Rising inequality takes shine off growth

M M Akash
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If we look at our past economic growth performance we shall find that Bangladesh was able to increase its growth rate of GDP from below 4 percent in the decade of 8o's to a level of above five percent in the later half of 90's. In spite of the global recession Bangladesh has been able to maintain an above five percent continuous growth up to now!

Absolute poverty had also declined from around 70 percent in early 70's to a level of 40 percent in 2005. Infant mortality rate had also declined largely and enrollment of children at primary level has improved a lot. Food security for most of the population is ensured or at least there is no severe shortage in food supply with regard to the existing requirement. The problem of endemic hunger among the bottom forty percent of our population is of course still there but that is completely another kind of problem which can't be solved by merely increasing our average income.

Foreign aid dependency has also decreased largely although external policy dependency remains disproportionately higher. During the decade of 80's we used to receive huge foreign aid ranging between 80 and 110 percent of the then development budgets. Traditional economists at that time used to qualify foreign aid as a “Necessary Evil”. Today the so called foreign aid has come down to a level below fifty percent of the development budget. On the other hand our yearly remittance earning has shot up to become almost four times higher than the net inflow of the so called foreign aid. And our finance minister (who was also a finance minister in 80's hey days of foreign aid!) has recently been claiming that his government will not going to accept any foreign aid with undue policy strings.

All these changes and positive trends have created a great hope among our top development practitioners for turning our beloved country into a medium developed tiger country of Asia by 2020. Such a promise has also been made in the last election manifesto of the current ruling party. This may be a desirable and feasible dream indeed but the number one constraint that can block and throttle this aspiration is, I am going to argue in this paper, the vicious problem of continuously rising inequality of income and wealth in Bangladesh.

In the past from mid 70's our successive governments had been toeing the so-called “Free Market policies” prescribed by our trusted “foreign friends” blindly. It has already created a highly unequal power structure that excludes the majority of our population from participating in and enjoying the fruits of economic growth and has created a widespread sense of injustice and discontent. As a result of indiscriminate or non-pragmatic privatisation, liberalisation and deregulation the top five percent rich and powerful in our country have been able to enjoy relatively larger share of the growing real income and wealth of our country. That is clear from the figures presented in the table.

The figures in the table are constructed by the Bureau of statistics and World Bank who have been jointly working on Household Income and expenditure surveys in Bangladesh since 1990. They have been regularly publishing HIES data every five years, And thanks to them that we have now a clear and sharp picture of rising inequality in Bangladesh. The National Gini Coefficient which measures the level of inequality has been increasing continuously in Bangladesh since 1990 and has reached the mark of 0.47 in 2005; this is also the highest in South Asia!

It is often argued that during the initial period of growth under a private ownership based market economy where capital is concentrated in the hands of a few the fruits of growth will inevitably go into the pockets of the capitalists and inequality is bound to increase until the labour becomes scarce and wages begin to rise. Others also advance this argument further by claiming that concentration of capital in a few hands will enable the capitalists to take large scale investments and that will also augment higher growth of the economy which again through trickling down will alleviate poverty. This classical argument does not get support from the empirical history of the growth path of Bangladesh. Bangladesh had entered into a growth trajectory of above five percent only from the mid 1990's and since then growth rate did never fall below five percent. The important question to ask is “Who were those heroes of Bangladesh who made this possible? Were they the rich tycoons or the poor productive classes?”

Dr. Osmani, Wahiduddin Mahmud, Binayak Sen, et. al's study for UNDP, titled ''Macroeconomics of Poverty Reduction: The Case of Bangladesh” tried to decompose the growth contributions of different sectors and classes in the post 1995 accelerated incremental growth of GDP by using sophisticated economic tools. I would like to quote from their excellent analysis:

“The report finds that at least two-thirds to three-quarters of the incremental growth in the 1990s originated from the non-tradable sectors mainly, services, construction and small-scale industry…. Further analysis shows that acceleration of the non-tradable sector cannot be explained by autonomous productivity improvement within the sector. A more likely explanation lies in a more robust demand stimulus originating from outside the sector. Evidence suggests that the demand stimulus came from three major sources a quantum jump in crop production that occurred in the late 1980s, rapid growth in the flow of income generated by the readymade garments industry, and accelerated flow of workers' remittance from abroad. In relative terms, crop production played by far the major role; even the combined stimulus from the other two sources was less than the stimulus that came from crop production alone.”

So our “hats off” to our “Peasants”, first. To this one must also add the names of the “Garments workers” and “Migrant workers”. And we should also recognise the contribution of “Micro and small Entrepreneurs” who have actually helped to build the huge NGOs (legally speaking owned by nobody!) with a large portfolio of corporate assets (owned partly by the NGOs themselves and partly by the private capitalists) and the Grameen Bank Empire (legally this is different from the NGO model since it is owned by the poor borrowers themselves!). These poor clients of NGOs and Grameen Bank have proved their integrity through regular repayment of their debts with as high as 20 to 30 percent rate of effective interest rate and also by saving crores of taka through depositing a part from their meagre earnings every week even when they had to remain half fed and over worked. (As per the latest report of the MRA, their aggregate savings in 2008 has crossed the figure of 6000 crore taka. While on the other hand our formal private sector who took loans from the commercial banks at much lesser rate of effective interest had successfully created a loan default of around 16121 crore tk. in 1998.)

The above performance picture proves simultaneously how great the potential of our people is and how foolishly our ruling class keeps them outside the mainstream growth process and favours the rich non-performers. In spite of not getting a proper share till now in the fruits of the mainstream growth the poor people is still contributing the lion's share in our growth through their honest labour. But with rising inequality and a blatant demonstration of that inequality in all the spheres of social life, how long they will continue to do so peacefully remain to be seen. On the other hand think if only we could further include the people in the mainstream growth process not only in the capacity of labour supplier but also by giving them a larger collective ownership stake, our growth would immediately then not only rise to a new height but would have become simultaneously far more equitable. Universal literacy and democratic land reform -- these two other strategies -- could also supplement this fundamental strategy of equitable growth to make it irreversible. I think this is a minimum programme for those who want to make Bangladesh a tiger of Asia within next ten years. But what about politics, is it ready for such a transition?

The political economy of Bangladesh is a classic example of an unfinished bourgeois democratic revolution! The pattern of capitalist growth in Bangladesh was not similar to the classical path where a competitive model of capitalism from below had generally preceded the monopoly phase of capitalism. The anti-imperialist, anti feudal bourgeoisie democratic revolution was also not carried out to its end in Bangladesh. As a late starter and a marginal position holder in the world capitalist global system Bangladesh's weak ruling class had to open up its home market to the foreigners prematurely, had postponed an urgently needed programme of radical land reform year after year and had abused the state power to carry out the primitive accumulation of capital. As a result they have been able to create a dense patron-client semi-feudal party network at all levels of state administration and politics. The situation has become further complicated because of the rise of a bi-partisan politics where each party competes with her rival for enlisting the support of the rich plunderers and “mastans” to win the election and people are often forced to choose the “bad” candidate as against the “worse” one!

Until and unless we can break this all pervading patron-client model of politics either by social mobilisation from below or it itself gets changed from within by a series of inner contradictions and/or enlightened decisions from the top patron, all our dreams will remain unfulfilled.

The author is Professor of Economics, Dhaka University.

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