International Journal of Commerce and Management

PRIVATIZATION AND THE GROWTH OF ENTREPRENEURSHIP IN BANGLADESH

Wali I. Mondal
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To cite this document:
Wali I. Mondal, (2000),"PRIVATIZATION AND THE GROWTH OF ENTREPRENEURSHIP IN
BANGLADESH", International Journal of Commerce and Management, Vol. 10 Iss 2 pp. 60 - 74
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 60 IJCM Vol. 10, No. 2, 2000

PRIVATIZATION AND THE GROWTH OF

ENTREPRENEURSHIP IN BANGLADESH

Wali I. Mondal

This paper analyzes the growth of entrepreneurship in Bangladesh in relation to its

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Government's privatization efforts. A survey instrument was designed to elicit

opinions of entrepreneurs regarding the level of privatization and the growth of
entrepreneurship. The instrument was designed in such a way that the responses
were dichotomous. A Discriminant Analysis was then conducted in order to classify
entrepreneurs and to determine the key variables responsible for privatization and
the growth (or lack of growth) of entrepreneurship. Results indicate that the non-
availability of long-term capital, the poor state of the economy, and excessive
government regulation are the three most important explanatory variables for non-
privatization and lack of growth of entrepreneurship.

The economy of Bangladesh is characterized by the co-existence of a large number of state-

owned enterprises (SOEs) operating side by side with private enterprises. Since the mid-eighties,
the Government has divested many SOEs and relinquished ownership of these SOEs to private
individuals. The gradual privatization of the economy is attributed, among other factors, to a
higher rate of growth of the Gross National Product (GNP). During 1985-95, the GNP per capita
of Bangladesh grew at an average annual rate of 2.1% compared to an average annual rate of
growth of 0.4% during 1965-85 (The World Bank, 1997, 1990). Although the private sector
performed well in Bangladesh despite repeated natural disasters and persistent political turmoil,
the bottlenecks created by a very large bureaucracy seemed to have hampered the growth process.
The purpose of this research is to analyze the simultaneous process of privatization and the role
of entrepreneurship in the growth of the economy. This will be done through classifying the
entrepreneurs in various economic sectors according to the key characteristics of entrepreneurship
and then analyzing these characteristics.
This paper is organized in five sections. In Section I, a brief history of the privatization
initiative is provided along with a brief sketch of the performance of the SOEs. Section II
develops the concept of entrepreneurship, including a brief literature review of the subject. In
Section III, the discriminant analysis model is presented as the basic tool of analysis. Section IV
deals with the results of the discriminant analysis. Section V concludes with policy implications,
recommendations and suggestions for future studies.
 IJCM Vol. 10, No. 2, 2000 61

I. PRIVATIZATION: A BRIEF OVERVIEW

Since its independence in 1971, Bangladesh has gone through several major policy changes
regarding the ownership and control of industries. As Reza and Shelley (1994) mention, the
Government obtained control of a large number of industries abandoned by non-Bangladeshi
owners after the liberation of the country. Through the Nationalization Order of 1972, all key
industries including jute, cotton textiles, and sugar were vested upon the public sector. Then the
first Industrial Policy Statement (IPS) was passed in January 1973. The IPS "left the private sector
with virtually no other areas to operate except in cottage and small industries" (Reza & Shelley,
p.9). The ceiling for private investment was set at TK 2.5 million to a maximum of TK 3.5
million (US $337,000 to $469,000 respectively) through reinvestment and profits. In 1974, in the
face of industrial famine, rising prices and a dwindling economy, a revised Investment Policy was
issued, which raised the ceiling of private investment to TK 30 million. This investment policy
also allowed joint collaboration of domestic and foreign investors with most public sector
corporations.
The Investment Policy of 1974 did not attract any significant private investment. The
Government, therefore, raised the ceiling from TK 30 million to TK 100 million in December
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1975. The turning point in favor of privatization occurred in 1976 through the passage of the
Industrial Investment Schedule (IIS). The IIS allowed the disinvestment of a number of abandoned
and taken-over industries through public tender, and also returned a number of industries to their
owners. In September 1978, the ceiling for private investment was withdrawn altogether.
Additionally, the Government created conditions for smooth functioning of the capital market
through reactivating the Dhaka Stock Exchange. The Government also softened its grip over
control and ownership of industries by creating "free sectors." These "free sectors" were typically
those sectors which could not attract enough private investment, and the Government required no
formal sanction for investment in these sectors.
Perhaps the most significant change in privatization occurred in 1982 when the New
Industrial Policy (NIP) was announced by the Government. The NIP created three lists for
grouping of industries:

1. A Reserve List for public sector investment only;

2. A Concurrent List covering large-scale industries allowing both public and private
investment;
3. The IIS for all other industries open to private investment.

