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Dhaka Tribune

50 years of Bangladesh: Migrants, RMG workers, farmers, main drivers of economic miracle

If second generation fails to address challenges properly, Bangladesh may fall in middle-income trap, CPD says

Update : 20 Apr 2024, 01:28 PM

In the last 50 years in Bangladesh, there has been remarkable growth in the economy, with the main drivers being farmers, readymade garments and migrant workers, said economists.

But during this economic transformation of Bangladesh, there have not been any major positive changes in institutional development; rather, it has been deteriorating.

Therefore, sustaining economic growth with weak institutions and governance will be one of the major challenges for Bangladesh, said economists at the launching of "Fifty Years of Bangladesh: Economy, politics, society and culture" by the Centre for Policy Dialogue (CPD).

Improvements in social and economic outcomes are not accompanied by institutional development in Bangladesh, this book highlighted it well and focused on as challenges for sustainable growth of the country, said Dr Zahid Hussain, former lead economist, World Bank, Dhaka office, in his remarks as a reviewer.

The challenges of the first generation have been well met, now the second generation strengthens institutions and if that is not done properly, Bangladesh may fall into the middle-income trap. Bangladesh’s growth will not be sustainable, said Prof Mustafizur Rahman, distinguished fellow, CPD in his remarks as author.

50 years of Bangladesh’s growth

Selim Raihan, professor of Economics at University of Dhaka and executive director at Sanem, also an author in the book, explored the relationship between Bangladesh's institutional developments and improvements in economic and social outcomes.

He questioned the use of the much-discussed hypothesis of Bangladesh's “development paradox” i.e. economic growth with weak institutions and governance.

He offered an alternative hypothesis and argues that despite weak formal institutions it was the actual working of informal arrangements which have facilitated the growth of the economy.

Selim Raihan identified two institutional features of Bangladesh, the supremacy of a “deals environment” over coordinated industrial policy and the supremacy of pockets of functional informal institutions over weak formal institutions as enablers of the steady economic growth of the past decades.

But he cautioned that the dividends from these informal institutions are on the decline and the country needs to undertake a host of measures to strengthen formal institutions.

He particularly focused on building state capacity, and an effective regulatory frame- work. He posits that unless formal institutions are strengthened it would be difficult for Bangladesh to achieve its vision of attaining developed country status by 2041.

Prof Rehman Sobhan, founding chairman, CPD, in his remarks as co-editor said: “The interesting point is how much change took place in this last 25 years in the economic front. Twenty five years ago, during the first 25 years of Bangladesh, there was recognized progress.”

However, the situation was still at that point and not very promising. The RMG sector was also the main source of earnings for the country. Bangladesh imported fabric from abroad and manufactured it as clothes.

“It was uncertain about the value addition of the RMG sector and industrial diversification. We are talking about 1996, when our migrant workers came forward and brought foreign currency,” he added, saying that the annual remittances were less than $10 billion, as well as the export earnings,” he added.

He also said that in terms of human development, very significant improvements have taken place in present -day Bangladesh.

“In the RMG industry, a strong backward linkage industry has been established and most of the fabric is being locally produced. Our remittances have now gone up to about $20 billion dollars,” he added.

He also said that the economic level has considerably changed, not just in terms of growth of the economy, but in terms of reduction of poverty, improvement and human development.

Regarding the banking system, he said that there are no functioning institutions in the country and the struggle of the bank, loan defaulting has continued for a long time.

He also mentioned the merger of Bangladesh Shilpa Loan Sangstha and Bangladesh Shilpa Bank due to bankruptcy.

While the first section of the book narrates the economic growth story of Bangladesh and identifies the factors that explain the country's success in attaining growth, the second section "Costs and challenges of development" provides an analysis of the costs of unequal sharing of the benefits of economic development.

It underscores the risks and challenges that need to be addressed to sustain economic growth and human wellbeing in the future.

In this section three articles look at the growth narrative from the perspective of human capital as well as natural capital and highlight the unfair burden and costs borne by the low-income and marginalized groups as well as the environment.

Rounaq Jahan, member, CPD Board of Trustees, distinguished fellow, CPD and also co-editor of the book, said: “Fifty Years of Bangladesh portrays the multi-faceted dimensions of Bangladesh’s development journey, its economic and social transformation and political and cultural contestations.”

She also said that change has its good side as well as its bad side. That is, there is a price to pay for change.

“Before this, another such book was published about Bangladesh in 1996. There, we forecast that Bangladesh will go to a better place politically, but there was not so much ambition about the economy then. Now there is frustration with politics; rather, the economy is in good shape,” she added.

She also informed that this book, which is a collection of 16 articles written by different authors, attempts to capture the vast landscape of changes that have been etched out above. These changes have taken place in different sectors of Bangladesh - economy, society, politics, environment and culture during the last 52 years. The developments have not always been uniform or positive.

The book details the variety of Bangladesh's experiences, not simply the achievements but also the shortfalls and mistakes. It identifies the persistent and emerging challenges and suggests ways forward.

The authors do not try to “fit” the Bangladesh story to established theories based on the experiences of other countries; instead, they propose new models and perspectives to ground Bangladesh's developments.

Growth framework, labour and income inequality

Author of the Economic Transformation part, Syed Akhtar Mahmood, former lead private sector specialist, World Bank Group, proposed a new conceptual framework to explain the country's remarkable economic performance over a period of five decades.

He argues that two sets of synergies-synergies between different economic variables triggering growth and synergies between policy actions by government and market responses by economic actors led Bangladesh to sustained steady economic growth.

Through presentation of empirical data he shows that Bangladesh embarked on a steady economic growth path since the early 1980s which accelerated in recent years and has proven resilient to emergency shocks such as the Covid-19 pandemic.

Rizwanul Islam, Former Special Adviser, Employment Sector, ILO, Geneva discusses the contribution of labour in the growth narrative of Bangladesh.

He highlights the role of labour in three major drivers of growth in the production of high yielding variety crops during the 1970s and 1980s, the RMG industry from the mid-1980s and overseas migration.

MM Akash, formerly with the Department of Economics, University of Dhaka, investigated the problem of growing income and social inequality in Bangladesh.

He presented long-term data, spanning four decades from the 1980s to 2016, on inequality and poverty as well as human development which shows that while poverty, both rural and urban, has declined, income inequality has increased and this has led to inequality in human development, most notably in nutrition, health and education.

Hossain Zillur Rahman in Chapter 16 summarized the two contrasting narratives of economic development and political underdevelopment over a period of 50 years.

He argues that at Independence, politics had seemed the lesser challenge but today it is the deficits in political development that are gnawing at the foundational dream of building an inclusive and humane society.

He concluded that a “middle income” aspiration will not be enough to drive the country's development in the days ahead.

The policy agendas will need to focus on touching the lives of the majority of people. Democratizing the “middle income” dream will, thus, emerge as the new challenge for Bangladesh at 50, he added.

Although the readers in London got the book copy last November, Bangladeshi readers may have to wait at least two more months, said Mahrukh Mohiuddin, managing director, The University Press Limited (UPL) and the publisher of the book.

However, at the same time, she also discussed the possibility of translating the book into Bengali.

Matiur Rahman, editor of The Daily Prothom Alo; Professor Firdous Azim, PhD, chairperson, Department of English and Humanities, Brac University; The Daily Star Editor and Publisher Mahfuz Anam; and Dhaka Tribune Editor Zafar Sobhan were also present on the occasion.

Saddam Hossain also contributed to this report

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