The country’s next phase of development will be harder, since, a senior economist argues, the more obvious sources of growth have largely been exploited.
Mustafa K Mujeri, executive director of the Institute of Inclusive Finance and Development, regrets Bangladesh’s “suffering from perverse political economy of decision making and absence of satisfactory pluralist democratic systems”.
Terming widening inequality as a cause for concern, he expresses apprehension that greater inequality may lead to a political backlash where pressure groups would plead for populist policy measures and the political process may favour short term ad hoc policies.
“Inequality also affects crime and violence and, through that, the investment climate,” he said in an interview with Prothom Alo.
The economist insisted on building “multi-stakeholder coalition in support of crafting inequality-reducing ideologies”.
Mujeri, also a former director general of Bangladesh Institute of Development Studies, and former teacher at Rajshahi University, emphasised the importance of the future knowledge economy which will require a labour force that is broad enough to cover both cognitive and non-cognitive skills rather than having a narrow focus on technical and vocational skills alone.
“Bangladesh needs to invest in quality education for youth, continuous skills training for workers and managers, and ensure that knowledge is shared as widely as possible across society,” he added. The full of his interview is as follows:
Prothom Alo: What do you think are the development needs of Bangladesh today?
Mustafa Mujeri: Despite internal and external challenges, the Bangladesh economy remains strong and resilient over the past decades. It is among the top few performers in the developing world and, by any standards, the Bangladesh economy has done quite well. Sustained macro stability, rising reserves and declining interest rates have played important roles in stabilising the economy in the past. However, many of the important macro indicators have come under some stress in recent times. So one important development need is to ensure continued stability in the macro economy. Bangladesh also needs to focus on a growth agenda centred on sustainable and inclusive growth. Stagnating private investment remains a major concern. Other development needs include, among others, high and sustained agricultural growth, maintaining relatively stable real effective exchange rates, a disciplined and well-governed banking sector, and required pace and quality of development spending. We need to bring good progress in export product and market diversification. Bangladesh needs strong structural reforms and effective public investments to be on a higher and faster growth path. Further, weakness in the financial sector disrupts investment and growth. Weak reforms and governance are limiting lending capacity, diverting credit away from productive investment, and imposing large fiscal recapitalisation costs. Removing the bottlenecks in infrastructure, energy and transport are major challenges. Private sector participation can help address part of the infrastructure gap, but the country needs substantial public sector funding for investments in transport, river management and other infrastructures. Energy price reforms are needed to attract investments in primary, renewable and green energy. Reforms in government regulations are needed to strengthen competitiveness and ease of doing business.
Prothom Alo: How would you define the major challenges facing the country?
Mustafa Mujeri: For the next decade, the key challenge for Bangladesh is to ensure a rapid and comprehensive transition to more inclusive growth that systematically addresses the problems of income inequality; gaps in key social indicators including education, health and nutrition across different social groups; and discriminatory institutions and norms including lack of empowerment of the disadvantaged groups. The challenge will be to bring a shift in the country’s development paradigm such that low-income households can have higher than average income growth, can install effective redistribution policies favouring the poor, and can expand new avenues of economic and social opportunities for the poor and disadvantaged populations. For closing social gaps, the focus has to be on provision of basic social services (e.g. education, health, nutrition) to groups suffering from greatest disadvantages. Innovative and quality service delivery programmes and well-conceived modalities including early childhood interventions and integrated healthcare systems tailored to specific needs of disadvantaged groups deserve careful consideration. Successes in these efforts need frontal attack on social exclusion that reinforces existing inequalities of outcomes and opportunities. The challenge is to build multi-stakeholder coalition in support of crafting inequality-reducing ideologies and actions as well as widening the policy space covering evidence-based agenda in support of the premise that reducing poverty and inequality would benefit all in Bangladeshi society.
Prothom Alo: Who, according to you, are the key drivers of Bangladesh’s development and how far has the country benefitted from demographic dividends? Could you please elaborate?