Under the auspices of the NIP a number of large industries in jute and cotton textiles,
which were nationalized earlier, were returned to their owners.
In 1986, the Government announced the Revised Industrial Policy (RIP) which liberalized
the sanctioning procedure even further and provided major impetus to foreign investment through
a deliberate denationalization program. The RIP was, in reality, more than an industrial policy.
Its provisions allowed for liberalization of imports, export incentives, tariff rates, and even
liberalization of fiscal and monetary measures.
The RIP was based on a thorough analysis of investment in major sectors. It reserved
seven sectors for public investment while creating a "Discouraged List" of industries in which any
 62 IJCM Vol. 10, No. 2, 2000

further investment was considered unprofitable.

The gradual privatization policy continued through the 1990s. In 1991, the Government
announced the Industrial Policy of 1991, which withdrew the Discouraged List; however, it
retained the Reserve List. The Industrial Policy of 1991 regulated industries that may adversely
affect the environment, public health, and national interest. As Karim (1996) mentions, external
pressure from donors had a significant impact on a policy change geared towards the preservation
of environment.
During most of the 1990s, the concern of the Government was to attract foreign direct
investment (FDI). The Board of Investment (BOI), which is chaired by the Prime Minister,
devoted much resources to attracting FDI. However, the success was limited. A number of
factors are responsible for this lack of success. As reported in the popular press, foreign investors
find it very difficult to overcome the bureaucratic hurdles and in many instances shy away from
investing in an economy known for political troubles, strikes and lock-outs.
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Since the passage of the IIS, while the Government gradually liberalized commerce and
trade through transferring numerous industries to private ownership, and the size of the public
sector has actually declined significantly, the losses suffered by the SOEs have risen every year.
As reported by the Ministry of Finance, the losses suffered by the SOEs have increased from TK
3.8 billion in fiscal year (FY) 86 to TK 7.4 billion in FY95. The Ministry estimated the losses
to reach TK 12.7 billion in FY 97. Figure 1 portrays the "proverbial losses of SOEs."
Much discussion has taken place about the size of Bangladesh's public sector, and
particularly about the losses suffered by the SOEs. Sattar (1997) reports that in FY1996,
excluding the Postal Service, Bangladesh Railways, and the Bangladesh Telegraph and Telephone
Board, there were about 200 non-financial public enterprises operated by 39 autonomous bodies
with assets of over US$11.5 billion (approximately 38% of GDP for that year). The total
number of employees in all of the autonomous corporations exceeded half a million.
It is not the purpose of this research to focus on the performance of the SOEs, although
their inefficient operation resulting in huge losses have significant implications for the private
enterprises. In what follows, no attempt will be made to analyze the performance of the SOEs
except for their relationship to the private sector.
 IJCM Vol. 10, No. 2, 2000 63

II: ENTREPRENEURSHIP: RISK AND INNOVATION IN A GROWING ECONOMY

Privatization of means of production and development of entrepreneurship have significant

implications for a young economy like Bangladesh's. Private means of production in a growing
economy leads to innovation and assumption of risk with such innovation. These two phenomena,
namely innovation and risk taking, are associated with entrepreneurship. Since there is a co­
existence of private enterprises and SOEs in Bangladesh, the role of innovation and risk taking
differ among the two types of enterprises. This section deals with the concept of entrepreneurship
with a view to developing a methodology which can be applied to analyzing privatization and
entrepreneurship in Bangladesh. As Schumpeter (1950) describes, the term "entrepreneur" was
first introduced in the Mercantilism age by Richard Cantillon (1680-1734). Schumpeter noted that
"Cantillon's work, which is usually, though not quite correctly described as the first systematic
treatise on economics, then introduced the term 'entrepreneur'. Cantillon defined this
entrepreneur as "the agent who buys means of production at certain prices in order to combine
them into a product that he is going to sell at prices that are uncertain at the moment at which he
commits himself to his costs." (Schumpeter, 1950, pp. 253-54). The idea thus developed by
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Cantillon was incorporated into Say's "Treatise on Political Economy" (1821).

