Bangladesh has come a long way since its independence in 1971. Its infrastructure has developed significantly from its primitive and dilapidated state; its per capita income has grown; and its social indicators now fare even better than its giant neighbour, India; thanks to the innovative streak of its people and some generous infusion of foreign aid, which was used effectively.
The current situation contrasts sharply with the condition at the time of independence. Henry Kissinger, the US Secretary of the State at that time, made a dire prediction about the future of Bangladesh. He reflected the thinking of the time in the West:how could it survive without a continuous flow of foreign aid? Similarly, the World Bank was not too optimistic about the country's prospects either. Its first Country Director co-wrote a book which was entitled, Bangladesh: The Test Case for Development, with a subtle jibe that if Bangladesh can be developed, so can any other country.
FORTUITOUS DEVELOPMENTS: However, linear thinking can always be misleading. Four serendipitous things happened.
First was the emergence of the ready-made garments (RMGs) industry. This was pioneered by Nurul Kader Khan, a founding hero of the Bangladesh market economy. He set up a ready-made garment factory but lacked the marketing knowledge and technology to be successful in the international market. He met Chairman Kim Woo Choong of the Daewoo Corporation, who was looking for a base in a quota-free country from which to export. Mr. Khan sent 130 supervisors to Korea for training, most of whom turned out to be successful entrepreneurs in the ready-made garment sector.
Currently, RMGs which employ 4.0 million people - and mostly women - account for more than 80 per cent of the country's exports. In retrospect, RMGs have turned out to be the most effective female empowerment programme the country may have undertaken.
Ironically, the second fortuitous thing that happened was the oil crises in the 1970s, after the Yom-Kippur war in 1973 and the Iranian revolution in 1979. After the first crisis, oil price increased by four-fold and the middle-eastern oil-producing countries found themselves to be obscenely rich overnight. These countries stashed a lot of money in the western banks as well as embarked on an ambitious plan of infrastructure building.
The infrastructure boom that ensued in the Middle East provided a new vista in terms of opportunity. Bangladeshi workers began to move out of the country and joined this grand construction party in the Middle East. Once these young people became footloose, they gradually spread themselves all over the world. While the stock of total migrants abroad is anybody's guess, remittance earnings have hovered around $14 billion, amounting to about 10 per cent of the gross domestic product (GDP)-not a paltry sum for a poor country.
The third fortuitous thing that happened was the surge of agriculture. Immediately after independence, agricultural production tanked, leading to the worst famine in the history of the country. But since then, in the last forty years or so, food production surged: food grain production has more than tripled between 1972 and 2014, from 9.8 to 34.4 million tonnes.
With the expansion of irrigation, and liberalisation of input and output markets, an incentive framework was created to which the farmers responded vigorously, leading to an enthusiastic adoption of new seed-fertiliser technology.
The fourth thing that happened was the rise of a world class of visionary social entrepreneurs such as Dr. Muhammad Yunus and Mr Fazle Hasan Abed. The economy was very badly hit by the liberation war as well as by the terrible famine that ensued in 1973. This jolted the consciousness of many middle-class professionals, leading to the emergence of a class of social entrepreneurs who introduced a number of social programmes including microcredit. These programmes had a tremendous economic and social impact on the country. Economists debate whether these programmes contributed to significant increments to growth. There is, however, little controversy about their role in creating an effective safety net for the most disadvantaged economic segment of the society; they also played a significant role in improving the social indicators that the country can be rightly proud of.
THREE RISKS: However, we should not be carried away by our achievements or our own rhetoric. We have crossed the lower-income threshold of the World Bank, as have most Asian developing economies. Except for Nepal and Afghanistan, there is no other country in Asia which lies below that threshold now. Secondly, Bangladesh was not the fastest among those who crossed the threshold: some countries were behind Bangladesh in the 1990s but have zoomed past us in recent years. In 1990, Vietnam had less than half of Bangladesh's income, yet today, its per capita income is almost double that of Bangladesh.
What are the long-term prospects of the Bangladesh economy? There are three specific risks.
The first risk relates to technological progress. Currently, there is an ongoing technological revolution of robotics and artificial intelligence in manufacturing that is spreading across the world. This is backed by an active effort to relocate labour-intensive industries to developed countries. These robots have enhanced productivity and profitability.
If robotics take hold, it would be a great threat to the industrialisation process of South Asia. Dani Rodrik, a Harvard economist, coined the phrase "premature deindustrialisation", to suggest that the on-going industrialisation process of many developing countries, including those in South Asia, may be aborted prematurely.
If the manufacturing phase is abbreviated, some economists argue that South Asia should focus on services. The argument is that the global labour market is being increasingly integrated, and many services can be provided digitally across the internet. But the relevant question is: can Bangladesh workers, on a large scale, make a successful entry into the global service trade? The profile of Bangladeshi workers, their education and skills do not make one particularly optimistic. Currently, the size of the labour force in Bangladesh is about 60 million. Over two million young people are entering the workforce each year. Although access to education has grown, the vast majority of the working population, almost two-thirds, have little or no education. One can rightly be sceptical whether such workers can be part of the integrated global labour force.