Mustafa Mujeri: There is no doubt that Bangladesh is a modern day success story. Its growth has been steady and impressive in the context of global growth scenario, and it has now joined the rank of a lower middle-income country. But the next phase of growth and poverty reduction is harder, since the more obvious sources of growth have largely been exploited. Past growth in Bangladesh has been led by agriculture, RMG, remittances and a host of other activities. But success in RMG has also meant an over-reliance on this sector. Moreover, this is accompanied by a lack of market diversification with only a small share of exports going to East and South Asia, the two fastest growing regions in the world. In the coming days, Bangladesh has to go beyond garments, while consolidating its strengths in this sector. To accelerate job creation through exports, Bangladesh needs to deepen trade and investment linkages with South and East Asian economies, accompanied by a push to diversify to other promising sectors in manufacturing and services.
Bangladesh has an abundant supply of labour and a large potential of reaping demographic dividends. The key issue is how to realise the dividends. The country faces two major challenges in the labour market - employability and inequity - that significantly undermine the development potential of the economy. While the short-term responses to these challenges require adoption of both formal and non-formal vocational, technical and skills-based education and training for wage employment and/or self-employment, the medium-term strategy must make appropriate adjustments in the country's education and health systems with emphasis on early childhood education and healthcare to facilitate the graduation to a knowledge-based economy. The future knowledge economy will require a labour force that is broad enough to cover both cognitive and non-cognitive skills rather than having a narrow focus on technical and vocational skills alone. For the purpose, an important issue is the development of soft skills, which needs to start at the pre-primary level. This requires a close coordination between pre-primary schooling and child health initiatives, the two central pillars of early childhood development. Bangladesh can also learn from success stories of early childhood development and their employability/productivity implications in later life working age from other countries such as South Korea.
Prothom Alo: In view of the state of education, the financial sector, state institutions, investment scenario and overall governance, what do you believe are the potential solutions?
Mustafa Mujeri: Despite significant socioeconomic and political deficits, Bangladesh has shown remarkable catching-up records in recent years. Presently, the main policy challenge is to repeat and sustain the 'East Asian Miracle' performance over the coming decades. Further, for ensuring the best and most productive use of scarce resources, Bangladesh needs to take into account cross-sectoral synergies and emphasise thematic interventions covering economic, social, and environmental dimensions.
For the medium term, Bangladesh should also take appropriate measures to address four major concerns: First, design necessary domestic policies and institutions to ensure that the benefits of economic growth are more broadly and equitably shared within the society. Second, institutionalise deliberate efforts such that Bangladesh can derive greater benefits from the catching-up process. Third, put priority to move on technological - rather than factor-intensive mode of production - in order to close the development gaps. Fourth, provide more emphasis on policy coherence especially in agriculture. Bangladesh is currently undergoing transitions from largely an agriculture-based economy; and it is more likely that investments in industry would create the most linkages. In this context, one important element would be to integrate the development corridors and special economic zones (SEZs) as components of growth poles to meet the needs of simultaneous and coordinated investments in many sectors focusing on, among others, infrastructure, regulation, capacity building, and finance depending on perceived constraints to private investment and growth. The keys will be to find ways to develop specific areas of comparative advantage in industries, improve productivity, strengthen connections to and among markets and reap the benefits of the globalisation process.
Because huge infrastructure deficits remain and both the financial and implementation capacity is limited, a critical issue is how best to use these scarce resources. For the purpose, Bangladesh needs to seriously explore a number of issues e.g. how best the infrastructure services be provided in a competitive manner; and what instruments -financial, regulatory, and participatory - can the government deploy to involve the private sector and other stakeholders most effectively and efficiently in the construction and maintenance of specific infrastructures. It is true that Bangladesh faces a number of challenges but one must also recognise that opportunities are plentiful as well, and Bangladesh is well positioned to take advantage of these opportunities. What is important for Bangladesh is to adopt a 'four I' approach covering income, infrastructure, inclusion, and institutions. The focus should be on capacity building, knowledge management and networking along with support for improved development coordination. Further, the implementation agenda will involve overcoming the likely resistance from those who benefit from the status quo, and empowering those who will champion the forward-looking agenda. There will be winners and losers as a consequence of reforms, but, it is important that a pro-active approach is followed in taking care of potential losers e.g. labour market training programmes, creating a more business-friendly environment and others. It may also be worthwhile to invest in a communications campaign with a positive vision of change to help overcome resistance.
