|Photo Copyright of Jugantor |
Have you ever tried explaining to non-economists what the consequences of resource misallocation can be for the economy?
What will happen if you invest enough in some sectors and too little in others? The answer is likely to be that you have enough production in sectors where you got your investments right and too little in the under-invested sectors. That may be correct in some cases, but it ignores the interdependence between the adequately invested and underinvested sectors. As a result, you may have too little production in the sectors where you have invested enough because you have too little production in the sectors you have neglected to invest.
Here is a real life example. Take a look at this photograph of a garment factory in Bangladesh. The workers are napping, the machines are silent, and the materials are unused. All the needed inputs to run the factory are right there. Yet they are useless because one critical input is missing—there is power outage. Bangladesh failed to invest enough in power generation while the rest of the economy boomed—manufacturing and construction in particular. The latter not only contributed to rapid income growth but also even faster growth in demand for power, which has now become the Achilles’ heel of the economy.
With power generation not growing even remotely as fast, this is now choking growth in the rest of the economy despite the fact that the latter have enough workers who are willing to do all the hard work and enough owners who have already installed the machines and procured the materials with which these workers can work to produce goods. The economy is missing out on boosting domestic incomes and fetching precious foreign exchange earnings.
The power crisis in Bangladesh is a tip of the iceberg hiding a much deeper crisis of decisiveness in Bangladesh’s polity. We cannot make up our mind on how to extract our coal reserves. We cannot make up our mind on how to explore gas on shore and off shore. We are taking too long on deciding how to implement the Memorandum of Understanding on energy sharing with India. Meanwhile, our machines will remain silent and our workers will continue to nap in their factories because of lack of electricity and spend sleepless nights at home, again because of lack of electricity. Speaking of reversing the daily life cycle!
Economists view “inefficiency” as a state of the economy in which you can actually or potentially make some people better off without hurting anyone else. The current power crisis in Bangladesh is a classic case of inefficiency. We have to act and act now.
Otherwise, we will continue wasting what Alfred Marshall characterized as the most scarce resource—time.