Bangladesh, GDP and corruption go hand in hand

Even before Bangladesh became independent, the US administration expressed its doubts about how sustainable the new country would be. In 1971, US policymakers in a meeting, also attended by foreign secretary Henry Kissinger, termed Bangladesh a ‘basket case’. The country had to bear this ill-repute for a long time.

The World Bank first published a report on the economy of independent Bangladesh on 25 December 1972. It said “Even under the best of circumstances, Bangladesh constitutes a critical and complex development problem. The population is poor (per capita income of $50 to $70 – a figure which has not risen over the past 20 years), overcrowding (population density is nearly 1400 per square mile) and becoming more so (population is growing at 3 per cent per annum) and largely illiterate (under 20 per cent literacy rate)”.

Norwegian economist Just Faaland and US economist Jack R Parkinson published a book ‘Bangladesh: The Test Case for Development’ from London in 1976. They came up with more scathing remarks: “If development could be made successful in Bangladesh, there can be little doubt that it could be made to succeed anywhere else. It is in this sense that Bangladesh is the test case for development.”

In terms of size, Bangladesh is the 93^rd largest country of the world. The area is smaller than 0.1 per cent of the world. But this small country is the 8^th largest populous country, as estimated in 2018. Though the size of Bangladesh is small, this is the 41^st largest economy of the world in terms of GDP. Bangladesh is the 16^th largest economy among the 45 countries in Asia, according to the US-based Centre for Business and Economic Research (CBER). In South Asia, it is the second largest economy after India.

Purchasing power parity (PPP) is another tool which is used to measure the strength of any country’s economy. In terms of PPP, Bangladesh is the 31^st largest economy in the world.

Again, Bangladesh is the 4th largest country to produce and consume rice, 11^th in producing all types of food grains, 28^th in fruits production, 7^th in mango and 10^th in tea production. Besides, the country is 8^th in producing fish and other shall fish and snails, 3^rd in fresh water fish production and 1^st in hilsa.

According to the World Trade Organisation (WTO) Bangladesh is the 2^nd highest country in terms of growth of export, following Vietnam between 2008 and 2018. For over a decade, Bangladesh is 2^nd largest in exporting readymade garments products.

Mainly three sectors have been sustaining Bangladesh. Those are agriculture, foreign remittance and readymade garments. The government also has made significant contributions through policies. For example, as the high yielding varieties have increased the production in agriculture, the government also has subsidised in agricultural equipment, and in fertilisers and seeds. The subsidies have continued. As a result, the production has increased despite loss of agricultural land.

Two decisions of the government, taken in the 80’s, tremendously helped in the fast expansion of RMG sector. Those are: LOC and bond facilities. Using these facilities, the entrepreneurs could import cotton and other equipment without any capital and could do business without paying duty. This and the huge supply of cheap labour helped many to grow into entrepreneurs in the RMG sector. Many unscrupulous businessmen took advantage of the situation and sold imported fabric illegally in the open market as well.

The rise of expatriate labourers, another source of foreign exchange, started growing in the 80’s. From the very beginning, the unskilled labourers went overseas, resorting to irregular and corrupt means and this has been continuing. Export and remittance income have been contributing to the high GDP growth.

Noted economist professor Wahiduddin Mahmud researched extensively development in Bangladesh. He showed the startling development of Bangladesh is not because of any accountable government system or coordinated efforts. Rather, this is the result of several factors and people from various sectors. For example, aid-based family planning, emergence of NGOs in post-independent Bangladesh, LGRD’s role in constructing village roads, RMG’s capturing of the export markets and exporting unskilled and semi-skilled workers to the Middle East.

Wahiduddin Mahmud also thinks adopting low-cost technology is another factor of this development. The work of the unskilled labourers who went to the Middle East was not technology-based. The RMG workers also did not have to acquire technical expertise. The oral saline that magically reduced the death rate of diarrhoea patients is also made of low-cost common ingredients. People could acquire such small-scale technical knowledge easily. Besides, the teachings of the 1974 famine also helped all the successive governments. Everyone has been putting emphasis on food production and security realising that they must thwart another famine.

