GDP growth as an indicator of progress is popular among politicians and policy makers all over the world.
It is easy to use for demonstrating their performance and to convince voters to vote on their behalf (i.e., where people can genuinely vote). This is perhaps one reason why it has been enthroned again after being dethroned due to its limitations. Bangladesh is no exception. In fact, the immediate past government made unrealistic projections of GDP growth (of 8-9 per cent per annum) to create expectations of becoming an upper middle-income country by 2031 and a high income one by 2041.
To make their case convincing, policy makers in developing countries sometimes add performances in areas, e.g., poverty reduction, education, and health care as palliatives. But important questions relating to real development which may be difficult or uncomfortable are either ignored completely or given a lip service.
Economic growth has been accelerated but real development issues have been ignored
For more than three decades, there was a gradual acceleration in economic growth, and it has been associated with improvements in some social indicators like poverty reduction, enrolment in primary education, and decline in child mortality. The emphasis on growth was so strong that sometimes achieving it became a kind of fetishism. In recent years, the government was occasionally accused of unduly influencing government statistics to demonstrate good performance. And difficult questions of development have been ignored. For example, the economy and the people have remained vulnerable in the face of shocks, e.g., pandemic, war, global economic recession, etc. Inequality in the distribution of income has risen considerably, and the performance of the labour market has been disappointing, to say the least.
What kind of economic growth has been taking place in the economy can be illustrated with the example of employment and especially youth unemployment. Figures from the labour force surveys of the Bangladesh Bureau of Statistics show a few things (Table 1). First, employment in the manufacturing sector declined between 2016-17 and 2022 - from about 8.8 million (88 lakh) to less than 7.9 million (79 lakh). The bulk of the decline took place in textiles. The major source of employment - the readymade garment industry added only 146,000 jobs during this entire period. Going into further details, we see that the number of women in the industry fell from 15.3 lakh to 13.5 lakh. The data mentioned above shows that manufacturing is no longer absorbing surplus workers available in the traditional sectors. On the contrary, the proportion of employment in agriculture increased from 40.6% in 2016/17 to 45.36% in 2022. Thus, contrary to what is expected, there has been a reverse movement in the labour market.
The poor performance in employment as a whole and in manufacturing are reflected in the trends in youth unemployment. Data presented in Figure 1 shows that unemployment rate among the youth is not only much higher than overall unemployment but it has been rising since 2010. The rise is particularly noticeable for young men. It also needs to be noted that the fall in overall youth unemployment in 2022 compared to 2016-17 is entirely due to the fall in the case of women which in turn can be explained by a big rise in own-account work for the latter. There has not been any real improvement in the overall employment situation of the youth. So, the frustration and discontent among them is easily understandable.
Vulnerability of a large proportion of the population remains a major problem
The vulnerability of poor and low-income people to shocks of different kinds can be illustrated with the help of two examples. It may be recalled that the economy was hit by a sudden shock during 2020 when the COVID-19 pandemic caused havoc not only to public health but also to the economy. Alongside the death of a large number of people, many economic activities were adversely affected, and people engaged in them lost their jobs and incomes. As a result, many who were not poor before the pandemic became poor. While the government in power at that time did not come up with any estimate of this number, estimates by independent researchers and institutes indicates that the number was quite large. Why did it happen? The simple reason is that there were many who -- although not poor -- were close to the poverty line and did not have theability to absorb shocks. There was hardly any institutional support that could help them prevent a fall into poverty.
Another illustration of vulnerability and its impact on poverty can be provided by the possible impact of inflation of 2023 and 2024. During this period, the rate of inflation rose to around 10%. Such a rise in prices means that the cost of a household's consumption bundle goes up even without any change in the physical quantities. In other words, the poverty line itself goes up. If income does not increase proportionately, households (or people) who are close to the original poverty line would face the danger of falling below it. For 2024, my estimate indicates the possibility of about 1.7 million (17 lakh) additional people falling below the poverty line. If that happened, the incidence of poverty would be about 33.5 per cent. It may be recalled that the official figure for 2022 was 18.7 per cent.
Another point about the distribution of people by income or consumption is worth noting. A look at this distribution shows a concentration of people just below and above the poverty line. For 2016 (the year for which such data are available in the published report), the poverty line was Tk.2262 per person per month. The proportion of population in the group 2000-2499 was 15.26 per cent while that for the group 2500-2999 was 14.73 per cent. If half of the latter are assumed to be close to the poverty line and if we add those (18.19 per cent) who were below 2000, the proportion of people who are vulnerable appears to be about 40 per cent. What needs to be emphasized is that it's not just being above the poverty line but the distance from the poverty line is important.
Closely related to vulnerability is real wage of workers
Table 2 shows that while real wages rose during certain periods, the trend has not been sustained. What is particularly notable is the fall in real wages during 2008-09 to 2014-15 when economic growth accelerated. Quite clearly, the benefits of growth have not been shared equitably. And that is reflected in the rise in inequality in terms of distribution of income.
