Transaction Costs, Bargaining

Bangladesh and Transaction Cost Problem.

Problem-1: Professor Dr. Rashed Al Mahmud Titumir, In an interview with
Prothom Alo's AKM Zakaria and Monoj Dey Resource dependent syndicate has
been created in the politics and economy of Bangladesh. Politicians, the executive,
the judiciary, the law enforcement—all have built a society of unearned income
through a culture of transactions. Similarly, they have again divided the boundaries
among themselves. They want to maintain the status quo for their own sake. They
do not make any changes, but become obstacles to change.
Problem-2:If investment does not become the main instrument of economic growth
or gross domestic product, that economy cannot sustain. Due to Transaction Cost
Problem, investment becomes unable to become the main instrument of economic
growth. (Investment should be main instrument of economic growth.)
Proble-3: (In Business standard-2023: In order to achieve transformational and
sustainable growth, inclusive institutions and competitive political systems are a
must.
Problem: Agricultural Productivity Falls In Bangladesh
PRODUCTIVITY AND PRODUCTION INPUTS

• Why Agricultural Productivity Falls: The Political Economy of

Agrarian transition in Developing Countries By Rashed Al Mahmud
Titumir University of Dhaka, Bangladesh
• Neoclassical economics says when transaction costs are lowered, less
productive farmers will sell their land (and will benefit from this sale) to
more productive farmers, who will thus begin to dominate the market.
• Land fragmentation is increasing, not because of the greater productivity of
smallholders but because of demographic forces. The increase in the
number of households has a positive correlation with increasing land
fragmentation.
• Population growth was the major reason behind land fragmentation.
Capitalist development has not yet wiped out the smallholders in
Bangladesh, largely due to the nature of the process of differentiation,
which has led to the eventual impoverishment of the landless farmers,
leading to a shift in land relations that is not accompanied by an increase in
productivity.
Problem: Agricultural Productivity Falls In Bangladesh
PRODUCTIVITY AND PRODUCTION INPUTS
• The breaking up of landholdings as families expand and
disperse is a much more powerful force behind land
fragmentation than productivity differentials driving land
transactions. Apart from division of land between siblings,
land sales coincide with the rapid growth of young families.
Early marriage is reportedly a driver
• when families grow quickly, households are forced to sell to
generate cash. Additionally, some fragmentation happens.
• Many households suffer land loss due to river erosion.
Market and Non-M arket Drivers of Agrarian
Transition
• Market-based accumulation refers to the transaction of land through formal
and institutionalized contracting structures,
• whereas primitive accumulation is the nonmarket reallocation of land.
• Common in transition economies before capitalism has become dominant.
• The neoclassical perspective goes further to assume that land transactions
are based on a “merit-based” system where the price offered reflects the
ability to use land productively.
• Success in land acquisition therefore reflects industriousness. The so-called
“market-based accumulation,” however, can take place in a very “primitive”
fashion as well.
• Whether accumulation of land takes a “primitive” or “market based” form,
the research demonstrates that it is not driving a rapid capitalist transition.
Power, Institutions and Productivity
• Transfers of land are largely dominated by nonmarket processes
in the form of primitive accumulation, as opposed to market-based
accumulation.
• The configuration of power across competing political factions means
that the agrarian transition is slow and sometimes even blocked.
Differentiation And Transition
• Bangladesh, like many developing countries, is not experiencing a classical agrarian transition.
• The continuance of fragmentation of plots due to demographic changes increases the number of smallholders
while the agrarian system continues to remain skewed against the poor cultivators, and both processes
increase landlessness, with laborers in distress.
• It seems that Bangladeshi agriculture has neither been able to provide a surplus to the nonagriculture sector—
rather,
• A majority of the transactions in agriculture are financed by nonagricultural sources including remittances
• Nor has it been adept in generating a major rural market for industrial produce.
• The village studies, demonstrate, surplus value created in agriculture feeds into the accumulation of traders-
cum-moneylenders through interlocked markets, and agro-industries and multinational companies providing
inputs and machines such as seed, water, fertilizer, and pesticides.
• The number of smallholders is increasing,
• The range of farm sizes is actually quite narrow.
• Even “large” farms are in fact quite small in absolute terms.
• There has been falling profitability of agricultural production.
Market and Non-Market Drivers of Agrarian
Transition
• First, if markets are to drive productivity growth toward a capitalist
transition, land has to be transferred to more productive land users.
• Second, capitalism has not yet eliminated smallholders.
• Third, the view that capitalist transitions occur through benevolent
compulsions to enhance production is a fallacy that continues to drive
neoclassical perspectives on what is required for a smooth transition to
capitalist agriculture.
