History Of Public And Private Sector Economics Essay

Introduction

The economic development of any country in the world depends upon the size of the role of public as well private sector in the respective countries. The vicious circle of underdevelopment in the underdeveloped countries like Bhutan can be broken down by the intervention of the government in the form of public sector and the increasing of private sector. Wilson and Clark (1997) defines public sector as the part of the economy that is owned by the government which provide benefits to all in the society and not just who uses the service. The public sector includes basic government services such as police, public roads, military, primary education and health care.

Both private and public sector plays an important role in the economic development in modern Bhutan. Public sector have created the social overheads like hospital, public gardens, parks and technical institutions which has greater benefits form better health, higher education and technical skills which benefits the whole society rather than to the individual. Private sector in Bhutan is now able to invest in the economic overheads like roads which are now connected in all parts of Bhutan. The public sector has led to the reduction of economic inequalities and lessening the disparities in income and wealth. Public sector also plays an important role in generating employment opportunities and it gain foreign exchange through export and it further help in promoting competition in private sector and dealing with negative externalities.According to Barbarn (cited in Wilson and Clark, 1997) private sector is that part of economy that is owned by individual and operated for their personal benefits.. Despite having few private enterprise it have contributed to the economic development and alleviating unemployment pressure. So in this way both public and private sector plays an important role in the economic development of modern Bhutan.

This assignment consolidates the emphasis on the role played by private and public sector in the economic development of the modern Bhutan. It further explains various items such as history of public and private sector, indicators of economic development, contribution towards GDP by the two sectors, employment contribution from both sectors and the difficulties faced in development public and private sector.

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History of public and private sector

The private and public sector in Bhutan is small and underdeveloped. With the opening of its door to the rest of the economies in 1960s led to the upcoming of the few private sectors where the main activities were agriculture and trading with the neighboring countries like India and Tibet. The transformation of the economy took place with the rapid growth of urban centers where basic infrastructure facilities were established leading to the growth of economy. As a result of economic growth the private sector development was fostered. The backdrop on Bhutan’s Private Sector (2011) explains that the private sector of Bhutan have been increasing over the years and its activities includes power intensive industries such as cement, ferroalloys and calcium carbide, light manufacturing industries in areas such as fruit processing, few mining companies which mine and process locally available products; a group of sawmilling and other upstream processing industries around the wood industry; a group of service industries supporting the tourism sector and a fast growing construction sector.

Sectors

Year

1980

1990

2000

2007

Primary

57.4

44.1

30.1

20.3

Secondary

11.6

24.3

36.8

43.3

Tertiary

32.9

32.7

34.2

36.4

Table 1: sectoral share to GDP

Source: National Accounts, Statistics, 2000, 2004, 2008

Figure 1: Share to real GDP by major scetor

According to the above table Bhutan’s tertiary sector and secondary sectors performance improved over the years from 1980 to 2007 and its share to the GDP increased over the years while the share form the primary sector declined. The main reason for declining is due to the sectoral shift from primary to secondary. Most of the people were engaged in the agriculture sector and later people started working in the manufacturing and tertiary sectors. This indicates the process of development taking place in the country.

Indicators of economic development of Bhutan

The economic indicators of economic development of Bhutan are as follows:

Gross Domestic Product (GDP)

GDP is the one of the indicator of economic development in the country.

Figure 2: gross domestic product

Source: Statistical Year book of Bhutan(2010)

According to the above figure the GDP of the country increases over the years from 1994 to 2006 indicating an economic development in the country.

Literacy rate

The rate of literacy is another important indicator of economic development. In order to foster economic growth human capital is very necessary, so to develop human resource government of Bhutan is sending many students to study abroad. The education policy is playing an important role in achieving the goal of universal education which would contribute towards building the human capital for the development of the economy.

Life expectancy

Life expectancy is the demographic feature which acts as the socio economic indicator. When life expectancy is higher it indicates the development in health, education and other social services. The World Statistic Pocketbook.(2010) found out that the life expectancy at birth for female is 67.7 and 64.1 years for male in 2005-2010. The life expectancy of Bhutanese is still low so there should be improvement in health sector to increase socioeconomic development of the country.

Balance of payment

The balance of payment is positive when export is greater than import. The positive balance of payment indicates the economic development in the country. According to the annual report of the royal monetary authority (cited in wangdi,2004) asserts that there was 100 percent growth in the balance of payment in July 1, 2002 to June 30, 2003 from nu.1244.0 million to 2573.2 million. There was a flow of loans, grants and FDI which led to the growth of BOP in these years.

Human Development Index

The Human Development Index is one of the important indicator of economic development which deals with the measurement in the development of life expectancy, educational attainment and adjusted real income. Pelvar (2011) found out that Bhutan has moved up four places in its ranking from 135 in 2008 to 131 in 2009 in the UN’s Human Development Index of 2009 and falls under the category of medium Human development.

Contribution of public and private sector towards GDP (GNI) of Bhutan

The contribution by the private sector to the economic growth is higher compared to the public sector. This is mainly due to the upcoming of new projects.

Sl.no

Year

In current prices

2000

2004

2005

2006

2007

2008

1.

Machinery and equipment

3031

5048

4541

1418

1161

1645

Govt

973

739

547

922

712

918

Private

2058

4308

3994

495

449

727

2.

