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The Financial Express

A new strategy for development

| Updated: November 14, 2020 20:48:44


Lankabangla and Fianancial Express Lankabangla and Fianancial Express
Photo: World Vision Bangladesh Photo: World Vision Bangladesh

If the lessons of Covid-19 call for a new global order through changes in the functioning of the existing international institutions, the social and economic impact of the pandemic makes a revision of the strategy for development imperative for countries like Bangladesh. The dominant strategy underlying development policies in most developing countries has been one of growth and equity. It is based on the trickle-down theory that assumes growth to benefit all, including the poor, sooner or later. The experiences of most developing countries with the strategy have shown that growth does not percolate down automatically to the lower income group and the poor and when it does, it is inadequate  because of differences in skills and ownership of assets (land, capital etc.) and secondly, because of differential incomes earned. As a result, inequality widens exponentially.

The corona pandemic  has now demonstrated that in addition to the above outcome of the traditional strategy of growth and equity, the number of poor increases whenever there is a sudden dislocation of income and employment caused by a major natural disaster or a pandemic. In other words, the low income groups are poised so delicately on the income ladder that they cannot remain steady on the rungs they have reached through the trickle-down effect of growth when faced with a sudden economic crisis. This strategy of growth and equity thus not only accelerates income inequality, it also makes the low income group and the poor vulnerable to economic shocks caused by events like Covid-19. Unable to cope with such  emergencies, these groups at the lower rungs of the economic ladder slide downward, below the poverty line. According to the Planning Commission, the number of extreme poor rose from 10 per cent to 20 per cent and the number of poor increased from 20 per cent to 32 per cent. Findings by research organisations like BIDS has corroborated this. A new strategy  of development is, therefore, required both to prevent growing income     inequality and to provide the low income groups and the poor with basic needs in the course of their participation in the economy, both in normal times and during emergencies.

The strategy of growth that both ensures equitable distribution of income and guaranteed basic needs goods and services is growth with equity. The difference between the two strategies, growth and equity and growth with equity, is obvious. The former places the two goals sequentially whereas the latter requires it to take place simultaneously. If the plight of the poor and low income group has moved the conscience of policy makers, there should not be any hesitation to adopt the second strategy explicitly and with real commitment. It will, of course mean a re-distribution of the 'income' of growth, reducing the share of the rich and the high income group. But these need not involve a trade-off between growth and re-distribution. If all those eligible for taxation, pay their taxes without evasion and the tax collection machinery is made more efficient with incentives to discharge their duties, the volume of revenue earned would be enough to pay for welfare programme that will guarantee the poor and the low income groups. Countries like Bangladesh are already providing cash and food assistance at concessionary rate to the old, the disadvantaged and the very poor under the rubric of social safety net programmes. All that needs to be done under the new strategy of development, growth with equity is to expand these both in terms of coverage of beneficiaries and the number of benefits. This will lead to a new system of economic governance, giving emphasis on guaranteed welfare of common people. If there was a system like this in place when the pandemic struck Bangladesh, there would be no need for ad hoc emergency stimulus package for the poor and the low income groups. The fact that the stimulus amount has been inadequate compared to the number of the poor and their actual needs point to the need for a regular comprehensive welfare programme for the poor and the low income groups.

The Covid-19 should be seen as a watershed event that has exposed the inadequacy  and shortcomings of the existing system of the economic governance. It calls for not only temporarily relief of the affected people but a permanent system that will guarantee them the basic needs for living. Costs involved for this should not be exaggerated as most of the goods and services provided to the poor and the low income group will not be free of charge. This will be given at subsidised prices and everyone will be required  to make a contribution to national social insurance except the very poor. As regards abuse and misuse of the system, vigilance by government agencies, media and the civil society should be able to reduce their incidence, if not remove them altogether. Attaining the lower middle income status and poised to reach the next stage, Bangladesh is now in a position to undertake a modest welfare programme and integrate it into its development strategy.

In addition to re-distribution of national income through welfare programmes and safety net programmes, the emphasis in the new strategy for development should be to give more allocations in budget to social sectors like health and education. A recent global report shows expenditures on these are declining in almost all countries because of austerity measures which have aggravated inequality. Bangladesh is no exception to the global trend. The covid experience has highlighted the need to increase expenditures on health services. Along with this sector, expenditure on education should also increase to provide a sound basis for growth with equity.

Let Covid-19 be the point of departure from the traditional development strategy of growth and equity that has been followed so far. It is time to re-think the strategy and opt for one that is the need of the time.

 

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