Can Equality be ever established? The Case of Bangladesh

Paper No. 6283                                     Dated 31-Jul-2017

By Kazi Anwarul Masud

Chilean bankers Ari Aisen and Francisco José Veiga in a study tried   to empirically determine the effects of political instability on economic growth using sample covering 169 countries over 5-year periods from 1960 to 2004. They found that higher degrees of political instability were associated with lower growth rates of GDP per capita. Regarding the channels of transmission, they found that that political instability adversely affected growth by slowing productivity growth and, to a smaller degree, physical and human capital accumulation. Finally,Aisen and Veiga found that economic freedom and ethnic homogeneity were beneficial to growth, while democracy may have a slight negative effect. To quote them “political instability is likely to shorten policymakers’ horizons leading to sub-optimal short term macroeconomic policies. It may also lead to a more frequent switch of policies, creating volatility and thus, negatively affecting macroeconomic performance. Considering its damaging repercussions on economic performance the extent at which political instability is pervasive across countries and time is quite surprising”.

In Bangladesh we have the ruling combine and the largest opposition party having a running battle on the procedure of holding the next general election due to be held possibly in 2019. The bone of contention is the formation of an acceptable election time government demanded by the opposition.  The government has an easy task to face the challenge as the ruling combine has an overwhelming majority in the parliament and the opposition has none as it opted out of the last election because it felt election would not be fair. In the middle of this tussle between the combating parties, while the tussle often became bloody, the people had become victims.

It is more or less taken for granted that without mutual trust of citizens and politicians there can be no successful politics, nor can a society progress and live in peace…… A typical voter at the polling booth is a drowning man whose political choice is driven by his fight for survival. He sticks to "his" politicians, even though he may have little confidence in their election promises.  He is a helpless soul without any expectations apart from mere survival. Therefore ethno politics becomes the politics of collective survival in which the populace has forgiven in advance all possible failures to its political elite (POLITICS OF MISTRUST AND REFERENDUM by Ugo VLAISAVLJEVIC-June 10 2006).

Are we then destined to tread the path of dystopian democracy where the merger of democracy, liberal democracy with capital poses the real threat ? Attempts at homogenization of politics through the syndication of capital, both within the legislature and outside, seen through tax concessions given to the elites and marginalization of the voiceless segment of the population are signs of dystopian democracy.  Bangladesh,  unlike India, as indicated by Professor Promod Nayar,  has neither the fear of external intrusion nor threat of ethnic, racial and cultural differences of any significant degree necessitating closing the ranks for extreme nationalism. What we do have is the widening gulf between the rich and the poor and perhaps lax monitoring of flight of capital from the country to others which are well documented and known to the public domain.   (The Signs of a Dystopian Democracy Are All Around Us By Pramod K. Nayar on 25/07/2017).   

The question that is asked by many is about the net result for the people. Even if one presumes that a free and fair election is held and the people have voted in reasonably free environment would that necessarily result in substantive democracy? Political analysts have labeled that procedural - those that are democratic in the process, and in name. e.g. some countries do everything right on paper and get praise from other democracies while being little more than a dictatorship in reality. Substantive - are those that actively go beyond the minimum and legal perimeters to insure that democracy is actually applied. Substantive democracies are much more realistic and helpful and wise, they know that in the beginning stages of democracy a nation is at its most aggressive state and is prone to violence, either to eradicate or unify its people against. If the war does not go well the democratic processes may very well fail. In the end substantive is not only better in practice but in application for they take into consideration all concerns and realize that creating a true democracy take a great amount of effort and cooperation from the people - ultimately they have to want it, where as in Procedural democracy it has to be forced upon them.

If socio-economic inequality contributes to degradation of democracy then one has to address the question of inequality in income distribution in the society. Most of the countries of the world suffer from Paul Krugman’s Great Divergence in the per capita income of the people to the extent that the phrase 1% and 99% is now commonly used in describing societal inequality. If one considers the fact that income distribution in the 21st century is not going to bring about Great Convergence when the difference between the rich and the poor was within tolerable limits then it may be possible to chart an egalitarian social contract. But if the difference is caused by corruption by the elites while the poor have to starve then the possibility of violent protests cannot be ruled out.

As Joseph Stiglitz has shown in his book The Price of Inequality: America has the highest level of inequality among the advanced countries – and its gap with the rest has been widening. In the “recovery” of 2009-2010, the top 1% of US income earners captured 93% of the income growth. Other inequality indicators – like wealth, health, and life expectancy – are as bad or even worse. The clear trend is one of concentration of income and wealth at the top, the hollowing out of the middle, and increasing poverty at the bottom. Defenders of America’s inequality argue that the poor and those in the middle shouldn’t complain. While they may be getting a smaller share of the pie than they did in the past, the pie is growing so much, thanks to the contributions of the rich and superrich, that the size of their slice is actually larger. The evidence, however, flatly contradicts this. Indeed, America grew far faster in the decades after World War II, when it was growing together, than it has since 1980, when it began growing apart. Critiquing Stieglitz  Dr Polly Cleveland observes that “the real reason inequality stalls the economy is that natural resources and capital are monopolized at the top, kept away from the middle class that could invest them far more productively. In my view, it is not the loss of middle class spending that holds back the economy; it is the loss of middle class investment”.

