Economy of socialistic structure
International Economic Association organised a major conference in Bangladesh in January 1973. World renowned economists including Ashok Mitra and Arjun Sengupta of India, Saburō Ōkita of Japan, Just Faaland of Norway, Paul Streeten, Michel Lipton and Austin Robinson of Britain, Gustav Ranis, Hollis B Chenery, Keith Griffin of the USA and Branko Horvat of former Yugoslavia participated in the conference. The issue of the conference titled “The economic development of Bangladesh within a socialistic structure” was quite unprecedent comparing to today’s perspective.
The delegation met the then prime minister Bangabandhu Sheikh Mujibur Rahman after the conference. So, the very usual question was, “How will this socialistic structure work for Bangladesh actually.” Bangabandhu replied, “The socialism as we shall practice it in Bangladesh.”
Socialistic economists as well as pro-capitalistic economists took part in the conference. At the conference, Yugoslavia’s Branko Horvat, who later became known as a Croatian economist and a road had been named after him in Kosovo, said, “It is possible for Bangladesh to achieve an 8 per cent growth because the country has unused capacity.” However, others were not so hopeful that Austin Robinson had written clearly. Who would know that the remarks of Branko Horvat will be true, but not in that of the socialistic structure of economy of his liking?
The government announced nationalisation of larger industry, bank and insurance on 26 March 1972 as part of the socialistic economic policy. All banks except for foreign ones, general and life insurance companies except for foreign company’s branches, all jute, textiles, cotton, sugar mills, a large fleet of internal and coastal marine vessels and properties laying abandoned and having no owner worth more than Tk 1.5 million (15 lakh) were nationalised under this scheme. Besides, Bangladesh Biman and Bangladesh Shipping Corporation were also nationalised and major portion of foreign trade were brought under Trading Corporation of Bangladesh (TCB). As a result, the government had taken control of 90 per cent of financial and industrial sectors.
There was no alternative to the new government in a war-torn Bangladesh. The country didn’t have the capacity to run the institutions left by the Pakistani owners. Though the situations had been tackled at the beginning, but various crises followed. Economy became stagnant and production fell. As a result, government had to shift from its previous policy. Few initiatives were taken in 1974 to reduce the government control. At the beginning, limit of private sector investment was set at maximum Tk 2.5 million (25 lakh). The limit increased to 30 million (3 crore) in 16 July 1974. Even foreign investors were invited for the first time. Investors were told that special tax exemption on foreign investment would be given and the respective industry wouldn’t be nationalised for the next 15 years.
Socialistic structure of economy didn’t last long in Bangladesh. It came to an end after the assassination of Bangabandhu in 1975. Despite this, researchers will find out how much role had the socialistic structure of economy have on the achievement in the country’s economy in 50 years.
In fact, the government started to relax control over the economy after the policy announced during the tenure of Ziaur Rahman. It ended the socialistic economic policy. Investment limit for individuals was set at Tk 100 million (10 crore). Process to denationalise factories and industries began. Foreign investment act was passed in 1980. Taking various measures under the trade liberalism policy of capitalistic structure were taken during the tenure of Ziaur Rahman and it continued during the regime of HM Ershad.
Some people also cited Ershad’s regime as the dark decade for economy. Economy fell into various crises because of corruption, misgovernance, squandering and willfulness. Several policies had been taken amid these situations that later helped economy grow. For example, the industry policies of 1982 and 1986. The 1982 industry policy mentioned the denationalisation officially for the first time. Factories and mills were returned to private sector owners. One the other hand, the 1986 industry policy opened all but seven sectors for the private sector. Process to get loan from bank was made easier. Even loans were disbursed by organising gatherings.
Bangladesh Bank created the outline of establishing private banks in December of 1980 during the tenure of Ziaur Rahman. It allowed Tk 100 million (10 crore) authorised capital and Tk 50 million (5 crore) paid-up capital to set up a bank. Permission was also sought to establish new bank in private sector at that time. Then in 1982, decision was finalized to denationalise the government bank and allowing new banks in private sector. The national drug policy of 1982 was another big step during Ershad’s regime. It has played a big role in the expansion of domestic pharmaceutical industry.
