Still a long way to go for Bangladesh to fully realise its promises
Sunday, 8 January 2012
Syed Abu Hasnath concluding his three-part article with its theme - 'Bangladesh: From basket case to showcase'
Bangladesh have witnessed during the last two decades continued economic growth, accompanied by discernible social development. As a consequence of population redistribution from rural to urban areas, social change has been equally profound. At the time of Bangladesh's independence, less than 10 per cent of its population lived in urban areas; the current level of urbanisation is more than 30 per cent. This level is not high by global standards, but the rate of growth is substantial, fed by both natural population growth and rural-to-urban migration. By 2050, more than 50 per cent of the population will live in urban areas, which will grow economically faster than rural areas. The acceleration of urban growth does usually result in remarkable structural changes in the economy, with far-reaching consequences for the physical environment of a country.
Economic growth in developing countries is intrinsically linked to changes in the structure of production. There is a tendency to shift labour and capital from low-value-added to high-value-added products. Empirical analyses of structural change usually consider three popular sectors of the economy: agriculture, industry, and services. As a country's economy grows, the relative contribution of the agriculture sector (in Bangladesh, this includes fisheries, forestry, and mining) -- in terms of share in gross domestic product (GDP) and aggregate employment -- declines, while the industrial sector (manufacturing and construction) and the service sector (both formal and informal) grow. At a more developed stage of the economy, both manufacturing and service sectors become much larger in size, but the service sector appears to be dominant, while exports consist of more high-tech manufacturing and higher knowledge- and skill-based services. This process also involves urbanisation of economies. The benefits of co-agglomeration of industries, business, labour market, and services accrue from this process.
By 2010, the agricultural sector's share of employment and value added in Bangladesh declined to 20 per cent and 45 per cent respectively, while the GDP share of its industry doubled since 1970 and the service sector steadily accounted for 50 per cent or more of the country's GDP. The venues of investment and the composition of trade in recent decades have moved from agriculture to manufactured goods. The garment industry and exports of labour are Bangladesh's two principal sources of foreign-exchange earnings. It is heartening to note that shipbuilding is now an attractive industry. Bangladesh also exports pharmaceutical products to 86 countries, including the United States, and 140 pharmaceutical companies currently operate in the sector. The country took in more than US$20 million in exports of software in the first six months of the 2009/10 fiscal year.
The progress of urbanisation has encouraged considerable public and private investment in higher education, health, and human services. Bangladesh had only six public universities in 1976; by 2010, there were 92 universities in total (34 public, 56 private, and two international), which are engaged in disseminating knowledge in science, engineering and technology, medicine, management, and the humanities. Madrasa (Islamic seminary) education is being reformed to educate students in science, mathematics, environment, and social studies along with theology.
There are 10 other institutions of higher learning recognised as universities by the government, and 35 new private universities are coming soon. The health sector in Bangladesh, in terms of new public and private hospitals and clinics and the number of health care professionals, is also making substantial progress. The World Health Organisation, in its 2010 report, notes that in Bangladesh the priority is given to ensuring universal access to, and equity in, health care, with particular attention to maternal and child health and rural health.
Obstacles to progress and the future of development: Despite all the positive developments as noted here, there is no reason to believe that future of sustainable development in Bangladesh will be simple and painless; in fact, it is likely to be arduous and complicated. At the political level, the distance between the two main political parties -- the AL and the BNP -- as well the relationship between political parties and civil society remain as great as ever. This has negative impacts on politics, administration, and institutions.
At the economic level, the dearth of natural resources, the shortage of land, growing population pressures, and natural calamities -- attributable to climate change and intensive utilisation of nature -- have proved difficult to overcome. At the international level, Bangladesh suffers from limited access to international markets and unfavourable terms of trade, and does not receive enough compensation for climate-change damage.
The Bangladesh's economy has become integrated with the global economy predominantly through aid and structural adjustment rather than through trade and foreign direct investment (FDI). The list of obstacles could continue. There are, however, some positive aspects of the current situation in Bangladesh -- at least in theory -- that give reasons for hope. I will focus here on three such aspects.