Say (1821) defined an entrepreneur as an agent who combines others into a "productive
organism." He also used the term to indicate shifting of resources from a lower productive state
to a higher productive state. Say did not incorporate the element of risk in his analysis of
entrepreneurship, although Cantillon alluded to it. It was John Stuart Mill who developed the
concept further and associated entrepreneurship with activities involving risk and profit (Mill,
1871).
Although Mill incorporated risk in his analysis of profit and linked his analysis to
entrepreneurship, he, in fact, was using the term entrepreneur and capitalist synonymously. It
appears that during most of the later nineteenth century, the two terms were used synonymously.
Joseph Schumpeter is the first economist who distinguished between an entrepreneur and a
capitalist (Schumpeter, 1939, 1950). According to him, assumption of risk involving innovation
is the role of the entrepreneur while assumption of risk involving potential for profit is the role
of a capitalist. Both an entrepreneur and a capitalist undertake risk, but their domains are separate.
Individuals who own businesses and take risk with their capital in pursuit of profit, but do not
innovate, are capitalists, while individuals who introduce new products, new production processes,
create new markets, and bring about new economic organizations are entrepreneurs. Schumpeter
referred to these entrepreneurs as the "distinct sociological class." According to him, the process
of discovery and innovation modifies the past and creates new opportunities for the creation of
wealth in the future. This is what Schumpeter described as the process of "creative destruction."
According to Schumpeter, "the function of entrepreneur is to reform or revolutionize the
pattern of production by exploiting an invention or, more generally an untried technological
possibility for producing a new commodity or producing an old one in a new way, by opening up
a new source of supply of materials or a new outlet for products, by reorganizing an industry..."
He went on to attribute innovation as the business activity that brings about a new production
function as a result of one or more of the following five economic activities:
 64 IJCM Vol. 10, No. 2, 2000

1. Introduction of a new good;

2. Adoption of new inputs to produce a new good or the previously produced good;
3. Introduction of new technology;
4. Opening of a new market; and
5. Creating a new economic organization.

Schumpeter described two different patterns of industrial innovation linked to

entrepreneurship. One form of industrial innovation described by Schumpeter in "The Theory of
Economic Development" (1934) is small firms operating in highly competitive industries while
in "Capitalism, Socialism, and Democracy" (1942), this role is played by large firms operating
in oligopolistic industries. Studies suggest that both Schumpeterian patterns of innovation can co­
exist in an economy in different industries (Arrow, 1962; Herbert & Link, 1982).
Schumpeter' s theory of entrepreneurship stimulated extensive writing on the subject.
Numerous studies have supported various sets of personality characteristics based on certain
assumptions about behavior where sets of criteria, traits, and personal principles and
characteristics provide different types of insight (Gartner, 1989; Cunningham et al, 1991). An
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approach now gaining more popularity explains entrepreneurship by combining economic,

personal, and sociological variables. Personal characteristics, such as the need for achievement,
risk-taking propensity, locus of control, beliefs about wealth and material gain, and business
growth are related to a person's predisposition toward business leadership (Gartner, 1985, 1986;
Brockhaus et al, 1986). A belief that a person can influence his other personal destiny and locus
of control distinguishes entrepreneurs from the general population.

III: PRIVATIZATION AND ENTREPRENEURSHIP: DISCRIMINANT ANALYSIS

Private ownership of the means of production and the simultaneous liberalization of