• Fourth, input-output markets for agricultural products are often
interlocked and the source of insecurity for farmers as the sector has
become much more dependent on the market supply of inputs over the
years.
Market and Non-Market Drivers of Agrarian
Transition
• In rent extraction while the peasantry is being pauperized, and the majority of transactions are financed
by nonagricultural incomes, including remittances from family members living outside the village,
• As the surplus is not enough to finance such transactions.
• Small farmers exhibit the greatest tenacity in holding on to their last pieces of land.
• The hiring of labor by small farmers does not make them “capitalist” since even petty commodity
producers need to employ labor during peak periods. The employers of labor are too numerous for large
landlords to attempt to play a monopsonic role in the labor market in Bangladesh and countries like it.
• The increase in landlessness points out that the absorption in the formal labor market has contracted
while most of the absorption is in the informal sector,
• With agriculture still remaining the largest employer.
• Analysis of the wage structure demonstrates the distress of the laboring classes. State support in the
form of public expenditure in agriculture has witnessed a downward trend, particularly after the
neoliberal reforms.
• For example, the poor cultivators have limited access to institutional credit and ownership of
technological devices.
• The agrarian development and agrarian transition should be understood in relation to the wider
(nonagrarian) economic developments in society, as political settlement and primitive accumulation
permit (inhibit) property rights being reallocated in growth-enhancing directions.
 Sustainability And Human Society:
• Agricultural production experienced a major shift at the end of the last century. Factors like mechanization, irrigation, fertilizers,
and pesticides were introduced. Sustainability in agriculture means the ways of practicing farming that maintain the long-term
viability of the agricultural. Environmental protection and consumer safety. A management strategy that allows farmers to select the
appropriate varieties of seed, conserve soil, balance sources of water for irrigation without destabilizing groundwater, use a fitting
mix of fertilizer without hurting soil nutrients, practice excessive use of pesticides. Sustainable agriculture largely contributes to
minimizing adverse impacts on the environment, ecology, and ecosystem. Conservation of natural resources, biodiversity.
Challenges for sustainability in agriculture is the need to produce more food from a rapidly fragmenting landmass in order to meet
the exponentially increasing demand for food due to the population size. The prices have to be affordable to all income groups.
Ensuring that lower prices are not achieved at the expense of adversely affecting the environment. To ensure sustainability in
agriculture, emphasize the practice of human sociality in production and consumption.
• Developing a human–nature reversible relationship will constitute perceiving nature as the melting pot for humans and other living
beings existing in cohabitation, coexistence, and co-dependence. Human–nature relationship goes beyond perceiving nature only as
asset, will govern decisions of production and consumption that lead to a balanced coexistence and sustainability.
• In Bangladesh, riverine land has experienced great fertility, the country has seen the rage of nature and disasters.
• Living in harmony with nature, has always been neglected in the country’s development. Human beings consider nature as
the supplier of commodities that provide monetary value, leading to overextraction of natural resources as well as little
concern for nature’s well-being. The relationship between nature and humans has become lopsided as more natural
resources are being extracted. Without thinking about consequences.
• Both formal and informal institutions and streamlining the flow of productive resources, technology, and innovation through
institutions can help. The strength of formal and informal institutions can further allow greater economic and climate resilience of
the community, generate stronger adaptability to cope with shocks, as part of developing human sociality with the forces of nature.
Trade-related transaction costs
• Trade-related transaction costs such as cargo charges and other logistical
expenses are a crucial determinant of Bangladesh’s ability to participate
competitively in a global economy. Some general problems that add to the
costs of trade are:
1. Port congestion affecting turn-around time for feeder vessels and railway
wagons.
2. Complicated and duplicative Customs procedures.
3. Complex and non-transparent administrative requirements, often
pertaining to documentation.
4. High costs for processing information resulting from limited automation.
The Work of Coase and Williamson
• Building on the seminal work of two Nobel laureates (Coase, 1937;
Williamson, 1975, 1985), transaction cost theory (TCT), or transaction
cost economics, has become one of the most influential theories in
management research. Originally applied to the “make-versus-buy”
vertical integration decision, TCT has been used to shed light on a
broad range of organizational phenomena, including horizontal
diversification, the multinational enterprise, strategic alliances, supply
chain relationships, and public–private partnerships (PPPs).
• TCT has also expanded to encompass an increasing roster of factors
that predict governance choice, as well as the performance
consequences of this choice.
Ronald Coase received the Nobel Prize in
1991 “for his discovery and clarification of
the significance of transaction costs and
property rights for the institutional structure
and functioning of the economy.”