The demographic dividend: Drawing on contemporary research in various aspects of economic demography, the UN publication, Population Facts, notes that "slowing population growth through lower fertility produces a demographic dividend, whereby the proportion of persons of working age increases with respect to that of children and the elderly. When supported by economic policies that increase employment and strong public investment in education and health, the demographic dividend can itself contribute to development". It is also noted that in recent decades Bangladesh has done exceptionally well in this respect: fertility has declined by more than 60 per cent, from 6.9 children per women in 1970-75 to an estimated 2.4 in 2005-10. As a result, Bangladesh's working-age population has been increasing as a proportion of the total. This shift, in turn, will contribute to a rise in the relative number of breadwinners, stimulating savings and productivity and individual health and welfare.
Size of the market: Population growth enlarges the labour force, a key component in long-term economic growth. The size of the population is also an indicator of potential demand, if the purchasing power of the people can be improved. A large market increases returns to human capital and knowledge. An important feature of globalisation is that the number of producers and products increases more than the number of consumers and markets.
In this case, while global companies aggressively position themselves to obtain a share of the business, countries with large domestic markets have leverage to secure more foreign direct investment or FDI, accompanied by technology transfer and access to international markets. In recent decades, the spectacular growth of the BASIC countries (Brazil, South Africa, India, and China) is credited to a robust domestic market. In Bangladesh, individuals with an income above $2.0 per day (the middle- and upper-income class) number between 40 million and 42 million. Many development economists consider this attribute a frozen demographic potential for the development future of the country.
Another major contribution -- from the perspective of the political geography of population size -- -is conspicuously absent in the development literature. A large population positions a country favourably in the global power hierarchy. India's international influence and China's march to great political power are attributed to, among other things, the large size of their populations.
The late industrialisation (or late-comers) hypothesis in South Asia's economy: The academic literature argues that the more "backward" an economy is the more rapid will be its industrialisation and the greater will be the pressure on the consumption level of the population. South Asia, being a late-comer, has enormous opportunities for rapid industrialisation by taking advantage of (a) low-cost skilled labour and technological diffusion and (b) the Chinese example of shifting from export to domestic consumption. What all South Asian countries (including Bangladesh) need, then, is to adopt a catch-up strategy.
However, there is a parallel literature on the possibility of "pollution heaven" (population growth leading to human-induced pollution) if the developing countries, including South Asian countries, go ahead too fast with manufacturing. In the ongoing debate on global climate-change policy, the issue is to decide what policies are both appropriate and implement-able, including government regulatory measures that can be effectively introduced to prevent such devastating environmental calamities.
Conclusion and a pointer to urban policy: Since the reinstitution of democratic government in 1991, Bangladesh has made considerable progress. While the rising path to progress is consistent, the rate of progress needs to be faster in order to improve the lot of the millions of underprivileged households.
The timeline of economic growth and social development in Bangladesh shows that during the British colonial period the rate of progress was nil or negative, during the Pakistan period it was on average 3.0 per cent and during the period of military or civil authoritarian rule in Bangladesh, the rate was close to 4.0 per cent. In 1978, one Bangladeshi economist defined the country as "a case of below poverty level equilibrium." The situation remained unchanged as of 1991.
Successive democratic governments, however, have been able to break that below-poverty-level equilibrium trap. To some extent, Bangladesh has been reaping the benefits of the virtuous circle of economic growth, leading to prosperity. This may lead us to conclude that national sovereignty matters; people's sovereignty matters more. This is promising.
Bangladesh still has a long way to go before it can fully realise its promises. In this context, Bangladesh appears to become a middle income country by the middle of the next decade if it can accelerate its pace of growth to 7.5 per cent. Although the pace of economic development has accelerated in recent years, its effort to further accelerate the growth rate has been hampered by infrastructure bottlenecks, the inability to create a conducive policy environment that can spur rapid business growth, and the absence of an equitable, transparent, and accountable governance structure.
Institutional underdevelopment, resource constraints, and periodic natural hazards notwithstanding, it appears from the foregoing that the factors and circumstance that stimulate public policy are, by and large, agricultural and rural development at the expense of non-agricultural urban development, consisting of industries, business, and service sectors. This short-sighted, "more of the same" policy has been constraining higher rate of economic growth and employment opportunities in formal sectors.
