BANGLADESH ECONOMIC POLICIES   for Daily star

By Kazi Anwarul Masud (former Secretary and ambassador)

The massive mandate received by the Mahajot government in the latest election to Parliament has thrust upon the Prime Minister a grave and great responsibility  to meet the aspirations of the people of Bangladesh, a large part of the population  living below the poverty level. To improve the condition of the people Bangladesh government may have to take Keynesian approach of  The question that remains is where the government will get its resources given the habitual reluctance of the rich and the powerful to pay taxes and as seen during the period 2001-2005 to steal wealth of the state  as well as the drying up of external capital in the form of  assistance and  foreign investment .Chowdhury and  Mavrotas (FDI AND GROWTH) writes that in  developing countries in particular macro-empirical work on the FDI-growth relationship has shown that  subject to a number of crucial factors, such as human capital base in the host country, the trade regime and the degree of openness of the economy  the FDI has a positive impact on the economy. They add that FDI determinants are infrastructures, macro-economic stability, skills and sound institutions attract investment. Not withstanding Raul Prebisch’s skepticism about accretion of national wealth through foreign investment that often has high social cost the world is now confused whether in view of global meltdown  Adam Smith’s theory that minimalist role by the government can lead a country “to the highest degree of opulence from lowest barbarism” is not an outdated theory after all.  Advocates of capitalism ignored that perfect marriage between demand and supply is a theoretical concept, particularly in places where few firms forming syndicates control the supply and price  of commodities. In economies like ours often captains of industry and commerce also dictate state economic policies either as pressure groups on the political authority or on their election as members of parliament. With the withering away of idealistic politics  and the advent of commerce based politics and expensive elections politicians in both the developed and developing worlds have increasingly become dependent on donations from industrialists to finance their elections

 

The present administration would also be faced with the choice of taking a path between political and developmental approach to democracy promotion. Political approach proceeds from a relatively narrow conception of democracy focused on the election and political liberty and a society in which democrats have an upper hand over non-democrats. Developmental approach rests on a broader notion of democracy encompassing concern for equality and justice. It favors democratization as a process of long term political and socio-economic development. Democracy is valuable in its own right but is secondary to a core developmental rationale.

Economic development, as it is understood now, really started in 1930s though Adam Smith and Schumpeter did not ignore the developmental aspects of economics. Early concept of economic development basically put emphasis on growth and industrialization. Europe and the US were considered as developed and the other areas of the world were considered as primitive versions of European nations that would develop by stages. Walt W Rostow’s Stages of Economic Development stressed that Europe and North America were at a   linear stage of development that the underdeveloped countries would eventually catch up with. Capital formation was considered as crucial to accelerate development. High savings leading to high growth as a “virtuous circle”  and low savings leading to low growth and the reverse as a “vicious circle” that could be   through governmental intervention ( Hans W Singer’s doctrine of balanced growth (DEMOCRACY ASSISTANCE: POLITICAL VS DEVELOPMENTAL-THOMAS CAROTHERS- VICE PRESIDENT OF CARNEGIE ENDOWMENT).

If one goes into the basic factors of production—land, labor, capital and organization—one would find that Bangladesh is a mixed economy. Land is primarily owned by the private individuals and we do not have any system of cooperative farming. The farmers are, however, dependant, on the government for agricultural inputs like diesel for irrigation, fertilizer, seeds etc. The Sheikh Hasina government’s decision to halve the price of most fertilizers and reduce the price of diesel has come as a welcome sign to the farmers. International Rice Research Institute does not hold out any hope of increased land for farming or any ease in the fertilizer market in the future. Given the global population increase and consequent increase in food price coupled with the natural tendency of some businessmen to reap abnormal profit the “invisible hand” of governmental intervention in the market would become a necessity if the Mahajot is to fulfill its election promise to bring the price of essentials within the reach of the common people.  President Obama’s Ambassador to the UN Dr. Susan Rice is  concerned that today more than half of the global population lives on less than $2 dollars a day and almost 1.1 billion people live in extreme poverty defined as less than $1 dollar a day thus dramatically increasing the risk of civil conflict. She adds that 53 countries have an average per capita GDP of less than $2 dollar a day making these countries vulnerable to become sanctuaries for transnational terrorism. As country level poverty prevents the government of the day to provide essential human services

 