Oliver Williamson: Transaction Cost Theory
Williamson's transaction costs
theory focuses on the design of ex-
post contract governance structures
in order to reduce various specific
kinds of anticipated ex-post
contractual hazard (transaction
costs related to the governance,
management, and enforcement of
transactions/contracts).
Bargaining
Unnayan Onneshan Survey Of 2013
Identifies The Problem Of Bargaining
• Accumulation by dispossession: state of labor in Bangladesh by Dr. Rashed
Al Mahmud Titumir sir.
• Informalization thrives as outcome of normal profit-seeking activity by
capitalist firms. The flexible employment relationships produce cost
reductions and also undermine labour protections, social security measures,
and labors' bargaining power.
• According to an Unnayan Onneshan survey of 2013, There is also a
growing trend of subcontracting of temporary and seasonal workers at the
expense of workers’ benefits and entitlements such as holidays, bargaining
rights and social protection.
• Towards A Right to Work Framework
• rights and wages, often the fruits of hard fought bargaining, are also
seeming to be part of the problem in the current orthodox thinking.
Bargaining Problem
Bargaining Problem (Continued)
Bargaining Problem Using Game Theory
• To explain how people normally think when they are bargaining we need to
use the Game theory (1950).
• When we use Game theory model we can reveal this causation.
• Three step method-
1.make assumptions,
2. game Theoretical Logic,
3. Draw conclusion.
• Game Theory gives me the power to keep accounts of what causes what.
(what causes X to do Y)
• But just assumptions with which we need to be very careful., not the actual
thing.
Sources of Bargaining Power
1. Power Proposal (Making offers to the other side, Accept/Reject, you can not say
only yes or no)
2. Patients (Not getting a deal, you get a better deal, the richer gets richer, have
patient or the side wins)
3. Outside options (competitive offers from outside parties)
4. Knowledge of the other side’s minimum value
5. Being a monopoly (Unique quality partners want all the benefits)
6. Reputation (A good lawyer gets more clients)
7. Credible commitment (Contracts are good, Black market bad)
8. Knowledge (deals are closer to other side bottom line, costly, try as much
benefit as you can take but risk will be higher)
9. Costly signals of higher value (signals you are worth more, leads to better offer)
Idea of "elite bargain" in Bangladesh
The political elite— those
with power and influence—
often tend to determine how
the state is usually run.
- Dr Stefan Dercon
Professor of Economic Policy at
the Blavatnik School of
Government and the Economics
Department at the University of
Oxford, refers to this as "elite
bargaining".
Bangladesh and Bargaining (Elite bargains)
• Elite bargains are defined as: A discrete agreement, or series of agreements, that
explicitly. sets out to re-negotiate the distribution of power and allocation of resources
between elites.
• A developmental model is not always dependent on the political system or the
condition of the institution per se, but depends largely on the ability to pragmatically
adopt and use these institutions and systems for better development.
• According to Professor Dercon, growth and development occurs when the elite
bargaining is centred around a commitment to growth.
• To achieve such growth, the state has to have a commitment to peace and stability, be
self-aware— be realistic of its resources and abilities, and lastly be willing to learn
and to make itself better.
• He refers to this bargain centred around growth and development as a developmental
bargain.
• Bangladesh is an example of a country that benefited from the "elite bargain"
model. The country has gone from being a "basket case" to doing extremely well in terms
of having sustained growth in the last 20 to 30 years.
Bangladesh and Bargaining
• According to him, countries often tend to achieve economic development
despite implementing policies which appear to be imperfect on paper, while
other countries with seemingly perfect plans are often unable to achieve
development.
• This made him realise that it was not only important to focus on what was
being done to achieve development, but also how and why it was being
done.
• Professor Dercon's book emphasised on garments, remittance and NGOs as
the key drivers of Bangladesh's development. Alongside, agricultural
transformation has also been an important driver,
• which has benefited not only from the liberalisation policies of the
government but also from active programmes such as rural road
development and public investment in agricultural research.
Bangladesh and Bargaining- Collective
Bargaining Agreements (CBAs)
• Collective Bargaining Agreements (CBAs) are written, legally
enforceable contracts between management and employees for a
specified period. The collective bargaining process is generally
facilitated by trade unions, and I gives employees and management a
platform to agree on what they need from each other.
• Mostly recommended for the apparel exporter in Bangladesh.
• CBAs are relatively new to Bangladesh’s apparel sector, but are
already emerging as an alternative form of dispute resolution. Since
2013, an estimated 51 collective bargaining agreements have been
signed here.