The link between inequality and the quality of institutions is also important for Bangladesh to consider. The negative impact of inequality on institutional quality is well known; ranging from political and institutional stability to property rights. At the same time, inequality also affects crime and violence and, through that, the investment climate. One must also realise that greater inequality may lead to a political backlash where pressure groups would plead for populist policy measures and the political process may favour short term ad hoc policies for benefiting the poor but which, in the long term, could harm efficiency and growth.
It may also be relevant for Bangladesh to distinguish between short- and long-term growth which corresponds to differences in issues between ‘igniting’ growth and ‘sustaining’ growth over the long term. It is seen that often countries may ignite growth in the short term, but may not be able to sustain it. Inequality is a key variable explaining long-term growth. Thus, rising inequality dents not only the poverty impact of growth, but it can also affect the sustainability of growth in a country like Bangladesh.
Prothom Alo: What would ‘middle income country’ status mean in a political system devoid of pluralist democratic exercise and participatory elections? How optimistic or pessimistic are you about functional political economy in the coming years?
Mustafa Mujeri: Bangladesh has a clear vision for growth and poverty reduction and the place that the country wants to occupy in the medium term in the global economy. This is definitely a welcome development. People are excited about a ‘middle income country’ and the commitment to create a digital and poverty-free Bangladesh. At present, Bangladesh is making rapid economic progress despite suffering from perverse political economy of decision making and absence of satisfactory pluralist democratic systems. No doubt, the politics of reforms needs greater attention in the coming days. Local government empowerment and decentralisation is yet to take off in the real sense and overall governance is out of tune with the challenges of time.
We must also realise that making institutions more inclusive is a time-consuming and complex process. A first step in building inclusive institutions is to ensure that these are representative of and accountable to all segments in society, including the poor. To empower the poor, we require some key elements, such as respect for political and civil liberties, respect for individual rights of all citizens, and respect for their rights to participate in and contribute to social and economic decisions. This creates the pre-conditions for the emergence of pro-poor institutions and the poor's empowerment. But pluralistic and representative governments do not necessarily create the institutions that meet the needs of the poor and the disadvantaged sections of society for many reasons. The poor may not participate in these processes because they face constraints or they may feel that such participation is futile or irrelevant to their primary concerns and they have little ability to influence these institutions. The need is to strengthen the voices of the poor through such actions as disseminating information, promoting public debate, fostering community participation, and building a strong civil society and social capital in support of pro-poor institutions.
We have enough scope to make institutions more inclusive. The existing institutions, by their very nature, mostly create polarisation in society creating a fundamental divide between the 'haves' with access to social, economic and political power, while the 'have-nots' remain mostly excluded from all these processes. For the purpose, actions are needed to re-structure institutions to bring down legal, social and economic barriers that act against the participation of the poor and disadvantaged groups in social life. Of course, it is hard to change institutions; but building accountable and inclusive institutions at the local level can provide a useful first step towards a systematic change in the institutional structure of the country. Obviously, the issues of transforming and creating the right institutions for accelerating growth and lowering poverty in Bangladesh is a complex process and no single model is available to create such institutional structures. But it is time for us to lay the essential foundations for the creation of inclusive and accountable institutions at the local and national levels - institutions that serve the broad interests of society, including those of the poor and the disadvantaged sections in society.
Prothom Alo: Where is the youth’s standing in Bangladesh society and the nation’s economic advancement and what would you recommend for the growth of the coming generations?
Mustafa Mujeri: At present, technological revolutions are emerging from entirely new sectors in the global economy, based on micro-processors, telecommunications, bio-technology and nano-technology. Products are transforming business practices, as well as the lives of all who have access to their effects. In this context, probably the most remarkable breakthroughs will come from interactions of insights and applications when these technologies converge. For example, through breakthroughs in health services and education, these technologies have the power to better the lives of poor people in Bangladesh. But access and application are critical. In these days, service and technology are the differentiators between countries that are able to tackle poverty effectively and those that are not. The extent to which Bangladesh can emerge as an economic powerhouse depends on its ability to grasp and apply insights from science and technology and use them creatively. Innovation is the primary driver of technological growth and drives higher living standards.
