The Bangladesh Bureau of Statistics (BBS) has recently published figures showing the slow but steady growth of the economy over the past 44 years. The focus has been on increase in per capita income during this period. With great satisfaction it has been revealed that starting with $129 as per capita income in 1972-1973 it has now risen to $1602 (2016) marking increase by 11 times over the bench-mark period. The gross domestic product (GDP) growth rate exceeding the barrier of 6.0 per cent very recently has also been highlighted as a corollary to the increase in per capita income. Figures produced by BBS have almost always been contested by economists but leaving the nitty-gritty of national income aside, there is no denying the fact that Bangladesh economy has made remarkable progress in almost all respects, though the degree of success varies from sector to sector. What is missing in this cumulative summing up is an analysis of the type of political economy or the policy regimes under which the changes in the economy have taken place. This write-up in this column is a tentative attempt at identifying the policy regimes or strategy underpinning the changes that have occurred and the lessons that should be learnt and acted upon.
At the time of independence in 1971, Bangladesh economy was hobbled with so many constrains that even breaking out of the 'low level equilibrium trap' appeared to many as a pipe dream. While the cynics condemned the country to a perpetual state of being a 'basket case', surviving on foreign largesse and handouts, others with a neutral bent of mind was prepared to treat it as a 'test case of development', giving it equal odds of success and failure.
The political economy of the country was planned and projected to develop according to the strategy led down in the First Five Year Plan. Following the socialist model providing the ideological template of planned development not only all the commanding heights of the economy but also all sectors were brought under state control except agriculture. Reconstruction of the war-shattered economy, particularly rebuilding infrastructure and rehabilitation of the war-displaced families took up the bulk of efforts and resources invested in the economy for the first few years. The political economy based on socialist model had to wait for the major thrust until the birth pangs of the country were over. The sudden overthrow of the government and takeover by a rightist-oriented military regime did not allow the socialist model the chance to prove its capacity to deliver the results promised in the First Plan. Change of administrative power in quick succession after 1975 buffeted the economy with policy changes under clouds of great uncertainty. But even before the economy was placed on an even keel it was clear that it was being re-directed to the capitalist path of free enterprise and free market at the behest of Western donors and international institutions dominated by them.
Being an overwhelmingly agrarian country, the foundation of the economy was based on agriculture when the country became independent. In 1971-72 the contribution of agriculture to GDP was more than 60 per cent. But the country was deficit in most items of agricultural products, particularly food grains. Producing barely over 10 million metric tons of cereals the country was heavily dependent on food imports. The governments during 1971-1975 committed to the socialist model rather than squeezing agriculture sector for 'primitive capital accumulation', provided generous help to farmers through subsidised fertiliser, irrigation equipment and free pesticides which made Green Revelation a reality. The country was placed on track of becoming self-sufficient in food grains. Giving equal access to subsidies to firms of all sizes ensured growth with equity in the rural economy. This singular achievement of the political economy under socialist ideology has hardly been mentioned in any report or research papers. The agricultural breakthrough achieved through the success of green revolution laid the basis for the future development of the economy by providing chief food even while population growth remained unchecked.
Following the free market principles adopted after the political change-over in 1975, subsidies were reduced at a steady rate, removing this facility for irrigation equipment and pesticides altogether. Market was given a prominent role for the supply of agricultural inputs. But the emergence of 'kulaks' (big farmers) did not happen because small and marginal farmers having availed of government subsidies had already entrenched themselves in the rural economy. At present their number is still significant even though the contribution of the agricultural sector has shrunk to about 17 per cent of GDP. Most importantly, the difference in the standard of living between the small and marginal farmers and the large farmers is not glaring because the former are no longer are subsistence farmers, having raised productivity per head and per unit of land.
Contrary to Colin Clark's prediction, the service sector has overtaken the manufacturing sector even before the latter could become the major contributor to GDP succeeding agriculture. The service sector, both formal and informal, has thrived and leapfrogged spawning banks, insurance companies, trading (internal and external), hospitality outlets (hotels and restaurants), health care, tourism and recreation, private sector education, etc. Here the free market ideology can take some credit having underlined the profit motive and ensuring more or less open competition. The migrant workers who work abroad and send remittances can also be considered as belonging to the service sector. Under the socialist model of the political economy (effective till 1975), except petty traders and shopkeepers the service sector was entirely under the management of the government. To the credit of the service sector that has gained strength under the free market ideology it has to be admitted that both small and large owners of capital have opportunity to participate and prosper in the sector. The downside of the development in the service sector in the political economy under capitalist economy has been that the access to opportunities has not been equal for all groups and as a result distribution of income origination in this sector has been skewed. The nexus between finance and business has created a class of oligarchs who have given rise to growing inequality in recent years. Though this has drawn attention of many and is being discussed at various levels almost no step has been taken to reverse the trend.
The manufacturing sector that has become the second most important source of GDP contribution owes its development almost entirely to the free market ideology of the capitalist political economy. There being few industrialists among Bangladeshis before independence (for lack of opportunity under the Pakistan regime) their emergence in growing number encompassing various sub-sectors under manufacturing has been possible due to the profit earned from the service sector (trading, business, etc.) and capital available from banks. More than in the case of the service sector large operators in this sector have enjoyed greater advantage in respect of access to capital and other factors of production. Though efforts have been made in recent years to promote small and medium enterprises these have been no match for the big players in the sector and the income inequality between the former and the latter groups has widened. The growth of manufacturing sector that has made exports in increasing volume possible is also a contribution of the free market ideology. Here again, dominance by the large players has contributed to growing inequality of income.
The short-lived socialist model of economic development did not have enough time or any chance to prove its effectiveness in giving a major thrust to the manufacturing (including export) sector. But on the basis of experiences in other countries, like India, its strengths and shortcomings have been discussed at length by academics and researchers. It has been revealed that though the socialist model could not accelerate growth of the manufacturing sector, the strategy of promoting heavy industries and utilities provided the foundation for industrial development. The Mahalanobis model of socialist development succeeded in mobilising resources for the development of the 'commanding heights' which helped the spin-off of other industries. On the other hand, industries and business in the private sector were not discouraged except in the case of non-essential goods and as a result conglomerates like Tata, Birla and others continued their operation even under the socialist model of development. A downside of the regime was the 'license raj' that hobbled the private sector and allocation of resources that produced the 'Hindu rate of growth' centred around 4.0 per cent per annum. Besides, laying the foundation of industrial development the socialist model in India ensured equitable distribution of income. As a consequence of the latter luxury goods did not flood the market either through internal production or imports.
The experiences of the development under socialist and capitalist ideologies have shown their areas of merits and demerits. Both have something to commend themselves. With capitalist ideology reigning supreme in all countries except a few, and producing almost the same consequences of its unbridled operation the need to rein in its excesses has now become overwhelmingly imperative. Scholars have come out with analytical books on the unwholesome effects of capitalism. Policymakers and international institutions like IMF have also raised alarm over the harms caused by the unrestricted operation of capitalist ideology in the economy. Bangladesh is not immune to this worldwide malaise originating in capitalist ideology. It is time for planners and policymakers to forge an effective blend of the two models, combining their positive aspects. There will be no victor or vanquished in this compromise. People's welfare will be the winner.
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