commerce and trade has spurred innovation as described by Schumpeter in the growing economy
of Bangladesh. The social structure of Bangladesh is undergoing a process of Schumpetarian
""creative destruction." New products are being developed; new markets are being created; new
technology is being adopted; new sources of raw materials are being invented, and new economic
organizations are being created. These processes are being supported by a growing population.
There are, however, significant complexities which create hindrances to the free play of
market forces. In Bangladesh, the allocation of development resources is controlled by the
Planning Commission. The existence of a central planning body which allocates resources and
sets targets is reminiscent of the erstwhile command economies. A plethora of regulatory
agencies also creates hindrances to the growth of free enterprise through innovation. On top of
all these is the scarcity of finance capital. The capital market is yet to be developed to its fullest
potential.
The emerging class of entrepreneurs in Bangladesh is truly a "distinct sociological class"
as described by Schumpeter. The perception of these enduring entrepreneurs is, therefore, of
major importance at this stage of trial and error.
In order to analyze this phenomena of privatization and entrepreneurship simultaneously,
this research focused on the Schumpeterian model of entrepreneurship by relating it to the
fundamental question of privatization. In designing the research methodology, the following
important factors had to be combined in the instrument:
 IJCM Vol. 10, No. 2, 2000 65

• Growth of entrepreneurship as a function of privatization;

• Specification of a model with relevant variables; and
• Perception of the entrepreneurial class in an emerging economy.

A survey instrument was designed by incorporating all of the above factors. Specifically,
an instrument was designed to elicit responses from the entrepreneurs. Using Schumpeter's theory
of entrepreneurship, the five conditions which can alter the production function of a firm are
related to privatization as shown in figure 2
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The fundamental question asked of all entrepreneurs surveyed was: "In your opinion, is the
economy of Bangladesh privatized enough for the growth of entrepreneurship?"
The response to the question is expected to be dichotomous—" yes" or "no." The
entrepreneurs were then asked a series of questions which are also dichotomous. The basic
instrument is presented in Table 1.
 66 IJCM Vol. 10. No. 2, 2000

TABLE 1

Variables in the Survey Instrument

Question Response (Yes/No)

Is the economy privatized enough
Long term capital available (LTC)
Short term capital available (STC)

Interest rate too high (IRT)

State of economy (healthy) (ECO)
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Enough demand for product (DEM)

Able to pass on price increases (PIN)
Labor management problems (LMN)

Enough trained labor (TLB)

Taxes too high (HTX)

Domestic competition too strong (DCM)
Foreign competition prohibitive (FCM)

Government regulation causes hinderance (REG)

Lack of experience in financial planning(FIN)
Quality of product a concern (QUA)
Are consumers knowledgeable (CON)
Is there difficulty in marketing products

Is there lack of government support (GSP)

Is there lack of communities support (CSP)

The research design has been used in a similar study by Mondal and Zapalska (1997).
Appendix A contains the survey questionnaire.
 IJCM Vol. 10, No. 2, 2000 67

THE MODEL

The discriminant analysis was used as the model to accomplish the objective of this
research. As Klecka (1975) explains, "The mathematical objective of discriminant analysis is to
weight and linearly combine the discriminating variables in some fashion so that the groups are
forced to be as statistically distinct as possible. In other words, we want to be able to
'discriminate' between the groups in the sense of being able to tell them apart" (p. 435). In the
present case, the groups will be defined as those who believe that the economy is privatized
enough for the growth of entrepreneurship in Bangladesh, and those who do not believe so. The
discriminating question which may be thought of as the dependent variable of the model is the
leading question on privatization.
The respondents will fall in two groups—those responding "Yes" (Group 1) and those
responding "No" (Group 0). The other questions form the discriminating or "explanatory"
variables of the model.
The general form of the discriminant function is:
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where D. is a score on discriminant function i, and di - dp represents weighing coefficients on p

discrimination variables. The Zs are the standardized values of the discriminating variables used
in the analysis.
The maximum number of functions which can be derived is either one less than the number
of groups or equal to the number of discriminating variables, if there are more groups than
variables. In this particular case, since we have two groups, there will be one discriminant
function.
There are two phases of discriminant analysis. In the first phase, a discriminant function
is estimated, and in the second phase, the groups are classified. A number of tools are available
for interpretation of the data. Much like multiple regression or factor analysis, statistical tools are
available for measuring the success with which discriminating variables actually discriminate when
combined in the discriminant function.
The classification phase of the discriminant analysis follows the initial computation. When
the groups are defined and a set of variables provide satisfactory discrimination for cases with
known group memberships, a set of classification functions can be derived which will permit the
classification of new cases with unknown membership. Thus, in our case, once we find
characteristics that are associated with economic and social conditions of entrepreneurship, we can
use these to predict the growth of entrepreneurship in Bangladesh.