Nobody will deny the role of agriculture in terms of food supply and rural employment, but it is absolutely clear that there are limits to agriculture's capacity to produce more and more, as the marginal productivity of land, labour, and capital in agriculture is negative over a longer period, following the law of diminishing returns. This sector's relative contribution to GDP and its share in employment has been consistently declining, while the reverse is true in the industrial and service sectors. When economic growth continues, its composition changes.
This outcome of structural change in Bangladesh is not reflected in the pattern of urbanisation and urban development, investment in urban infrastructure, the urban service delivery system, or the allocation of resources in the urban welfare system, particularly toward the less privileged section of the urban population. As a result, urbanisation in general and large cities are particular, is continuing to grow in the form of slums and squatters.
A new development is "the gated city," an aristocracy protected from unwanted outsiders, with iron gates and private security agencies. Taken together, these phenomena constitute a monolithic, dysfunctional human settlement that prevents the nation from accruing the maximum economic and social benefits of urbanisation. To many academics, planners, and development specialists, urbanisation is the engine of socio-economic development: cities are the venues of local and global production, distribution, and trade and of dissemination of knowledge, information, and technologies, with economies of urban scale.
From the perspective of efficient land use, urban areas are the new geography of high-density living with modern amenities. Cities also offer the best prospects for real estate, thanks to economies of agglomeration. However, urban development, industrialisation, and trade expansion in Bangladesh require greater domestic resources and higher inputs of FDI and aid. These processes also require greater access for Bangladeshi commerce to international markets, with favourable terms of trade.
Jeffrey Sachs has remarked as far back as in 2003: Bangladesh has a number of winning development issues such as improved health service, decreasing population rate, and a robust garment sector. These are, however, still on fragile tracts with growing problems. What makes development of an underdeveloped country such as Bangladesh more difficult is that rich nations do not live up to their promise for increased assistance and removal of trade barriers.
I could not agree more.
This is an abridged version of the original write-up by its author who is an independent scholar and adjunct faculty Boston, Massachusetts, USA
Bangladesh have witnessed during the last two decades continued economic growth, accompanied by discernible social development. As a consequence of population redistribution from rural to urban areas, social change has been equally profound. At the time of Bangladesh's independence, less than 10 per cent of its population lived in urban areas; the current level of urbanisation is more than 30 per cent. This level is not high by global standards, but the rate of growth is substantial, fed by both natural population growth and rural-to-urban migration. By 2050, more than 50 per cent of the population will live in urban areas, which will grow economically faster than rural areas. The acceleration of urban growth does usually result in remarkable structural changes in the economy, with far-reaching consequences for the physical environment of a country.
Economic growth in developing countries is intrinsically linked to changes in the structure of production. There is a tendency to shift labour and capital from low-value-added to high-value-added products. Empirical analyses of structural change usually consider three popular sectors of the economy: agriculture, industry, and services. As a country's economy grows, the relative contribution of the agriculture sector (in Bangladesh, this includes fisheries, forestry, and mining) -- in terms of share in gross domestic product (GDP) and aggregate employment -- declines, while the industrial sector (manufacturing and construction) and the service sector (both formal and informal) grow. At a more developed stage of the economy, both manufacturing and service sectors become much larger in size, but the service sector appears to be dominant, while exports consist of more high-tech manufacturing and higher knowledge- and skill-based services. This process also involves urbanisation of economies. The benefits of co-agglomeration of industries, business, labour market, and services accrue from this process.
By 2010, the agricultural sector's share of employment and value added in Bangladesh declined to 20 per cent and 45 per cent respectively, while the GDP share of its industry doubled since 1970 and the service sector steadily accounted for 50 per cent or more of the country's GDP. The venues of investment and the composition of trade in recent decades have moved from agriculture to manufactured goods. The garment industry and exports of labour are Bangladesh's two principal sources of foreign-exchange earnings. It is heartening to note that shipbuilding is now an attractive industry. Bangladesh also exports pharmaceutical products to 86 countries, including the United States, and 140 pharmaceutical companies currently operate in the sector. The country took in more than US$20 million in exports of software in the first six months of the 2009/10 fiscal year.