The contradictory relation between economic growth and good governance has been discussed for long. Several international organisations have been saying for several decades that Bangladesh loses two per cent GDP due to corruption. The World Bank says the GDP would grow by 2.1 to 2.9 per cent if Bangladesh could reduce the corruption rate to that of Scandinavian countries. But the GDP has been increasing though the corruption level has not come down. In Bangladesh, high GDP and high corruption have been going hand in hand.

There are different meanings of ‘paradox’. The word has been using in context of Bangladesh for more than a decade.

In 2013, Wahiduddin Mahmud, Manchester University’s economics department teacher Antonio Savoia and Malay University’s economics teacher M Niaz Asadullah published a research paper ‘Paths to Development: Is there a Bangladesh Surprise?’ They analysed two pictures of Bangladesh.

M Niaz Asadullah and NN Tarun Chakravorty of the economics department at the Siberian Federal University, Russia, conducted another research, ‘Growth, Governance and Corruption in Bangladesh: A Reassessment’, published in the Third World Quarterly in June 2019. The two researchers said Bangladesh has challenged the idea that good governance is an essential condition for sustainable growth.

The people of the country also think corruption hinders their availing government services including getting jobs, justice and health and other facilities. Despite all the faulty governance and political systems Bangladesh has been achieving high growth.

Bangladesh is not the only example. Japan, South Korea and Taiwan also have developed, despite high levels of corruption. But in those three countries, people connected to politics were the most corrupted. In China, corruption and development went hand in hand, especially in the 90’s. US political scientist Andrew Wedeman called this a ‘double paradox’.

In discussion of development vs corruption, ‘sand the wheels’ is a popular theory. This means corruption hinders development just as a wheel gets stuck in sand. As opposed to this, many refer to the ‘grease the wheel’ approach, which means much work can be achieved by bribing. Though this is a bit costlier, this has facilitated growth.

Many researchers think this approach works in the earlier stages in the countries where institutions are weak and governance is not so good. Another theory says corruption becomes rampant in the earlier stages of development. But with time and development, corruption decreases. This also did not happen in Bangladesh.

M Niaz Asadullah and NN Tarun Chakravorty did a research on Bangladesh’s RMG sector. Since the 80’s the sector gradually topped in export earnings but the corruption scenario did not see much improvement from that time. The country also has dropped in the doing-business ranking. The researchers tried to show how Bangladesh’s RMG sector achieved development in these conditions.

They interviewed 92 RMG factory owners and managers. Based on that, they showed five results. Around 22.8 per cent identified bribes as the most critical problem, 3.3 per cent referred to extortion (toll collection). Secondly 49 per cent said bribes and 'toll' helped the company’s growth. Thirdly, the businessmen bribe the government employees for under-invoicing. Fourthly, the customs officials fix the amount of bribes for export and import. And fifthly, the foreign companies also bribe the government officials to get work orders. Bribing is considered as a norm.

The research also published a chart on the link between the bribe paid and the days taken to receive government service in the RMG sector. For example, $34,332 was paid as bribes at different stages of setting up a company. Then again, $23,330 was paid in bribes to public officials with regard to customs, taxes, licenses, regulations and other services referred to as “informal payments”.

Once a company gets permission, it spends on average $14,808 for electricity, gas, water supply line and telephone connections and other services necessary to go into productions. Besides, the owners had to spend $5.71 for every export invoice, $142 for import per consignment. The two researchers said bribing is the norm to “get things done” here.

In 2005, when the quota system was revoked for garments made in Bangladesh, the country was ranked as the most corrupt country for the fifth time at a stretch. Since then, though the country saw revolutionary progress in RMG sector, it saw a very little change in the corruption index. It did worse in the 'doing business' index. This challenges the logic that corruption hinders economic progress in the case of Bangladesh’s RMG sector as well. At the same time, the progress in the RMG sector could not bring an iota of improvement in the overall business environment in Bangladesh.

