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| Dr. Bimol Shah |
| Chief Journalist, Daily Miror |
| Tel : 8824578, 9894578 |
| Mobile : 01819 254678 |
| E-mail : bimol@gmail.com |
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| The quality of Bangladesh's economic growth |
ECONOMIC growth (rise in GDP) is always deemed to be desirable as an outcome. Economic growth means more output, employment, income and, in consequence, more wellbeing for the people. That is why most nations strive to reach the higher growth path. Economists used to "worship" growth once, till they realised that growth could not be an end in itself; it was a means to an end. In other words, economic growth is necessary but not sufficient for people's welfare.
Bangladesh is believed to have performed well over the years as far as the indicators are concerned. Economic growth rate crossed the 6 percent mark in recent years from a feeble 4 percent or below in the 1980s and 5 percent plus in the second half of the 1990s. Under a business as usual scenario, reaching the target of 7 percent growth rate does not seem to be too difficult. By and large, the per-capita income grew roughly at 4 percent per year in a regime of falling population growth rate.
However, the growth rate that Bangladesh achieved over the years pales when compared with the growth rates of the neighbouring countries. For example -- according to A.R. Khan -- in 1992, India's per-capita income was 41 percent higher than Bangladesh's; the difference rose to 53 percent in 2005. With Srilanka, the difference rose marginally from 145 to 147 percent, but with Pakistan it narrowed down from 86 percent to 47 percent.
But quantity apart, the quality of growth has recently emerged as an important area of attention. Dr. Rizwanul Islam, an eminent economist who served in the ILO for a long time, takes Bangladesh's growth with a grain of salt. He considers the "quality of growth" from three angles; the rate of poverty reduction, income distribution and employment. Any growth that reduces poverty faster, produces less inequality and absorbs surplus labour to a desirable degree could be construed as "good" growth.
Admittedly, Bangladesh witnessed a reduction in poverty. But the inescapable conclusion of Rizwan is that while the economy of Bangladesh achieved higher growth rate during the 1990s and during 2000/05, the effectiveness of that growth could be higher than realised. But there was lower elasticity of poverty reduction with respect to growth -- 0.62 in Bangladesh compared to 1.28 in Vietnam, for example.
However, in addition to output growth -- and for poverty reduction purposes -- one needs to look at the impacts of that growth on employment and real wage. Likewise, industrial growth cannot reduce poverty unless growth is employment-intensive and inequality-reducing in nature. Rizwan reckons that with the average elasticity of 2000-05 and the current rate of per-capita income growth till 2015, poverty level could be halved to fulfill MDG target. The economy has the potential to reach the target much earlier but deterioration in income distribution (a rise in inequality) makes it a forlorn hope.
To be pointed on income inequality, the share in total income increased substantially only for the top 10 percent of the households. It is not only that the share of the bottom 40 percent declined substantially but the middle income group also lost its share. Thus, the benefits of economic growth that Bangladesh boasts of bypassed the major portion of the population. This has happened because the contribution of the non-equalising sources of income, i.e. wages and salaries, and non-farm enterprises to total income has increased.
On the employment side, the overall employment intensity of economic growth, as well as the employment elasticity with respect to GDP growth, is reported to be low and declining. With an employment elasticity of 0.495 (during 1990s), and employment growth of 4.4 percent (same as labour force growth), not counting current unemployment and under employment, the country would require a GDP growth of 8.89 percent per year!. The lower the elasticity from the observed ones, the higher would have to be the growth rate to absorb the surplus labour. It indicates the magnitude of employment challenges that Bangladesh is faced with.
On the other hand, the transformation of the employment structure has been from agriculture towards the services sectors rather than towards the manufacturing sector. Whatever employment has taken place is mostly in the informal sector; leading to non- formalisation of the economy. Trade liberalisation and economic reforms do not seem to have posted Bangladesh on a path of development with labour-intensive industrialiation. It is true that openness and reforms opened the doors for some limited export-oriented industries, but also closed the doors of several important traditional industries. It is, thus, no surprise that Lewsian transformation turned out to be elusive for Bangladesh.
After an taking an X-ray of the drivers of growth and their ramifications, Dr. Rizwanul Islam also made some forecasts. The rate of economic growth could be raised from 6-7 percent to 8 percent by raising domestic savings and investment. Needless to mention, instruments to mop up small savings need to be devised and incentive to save should be raised through reforms in financial institutions. But higher savings may not translate into higher levels of investment because of three important constraints -- electricity, corruption and tax administration -- that entrepreneurs see as problems.
Second, what matters is stability and sustainability of the growth so achieved. Investment in infrastructure (power, roads and telecommunications) will be extremely important to keep the sustainable growth rate above the potential rate. Although, in general, regular wage employment contributes to inequality, such employment is associated with higher productivity and earnings -- notable indicators of economic development -- and is hardly taking place in Bangladesh.
First, regular wage employment should be encouraged through providing incentives to the growth of such activities and, at the same time, by providing access to education and skills to the poor so that inequality is contained. Second, since non-agricultural enterprises are inequality enhancing, provisions for micro-credit for the poor to undertake such activities should be in the policy agenda. And finally, redistributive measures like progressive taxation should continue. By and large, Bangladesh should target growth with justice rather than growth alone.
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