Democracy and political freedom were ignored
It is by now quite well-known that during the past regime (which was overthrown on 5th August), the model of development that was pursued has assumed that democracy and people's rights can be ignored so long as economic growth can be delivered. This approach is not unfamiliar because the countries of East and South East Asia who were successful in achieving rapid growth had authoritarian regimes in different forms. The erstwhile communist countries also followed the same approach. Table 3 shows that those countries got low scores in the index of political freedom constructed by Freedom House, a US-based non-profit organization. Bangladesh not only was in the same league, but its score worsened between 2018 and 2022.
The typical argument behind the above-mentioned approach to development is that political stability is important for maintaining an environment that is conducive for investment and growth; and political freedom can be sacrificed for attaining and maintaining it. That such an approach is short-sighted should by now be clear from the experiences of the South East Asian countries like Indonesia, Thailand, and Malaysia as well as of Bangladesh. Real and sustainable stability is provided by democracy and the possibility of democratic transition rather than by authoritarian regimes.
Economic growth by itself cannot be the goal; it should be the means for attaining development for the people
The unrealistic nature of growth projections made by the previous government is clear from the fact that even after the country came out of the crisis caused by the COVID-19 pandemic it did not return to the pre-Covid growth rate (Figure 2). Worse, growth rate started to decline in 2022-23, and is projected to decline sharply in 2024-25. While the recent plight of the economy can be ascribed to the mismanagement, corruption, and wrong policies of the previous government, it is not clear when it will turn around and will get back to its normal growth path.
Projections made by this author indicate that even if the economy returns to normalcy in 2025 and GDP growth rises to around six per cent after that, it is going to take some 10 years or so for attaining the upper-middle income status. And if GDP growth continues at 6% per annum after that, it will take another 22 years (i.e., 2057) to reach the high-income status. And that is under the assumption of sustained growth for another three decades. To have sustained GDP growth for such a long period of time, it will require not only political stability in the country but also conducive global environment, and deft economic management.
Moreover, we have already seen that with a growth-centric approach, even with GDP growth of six to seven per cent per annum, the goals of the kind mentioned above remain elusive. Hence, the entire approach to development should be changed with an emphasis not only on growth but also on the pattern and outcome of growth. Goals of development should be broadened to include decent jobs, reduction of poverty and inequality, improving the resilience of the people so that they can withstand the adverse effects of crises of different kinds and shocks inflicted by them, and elimination of discrimination of all forms.
Two points need to be noted in connection with discrimination. First, the difference between discrimination and inequality needs to be clarified in public discussion, although the two are often interlinked. Unless the distinction is understood clearly and taken into consideration, discourse on policy and action is likely to get muddled. Second, discrimination of all kinds including gender, ethnicity, and different forms of challenges should be on board alongside discrimination based on family background. It may be noted that affirmative action based on gender, especially for women with low levels of education and household incomes, has been useful in raising the participation of women in the labour force.
Unemployment of the youth implies a waste of a valuable resource. A high and rising rate of youth unemployment means that the country is not able to reap the demographic dividend that is potentially available. To avoid such waste and open possibilities of benefiting from the potential of demographic dividend, serious attention needs to be given to how economic growth can be geared towards creating jobs for them. Rather than giving lip service to this need and using it for pursuing political goals, a strategy has to be formulated to integrate the youth into the growth process and ensure their full and productive utilisation for development.
An effective system of social protection will have to be instituted so that the poor and low-income people do not have to depend on private charity when hit by crises (as seen during the Covid pandemic). Capability of the people will have to be strengthened through better quality education and health services for all women and men.
The environment for attaining the above-mentioned goals will have to be democratic - with freedom guaranteed for expressing one's views and choosing representatives. While clear and concrete improvement in the situation regarding political freedom has to be aimed at, democratic rights will have to be ensured in workplaces as well so that workers have a voice in matters relating to the terms and conditions of their work and the environment in which work is done.
What kind of strategy is needed to attain the goals mentioned above?
In development discourse of the last couple of decades of the twentieth century, East Asian model of development - the focus of which was growth based on labour-intensive export-oriented industrialization coupled with investment in human resource development - was popular. However, that approach in its original form is no longer adequate for pursuing the kind of development mentioned above. While a full discussion of the issue cannot be undertaken within the scope of an article of the present kind, a few points may be mentioned briefly. First, even in countries that attained success with this approach, vulnerability of the low-income people in the absence of institutional social protection was a major issue.
Second, the danger of depending entirely on export markets has come out clearly during the successive economic crises faced by the global economy during the past three decades or so. So, alongside the export market, the domestic market will also need to be exploited for attaining sustained and stable growth. However, for that to work, the distribution of income will have to be more egalitarian and incomes of the middle- and lower-income groups will have to rise steadily at a faster rate.
Third, the authoritarian political framework may provide some semblance of stability for a period, but such stability cannot be durable. The experiences of countries like Indonesia and Thailand show that such stability cannot be sustained indefinitely. The latest example of the failure of such a model of development is provided by Bangladesh. It has become clear that real political stability can be provided only in a democratic framework.
In sum, Bangladesh will now have to chart out its own path towards development that will be for all rather than for privileged few. Such a path can draw on successful experiences, but necessary modifications will have to be made to suit our situation and needs.
The author, an economist, is former Special Adviser, Employment Sector, International Labour Office, Geneva. [email protected]
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