Government for the people or for the corporate?

On the backdrop of American civil war Abraham Lincoln, one of the greatest proponents of democracy,  portrayed the fundamental of functional democracy by saying:

"Government of the people, by the people, for the people, shall not perish from the Earth."

Even after two centuries, the role of democracy in economic prosperity and equitable distribution of wealth is obvious. But when the corporate world starts dominating the democratic process, the government becomes more interested in protecting the rights of the business group rather than common people. 

In almost all national dailies reported that a parliamentary body today recommended for passing the Banking Companies (Amendment) Act-2017, which allows the doubling of the number of directors (currently 2 members are allowed to seat on the board from the same family) in a bank's board from a single family and extends the tenure of directors (As per the proposed legislation, the tenure of bank directors would be extended to nine years from the current six years).

Many scholars, policymakers, and prominent economists have already expressed their views by criticising this Act arguing it could prove detrimental to already fragile banking industry. We have seen rampant irregularities and malpractices while only two members of the same family are on the board. What will happen when there are four members of the same family. In brief, the interest of millions of depositors will be at stake. 

In the recent past, we have seen some unprecedented actions in the banking industry like hostile takeover of the boards of several banks by a Chittagong base powerful group when government and the regulator surprisingly remained silent.

It is argued that changes in bank corporate governance structure could lead to the family-dominated board of directors who would definitely work for their own interest. This may increase huge ownership concentration risk as well preferential credit disbursements for directors favourite and own business group. The non-performing loan has already exceeded the threshold for the last couple of years. On top of that, this new practice could trigger an even significant increase in NPL which would ultimately lead to capital erosion and massive bank failure. 

In the current macroeconomic situation, this is not a very unlikely scenario. Banks are currently sufferings excess liquidity risk due to lack of investment opportunities and political stability. This is only the asset side risk. While there is liability side risk as well. Due to lower inflationary expectation, the Central Bank has adopted the expansionary monetary policy to boost investment activities to stimulate output. Consequently, public and private commercial banks have already reduced their deposit interest rates which lead to deposit outflow from commercial banks to government's savings certificate where the interest rate is still significantly higher. Political pressure and upcoming election are the main two reasons of this policy inconsistency.  In the short run banks may not face any problems due to already excess liquidity situation but gradual decline in term deposits accompanied by the increase in NPL would significantly reduce bank lending capabilities and bank instability.

The government seems to be indifferent in spite of the clear financial disaster the Banking Companies (Amendment) Act-2017 can create in the near future. So, we as common folk ask: is the government for the people or for the corporate?

Poverty and inequality in Muslim countries

Among 57 OIC countries, there are 7 high-income OIC countries namely, Bahrain, Brunei, Oman, Qatar, Kuwait, Saudi Arabia, UAE for which no poverty and inequality data are available currently from WorldBank WDI. From remaining 50 countries data are available for the only handful of countries. More obviously these data are not up-to-date. By collecting base data available for all countries it is observed that only few countries have latest data, therefore, the latest available values are taken for showing the latest poverty and inequality situations in Muslim countries.

The graph shows a comparative picture of poverty in selected OIC countries. It is evident that at the lower threshold most of these countries seem to do well except Nigeria. However, with a higher threshold, almost all countries have more than  5% of the total population living below the poverty line except Kazakhstan, Malaysia and Turkey. For Bangladesh, Tajikistan, and Nigeria it is well above 15%.

 Gini coefficient, an accepted standard to measure inequality in literature. From the above graph we have seen a contrasting scenario from the poverty. Even though Kazakstan, Malaysia and Turkey have shown significant progress in terms of poverty reduction but the inequality remains a major concern. Kazakhstan is still better than other Muslim countries in terms of wealth redistribution  More striking is the case of Malaysia. For other countries, inequality coexisting with poverty.

The inequality situation is grave - class conflict now seems inevitable in many Muslim countries. We have already seen the first wave (Westerner call it Arab Spring) of a tsunami rapidly gaining momentum. The tremendous growth which many Muslim countries have enjoyed for the last two decades or so in spite of socio-econo-political instability is actually hijacked by the powerful elites. So even though we are singing the song of economic growth, in reality, we are bleeding slowly to death.

Notes: All data used in this blog are collected from World Bank WDI.

Why are Muslim countries lagging behind?

In the twenty-first century, innovation is the key to sustainable growth. The more innovative nations are likely to maintain their economic growth in the long run. The latest Global Innovation Index shows dire situations of Muslim countries across the continents. There is not even a single Muslim country at the top 30 of Global Innovation Index.

Malaysia, the top performer is placed at number 37. Turkey and Qatar are currently holding 43rd and 49th position in the league table. Not surprisingly the most populated Muslim countries are almost at the bottom of the index. This clearly shows why Muslim countries are suffering lower productivity growth which is reflected in overall economic growth.