I have been working for a tech start-up called Battery Low for some time now, and it is a promising start-up, at that (don’t just take my word for it though). It is a software firm that specializes in website, game and app development; and is specifically adept with virtual and augmented reality technology.
I primarily work in the business development team, which basically handles everything from marketing and risk assessment to sales and even HR.
As part of risk assessment, every once in a while we talk about what to do if all our clients default on payments and Battery Low is on the verge of bankruptcy.
The solution to bankruptcy that was discussed involved inviting a bigger and better business to invest. The downside would be that the bigger business would limit the independence of Battery Low; control over our decisions will be reduced, and some of the future plans for the business will have to be abandoned if the said big business does not like them.
The other solution was to take a loan from banks. This seemed even scarier; as a tech firm, we don’t have an abundance of property to offer as collateral in case of payment failures leading to seizures. That makes it difficult for us to take out big loans and the terms and conditions would be particularly harsh.
This situation is a direct upshot of the banking crisis that has been plaguing our economy in recent years.
The crisis essentially refers to the staggeringly large amount of money that our banking sector lost through massive loan defaults or embezzlement schemes. The resulting debt in the banking sector is so huge, it is destabilizing the very industry itself.
There are also obvious political reasons for which bigger clients cannot be denied loans, so the victims end up being smaller businesses
Consequently, banks no longer want to grant loans to small businesses -- they want clients with huge collaterals. This is because the banks involved in embezzlement don’t have enough money to lend in the first place and the other banks don’t want to take on additional risks at this time of economic uncertainty.
There are also obvious political reasons for which bigger clients cannot be denied loans, so the victims end up being smaller businesses.
The erosion of trust
There are numerous social and economic implications of these enormous embezzlement schemes, and the erosion of trust is a major one.
Businesses, regardless of their size and specialty, are now very skeptical when it comes to financial deals. We have had cases of clients doubting as to whether we really are an actual company or not (a problem we usually solve by inviting them to our office and showing them our employees in action).
How is this lack of trust a result of the embezzlement from banks?
Well, for one, if fake companies can be set up on such a large scale, to the point that they can take loans of a thousand crores and beyond, then how difficult would it be to set fake companies on a small scale? And if such large-scale companies can turn out to be complete frauds, why would people trust smaller companies with a few employees working on small capital run by younger (and hence relatively less known) entrepreneurs?
It is now common perception that taxes are being increased to compensate for the money that’s been stolen from the banks.
This means that the additional amount of tax revenue may not be going directly into infrastructure development or education or healthcare. It’s going to be used to reimburse the sum that’s been embezzled so far.
All of which means that the public will be thinking that the government is taking money from them to compensate for embezzlements they did not commit and should bear no responsibility for.
In turn, they will be much less willing to pay taxes and will be very suspicious of the government, which will be seen as providing cover for the criminals who committed the embezzlement.
Bottom line: The people no longer trust the experts in charge of economic policies. And while academics were once considered as fair voices relative to bureaucrats and politicians, now experts in all three categories are equally distrusted.
And if the people don’t trust the government, why would they trust each other?
The end result is a scenario of mutual suspicion, in which businesses wouldn’t trust clients to hold true to payments and wouldn’t trust vendors to give them a fair price.
This will also lead to a scenario of greater tax evasion, as businesses will clearly not be interested to pay extra taxes if it does not lead to developments in infrastructure (roads for one, are in terrible condition, and are costing us a lot).
Investment, innovation, and integration
If businesses are wary of their financial solvency, they would be much less willing to take risks and invest in enhancing productivity, such as on research and development or on human capital through training etc.
This means they would not be giving much attention to newer technologies (which is basically the area my firm specializes in) and we may end up losing opportunities and global market share to businesses from other countries.
And while we are on the subject of international trade and commerce – there has been much talk lately about greater regional integration between Bangladesh and its neighbours, and since I am a fan of economic liberalism, I would normally support such a move.
But what I do not understand is, as we currently do not have adequate regional integration within our borders, how are we to achieve regional integration across borders?
And do we have the strong financial framework necessary to integrate with economies that are outperforming us, without getting crushed?
Hiding in plain sight
What are some of the red flags that indicate that our economy is not headed in the right direction? For one: Taxes (particularly the value added tax or VAT) are currently too high in this country.
They exist on the smallest of things and are increasing with every annual budget. We now have VAT on bread too, that is, on food, making it an exceptionally regressive form of taxation.
To admit this seems to contradict my faith in the welfare state, but I assure you, it does not. The increase in tax rates has not been correlated with improvements in the welfare system of Bangladesh. If anything, it correlates with a financial crisis and an aggressive inequality between the 1% and 99%.
Inequality has never been higher here, and one of the primary factors behind it is the banking crises, by which I mean the embezzlement schemes carried out under the guise of loans.
I call it a crisis because of the extent and magnitude of the damage it has caused. While the effects may not be entirely visible in plain sight, they are indeed present and are certainly harmful.
They deserve a lot more attention and scrutiny than is currently being given to it.
Things are going to get bad before they get better. I would like to believe that they will, eventually, get better.
Fardin Hasin is a freelance contributor