• Wednesday, November 26, 2014

Growth and governance: Making the transition

Wahiduddin Mahmud

ONE striking feature of the results of the last Secondary School Certificate examinations may have escaped our attention. Nearly 10% of more than a million successful candidates secured the highest grades, leaving no way of identifying the top 1% or even the top 5%. Evidently, a deliberate policy of grade inflation in public examinations is undermining the merit system. This phenomenon is perhaps symptomatic of a decline in meritocracy, with a concomitant rise of mediocrity, in all aspects of our institution-building efforts.  

This article is not meant to be a commentary on the governance of our education system, but on the country's governance system as a whole. Nevertheless, it could be a good starting point. Research findings show that the quality of human and intellectual capital of a country, as determined by its education system, is the most basic determinant of long run economic growth, affecting all other growth-inducing factors like how effectively we use physical capital, or how efficiently we can adopt productivity enhancing technologies or even how well we can govern ourselves.

Bangladesh is by now well-known as a case study of a governance-growth conundrum: our performance in economic and social development has far exceeded what can be expected at the existing level of governance quality. Although the governance environment may have been barely adequate thus far to cope with an economy breaking out of stagnation and extreme poverty, it may increasingly prove a barrier to putting the economy firmly on a path of modernisation, global integration, and poverty reduction. There are indications that institutional weaknesses may be reaching the tipping point beyond which they become binding growth constraints. Notice, for example, that Bangladesh has had a unique record of experiencing accelerated average annual growth of GDP per capita in every five-year period since the last half of the 1980s; but the on-going growth stagnation may jeopardise the continuation of that record beyond 2010.  

There are alternative ways of conceptualising how the required transition in the governance system may come about to make it possible for economic growth to move into a higher trajectory. A few broad aspects of this possible transition may be pointed out.

First, in a low-income but modernising country like Bangladesh, governance effectiveness in terms of rules and standards varies widely across different segments of society and economy. There are obvious cases where being a poor country is no excuse for lacking in international standards, such as, for example, the management of air traffic control system. On the other hand, there are grey areas like “rule of law” or “human rights” in which we are aspiring to achieve the First World standards in the Third World socio-economic realities. Overall, the challenge is to gradually expand governance effectiveness and good practices beyond some existing enclaves. Unfortunately, the reverse seems to have been happening in Bangladesh.

The government agencies or institutions like the Local Government Engineering Department, or the Rural Electrification Board or the Basic Bank were once cited as pristine islands of excellence in an otherwise governance-challenged environment; but each of these institutions subsequently became victim of malfeasant politicisation. The integrity of Nobel Prize winning Grameen Bank is now under threat. Even the enclave-type arrangements that helped the export-oriented garment industry to bypass the governance problems are now proving inadequate because of questions being raised about the factory and labour standards. True, Bangladesh does not have the worst forms of employment conditions like bonded child labour as are still prevalent in many parts of the developing world; but the lapses in labour standards in the garment industry in Bangladesh are relatively more visible because the industry caters to the global market. Similarly, the credibility of our financial sector or the quality of our economic diplomacy will increasingly become major determinants of how far we can benefit by leveraging the emerging global economic order.

The second aspect of transition is to move from a centralised and relation-based system of governance dispensation to one that is impersonal and rule-based. While we have moved from state controls to market orientation of the economy, we need to create a system of governance that can successfully manage the intricate interactions between the state and a well-functioning globally integrated economy. Managing such an economy requires many inputs that markets do not provide: rules, standards, training, certifications, infrastructure, security and a host of other services that can be provided only by professionally competent and well-resourced government agencies. This also needs a governance system that decentralises power to identify problem, work out solutions, and monitor performance such that decisions are made promptly and with much more information.

There is a need to shift from reactive ad hoc decision-making to a more proactive, informed and analytical approach. Unfortunately, there is little indication that we are moving in that direction either. For example, the remedial measures for recovering the global image of our garment industry tarnished by the Tazreen and Rana Plaza disasters are proving to be much costlier compared to preventive actions that might have been taken beforehand. Again, some of the currently proposed large infrastructure projects seem to be driven either by their prestige value, or by interest-groups' lobbying, or even by geo-political considerations; but there seems to have been little analysis for setting priorities based on any proper evaluation of their financing and implementation modalities and their social costs and benefits.

Third, strengthening the credibility and integrity of state institutions is integral to a process of governance transition. Even in the mature rich democratic countries, the motives of elected public representatives are held in the public eye with a degree of suspicion. It is the non-elected state institutions that most enjoy the confidence of the public -- be it the higher judiciary or the higher echelons of civil bureaucracy or the authorities responsible for holding elections or the anti-corruption and other watch-dog bodies. This is where we have done poorly. The successive governments have transformed some of these watch-dogs into lap-dogs. Without restoring the credibility of these institutions, any attempt to put together the Humpty Dumpty of our democracy is bound to fail.

Last but not least, we need to inculcate some degree of cooperation and accommodation in our otherwise individualistic approach to political and economic entrepreneurship. In politics, we have feudalistic hierarchical relationships based on patronage politics instead of collective action among equals. Thus far, individualistic entrepreneurial drive has been the main contributing factor behind our economic growth. It is no accident that we are the world leader in promoting micro entrepreneurship through microcredit, but have failed miserably in sustaining any successful model of co-operatives, including the once famous Comilla model of co-operatives. Even the impressive gains in Bangladesh in many social development indicators were achieved through policy interventions at the household level rather than through community based actions to demand and sanction public service delivery.

The individualistic approach to entrepreneurship may be historically rooted in our rice-based economy, where easy rain-fed cultivation used to require little mutual help among farmers, in contrast to most other regions where cultivation was more labour-intensive or dependent on maintaining an irrigation system. Recent studies have found links between historical agricultural practices in various regions with attitudes towards cooperation. Whatever be the reason for our cultural trait in this regard, we may now increasingly need more cooperative arrangements in many areas ranging from optimal use of scarce land to sustainable urbanisation to protection of environment. Similarly, a more cooperative and accommodative approach among political parties will also be needed to sustain any workable form of democracy. The narratives on Bangladesh have for sure changed over the years: it is no more considered a “test case of development.” But the country still remains a test case of whether economic development and democracy promotion can proceed hand in hand in such a low-income yet resilient and dynamic society.    

The writer is an eminent economist. This write-up is based on the presentation made at the first workshop of the Bangladesh Economists' Forum, Dhaka, June 21-22, 2014.

Published: 12:00 am Thursday, July 24, 2014

TAGS: economic growth governance growth governance system

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