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Beyond the numbers

  • Published at 06:09 pm May 26th, 2015
Beyond the numbers

National social capital seems to be at an all time low. Achievement of middle-income status is contingent on successful policy interventions to prevent erosion of social capital.

According to the Economist Intelligence Unit’s Global Liveability Index, this year Dhaka has retained its rank of being the second worst liveable city in the world. While our policy-makers are paying much attention to visible fundamentals for development such as infrastructure, health care, and education, an issue that has been somewhat ignored so far is that of “social capital.”

“Social capital,” according to Dr Robert Putnam, professor of public policy at Harvard University, refers to “features of social life -- networks, norms and trust -- that enable participants to act together to pursue shared objectives.” In economic literature, social capital has been often cited as a factor having a significant contribution to economic growth, mainly through its by-products: Trust and social norms.

Although there are no time-series studies of social-capital in Bangladesh using analogous methodology to help us decipher the trend of the stock of social capital in Bangladesh, the trend is pretty much apparent to any ordinary unprejudiced observer.

Nowadays, it is not uncommon for the newspapers to be filled with accounts of minority violence, political and religious conflicts, acts of women and child repression along with other heinous crimes such as murders.

In fact, the EIU has termed “conflicts” to be a significant contributor in making Dhaka the second worst liveable city. Many eminent economists at home and abroad have also identified conflicts as being a major impediment to the achievement of middle-income status.

According to the World Bank estimates, average annual GDP per capita growth (after removing inflationary effects) has been 4.1% during 2006-2010 and 5% during the period 2011-2013.

So far, such robust growth figures have been possible mainly through exporting ready-made garments and manpower, and through fostering small and medium micro-enterprises. However, in order to maintain vibrant growth in the future and graduate to middle-income status, the nation needs to improve productivity, technology and skill-base, which may be hindered by the low level of social capital in the nation.

Low stock of social capital affects economic activity and investments adversely by affecting citizens’ confidence in public institutions.

Low levels of trust in society often takes the form of conflicts and acts of minority violence, which not only has short-term losses but also carries major long-term losses for the economy in the form of damaging confidence of local and foreign investors. Other consequences for low social capital might include increased tax evasion, incompliance of rules and regulations, corruption, brain drain, and lower voter turnouts.

According to TIB’s Corruption Perception Index, Bangladesh has not been able to sustain its trend of diminishing corruption, climbing up by two ranks in the direction of increasing corruption this year compared to last year.

It may well be the case that our country is trapped or will be trapped in a vicious cycle of low social capital. This happens when low social capital results in increased crimes, non-compliance with laws, loss of confidence, religious and political conflicts, and minority attacks, which in turn reduces social capital to a lower level. This cycle keeps on continuing until an intervention successfully raises social capital or lowers crimes and other social costs, thereby, successfully breaking off the trap.

Policy-makers should divert more attention to building our stock of social capital. Examples of such policies include: Restoring confidence in public institutions, moving to a credible system of governance, focusing on timely, effective implementation of rules and regulations, and undertaking campaigns to foster the democratic spirit and citizens’ motivation to work together to achieve common goals.

Investment to GDP ratio has remained almost stagnant, ambling within a narrow band of 25% for the last seven years. According to ADB, investment to GDP ratio needs to rise to 37.6% in FY2015 if 8% GDP growth is to be achieved for faster poverty reduction. Investment to GDP ratio in middle-income countries is within 35 to 40%, much higher than that of Bangladesh. Also, private investment to GDP ratio has been falling from 20% in FY2012 to 19% in FY2013 and 18.9% in FY2014.

After the recent political conflict and violence on minorities, women and children, it is clear that Bangladesh currently lacks the social capital for achieving such healthy investment to GDP ratio. In this situation, it is crucial for policy-makers to act, since it is vital for the achievement of the much sought after middle-income status.