The meeting was in a small office near the Farragut North metro station in downtown Washington DC.
The year was possibly 1992.
The Awami League had just lost the general election in Bangladesh, the Soviet Union had collapsed, and the Berlin Wall had fallen.
Sheikh Hasina, the leader of the Awami League, was in town and she wanted to meet with Bangladeshi economists living in the US capital.
I was one of the youngest in attendance.
The oldest was Prof Nurul Islam, who was a confidant to Hasina’s father, Bangabandhu Sheikh Mujibur Rahman, on economic policy issues and served under him as the first deputy chairman of Bangladesh’s Planning Commission.
Once the meeting started, Hasina was quick to come to the point.
She told us quite candidly: “Our party had espoused socialism and my father wanted to build a socialist economy. There were good reasons for that. But now the world is changing. The Berlin Wall has fallen, and the countries of the ex-Soviet Union and other socialist countries are slowly embracing a market economy.
“We also need to go that way. But I have a challenge. How do I explain to my leaders and party workers the rationale of a market economy? I also have some concerns for myself. You all work with market economies and understand the rationale and nuances well. I would like to discuss this with you.”
That meeting was organized by a gentleman named Nurul Islam Onu, a former civil servant who was at that time the president of the North America chapter of the Awami League.
Four years later, he called me saying that it was time for another meeting with Sheikh Hasina.
With elections around the corner and a good possibility of the Awami League coming to power, Onu wanted to arrange another meeting of economists with Sheikh Hasina who was about to arrive in the American capital.
“If the leader becomes prime minister, she will have to deal with many complexities of economic management. I think she found the earlier discussion quite useful, and I'd like to arrange another such meeting.” – he told me.
It was the month of Ramadan, and the meeting was after Iftar. Sheikh Hasina had been fasting.
On top of that she had spent the whole day attending several meetings. We expected her to be exhausted and were prepared for a short meeting.
But the meeting went on for almost four hours, punctuated by a short dinner break.
Sheikh Hasina remained very engaged throughout the meeting, listening intently, asking provocative questions, all the while taking notes in her diary.
At one point, a fellow-Bangladeshi, a macroeconomist at the World Bank, started giving a lecture on the importance of trade liberalization.
It was then that Hasina politely interrupted him and said: “You do not have to explain to me the rationale for trade liberalization. Some years ago, I was living with my physicist husband in the Italian city of Trieste on the border with Yugoslavia. Three days a week, the border would be opened and people from both sides would cross the border, buy things from the other side, and bring them home.
“I saw firsthand the benefits of free trade. So, you don't have to convince me about free trade, but I have a question for you. If we liberalize imports today, many Bangladeshi factories may find it difficult to survive. If these factories close down, the workers will not come to you, but they will come to me, whether I am in government or in opposition, and ask for help. Please tell me how other countries have dealt with such problems.”
Revelation
This was a very revealing moment.
Here was a seasoned macroeconomist whose academic training and many years of World Bank experience had inculcated in him a deep belief in the benefits of trade liberalization.
That day he had come prepared to try and persuade this leading politician and future prime minister of Bangladesh to adopt the mantra of liberalization.
But to his surprise, and that of most others attending the meeting, the leader did not require any persuading, for she had come to the same conclusion.
But she had reached that point through a different route and with different thoughts.
While she appreciated the logic of trade liberalization, something was bothering her.
Hence, her question about how to address the plight of workers, who would lose jobs if liberalization, led to some factory closures.
Fortunately, we had someone in the meeting with long experience of working on social protection issues across the globe.
As he started explaining what other countries had done to help workers displaced after factory closures, Sheikh Hasina started taking copious notes on her diary and asked for further details to be sent to her later.
Sheikh Hasina went on to win that election and was Bangladesh’s prime minister from 1996 to 2001.
She returned to power in 2009 and has remained as prime minister since then.
In her long tenure she has devoted considerable attention to economic management.
In doing so, she has deftly carried out a balancing act, balancing the dynamism of a market economy with the social consciousness that had inspired her father to think about a socialist economy fifty years ago.
She has tried to blend the lessons she has acquired from the rest of the world with the ones she had learned from the grassroots of Bangladesh.
Report card
As I think of her economic management, my thoughts go back to that meeting, that defining moment when, in one breadth, she revealed her excitement about the benefits of international trade but also her sensitivity to the owes of a factory worker who may lose his or her job due to trade liberalization.
There is an important lesson in this.
Politicians have their own world views shaped over the years through their myriad experiences, from interacting with ordinary people in the remote villages of their countries to dining with global leaders and other members of the international elite.
Hasina’s simple practical experience on the Italy-Yugoslavia border had shown her the promise of international trade.