IV: DATA AND ANALYSIS

Data for this study were collected using a "purposive sample." A purposive sample "is one
arbitrarily selected because there is good evidence that it is very representative of the total
population" (Guilford & Fruchter, 1978).
In collecting data, two major factors were considered:
 68 IJCM Vol. 10, No. 2, 2000

• Representation of all economic sectors

• Representation of various geographical regions

Data were collected from entrepreneurs located in Dhaka, Chittagons, Sylhet, Lalmanirhat,
and Rangpur , representing the following economic sectors:

Manufacturing 10
Services 30
Construction 15
Finance/Real Estate 6
Retail Trade 5
Wholesale Trade 5
Total 71

RESULTS OF DISCRIMINANT ANALYSIS

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In response to the leading question on privatization, 51 of the 71 entrepreneurs responded

that the economy of Bangladesh was not privatized enough for the growth of entrepreneurship.
These entrepreneurs were classified in group 0. The group of 20 entrepreneurs who responded
that the economy was privatized enough were classified in group 1. The discriminant function
estimated using the 18 discriminating variables yielded the following results:

TABLE 2

Discriminant Analysis Results

Dependent Variable Group Means (Group Centroids)

Economy not privatized enough (Group 0) .2690
Economy privatized enough (Group 1) -.6858

Discriminating variables Standardized canonical coefficients

Long term capital (Available 1, Otherwise 0) .6294 (not privatized enough)

Short term capital (Available 1, Otherwise 0) .0728 (not privatized enough)

High Interest Rate (Yes 1, No 0) .1991 (not privatized enough)

State of economy (Good 1, Otherwise 0) .4007 (not privatized enough)

Demand for product (Enough 1, Otherwise 0) .0506 (not privatized enough)

Pass on price increases (Yes 1, No 0) -.1642 (privatized enough)

 IJCM Vol. 10, No. 2, 2000 69

TABLE 2
Continued

Labor Management Problems (Yes 1, No 0) -.0220 (privatized enough)

Enough trained labor (Yes 1, No 0) -.2920 (privatized enough)

Taxes too high (Yes 1, No 0) .2209 (not privatized enough)

Domestic competition (Strong 1, Otherwise 0) -.0320 (privatized enough)

Foreign competition (Strong 1, Otherwise 0) .2846 (not privatized enough)

Excessive Government regulation (Yes 1, No 0) .3714 (privatized enough)

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Lack of financial planning experience (Yes 1, No 0) -.1097 (privatized enough)

Quality of product (Concern 1, Otherwise 0) -.0187 (privatized enough)

Consumers knowledgeable (Yes 1, No 0) .1230 (not privatized enough)

Difficulty in marketing products (Yes 1, No 0) .0548 (not privatized enough)

Government support (Yes 1, No 0) .1230 (not privatized enough)

Community support (Yes 1, No 0) -.0548 (privatized enough)

Evaluation of Discriminant Function

Canonical correlation coefficient .8408

Wilk's Lambda .8807

Percent of cases correctly classified 100

 70 IJCM Vol. 10, No. 2, 2000

The discriminant analysis may be conducted using the direct method or several versions of
the stepwise method. When the direct method is used, as in this case, all independent variables are
entered into the analysis concurrently and the discriminant function (or functions) is created directly
from the entire set of independent variables. This method is appropriate when the objective is to
determine the privatization of the economy and its impact on new product development, technology,
supply of raw materials, opening of new market, and establishment of new economic organizations
based on the perception of the entrepreneur.
The group means reported in Table 2 indicates the degree to which the estimated
discriminant function separates the two groups. Each group mean, or centroid, is determined by
estimating the discriminant score using the group's mean values of each discriminating variable. In
interpreting the result, the sign of the group mean value is useful. In our estimate, the sign of the
group mean for those who think that the economy is privatized enough is negative, and for those
who think otherwise the sign is positive. This suggests that a variable which makes a positive
contribution to the value of the discriminant function "explains" why the economy is not privatized
enough, while a variable which makes a negative contribution "explains" why the economy is
privatized enough for the growth of entrepreneurship.
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There are 11 variables in Table 2 with a positive sign. These variables explain why the
economy is not privatized enough for the growth of entrepreneurship. It is to be noted here that
these are the perceptions of the entrepreneurs, not necessarily reality. The variables which explain
why the economy is not privatized are arranged in Table 3 by the size of the canonical correlation
coefficient.