The challenge that will have to be faced by the Bangladesh government will be immense. US Agriculture Department in its July 2008 report predicts  that the global economic meltdown combined with food and fuel( though now fuel price is going down) hikes will contribute to the ongoing deterioration in global food insecurity with particular negative impact on developing countries that are most food insecure. USDA’s long term projection of price increase states that 90% of the price shift that the world had seen in 2005-07 will persist putting tremendous pressure on low income households. FAO/WFP crop and food supply assessment mission to Bangladesh in its August 2008 report estimates that 40% or 56 million people are “absolute poor” i.e. unable to acquire the minimum level of food required to maintain normal health; within this 27 million were categorized as “hard core poor” i.e. unable to acquire two third of the minimum level mentioned earlier; and 11 million as ‘ultra poor” i.e. unable to acquire half of the minimum requirement. The prevalence of absolute, hard core and ultra poor increased from 200-2005 due to population growth. For Bangladesh external sources would reduce i.e. Myanmar due to cyclone Nargis wil not be able to export 6ooooo tons of cereals, part of which would have come to Bangladesh. In Thailand too exportable quantity is expected to decrease. Added to supply side constraint the price of cereals and food-led inflation paints a discouraging picture. Price increases are fundamentally due to climate related disaster, expanding demand for cereals for human consumption and as animal feed, diversion of agricultural land for production of bio-fuel, rising cost of fertilizer, speculation in the price of cereals, lack of investment in many developing countries in agricultural research etc. It would be absolutely necessary for the government to stock food and to import much ahead of any emergency that may occur. Besides if the price of essentials is to be kept under control then subsidy has to be given regardless of what the World Bank/IMF may be advising. After all the Common Agricultural Policy of the European Union and US Farm Act is nothing but subsidy given to the farmers in the West.  But from where will the money come from? Harvard University Professor Bruce Scott writes: (The Great Divide in the Global Village) “Average incomes have indeed been growing, but so has the income gap between rich and poor countries. Both trends have been evident for more than 200 years, but improved global communications have led to an increased awareness among the poor of income inequalities and heightened the pressure to immigrate to richer countries. In response, the industrialized nations have erected higher barriers against immigration, making the world economy seem more like a gated community than a global village. And although international markets for goods and capital have opened up since World War II and multilateral organizations now articulate rules and monitor the world economy, economic inequality among countries continues to increase. Some two billion people earn less than $2 per day. At first glance, there are two causes of this divergence between economic theory and reality. First, the rich countries insist on barriers to immigration and agricultural imports. Second, most poor nations have been unable to attract much foreign capital due to their own government failings. These two issues are fundamentally linked: by forcing poor people to remain in badly governed states, immigration barriers deny those most in need the opportunity to "move up" by "moving out." In turn, that immobility eliminates a potential source of pressure on ineffective governments, thus facilitating their survival. Since the rich countries are unlikely to lower their agricultural and immigration barriers significantly, they must recognize that politics is a key cause of economic inequality. And since most developing countries receive little foreign investment, the wealthy nations must also acknowledge that the "Washington consensus," which assumes that free markets will bring about economic convergence, is mistaken. If they at least admit these realities, they will abandon the notion that their own particular strategies are the best for all countries. In turn, they should allow poorer countries considerable freedom to tailor development strategies to their own circumstances. In this more pragmatic view, the role of the state becomes pivotal.” This should naturally bring up the question of the type of economic philosophy that the Bangladesh government should follow. If there were supporters of unbridled capitalism who doubted the social democracy practiced by Scandinavian countries and held on to Adam Smith’s minimalist role of the government for economic prosperity, the present global meltdown should have convinced that their brand of economic philosophy just does not work.  Since the essence of Awami League manifesto is to provide a better way of life to the down trodden people to would be beneficial to define the economic philosophy of the combine. The party that for the more than fifty years been fighting against the exploitation of the Bengalis by then rulers  of West Pakistan went through a transformation from  Socialist Party to one of left of center. Awami League’s advocacy of socialism was also influenced by the unstinted support extended by then Soviet Union and the Socialist bloc in the United Nations and beyond at a time when the US under Richard Nixon and Henry Kissinger as Secretary of State for its own strategic reasons totally opposed the creation of Bangladesh. Stalinist authoritarian communism having been obliterated from global governance some would favor British Prime Minister Clement Atlee’s “transformative democratic socialism” that provided a strong welfare state, fiscal redistribution, and selective nationalization as a model. British Labor minister Anthony Crosland felt that it was possible to achieve greater social equality without the need for fundamental economic transformation. He favored fruits of accelerated growth to be invested in pro-poor public services than in fiscal redistribution.