Conventional wisdom says democratic environment reduces corruption and increases economic growth and sustainable growth gradually increases quality of democratic institutions. This was also not seen in Bangladesh. In a research in 2014, Wahiduddin Mahmud and Simin Mahmud said though Bangladesh emerged into parliamentary democratic practices from autocracy in 1991, the subsequent political culture did not help grow democratic environment in the country. As a result a state with accountability did not grow here. Dysfunctional parliament, turbulent politics, absence of democracy in main political parties, politicisation of public institutions, and corrupt and inefficient bureaucracy are at the roots of governance alongside domination of political patronisation, where various quarters are given shelter and priority to sustain the existing political order.

In 2014, assistant professor at Princeton University in the US, Faisal Z Ahmed, Anne Greenleaf of the University of Washington and World Bank’s Audrey Sacks conducted a research on how Bangladesh has been achieving progress amid this high level of corruption. They showed a stable and predictable system of corruption has grown in Bangladesh.

M Niaz Asadullah and NN Tarun Chakravorty’s conclusion is, “Regardless of whether the actual impact of corruption is ‘positive’ or ‘negative’ on the Bangladesh economy, our study confirms that the perceived level and reported cases of corruption continue to be the norm. High profile cases of embezzlement of public funds from state-owned institutions undermine business confidence, increase the cost of doing business and sustain the culture of bribe seeking by public officials.”

Another approach talks about ‘deals’ where good governance is missing. The economies of some of the countries are dependent on this. The chart below explains this:

Two economists, Mirza Hassan and Selim Raihan, published a research paper ‘Navigating the Deals World: The Politics of Economic Growth in Bangladesh’. They said Bangladesh does not follow rule of law. Instead, it is run by various types of deals. For example, the RMG and banking sectors run by open deals and the power and transport sectors are run by closed deals. This is the characteristics of Bangladesh’s economy since post-1975. And, the deals are largely ordered, which suggests the work gets done if bribed. And this is the real explanation of Bangladesh’s growth despite bad governance.

Akbar Ali Khan, in his book ‘Porarthoporotar Orthoniti’, described two types of economy – reliable corruption and unreliable corruption. Reliable corruption is that type of system where work gets done if bribed. Investors like this type of corruption. Unreliable corruption is the most dangerous system for the economy because one can’t be sure if bribing would ensure the work is done. An analysis of different countries experiences shows dictatorship and centralised governance systems create a rather favourable condition for the growth of reliable type of corruption.

However, we hear about ‘war against corruption’ at different times from the political forums. In its election manifesto published in 2018, ruling Awami League talked about giving priority to zero tolerance against corruption. Nobel laureate economist Gunnar Myrdal here, about a meeting with Indian prime minister Jawaharlal Nehru in 1968, wrote that when people in the upper stratum unnecessarily shout about corruption, this creates an environment for corruption. People think they have been living in an environment of corruption and everyone becomes corrupt.

The question is whether this growth rate would continue for year after year amid this regression of good governance?

Professor at Princeton University Avinash Dixit and professor at Oxford University Lant Pritchett said it is possible for a country that is in the lower rung of development to progress without good governance. The reason is low income country has many possibilities for growth and it possible to achieve it using all those corrupt devices. But the necessity of good governance increases when a country advances into a middle income one from low income country. The relation between good governance economic progress is not linear then. (Abak Bangladesh: Bichitro Chholonajale Rajniti, Akbar Ali Khan).

Bangladesh, now a lower-middle income country, is supposed to progress into a developing country from least developed country (LDC) by 2024. As a result, many types of facilities won’t be there. The world economy is also likely to see ups and downs. In this context it is a matter to observe how long the high growth rate could be achieved alongside high level of corruption.

What is to be done, was the question posed before Wahiduddin Mahmud. He talked about three tasks. Increasing expenditure in the education and health sectors was an important task. He thinks Bangladesh has crossed the threshold of adopting low-cost solutions. It needs to increase expenses and quality in both these sectors. Also, accountability of the government needs to be increased. Until now, Bangladesh has made progresses despite this shortcoming. NGOs have been providing the services the government was supposed to give. But a strong local government system has to be formed to get out of this community-based service system for expansion of the services.

The question is, is Bangladesh ready to face the future challenges?

* Shawkat Hossain is special news editor at Prothom Alo. He can be reached at [email protected]. This opinion, published in the print edition of Prothom Alo, has been rewritten in English by Shameem Reza