are correctly described and report on a public sector undertakings social activities identify the areas of weakness. Fair employment practices, enterprize activities in which pollution control, workers safety, customers service, rehabilitation and the like are the possible areas of public responsibilities to the society can be examined through management to make assessment of the efficiency and future planning and deliberations. Public enterprise have public enterprize

reasonable limits and for making them competitive in the world market to boost exports for the fixing the individual responsibility of the management personnel whenever inefficiency or wastage occurs; fair costs of products and to make comparison; enabling the Government to make decisions enabling the Government to know broadly true and pricing and control of manufactured products; and designed to produce the best and optimal output. on

the operation of Social Audit system. There is a dire need to monitor such social activities initially to enable effectiveness of its social programs and as a guide to fully to put their loyalty to the society and should try to devise new methods, techniques and tools to make their decisions on the society would hopefully enable them to reporting practices rational, realistic and meaningful. A Social Audit Report an exposure of the impact of their take cognizance of the risks and adverse effects on the welfare of society and indirectly on their own welfare as the society would hopefully enhance their operational efficiency. 63 well. This sense of accountability of public enterprise to

h. i. j. k.

enabling the Government to judge whether the size

and channel of expenditure have been planned and

The next recommendation is that side by side with Management Audit and Cost Audit, Social Audit
The Bangladesh Accountant/July - September 2008

should be operated for the purpose of reviewing and

Another recommendation is that Disclosure Practice in the be considered one of the most potent instruments of ensuring efficiency and progress of them. It is in many of our public enterprise. True, disclosure 1972 and orders creating other public sector corporations. But the requirements of the International Accounting met by such cursory disclosure as governed by our Government orders and ordinances.

Finance & Economics

financial statements of public industrial enterprise should unfortunate and that this practice is not being duly made practices are regulated by their relevant statutes, such as, Bangladesh Industrial Enterprise (Nationalization) Order Standard No.1 on disclosure of accounting policies are not The purpose of disclosure practice is to apprise the Government, parliament and public of the fact whether the public enterprise are being efficiently run or not. This should also help induce and enhance a sense of

with mostly financial transactions. Apart from monitoring progress and achievement, whether in the implementation of any project on the day-to-day operations of the enterprise, the control system should concern itself also with being faithfully followed.

ascertaining whether internal policies and directions are In the context of public enterprise, it means that the activities associated with the achievement of objectives in relation to non-commercial social obligations must also be reviewed and controlled with as much vigour as the objectives in the purely commercial/business area. The difficulty lies, in devising a suitable machinery/apparatus for performance in the former field. The overall management targets for achievement, devising the steps and methods necessary for achieving the goals, along with the out of a series of comparisons to be performed at each of these check points. The control system in this series the comparisons indicate that the

laying down specific targets and measuring actual activity comprises mostly the preparation of plans and identification of significant check points and the carrying of activities should also provide the bases for remedial proceeding to plan. Hence, the control system should provide sufficient information to permit an analysis to the extent and cause of the deviation from the plan, assuming that the plan itself was correctly prepared and that the things are not

responsibility/ accountability in those who are engaged in running the public sector enterprise. In all cases without accounting policies must remain an essential feature of any exception, public accountability of disclosing the management of public sector industrial enterprise operational efficiency. Hence, a comprehensive disclosure of accounting policies adopted by the public enterprise is badly required. It is further recommended that for the purpose of because it will hopefully act as a factor of improving

actions, which must be initiated immediately whenever

enhancing the effectiveness of public enterprise, the control function should be an essential ingredient of their positive and constructive lines for achievement of are a number of control systems which should be kept in view if these are to be comprehensive and effective. And, usefulness of the system is to be maintained. management, but the control system must be oriented along objectives and not for restricting freedom of action. There it is essential to organize continual monitoring of the various control parameters in actual operation if the A control system basically consists of a comparison between

implementation procedures were not to be faulted. And the actual mechanism which is used for enforcing control for depends on the actual conditions in which the public intermediate corporations between the Government agencies and groups of public enterprise seems to offer a better utilization of human and non-human resources as efficient and economical achievement of objectives enterprise are expected to operate but the device of promise of satisfactory management provided certain

an actual situation and a planned situation and the mechanics and procedures of control revolve around these be comprehensive in scope and must cover all areas of objectives. To be really useful, the control system has to operation of an enterprize. This is undoubtedly much more
The Bangladesh Accountant/July - September 2008

parameters are adhered to. The most common control in any enterprize, regardless of its kind-public or private is values, but the physical quantities involved has to be the budget. This should not only be concerned with monetary highlighted and actual has also to be compared with budgeted targets after making adjustments for seasonal or 64

than mere internal audit, which traditionally concerns itself

other known factors. Variances should be analyzed in detail factors as volume of production or sales, usage or consumption ratios and so on. The condensed form of of control data. The cash flow analysis provides the basis for sales, a similar report on despatches and on inventory