TABLE 3

Explanatory Variables for Non-Privatization

● Non-Availability of long-term capital

● Poor state of the economy
● Excessive government regulation
● Strong foreign competition
● High tax rate
● High interest rate
● Lack of Government support
● Lack of consumer knowledge (about product)
● Non-Availability of short-term capital
● Difficulty in marketing products
● Inadequate product demand

The three most important variables which explain why the economy is not privatized
enough for the growth of entrepreneurship are: non-availability of long-term capital, poor state
of the economy, and excessive government regulation, followed by strong foreign competition,
high taxes, and high interest rate. These variables provide interesting insights. Let us take the
case of long term and short-term capital. While the non-availability of long-term capital has the
highest correlation with privatization, the non-availability of short-term capital had a weak
 IJCM Vol. 10, No. 2, 2000 71

correlation. An entrepreneur usually starts a business with his or her own money. Therefore,
availability of short-term capital is not a concern; however, for the growth of entrepreneurship and
private business, long-term capital is essential.
State of the economy is self explanatory. It is, however, interesting to note that when the
survey was undertaken during the summer of 1997, the economy was relatively healthy and there
was a bumper crop. Obviously, the perception of the entrepreneur extended beyond the situation
prevailing at that time. The "strong foreign competition" variable is an interesting observation.
Our analysis indicates the plentiful supply of foreign consumer goods result from the liberal
import policy of the Government.
Entrepreneurs are risk takers. They take risk with their innovations and with their capital.
From that standpoint, one would not expect an entrepreneur to depend on Government support.
In the special case of Bangladesh, however, where the financial institutions are tightly regulated,
starting up a new business often requires Government support and patronage.
There are three variables in Table 3 which deal with the opening of new markets. These
variables are: lack of consumer knowledge, difficulty in marketing products, and inadequate
product demand. In an emerging economy, marketing a new product is often a challenge. Our
finding in this regard is similar to the study conducted for Poland (Mondal & Zapalska, 1997).
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On the other side of the coin is the set of variables which explain why the economy is
privatized. These variables may be interpreted as the symbol of success of an economy in the
process of privatization. The variables are: availability of trained labor, ability to pass on price
increases, financial planning experience, community support, existence of labor management
problem, strong domestic competition, and concern for quality of product.

V: SUMMARY, POLICY IMPLICATIONS AND RECOMMENDATIONS

Despite repeated natural disasters and persistent political turmoil, the economy of
Bangladesh has fared well since the mid-eighties. During 1985-95, the average annual growth rate
of the GNP was 2.1%, which compares favorably to most developing countries. Among other
factors, the strong performance of the private sector and increasing reliance on market forces made
this growth rate possible. The existence of the state-owned enterprises, however, erodes much
of the growth, and the huge losses suffered by these enterprises pose significant constraints to
economic development.
The economy of Bangladesh is also characterized by a huge bureaucracy with tremendous
regulatory controls that interfere with the market forces. The existence of the central planning
authority (Planning Commission) and its seemingly unlimited authority in the allocation of
resources serves to slow down the development process. Many of the regulatory functions of the
Planning Commission (such as setting targets) are reminiscent of similar bodies that existed in the
now-defunct command economies. In the presence of planning mechanisms at the ministry and
departmental levels, one wonders if the functions of the Planning Commission are redundant.
During the past decade, Bangladesh has witnessed the emergence of what Schumpeter
called "the distinct sociological class"—the class of entrepreneurs engaged in the process of
"creative destruction" by innovating and taking risk with new products, new technology, new
sources of supply, new markets, and new economic organizations. This class of entrepreneurs,
 72 IJCM Vol. 10, No. 2, 2000

