S.R. Osmani, Professor of Economics at Ulster University, has dealt with the concept of equity and growth in a paper he prepared for the Seventh Five Year Plan. Professor Osmani is one of those who have the competence of presenting complex issues in a layman's language.
As is well-known, the concern with inequity, after a certain period of silence, is back to the discourse in recent years. It is not only in Bangladesh but also elsewhere. Despite faster growth in income and standard of living, inequality between and within nations has in fact increased. It has been more so in countries with relatively better economic growth. Also, the absence of due emphasis on equity in the MDG (Millennium Development Goal) has fuelled the frustration further.
Back to Bangladesh, one finds 'with dismay that inequality has remained stubbornly high and if anything, is getting even higher'. Osmani argues that it is a two-way causation where the process and the rate of growth tend to shape the evolving pattern of inequality, and the pattern of inequality in turn affects the prospects for growth. The first line of argument - running from growth to inequality - is seemingly in concert with Simon Kuznet's celebrated inverted U-relationship. The hypothesis states that inequality first rises with growth and subsequently falls as a country gets richer. In fact, this notion has ruled the world of economic profession for almost the whole second half of the 20th Century. Â
However, since the 1990s, with the emergence of endogamous growth theory, attention has been shifted towards the line of reverse causation - running from inequality to growth.
Bangladesh's transition to a higher growth trajectory since the early 1990s has been accompanied by increasing inequality of income with the gap between the richest 10 per cent and poorest 40 per cent of the population woefully widening but the middle half maintaining about half of the national income considered to be a common pattern in most countries passing through deteriorating income distribution. The growing concern about inequality is adduced to two important reasons--intrinsic and instrumental. The intrinsic reason is that it is inherently unfair and unjust to allow a tiny minority forfeiting the fruits of development by depriving the vast majority. The instrumental reason is related to the suicidal syndrome - 'higher inequality has the potential to dampen the pace of poverty reduction in the future by depressing the future growth'.
The positive association between growth and inequality is not a mere coincidence; rather the two variables are causally interwoven - the same process leading to growth also giving rise to higher inequality. Taking readymade garments (RMG) - the engine of the economy over the decades - as a test case, Osmani argues that the period of rapid growth since 1990s has witnessed very slow growth in real wage - far below the growth of labour productivity. This cost advantage was costly in terms of inequality of income - land and capital owners gained at the expense of labour's low wage. The anti-labour change in the functional distribution of income resulted in the widening of the personal distribution of income. Â
Likewise is the role of remittances - increasingly prominent feature of the Bangladesh economy, acting as important driver of growth especially in rural areas when relatively better-off households afforded the costs to send members abroad (One could of course cast a doubt on Osmani's last observation as household-level surveys in recent years show that about 60 per cent of overseas migrants belong to poor households owning 50 decimals. In fact, the share of land owning households in migration has been declining over time). By and large, the author thinks that 'the transition to a higher growth path and worsening income distribution are two sides of the same coin - the coin being the very process of growth itself'. He adds a note of caution, "It does not follow however that in order to achieve higher equity, the current growth process must be reversed". To keep growth momentum, both RMG exports and remittance should be encouraged with an eye that the fruits of the growth process are more equally shared by a broad spectrum of population. The suggested way forward is a two-pronged strategy assuming that the growth process should not be halted even if it produces inequality. To provide an effective social protection system to net in the bypassed or even impoverished by the growth process, and second, creating conditions so that currently disadvantaged segments of society are able to seize the opportunities opened up by the growth process.
The suggestions put forth by Osmani for facing the problem of inequality are well-taken but these are not new. Drastic land reform and revolutionary social change not being in the foreseeable future, the 'software' prescriptions of reducing inequality through social protection and education has long been ringing the bell around. Obviously, the critics would contest the views from many angles. Possibly, they want to know whether the two strategic pillars such as social protection and education will be able to make a dent into the cave. Even with appreciably expanded social protection and human capital-raising programmes and policies so far, 'the inequality has remained stubbornly high and if anything, is getting even higher'. When the convergence would come about still remains a serious research recipe since, quoting Keynes, we all are dead in the long run. It also depends on the Schumpeterian 'tunnel effect' - the tolerance of society to wait for the chance after somebody has snatched away the dues. For the sake of social stability, rulers of the country have to ensure that all have access to the cake of growth.
The writer is Professor
of Economics at
Jahangirnagar University.
abdulbayes@yahoomail.com
Growth and inequity - the issue of social stability
Abdul Bayes | Published: November 28, 2015 00:00:00 | Updated: November 30, 2024 06:01:00
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