The policies taken by the government hadn’t been successful initially. Production couldn’t increase much after denationalising factories and mills. Factories were not set up although loans had been taken from banks. Defaulting on loans began during the tenure of Ziarur Rahman that rose sharply during Ershad’s regime. The country was aid-dependent totally during Ershad’s regime. From this stage, process to improve the economy started in the 1990s after the fall of Ershad. The march of today’s private sector-dependent economy began during the tenure of Ziaur Rahman and Earshad. They at least deserve this credit.
Background of garment’s journey to success
An agricultural product, jute, was the main export product since independence. Export was facing crisis due to decline in global demand for jute and jute-processed products. Garment industry rescued Bangladesh from this point. Reaz Garments for the first time exported 10,000 pieces of shirts to France on 28 July 1978. Noorul Qauder also established 100 per cent export-oriented apparel factory, Desh Garments, at the same year. The export policy of 1980 for the first time announced the garment sector as the export product of the year.
Apparel sector now accounts 85 per cent of export earnings plus the sector provides highest number of jobs. Bangladesh is now the second single largest apparel exporter. However, had the government not formulated two policies the garment sector would not have come to the current stage. These two policies created opportunity of back-to-back LC (letter of credit) to pay credit in delay and introduce bonded warehouse to import duty free raw materials. South Korea had exercised these facilities. The entrepreneurs of Desh Garments and Noorul Quader also wanted this facility be introduced in Bangladesh. Then-governor of Bangladesh Bank, Nurul Qauder, deserve the credit on the inclusion of these two facilities in the government policy. It created huge number of entrepreneurs in garments sector. Setting up a factory had been possible without any big capital.
The garment sector still largely depends on the policy and assistance of the government. There has been allegation of misusing bonded facility against the apparel factory owners since the beginning. Big entrepreneurs have sold cloth in open market after importing it enjoying duty free facility. There were lots of instances on quota sale and quota fraudulence. Amid these circumstances, entrepreneurs of garment sector have taken the industry forward following various policies and tax facilities.
Decade of reforms
The entire 1990s could be said a decade of reforms. Finance minister Saiful Rahman of the then-BNP government began this reforms after the fall of Ershad. Reforms also continued during the next Awami League government. Shah AMS Kibria was the then finance minister. At the time, the entire world focused on the trade liberalisation. With the hands of the donors, the wave also hit Bangladesh. The value added tax (VAT) act was enacted by M Saifur Rahman though the process had started before. The bank company act was passed in 1991. Dependency on import duty started reducing. Emphasising on the macroeconomic stability and maintaining it was another big success in the 1990s. Since then, all governments have maintained this policy and that has played roles on overall economy. The continuous stability of macroeconomy is the major foundation of the country’s economic success.
Advancement of last two decades
The economy was not reformed that much after 1990s. However, garment sector entrepreneurs showed their skills after quota system was abolished in 2005. High growth rate of gross domestic product (GDP) began mainly in the mid-2000s that later has become more solid over the past decade. Bangladesh has turned into a country with high growth because of assistance of the government, relatively stable environment, policy continuity, easy availability of bank credit, government investment, ability of entrepreneurs and creation of new market due to expansion of middle class.
Now, coronavirus pandemic has been changing many things. Many people have newly fallen bellow the poverty line because of coronavirus pandemic in spite of showing success in poverty alleviation. Many people lost middle-class status. Sixty per cent of people saw drop in earnings. As a result, how much these achievements including poverty alleviation and high growth will be sustainable will be proved in the coming days. Bangladesh, as a least developed country (LDC) has been enjoying various trade facilities since mid-1970s. It will no longer exist in the coming days. So, a difficult time lies ahead from all sides.
Shawkat Hossain is special news editor at Prothom Alo. He can be reached at [email protected]
*This article appeared in the print and online editions of Prothom Alo and has been rewritten in English by Hasanul Banna