But her experience in dealing with her own country folk had also alerted her to the disruptions that liberalizing policies can cause.
Technocrats preaching reforms need to understand that while they can stick to their first-best principles, politicians continually need to carry out deft balancing acts.
Prof Nurul Islam, the eminent Bangladeshi economist, learned this first-hand during his tenure as the very influential head of Bangladesh’s Planning Commission in the immediate post-independence period.
The commission, concerned about budget deficits, had drawn up a proposal to reduce subsidies on fertilizer.
It had done the arithmetic carefully so that farmers would not be unduly burdened while significant budgetary savings would be generated.
The Prime Minister, Sheikh Mujibur Rahman, was convinced about the economic rationale and so was his cabinet.
But, when Prof Islam went for the prime minister’s signature, the leader asked for 24 hours time to think over the decision one more time.
Next day, at the appointed time, Prof Islam went to see him.
The prime minister apologized, saying he could not sign off; the political calculations did not match the economic logic.
Prof Islam assumed that the prime minister, busy as he was, must have spent no more than five minutes thinking about the policy proposal.
But the professor had faith in the political instinct of his boss and did not argue.
Only later did he find out that, in those 24 hours, Sheikh Mujibur Rahman had called up several people, from the smalltown workers of his party to members of his cabinet, from small fertilizer dealers in district towns to leading journalists in Dhaka city, asking about the possible ramifications of such a decision.
The all-powerful leader did not take a decision arbitrarily but felt a need to sound out a wide range of people.
Fast forward forty years. One of the most ambitious programs of the current government is to build several economic zones that will provide serviced industrial land to investors.
An Economic Zones Act had been enacted by an interim technocratic government in 2008.
It needed to be ratified by the parliament after an elected government came into power in 2009.
Endorsement of the parliamentarians was thus needed.
This required some work on the part of government officials.
A mid-level government official with many years of experience in zone development found himself representing the government when the Economic Zones Act went to the Parliament in 2010.
There, he faced the chairman of the relevant parliamentary sub-committee, a veteran politician Suranjit Sengupta who wanted to know the rationale of the proposed economic zones.
In a recent conversation, the officer revealed to me: “I told him that once upon a time we had embarked on the development of export-processing zones to promote exports. However, now we have realized that import substitution is also important.
“We thus need to broaden the concept from export-processing zones to economic zones whose tenants could target the domestic market as well. Sengupta found this reasoning attractive. He gave the green signal, and the Parliament soon ratified the Act.”
Takeaways
These anecdotes tell us something important.
There is much more to politics than what we imagine from outside. Political parties are not monolithic entities.
Leaders, no matter how powerful they are, rarely take decisions entirely on their own.
It is thus necessary to take a nuanced view of how politicians and political parties operate.
Without this it is difficult to understand the logic of the politicians.
The three examples I cited deal with three different kinds of policy actions, i.e., trade liberalization, subsidy reduction and infrastructure development.
However, there is a common element. In all cases, some groups were going to win, and some were expected to lose.
Trade liberalization was expected to reduce prices of imported products and boost industrial activities that relied significantly on imported inputs.
However, it also had the potential to adversely affect industries that had grown up protected from international competition.
Both economists and politicians understood both sides of the coin but while the economist focused on the former, the politician was much concerned with the latter.
Similarly, economists were concerned with the budgetary implications and opportunity costs of providing high levels of fertilizer subsidies.
Research had found that the benefits of such subsidies were not going to poor farmers - all the more reason to argue for reducing subsidies.
However, the politician, while accepting the economic logic, needed to do his political cost-benefit analysis too.
He realized that reducing fertilizer subsidies would be politically costly, given the rural support base of his party.
Finally, in the case of the economic zones program, some politicians were concerned that the export processing zones of the country had focused on export-oriented activities and most of the tenants in the zones were foreign investors.
With the rise of a domestic industrial class in the country, many of whom were targeting the domestic market, there was increasing demand for making industrial land available to local investors as well.
Politicians felt this demand and thus supported the proposed economic zones program when it was clarified to them that the planned zones would also serve local investors and not be confined to export activities.
The story of Bangladesh’s policy dynamics needs to be understood within the context of such political considerations.
Policy is intimately linked to politics, irrespective of the nature of the government, with the world view of political leaders and their calculations of political costs and benefits playing an important part in shaping the parameters within which individual policy decisions are taken and implemented.
The political calculations are, in turn, shaped by broader forces in the domestic society and, in some cases, also by global geopolitical factors.
It is within these broad parameters set by political considerations, that several factors, such as bureaucratic incentives, public opinion, fortuitous factors, and the role of external players shape individual policy decisions.
The author is an economist, previously with an international development agency
