The Bangladesh surprise explained

Over the past four decades or so, the narratives on the Bangladesh economy have dramatically changed from one of a "test case" or a "basket case" to that of a "development surprise". There are two distinct, but related, aspects of this surprise. First, despite the dire predictions regarding Bangladesh's development prospects made in the post-independence period of the 1970s, the country has achieved remarkably steady and accelerating growth in per capita income; it's annual growth in per capita GDP since the early 1990s has been well ahead of the developing country average. This growth has taken place in the face of many formidable odds: the desperate initial conditions of a war-ravaged economy, the proneness to natural disasters, the extreme conditions of population density and land scarcity, lack of natural resources, and most importantly, a systemic governance dysfunction.

The second and even a more remarkable aspect of the "development surprise" is to do with the remarkable achievements in the social development indicators. Within a relatively short period, the country has transformed itself from being a laggard to a clear leader among countries with similar per capita income and living standards in a number of such indicators like average longevity, child mortality, the population growth rate and female school enrolment rates. Remarkably, this has been possible in spite of extremely poor governance in public service delivery, such as reflected in large-scale absenteeism of doctors in rural health facilities, and with per capita public spending on health and education that is far too low even by the standards of developing countries.

While a close association between the quality of governance and economic growth performance is now widely recognised, Bangladesh continues to be rated very poorly in almost all the global indicators of political and economic governance, including the World Bank's "Ease of Doing Business Index" and the World Economic Forum's "Global Competitiveness Index". The questions thus arise, first, how could Bangladesh achieve such social and economic progress in the face of a serious problem of governance dysfunction; and second, how far such progress is sustainable without commensurate institution-building towards better governance?

One hypothesis is that the progress so far has not been the result of a coordinated overall development strategy pursued by an efficient and accountable governance system; instead, the confluence of various factors and the leading roles of different actors at different times have resulted in often unanticipated synergies and gains. Examples include the donor-supported family planning campaigns in the 1980s; the NGOs that emerged in the post-independence period primarily as relief agencies but later transformed into major developmental agents for service delivery including the provision of microfinance; the combination of various factors that made possible for the export-oriented garment industry to make a foothold in the country and later becoming a major player in the global market; the opening up of the market in the Middle East for the export of unskilled or semi-skilled labour; the pioneering role of certain government agencies such as the Local Government Engineering Department (LGED) that went even beyond its mandate in constructing extensive rural road networks, and so on.

Because of the early success in achieving a demographic transition, Bangladesh is reaping the benefit of the so-called "demographic dividend" earlier than countries at similar stage of development; this has also been a factor behind the acceleration in GDP growth through an increasing proportion of the working-age population. Lack of social barriers of class, caste or ethnicity along with opening up of certain economic opportunities has helped in creating aspirations among the poor for upward economic mobility and in promoting growth-enhancing entrepreneurship among them.

Much of the achievements in the social development indicators have been due to the adoption of low-cost solutions like the use of oral rehydration saline for diarrhoea treatment leading to a decrease in child mortality, and due to increased public awareness created by effective social mobilisation campaigns such as for child immunization or contraceptive use or girls' schooling. The scaling up of programmes through the spread of new ideas is helped in Bangladesh by a strong presence of NGOs and also by the density of settlements and their lack of remoteness made possible by an extensive network of rural roads.  

However, as the gains from low-cost solutions are reaped, continued progress may increasingly depend on larger public social spending and an improvement in service delivery systems. Further reductions in child mortality, for example, will require more expensive child survival interventions, such as hospital-based care to avert neonatal mortality resulting from birth-related complications. While the government campaigns, such as for immunisation or 'social' marketing of contraceptives, could be kept outside the established structure of public service delivery systems afflicted by poor governance, scope for further progress through this route has become limited. Again, the existing poor quality of schooling may make it difficult to sustain the gains in school enrolment. Indeed, the most recent data reveal a disconcerting picture of overall stagnation, or even decline, across a range of the social development indicators, suggesting a need for a change of course regarding the size and the quality of public spending in the social sectors.

Bangladesh has graduated from the category of low-income countries and is poised to do so from the LDC status.  The overall governance environment may have been barely adequate for coping with this transition, but it may increasingly prove a barrier to putting the economy on a path of modernisation, global integration and poverty reduction. Managing a well-functioning globally integrated economy requires a governance system that is based on professionally competent and well-resourced government agencies that can identify and analyse problems, workout solutions, and monitor implementation promptly and with enough information.  For example, there is obviously no excuse for lacking in international standards, say, for the air traffic control system; but such standards will need to be attained in other areas like economic diplomacy, foreign investment and trade negotiations, and financial sector management. Needless to say, such a governance system is a far cry from the situation that now exists.

Beyond agriculture, economic growth in Bangladesh has been mainly driven by low-productivity small enterprises, export of low-skilled manpower and the export-oriented garment industry which remains competitive mainly by the availability cheap female labour. To graduate to the next stage economic growth, there will be a need to move from 'replication' to 'innovative ways of improving technology, skills and productivity. To do this, and also to reap the benefits of the "demographic dividend", the existing moribund education system will need to be overhauled to match skills with employment opportunities and to move to a more knowledge-based economy. If the competitiveness of exports has to based solely on low wages of workers, then economic growth driven by such exports will obviously be of little use to improve living standards and reduce poverty.

While Bangladesh has made the transition from being primarily a jute-exporting country to a garment-exporting one, attempts to diversify the export basket has met with only limited success. Indeed, Bangladesh's experience with the garment industry has demonstrated the limitation of relying on enclave-type arrangements to facilitate export growth in a specific activity, while postponing the development of export-related infrastructure and institutional reforms for improving the investment climate generally. The government's current initiatives to go for mega-projects for infrastructure building with costly foreign borrowings can be justified only on the ground that this will attract private investments, including foreign direct investment, in export-oriented industries, so that loan repayment will not create balance of payments problems in future. That, in turn, will require an improvement in the overall investment environment, including a turnaround in the existing dire situation prevailing in the country's financial sector.

In spite of weak governance structure and ineffective accountability mechanisms, the role of the government in supporting the socio-economic progress achieved so far cannot be denied. The successive regimes in Bangladesh, democratic or otherwise, have felt the need for portraying for themselves a developmental public welfare stance to gain legitimacy in the eye of the general public, given the strong economic aspirations of the people that can be traced back to the struggle for independence. In the absence of formal accountability mechanisms, such as a well-functioning parliament or strong state institutions like higher judiciary, activism by the media and the civil society has often proved as a countervailing force.

However, while the ruling regimes have been obliged to seek legitimacy by delivering on many of their welfare promises, that had to be within the limits of an adverse governance environment characterised by widespread corruption, rent-seeking and patronage politics. Without a transformational change in this governance environment, achieving sustainable socio-economic progress in future will prove increasingly difficult. The experience of successful developing economies shows that sustained progress can be achieved only with a governance system that is based on strong state institutions and in-built mechanisms of ensuring efficiency and accountability at all levels of state machinery; and that applies irrespective of whether the ruling regime is autocratic, or dominated by one major political party or is based on multi-party democracy. Which route of growth-governance nexus Bangladesh will follow remains a subject of speculation. 

Wahiduddin Mahmud retired as professor of economics at the University of Dhaka and is currently Chairman, Economic Research Group, Dhaka.