As an engine of growth, the potential of technology is endless, and still largely untapped in Bangladesh. The country not only lacks skilled labour and capital, but also uses these less efficiently. It is observed that Inputs account for less than half of the differences in per capita income across nations. The rest is due to the inability to adopt and adapt technologies to raise productivity. Computing for example, through unlocking infrastructure backlogs and managing integrated supply chains, can transform economic performance by enabling affordable and accessible services in education and healthcare. The combination of computers and the Internet, and mobile devices and the ‘cloud’, has transformed human experience, empowering individuals through access to knowledge and markets, changing the relationship between citizens and those in authority, as well as allowing new communities to emerge in virtual worlds that span the globe.
To promote technological advances and growth of the coming generations, Bangladesh needs to invest in quality education for youth, continuous skills training for workers and managers, and ensure that knowledge is shared as widely as possible across society. In a world in which the Internet makes information ubiquitous, what counts is the ability to use knowledge intelligently. We must make knowledge as the systemically integrated information that would allow a citizen, a worker, a manager, or a policymaker to act purposefully and intelligently in a complex and demanding world. For improving the youth’s standing in our society, the only form of investment that would allow for increasing returns is in building the stocks and flows of knowledge that Bangladesh needs and in encouraging new insights and techniques. Adopting appropriate technologies would lead directly to higher productivity, which is the key to growth. With large stock and flows of knowledge, virtuous circles that encourage widespread creativity and technological innovation will emerge naturally, and would allow sustained growth over long periods.
For ensuring a bright future, the investment climate is crucial, as are the right incentive structures, to guide the allocation of resources, and to encourage research and development. Bangladeshi youth must grow its ability to innovate and learn by doing, by investing in research and development in critical areas. We must realise that the benefits that are certain to flow from technological revolution in an increasingly connected and knowledge-intensive world will be seized by those countries and entrepreneurs that are alive to the rapidly changing environment, and nimble enough to take advantage of the opportunities. Bangladesh must prepare its youth to seize these opportunities.
Prothom Alo: What would you like to see as the development agenda for Bangladesh in an election year?
Mustafa Mujeri: In an election year, the general characteristics of a populist budget are the efforts to build in ‘something for everyone’. Usually, an election budget focuses on ease of living, greater support services to the vocal groups and (sometimes) the poor, rural infrastructure, MSMEs, and development interventions for the youth and the middle class which are expected to go well with the electorate. The business class may also be relieved through adjustments in the fiscal roadmap.
Overall, in terms of the election year budget, rather than making new commitments, one would probably feel more comfortable to see more across priority sectors, especially in relation to follow-on of announcements from the earlier budgets. Strengthening of on-ground actions of already initiated projects, creation of dedicated funds for rural infrastructure for enhancing farm incomes, more focus on MSMEs, rural and informal sector, women workforce, health care for poor households, education, construction sector, digital infrastructure and financial inclusion could be welcome moves to cover in the budget. The budget could initiate and push for broader and deeper consensus around the need to expand productive employment and civic engagement opportunities among young people, whose success is vital to making Bangladesh a peaceful and prosperous country.
Further, in the context of adopting appropriate inclusive growth strategies in the budget, it could highlight idiosyncratic attributes since abilities to translate economic growth to poverty reduction and crafting effective polices crucially depend on inequality and income profiles of the households. There are several main drivers of inequality in Bangladesh such as increasing skill premiums in returns to human capital; falling labour income shares; and increasing spatial inequality especially between rural and urban areas. Overall, three key areas are important to highlight for inequality policies in Bangladesh: efficient fiscal policy measures, interventions to address lagging regions, and more employment-friendly and inclusive growth. It should also take into account several broad conceptual issues including gender inequality, structural change and inequality, interactions between institutions and inequality, and redistribution and equity in fiscal policy.
However, in reality, it is likely that the overall shape of the 2018-19 budget will not deviate much from earlier years, showing the same ‘pragmatic’ yet eyebrow-raising approach to public resource allocations.