The progress of urbanisation has encouraged considerable public and private investment in higher education, health, and human services. Bangladesh had only six public universities in 1976; by 2010, there were 92 universities in total (34 public, 56 private, and two international), which are engaged in disseminating knowledge in science, engineering and technology, medicine, management, and the humanities. Madrasa (Islamic seminary) education is being reformed to educate students in science, mathematics, environment, and social studies along with theology.
There are 10 other institutions of higher learning recognised as universities by the government, and 35 new private universities are coming soon. The health sector in Bangladesh, in terms of new public and private hospitals and clinics and the number of health care professionals, is also making substantial progress. The World Health Organisation, in its 2010 report, notes that in Bangladesh the priority is given to ensuring universal access to, and equity in, health care, with particular attention to maternal and child health and rural health.
Obstacles to progress and the future of development: Despite all the positive developments as noted here, there is no reason to believe that future of sustainable development in Bangladesh will be simple and painless; in fact, it is likely to be arduous and complicated. At the political level, the distance between the two main political parties -- the AL and the BNP -- as well the relationship between political parties and civil society remain as great as ever. This has negative impacts on politics, administration, and institutions.
At the economic level, the dearth of natural resources, the shortage of land, growing population pressures, and natural calamities -- attributable to climate change and intensive utilisation of nature -- have proved difficult to overcome. At the international level, Bangladesh suffers from limited access to international markets and unfavourable terms of trade, and does not receive enough compensation for climate-change damage.
The Bangladesh's economy has become integrated with the global economy predominantly through aid and structural adjustment rather than through trade and foreign direct investment (FDI). The list of obstacles could continue. There are, however, some positive aspects of the current situation in Bangladesh -- at least in theory -- that give reasons for hope. I will focus here on three such aspects.
The demographic dividend: Drawing on contemporary research in various aspects of economic demography, the UN publication, Population Facts, notes that "slowing population growth through lower fertility produces a demographic dividend, whereby the proportion of persons of working age increases with respect to that of children and the elderly. When supported by economic policies that increase employment and strong public investment in education and health, the demographic dividend can itself contribute to development". It is also noted that in recent decades Bangladesh has done exceptionally well in this respect: fertility has declined by more than 60 per cent, from 6.9 children per women in 1970-75 to an estimated 2.4 in 2005-10. As a result, Bangladesh's working-age population has been increasing as a proportion of the total. This shift, in turn, will contribute to a rise in the relative number of breadwinners, stimulating savings and productivity and individual health and welfare.
Size of the market: Population growth enlarges the labour force, a key component in long-term economic growth. The size of the population is also an indicator of potential demand, if the purchasing power of the people can be improved. A large market increases returns to human capital and knowledge. An important feature of globalisation is that the number of producers and products increases more than the number of consumers and markets.
In this case, while global companies aggressively position themselves to obtain a share of the business, countries with large domestic markets have leverage to secure more foreign direct investment or FDI, accompanied by technology transfer and access to international markets. In recent decades, the spectacular growth of the BASIC countries (Brazil, South Africa, India, and China) is credited to a robust domestic market. In Bangladesh, individuals with an income above $2.0 per day (the middle- and upper-income class) number between 40 million and 42 million. Many development economists consider this attribute a frozen demographic potential for the development future of the country.
Another major contribution -- from the perspective of the political geography of population size -- -is conspicuously absent in the development literature. A large population positions a country favourably in the global power hierarchy. India's international influence and China's march to great political power are attributed to, among other things, the large size of their populations.
The late industrialisation (or late-comers) hypothesis in South Asia's economy: The academic literature argues that the more "backward" an economy is the more rapid will be its industrialisation and the greater will be the pressure on the consumption level of the population. South Asia, being a late-comer, has enormous opportunities for rapid industrialisation by taking advantage of (a) low-cost skilled labour and technological diffusion and (b) the Chinese example of shifting from export to domestic consumption. What all South Asian countries (including Bangladesh) need, then, is to adopt a catch-up strategy.
