The impossibility theorem for Bangladesh

All good students know that in any right-angle triangle, the sum of squares of the two short sides is always equal to the sum of squares of the opposite “longer” side. According to Bertrand Russell, the builders of the pyramids of ancient Egypt must have known this also. He found evidence that they knew that right-angle triangles wherein the short sides were three and four, had a longer side of five. However, they had failed to abstract this knowledge into the more generalised statement, which we are all familiar with today. What is less known is that Pythagoras’ star student challenged his teacher and by asking: “What if the short sides where both one?” At the time (540 BC, before the invention of calculus and the concept of zero) there was no algebraic solution using fractions that could satisfy the equation (solving the squared-root of two). The star student had discovered what later became known as the “impossibility theorem” and Pythagoras went on to drown him in an attempt to weather the incoming “storm” of infamy and shame. But the impossibility theorem could not be hidden forever. It was only after Descartes invented the Cartesian coordinate system, in which the right-angle triangle could be expanded into infinity, so that Pythagoras’ algebra and Euclid’s geometry were finally united, having been taught as desperate disciplines for two millennia. Descartes’ work brought Europeans out of the dark ages of science, and ushered Europeans into the era of enlightenment though applied mathematics (eg navigation and discovery of the new worlds). Armed with the new-found confidence, the industrial revolution followed and the rest is a history that is well known to us all. Is this story related to Bangladesh and industrial growth? It is.

In Bangladesh, we are currently faced with an ‘impossibility theorem’ -- the problem of moving from mid and large owned family businesses to building corporations

The Bangladeshi theoremBecause, In Bangladesh, we are currently faced with a similar “impossibility theorem” -- the problem of moving from mid and large owned family businesses to building corporations, preventing us from achieving real growth (10-12%), which we need, and absorbing the masses of unemployed people in the country. Cheap labour is supposed to be an asset, not a burden, in a capitalist economy. But apparently it is. It is also related because the industrial revolution has not yet been properly realised in Bangladesh, and South Asia in more general. Why not? Why must Bangladesh continue to lag some 500 years behind the Europeans and Americans? Are we satisfied with this situation? Why don’t we have a space program, when we know how to navigate the stars? To the best of my knowledge, we cannot, and will not, until we reform our laws in such a way that provides incentives for investors to combine their efforts into large-scale portfolio-type investment (corporations). But how can this be envisioned? The economic regulatory system simply does not allow it, for several perfectly obvious reasons. First, we currently have a several years worth of backlogged court-cases pending within our judiciary, while each and every judge is expected to oversee about 1,000 cases per year. This expectation is completely unrealistic and means that even if the family owned “business giants” in the country were to combine their investments and create proper corporations (a completely different type of legal entity), their contracts of incorporation could not be regulated properly. And since investors will only invest if they can predict a return on their investments, they will not combine their investments. Second, even if more judges were appointed to oversee and regulate commercial contracts among businesses; who can imagine a fair trial in this day and age of politicisation within the judicial branch itself? Third, even if the two above points were solved, Bangladesh’s constitution does not even properly guarantee the right to property (and certainly not intellectual property). Paraphrasing, for the sake of expedience, the fundamental right to property in our republic states that citizens have the right property, unless the state decides to nationalise it. And if they do, citizens may not contest the value of the compensation given by the state. In short, we have the right to own property, unless the state decides that we do not.Misplaced trustThus, the legal ambiguity found in our constitution surrounding right to property and failure of the judiciary to regulate commercial contract through fair trials, creates obvious distrust among potential investors, and prevents the combination of wealth into portfolio-type, large-scale investments such that proper corporations can be established. This is the de facto (and de jure) reality of the political economy in Bangladesh. Indeed, there are many examples of this. Some 10 years ago, the then PM held a conference with the main Bangladeshi business houses in Singapore, with the aim of convincing them to invest en masse into her plan of large-scale energy production facilities in Bangladesh. The national business leaders attended, listened, but in the end there were no takers. Why not? Well how could they trust her, given the legal framework and problems of contractual trial procedures described above? Why should they risk their wealth in such an unpredictable, politicised economic landscape where the future is so fuzzy? Without a national referendum of reform to guarantee a) the right to property, b) the right to a fair trial, and c) expediency within the national courts of justice, the move from mom-and-pop shops to public corporation is a factual impossibility. Contrary to popular perception, the regulation and preservation of intellectual property rights (IPRs) are a good thing for agrarian countries such as Bangladesh, where the only avenue to wealth remains either a) physical property or b) political affiliation, or, preferably, c) the combination of both.It belongs to youThe founding fathers of the US’s Bill of Rights knew this and constructed an axiomatic legal framework, echoing the wisdom of ancient Greece, for the pre-industrial political economy that was emerging. Leading up to their own war of independence, in the preamble to their constitution the term “self-evident” right to sovereignty was chosen over “God-given,” to end religious politicisation of the political economy, and the potential capture of power monarchs, priests, and established land-owners. Americans are the undisputed world leaders in the business of economic growth. And given the similarity of context to Bangladesh (agrarian and pre-industrial), we should consider following their example, as opposed to Europeans who were lucky enough to free-ride the wave of Marxist-inspired great labour movements of the time.Jens Stanislawski works as an adviser to various development partners in Bangladesh and is the Managing Director of a research and project support organization called Research and Action for Development Ltd. (ReAD).