The basic question of the debate is- can equality ever be established? Given the current scenario and French economist Thomas Picketty’s conclusion that the rate of return on capital will always be more than the rate of growth of the economy the prospect of a passable equality appears to be farfetched. “The idea” writes Bill Gates “is that when the returns on capital outpace the returns on labor, over time the wealth gap will widen between people who have a lot of capital and those who rely on their labor. The equation is so central to Piketty’s arguments that he says it represents “the fundamental force for divergence” and “sums up the overall logic of my conclusions.” Reasons vary for the wealth gap among developing countries. In the case of India, for example, it has been found that wealth gap is contributed by growth factor as the income of the upper and middle income groups raise more rapidly than those of the poor.

Another factor is the highly unequal asset distribution. As for rural areas, the ownership pattern of land is highly unequal. The marginal households (with holdings less than 1 hectare), which account for as many as 72 per cent of the rural households own very little about 17 per cent of the land. At the other end, there are those with large holdings (of more than 10 hectares) who are about 1 per cent of the rural households. But they have under their ownership as much as 14 per cent of the area. Inadequate Employment Generation and differential regional growth between backward regions vis-à-vis the high income regions also contribute to income disparity.

The extent of the gap is staggering. According to Credit Suisse Global Wealth Data Book 2014 India’s richest 10 per cent holds 370 times the share of wealth than the country’s poorest hold. India’s richest 10 per cent have been getting steadily richer since 2000, and now hold nearly three-quarters of total wealth. India’s 1 per centers – its super-rich – has been getting richer even faster. India’s top 1% holds close to half of the country’s total wealth. Not surprisingly, India then dominates the world’s poorest 10 per cent, while China dominates the global middle class and the United States the world’s rich. Credit Suisse Report revealed that India’s richest one percent held 53% of the country’s wealth.  (The Hindu December 8 2014).

Bangladesh is no exception. The gap between the rich and the poor is increasing. Corruption resorted to by some businessmen in over-invoicing and under-invoicing in trade transaction is one of the many reasons. Flight of illegal capital from Bangladesh to foreign countries also contributes to lack of domestic investment that in turn leads to reduction of income and consumption by the middle and lower middle class people who otherwise could have been beneficiary of these investments.  A report in a daily (DAILY STAR BANGLADESHIS' MONEY IN SWISS BANKS Deposits jump 20pc in a year) revealed that Bangladeshi nationals' deposits in Swiss banks rose 20.18 percent year-on-year in 2016 to 661.96 million Swiss francs or Tk 5,575 crore. The Swiss National Bank (SNB) came up with the data in its annual report titled “Banks in Switzerland 2016”. 

Global Financial Integrity (GFI), a Washington-based research organization, gives a comprehensive picture about money laundered out of a country. Bangladesh lost between $6 billion and $9 billion to illegal money outflows in 2014, according to a GFI report. GFI estimates that US $75 billion have been siphoned off by Bangladeshis to “safer” foreign countries abroad. Gini Coefficient is often used as a gauge of economic inequality, measuring income distribution or, less commonly, wealth distribution among a population. The gini coefficient ranges from 0 (or 0%) to 1 (or 100%), with 0 representing perfect equality and 1 representing perfect inequality.  In the case of Bangladesh gini coefficient has risen from 0.39 in 1983/84 to 0.46 in 2010. Besides non –payment of  classified loans by the creditors amounting to more than one hundred thousand crores of taka forces banks to increase interest on loans and decrease interest on deposits- both adversely affecting the economy and the people. For low income countries like ours the authorities should try to shorten the gap between the rich and the poor and politicians may wish to remove the public perception that corruption is widely practiced.

As with the demise of the Soviet Union and consequent extinction of ideological battle between communism and capitalism the vacant political space has been taken by nationalism where global political stability has taken a backseat.  In countries like ours people are befuddled as to which politico-economic model- Park Chung-hee/Lee Kwan Yew model or the Western liberal model would suit their interest. South Korea was less developed than former East Pakistan in the sixties. Today it is a developed economy. The credit for the fast growth of the South Korean economy could be attributed to the strong rule of Park Chung-hee who created the chaebols like Daewoo, Hyundai and a few others and later by President Kim Dae-jung’s economic model of market oriented economy. In the case of Singapore its phenomenal growth may be attributed to three interrelated factors: total commitment to free enterprise; total commitment to a rules-driven society; and total commitment to a corruption-free system. Lee Kwan-yew’s authoritarian rule transformed a third world country to one with a per capita income of $85000/( 2015 estimate).-

It is, therefore, necessary that in Bangladesh on the political front the running battle between the two combines on the nature of the government during the next election has to be resolved. Inflexibility of either side would bring about disruption causing both socio-political and economic costs to the society.  If the goal is reduction of inequality of income and opportunity allowing for social mobility to the people the political instability should not be allowed to grip the country and the needs of the common people have to be given priority over ambition of the politicians who seek to remain in power.