according to the popular press, are facing enormous difficulties because of lack of capital,
bureaucratic hindrances, and lack of opportunities in an otherwise undeveloped market.
Against the above background, a survey was conducted during the summer of 1997 in
various parts of Bangladesh with a view to analyzing the relationship between privatization and
the growth of entrepreneurship. A survey instrument was designed to elicit responses from the
entrepreneurs.
The study was designed based on the pioneering works of Joseph Schumpeter. The
instrument relied on dichotomous responses from entrepreneurs about their perception of key
socio-economic variables associated with privatization and entrepreneurship. A total of 71
entrepreneurs were selected in various parts of Bangladesh. These entrepreneurs covered all
important economic sectors. The discriminant analysis model was used as the basis of analysis.
Seventy-two percent of the entrepreneurs responded that the economy was not privatized enough
for the growth of entrepreneurship, while 28% thought otherwise.
The important reasons why the entrepreneurs thought the economy of Bangladesh was not
privatized enough were: non-availability of long-term capital; excessive government regulation;
strong foreign competition; high tax rates; high interest rate, and general difficulties in creating
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market conditions in a regulated economy.

The respondents who thought that the economy was privatized enough for the growth of
entrepreneurship concluded that such growth was aided by, among other things, the availability
of trained labor and financial planning experience.
Based on the above results, the following recommendations are in order:

(1) Long-term credit should be made more accessible to entrepreneurs, particularly to those
who have established themselves in their business.
(2) Government regulations which interfere with the free play of market forces should be
lifted. The Government, in this regard, should be guided by recommendations made
by other studies.
(3) The Government should evaluate its liberal import policy as well as unauthorized entry
of goods to the markets of Bangladesh. While domestic competition is healthy for a
growing economy, excess supply of foreign goods often hamper the growth of domestic
industries at an early stage.
(4) The Government should re-evaluate the impact of taxes on the growth of free
enterprise. High taxes are counter-productive during the initial stage of growth of a
young economy.
(5) The Government, through its monetary policy, should create conditions of lower
interest rates. In this regard, the reform of the financial sector, including collection
of default loans, may enable the Government to adopt an expansionary monetary policy
which will lower the interest rate.
(6) The Government should devote resources to educating consumers, and at the same time
help create an environment where consumers and producers can exchange knowledge
of new products.
(7) The Government should encourage the use or adoption of such beneficial activities as
financial planning, and executive and managerial education.
 IJCM Vol. 10, No. 2, 2000 73

LIMITATIONS AND SUGGESTIONS FOR FUTURE WORK

Because of resource constraints, this study could not be conducted at a larger scale.
Although 71 observations constitute a large sample, a larger study using other sampling techniques
may reveal more useful information.
Since the most important factors associated with privatization and entrepreneurship appear
to be availability of long term capital, government regulation, foreign competition, and trained
labor, these issues need to be investigated in a different study, perhaps involving different
methodologies.

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Wali I. Mondal is a Professor of Business at Henderson State University, Arkadelphia, AR.

 74 IJCM Vol. 10, No. 2, 2000

Appendix A
PRIVATIZATION AND GROWTH OF ENTREPRENEURSHIP IN BANGLADESH

SURVEY OF ENTREPRENEURS

Economic Sector
Annual Revenue (Est)
Years in Business

Please answer "yes" or "no" to all questions.

In your opinion, is the economy of Bangladesh privatized enough for the growth of
entrepreneurship? Yes No
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In your opinion,

1. Is long-term capital available when you need? Yes No

2. Is short-term capital available when you need? Yes No
3. Is the interest rate high? Yes No
4. Is the state of economy good? Yes No
5. Is there enough demand for your product? Yes No
6. Are you able to pass on price increases? Yes No
7. Do you encounter labor management problems? Yes No
8. Do you have enough trained labor? Yes No
9. Are taxes too high? Yes No
10. Is domestic competition strong? Yes No
11. Is foreign competition too strong? Yes No
12. Are government regulations excessive? Yes No
13. Do you possess financial planning experience? Yes No
14. Are you concerned with your product quality? Yes No
15. Are consumers knowledgeable about your product? Yes No
16. Do you have difficulty marketing your product? Yes No
17. Do you think government is supportive of your enterprise? Yes No
18. Does the community support you? Yes No
 This article has been cited by:

1. M. Rafiqul Islam, Ali Farazmand. 2008. Perceptions of Civil Servants Toward Privatization and
Development: A New Exploratory Study. Public Organization Review 8:1, 37-52. [CrossRef]
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