Is BNP correct in championing deregulation?

In what appears to be a revival of a well-worn theme from the 1980s, "deregulation" sits at the heart of the economic programme unveiled by Bangladesh Nationalist Party (BNP). At first glance, this looks less like invention than renovation.

Under pressure from multilateral lenders, successive governments have been deregulating the Bangladeshi economy for decades. The idea is therefore anything but novel — and the experience has not been free of adverse side effects. Unlike the 1980s, however, the world now has an abundance of data on the consequences of deregulation. Unfettered globalisation, propelled by an almost devotional faith in markets, has hollowed out communities and livelihoods across continents.

None of this will be unfamiliar to BNP's formidable think tanks. Why, then, the renewed liberal zeal?

Market enthusiasts often invoke Adam Smith, who supposedly described market forces as an "invisible hand" that allocates resources efficiently and fairly. From this it follows that regulation is not merely unnecessary but best avoided altogether. What is often overlooked, however, is the minor inconvenience that Smith used the phrase only twice, scattered across two weighty volumes—and with unmistakable irony.

The empirical record is clear enough. Markets frequently fail, sometimes spectacularly, producing high prices, shoddy products and unhealthy concentrations of economic and political power. Technology, mass media, Big Pharma, and armaments provide ample illustration.

Yet BNP's position appears eminently reasonable once the alternative is examined. Enter the pro-regulation fundamentalists.

As inflation crossed a dangerous inflection point towards the end of the Awami League's tenure, a vocal pro-regulation brigade gained influence. The Interim Government, from its inception, also warmed to the idea of disciplining markets. This interventionist instinct rests on the belief that the promised benefits of markets rarely materialise because of the ubiquity of syndicates, profiteers and charlatans.

Unsurprisingly, the policy prescriptions that follow are censorious and punitive, swaddled in bureaucratic red tape. Such imperious displays of state power are all too familiar in Bangladesh.

Oxonian folklore offers a useful parable. While marking a student's clumsy essay on Keynesian economics, a disgruntled Professor Amartya Sen is said to have twisted a popular aphorism into the sardonic remark: "Contempt does not breed familiarity." Apocryphal or not, it neatly captures the mindset of the pro-regulation camp. Do they distrust markets? Yes. Do they understand how markets function? Less evidently so.

To be clear, markets do fail—but in many cases they work rather well. Moreover, the conditions under which markets function efficiently are well understood. Where industries are competitive, not dominated by a handful of firms, characterised by low barriers to entry and minimal externalities, regulation can take a back seat.

Once these conditions are met and verified, interventions designed to influence prices, output or investment should be restrained. Poorly designed regulation has a habit of opening Pandora's box of unintended consequences.

Two examples illustrate the danger. Consider poultry. Prices are inherently volatile because perishable output cannot be cost-effectively stored; supply must be sold almost immediately regardless of market conditions. Gluts depress prices for extended periods, inflicting heavy losses on farmers. When supply tightens or demand rises, prices typically recover enough to offset those losses.

Regulators saw it differently. On the unsubstantiated assumption that syndicates were driving inflation, prices were capped. The result was predictable: capped prices could not compensate farmers for accumulated losses, and hundreds of poultry farms disappeared.

A similar story has unfolded in pharmaceuticals. Since 2023, governments have been reluctant to allow price increases to reflect rising costs. While policymakers congratulated themselves on restraining a supposedly predatory industry, firms quietly withdrew hundreds of unprofitable products. By definition, an unavailable product has a price approaching infinity.

Most industries in Bangladesh can recount similar tales of how ill-conceived regulation has stunted growth. From that perspective, dismantling such impediments is a prerequisite for prosperity.

Deregulation, as the pièce de résistance of BNP's economic platform, has therefore been aptly chosen.

Kaiser Kabir is the CEO of Renata PLC. He holds an MPhil in Economics from the University of Oxford. He specialised in Industrial Economics at the postgraduate level.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.