Finance & Economics

to project the contribution made to the variance by such comparative profit and loss statement provides another form monitoring and controlling liquidity. The control system also includes a comparison of orders received with planned turnover can be helpful in exercising operational control. But we should keep in mind that the mere presence of It is essential to organize continual monitoring of the controls does not assure the ultimate success of an activity. different control parameters. To do this arranging regular meetings with executives and managers of the concerned is needed. These meetings and reviews should enable the top executives of the enterprise to find out whether the policies introduced by Government or corporation are well

people of Bangladesh and who would gladly face any whole.

situation in the interest of the country and its people as a We would now wish to end this paper with the being ally to any big powers political ideology and recommendation that in Bangladesh we should, first of pattern of economy, before launching into the

all study in-depth the public sector enterprise without privatization policy so hastily. We should minutely examine their operational efficiency after removing their problems. public sector enterprise is sure to register a sharp rise if unified and sustained efforts enterprise) problems to the achievement of success towards to overcome their (public our Government and people think alike and put in their our national goal of building an economically self-reliant society free form exploitation and corruption. Every one knows well that private entrepreneurs run their enterprise by taking utmost care and by using their resources in the Never. So first of all, we should do all that in the best possible way. Do we do all that in public enterprise? existing public enterprise of Bangladesh and examine their efficiency most carefully. And if we do so, as we productivity will increase and will also surpass the measures along with guidelines recommended in the hypothesize, their operational efficiency in terms of operational efficiency of private undertakings. Proper foregoing must, therefore be taken in the public enterprise emphasizes that an in-depth research study based on field of this sort of studies should be a guiding factor in our or of maintaining the public by guiding them Why shall the public sector towards our national goal. But that sort of proposed investigation is a great need of the hour. And the results formulating any policy of privatizing the public enterprise aright experimental studies should never ignore a vital question: Bangladesh loose operational efficiency and shall be the loosing concerns while the private sector banks of the same soil have been earning lots of profits every year? manufacturing enterprise of to test the hypothesis. In this direction, this paper This papers hypothesis is : operational efficiency in our

understood by the line & staff mangers. It would be discussions held at the review meeting- because these can be helpful for watching progress or follow-up action and for revising and modifying plans when needed. Clearly, if control systems are properly designed and confidence in the competence of the

really useful to maintain a brief record notes of the

operated with a clear idea of the primary objectives of control and if there are no grounds for any lack of management, and if all other measures referred to in the above are rightly taken, we think the operational efficiency of public enterprise is sure to increase and effectiveness of public enterprise. In fine, the foregoing discussion suggest that the prospects there is no reason for any adverse impact on the of public sector enterprise should not be ignored. Instead enterprise

of privatization policy, a policy of reviewing public enterprise keeping in view their operational efficiency is a need of the hour. In our opinion, the only qualifying be manned by honest, sincere, worthy, dynamic, patriotic clause is that the public sector industrial enterprise must and challenging personalities who would not beguile the

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65

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Finance & Economics

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Fyodoro,V., 1970. Newly Liberated Countries: Ways of Development, Moscow: Novosti Press Agency Publishing House. Hanke,S. 1987. Prospects for privatization Newyork: Academy of political science. Public Enterprise, August. Kreacic, Vladimir G. and Philip Marsh, 1985. Public Enterprise in Developing countries structure, performance and culture, Kreacic, Vladimir G., 1988. The Effect of Government control on public enterprise performance: The negative public enterprize performance loop, Public Enterprise, September Developing world. London: Croom and Helm. Milton, Rene, Marxisme, Communisme et Socialisma African, Paris, 1962 Ramanadham, V.V. 1984, Public Enterprise and the

Einaudi, et.al, 1995. Nationalization in France and Italy. New York, Cornell University Press.

Saves, E.Privatization 1987: The key to Better Government. Chatham: Chatham House Publishers, India. Management Review, India, January-December.

Rabson, W.A., 1966. Nationalized Industry and public ownership. London: Allen and Unwin.

Sapru, R.K., 1986. Public Sector Enterprize some issues of its role in International Business operations, Punjab University

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