The second risk relates to Arabization. With the declining oil prices, the middle-eastern countries have found themselves in an unprecedented financial crunch. This is most severe in Saudi Arabia. This has led the Saudis to adopt Nitaquat-a plan to replace foreign workers with Saudi workers. Given the existential economic crisis the Saudis are facing, they are determined to implement the Nitaquat programme which has serious implication for overseas migration from countries like Bangladesh.
Globally, the prospects of a migration-based strategy, which envisages exponential increases in remittances, do not look particularly bright at this moment.
The third risk relates to agriculture. Agriculture has done a stupendous jobof feedingthe expanding population. But further future expansion of agricultural productivity is not necessarily assured. Future productivity will depend on many factors including the availability of further improved seeds and fertiliser technology. In addition, the agriculture sector remains subject to extreme vulnerability from climate change, particularly in areas affected by flooding, saline intrusion, and drought. Finally, the country is losing 1-2 per cent of agricultural land to provide homes to the growing population.
Other challenges: In addition to the above, the country faces a number of intractable challenges, which include:
Infrastructure bottleneck and traffic jam: If the roads are congested and ports are blocked, it is then difficult to sustain a dynamic economy. According to some estimates, the total costs of traffic jams in Dhaka now exceed $10 billion, which is equivalent to one-third of our yearly export earnings or a couple of Jamuna bridges.
Non-inclusive institutions: Drawing on contemporary and historical examples, Harvard economics professor Daron Acemoglu and Chicago political science professor James Robinson argue in their book, Why Nations Fail, that it is the nature of political and economic institutions which underlie economic success. They argue that when the political and economic institutions are inclusive and afford equal opportunity for all individuals to participate in the societal affairs, they can generate enduring prosperity for the nation. Inclusive political institutions refer to participatory democracy, which allows free and fair participation and contest. Inclusive political institutions generally go together with inclusive economic institutions. Inclusive economic institutions offer individuals the right to access resources on an equal basis. They ensure everyone their right to property. Where such inclusivity does not exist, people are not afforded access to resources on an equal basis.
In our society, there are question marks about the inclusivity of the political and economic institutions. Increasingly, access to economic resources has become dependent on an individual's access to political power-or their political capital. This means our businesses-which are essentially debt-based, meaning depending exclusively on bank credit-rise and fall with this access to political capital. When access to financing is based on political capital, it leads to what is known as crony capitalism. In addition to its devastating equity implication, crony capitalism does not lead to enduring growth, as history suggests.
Poor Governance: Corruption is extremely pervasive in society. Newspapers report every day of the grand larcenies in the financial sector. The Dhaka middle-class is abuzz with rumours of buying and selling of jobs from the lowest to the highest levels of the government, from the peons to the MDs of the banks or even higher. While these reports are difficult to verify directly, they seem to be corroborated by the Global Governance Indicators of the World Bank. According to these indicators, Bangladesh ranks below the average for the lower middle-income country indicators on all counts.
Social Capital is critical: Social capital is the glue that holds society together. This glue, when it exists, fosters reciprocity, cooperation and trusts among members of society. Quantitative as well as case studies suggest that social capital is essential for common economic good and economic growth. There is a good deal of evidence that in recent years, the once-robust social capital of the country, which was based on a common language, ethnicity and social values, has significantly eroded. The whole society is now fragmented along tribes, based on party affiliations; political rhetoric has become increasingly coarser affording little trust and cooperation among citizens.
Demographic dividend or demographic curse: Demographic bulge is a double-edged sword. It is like a loaded gun, which can kill your enemy or kill yourself. If demography is properly harnessed, it can yield higher savings, higher investments and higher growth. If it is not managed well, it can lead to higher unemployment, lower savings, lower investments and lower growth. And finally, in the context of a weak state, demographic bulge is the stuff revolutions are made of. A case in point is the Arab Spring. According to the World Bank, from India to the Middle East to Sub-Saharan Africa, there is a demographic dividend waiting to happen. The question is, how many of them have been able to harness this potential? Few, if any, indeed!
Finally, enlightened economic leadership: Much of the prosperity of a nation depends not on the durability, but on the quality, of its leadership. Bangladesh will need enlightened leaders, with a more sophisticated understanding of the economy and polity, as it navigates its future in the increasingly competitive and difficult waters of the global economy.
This essay has highlighted some concerns about the future trajectory of the Bangladesh economy. One very much hopes that these concerns prove to be wrong; yet they are sufficiently important and realistic to merit serious consideration. Whatever happens, the future will not be a linear progression of the past, and the road to economic prosperity-as it exists in high-income countries-may not be as much of a cake-walk as many seem to assume.
Dr. Quibria, a former Senior Adviser, Asian Development Bank Institute, is a Distinguished Fellow at the Policy Research Institute (PRI), Bangladesh and Professor of Economics at Morgan State University, USA. This article is a condensed version of the Distinguished Public Speech the author presented at BRAC University, January 10, 2018.
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