Story of Quarter Century of Development

When Azizur Rahman Khan writes something on the economy of Bangladesh, one needs to take note. He is Professor Emeritus of Economics at the University of California, Riverside, USA, and has taught at other prestigious academic institutions of the world including the London School of Economics and Political Science. Also important to note, he was Chief of the General Economics Division of the Bangladesh Planning Commission when the First Five Year Plan of the country was formulated, and is regarded as the architect of the macroeconomic foundation of that Plan. By then, he had already written the first book on the economy of Bangladesh (published by Macmillan, London in 1972). During his career spanning nearly five decades, he has not only taught economics and carried out research, he has also advised a large number of countries in the developing world. He is a leading authority in the world on economic development, and when he writes something on the economy of Bangladesh, he writes with a great deal of authority and insight. Moreover, he is one who would not say anything that is not backed up by empirical analysis. It is therefore imperative that anyone interested in the economy of Bangladesh and the country' future development takes note of what he has to say in his latest book titled The Economy of Bangladesh: A Quarter Century of Development, published in 2015 by Palgrave Macmillan, Basingstoke. 

The book under review provides a comprehensive analysis of the economy of Bangladesh and is organized under ten chapters. After the introductory chapter, the two subsequent chapters provide with an overview of growth and structural change in the economy and its macroeconomic aspects. The fourth chapter provides an analysis of the emerging changes in the structure of the economy and looks at the prospects of its transformation to absorb the surplus labour into more productive sectors. The fifth and sixth chapters deal respectively with agriculture and industry. The seventh chapter is concerned with the role of the external sector and addresses the issue of whether the economy of Bangladesh is attaining export-led growth.  The eighth chapter deals with issues relating to infrastructure and environment with a focus on economic issues and choices in the areas of energy, transport, education and environment. Chapter nine deals with issues relating to poverty and inequality, and is based on very detailed analysis of data from five rounds of household income and expenditure surveys undertaken between 1990 and 2010. The last chapter addresses questions relating to future growth prospects of the country. In doing so, the author does not hesitate to get into inevitable issues concerning the political environment and governance. 

The period covered by the analysis of the book is roughly a quarter century since 1995, although reference has occasionally been made to the experience of years prior to that when necessary and relevant. The basic storyline that emerges is not entirely unknown, and has both positive elements and concerns. The positives include a gradual acceleration in the overall growth of the economy; decent and uninterrupted growth of agriculture for about two decades; structural change – albeit limited – in the economy, with the manufacturing sector growing at decent, if not very high, rate; integration of the economy into the global economy as demonstrated by a rise in the share of exports in GDP; significant rise in the number of workers employed overseas and a consequent rise in inward remittances which, in turn, contributed (alongside exports) to the build-up of foreign exchange reserve; and a decline in the incidence of poverty as well as improvements in other social indicators of living. The concerns and challenges noted include the plateauing of overall economic growth around six per cent, slow pace of structural change in the economy, the possibility of diminishing returns to new technology in agriculture, absence of diversification in manufacturing industries and trade, obstacles to faster growth of industries, the trade regime itself discriminating against exports compared to production for the domestic market, constraints emerging from the side of both social and physical infrastructure, and rising inequality in the distribution of income. 

Khan gives credit to players who have contributed to the successes attained by the economy. For example, he mentions the roles played by successive governments in both facilitating growth and in attaining social development (although he argues that policy reforms have been only partially successful, as the goal of equal incentives for imports and exports has not been attained), by the NGOs, by migrant workers, and by entrepreneurs at all levels.  However, he also points out the failures, for example, in diversifying the structure of production and exports, in removing the many obstacles to growth, e.g., inadequate infrastructure, limited supply of skills, distorted incentives, and the failure of governance. 

The brief (almost telegraphic) description provided above of the book under discussion does not, however, do justice to its real distinction and strength. There are at least two aspects that need to be noted. First, of course, is in-depth empirical work behind the various arguments which is so characteristic of Khan's work. The second aspect that distinguishes this work from typical country focused studies is the comparative perspective that it adopts. Utilizing his vast knowledge of other countries, especially those of East and South East Asian countries, he weaves in comparative analyses whenever he finds relevant. 

On structural change, for example, Khan looks at the historical context of such change in the currently developed countries like in East Asia and points out that Bangladesh needs to adopt the latter type of strategy, the key characteristics of which are high rate of overall economic growth that is driven primarily by growth in manufacturing and later in service sectors. Based on such a premise, he points out that a GDP growth of over 7 per cent per annum coupled with a much higher growth of industries would be needed to attain the kind of structural change that Bangladesh should aim at. 

Regarding the strategy for export-led growth, Khan points out that the incentive structure in Korea was such that there was no discrimination against exports. Moreover, export-oriented industries were provided with additional support through a variety of measures. Policy reforms in Bangladesh have not led to the creation of a neutral incentive structure. How, then, did the ready-made garment industry attain the success it has? Khan points out that this has been made possible first by the erstwhile quota-based regime and subsequently through a series of industry-specific ad hoc measures. He, however, argues that this kind of industry-specific discriminatory support cannot engender a real process of export-led growth. For the latter to take hold, it is essential for the incentive structure to be neutral between exports and imports and for export oriented sectors to receive ex ante, non-arbitrary and time-bound support. He is of the view that if such an environment could be assured and other obstacles like infrastructure could be removed, "many non-RMG manufactures might have become profitable exports" (p.161).

The concluding chapter of the book looks at the achievements and failures of the economy of Bangladesh during the last quarter century, and in that context, takes a hard look at the issue of governance and the nature of governance failure in Bangladesh. While pointing out the deleterious effects of corruption on entrepreneurship and investment, Khan nevertheless argues for a strong government and underscores the need for a "national consensus" on the basic issues of growth and development. Also to be noted is the distinction he makes between "true liberal democracy" and "ritualistic democracy" as is practiced today in Bangladesh and the argument that the stake involved in capturing state power through the latter stands in the way of a radical improvement in governance and removal of obstacles to growth. The last two sentences of the concluding chapter of the book are quite striking: "The question is how might this vicious circle be broken? We do not think we know the answer" (p.171). But the question itself says a great deal and perhaps contains the answer to the challenge of accelerating growth in a way that reduces poverty and avoids a rise in inequality. 

The reviewer, an economist, is former Special Adviser, Employment Sector, International Labour Office, Geneva.