However, there is a parallel literature on the possibility of "pollution heaven" (population growth leading to human-induced pollution) if the developing countries, including South Asian countries, go ahead too fast with manufacturing. In the ongoing debate on global climate-change policy, the issue is to decide what policies are both appropriate and implement-able, including government regulatory measures that can be effectively introduced to prevent such devastating environmental calamities.
Conclusion and a pointer to urban policy: Since the reinstitution of democratic government in 1991, Bangladesh has made considerable progress. While the rising path to progress is consistent, the rate of progress needs to be faster in order to improve the lot of the millions of underprivileged households.
The timeline of economic growth and social development in Bangladesh shows that during the British colonial period the rate of progress was nil or negative, during the Pakistan period it was on average 3.0 per cent and during the period of military or civil authoritarian rule in Bangladesh, the rate was close to 4.0 per cent. In 1978, one Bangladeshi economist defined the country as "a case of below poverty level equilibrium." The situation remained unchanged as of 1991.
Successive democratic governments, however, have been able to break that below-poverty-level equilibrium trap. To some extent, Bangladesh has been reaping the benefits of the virtuous circle of economic growth, leading to prosperity. This may lead us to conclude that national sovereignty matters; people's sovereignty matters more. This is promising.
Bangladesh still has a long way to go before it can fully realise its promises. In this context, Bangladesh appears to become a middle income country by the middle of the next decade if it can accelerate its pace of growth to 7.5 per cent. Although the pace of economic development has accelerated in recent years, its effort to further accelerate the growth rate has been hampered by infrastructure bottlenecks, the inability to create a conducive policy environment that can spur rapid business growth, and the absence of an equitable, transparent, and accountable governance structure.
Institutional underdevelopment, resource constraints, and periodic natural hazards notwithstanding, it appears from the foregoing that the factors and circumstance that stimulate public policy are, by and large, agricultural and rural development at the expense of non-agricultural urban development, consisting of industries, business, and service sectors. This short-sighted, "more of the same" policy has been constraining higher rate of economic growth and employment opportunities in formal sectors.
Nobody will deny the role of agriculture in terms of food supply and rural employment, but it is absolutely clear that there are limits to agriculture's capacity to produce more and more, as the marginal productivity of land, labour, and capital in agriculture is negative over a longer period, following the law of diminishing returns. This sector's relative contribution to GDP and its share in employment has been consistently declining, while the reverse is true in the industrial and service sectors. When economic growth continues, its composition changes.
This outcome of structural change in Bangladesh is not reflected in the pattern of urbanisation and urban development, investment in urban infrastructure, the urban service delivery system, or the allocation of resources in the urban welfare system, particularly toward the less privileged section of the urban population. As a result, urbanisation in general and large cities are particular, is continuing to grow in the form of slums and squatters.
A new development is "the gated city," an aristocracy protected from unwanted outsiders, with iron gates and private security agencies. Taken together, these phenomena constitute a monolithic, dysfunctional human settlement that prevents the nation from accruing the maximum economic and social benefits of urbanisation. To many academics, planners, and development specialists, urbanisation is the engine of socio-economic development: cities are the venues of local and global production, distribution, and trade and of dissemination of knowledge, information, and technologies, with economies of urban scale.
From the perspective of efficient land use, urban areas are the new geography of high-density living with modern amenities. Cities also offer the best prospects for real estate, thanks to economies of agglomeration. However, urban development, industrialisation, and trade expansion in Bangladesh require greater domestic resources and higher inputs of FDI and aid. These processes also require greater access for Bangladeshi commerce to international markets, with favourable terms of trade.
Jeffrey Sachs has remarked as far back as in 2003: Bangladesh has a number of winning development issues such as improved health service, decreasing population rate, and a robust garment sector. These are, however, still on fragile tracts with growing problems. What makes development of an underdeveloped country such as Bangladesh more difficult is that rich nations do not live up to their promise for increased assistance and removal of trade barriers.
I could not agree more.
This is an abridged version of the original write-up by its author who is an independent scholar and adjunct faculty Boston, Massachusetts, USA