Construction

6385

11,272

9565

9242

9915

9432

Govt

2108

1880

2168

2865

3586

3965

Private

4728

9392

7397

6377

6329

5466

Gross fixed capital formation

9866

16,320

14,106

10,660

11,076

11,077

Change in stock

(354)

(24)

33

(36)

(965)

510

Gross domestic capital formation

9512

16,296

14,138

10,623

10,111

11,587

Table 2: Gross Domestic Capital Formation of public and private sector

National Accounts Statistics Report 2000-2008, National Statistics Bureau, Thimphu

Figure 3: Gross Domestic Capital Formation of public and private sector

According to above figure the gross domestic capital formation for government sector has been at a constant rate but the private sector increase till 2004 at a increasing rate but falls after that.

Employment contribution from private and public sector

Private and public sector plays an important role in reducing the unemployment problems in Bhutan. The government of Bhutan has started to rely on the private sector as the driver of the socio-economic engine of the country. The Royal government of Bhutan has set up many vocational training institutes to provide the job market with skilled workers to reduce the unemployment problem in the country.

According to Peljor (2011) “63 percent of the Bhutanese population is employed in private sector, followed by the government with 24 percent, 10 percent in public sector and 31 percent in non-governmental organization”. The privates sector is the main employment contributor due to the expansion of construction and the tourism sector. Manufacturing sector has also created many employments to the Bhutanese job seekers.

Sector

2002-03

2003-04

2004-05

2005-06

2006-07

total

Government

1,177

1,408

1,036

278

141

4040

Cooperation

316

236

113

560

311

1536

Private

96

201

320

1765

1300

3682

NGO”S

6

20

16

13

0

55

Table 3 : total no of people employed under different sector

Source: Labor Market Information Bulletin (2008)

Figure 4: Total number of population employed under the different sector

There is a significant change undergone in the contribution of employment by the government and private sector from 2002 to 2007 due to increase in private sectors such as industries, construction, tourism, manufacturing and hydro power project. According to the above data in 2002 to 2003 the number of employees working in government sector is 1177 but there is a sharp decline from 2004 to 2007. By contrast, workers in private enterprise are 96 in 2002-03 which is very less compared to public sector. The number of employees of the private sector reached 1765 in 2005-06 exceeding public employees by 1205. Employment contribution by the government sector declined due to the policy of privatization which has increased the number of employees in private sector. On the other hand private sector employs more workers because the privates sector has strong motivation to expand the production and at the same time both skilled and unskilled workers are required in the construction and manufacturing sector.

As stated by the Job creation(,n.d) government of Bhutan is trying to create employment opportunities to the job seekers where efforts have been made to create additional 35-40 thousand jobs in various sectors like construction, tourism, agriculture and ICT and culture industries. The government is expected to provide 10 thousand jobs in the construction in the next three years .Not only private and public sector in Bhutan have played an important role in alleviating unemployment pressure but Non Government Organization and corporate sector are also involved in contributing employment to the job market.

Difficulties in the development of private and public sector

In the development of the private and public sector government undergoes various challenges. Investment Climate Assessment (2009) found out that the main challenges faced by private sector in Bhutan are access to finance, government regulations, labor productivity and skills. The information is not able to reach to the potential entrepreneurs which are one of the difficulties faced in the development of private sector in Bhutan. There are other challenges stated by Investment Climate Assessment (2009) such as lack of skilled Bhutanese workers and seeming unwillingness of Bhutanese workers to undertake menial or unskilled work, Bhutan’s financial system is rudimentary of non-competitive. The private sector development is further hampered by the lack of infrastructure, high costs of doing business and small domestic markets. In order to set up a private company in Bhutan the machineries and the skilled workers need to be imported leading to the high input costs. Due to the high cost of production the entrepreneurs fix high price for the goods to be sold, as a result consumers are not able to pay for the goods where by the consumers buy similar goods from the neighboring countries at a relatively cheaper price. In this way the private entrepreneurs are not able to earn profit resulting in shutting down of the company. When these companies are not running the government is not able to earn revenue in the form of tax. Finally hampering the over all development of the economy.

The transportation has a considerable cost disadvantage insetting up of the both public sector and private sector in the country. The transportation is slow and disrupted by monsoon and associated landslides in summer and leading to slow development of these two sectors.

Role of private and public sector

Private and public sector plays an important role in the economic development of modern Bhutan. Both private and public sector aims at alleviating the unemployment problem by creating various jobs in construction, tourism, manufacturing and other services. Public sector plays an important role in using the resources efficiently for the economic development in various channels.

Development of public and private sectors are encouraged in order to generate employment to the job market. On the other hand the government aims at increasing the tax base of royal government so that government can generate revenue for financing various activities so that the gap between rich and the poor is filled. When the richer section of the people start to set up business they are provided with both financial and non financial incentives, even expertise to private sector, in this way it is directly benefited to the richer section of the society. This has led to further widen of the gap between the rich and the poor.

Conclusion

As Bhutan enters into the world of modern era the private sector has been playing a vital role in the economic development of country. On the other hand the public sector is also playing a major role for the expansion of small as well as medium size industries in the country. There are constraints in the development of private and public sector owing to the lack of infrastructural facilities and financial assistance, lack of skilled human resources has also been one of the problems in the development of the sectors. In order to improve these two sectors it is recommended to provide our young entrepreneurs with soft loans and provide vocational training to those who are unemployed. Improvements should also be made in the access of capital; technologies and other know-how to the public sector and encourage the foreign direct investment to increase in the investment of technologies in the further expansion of the companies.

And lastly Bhutan has a very small market to sell all its output so it would be recommended for the country to join the member of World Trade Organization to expand its market.