Inequality threat to economic progress

Bangladesh's economy has progressed a lot in the past five decades in a multitude of ways but the rise in inequality has become a great challenge to kick it into high gear, said economists on Saturday.    

There are distinct uncertainties over whether the economy will be able to sustain the past growth momentum of seven to eight per cent in the years to come, they told a discussion.

The Power and Participation Research Centre (PPRC) organised the discussion on "Turning Points in the Economy", which is the fourth episode of a series of policy dialogues titled "Ajker (today's) Agenda".

"Economic transitions in fact barely take place at any point. One exception to the rule was, I would say that 15th of August 1975 was a turning point. Because ever since then the economy was set on a different path altogether,'' said eminent economist Rehman Sobhan.

Before that, state control over the economy was the dominant factor, said the former Planning Commission member.

"I would see that as a very distinct break and from post 15th August period, there was a gradual continuing in the shaping of the economy and at its direction virtually down to the present without any significant reverses in the trajectory," he said.

Afterwards financial institutions started pumping in money in a reasonably discriminated manner, reaching a first generation entrepreneurial class, he said.

This process continued virtually throughout the 80s, he said, adding that the regime change in 1981 from one general to another did not really bring about any change, said Sobhan, also the chairman of the Centre for Policy Dialogue.

A consequential outcome of pushing resources towards that first generation was a rise of privileged classes, which created quite a massive debt default in the financial sector, he said.

It was also from 1982 onwards that readymade garment started to emerge, which was not really contingent on state support, said Sobhan, also a former professor of economics at the University of Dhaka.

"In the 21st century, an independent entrepreneurial class emerged, which has grown up without dependence on the state," he said, adding that this group reinvest their profits.

Danger lies in the fact that businesses are heavily dependent on bank financing, which in turn was not being generated from owners' capital but from millions of small scale depositors, he said.

So this transform of resources from small depositors to big capitalists, particularly the fact that this was not being repaid, led to a massive redistribution of income, he said.

There are uncertainties over whether the country will manage to maintain the seven to eight per cent growth momentum it had enjoyed in recent years, said Binayak Sen, a research director of the Bangladesh Institute of Development Studies.

"We have tackled the Covid-19 crisis riding on the remittance growth, exports of RMG products and the situation of the local context as a whole," he said.

"But there is no scope to be complacent. If we looked into the economic data between 2010 and 2020, a number of macroeconomic indicators had shown declines," he said.

The rate of poverty has been on the rise and there are still many uncertainties stemming from the economic hardship brought on by the pandemic, Sen said.

The country's economy has backtracked to that of 2016 given the macroeconomic data, meaning it has lost gains of the past four to five years, he said.

Inequality has been on the rise on a large scale, which has put pressure on the state, he said.

The finance minister has even expressed dissatisfaction over the rate of revenue collection as it will not be able to help the country meet demands of the modern day, Sen said.

"We have to spend more for public education. For instance, we should also spend more to provide internet in rural areas," he said.

The journey of five decades has been very multidimensional with a great deal of success, said Hossain Zillur Rahman, executive chairman of the PPRC.

There has been a continuity these past five decades and Bangladesh has never faced negative growth except for in 1971, he said.

The rise in inequality has an overarching expression of a new type of phenomenon, he said.

"The issue of inequality is not just a social issue. It is also linked to our ability to move to a higher quality growth agenda as inequality is coming out of a certain type of policies," he said.

Different innovations and techniques have been adopted, such as microcredit, rural networks, RMG sector and so on, said Rahman.

"Quality growth cannot be addressed without revisiting this rapturewith the goal of equality. Our people are the biggest capital. Without leveraging it, higher growth is tough," he said.

There is a state-sponsored class, a sort of cronyism, existing since the beginning. But an autonomous group has also emerged, competitive but not seeking favours, he said.

Some view that Bangladesh's aspiration and innovation will continue to coexist with crony capitalists."We talk of the demographic dividend. But we have at maximum a decade to realise the dividend," he said.

"One-third of our youths is neither in employment and education nor in training. So quality is critical. Quality cannot be delivered by the individual businessman or the individual NGO on a large scale. This has to come from the state," Rahman said.

An almost forgotten success story is that of the attainment of the fertility rate, said Naila Kabeer, a professor of the London School of Economics and Political Science.

The demographic record of seven came down to two or three children and this fall helped bring about a decline in the maternity mortality rate, she said.

"We also saw a rise in child survival for which quality investment for the quality child also improved," she said.

Other milestones of the country include successes of women, microfinance and the garment sector. Microfinance is driven by NGOs and garment by entrepreneurs. Unfortunately, NGOs are both carriers and barriers to new ideas, Kabeer said.

The development of the non-farm sector was a push factor because of landlessness of a section of people, she said.

Female labour participation is going up in Bangladesh and down in India. But the income of females in home-based enterprises, mainly cattle rearing, has not been officially recognised, she added.

The economy has diversified, albeit in an unplanned manner, such as through migration and growth of non-farm sectors, Kabeer said.

MA Sattar Mandal, a former vice-chancellor of Bangladesh Agricultural University, said the economy had undergone a structural change with a major role played by agriculture and the rural economy.

This transformation came about for the crop sector and more commercial, high value produce such as livestock, fish and vegetable, he said.

These sectors hugely contributed to poverty reduction and helped improve nutrition standards alongside food security, he said.

By the end of 1980s, large scale privatisation of agriculture enabled a kind of growth, initially in the cereal and food crop sectors, and it had a ripple effect on other sectors, he said.

Privatisation helped the adoption of irrigation technologies and farm mechanisation and opened the markets, which also helped grow the number of entrepreneurs and markets, Mandal said.

Rural transportation was also enhanced. For instance, the agricultural machinery hub in Bogra has been generating a lot of business in local markets, even meeting demand in northeast India, he said.

There had been a stagnation in female participation in the labour market spanning from 2010 to 2017, said Sayema Haque Bidisha, a professor of economics at the University of Dhaka.

"We have to explore new milestones for the female workers as their engagement in the RMG sector has also declined," she said.

Internal migration has been playing a better role in reducing poverty compared to international migration as per a recent study, she said.